Turkey Names Ex-Goldman Sachs Banker to Run Central Bank

Facts

• Hafize Erkan, a former banker at Goldman Sachs and the now-closed First Republic, has been selected by Pres. Recep Tayyip Erdoğan to take the helm of Turkey's central bank. The Princeton-educated Erkan, 41, will be the central bank's first female governor.¹
• Years of unorthodox monetary policy have shaken investor confidence as a cost-of-living crisis continues to take its toll in the country. Erkan, replacing current governor Sahap Kavcioglu, has been described by a colleague as "tough, smart, and effective."²
• Erkan has spent her entire professional life outside of Turkey and has no central banking experience. She is considered a respected figure in the financial world and was widely expected to become CEO of First Republic Bank before her resignation as co-CEO in June 2021, six months before the bank collapsed.²
• Erdoğan's fiscal policy pursued low-interest rates at the expense of soaring inflation and depreciation of the Turkish lira. Interest rates have been cut from 19% to 8.5% under this policy, with the central bank seeing five different governors since 2019 and the lira dropping more than 10% against the USD just this week.³
• Over the weekend, Erdoğan appointed Mehmet Simsek as his economic minister, widely considered a pro-market move. An emerging markets strategist has said that investors will be "doubly pleased" by the appointments of Erkan and Simsek.⁴
• While investors are hopeful that the appointments will mean a return to more orthodox fiscal policies, the autonomy of the central bank from Erdoğan's influence is still in doubt. A rate hike is expected in the near future, as the country tries to tackle its approximate 39% inflation rate.⁴

Sources: ¹Al Jazeera, ²Reuters, ³FT, and ⁴CNBC.

Narratives

• Pro-establishment narrative, as provided by TRT World. Turkey is lucky to have secured a competent, respected figure to helm their central bank. Erkan's credentials are sterling, and her appointment signals a turnaround for Turkey's economy, which has posted respectable growth despite inflation. Her reputation in the world of finance is a testament to the kind of dynamism she will bring to the role as Ankara's central bank governor, and his blazing a trail as the first woman to hold that position in Turkey.
• Establishment-critical narrative, as provided by FT. While it seems Erdoğan may be shifting gears from his disastrous economic policy, there will be no economic recovery in Turkey unless he gives the central bank, and his ministers, latitude to undertake economic reform. Erdoğan's heavy-handed interference in the economy, and generous handouts, risk making Turkey the "sick man" of the global economy. Erdoğan needs to exercise patience and restraint by letting his government make painful reforms, something which remains to be seen.