Magazine article Business Credit

Hot Spots: Turkey

Magazine article Business Credit

Hot Spots: Turkey

Article excerpt

Prime Minister Recep Tayyip Erdogan was not on the ballot on March 30 when voters made their choices in nationwide municipal elections, but he campaigned as if he was, and the contest was widely viewed as a "referendum" on his performance and that of his ruling Justice and Development Party (AKP). Other democratically-elected leaders might have been seriously hurt politically by what Erdogan faced over the preceding three months, from a corruption inquiry into government-connected figures, including his own son, to a rash of seemingly incriminating leaks on the Internet and to a split with a much-feared former ally, Fethulla Gulen. Still, the AKP won another victory with 46% of the vote against the opposition Republican Peoples Party's (CHP's) 28%.

The CHP retains support among members of the secular-minded, urban middle class in the cosmopolitan centers of Ankara and Istanbul, but it has no clout in the expanses of the central and eastern Anatolian plains. The party has evidently failed to cast off its image as a bastion of the secularist elite that does not understand the harsh realities of life in this socially conservative nation of 77 million people, whereas the AKP's showing was a clear improvement on the 39% of the vote it received in the previous municipal elections. Turkish politics are now polarized as scarcely ever before. Erdogan has become the country's strongest leader since Mustafa Kemal Ataturk founded the secular republic on the ashes of the Ottoman empire, and he is clearly determined to make the most of the support he has.

The financial markets appear to be pleased by all this. Investors want stability, above all, and they have been taken in by Turkey's economic advances under the AKP and by vows that Erdogan and the party plan to raise the Turkish economy to the world's top ten by 2023. They have heard Erdogan campaigning for his party's local candidates in speeches studded with references to roads and hospitals built, social programs launched and surges in welfare set in motion. The lira, the local stock market and bonds all shot up in immediate reaction to the news of the election results. Chances are, though, that the welcome given to Erdogan's victory will not last.

The rally also reflected a belief that Turkey will not face an immediate escalation of the power struggle that has paralyzed its institutions in recent months. Erdogan, who has become increasingly authoritarian, now seems more concerned now with going after his real or perceived enemies than with tackling the reforms needed to underpin longer-term economic growth. He feels he is now invincible since he has all along maintained the notion that so long as voters back him, he is entitled to do whatever he wants.

His regime has already fired and/or relocated prosecutors and thousands of police officials, insisting that they were taking orders from Gulen, his one-time ally. After a deluge of postings on the Internet calling into question everything from the financial probity of his ministers and family to their religious beliefs, he tried to ban Twitter and YouTube, albeit with little success since Turkish techies found workarounds within hours. This promptly took the sting out of his threats to shut down Facebook. Undeterred, he has vowed to pursue foes he blames for the graft probe that roiled the markets and led to cabinet resignations. This makes one suspect that the currency and bond rallies will not be sustained, since political tensions are sure to persist and may well get worse.

Erdogan has already sought openly to interfere with the independence of the Central Bank and push it to cut interest rates, albeit, without success. …

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