Following the ousting of the head of Turkish Central Bank, Murat Cetinkaya, by a statutory decree, there are talks of three possible reasons for President Erdogan to replace him.

This is the first time ever that a Turkish Central Bank head is removed from duty. The only close example was the forceful resignation of the then CB Governor Ismail Hakki Aydinoglu by the military junta regime of the September 12 military coup period.

It was well known that the president and the governor didn’t see eye to eye. President Erdogan went on record many times criticizing the CB’s decisions, although he always made a point to talk about the autonomy of the Central Bank, and made an impression of a politician who abides by its decisions regardless of he agrees with them or not.

It is also a topic of discussion whether the President actually has the authority to relieve a CB governor of their duties. Some argue that, according to Turkey’s constitution, the president does not have the authority to implement statutory decrees in areas that are well defined by the constitution itself, and in cases of discrepancies, the law takes the upper hand, and that the only instance where the CB governor may be called off duty is if they are seen as “unfit to fulfill the duties of the job”, and thus  that this rotation was clearly unconstitutional. This topic will probably continue to be discussed between the ruling and opposition lawmakers.

There seem to be three possible reasons for Governor Cetinkaya’s ousting from his duties according to those close to the Central Bank and the economy intelligentsia:

1.      Tension: The early transfer of CB profits over to the Treasury

The first signs of tension between Mr. Cetinkaya and the government was the government’s request that the profits from the CB be carried over to the treasury at a time earlier than the norm. The President and the government wanted this to happen prior to the March 31 local elections. The treasury was, then, short of cash, and in order to overcome this, there was a plan to backdate the general meeting of the CB which normally takes place in April. And the idea was to use this meeting to transfer the CB profits over to the Treasury without having to wait for April.

Governor Cetinkaya stood against that decision saying that such extraordinary measures would damage the credibility of the Central Bank, turning it into an unpredictable institution run by the government according to its needs.

He was powerless to stop it though, and the Central Bank general meeting took place on January 18 and agreed to carry over the profits from CB over to the Treasury.

This was Mr. Cetinkaya’s first strike.

2.      Tension: The Transfer of the reserve funds

The second wave of tensions between Mr. Cetinkaya and the government came when the government requested a transfer of funds from the Bank’s reserve funds over to the Treasury. What the government required was the funds that the Central Bank kept for extraordinary situations such as a natural disaster, famine, economic collapse, global economic meltdowns, wars.

This request also came at a time when Turkey was on the cusp of an election: it came shortly before the repeat Istanbul elections of June 23.

Governor Cetinkaya resisted to this request as hardly as he could. He said that such an act would cause a negative perception of the economy both domestically and internationally.

His stance on this point came to his second strike.

3.      Tension: The interest rate debacle

The third point of tension between the government and the central bank was about the interest rates. President Erdogan, along with the government, had been requesting that the Central Bank lower the 24% interest rate for a while. As the inflation rate was coming down during the summer months, they wanted the CB to play along bring down the rates. However, Governor Cetinkaya insisted that the drop-in inflation was seasonal, and that in case the interest rates came down without the backing of an economic stimulus package, there would be further depreciation of the Lira and a resurging of inflation. And thus, we didn’t see an interest rate decision from the Bank’s June meeting.

And that was Mr. Cetinkaya’s third strike. He was out!

“Resign.” “No, I won’t resign.”

After these three strikes there were talks that the government wanted Mr. Cetinkaya to resign.

However, according to reports, Mr. Cetinkaya said that it would run against the autonomy of the Central Bank for him to resign from his post due to political pressure, that the conditions for his removal were clearly defined in the Central Bank Statute and that he would remain in office until 2021.

This, according to reports, is what led President Erdogan to remove him by a statuary decree.

What is going to happen to the reserve funds now?

Now, what is going to happen with the transfer of CB’s reserve funds over to Treasury?

It was generally believed that since Mr. Cetinkaya was refusing to allow for the transfer, the government would find a solution through a legislative regulation. But current reports say the plan is shelved for now. The consensus seems to be that, following the change in CB Governorship, there won’t be any need for legislative action for it to happen, pending the new Governor’s position on this.

Political risks

Although Mr. Cetinkaya was known to be close to President Erdogan’s overall world views, he kept insisting that the Central Bank was chiefly responsible for providing price stability, and that the lowering of interest rates and the transfer of reserve funds would run contrary to that goal.

Other factors in shaping Mr. Cetinkaya’s decision to stand firm were the current ongoing S-400 crisis with the US, the possibility of US sanctions against Turkey, the turmoil in Eastern Mediterranean, the situation in Iran, all contributing to the precarious situation of Turkey’s current economy.

An unsavory act

The view that Central Banks must remain autonomous was globally adopted following the economic crisis of the 1970s. The developing countries who were the most affected by the oil crisis of the 70s with high inflation, banking-financial meltdowns and mounting foreign debts, decided that for a healthy economy Central Banks have to be independent of the current political atmosphere. Turkey was one of the countries that went along with this idea, and the autonomy of Turkish Central Bank was further reinforced following the economic crisis of 2001.

Despite all this, the increasing political pressure on the Central Bank, the constant push-and-pull between them and the government, and finally the ousting of the Governor on President’s orders will not help Turkey’s respectability in either the domestic or international markets.

And the negative effect will only gain strength if the rationale behind the move is clearly explained to the outside world.

Originally published in Turkish at:,23066