Turkey’s President Recep Tayyip Erdogan has taken a step closer to gaining absolute power with the appointment of his long-time ally Binali Yildim as the country's new prime minister. ​The main task of Yildirim, who announced a cabinet on May 24, will be to push for a constitutional change that will only formalise what has already become reality: a shift to a full presidential system.

In a sign Erdogan is not wasting any time in taking charge of the government affairs, the new cabinet will hold its meeting at the president’s palace on May 25. Everybody knows who the real boss is, who rules the Justice and Development Party (AKP), but Erdogan still wants to formalise this de facto situation. The division of labour is clear: Erdogan will make the decisions and Yildirim’s cabinet will implement them. But Turkey may be heading towards more political noise and social polarisation as Yildirim is expected to present the constitutional amendments as early as June.

According to the country’s constitution, the president holds largely a ceremonial role. But since he won the country's first direct presidential vote in 2014, Erdogan has been arguing that Turkey needs a strong leader and an executive presidential system and he has acted like one despite all protests from the country’s weak opposition parties

While nearly half of the government were changed, Deputy Prime Minister Mehmet Simsek, who is credited by investors for overseeing structural reforms and Turkey’s economic boom, kept his post along with Finance Minister Naci Agbal. Turkish stocks rose and the lira gained on relief following the re-appointment of Simsek.

Unchallenged Erdogan

When he was elevated to the presidency, Erdogan hand-picked his foreign minister Ahmet Davutoglu to succeed him, believing that Davutoglu would act like a figurehead to pave the pay for the transition to the presidential system.

Apparently, Erdogan was wrong. It later emerged the two had differed on a number of domestic and foreign policy issues, including the Kurdish insurgency, and Turkey’s relations with the EU. It is also suggested that Davutoglu offered half-hearted support to an all-powerful presidential system. At the end, Davutoglu lost the power struggle and he had to step down earlier this month.

Yildirim will not do the mistakes his predecessor did and he will not challenge Erdogan’s authority. At the party congress on May 22 he declared, referring to Erdogan: “Your passion is our passion, your cause our cause, your path our path”.

Paradoxically, the passion Yildirim shares with Erdogan and the path Yildirim will walk alongside Erdogan will reduce him to a figurehead prime minister. But, as a faithful ally of Erdogan, Yildirim doesn’t mind, because he devotes himself to a greater cause.

As Atilla Yesilada, GlobalSource Partners Turkey analyst, told bneIntelliews, “by firing Davutoglu, Erdogan already demoted the cabinet to a secretariat. Policy will be made in his palace by him and advisors”. Now, the cabinet will hold a ceremonial role, and will just rubber stamp Erdogan’s policies.

Weak opposition

All this happens at a time when Turkey’s opposition parties are in disarray. The nationalist MHP has been embroiled in infighting. The latest controversial bill that lifts the immunity of lawmakers has also thrown the main opposition Republican People’s Party (CHP) into a turmoil, probably something just what Erdogan expected.

It emerged that CHP leader Kemal Kilicdaroglu privately urged some of his deputies to vote in favour of the bill. Kilicdaroglu, reportedly, feared that a possible referendum on the bill would have led to serious social tensions. Also, Kilicdaroglu was concerned that if the CHP voted against the bill it would look like supporting the pro-Kurdish HDP, which Erdogan accuses of being the extension of the Kurdistan Workers’ Party (PKK).

Critics say Kilicdaroglu has made a grave mistake. Fifty HDP lawmakers may now face trials on terror-related charges. The bill also targets 51 lawmakers from the CHP to allow prosecutions of them on a range of charges, including insulting Erdogan.

“It is more likely that he [Erdogan] would wait to see how many HDP deputies would be arrested by the judiciary if and when the parliament votes to lift the immunities and how the leadership struggle in MHP unfolds,” Yesilada told bne IntelliNews in a recent interview. According to the constitution, in cases where the number of vacant seats reaches 5% of the total number of seats (550), by-elections shall be held within three months.

The AKP still lacks enough seats to change the constitution by itself or put constitutional amendments to a referendum. The ruling party, however, may introduce a bill this summer that would remove the neutrality of the president and replace it with a party-affiliated president. In this case, the AKP could get some support from the MHP. “Erdogan hopes to receive Bahceli’s support in return for using his influence on the judiciary to cancel an extraordinary convention in MHP,” Yesilada says.

With the opposition parties in turmoil and weak, the power of Erdogan and his AKP party will be unchallenged.

All eyes on the economy now

The news that Simsek and Finance Minister Bagci retained their positions in the new cabinet came as a relief to nervous investors who had feared that Energy Minister Berat Albayrak, who is Erdogan's son-in-law, could have replaced Simsek as the deputy prime minister in charge of the economy. Turkish stocks rose nearly 3.3% and the lira gained 1.2% against the dollar on Tuesday.

New names to the government include Nihat Zeybekci, who was appointed economy minister. Zeybekci, known as a figure close to Erdogan, was economy minister in Davutoglu’s government until the November elections, when he was replaced by Mustafa Elitas. During his term as minister Zeybekci had repeatedly called on the central bank to cut interest rates. His appointment suggests pressure on the central bank for further cuts will increase. Zeybekci’s return may also signal the politicisation of economic policy.

Logic prevails – why would Erdogan not keep Simsek, so as to keep markets and investors on side for the time-being and with likely polls looming. Agbal also retained as finance minister, so also re-assuring”, Tim Ash at Nomura said in an emailed note. “Market positive – well keeps the faint hope of Turkish reform open for some time. This is not to say that Simsek will have that much leverage to deliver on his structural reform plan, the power is moving to Erdogan and his less orthodox policy advisers.”

The second major event of the day was the Monetary Policy Committee (MPC) meeting from which investors hoped to get some clues on what the economic policy direction would look like in the period ahead. In a widely expected move, Turkey’s central bank decided on May 24 to cut the overnight lending rate by 50bps to 9.5%. This is the second rate cut Murat Cetinkaya has implemented since taking over as central bank governor slightly over a month ago. He started his term in office with another 50bps cut. The bank’s Monetary Policy Council (MPC), however, kept the main policy rate (one-week repo rate) unchanged for the 15th month in row at 7.5%. The overnight borrowing rate was also kept steady at 7.25%.

The decision to lower the overnight lending rate, the third straight so far, provides further evidence that political pressure to ease monetary policy is outweighing concerns about the currency in the MPC’s decision making, William Jackson at Capital Economics writes in a note. “It seems that the council is being influenced by demands from President Erdogan and his allies for lower interest rates to stimulate the economy,” the analyst notes, adding that he expects the rate to be lowered to 8.5% by the end of the year.