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Turkey’s markets panic as Erdogan appoints son-in-law as finance minister

11 July 2018

Investors were waiting to see whether cabinet appointees would include individuals seen as market-friendly, and particularly whether Mehmet Simsek, now deputy prime minister, would continue to oversee the economy.

The lira fell 3.8 percent to 4.7488 per dollar, extending one of the biggest slides across emerging markets this year. The introduction of the new presidential system marks the biggest overhaul of governance since the Turkish republic was established on the ruins of the Ottoman Empire almost a century ago.

Describing the monumental change as a "new beginning", he vowed at a later ceremony at his vast Ankara presidential palace to be the president of all 81 million Turks.

Monday's announcements had deepened worries about the bank's independence and triggered losses in the lira, which has been hit this year by concerns about Erdogan's drive for greater control over monetary policy.

On the eve of Monday's inauguration authorities dismissed more than 18,000 state employees - a lot of them from the police and army - in what the government said would be the final decree under emergency rule imposed following a failed 2016 coup.

The new system was agreed in a bitterly fought 2017 referendum, but the changes have been vehemently denounced by the opposition.

"The latest vast round of purges is a further confirmation that there won't be any meaningful normalization of Turkish politics for the foreseeable future", according to Teneo Intelligence Co-President Wolfango Piccoli.

"As president, I swear upon my honor and integrity, before the great Turkish nation and history, to work with all my power to protect and exalt the glory and honor of the Republic of Turkey", Erdogan said in his speech to Parliament after being sworn in.

In a referendum a year ago, Turkish voters approved a series of comprehensive changes that granted significantly more powers to the president, eliminated the prime minister position and increased the size of the country's parliament, to name a few. "In other words, Turkey will be an institutionalized autocracy", former EU Ambassador to Turkey Marc Pierini said. Erdoĝan has repeatedly clashed with strategic allies such as the United States and the European Union in recent years over the war in Syria, Turkey's accession to the EU, human rights abuses by Ankara, Europe's failure to support Turkey during the coup attempt, and rising Islamophobia in Europe.

Investors are also keen for details on Erdogan's new economic team, which is expected to be announced later on Monday.

The new government faces immediate economic challenges.

The markets will keep a close eye on economic appointments, keen to see a steady hand at the helm in a fast-growing economy dogged by double-digit inflation and a widening current account deficit. A senior adviser to Erdogan later said that governors would still be appointed for a five-year term.

He won last month's election with 52.6 per cent of the vote, ushered in the executive presidency that ends parliamentary governance and boosts the powers of the formerly ceremonial presidency.

Turkey’s markets panic as Erdogan appoints son-in-law as finance minister