Don’t expect Turkey’s Erdogan administration to take real measures to fight rampant inflation until after next spring’s local elections.

That’s the advice of Kerim Rota, a former senior banker now with the opposition Future Party, as relayed by Turkish economist and economic commentator Mustafa Sonmez in Al-Monitor.

Sonmez noted how two months after the appointment of a new team to fix the inflation-riddled Turkish economy, price increases are on the rise—official annual inflation moved up from 38% in June to 48% in July. He also pointed out how Ankara continued to rely on market interventions and restrictions to ease economic woes rather than restoring free market functionality.

Rota was cited by Sonmez as saying that Turkey’s financial markets are still far from appealing to foreign investors despite the appointment of the new economic leadership. That’s despite it being helmed by treasury and finance minister Mehmet Simsek and central bank governor Hafize Gaye Erkan, two ex-Wall Street bankers regarded as market-friendly and capable of persuading strongman Erdogan to drop the ‘Erdoganomics’ that in large part have turned Turkey into an economic basket case. 

“Two months have passed since the Erkan-Simsek duo came in, but Turkey remains without a free market where foreigners can trade, except for the stock exchange,” Rota was quoted as saying, adding: “The foreign currency market remains under control. The swap market is closed to foreigners. The deposit and credit market is under heavy restrictions, and the sums coming on to the stock exchange are often very limited.”

Under Erkan and the new conventional economics that now supposedly apply to Turkey, the policy rate has moved up to 17.5% from 8.5%, but at the same time inflation is resurgent and the central bank has more than doubled its year-end inflation forecast to 58%. Those who put money on lira deposits and government bonds in the past three months saw their investment overtaken by inflation, with a real-income loss of nearly 10%. The next central bank rates meeting is on August 24, but there is no expectation of a drastic rate hike.

Sonmez also observed that the government has continued to intervene in the forex market via state banks that prop up the lira—the banks, which halted frequent regular interventions after the post-national elections appointment of Simsek and Erkan in June, reportedly re-entered the market in July.

Erdogan is intent on winning back the Istanbul and Ankara municipalities from the opposition in the March polls that are now not much more than half a year away and, said Sonmez, “the government's economic decisions appear designed to do no harm to Erdogan’s election strategy rather than restore market functionality. Such interventions and restrictions, however, threaten to exacerbate Turkey’s economic fragilities.”

Rota makes the case that Simsek has surrendered to Erdogan’s election calendar. “The previous economic management made wrong diagnoses and applied wrong remedies," he was further reported as saying. "The current one improved the diagnosis a bit, but there is no remedy in place. Inflation is left unchecked. There is no real fight against inflation.”

According to Rota, Simsek’s recent remark that inflation will start to decrease in the middle of 2024 signals that real measures to curb inflation will come only after the elections. 

Nevertheless, Simsek and Erkan are clearly making the case that the train bound for a new Turkish economic future is set to depart the station.

On August 4, the duo essentially spent the day urging global investors at a meeting hosted by JPMorgan to get onboard, or come to regret a missed opportunity.

The FT wrote on August 2 that “there is now some optimism that Simsek and Erkan are the real deal in ensuring Erdogan sticks to the interest rate 180 degree handbrake turn”, referencing the jettisoning of the strongman’s quack, wrong-headed approach of refusing to raise rates because the move would—he insists, despite all received wisdom—push up inflation.

Turkey watchers know we’ve been here before with Erdogan—the man can and does change his mind, leaving old hands on the markets gobsmacked in the process—but the theory doing the rounds this time is that he knows that any more fooling around on his part could prove fatal.

As Timothy Ash at BlueBay Asset Management wrote in a note to investors after the JPMorgan-hosted meeting: “Turkey faces/faced falling off a cliff into a systemic crisis akin to 2000/01 if the pre-[May]election policies continued.”

“I think there has been a changing of respective powers of advisers around Erdogan,” added Ash. “The rational/technocratic Bayraktars [] are increasingly taking a bigger role, more trusted by Erdogan and he is listening. I think they are telling truth to power… and that’s behind the policy 180 and key appointments. The new team are impressive and can design a route out of crisis.”