Turkey has been a political and economic earthquake in recent days. The latest of President Recep Tayyip Erdogan's decisions has been to dismiss the deputy governor of the Turkish Central Bank, barely ten days after dismissing Naci Agbal, the bank's president.
Following the announcement of this change, the Turkish lira depreciated by 0.42% against the dollar and the euro at the opening of Turkish markets. The dismissal was announced in the Official Gazette in the early hours of the morning without giving further details. Mustafa Duman, a former Morgan Stanley board member, has been appointed as the new deputy governor of the Turkish Central Bank.
The Turkish central bank has been at the centre of controversy for some time now, with the governor's post having been changed three times in the last two years, a situation that has led to high market instability and the Turkish lira and stock market falling to very low levels, thus alienating foreign investors interested in the Eurasian country's economy.
Naci Agbal was appointed in November last year and was described as a very "competent" person for the job, but was sacked two days after he proposed a higher-than-expected interest rate hike. The Turkish central bank's foreign exchange reserves have fallen by 75 per cent over the past year and now stand at just $11 billion. This is a sign of mismanagement at the institution, according to analysts.
Agbal's dismissal led to an 11% devaluation of the Turkish lira against the US dollar after the appointment of Sahap Kavcioglu as the current governor of the Turkish Central Bank.
Recep Tayyip Erdogan's decision to take over the Turkish central bank sparked criticism among economists and investors. The international financial agency Moody's considers the dismissal to be detrimental to bank funding as it damages investor confidence in Turkey. "Without the credibility of the central bank, access to the market is likely to become more costly again," it said.
Nevertheless, Erdogan has called on international investors to have confidence in Turkey's strength and potential. "We will soon achieve a much better position by growing the Turkish economy on the basis of investment, production, employment and exports," the Turkish president said. Also, Kavcioglu has begun to lay the groundwork in his new position at the head of the Central Bank. "The Central Bank of Turkey will continue to use all its monetary policy instruments effectively to achieve its objective: to bring down inflation in a lasting way," he said in a statement.
Turkey's economic earthquake has already reached other international businesses. The instability has spread to BBVA, as Turkey is its third largest market. The Spanish bank plunged 8% as the lira fell. Other foreign banks such as the French BNP, the Dutch ING or the Italian Unicredit have also suffered from this situation.
This decision demonstrates once again the lack of independence of the Turkish Central Bank and the constant intervention of President Erdogan, whose economic ideas are highly criticised. Behind these measures could be Berat Albayral, Erdogan's son-in-law and former finance minister. This dismissal also shows once again the Turkish president's turn towards authoritarianism. In the same weekend Erdogan dismissed the head of the Central Bank over disagreements, abandoned the Istanbul Convention against male violence and had a pro-Kurdish MP arrested.