Turkey Premier Said To Give Up As Erdogan Tightens Grip

Turkish Prime Minister Ahmet Davutoglu is expected to step down after losing a market-roiling power struggle with President Recep Tayyip Erdogan, clouding the country’s economic prospects and imperiling its relations with the European Union.

The two leaders met late Wednesday without disclosing details of their talks, but a person familiar with the matter said Davutoglu’s AK Party decided to choose a new leader by the end of the month. The lira plunged as much as 4.5 percent, the most in eight years, and stocks fell to an eight-week low.

The leadership crisis raises questions about everything from the fate of Turkey’s membership talks with the EU and the flow of war refugees from neighboring Syria to management of the country’s $720 billion economy. Erdogan, who has run Turkey for more than a decade, has tightened his grip on power since moving to what had been the largely ceremonial role of president in 2014, sidelining Davutoglu, his handpicked successor, along the way.

‘Asiatic Model’

Turkey is moving toward an “Asiatic model” of development under Erdogan, who’s strengthening central control with the help of a “small group of unelected advisers,” said Tim Ash, head of emerging-market strategy at Nomura International Plc in London. “Bad policy choices might well result, damaging long-term growth prospects.”

Presidential adviser Cemil Ertem told NTV television that he doesn’t expect “a qualitative change” to the government’s economic team.

Davutoglu is due to address reporters after meeting senior party officials today, the state-run Anadolu news service said. He’s expected to call an extraordinary convention of the AK Party, according to the person familiar with the matter, which CNN-Turk also reported. The convention will probably be scheduled for May 28 or 29, Haberturk newspaper said, without citing anyone.

‘Primary Actor’

“Erdogan continues to be the primary actor in Turkish politics,” said Steven Cook, senior fellow for Middle East and Africa studies at the Council on Foreign Relations. He “wanted a pliant prime minister and Davutoglu had ambitions to be his own man, but Davutoglu did not have a power base in the party.”

Prior to last night’s meeting, Davutoglu planned to tell Erdogan that the president needed to respect the premier’s office or he’d call an emergency party convention, according to the person. The outcome suggests the two men failed to bridge their widening rift.

The showdown comes less than a week after the ruling party’s board stripped the premier of the power to name local branch heads. That move was orchestrated by party rivals while Davutoglu was in Qatar for an official visit, the person said.
On Tuesday, the usually soft-spoken premier told AKP parliamentarians he would reject, “with the back of my hand any job that a mortal would not think of leaving.”

Erdogan Warning

Without naming names, Erdogan said at his palace in Ankara on Wednesday that “what’s important is to not forget how you came to where you are, what you need to do there and what your targets are.”

People close to the two leaders have spoken of an unsustainable split in policy making, with areas of disagreement that include managing the economy. Davutoglu and his allies have argued for more orthodox policies, an agenda that Erdogan and his backers blame for high interest rates and slowing growth.

Rifts between the leaders emerged shortly after Davutoglu took office in 2014. The first major public policy split came when Davutoglu proposed a “transparency package” aimed at tackling corruption. Erdogan, who quashed a corruption probe while prime minister, said the measure was premature and it was withdrawn in February 2015.

Erdogan also scoffed when Davutoglu took credit for moving forward to June the timetable for Turks to get visa-free travel to the EU. Erdogan said the original agreement had been reached when he was prime minister and no one should present a four-month change in the schedule as a political victory.

“The credibility of Turkey’s EU road rests today with Prime Minister Ahmet Davutoglu,” Carl Bildt, formerly Sweden’s prime minister and a champion of Turkey’s bid to join the European Union, said on Twitter. “If he leaves, bets are off.”

The lira rebounded 1.3 percent to 2.9392 per dollar at 8:05 a.m. in Istanbul following yesterday’s slide. The yields on 10-year bonds climbed 36 basis points to a one-month high of 9.99 percent and the Borsa Istanbul 100 Index slid 1.9 percent.

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell