Turkish Elections: What Now?

Author: Emre Deliveli  ·  June 13th, 2011  ·  213http%3A%2F%2Fwww.economonitor.com%2Femredeliveli%2F2011%2F06%2F13%2Fturkish-elections-what-now%2FTurkish+Elections%3A+What+Now%3F2011-06-13+18%3A49%3A16Emre+Delivelihttp%3A%2F%2Fwww.economonitor.com%2Femredeliveli%2F%3Fp%3D213 › Share This Print

You probably know it already, but yesterday’s Turkish general elections ended with a resounding AKP victory. There is a short Roubini Global Economics critical issue, and you can read more details at Citi’s note, as well as at the in-depth coverage at Hurriyet Daily News, but here are my two cents:

The results are close to the ideal scenario I had outlined in last week’s column, which also appeared here:  An AKP victory not strong enough to take the new Constitution to the Referendum alone. With 49.90 percent of the votes and 326 seats in the Parliament, the AKP just fell short of the 330 threshold. Turkey analysts, who had adopted my (I am not sure it is really mine or not) line of thinking before the elections, called the result “the goldilocks scenario”. While I agree with them in principle, I have a few caveats, which all for the more careful approach I outlined in the addendum to the column.

First, a consensus Constitution is not in the bag. Anyone who is familiar with Turkish politics would agree that it would not be too difficult for Erdogan to woo four deputies to reach the magical 330. Or he could come into agreement with the Kurdish BDP MPs, who are in the Parliament as independents (in fact, all 36 of the independents are from the BDP). At his balcony speech last night, Erdogan emphasized that he would not go this route and instead seek consensus on the Constitution. That is a relief, but given that he did not carry out most his promises at the previous victory speech in 2007, I would prefer to wait and see.

Second, this result is sort of a disappointment for the main opposition CHP. Although their 26 percent (135 seats) is much better than their performance at the 2007 general and 2009 local elections, they were expecting at least a couple percentage points above that level. So the possibility of an internal coup by the old guard can not be ruled out. In fact, a party council member called on Kilicdaroglu to resign today.

As for what the elections results mean for economic policy, again simple logic would tell you that this is a good result. An AKP not worried about taking its own Constitution to the Referendum (as opposed to a Consensus constitution) should be more likely to undergo fiscal restraint to cool down the economy and address the ballooning current account deficit (see here for a summary of today release of April Balance of Payments).

Besides, I am starting to get more and more convinced that the AKP is not that worried about a crash landing, especially if it would result on a price, i.e. the exchange rate, rather than quantity adjustment, i.e. contraction. They might be thinking that since there are not a whole lot of currency mismatches in the banking sector and in general the economy, the damage would be limited. I would beg to disagree, since such a sudden stop would ultimately lead to a GDP contraction, higher inflation and higher interest rates.

Finally, although I just mentioned that I am skeptical on the PM’s victory speeches, he mentioned the mega projects instead of the need for economic stability, so that kind of made me a bit worried.

One final footnote: The PM’s regional emphasis was also quite interesting. Since the new editor-in-chief at Hurriyet Daily News, where I write my weekly columns, wrote in his editorial today that he would like to transform HDN into a regional newspaper, I cannot complain:) Besides, I now know that Jordanians have a better sense of regional dynamics than Turks, or at least this particular Turk: I had already reported on how they see Erdogan as a regional leader, and now that the PM has confirmed that, I bow before them:)…