istanbul- As Turkey awaits a run-off in the presidential elections on Sunday, May 28, to choose between President Recep Tayyip Erdogan and his rival Kemal Kilicdaroglu, international media have warned of a decline in the local market and “difficult scenarios” awaiting him if existing policies continue.
Erdogan advanced in the first round by obtaining 49.5% of the vote, compared to 44.9% for Kilicdaroglu, which resulted in frustration among Western circles, which was reflected in reports reported by its media.
For his part, Erdogan stressed – during an interview with CNN Turk last Thursday – that he “will continue his unconventional policy of cutting interest rates to reduce high inflation if he wins the run-off.”
In the following, we review the indicators of the West’s apprehension of Erdogan’s victory, the reasons for its fears of his unconventional economic vision, its strengths and weaknesses, and what the Justice and Development Party has achieved since 2002.
Do investors and Western financial markets fear Erdogan’s victory?
Following the announcement of the run-off, international media circulated reports “warning against a return to the previous economic administration and the continuation of Erdogan’s economic policies,” after they had expected some of them to be canceled if Kilicdaroglu won.
Reuters news agency quoted John Harrison, general manager of Emerging Markets Studies at TS Lombard, a private banking company, as saying that “Erdogan’s policies have made Turkey uninvestable.”
The credit rating agency Fitch also warned that political and economic uncertainty will continue at least until after the run-off, and with regard to the country’s current rating “negative” (B-), it indicated that it would decide after the elections whether the policies The practice is more reliable and consistent.
Why does the West fear Erdogan’s unconventional economic vision?
For his part, the Turkish economist and head of the economics department at Sabah al-Din Zaim University, Abdul Muttalib Arba, believes that Erdogan and the West have reached a crossroads since the failed coup attempt in 2016.
Arba said – in an interview with Al-Jazeera Net – that “Erdogan’s policies before that were in line with the Western vision, and investments flowed as a result of political stability between 2002 and 2016, which was reflected in economic stability. But Erdogan after 2016, especially after assuming the presidency in 2018 He sought the independence of the Turkish economy by increasing domestic production and, accordingly, increasing exports and reducing both imports and the need for foreign currencies.
And the expert continued, “This contradicts Western interests that Turkey wants to remain dependent on by adopting (traditional) policies to increase imports over exports (reducing production accordingly), relying on foreign currencies, and raising interest to maintain the exchange rate of the lira.”
What are the elements of strength and weakness in the performance of the Turkish economy in the last 5 years?
Since mid-2018 – which marks the beginning of the sharp decline in the value of the Turkish lira against foreign currencies – Turkey has been experiencing economic crises that have exacerbated in the last three years with the aftermath of the Corona pandemic, the war in Ukraine, and the losses of the earthquake that struck the country last February.
- The triangle of interest, currency and inflation
According to the World Bank, Turkey has been suffering from “the absence of macro-financial stability since 2018 and the high rate of inflation,” hence the increase in prices and the decline in the purchasing power of the lira.
The Turkish lira has declined in recent days to a “record low” of about 19.80 to the dollar, and the currency lost 44% of its value in 2021 and 30% in 2022, in light of interest rates being cut despite high inflation as part of Erdogan’s unconventional strategy.
On the other hand, Erdogan describes in his speeches interest, the exchange rate of the lira, and inflation as a “triangle of evil,” and stresses that everyone “at home and abroad has come to see that Turkey will not submit to this triangle.”
According to the Central Bank of Turkey, the inflation rate reached 45.48% and the interest rate 8.50% last month, and it is scheduled to hold a meeting on the interest rate 3 days before the run-off.
Abdel Muttalib Arba attributed the decline of the lira to political and economic instability and the resort to buying foreign currencies, and attributed the rise in inflation to the costly bills for energy imports (to meet 95% of the country’s needs at the time), especially at the time of the Corona pandemic.
- Debt and foreign exchange reserves
In the three days after the first round, bank stocks and sovereign dollar-denominated bonds fell and the cost of insuring Turkey’s debt against default rose, given the country’s credit rating downturn and Turkey’s current account deficit.
Foreign exchange reserves also fell to record levels in the week preceding the elections, reaching $60 billion and $815 million.
On the issue of debt, the Turkish expert expected Erdogan’s next government to adopt austerity policies to deal with it, noting that political stability during the coming period will allow investments to be paid.
While Arba attributed the decrease in reserves to government spending to deal with the crises that struck the country, from Corona to the earthquake, in addition to the efforts of the Turkish Central Bank to support the lira and stabilize the exchange rate.
- growth and unemployment rates
According to the Turkish Statistical Institute, the local economy grew 5.6% in 2022, exceeding expectations, compared to a slowdown in growth to 3.5% in the last quarter.
Arba said, “Growth rates in general are increasing, and the Turkish economy is renewed and characterized by high quality and diversity in production, the use of modern technologies in it, the youth population density and the quality of craftsmen, so there is a trend for the Turkish market as an alternative to the Chinese.”
While the opposition accuses the government of “failing to combat unemployment,” Arba explained that it “reached 10% according to the last census last March, but there are also thousands of job opportunities offered daily.”
How does the government deal with these problems?
According to the Turkish expert, the government followed 3 measures to deal with crises:
- Allowing the opening of accounts for “Turkish lira deposits protected from exchange rate fluctuations” at the end of 2021, as it guarantees that the lira depositor will not fall victim to exchange rate fluctuations, and obtain the declared interest, in addition to the difference in the dollar price between the times of deposit and withdrawal.
- Intensifying energy discoveries to reduce dependence on its imports. Indeed, Erdogan announced his country’s recent discovery of natural gas in the Black Sea, oil in the Gabar region of Sirnak state, and the establishment of huge solar energy fields in Konya state.
- A regular increase in the minimum wage in the public and private sectors, and next July the increase for public sector employees will reach 45% (as Erdogan announced, bringing the minimum to 15,000 lira if he wins), i.e. less than the inflation rate expected at the time, so that the citizen will not be a victim .
What is the outcome of the results of the Justice and Development Party since 2002?
Turkey, according to the World Bank, ranks 19th among the largest economies in the world, with a gross domestic product of about $906 billion. Turkey, a member of the Group of 20, has achieved ambitious reforms and enjoyed high growth rates between 2006-2017 that pushed it to the highest levels of above-average income and reduced from poverty.
In turn, Arba pointed out that the income level of the Turkish citizen before 2002 was modest, but the per capita GDP rose from $3,641 at the time to $9,661 in 2021.