Dec. 26 (Bloomberg) -- Turkish Prime Minister Recep Tayyip Erdogan tapped loyalists to rebuild his cabinet and fight a deepening corruption scandal that claimed its first victims from his inner circle and sent markets plunging.
Erdogan replaced 10 ministers in his 26-member cabinet, parting ways with those implicated in the probe, seen as the battleground in a struggle with a former long-time ally. He appointed his deputy minister Bekir Bozdag as justice minister to lead the legal battle allegedly against followers of a U.S.- based imam, Fethullah Gulen, who fell out with Erdogan lately.
Six months after routing opposition-led protests in the center of Istanbul, Erdogan is embroiled in a clash that has divided the police and judiciary. Its outcome may determine the fate and legacy of the 59-year-old premier ahead of local and presidential elections next year.
“This is a cabinet based on loyalty, designed to restore discipline and for damage control,” Nihat Ali Ozcan, an analyst at the Economic Policy Research Foundation in Ankara, said by phone.
Turkey’s lira weakened to a record against the dollar today on concerns that the widening scandal was creating instability in Erdogan’s government. The currency has slumped 18.2 percent this year. The Borsa Istanbul 100 Index dropped to the lowest level on a closing basis since August 2012.
“This is the independence struggle for a new Turkey,” Erdogan said yesterday, hours before President Abdullah Gul approved cabinet changes. “Plots against Turkey will unravel.”
Security Council Meeting
Erdogan said the probe amounted to an attempted coup. He told reporters on a return flight from Pakistan on Dec. 24 that his son may be targeted to tighten the political noose around him. Gul and Erdogan are slated to preside over a national security council meeting at 2 p.m. in Ankara.
“They are targeting my son, implicating him through Turgev,” Erdogan said, referring to the Turkey Youth and Education Service Foundation run by his family. “They will be left empty-handed if they try to hit at Erdogan in this way.”
Kemal Kilicdaroglu, leader of the opposition Republican People’s Party, told CNN-Turk television that Erdogan has formed a “war cabinet” with the appointment of his undersecretary Efkan Ala as Interior Minister.
“Almost all new members, excluding the new interior minister, have no experience in state bureaucracy,” said Mehmet Kaya, president of the Tigris Communal Research Center, based in the southeastern city of Diyarbakir. “The cabinet will probably work in harmony, under orders from Erdogan.”
The government has so far dismissed about 500 police chiefs and officers in retaliation for the detention of sons of three ministers as well as the chief executive officer of state-run Turkiye Halk Bankasi AS, according to Zaman newspaper.
Erdogan Bayraktar, environment and urban works minister and an associate of Erdogan for two decades, sent Turkish markets tumbling yesterday by calling for the premier to follow him in resigning. Bayraktar, whose son was detained in police raids that began on Dec. 17, said before quitting that Erdogan approved construction projects that are under investigation, in an unprecedented breakdown in party unity.
Erdogan has said the probe is backed by international forces uncomfortable with the speed of Turkey’s economic development. The investigations into suspected bribery, money laundering, fixing government tenders and gold smuggling started 15 months ago, according to prosecutors. Erdogan’s supporters have lashed out at followers of Gulen for instigating the crackdown. The cleric broke with Erdogan this year, rupturing a partnership that has helped sustain the single-party government since 2002.
The next wave of graft-related arrests will target the high-speed railway network and name one of Erdogan’s sons, investigative journalist Ahmet Sik said on Twitter yesterday. The Ankara prosecutor’s office confirmed an investigation, without giving further details.
“The prime minister would need to resign only if allegations reach him,” Yasar Yakis, a former foreign minister in Erdogan’s administration, said in an interview.
Erdogan is confronting the scandal as his government prepares for three elections in the next two years, and has said the probe is seeking to erode support before local polls in March. The prime minister says he’ll make Turkey one of the world’s 10 biggest economies by 2023, from 17th-biggest now.
Erdogan replaced Caglayan as economy minister with Nihat Zeybekci, a lawmaker for Denizli whose parliamentary biography says he was a businessman in the textile industry.
“Turkey has one of the world’s strongest economies,” Zeybekci said in an interview shortly after his appointment. “We’re not going through a tough time.”
Two other ministers whose sons have been arrested backed Erdogan before resigning. Economy Minister Zafer Caglayan said it was a “dirty game,” and Interior Minister Muammer Guler called it a “dark conspiracy.”
“For the first time since getting into office, Erdogan looks under siege and clearly on the defensive while unity within his party is starting to show some cracks,” said Wolfgango Piccoli, an analyst with Teneo Intelligence in London. “If the pressure intensifies in the days ahead and the probe gets closer to him and his family, Erdogan may have to resort to snap elections to try to regain momentum.”
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