The ruling Justice and Development Party (AKP) just won back control of Parliament which had been lost in June of this year. President Recep Tayyip Erdogan had called for the election held on Sunday,when previous attempts to form a coalition government had failed.
This summer,was the first time that AKP did not have a majority in thirteen years. The resounding electoral victory strengthens the grip,that President Erdogan has over Turkish politics. It makes him the most influential political leader since Kemal Ataturk,the founder of modern Turkey who died in 1938.
The news was also a positive development for investors. The Turkish lira surged 4.7% on the election results,reaching a level of 2.7850 to $1.00 USD (United States Dollar). Ten year bonds sold by the government of Turkey,saw yields plummet 53 basis points to 9.24%. Although these developments were a hopeful sign for the Turkish economy,a number of challenges still remain.
AKP was able to win 316 seats out of 550 in the legislature,because Turkish voters have increasing anxiety over two main issues. These are a slowing economy and the security of the country. This explains why Turkey’s leading political party,was able to gain a 49.4% national vote in the recent election. Polls had suggested that AKP would only garner between 40 and 43 percent of the vote,which was only marginally better than what was achieved in June.
The political stalemate and the increasing violence with the Kurdish minority,took a toll on the Turkish economy throughout the summer. The lira had fallen by 25% against the dollar in 2015 alone,before the rebound this week. The main share index in Istanbul increased 5.5% in late trading,as news of the election results permeated through the markets.
The likelihood of a more stable government,is what has increased the confidence of investors and traders in Turkey. Now that a coalition government has been replaced by a solid majority in the legislature,entrepreneurs are expecting more stability in the financial and business environment of the country.
Although the election results have given a temporary boost to the flagging economy,the government will need to move quickly to solidify these gains. The AKP has lost a great deal of credibility in recent months,with their lackluster management of the economy.
At this point investors want to know what new plans the government may have,to start growing the economy again. The economy has slowed to just 3%,despite the official government target of 4%.
Inflation had already reached 7% by August,which can easily bring increasing instability to a country dealing with some pressing issues both from within and without. Unemployment in Turkey inched up over the summer,reaching 9.8% by July of this year. It was registering a four month high.
Supporters of AKP believe that the new majority,will now permit better economic results. This is in addition to providing religious conservatives,a strong voice in the government of the country.
Despite the breadth of the victory on Sunday,the party still fell short the amount of seats needed to call for a referendum. They would need to pick up an additional 14 seats,for this to be possible. If AKP had secured 60 more seats,there would have been no need for a referendum.
President Erdogan wants to change the National Constitution,which will then permit an enhancement of his political power. It is the expanding power grab by the President,that is concerning to critics within Turkey and from observers abroad.
Opponents of the AKP,are increasingly preoccupied about the authoritarian tendencies of President Erdogan in recent years.
The rising political polarization of Turkey can be somewhat attributable to President Erdogan. As criticism of his policies have increased,he has responded by crackdowns on free speech and opposition media.
Political adversaries will often find themselves under investigation or worse. An example of this,was last weeks police raid of the opposition media group Koza-Ipek. The assets of the company have already been seized by the government. Broadcasts from the company by journalists not agreeing with the new pro-government line,were not permitted to air. These and other reporters were soon out of a job.
Other political operatives in opposition to the President,will often find themselves implicated in terrorist links. This allows the government through use of the police and the legal system,to intimidate and put down resistance to government initiatives.
There are some that accuse the President of either permitting the violence or even encouraging it as an electoral ploy. The ceasefire that had existed between the Turkish armed forces and militants supporting the opposition Kurdistan Workers Party (PKK),is in total disarray after a suicide bombing that occurred in July. The perpetrators of this attack were suspected Islamic State (IS) militants,which led to the death of more than 30 Kurds.
Following this event,came the most violent attack in recent memory caused by two suicide bombers. It involved the death of more than 100 people,killed in a peace rally in the nations capital of Ankara. The gathering was attended by mostly political opponents,to the left of President Erdogan and included many People’s Democratic Party (HDP) supporters. The government continues to insist,the attack is attributable to IS. Again,there are many critics of the President that insist that he is allowing the violence for political reasons.
This rising dissent in Turkish politics will be troublesome to a country desperate to attract more foreign investment. Increased domestic instability and rising violence has already led to a decline in investor activity inside Turkey. A more authoritarian government will not necessarily improve the situation and might even exacerbate the state of affairs.
The GDP (Gross Domestic Product) of Turkey is equal to $799.54 Billion USD,ranking it the 18th largest economy in the world. It ranks behind the Netherlands,but ahead of Switzerland. The GDP per capita is $10,400 USD. The GDP in PPP (Purchasing Power Parity) is $1,508 Trillion. Per capita that would be $19,610 USD. The population of the country stands at 77,695,904 according to a 2014 census.
During the course of the consolidation of power by President Erdogan in the past decade,the pace of growth in Turkey has gone from a sprint rate of nearly 9% to the present 3.5%. This has corresponded with the declining steps towards market reforms. A major weakness in the Turkish economy has been the prolonged current account deficit. As a result the government and Turkish banks are facing increasing financial difficulties.
A case in point,is the constant and controversial meddling that the President engages in with the affairs of the Central Bank. His economic beliefs concerning monetary policy often run counter to official bank policy,which is undermining the independence of the institution. His growing influence over the Bank,does not inspire confidence with banking institutions abroad nor with investors.
A number of foreign banks have already decided to abandon the Turkish markets,one being HSBC.
Erdogan’s combative stance with the sizable Kurdish minority which at a accumulation of 10 to 12 million make up about 20% of the population of the country,is ongoing and not winnable. Although his actions may have helped him at the ballot box,as he accuses the Kurds of acts of violence and terrorism,it has not solved current tensions.
An additional problem for the Erdogan government,is the near two million refugees that have ended up in Turkey. This is a result of the chaos,that is increasingly what the Middle East has become. It is creating ever more problems on the borders of the country. Many of these new migrants are now heading for Europe,creating a near crisis there. However,more will be soon arriving in Turkey to replace the refugees now leaving.
The mass of humanity now heading to Europe from Turkey,may actually help President Erdogan win some concessions from increasingly skeptical European leaders. Many have lost patience over his unwillingness to cede power,after more than a decade in control. His trampling on the political rights of individuals in Turkey and his increasingly anti-democratic posture,has made him a virtual outcast in many political circles in Europe.
This situation is going to change somewhat,now that Turkey is viewed as being vital in solving the present refugee difficulty. The recent arrival of German Chancellor Angela Merkel in the Turkish capital,is clearly an indication of this. She is even talking about moving forward with the long suspended negotiations,on moving Turkey towards greater economic integration with Europe.
Eventual membership in the EEC (European Economic Community),continues to be an official goal of the Turkish government.
To get the Turkish economy back on track,a definite change in direction will be necessary. Whether the newly elected government will be up to the task is hard to know,but recent signs are not encouraging,as the politics of the country are becoming more divisive and violent. However to maintain the recent surge in popularity,the ruling AKP will be compelled to begin some reforms to help stimulate more economic growth in Turkey.