The main change expected from the return of Ali Babacan as economy minister will not be on policy but that he will have the ear of Prime Minister Tayyip Erdogan - golden in Turkish politics where such ties are key. Struggling to tackle a recession, record unemployment and poor municipal election results, Erdogan on May 1 sacked a third of his cabinet and brought in Foreign Minister Babacan as economy tsar in his biggest reshuffle yet.
Babacan led Turkey's successful recovery from a crisis in 2001 and also takes over from Nazim Ekren as deputy prime minister in charge of the $750 billion economy. Analysts point to the absence of powerful ministers inside the cabinet as one cause of Turkey's failure to address quickly the deterioration of the economy, delays in sealing a new loan deal International Monetary Fund, and the weakening of public finances with pre-election spending.
Erdogan keeps tight control of his government and ministers who lack a powerful following in the ruling AK Party, or the ear of the prime minister, are usually sidelined. "By combining economy minister and the deputy prime minister job you bring decision-making and influence of the prime minister into one person," said London-based Christian Keller, Barclays Capital Emerging Markets stategy director.
"This is definitely an improvement compared with the previous administration, but it won't change around the economy immediately," he said. Babacan, a 42-year-old former textile wholesaler who studied in the United States, is a founding member of the AK Party and while viewed as pro-Western he is deeply pious.
Under the previous cabinet Mehmet Simsek was economy minister, Kemal Unakitan finance minister and Ekren in charge of co-ordination. It did not work well. "Imagine having the treasury guy go to Simsek for approval, who then went to Ekren, who then took it up with Erdogan," Keller said.
"Knowing how things work in Turkey and particularly regarding decisions linked to the IMF like cutting spending, appointing Babacan to the new post you take out an entire layer of (unnecessary) communication." The most imminent need will be for Turkey to seal a loan deal with the IMF, expected to be as much as $50 billion, to help the economy battle a global financial crisis that has squeezed exports and consumer demand.
Babacan won praise for successfully negotiating IMF programmes when he was last economy minister. His macroeconomic plan was then implemented by Unakitan by delivering a primary surplus. The same could not be said of Simsek's efforts on an IMF deal, still not concluded after months of talks. Analysts say the main reason for this was that the former economist of US investment bank Merrill Lynch he did not have the ear of the prime minister.
"One advantage is that Babacan has been quite successful in IMF relations in previous programmes, he has experience and he has better relations with the treasury as well," said J.P. Morgan Chase economist Yarkin Cebeci in Istanbul. "He has good contacts on both sides. I think he can work around negotiations more efficiently and compared with the previous administration he will have more direct relations with Erdogan," he said.
The ruling AK Party, the most stable single-party government in decades, has brought in record foreign direct investment and put Turkey on the global radar by securing coveted European Union accession talks. But it has became complacent in the past two years.
The sweeping reshuffle is a sign that Erdogan and the party leadership, predominantly pious Muslims, acknowledge they need to quickly tackle the economy or risk another election setback in parliamentary polls in 2011. Babacan is expected to stick to fiscal discipline and work on convincing Erdogan to carry out medium-term economic reforms called for by the IMF, including tax reforms.
Analysts said when he first became economy minister in 2002 he responded to market needs and was willing to change his mind. They expect this to be the case again. "I think the worst is behind us," J.P. Morgan's Cebeci says. "It will be easier for this administration to gain credibility. Babacan is hardworking and experienced, obviously he has more power (than Simsek) and he also has strong support of President Abdullah Gul."
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