Erdogan's high-risk gamble pays off

By bne IntelliNews November 2, 2015

Kivanc Dundar in Istanbul -


President Recep Tayyip Erdogan’s high-risk gamble to regain a parliamentary majority paid off in the elections on November 1, when his Justice and Development Party (AKP) won a much larger than expected 49.4% of the vote.

The AKP regained the parliamentary majority it lost in the June polls, increasing its share of the votes by nine points from 40%, when polls had indicated it would receive only between 40% to 43%.

Based on unofficial results, the AKP appears set to get 316 seats in the 550-seat parliament, more than the 276 seats needed to form a government, but falling short of the 330 seats needed to hold a referendum on giving more executive powers to Erdogan. The AKP is expected to begin the process of forming a new government this week.

PM Ahmet Davutoglu told his supporters the election result was a victory for democracy and he called for national unity. All the political parties should now work together to draft a new constitution, said Davutoglu, signalling that the AKP will still push for the presidential system.

As the country is clearly split down the middle between the AKP’s supporters and its opponents, critics of Erdogan now fear that the results will only embolden the president to tighten his grip on power and the country will move closer to more authoritarian rule. If Erdogan, encouraged by the stunning comeback, decides to silence the opposition and critical media, this will likely to sharpen social tensions and further deepen polarisation.

Victory emboldens Erdogan

The elections were held at a time when the country was beset by political deadlock, terror attacks, a government crackdown on opposition media, deepening social polarisation, a slowing economy and renewed clashes with Kurdish insurgents.

Erdogan engineered the crisis to ramp up support for his party and it has paid off: his politics of polarisation and hardened nationalist rhetoric delivered victory at the ballot box.

Erdogan had called a snap election after attempts to form a coalition failed in June, hoping that voters would choose stability over uncertainty and insecurity. His campaign focused mainly on security and stability, which apparently resonated well with both nationalist and Kurdish voters.

Opinion polls had pointed to a replay of the June election. Sunday’s results were a shock especially for the two opposition parties; the nationalist MHP and HDP that both lost ground to the AKP. Support for the MHP declined to 11.93% (41 seats) from 16.29% in June. The CHP’s share of the vote, on the other hand, increased to 25.38% (134 seats) from 24.95 %.

Ahead of the polls, critics of the government had been increasingly concerned that the AKP might attempt to rig the elections. Even though the opposition leaders complained that the election could not be deemed free and fair because of government interference with the media, they admitted defeat on Sunday night.

Supporters of the Kurdish party HDP, however, clashed with the police outside the party’s headquarters in Diyarbakir, the largest Kurdish city, after the results showed a clear victory for the AKP. There have been no reports of street protests in the country’s western provinces. The HDP’s votes declined to 10.71% (59 seats), just above the 10% threshold, from 13.12% in June.

Many had expected that Sunday’s elections would pave the way for a coalition government of the AKP and the main opposition, the secularist Republican Peoples’ Party (CHP), as the only viable option to break the country’s political deadlock and to ease social tensions. Others had predicted a coalition government between the AKP and MHP.

Either way it was expected that a coalition would not survive very long, and its “inevitable collapse” would force another election within a year. People feared a hung parliament and a coalition government would impede an already slowing economy.

“I don’t see any way out from this [political] mess” said, Ibrahim, a 28-year old engineer. “The economy will be poorly managed under a coalition government. Inflation will go up and we’ll see unemployment rising in coming months. Nobody would want to invest in a country like Turkey that will be ruled by a shaky coalition government”.

Markets rebound

The markets had also been pricing in a coalition government, and the Turkish lira responded immediately to the election of a powerful single-party government, surging to TRY2.8 to the dollar after weeks of uncertainty had depressed the currency to lows of TRY3.

The Turkish economy has been facing serious problems; exports have been weak, inflation is stubbornly high, unemployment is more than 9%, and the country’s slowing $800bn economy will have to struggle with strong headwinds as an interest rate hike by the US Federal Reserve approaches. The economy’s reliance on outside funding and large external debt leave Turkey vulnerable to a possible shift in foreign investor sentiment and exodus of capital from emerging markets that would be triggered by a Fed rate hike.

In the short-term the lira and the stock market should benefit from the AKP’s surprise victory as it has ended the political deadlock that contributed to the sharp depreciation of the local currency against the dollar.

But over the medium-term the scenario of more social tension  – if the ruling party does not change course – will remain a major risk factor. It is still unknown whether the new government would resume the peace talks with the Kurdish PKK guerrillas, which had declared a ceasefire until the elections.

The markets will hope the new government will focus on economic reforms to reignite the engine of economic growth and reduce the current account deficit, which has been improving recently only because the economic activity is weak. The World Bank reported in October that Turkey dropped to 55th place out of 189 economies in its latest “Doing Business 2016” ranking from its 51th place in the previous survey.

The composition of the new economy management team will be key to restore investor sentiment. There has been concern that the AKP’s new economic team would be composed of names close to Erdogan and that this team may continue to pressure the central bank to cut interest rates to boost growth.

It is yet to be seen whether the former deputy premier Ali Babacan and the current finance minister Mehmet Simsek, both well-respected by international investors, will assume positions in the new government. Babancan’s presence in the cabinet would calm investors’ nerves about the central bank’s independence. 

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