An analytical exploration of Turkey's state governance under the executive presidential system, examining the radical shifts in institutional balance, the historical and ongoing struggle for central bank independence, the expansion of state-owned entities, and the fiscal risks of off-budget guarantees and sovereign wealth management.
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The governance architecture of Turkey has undergone a profound transformation over the past decade, reshaping the relationship between the state, the economy, and the financial system. The transition from a parliamentary democracy to an executive presidential system has centralized authority to an unprecedented degree, altering the institutional checks and balances that govern fiscal and monetary policy. Under this highly centralized model, the state’s grip on the economy has tightened through the direct control of regulatory agencies, the strategic use of state-owned enterprises (SOEs), and the consolidation of critical corporate assets under the Turkey Wealth Fund (TVF). Analyzing Turkey's government structure is essential to understanding both the execution of its macroeconomic policy and the risks that global investors navigate in the Turkish market.
To appreciate the scale of this constitutional shift, one must look at Turkey's modern political history, which has long been defined by tension between a strong executive and a highly fragmented legislative branch. From the first modern constitution in 1924, through the post-coup charters of 1961 and 1982, Turkey maintained a parliamentary structure. While the 1961 constitution introduced robust checks and balances—including a bicameral parliament and the Constitutional Court—the 1982 constitution, drafted under military rule, began a long process of strengthening the executive. However, it was not until the constitutional referendum of April 2017 that the parliamentary system was dismantled. Passed by a narrow margin, these constitutional amendments completely restructured the state administration, removing key mechanisms of administrative and legislative accountability.
The executive presidential system, fully implemented following the 2018 general elections, completely restructured the executive branch. The office of the Prime Minister was abolished, and all executive authority was transferred to the President, who now serves as both the head of state and head of government. The President directly appoints the cabinet ministers, vice presidents, and senior bureaucrats, bypasses parliamentary approval for major administrative decisions through presidential decrees, and possesses direct authority over the national budget, representing a classic case of executive-led economic governance). This hyper-centralization of authority allows for rapid decision-making but strips away the institutional filters that historically protected policy from the direct whims of the executive.
Under this presidential system, the Legislative and Judicial branches have seen their oversight and balancing capabilities significantly reduced. The Grand National Assembly of Turkey (TBMM), while remaining the sole law-making body, has lost its primary mechanism of executive accountability: the oral question-and-answer sessions and the motion of no confidence. Legislative initiatives are increasingly dominated by bills drafted within the presidency and introduced by the ruling coalition. Similarly, the independence of the Judiciary—including the Constitutional Court (AYM) and the Council of State (Danıştay)—has been under intense pressure, with the executive wielding substantial influence over the Council of Judges and Prosecutors (HSK), which controls judicial appointments, creating a highly politicized legal framework that has eroded investor confidence in property rights.
The loss of legislative oversight is particularly apparent in the budget formulation process. Historically, the TBMM's Plan and Budget Commission held intensive, multi-party debates to review, revise, and approve the government’s spending bills, providing a vital forum for public audit. Today, under the presidential system, the draft budget is prepared entirely within the Presidential Strategy and Budget Directorate and submitted directly to the assembly. If the parliament fails to pass the budget on time, the previous year's budget is automatically implemented with inflationary adjustments (a provisional budget). This rule essentially strips the opposition of any legislative leverage to block or modify executive expenditure, representing a major loss of fiscal transparency.
Furthermore, the diminished role of the TBMM has weakened the auditing power of the Turkish Court of Accounts (Sayıştay), the supreme audit institution. Historically, the Court of Accounts reported directly to the parliament, conducting thorough audits of public expenditures and public assets to identify waste and corruption. Under the new executive system, however, the presidency has repeatedly delayed or restricted the publication of these audit reports, and the executive decrees have shielded key state initiatives from independent scrutiny, further consolidating executive control over public finances and leaving public assets vulnerable to unchecked executive utilization.
