New Turkish cabinet - same old faces, mostly

By bne IntelliNews September 1, 2014

David O'Byrne in Istanbul -


After lengthy speculation that the appointment of former foreign minister Ahmet Davutoglu as Turkey's new prime minister would result in across-the-board changes in top cabinet posts, Davutoglu announced a new cabinet that looks remarkably similar to the one left by the outgoing prime minister and now Turkish president, Tayyip Erdogan. But there remain fears over the direction of future economic policy.

In all, Davutoglu made only five major changes. European Affairs Minister Mevlut Cavusoglu was promoted to the vacant post of foreign minister, with his former deputy Volkan Bozkir brought into the cabinet as Europe minister.

The ruling Justice and Development Party's (AKP) head of economic affairs, Numan Kurtulmus, and Erdogan's chief political advisor, Yalcin Akdogan, were brought into the cabinet as two of the four deputy prime ministers in place of Besir Atalay and Emrullah Isler, who will leave the cabinet. And Nurettin Canikli, deputy chairman of the AKP parliamentary group, replaces Hayati Yazici as customs and trade minister, the latter reported to have fallen out with Erdogan.

Otherwise, the rest of the cabinet was left as it was under Erdogan, with long serving deputy PMs Ali Babacan and Bulent Arinc keeping their jobs, as did Finance Minister Mehmet Simsek and Energy Minister Taner Yildiz.

"On the one hand it is a positive move, but on the other there are serious questions over just how much control they will have over economic policy," says Emre Deliveli, economic columnist for the Turkish English-language Hurriyet Daily News, pointing to the appointment of former Islamist Numan Kurtulmus as deputy PM, and of Erdogan's long-time economic advisor at the Prime Ministry, Yigit Bulut, as his presidential economic advisor.

Presidential reach

Bulut's appointment in particular has raised questions about whether Erdogan's plans for an "active" presidency include shaping economic policy.

Having frequently criticized the country's central bank for not lowering interest rates, and having accused "Turkey's enemies" of using "telekinesis" against Erdogan, Bulut is not a name that immediately inspires confidence. And with "Erdogan insider" Kurtulmus having served as head of the AKP internal economics team, party officials have already felt the need to indicate that Kurtulmus will not be involved in economic policy, which will remain the preserve of Babacan – for now.

"We need to wait and see whether he [Kurtulmus] starts making statements on economic policy before we can say whether he is involved in policymaking or not," cautions Deliveli.

However with AKP rules barring deputies serving more than three terms and with Babacan now in his third term, his departure at next year's general election seems inevitable. And one of the main economic challenges that this new cabinet faces will be to convince the markets that the AKP has people able enough to replace him.

Whoever replaces him will face tough challenges. With the US Federal Reserve signalling that it will end its quantitative easing programme in October, the capital inflows that Turkey has thus far been relying on for its stellar growth rates appear set to dry up. "Without capital inflows Turkey cannot continue to grow at rates of up to 5% a year," warns Deliveli. "What we need now to promote growth is serious structural reform."

Yet undertaking structural reforms is not Turkey's strongest suit.

Europe matters

If the re-appointment of Babacan and Simsek goes some way to reassuring investors of no major economic changes, then the appointment of Cavusoglu as foreign minister and Bozkir as EU minister should serve to reassure a worried EU that Turkey does not plan to distance itself from the bloc.

Although only appointed as EU minister at the start of the year after the removal of Egemen Bagis in the wake of a corruption scandal, Cavusoglu has considerable diplomatic experience. A former diplomat, he served for a time in the presidency of the Parliamentary Assembly of the Council of Europe, while Bozkir is a former ambassador who has represented Turkey in Brussels.

However, both still face major challenges if they are to keep Turkish foreign policy on an even keel.

The days of Davutoglu's much-trumpeted foreign policy of "zero problems with the neighbours" are long gone. Turkey faces serious issues on almost all its borders, as well as potentially serious fallout from the escalation of the ongoing conflicts in the Ukraine, Syria and Iraq.

Having long been criticised on the strength of allegations that it has provided aid to the IS militants fighting in Syria and Iraq, and made insufficient efforts to prevent the flow of western radicals to Syria, Turkey faces a serious dilemma. IS fighters still hold 46 Turkish hostages from the Turkish consulate in Mosul, and with reports quoting IS radicals as threatening to take their conflict to Turkey, Ankara's hands are very much tied.

Briefing international journalists in Istanbul at the end of August, Turkish officials denied Turkey had played any role in either allowing militants to cross into Syria or arming them, pointing out that the porousness of Turkey's southern borders poses a serious risk given that the militants can also travel back into Turkey. "We are the closest target, the threat to Turkey is very serious," the official warned, admitting that as many as 500 IS fighters are known to be Turkish, a figure far lower than those claimed by Turkish opposition figures.

Arguably though, the most serious threat to Turkey in the short term is the rumbling conflict in Ukraine.

With reports claiming that as many as 1,000 Russian troops may be aiding rebel forces, and Russia having made thinly veiled threats over the security of Europe's gas supplies, Turkey appears particularly vulnerable, relying on gas for close on 50% of its power generation and domestic heating in most major cities. Of the 46bn cubic metres of gas that Turkey consumed last year, 26bn cm (or 58%) came from Russia, with close on 14bn cm of that arriving via Ukraine.

And with a total import portfolio of only 54.35bn cm, Turkey already faces the serious challenge of replacing the 4.4bn cm it currently imports as liquefied natural gas (LNG) from Algeria under a deal that expires this year. With no spare pipeline capacity, any cut in supplies from Russia would be irreplaceable in the short term given the certain hike in global spot LNG prices as Europe seeks to meet its own gas demand.

A gas shortage and a major hike in power prices would be particularly hard felt in Turkey – and likely to be reflected at the polls in next year's Turkish general election.

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