Turkish PM resigns and bears 'no grudges' despite struggles with Erdogan

Political rivalry between Turkey's Prime Minister Ahmet Davutoglu and President Erdogan has culminated in the resignation of Davutoglu, prompting fears that Erdogan will be able to grab even more power.

Prime Minister Davutoglu resigned from his role on Thursday amid reports of growing tensions with Turkey's president, however he told a press conference that he bore "no grudges" as his party leadership came to an end, Reuters reported.

Announcing his resignation, Davutoglu said he would "never utter a word against President Erdogan," whose friendship he had valued above all, Reuters said.

However, the resignation comes after what analysts called a "barrage of criticism" of Davutoglu in pro-government media and expectations were high that Erdogan was about to replace him as both prime minister and chairman of the ruling Justice and Development (AK) party.

The writing was on the wall for Davutoglu as, after he and Erdogan met on Wednesday evening, party officials said that the prime minister was expected to step aside from both his public roles at an extraordinary congress reported to be held on May 22.

Davutoglu called for party unity ahead of the congress and said the party would form a new government after the convention.

News agency AFP reported earlier on Thursday that Davutoglu will not seek a new mandate at the forthcoming congress and the outgoing prime minister confirmed that during the press conference.

Sealing Davutoglu's fate earlier today, one of Erdogan's presidential advisors said on Thursday morning that Turkey was not expected to hold a snap election after the AK party elected a new leader and would continue "securely" until the current government's mandate expires in 2019, Reuters reported.

President Recep Tayyip Erdogan and Prime Minister Ahmet Davutoglu
President Recep Tayyip Erdogan and Prime Minister Ahmet Davutoglu

During an interview with broadcaster NTV, government advisor Cemil Ertem said that Turkey and its economy would stabilize further once a prime minister was in office who was more "closely aligned" with President Erdogan.

Wolfango Piccoli, co-president of Teneo intelligence, said in a note on Wednesday that Erdogan loyalists were being tipped to replace Davutoglu.

"The current frontrunner to replace Davutoglu is Transportation Minister Binali Yildirim, but the name of Justice Minister Bekir Bozdag has also been floated. A devoted Erdogan loyalist, Yildirim was named in the corruption scandals that erupted in December 2013, but Erdogan intervened personally to protect him," he said.

More power for Erdogan?

President Erdogan has been president since 2014, having served as prime minister from 2003 to 2014. Although he has presided over a period of economic prosperity in the country he has also been accused of trying to reshape its secular founding principles, take control the media, police and judiciary. He has also been dogged by allegations of corruption in his party.

Last year, an inconclusive election in June led to a second vote in November which, occurring during a period of renewed conflict between Turkey and Kurdish separatists and the growing threat from terrorist group Islamic State in neighboring Syria, meant that Turks looked to a tried and tested leadership and the AK party regained its parliamentary majority.

It is believed that Erdogan was irked by Davutoglu's reluctance to push through a new constitution – which would afford Erdogan's president more power – although William Jackson, senior emerging markets economist at Capital Economics said in a note Thursday that "the two also appear to have clashed on issues such as pre-trial detentions, the relationship with the EU and the appointment of the central bank governor."

The Turkish lira was trading at a two-month low against the dollar after the comments and at 2.9030 against the dollar after Davutoglu's announcement. Capital Economics' Jackson said that the resignation was "likely to mean Turkish markets are in for a choppy ride in the coming days and weeks."

"The resurfacing of political risk on investors' radar serves as a reminder that the longer-term outlook for the Turkish economy isn't as rosy as some seem to think."

"Concerns center on the fact that the relatively moderate, conciliatory and well-respected Mr. Davutoglu is being pushed aside, probably to be replaced by someone more malleable by increasingly-authoritarian President Erdogan."

He said markets were likely to be worried by two things: firstly, that a change of prime minister might make it more likely that Turkey adopts a new constitution that empowers Erdogan further and secondly, that "a strengthening of President Erdogan's powers might lead to more vocal demands on the central bank to lower interest rates to boost growth."

Turkey's central bank has so far resisted pressure to lower rates in the face of slowing growth in Turkey although last month it made its first cut since February 2015, cutting its overnight lending rate to 10.5 percent from 10.75 percent although it erred on the side of caution by maintaining its main benchmark rate at 7.5 percent.

More political on the bank would bring its independence into question, undermine its attempts to combat inflation (at 6.57 percent in April from a year earlier and slowly declining towards the bank's 5 percent target) which could, in turn, deter investment, Jackson warned.

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