The centralization of power has had immediate, profound consequences for monetary policy, most visibly manifested in the erosion of central bank independence). Legally, the Central Bank of the Republic of Turkey (CBRT) was granted operational independence in 2001 to pursue its primary mandate of price stability. However, under the presidential system, this independence was severely undermined. Presidential Decree No. 3, issued in July 2018, granted the President the authority to dismiss the central bank governor and senior executives at will, overriding the long-term tenure protections designed to shield monetary policy from political business cycles.
This decree paved the way for the institutional crisis of the CBRT. Between 2019 and 2023, President Erdoğan dismissed four central bank governors in rapid succession for failing to align monetary policy with his unorthodox low-interest-rate thesis. This rapid turnover decimated the CBRT's policy credibility and fueled the devastating 2018-2023 currency crisis. The central bank's policy decisions became subordinate to the executive's growth targets, resulting in deeply negative real interest rates and hyperinflation. Although post-2023 appointments marked a return to professional, orthodox leadership, the structural vulnerability remains: as long as the legal authority to dismiss governors at will rests with the president, the CBRT’s independence remains contingent on political goodwill rather than statutory protection.
The state’s economic grip is further extended through its fiscal framework and the Ministry of Treasury and Finance, which manages public revenues, debt, and international financial relations. Under the presidential system, the ministry's role has been heavily politicized, notably during the tenure of Berat Albayrak, President Erdoğan's son-in-law, who oversaw the highly controversial depletion of central bank foreign reserves. Fiscal policy, historically a strong anchor of the Turkish economy, has increasingly turned to off-budget instruments and creative accounting to finance public works and support credit growth, complicating the task of the recent orthodox macroeconomic stabilization program. This has created a dual-track fiscal reality: a highly disciplined central government budget running low deficits, contrasted with massive off-budget liabilities and contingent debts.
A key instrument of this state-directed economic strategy is the Turkey Wealth Fund (Türkiye Varlık Fonu, or TVF), established in August 2016. Unlike traditional sovereign wealth funds (SWFs) in Gulf nations or Norway, which are funded by fiscal surpluses from commodity exports, the TVF is a national development fund built by pooling existing state-owned assets. The President serves as the Chairman of the TVF's Board of Directors, ensuring direct executive control over the fund’s strategic decisions. The TVF's portfolio includes Turkey's most valuable state assets, known as the 'crown jewels' of the economy: Ziraat Bank, Halkbank, Turkish Airlines, Turkcell, BOTAŞ (the natural gas company), the Post and Telegraph Organization (PTT), and the Istanbul Stock Exchange (Borsa Istanbul). This unique structure is a subject of intense study in sovereign wealth fund structures).
By consolidating these multi-billion-dollar assets, the TVF acts as a massive borrowing and financing vehicle, leverageable on international capital markets without being subject to the strict budget rules and parliamentary oversight that govern the central government. The TVF has been used to bail out struggling state companies, recapitalize public banks burdened by cheap credit campaigns, and fund mega-infrastructure projects. However, this off-budget capability creates substantial fiscal risks, as it blends commercial operations with public policy objectives, potentially obscuring the true scale of public debt and contingent liabilities. The lack of standard public audit by the Court of Accounts (Sayıştay) further limits transparency and accountability, raising concerns among international sovereign credit analysts.
An illustrative example of the TVF's interventionist role is its acquisition of Turkcell, the country's leading telecommunications provider, in 2020. Following years of shareholder disputes, the TVF stepped in to purchase a controlling 26.2% stake in the telecom giant, effectively nationalizing the infrastructure provider. Similarly, the TVF funded the construction of the massive Istanbul Financial Center (IFM) in Ümraniye, stepping in to buy out private contractors who faced bankruptcy during the 2018 currency crash. While these interventions stabilize critical assets during crises, they systematically expand the state's footprint in commercial sectors, crowding out private competition and consolidating executive control over vital digital and financial networks.
