President Tayyip Erdogan signaled Saturday his newly elected government would return to more orthodox economic policies when he named Mehmet Simsek to his Cabinet to tackle Turkey’s cost-of-living crisis and other strains.

Simsek’s appointment as treasury and finance minister could set the stage for interest rate hikes in the coming months, analysts said, a marked turnaround from Erdogan’s longstanding policy of slashing rates despite soaring inflation.

After winning a runoff election last weekend, Erdogan, 69, who has ruled for more than two decades, began his new five-year term by calling on Turks to set aside differences and focus on the future.

Turkey’s new cabinet also includes Cevdet Yilmaz, another orthodox economic manager, as vice president, and the former head of the National Intelligence Organization Hakan Fidan as foreign minister, replacing Mevlut Cavusoglu.

Erdogan’s inauguration ceremony at Ankara’s presidential palace was attended by NATO Secretary-General Jens Stoltenberg, Venezuelan President Nicolas Maduro and other dignitaries and high-level officials.

The apparent U-turn on the economy comes as many analysts say the big emerging market is heading for turmoil given depleted foreign reserves, an expanding state-backed protected deposits scheme, and unchecked inflation expectations.

Simsek, 56, was highly regarded by financial markets when he served as finance minister and deputy prime minister between 2009 and 2018.

Analysts said that after episodes in which Erdogan pivoted to orthodoxy only to quickly return to his rate-cutting ways, much would depend on how much independence Simsek is granted.

“This suggests Erdogan has recognized the eroding trust in his ability to manage Turkey’s economic challenges. But while Simsek’s appointment is likely to delay a crisis, it is unlikely to present long-term fixes to the economy,” said Emre Peker, a director at Eurasia Group covering Turkey.

“Simsek will likely have a strong mandate early in his tenure, but face rapidly increasing political headwinds to implement policies as March 2024 local elections draw near,” Peker added.

Erdogan’s economic program since 2021 stresses monetary stimulus and targeted credit to boost economic growth, exports and investments, pressing the central bank into action and badly eroding its independence.

As a result, annual inflation hit a 24-year peak above 85% last year before easing.

The lira has lost more than 90% of its value in the last decade after a series of crashes, the worst in late 2021. It hit new all-time lows of more than 20 to the dollar after the May 28 vote.

Turkey’s longest-serving leader, Erdogan won 52.2% support in the runoff, defying polls that predicted economic strains would lead to his defeat.

His new mandate will allow Erdogan to pursue the increasingly authoritarian policies that have polarized the country, a NATO member, but strengthened its position as a regional military power.

At the inauguration ceremony, attended by Hungarian Prime Minister Viktor Orban and Armenian Prime Minister Nikol Pashinyan, Erdogan struck a conciliatory tone.

“We will embrace all 85 million people regardless of their political views. … Let’s put aside the resentment of the election period. Let’s look for ways to reconcile,” he said.

“Together, we must look ahead, focus on the future, and try to say new things. We should try to build the future by learning from the mistakes of the past,” he said.

Erdogan became prime minister in 2003 after his AK Party won an election in late 2002 following Turkey’s worst economic crisis since the 1970s.

In 2014, he became the country’s first popularly elected president and was elected again in 2018 after securing new executive powers for the presidency in a 2017 referendum.
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