He will be at the head of the Turkish economy again. Will the "friend of the markets" regain their trust?

ISTANBUL (Reuters) - With Turkish President Recep Tayyip Erdogan announcing the names of his new ministers on Saturday, some uncertainty about the Turkish government's new economic direction has dissipated, and prominent economist Mehmet Şimşek, with his "liberal" economic vision, has become Minister of Finance and Treasury in a country witnessing inflation, a persistent trade deficit and a national currency that needs urgent measures to rebuild investor confidence in it.

Şimşek served as finance minister between 2009 and 2015, along with a number of other executive positions that brought many strands of the economy to meet.

During the period during which he contributed to the management of the Turkish economy, he served as deputy prime minister for economic affairs from 2015 until 2018, when his role ended with Erdogan's announcement of the first government in the presidential era.

During the absence of Simşek from the government, Turkish President Berat Albayrak's son-in-law took over the Ministry of Finance, before this ministry was transferred to Nurtin Nafti, who showed greater alignment with Erdogan's unconventional economic vision of cutting interest rates to boost growth and reduce inflation as a result, which contradicts the traditional vision that Şimşek adheres to, according to observers.

Agreement and terms

Erdogan summoned Simsek a few days ago to consult on the way to manage the economy, and according to Turkish journalist Abdul Qadir Selvi, who is close to the president, Simsek agreed to receive the economic file in the new government after he obtained guarantees that no institution would interfere in his decisions regarding interest and the central bank.

Turkish journalist Ragheb Soylu also quoted his government sources as saying that Şimşek negotiated an agreement with Erdogan in which he proposed to gradually raise interest rates within 18 months.

With news that Şimşek was confirmed in the new cabinet before it was officially announced, financial markets received the news with cautious optimism: In a report a day before the official announcement, Bloomberg said that the appointment of Simşek as finance minister in the Turkish government meant the reinstatement of "a defender of the traditional economy to boost market confidence."

The Financial Times said the appointment of the prominent economist was a signal that Erdogan may be willing to change course in his unconventional economic policy, which many blame for causing a severe cost-of-living crisis and sending the lira to record highs.

Mehmet Şimşek was described by the Middle East Eye as "the czar of the traditional approach to economics" and said his return to Erdogan's high-level team would help make up for years of financial turmoil in Turkey.

Who is Shimeshk?

Şimşek is a Turkish politician and economist of Kurdish origin, hailing from the eastern province of Batman, who obtained a bachelor's degree in economics from Ankara University in 1988, and then completed his postgraduate studies at the University of Exeter in the United Kingdom, where he obtained a master's degree in finance and economics.

After 1993, he worked as a senior economist at the US Embassy in a department specialized in providing analysis of the Turkish economy for 4 years, and in 1997 he moved to New York, where he worked in the Swiss Union Bank stock analysis unit, and shortly after the beginning of 1998 he returned to Istanbul and began working in the securities department of Deutsche Bank.

He later became a financial analyst specializing in the Mediterranean and then Central Europe and Russia at Merrill Lynch, a role that provided him with links with prime ministers and presidents of the countries concerned in that region, and was subsequently appointed Head of Economic and Strategic Research for the Developing Europe, Middle East and Africa region at the same institution at the end of 2005.

Since 2007, Şimşek has worked in the AKP governments, starting as Minister of State for Economy, and in 2009 serving as Minister of Finance in the governments of Prime Minister Recep Tayyip Erdoğan.

In 2015, he maintained his position in the government of Ahmet Davutoglu, then served as his deputy for economic affairs, maintaining the same position in the government of Prime Minister Binali Yildirim until 2018.

What are Shimschk's achievements?

Mehmet Şimşek entered Foreign Policy's list of the world's 500 most influential people in 2013 and was named the "Emerging Europe Finance Minister of the Year 2013" by Emerging Markets magazine.

Deniz, an economic researcher at the SETA Center in Ankara, pointed out that Şimşek is a prominent figure in the international financial environment, and enjoys high credibility, and during the period from 2009 to 2018 he achieved many successes when he was at the head of the Turkish economy, as he followed a central policy based on price stability that contributed to transforming the Turkish economy into a more productive situation.

He added reception – in an interview with Al Jazeera Net – that Simsek was able during his tenure in the Turkish government for 10 years to overcome many crises successfully based on his experience, in a period that shook the world several financial and economic crises.

He explained that the new finance minister is aware of the current problems in the Turkish economy, considering that the presence of Simsek at the head of the local economy is "a right and appropriate step."

Real rotation

Academic and economic researcher Mukhles al-Nazer believes that the return of Şimşek as a liberal economist may be reassuring to investors, but his presence does not guarantee the return of investments, as he must take "dramatic measures" quickly, according to the description of Al-Nazer, who stressed that foreign capital does not move unless it sees seriousness in the transformation of economic policies.

While markets await a shift in fiscal and economic policies, the question remains whether the expected shift will take place at the required speed or gradually, especially since local elections are months away from now, while the measures that Şimşek is expected to take will not be popular, which could affect the mood of voters.

What awaits the Turkish economy?

Mukhles al-Nazer expects tax tightening and import tax increases to close the trade deficit, in parallel with government austerity to reduce demand for goods and reduce consumer spending.

One of the measures that Şimşek will work on is tightening credit conditions, which means making loans more difficult to obtain, in order to counter the bubble of real estate and cars, whose prices have continued to rise at high rates despite the relative decline in the overall rate of inflation.

The economic analyst says that one of the most prominent challenges facing Şimşek is the reconstruction of the central bank's cash reserves, noting that with the positive role that expected financial flows from the Gulf countries will play, the time it takes to rotate in the wheel of the economy in addition to its relatively limited size compared to the volume of domestic credit may reduce its impact.