Can Gaye Erkan keep up with her position as CBRT governor?

With her exceptional education, extensive experience, and youthful dynamism, Hafize Gaye Erkan sparked enthusiasm at home as well as abroad by assuming crucial position in economic management as the new governor of the Central Bank (CBRT).

However, she has come to this position at a crucial time when the Turkish economy is so fragile with its reserves stand at minus 60 billion dollars. It is feared that the total external resources needed for external debt repayments and current account deficit financing will exceed 250 billion dollars by the end of the year. The spiral of low interest rates and foreign exchange cannot be balanced; and due to high risks and insecurity, fresh money is hesitant to enter the country.

Despite her little-known status and impressive résumé, success in such important responsibilities cannot be ensured solely by education and employment in respectable environments especially at a crossroads where there is no time for trial and error and where all economic actors expect a zero margin of error. For this reason, she has raised some concerns about the sufficiency of her capacity to carry that duty.

Erkan and First Republic Bank days

After completing her education, Erkan joined the bench of Goldman Sachs and subsequently the First Republic Bank, based in San Francisco, which collected deposits from wealthy customers and provided them with five-star service they could not find elsewhere. These deposits were in turn distributed mostly as housing loans.

Unable to keep up with rising interest rates, panic spread after the Silicon Valley Bank and Signature Bank collapses, and customers began withdrawing their money from First Republic Bank. Within days, nearly half of the deposits ($100 billion) evaporated, and that’s when the second-largest bank failure in American history took place. The country’s largest bank, JP Morgan Chase, was forced to buy First Republic Bank.

Gaye Erkan first served as the risk management officer and then the co-CEO for six months at this bank, whose bankruptcy has now been the subject of lawsuits, and people question if she had any role in this predicament. But in 2021, she controversially took her compensation package of close to 10 million dollars and left the bank—a situation that led to social media memes quoting “she is now wealthier than the Central Bank”. Interestingly, she didn’t stay long enough to make her mark on this job and other high-level assignments related to mortgage finance, which she later assumed.

Bureaucracy’s female executive allergy

Her background in the US is no doubt impressive, but the Central Bank management in Türkiye, where the “crony” economy is run arbitrarily by instructions from above, requires a well-grounded set of skills.

It is gratifying that the new governor is a woman, I must say. She has already begun to project a positive image abroad; as a result, there may be an opportunity for her negotiations to be smoother and more fruitful.

At the same time, unfortunately, her gender has the potential to create a disadvantage in the reality of Türkiye. Because all the institutions of the ruling Justice and Development Party (AKP) are full of conservative senior male executives. They are not accustomed to receiving instructions from female superiors and working at the same eye level as the opposite sex. There is only one female minister in the cabinet, and she is in charge of family affairs.

The fact that Gaye Erkan is a young, 43 years old, female senior executive with a bright background requires her to be prepared for additional difficulties that may arise both in other government institutions she will be dealing with and in her own institution.

Strong political support needed

Let’s not forget that Erkan has an experienced Central Bank team that will work under her.

From my own experience, I can tell that external appointments to institutions often fail. Not especially for the CBRT, I am saying it in general: external appointments to state institutions are ruled out even before they have time to understand the inside manoeuvres and Byzantine games in those institutions.

The institution is generally reluctant to digest someone who comes from outside, tests, and asks questions constantly, which makes the outside appointee uncomfortable. Some people try to undermine others through gossip and slander. If the outsider cannot carry their own close team, they may feel lonely, and not trust the institution and the staff enough. They would be uneasy and hardened, and they may even tend to bully out of despair.

Especially if strong political support does not come from the top, only if it is lucidly supported can it save the image. I must underline that it is not enough to support verbally or through social media; we must provide well-calibrated and realistic suggestions for action, either directly or behind the scenes.

Let’s not make a mistake: Erkan is not an imported appointee. Having studied in Istanbul, she is used to intrigues as “a child of Byzantium.” As long as the president, ministers, media, and public really stand behind her, it will be easier for her to succeed and make progress abroad and at home because we should reckon that she is more experienced than many people in communications and bargaining with international finance players.

She will also need to be fully synchronised with the Minister of Treasury and Economy, even though the Central Bank should ideally be independent. Especially at the current juncture we live in. We do not yet know whether Mehmet Şimşek, the new minister, has a history of working with Erkan, whom he recommended to the Central Bank and supported via Twitter.

Kavcıoğlu, BRSA

Moreover, working with the Treasury, Economy, Finance, and BRSA (to which her predecessor was appointed) will require separate local business and relationship management skills. The appointment of the former Central Bank Governor Şahap Kavcıoğlu to the BRSA can also be perceived as Erdoğan’s “still in control” sign. We are yet to learn how the new Vice President Cevdet Yılmaz and the army of advisers in the Presidency, who used to frequently intervene on the bank’s policies, instruments, and internal appointments, will act.

Gaye Erkan will have intense work with private and public bank bosses. Among her other main jobs are to strengthen ties with foreign central banks, financial markets, institutions, to give them confidence, and to reflect the Central Bank’s messages accurately and in a timely manner through strategic communications and stakeholder engagement.

Above all, while trying to do her work within “transparent, predictable, accountable, and international norms”, the “interest is not the result, it is the cause” rhetoric, the authoritarian personality at the Presidency, and the Islamist media make one think about how she will run her position and calm down the markets.

Erkan: the glass is half full

Now, in light of all these considerations, the following questions come to mind:

• Is Erkan the right name for the CBRT governor seat in this period when the Turkish economy is losing blood?
• Who is her real patron? Who brought her to this post? Who will have the real power to make central bank decisions independently?
• Is Erkan ready to take on heavy responsibilities within the state structure and to cope with difficult relationship management? To what extent is she prone to teamwork?
• Is it possible for her to throw in the towel because of powerful ruling circles and media lobbies influenced by them, which may try to overthrow Erkan at any moment after three or five months? Or could she possibly be dismissed by the president in the heat of a discussion?

The accumulated problems of the Turkish economy are indeed too heavy and serious to be resolved only by a technocrat with a good background. It requires more than this: structural reforms, a governance revolution, and a new engagement with the world.

But since Gaye Erkan was appointed to this task and she took her seat with great enthusiasm, let’s keep the above questions and facts in mind and watch her performance without any prejudice. It is not a mystery what should be done to cure the decades-long troubles. The first female CBRT governor deserves to be given a generous credit line and supported by saying “the glass is half full” until she proves her value or lack of competence.

We do not need to wait too long. In a few months, the answers to the above questions and the reactions of the market to her performance will emerge in some way. We earnestly hope she will succeed.