Erdoğan’s Election As President Is No Slam-Dunk

After the local elections in Turkey on March 30^th there are undoubtedly millions of voters who would agree with the late American journalist and essayist H.L. Mencken about the value of democracy.

The ruling Justice and Development Party (AKP) won another large victory in the municipal despite allegations of massive government corruption and the increasingly intolerant, authoritarian behaviour of Prime Minister Tayyip Erdoğan. Opposition political leaders must be scratching their heads wondering what it takes to shake the faith of the mass of voters about the value of the AKP.

Mencken would probably tell them they had a very difficult task indeed.

           

Democracy, he once wrote, “is the theory that the common people know what they want – and they deserve to get it good and hard.”

Still others would share his cynicism that “democracy is a pathetic belief in the collective wisdom of individual ignorance.”  Or perhaps they would agree with him that “Every decent man is ashamed of the government he lives under.”

Certainly there are many in Turkey who are ashamed of the government they must live under. Unfortunately for them they don’t seem to agree what to do about it. In the old days it was easy. Simply dial up the army and let them deal with it. Now, the opposition has to do the hard work of grass roots politics. And that takes time, money and commitment to deliver services rather than merely bleat about the evils of the existing government. Twitter and YouTube alone are not going to deliver the hard-to-earn votes.

You may not like the AKP, but you have to admit they are very, very good at grass roots political organising. The opposition needs to take a page out of their book to make a dent on the mass of voters.

As Sedat Ergin notes in the Turkish daily HurriyetDaily News, however, Erdoğan may find it more difficult to translate victory in the local elections into victory in the presidential race due to be run in August this year. The president used to be selected by the parliament, but now for the first time the Republic’s history the president will be chosen by popular vote. The victor has to get 50% + 1 vote in a two-round battle.

Some numbers show the difficulty of his decision about running for president, a position he has long coveted. Despite his impressive win last month the fact remains that Erdoğan’s party received 19,455,000 votes, almost 2,000,000 votes less than it did in 2011.

There were 44,725,000 total valid votes cast in the 30 March elections. Assuming the same number of valid votes in August the winner of the presidency will have to receive 22,362,501 votes. In other words, Erdoğan has to pick up another 3,000,000 votes – not a slam dunk. The obvious place to turn is the Kurdish party that just happened to receive almost the magic number of 3,000,000 votes. But the Kurds are far from stupid and will definitely want some tangible reward for giving him their votes.

Therein lies the problem. How much can he give without alienating his core nationalist/conservative base? This problem is particularly acute because the right-wing Nationalist People’s Party recorded 7,875,000 votes last month, up 17.6% from 2011. Too many concessions to the Kurds could see these numbers climb even higher.

He may also face a different political landscape. The anti-AKP vote has always been splintered among several different parties. There is a lot of talk now about the two major opposition parties uniting behind a common candidate in a rare concession to common sense.

In the first few days after the municipal elections Erdoğan showed absolutely no sign of reaching out to the 57% of the electorate that did not vote for him. Indeed his first public remarks were to scold the Constitutional Court for overturning the ban on Twitter and order the theoretically-independent Central Bank to reduce interest. His actions over the next couple of months could even alienate that block further.

Another factor in his calculation is that he has been unable to change the nature of the presidency from its largely ceremonial role. The president has some authority, but real day-to-day power and patronage lie with the prime minister. Will Erdoğan give up that power base for the symbolism of the presidency? Or would he rather remain in his more-or-less guaranteed role as prime minister?

And then there is the economy. For the moment Turkish assets are booming in a post-election glow. But growth forecasts keep getting cut, and now are under 4% for 2014. Unemployment cannot be reduced with these sliding GDP growth numbers. Meanwhile inflation is creeping up, and the important middle classes could soon start to feel a squeeze. How will Erdoğan react? If he forces the Central Bank to reduce rates to spur growth he risks a sharply devalued currency and reduction of the required foreign fund flows. If he lets rates remain high the key construction sector – filled with his cronies – could be hurt.

Given these difficulties no one would be surprised if Erdoğan makes a deal with Abdullah Gül, the current president, to allow Gül to run for another term while he remains at his power base as prime minister. In either scenario Turkey is, unfortunately, in for another several more months of political turmoil.

A Very High Stakes Election In Turkey

The vicious slugging match that passes for a Turkish general election is mercifully coming to a close this Sunday, June 12. The stakes on the outcome are very high. The overwhelming consensus is that Prime Minister Tayyip Erdogan’s Justice and Development Party (AKP) will once again win enough votes to form a government.  But the critical issue is just how large that majority will be.

