Erdogan Approves Interim Turkey Cabinet Ahead of Repeat Election

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Turkey’s President Recep Tayyip Erdogan on Friday approved Prime Minister Ahmet Davutoglu’s caretaker government that will lead the country into elections scheduled for Nov. 1.

Eleven independents and three opposition lawmakers, including two from the pro-Kurdish HDP and one from the nationalist MHP, were appointed to the 26-member cabinet. Turkish rules require key posts such as the justice and interior ministries to be held by technocrats in the run-up to elections, while a range of parties is supposed to be brought into the cabinet when the president calls elections.

Erdogan has ordered the repeat vote after the AK Party, which he co-founded, lost its parliamentary majority in the June vote for the first time since 2002, and coalition talks failed to produce a government. The resulting political impasse has roiled markets.

Davutoglu excluded several leading members of the ruling AK Party, including Ali Babacan, who had been deputy prime minister in charge of the economy but didn’t stand in the June election. Cevdet Yilmaz, one of four deputy premiers named on Friday, will take over the economy portfolio from Babacan.

Babacan’s “shrewd stewardship over the Turkish economy over the past 13 years has gone a long way to reducing credit risk, borrowing costs, and helping secure and keep investment grade status for Turkey,” Tim Ash, the head of emerging Europe, Mideast and Africa credit strategy at Nomura Holdings in London, said in an e-mailed note Friday. “His departure is a blow.”

Market Turmoil

Turkey’s $800 billion economy has faltered as the political standoff coincides with the collapse of a three-year truce with autonomy-seeking Kurdish militants. At least 1,100 people have died as fighting flared again in recent weeks, according to official figures.

The lira has dropped 20 percent this year, the third-worst performer among emerging markets, while bonds have also slumped, according to data compiled by Bloomberg.

Opinion polls suggest the Nov. 1 election will provide little respite to the turmoil, with another hung parliament probable. The AKP won 258 of parliament’s 550 seats in June.

“New elections in Turkey may prolong rather than end the political uncertainty that threatens to exacerbate Turkey’s domestic and external policy challenges,” Fitch Ratings said on Friday. “Shortcomings in the monetary policy framework are a long-standing sign of Turkey’s relatively weak economic policy coherence and credibility.”