Erdogan vows painful reforms to woo investors

ANKARA: Turkish President Recep Tayyip Erdogan promised Wednesday to adopt painful reforms and threw his full support behind a new economic team installed after his powerful son-in-law resigned.

In remarks that saw the Turkish lira gain 2.5 percent against the dollar, Erdogan told parliament he was prepared to "make sacrifices and swallow a bitter pill when necessary" to revive the sagging economy.

He vowed to implement "uncompromising structural reforms" and to organise international meetings that could get shrinking foreign direct investment back on track.

Turkey's main banking index shot up by eight percent on Erdogan's remarks.

"Markets absolutely loving Erdogan's U-turn this morning," BlueBay Asset Management economist Timothy Ash remarked, calling Erdogan's 21-minute address "too good to be true".

Erdogan surprised the markets Monday by accepting the resignation of ex-finance minister Berat Albayrak -- who is married to the president's eldest daughter Esra.

Albayrak was replaced by Lutfi Elvan, a technocrat known to investors who was welcomed by economists who have roundly criticised Erdogan's past economic teams.

Erdogan also named a market-friendly former finance minister, Naci Agbal, as the new head of the central bank -- a choice that Albayrak had reportedly resisted.

The country's currency dipped below eight lira to the dollar Wednesday after trading at around 8.5 last week, a historic record.

Erdogan said the market's warm reception of his new economic team "indicates that we are on the right track".

Economists attribute some of Turkey's problems to Erdogan's belief that higher interests rates cause inflation.

Last year, Erdogan fired a central bank chief who was raising rates to help support the lira and stem inflation.

Since then, state-owned banks have burned through more than $100 billion buying euros and dollars in a futile attempt to support the Turkish currency.

Annual inflation now stands at 12 percent -- more than double the government's initial target -- while the lira shed a third of its value at the beginning of the year under the old economic team.

Erdogan repeated his disavowal of higher rates on Wednesday however, noting: "Interest is the cause, inflation is the result."

But he also promised to give his new finance minister and central bank chief freedom to oversee the economy as they see fit.

"We are all working together to make a new economic leap," he said.

"This positive trend will improve with every new step we take. We will implement (reforms) without making any compromise on the rules of free market economy."