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Turkey: Erdogan announces new cabinet, signals turn in economic policy

President Recep Tayyip Erdogan's newly-elected government hints at a return to more traditional economic policies, setting stage for interest rate hikes in coming months
Turkish President Recep Tayyip Erdogan walks next to the new Treasury and Finance Minister Mehmet Simsek during a press conference where the new cabinet was announced on 3 June (Reuters)

Turkish President Recep Tayyip Erdogan unveiled his new cabinet on Saturday, and announced new finance, foreign and defence ministers, less than a week after clinching victory in a hotly contested runoff election.

In a highly-anticipated appointment, Erdogan appointed the internationally respected ex-banker Mehmet Simsek as treasury and finance minister.

Simsek, an advocate of conventional economics, is highly regarded by the financial markets after serving as finance minister and deputy prime minister between 2009 and 2018.

His appointment is aimed at tackling Turkey's cost-of-living crisis and could set the stage for interest rate hikes in the coming months, which could mark a turn around from Erdogan's longstanding policy of slashing rates despite soaring inflation. 

Speaking at his inauguration ceremony before the announcements, Erdogan called on Turks to set aside their differences and focus on the future. 

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"We will embrace all 85 million people, regardless of their political views, origins, creeds or sects," he said at the event attended by high-level officials from 78 countries.

"Turkey needs unity and solidarity more than ever," he added. 

Analysts had predicted that Erdogan was almost certain to put Simsek in charge of the economy, marking a partial return to more free-market policies after years of increasing state control of forex, credit and debt markets. 

Wolf Piccoli, a long-term Turkey expert at consultancy firm Teneo, told Middle East Eye earlier this week that if Erdogan changed course and revamped his economic team with credible names, it could freshen the air for international investors.

"There is absolutely the chance of portfolio inflows coming into Turkey," he told MEE. "That is mainly because in lots of other emerging markets the situation is even more difficult and it's difficult to locate money."

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Erdogan's economic programme since 2021 stresses monetary stimulus and targeted credit to boost economic growth, exports and investments, pressing the central bank into action and badly eroding its independence. 

As a result, annual inflation hit a 24-year peak beyond 85 percent last year before easing. 

The lira has lost more than 90 percent of its value in the last decade after a series of crashes, the worst in late 2021. It hit new all-time lows beyond 20 to the dollar after the 28 May vote. 

The cabinet reshuffle also saw the appointment of Cevdet Yilmaz, another orthodox economic manager, as vice president.

Manwhile, Hakan Fidan, Erdogan's intelligence chief and a former soldier, was named as new foreign minister.

Fidan led the National Intelligence Organisation (MIT) since 2010, and before that was an adviser to Erdogan in the prime minister’s office. Erdogan once called the 55-year-old his "secret-keeper".

He replaced tenured diplomat Mevlut Cavusoglu, who had served in the role since 2014, and suggests a future potential shift in Turkey’s style of foreign relations.

Meanwhile, Yasar Guler, chief of general staff of the Turkish armed forces, was announced as defence minister, replacing Hulusi Akar.

The 69-year-old was the military chief during Turkey’s military operations into Syria in 2019 and 2020, and also oversaw subsequent military operations there and in Iraq.

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