(Repeats with no changes)
* Erdogan has called for lower rates
* Officials see division in ruling party
* Investors want rate increases
* AK Party legacy built on economic growth
By Orhan Coskun and Nevzat Devranoglu
ANKARA, Dec 6 The Turkish government's
eleventh-hour rescheduling of a meeting of its economic team to
include the president last month was another stark reminder for
investors: when it comes to policy, Tayyip Erdogan likes to call
Erdogan's drive for lower interest rates has rattled
financial markets and, along with alarm about the crackdown
after the July coup and a stronger dollar, contributed to the
lira currency losing a fifth of its value this year.
Officials say this has widened a rift in the economic team
between reformists who want more to be done to appease
international investors - such as Deputy Prime Minister Mehmet
Simsek and Finance Minister Naci Agbal - and populists such as
Deputy Prime Minister Nurettin Canikli and Economy Minister
Adding to the confusion is the central bank, which raised
rates for the first time in nearly three years last month,
despite Erdogan's appeals.
"There isn't complete harmony among the economic leadership.
On one side, there are those who are attuned to the needs of the
global economy and act as anchors for the markets. On the other,
there are those who want more national economic policies," a
senior official from the ruling AK Party said.
"It seems Simsek and Agbal are anchors in the eyes of the
markets, and they are crucial for the Turkish economy to be
The party has relied on the economy's strong growth as the
pillar of its success. Divisions among its top ranks could not
come at a more inopportune time, both for Turkey's economic
stability, and the party itself, as slowing growth and stubborn
inflation risk undermine its achievements in the eyes of voters.
Officials at Simsek and Agbal's offices were not immediately
available for comment.
"The policy setting is not transparent," said Dan
Raghoonundon, an emerging markets portfolio manager at Janus
Capital. "It's very hard to know who is in charge and when
markets don't have transparency or visibility they tend to
assume the worst."
When Prime Minister Binali Yildirim, an Erdogan stalwart who
is generally seen as being aligned with the populists, last
month abruptly rescheduled a meeting of the Economic
Coordination Committee (EKK), sources in his office cited a
However, some analysts saw the last-minute change as a move
by Erdogan to stamp his authority on a meeting where weakness in
the lira was due to be discussed.
Erdogan, who as president is supposed to be above party
politics, does not normally attend meetings of the EKK. An
official at the presidency said there was nothing unusual in his
attendance at the rescheduled meeting.
"The economy is very important and President Erdogan just
wanted to discuss the latest developments and measures. Such a
meeting is not an exceptional issue for the government,
officials, or President Erdogan himself," the official said.
In the past, the AKP was seen as being able to balance
populist rhetoric with the needs of financial markets -
delivering hospitals, roads and airports, and ensuring growth
and jobs, while remaining sensitive to the needs of markets.
Lately, investors aren't so sure.
"Until now, they could always come to a compromise of some
sort, and resolve their differences. But now, there are concerns
they cannot find middle ground and that the divisions could
continue to get worse. This is the risk that has markets
worried," a local banker said.
WHO'S IN CHARGE?
Yildirim, who replaced Ahmet Davutoglu as prime minister in
May after widespread reports of divisions between Davutoglu and
Erdogan over the economy, has gone to lengths to say he is in
charge of the economic team. Officials say he has recently shown
some sympathy with the reformist camp, although he maintains his
allegiance to Erdogan.
"I am the current chairman of the EKK, and the person who
will speak about the economy after me is... Deputy Prime
Minister Mehmet Simsek," Yildirim said in a recent interview
with state broadcaster TRT.
"In situations when I am not present, he is the one who has
all the say and responsibility regarding the economy."
All the while, Erdogan has been unrelenting in calling on
the central bank to lower interest rates.
"Those in the financial sector can sit comfortably... but
the real investor is unfortunately experiencing hardship. So I
say: 'Drop these rates, brother,'" he said a speech on Saturday
to mark the opening of a new shopping centre in Istanbul.
Investors are still trying to figure out the position of the
central bank under Murat Cetinkaya, who was only appointed in
April. Policy is decided by the seven-member monetary policy
committee which includes the governor, four deputy governors and
two other appointees.
Erdogan, who has described himself as an "enemy" of interest
rates, says the central bank is independent but he has a right
to criticise it. The bank initially cut rates following
Cetinkaya's appointment, in line with Erdogan's demands. Last
month's rate hike, however, was seen as appeasing the markets.
As the lira has hit a series of record lows,
Erdogan has responded by urging Turks to cash out their foreign
currency holdings and buy either lira or gold.
For the time being, that may be the only boost to the lira.
"This kind of dissonance between the president's concept of
interest rate policy and that of the market is creating a huge
obstacle for the central bank to intervene and stabilise the
currency," said Phoenix Kalen, director of emerging markets
strategy at Societe Generale.
There was likely to be "much more pain" for the lira ahead,
(Additional reporting by Claire Milhench in London; Writing by
Tuvan Gumrukcu; Editing by David Dolan and Anna Willard)