Scale of Turkey’s economic crisis triggered Erdogan family implosion

When Berat Albayrak, Turkey’s powerful finance and economy chief, posted an emotional resignation message on Instagram on Sunday, he said he hoped to now be able to spend more time with “my father, my mother, my wife and my children”.

There was only a cursory mention of the man who made him the second most powerful figure in government and to whom he owed his political career: his father-in-law, President Recep Tayyip Erdogan.

Turkey is reeling from a week of high political and family drama that began with Mr Albayrak’s departure — but which was foreshadowed by months of mounting economic problems and a currency in freefall.

Yet few will mourn a man who was widely resented and made enemies across the Turkish state. “Most people are just relieved to see him go,” one government official said.

Mr Albayrak, 42, was not only responsible for running the world’s 19th largest economy. The former business executive, who is married to Mr Erdogan’s daughter Esra, had accrued vast influence across government and beyond. Many within the ruling Justice and Development party (AKP) believed he was being groomed by Mr Erdogan as his political heir.

Berat Albayrak with Recep Tayyip Erdogan at a rally in 2017 © Lefteris Pitarakis/AP

His future in politics now appears to be at a dead end.

“I don’t think anyone could ever have imagined what happened,” said one stunned former colleague. “He can never regain the power he used to have.”

The spark for the political and familial implosion appears to have been a sudden realisation for the Turkish president about the true state of the country’s economy.

In recent weeks, Mr Erdogan had faced mounting pressure from within the AKP, which has been suffering in the polls as the fallout from the coronavirus pandemic, rising living costs, high unemployment and a downward spiral in the value of the Turkish lira have taken their toll.

Mr Albayrak had insisted for months that Turkey was outperforming rival economies and was in the midst of a grand economic transformation. He repeated those lines when he met ruling party MPs last week, according to Turkish media reports. 

He also maintained that the currency, which had lost about a third of its value against the US dollar since the start of the year, was not the only criterion that should be used to judge the health of the economy.

But the penny dropped for the president, according to people inside the AKP and the government, after he was briefed on the scale of the crisis confronting the country, especially the dire state of the central bank’s foreign currency war chest. 

The Turkish Lira has lost about a third of its value against the US dollar since the start of 2020 © Emrah Gurel/AP

Once borrowed money and other liabilities are stripped out, foreign currency reserves are in deeply negative territory, with some estimates putting them at minus $50bn at end-September. The gaping deficit is thanks largely to a failed currency intervention spearheaded by Mr Albayrak that has cost an estimated $140bn over the past two years.

Some find it impossible to believe that Mr Erdogan, who routinely meets with a raft of business figures, could really have been unaware of how bad things were.

But others insist that, as a result of sidelining internal critics and surrounding himself with ultra loyalists, he was cut off from reality. 

“The president was usually being briefed by his son-in-law,” said a senior AKP official. “He was too busy to get information from other sources.”

“It’s unbelievable yet believable,” said another person with close links to the ruling party.

Early on Saturday, a notice published in Turkey’s official gazette announced that Mr Erdogan had sacked the central bank governor.

The president replaced him with Naci Agbal, a longtime ally and critic of his son-in-law’s policies — and the man who had opened his eyes to the true economic picture — as he moved to reassert his control over the economy.

Mr Albayrak responded furiously. After publishing his resignation notice, which came as a surprise to even his closest aides, he deleted his Twitter and Instagram accounts and disappeared from public view.

A drastic shift in rhetoric has accompanied his departure. Mr Erdogan on Wednesday promised to win back the “confidence and trust” of investors. The finance minister and central bank governor are planning a roadshow with international investors to lure back badly needed foreign capital. The lira has rallied sharply in response.

Sceptics say Turkey faces many deep political and economic problems that will not be solved simply through new appointments and more market-friendly language. Mr Erdogan, who has deeply unconventional views on economics, will continue to be the most powerful man in government.

But if the central bank meets market expectations by announcing a substantial interest rate increase next week, it could help attract the wave of foreign money needed to pull the country back from the brink. 

Analysts say that, while the state of the economy was largely a problem of Mr Erdogan’s own making, the past week has also demonstrated the adaptability and pragmatism of a man who has dominated Turkish politics for almost two decades.

“Erdogan showed his political skill once again,” said Can Selcuki, head of Istanbul Economics Research, a consultancy. “There was a cost to having Berat in that position for over two years, and Erdogan bore that cost. But when he actually realised that the economy was going to take him down, he pivoted in a way that nobody was expecting.”

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