The TVF's portfolio has also been heavily leveraged to support Turkey's state-owned banks, notably Ziraat Bank, Halkbank, and Vakıfbank. During the unorthodox monetary era, these institutions were utilized by the executive as direct channels to flood the market with cheap commercial and consumer credit. Because these banks were forced to lend at interest rates far below the prevailing inflation rate, they suffered severe 'duty losses' and capital erosion. To prevent their insolvency, the TVF executed multiple recapitalization campaigns, injecting billions of liras of newly issued public debt back into the banks. This constant recycling of public funds highlights the fiscal circle of the modern Turkish state, where the wealth fund is utilized as an off-budget buffer to absorb the damages of unorthodox monetary policy.
These contingent liabilities are particularly acute in Turkey's extensive network of State-Owned Enterprises (SOEs) and the massive use of Public-Private Partnerships (PPPs). For over two decades, Turkey has pioneered the use of the Build-Operate-Transfer (BOT) model to construct roads, bridges, tunnels, airports, and city hospitals. To attract private consortiums and international lenders, the Ministry of Treasury and Finance issued extensive Treasury Guarantees, promising to pay the private operators in hard foreign currency (usually US dollars or Euros) if public usage fell below guaranteed minimum targets. In an environment of severe currency depreciation, these foreign-currency-denominated guarantees have become an escalating fiscal burden, transferring exchange rate risk from the private sector to the public treasury and creating significant public-private partnerships fiscal risks).
A massive contributor to these SOE fiscal dynamics is BOTAŞ, the state-owned oil and natural gas pipeline corporation. Under executive direction, BOTAŞ frequently imported natural gas at high international prices and distributed it to domestic households and local industries at deeply subsidized rates to protect consumers from the hyperinflationary spiral. During the global energy crisis of 2022, these hidden subsidies generated multi-billion-dollar losses on BOTAŞ's balance sheet, which were ultimately absorbed by the central treasury through direct equity transfers and tax deferrals. This highlights how the state uses public companies as fiscal shields to hide structural imbalances, adding significant hidden liabilities to the public sector's balance sheet.
Moreover, the state's economic governance relies heavily on powerful independent regulatory agencies that police key sectors. These include the Banking Regulation and Supervision Agency (BDDK), the Capital Markets Board (SPK), the Information and Communication Technologies Authority (BTK), and the Energy Market Regulatory Authority (EPDK). While designed to be independent market referees, these agencies have been increasingly used under the presidential system as policy instruments to enforce the executive's macroeconomic targets. During the unorthodox monetary era, for example, the BDDK issued hundreds of micro-regulations, punishing commercial banks that refused to extend cheap loans or implementing capital-control-like measures on corporate foreign exchange holdings. This has blurred the line between market regulation and active state intervention, adding a layer of complexity for foreign entities navigating Turkey's regulatory environment.
The regulatory capture of the Capital Markets Board (SPK) has also driven an unprecedented IPO boom since 2021. As hyperinflation decimated the purchasing power of the Turkish lira, domestic retail investors rushed to buy stocks on Borsa Istanbul to hedge their savings, causing the stock index to skyrocket. The SPK facilitated this frenzy by greenlighting hundreds of IPOs for medium-sized, highly indebted companies seeking cheap public capital to survive the liquidity squeeze. This state-facilitated stock market expansion temporarily protected local savers but also created a highly speculative environment, raising structural concerns about asset pricing, market manipulation, and the potential fallout of a major stock market correction on retail household balance sheets.
In conclusion, the government structure of Turkey under the executive presidential system represents a highly centralized model of state-directed capitalism. The concentration of executive power has enabled the rapid mobilization of state resources, the execution of massive infrastructure projects, and the development of a powerful Turkey: Military and Paramilitary Forces. However, this hyper-centralization has come at a severe cost to institutional quality. The erosion of central bank independence, the weakening of legislative and judicial oversight, and the reliance on off-budget financing mechanisms like the Turkey Wealth Fund and Treasury-backed PPPs have introduced deep fiscal vulnerabilities and reduced legal predictability. For Turkey's economic future, restoring robust institutional checks and balances and enhancing the transparency of public accounts is as critical as hiking interest rates, as sustainable long-term growth requires a predictable governance framework that commands the trust of both domestic savers and global investors.