Prime Minister Erdogan has played every political card in his hand: aggrieved nationalist, offended statesman, religious beacon, economic miracle worker, populist demagogue and many more in an attempt to win a large enough victory to enable his party to change the constitution as it sees fit. A key part of this change would be to transform the existing parliamentary system to a strong presidential system similar to the one in France with Erdogan, naturally, becoming the first president. AKP currently has 340 seats in the 550-member parliament. A huge victory that would increase their seats to 367 would give the party the right to change the constitution by itself. A smaller victory that gave them 330 seats would give them right to draft a new constitution and submit it to a national referendum. Either scenario would guarantee that political and social tensions remain high.

Much of the campaign rhetoric has focused on the increasingly illiberal nature of the AKP’s idea of democracy and the prime minister’s complete inability to take any sort of criticism or understand what freedom of the press really entails. The Economist magazine had the temerity to suggest that for the sake of improved checks and balances in Turkey it would be useful if people voted for the main opposition party, the Republican People’s Party (CHP). This created a firestorm of protest from Erdogan and his henchmen who accused the magazine of interference in Turkey’s internal affairs and being completely ignorant about Turkey. The Minister of Finance, a former security analyst at Merrill Lynch in London, went so far as to say that he would no longer ‘follow’ The Economist on his Twitter account. I’m sure the magazine’s editors were shocked and dismayed at this decision. The fact that the comment about the Turkish elections was mild compared with the ridicule the magazine has dished out to French President Nicholas Sarkozy or the utter contempt with which it treats Italian Prime Minister Silvio Berlusconi was ignored by the ‘deeply’ offended AKP officials – most of whom probably had never heard of the magazine until this story was printed.

One of the key post-election issues concerns Turkey’s restive Kurdish population. Will the Kurds try to emulate the Arab Spring and demand more autonomy? Will they resort to violence or mass civil demonstrations? How will any Turkish government react to these developments? The answers to these questions will become clear fairly quickly after the elections.

Perhaps the biggest lack in this entire campaign was any discussion of looming risks facing the Turkish economy. The prime minister is swept away with the high growth story and continues to come up with one grandiose development scheme after another – without ever mentioning just how they are going to get financed. More serious commentators point to issues like the soaring current account deficit or the real estate bubble that threaten to derail the Turkish economy.

The Current Account Deficit (CAD) was 2.5% of Turkey’s GDP in 2003 just after AKP took over. By 2010 it had climbed to 6.6%, and this year it threatens to hit the red zone of 8% of GDP. This might not be a problem if this deficit were financed with long term inflows. But it’s not. It’s financed with hot money that can change direction at any second. Furthermore the CAD has become a chronic and structural problem in Turkey, and because of the structural nature of the problem the faster the GDP grows the higher the CAD grows.

Murat Gulkan, a fund manager at Arma Capital Management in Istanbul, says that “eight years of an overvalued currency have led to this situation where Turkish industry relies on imports rather than the Turkish supply chain for its raw material and machinery.” For example, according to the Turkish Treasury, machinery imports in 2003 amounted $16 billion. In 2011 these imports are estimated at $40 billion. A 2010 Central Bank study highlights this trend and notes that Turkish industry as a whole relies about 70% on imported material. Turkish exports may be growing rapidly, but the Turkish value added content of those exports is very low because of the high import content.  “When the world becomes less willing to finance the Turkish deficit there will be a big problem,” Gulkan adds.

“There is no coherent white paper from the government on how to deal with this problem. They’re going to have to accept a recession and fiscal tightening with higher rates, but the prime minister does not want to hear any of this. He is in a growth mode. The odds are 95% that there will not a happy ending to this story – only a variety of unhappy endings,” said one of the leading economic analysts in Istanbul.

One European banker in Istanbul points to potential problems in the booming real estate sector.

“We are in real bubble territory, and the state banks are very deep into real estate lending. There is a vast oversupply of residential housing, and there are some estimates that sales of new builds are off 30%. They have learned nothing from the problems in the United States. They (the government) have got to get some heat out of this economy and slow things down. We’re looking at another 10% - 12% depreciation of the Turkish lira by year end.” This would be quite a change because the Turkish currency has slid just 2.6% so far this year according to Central Bank statistics.

“On top of the economic problems there is a growing sense that prime minister has gone too far, and has become a full blown autocrat. His own advisers are afraid to contradict him. If he gets his 367 seats we should pack up our bags and go,” he adds only in half in jest.

Clearly the punters in the Istanbul Stock Exchange are keeping their powder dry until the political and economic situation is clarified after the elections. After a few years of high growth the market index, measured in US dollars, is down just under 6% for the year, and given the economic uncertainties only a very brave person would predict much of an improvement this year.

Given the long list of social, economic and political challenges facing Turkey the next government is going to have its hands full maintaining the country’s strong forward momentum.