ISTANBUL (Reuters) - After Turkish President Recep Tayyip Erdoğan's victory in the last presidential election, the president reportedly intends to hand over the economy to former Finance Minister Mehmet Şimşek, which could signal a shift in the government's current economic model.

Erdogan stressed that the priority of the new government - expected to be announced next Friday - will be to solve the problem of inflation in the country, and continue to address the effects of the devastating earthquake of the sixth of February last year.

The Turkish president said, in his victory speech delivered from the presidential complex in the capital, Ankara, in front of a crowd of supporters, "We will dedicate everything we have to serve the Turkish people, and heal the effects of the earthquake," stressing his intention to reduce inflation "as the interest rate has been reduced."

He also stressed that Turkey must have a productive economy, and expressed pride that his government did not resort to requesting loans from the International Monetary Fund, after it repaid its last debt in 2013.

The impact of winning on the financial markets

With the first opening of local and global markets after the elections, mixed indicators emerged as a result of the markets' expectations of some kind of change in fiscal policies, so the Borsa Istanbul index rose on Monday morning, May 29, 2023, by 3.9%, driven by the rise in shares of construction and export companies as well as Turkish Airlines shares.

The Turkish Statistical Institute announced that the economic confidence index in the country reached its highest level in the past five years in May, recording 103.7 points.

On the other hand, the Turkish lira fell more than 0.5% to 20.18 against the US dollar, before later stabilizing at 20.09 liras. The currency closed last Friday, ahead of the election, at 19.97 liras to the dollar.

Morgan Stanley, in a report issued after the results of the Turkish elections, warned that the Turkish lira is at risk of falling by 29% if President Recep Tayyip Erdogan goes ahead with his policy of keeping interest rates low.

The bank's analysts expected the value of the Turkish lira to fall to 26 liras against the dollar soon, and to reach the level of 28 liras to the dollar by the end of this year.

Tight monetary and fiscal policies

Ibrahim Arslan, a professor of economics at Turkey's Gaziantep University, believes that the biggest problem currently plaguing the Turkish economy is inflation, and believes that the Turkish president will take strong measures to reduce it by implementing a tight monetary and fiscal policy.

He said in his speech – Al Jazeera Net – that it is expected to change the Minister of Finance, and adopt liberal policies that will facilitate foreign exchange flows, and work to achieve political stability to secure economic stability.

As for the tools used by the government to achieve the production economy that Erdogan talked about, the economist said that Ankara is likely to implement programs to support strategic products that depend on abroad and convert them into local industries, in addition to taking additional measures to increase employment rates and reduce unemployment rates.

Is Mehmet Şimşek back?

For its part, Reuters quoted informed Turkish sources that the Turkish president met with former Finance Minister Mehmet Şimşek, who appeared at one of the election rallies next to him.

The Turkish newspaper "Daily Sabah" also quoted media sources that the Turkish president met with Simsek last Monday, while presidential spokesman Ibrahim Kalin responded to questions about the appointment of former minister Simsek in the new government, saying that Simsek "expressed his indirect support for this process and will continue to move forward."

After Erdogan's historic victory in Sunday's presidential run-off, Şimşek congratulated him in a tweet, saying: "I congratulate our President Recep Tayyip Erdogan, who was re-elected with the strong support of our people in his political career that lasted a quarter of a century. I wish our President success in his service to our nation. I hope that the new era will bring all the optimism for our country and the world."

Çeyrek asrı bulan siyasi yürüyüşünde halkımızın güçlü desteğiyle tekrar seçilen Cumhurbaşkanımız sn @RTErdogan'ı kutluyorum.

Sayın Cumhurbaşkanımıza milletimize hizmet yolunda başarılar diliyorum. Yeni dönemin ülkemiz ve dünya için hayırlara vesile olmasını diliyorum.

— Mehmet Simsek (@memetsimsek) May 28, 2023

An encouraging step

Bloomberg said Şimşek's potential return, as well as the formation of a team with international credibility, would be "an encouraging move for foreign investment that may receive a wide positive response."

Firas Shaabu, a professor of financial management at the Basaksehir Academy in Istanbul, said that Mehmet Simsek will accept to return to assume the economic portfolio if full freedom of the financial markets is achieved, stressing that the goal is to try to reassure investors and foreign companies.

More time

For his part, the academic and economic researcher ruled out an immediate change in the Turkish economic situation, saying, "We need at least two years to witness a noticeable change."

He stressed that the protected deposit program will continue, and in parallel the government will work on attempts to control prices, increase production and reduce unemployment rates. He also expected the government to redouble its efforts to increase the discovered reserves of gas and oil.