After a tightly contested general election last month, Turkey’s President Erdoğan was re-elected with just over 52% of the vote. Events since the narrow win have implied that there are changes on the way to the country’s economy.
One of the most significant is the appointment of a new minister to head the Treasury and Finance department, as part of a drastic cabinet overhaul. Erdoğan gave the job to Mehmet Şimşek, a sign widely interpreted as signalling a change of policy direction.
It was welcomed on the financial markets, with one of the main indicators of international faith in Turkey’s creditworthiness improving sharply: The risk premium charged on credit default swaps – which act as insurance to investors against non-payment of debt – eased to 500 basis points, from over 700 before the election.
The high debt default insurance before the election was revealing about the international perception of Turkey’s economy. There were fears that this industrialised nation was in the process of becoming like Argentina, in terms of its unsustainable debt burden, tumbling currency and declining outlook for growth.
That is why signs of a new approach have been well-received in the markets, and why change was needed, according to Güven Sak, an economist who outlines a personal view on the country for Al Majalla. He thinks change was inevitable, and explains why.