Mehmet Simsek said on Sunday after his appointment as Turkey’s finance minister that the country had no choice but to return to “rational fundamentals” to ensure the predictability of the Turkish economy, Reuters and Agerpres reported.

President Recep Tayyip Erdogan on Saturday appointed Mehmet Simsek to his cabinet to tackle the cost-of-living crisis and other difficulties facing Turkey’s economy, a clear signal that the new government will return to more orthodox economic policies. At the inauguration ceremony, Šimsek said that the goal of the new government will be to increase social welfare. “Transparency, consistency and compliance with international norms will be our main principles to achieve this goal,” said Turkey’s new finance minister.

Macrofinancial stability in the face of global challenges and increased geopolitical tensions will be a priority, Mehmet Simsek also noted. “Fiscal discipline and ensuring price stability for high and sustainable economic growth should be our main goals,” said Šimsek, who also served as finance minister and later deputy prime minister between 2009 and 2018. “It is vital for our country to reduce inflation to the single-digit zone, increase predictability in all areas and accelerate structural transformation that will reduce the current account deficit,” Simsek said.

Erdogan’s economic policy has been costly

Contrary to classical economic theories, Turkish President Recep Tayyip Erdogan believes that high interest rates contribute to inflation. Consequently, Erdogan pressured the Central Bank of Turkey to reduce the interest rate of monetary policy to support production and exports.

But Erdogan’s unorthodox approach to interest rates has left markets at the mercy of a mix of rules and special interventions, so new measures have been introduced informally or out of the blue. Under these conditions, foreign investors have left and foreign holdings of Turkish stocks and bonds have fallen by nearly 85%, or $130 billion, since 2013.

Erdogan’s economic policies have come at a cost, with Turkey’s Central Bank spending nearly $200 billion to prop up the lira over the past year, foreign reserves falling into negative territory, and inflation soaring to 80% last year.

“It is clear that the current economic model does not work. Most likely, Erdogan is aware of this, and a modest transition to more orthodox politics is likely in the near future, because otherwise it is impossible. Any signal in this direction will be received by the market,” Burak Cetinchecker, fund manager of Strateji Portfoy in Istanbul, said earlier.