Turkey’s rookie Central Bank governor Mrs Hafize Gaye Erkan was unfortunate enough to be Shanghaied to give her first interview to a pro-government Hurriyet columnist called Ahmet Hakan, who has no credibility among the general public, no knowledge of monetary policy and no interest in two issues she apparently wanted to establish in her interview. First what it takes to be successful in the cut-throat world of investment banking as female. Two, she is “just one of us”, making her own yoghurt and going shopping in her sweatpants.
The interview back-fired badly, as the entire opposition jumped on her comments concerning using CBRT to help Erdogan achieve his strange development goals, her amazement at how expensive rents have become in Turkey and her re-telling a conversation with a fund manager, urging her to invest in Turkey. Overall though, the criticism actually vented their anger at the Erdogan’s regime, using Erkan as leverage.
Kelvin Okojie of Business Day explains the story of the notorious interview:
Hafize Gaye Erkan, 44, an accomplished banker with an exceptional impact in the U.S. banking industry, has taken up perhaps one of the most difficult jobs in the world. Albeit a job whose demands may result in a clash in her convictions with those of the expectations of the number one citizen of her home country, Turkey, President Erdogan.
On June 8, 2023, President Recep Erdogan appointed Erkan as Turkey’s Central Bank Governor, tasked with revitalising the country’s weakened economy and aiming to restore its former prosperity when the Lira equaled the US dollar.
A Ph.D. holder in financial engineering from the prestigious Princeton University, the exceptionally brilliant Erkan takes over a job that has had seven governors in two decades before her and whose institutional independence often clashed with the unorthodox monetary policy of a tight-fisted president.
“Keep interest low” are some of the words of President Erdogan that “echoed” on the pages of several international media publications.
Under Erdogan’s guidance, Turkey has decided to follow an unconventional path to fighting inflation, which is to keep the interest rate artificially low. President Erdogan believes that if rates are kept low, this will encourage borrowing, which will in turn spur production and growth. A philosophy that has proved unsuccessful with a devastating impact.
This unusually high cost of living has affected everybody and every institution to the point where Erkan, who assumed office in June, has been unable to find a home for herself and her family in Istanbul.
In an interview with a Turkish newspaper in November, Erkan revealed that due to financial constraints, she and her family couldn’t afford a home in Istanbul, prompting them to relocate and live with her parents.
Her condition and that of millions of Turks reflect the dire economic situation of a country whose inflation rate rose to its highest this year. According to Eurostat, inflation in Turkey for November was 62 percent.
A July 2020 report from Borgen Project, an NGO devoted to fighting hunger and poverty around the world, revealed that despite a lack of reliable data, roughly 150,000 people were homeless in Istanbul, the capital city. A number that should have sprung up since that report was last posted.
Challenges that Erkan must overcome as the country’s chief banker
Erkan will have to overcome a mountain of challenges to help revive the Turkish economy and restore confidence in the lira, Turkey’s currency.
The former Goldman Sachs banker will have to collapse President Erdoğan’s unorthodox economic policies. Policies that have raised concerns among investors and are impacting Turkey’s balance sheet negatively.
The most important of all is to shift from Erdogan’s strong views against interest rate rises, something he considers the “mother and father of all evil,” contrary to traditional economic strategies.
Secondly, to drive an inflow of capital from abroad, Erkan will have to raise interest rates. This action, according to orthodox economic theories, will not only attract capital inflow but also serve as a strong weapon in the fight against inflation.
Her predecessor, Şahap Kavcıoglu, significantly slashed interest rates from 19 percent to 8.5 percent within two years. This drastic decision fueled a severe inflation crisis and put pressure on the lira, depleting foreign currency reserves by approximately $25 billion.
Thirdly, there is a lack of independence for the Central Bank. President Erdogan is known to interfere in the mission statement and operations of the bank, a situation that may bring back bad memories of her time at First Republic Bank, where her stay was short-lived and toxic because of her frequent clashes with some members of the board.
In a report by a journalist, Stefanie Glinski said that the Turkish central bank’s independence has been questioned due to past purges, management issues, and a drive by Erdoğan to centralise power, which has negatively impacted its ability to implement conventional economic policies.
“Erkan will need to rebuild the [central bank] after years of mismanagement, purges, and demotions.’ Like most other key institutions, [the bank] has lost its independence and has been hollowed out by Erdoğan’s drive to centralise power.” Wolfango Piccoli, Teneo Consultancy.
These challenges in Turkey’s economic landscape will pose significant hurdles for Erkan as she takes on the role of chief banker, navigating between conventional economic strategies and the president’s unconventional policy preferences.
Her mistakes in the Ahmet Hakan interview will not help her to change the perception of the Central Bank as an extension of Erdogan’s office. Her housing plight was ridiculed by the opposition, which pointed to her monthly salary of ca $5K per month.
Her statements regarding her ordinary Aysa shopping habits, during which she also checks prices of household items was distorted as doubt in the data published by Turkstat.
While she tried to establish the image of an ordinary citizen, the criticism probably gave way to an impression of her being an entitled elite.
It is hard to be successful in Turkey, where the media is “free” in the least desirable ways and silent in the most detestable manner.
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