Turkish President Recep Tayyip Erdogan shook up the central bank’s policy-setting board late last night with the appointment of three deputy governors who are widely respected in financial circles. They are former chief economist of Yapi Kredi Bank Cevdet Akcay, former New York Federal Reserve official Fatih Karahan, and Erdogan’s former economics adviser Hatice Karahan. The move is in line with Erdogan's decision to shift toward economic orthodoxy, which notably includes allowing the central bank to hike interest rates. Turkey's international government bonds rallied on the news, gaining as much as 1.3 cents on the dollar and lifting most of the bonds back to levels they had been at prior to Erdogan’s election victory in May, Reuters reported. Emerging market specialist Timothy Ash called the decision “a massive vote of support” for Treasury and Finance Minister Mehmet Simsek and Turkey Central Bank Governor Hafize Gaye Erkan who were tapped by Erdogan to restore investors’ faith in Turkey’s flailing economy. Erkan held a news conference Thursday, as Ezgi Akin reported, the first since her appointment, in which she acknowledged that the economy was overheating and that inflation would likely reach almost 60% by the end of this year. The former Wall Street banker has more than doubled interest rates since taking office two months ago, while Simsek has allowed the Turkish lira to lose value against the dollar. His predecessors did the opposite, burning through the country’s reserves to prop up the national currency. Ash repeated his theory that all of this is a result of Erdogan paying heed, among others, to Haluk Bayraktar, the CEO of Baykar Technology, which produces Turkey’s world-renowned drones. They are selling like hotcakes, as Jack Dutton and Nazlan Ertan explained, including a $2 billion contract with Saudi Arabia. Haluk’s younger brother Selcuk, who is the technical brain behind the drones, is married to Erdogan’s favorite child, Summeye. My pet theory as you all know is that Erdogan is prepping Selcuk for succession, but I am getting pushback from people inside and close to his ruling Justice and Development Party. Some say Selcuk is not good at managing people — I don’t know, I never met the guy but I promise to investigate. Others say that Erdogan is the glue holding the party together. When he goes, the edifice will collapse. And yet others suggest that the new foreign minister and former spy boss Hakan Fidan is best placed to assume the helm. Meanwhile, not everyone is impressed as inflation continues to squeeze the life out of ordinary Turks, as Nazlan colorfully described in a dispatch from Izmir where citizens are airing their anger in creative ways. Trade was a top agenda item in Fidan’s meeting in Ankara with China’s new Foreign Minister Wang Yi, as Ezgi noted, just as the rest of the world was speculating about his predecessor Quin Qang’s fate. Quin disappeared a month ago, and Beijing has yet to offer a satisfactory explanation as to his whereabouts. China and the United Arab Emirates were peddling their wares at the 23rd International Defense Industry Fair in Istanbul, as both Nazlan and Salim A. Essaid reported. For more on China’s Middle East diplomacy, sign up for our senior news editor Joyce Karam’s newsletter here. Egyptian President Abdel Fatah al-Sisi was supposed to show up this week in Ankara, according to Turkish media reports — yet we got Palestinian President Mahmoud Abbas and Hamas boss Ismail Haniyeh instead. Sisi never came, and as I explained here, he may still be holding out for further concessions from Ankara, namely for the extradition of various Muslim Brotherhood types wanted by Cairo before taking the final leap to full normalization. For the latest on congressional thinking on the never-ending saga of the proposed sale of F-16s to Turkey, tune into my podcast with Endy Zemenides, executive president of the Hellenic American Leadership Council. Senate Foreign Relations Committee Chair Bob Menendez said on Thursday that he is still opposed to it. The big question is whether Turkey will go ahead and approve Sweden’s NATO membership regardless. I am guessing not. | 
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