In Firing Central Bank Chief, Turkey’s Leader Trades Credibility for Growth

LONDON — Turkey’s president, Recep Tayyip Erdogan, abruptly fired the central bank chief on Saturday, dealing a new blow to the institution’s credibility while threatening to intensify the nation’s wrenching economic crisis.

The move, made in the early hours of the day by presidential decree, was the latest evidence of Mr. Erdogan’s unequivocal dedication to economic expansion at any cost.

He has long expressed irritation over Turkey’s elevated interest rates — currently at 24 percent — which make money harder to borrow, constraining the breakneck development that has been his hallmark.

Most economists assert that interest rates ought to be higher still, given the perilous state of the Turkish economy and the weakness of its currency, the lira.

During the course of his 16-year tenure, Mr. Erdogan has pressured banks to lend aggressively in support of his signature infrastructure projects, including a grandiose new Istanbul airport and a kingdom’s worth of high-rise towers. In recent years, international investors have grown spooked by the resulting debts, pulling their money out of the country and sending the lira plummeting.

Over the last two years, the lira has surrendered some 40 percent of its value against the dollar, sending prices of imported goods soaring. Ordinary people are paying more for food and fuel. Businesses are stuck with higher costs for raw materials.

In the face of that crisis, the central bank has lifted interest rates to increase the returns for investors who keep their money inside Turkey, halting the plunge in the currency.

That has infuriated Mr. Erdogan. Assailing economic orthodoxy, he has claimed that high interest rates actually cause inflation, which is like blaming obesity on cutting too much sugar from the diet.

By firing Murat Cetinkaya — who has headed the central bank since April 2016 — and replacing him with his deputy, Murat Uysal, the president has effectively proclaimed that development will go on, with interest rates probably headed down.

In blaming his central bank for sabotaging his designs, Mr. Erdogan finds himself in powerful company. President Trump has intensified his attacks on his own central bank governor, Jerome H. Powell, asserting that high interest rates have made America less great than it could be.

India’s prime minister has attacked the independence of the central bank, prompting resignations, while undermining international faith in the veracity of official statistics.

For Turkish companies now confronting vast debts, lower interest rates should, in theory, shrink their debt burden, or at least make it cheaper to borrow more and defer any reckoning. Yet in reality, a great deal of Turkish debt is in dollars. Lower interest rates are likely to push down the value of the lira, which has the effect of magnifying dollar debts for companies that earn revenues in lira.

Mr. Erdogan has a penchant for decisive action, and these days are especially challenging for him. The economy fell into recession last year, resuming modest growth this year on the strength of spending unleashed by Mr. Erdogan ahead of national elections.

His stature was significantly weakened last month as his ruling party was thumped in a mayoral election in Istanbul. That result reflected voter anger over his imperious ways — especially his violent crackdown on dissent — as well as the growing perception that Turkey’s economy has drifted into danger.

That left Mr. Erdogan staring at two unpalatable options. He could accept higher interest rates to choke off inflation along with its attendant slowdown in growth, or stay true to form and keep the credit flowing. That would spur more economic expansion, but at the expense of Turkey’s credibility in the international marketplace, and further straining faith in the currency.

Most analysts assumed they knew how the story would go.

“I struggle to see how all of the sudden Turkish economic policymaking is going to turn more orthodox and transparent,” Nafez Zouk, chief emerging markets economist at Oxford Economics in London, said last month. “You just keep kicking the can down the road. We will see rate cuts this year.”

How much farther does this road go? That question is increasingly under discussion in Turkey’s power centers.

In Istanbul, Mr. Erdogan’s cronies in the construction business have been nourished by the president’s resolute devotion to growth. But in the rest of the business world, a sense of fatigue and dismay is increasingly palpable. Many accuse Mr. Erdogan of taking a sound economy — a nation of 80 million people, its population relatively young and skilled, its middle class growing — and turning it into a land avoided by global investors.

“There’s no more institutions,” said Can Akcay, managing partner of Les Partenaires Ottomans, a real estate development company in Istanbul. “They have been totally nullified by the president. Nobody’s going to invest here unless the system is reformed.”