Turkish Prime Minister Tayyip Erdogan named Ali Babacan as his new economy tsar on Friday to tackle an economy expected to go into recession this year, part of an expected reshuffle to shore up his party's popularity. Erdogan sacked a third of his cabinet in the first major reshuffle since his AK Party first came to power in 2002. Babacan leaves as foreign minister to become economy minister, replacing Mehmet Simsek, who was appointed finance minister. Ahmet Davutoglu, a Middle East professor and architect of Turkey's foreign policy, was named foreign minister. Here are some things to watch: Does new cabinet mean policy changes? The appointment of Economy Minister Ali Babacan, who led Turkey's successful recovery from a deep crisis in 2001 as economy minister between 2002-2007, is key. The news was welcomed by markets as a sign Erdogan finally wants to tackle the economic crisis agressively. His party had its worst election result since 2002 in municipal polls in March because of ignoring how serious the economy was performing. Erdogan's decision to create a more powerful ministry under Babacan, who is close to both Erdogan and President Abdullah Gul, will make it easier to push policy because the previous cabinet had three ministries responsible for the economy, now it will be just two. Are the changes significant for markets? Markets will expect IMF talks to be concluded swiftly and for the government to push ahead with key economic reforms because the economy is now run by a Western-educated minister who was successful as an economy minister in 2002-2007. Simsek has also worked at Merrill Lynch in London and his pro-market stance will also be welcomed. An IMF deal will likely improve investor confidence, shaken by the global crisis and risk aversion. Will the new cabinet speed up EU reforms? Erdogan has pledged several times to speed up EU reforms, but Brussels wants him to translate words into action. New Foreign Minister Ahmet Davutoglu, until now Erdogan's chief foreign policy expert, is considered the architect of the ruling AK Party's foreign policy, but they may be concerned that his focus has been on Turkey's eastern neighbours not western. He has pushed for a more active policy in the Middle East. Davutoglu, may not be liked by some politicians, but he is respected for his skills and is liked by European diplomats. Key now will be whether he puts his weight behind EU reforms during a year seen as critical for the country's EU accession process. Sceptics say that as the EU is in a recession, struggling to cope with an enlarged bloc, Turkey does not see any benefit to push ahead with reforms to join the EU. Erdogan has said he wants to reform Turkey's 1982 military-inspired constitution, create an ombudsman and make it more difficult for the Constitutional Court to shut down political parties on ideological grounds. However, success will depend on how Turkey's makes progress on painful issues, such as clipping the power of the army or a deal on the divided island of Cyprus. Will Ankara's foreign policy change? Davutoglu, a Middle East professor, has spearheaded Turkey's foreign policy under the AK Party since 2002. Turkish foreign policy has shifted from its long status quo-focused stance and became much more activist, especially with neighbouring countries and the Middle East. This drive is expected to continue with Turkey working on normalising ties with Armenia, seeking to play a role in peace talks between Israel and Syria, bringing Iran out of isolation. Turkey also wants to help bring about national reconciliation between Palestinian factions.
