Turkish economy braces for post-poll uncertainty
ANKARA – Turkey’s booming economy could suffer from increased uncertainty and government weakness if Prime Minister Recep Tayyip Erdogan decides to run for president in next month’s elections. An Erdogan presidency could upset sensitive political balances in Muslim but secular Turkey and raise risks for its economy, which has notched up high growth rates in the last four years, helped by a broad-based global economic expansion and ample liquidity in world financial markets. Turkey’s parliament, where Erdogan’s Justice and Development Party (AKP) has a wide majority, will elect the successor to incumbent Ahmet Necdet Sezer, a staunch secularist, who retires in May. The absence from government of the charismatic Erdogan, an ex-Islamist opposed by Turkey’s secular elite, could mean fewer votes for the AKP in general elections due later this year and thus boost the risks of a coalition government. Under Erdogan’s government, Turkey has recovered strongly from a 2001 financial crisis and begun EU membership talks. «Compared to today, there will be a more difficult political climate next year with a weaker government and a partisan president,» said Lehman Brothers analyst Tolga Ediz. He said a president from the AKP could erode checks and balances in Turkey’s political system and fuel new tensions. «Such a climate will raise Turkey’s risk premiums,» he said. If Erdogan becomes president, his loyal deputy Abdullah Gul, now foreign minister, is expected to become prime minister. «We do not know whether the AKP led by Gul will get more or fewer votes in the elections… There is also major uncertainty over the number of parties that will enter the new parliament,» said Fortis Bank Chief Economist Haluk Burumcekci. It will not be easy to form a coalition government out of the four parties that many expect to get into parliament, Burumcekci said, adding little was known about the other parties’ economic policies. If one of the coalition partners challenged the central bank’s independence or Turkey’s free-floating exchange rate regime, then this would scare investors, analysts said. No big hit If Erdogan decides to run for president, as many in his party want, they say, Turkish markets could see a sell-off, but losses are likely to be limited as soft global interest rates continue to lubricate the wheels of its fast-growing economy. «Erdogan’s presidency has already been factored into prices but still there will be modest selling if he decides to run,» said JP Morgan Senior Economist Yarkin Cebeci. If he decides to remain as prime minister, this would be viewed positively and could spark a «relief rally» in the financial markets, Cebeci said. However, the most important factor for Turkish markets in coming months will remain the global financial environment. «The Turkish markets continue to show strength, and we have no reason to expect that fact to change as long as the global environment remains supportive,» Danske Bank Senior Economist Lars Christensen said. He said if Erdogan decides to run for president, investors would undoubtedly see this as negative. But having the pro-market reform Erdogan as president working in harmony with the government could be positive for Turkey’s hard-gained economic stability over the medium term. «The markets will see a President Erdogan and Prime Minister Gul as the guarantee of continuation of IMF-backed structural changes and the drive to join the European Union,» said Cebeci. President Sezer, distrustful of AKP intentions, has vetoed a number of IMF-backed reforms such as that of social security and blocked key appointments.
