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Turkey Economy Would See Boost From Opposition Win, Economists Say

Significant concerns for the country’s finances remain nonetheless, experts warn regardless of who is in power after the upcoming presidential elections 

Turkey’s economy would likely experience an immediate boost, especially from foreign investment, should the opposition nominee Kemal Kılıçdaroğlu defeat Turkish President Recep Tayyip Erdogan in the upcoming election, economists told The Media Line, two months before citizens are expected to go to the polls.

Concerns over the economy have been a key factor in dragging down Erdogan’s popularity, although his approval rating has been on a steady rise and was less impacted by his government’s handling of the devastating February earthquake than some had expected.

Bloomberg reported that eurobonds rallied and there was a fall in credit default swaps after the opposition coalition reached an agreement Monday to make Kılıçdaroğlu the nominee, following a chaotic weekend in which the second largest party temporarily left the bloc. Kılıçdaroğlu, a 74-year-old former civil servant and economist, heads the largest party in the bloc, the Republican People’s Party (CHP). 

Timothy Ash, an economist focused on Turkey and a strategist at BlueBay Asset Management, said the reaction showed “people are more confident about the future.”

He said that in the short term, there will be an expectation of a return to orthodox economic policy and improved central bank governance.

“The market will rally; the lira will rally,” he said.

Economists say that investor confidence in the country’s finances have been shaken by unorthodox economic policies.

Turkey has experienced staggering inflation over the last two years, blamed on policies the government insisted on, which have led to skyrocketing prices for food and other essentials.

Turkish President Recep Tayyip Erdogan meets suriviors of the devastating February 6 earthquake and its aftershocks during his visit to Afsin district of Kahramanmaras on February 28, 2023. (Mustafa Kamaci/Anadolu Agency via Getty Images)

Independent economists stated that the true Turkish inflation rate last October was over 180 percent, about double the official rate reported at the time.

Inflation decreased recently to 57 percent in January, according to official data, although independent economists said annual inflation actually stood at 121 percent.

The Turkish lira also lost value against the US dollar in 2018, when Erdogan appointed his son-in-law Berat Albayrak as finance minister.

Central bank governors were also repeatedly replaced and would not increase interest rates, which orthodox economic policy states is needed to combat rising inflation.

Economists say all these decisions have undermined confidence in Turkish economic policy and raised serious questions about the independence of the central bank.

Cem Çakmaklı, an assistant professor of economics at Koc University in Istanbul, said there would likely be more foreign investment if the opposition won.

He also believed the opposition alliance would go in a more orthodox direction compared to Erdogan’s parliamentary coalition.

“The [opposition] coalition represents more broadly accepted policies among economists,” he said.

Çakmaklı and Ash said the opposition coalition would have experienced people to fill decision-making roles for the country’s financial policies.

 Çakmaklı cautioned that interest rates would be unlikely to see drastic increases immediately, because that would damage the economy. 

He also warned the long-term outlook for Turkey was poor and believed it was very likely that the Turkish lira would depreciate.

“The real challenge that the opposition will face afterwards is building institutions, and the pace of the economy in the long run will be determined by this effort of the opposition in successfully building the institutions,” he said.

Ash said another long-term concern would be the stability of the coalition, which has a diverse set of political ideologies.

“The economic issues are all solvable,” Ash said. “I think if there is political unity in the coalition, they can get back on track quickly.”

In response to Turkey’s financial troubles, Erdogan sought foreign investment but was rebuked by Western allies, including the US, who strongly criticized Turkey for buying Russian weapons.

But the Turkish president found more success elsewhere.

This week, Saudi Arabia said it had given $5 billion dollars to Turkey’s central bank, stating it was committed to supporting the country’s economy.

Also this month, the United Arab Emirates said that it signed an agreement with Turkey that could increase trade between the two countries to $45 billion in the next five years.

Last year, Turkey signed an economic cooperation agreement with Russia, whose citizens have helped fuel a rebound in the important tourism sector.

While Turkey has condemned the war in Ukraine, it has maintained its relations with the Kremlin.

Ash said that, after the election, the West will want to know where Turkey stands on such issues, regardless of who wins, and that this could have major implications for the country’s financial fortunes.

“I think if the right decisions are taken, Western capital, Western money will flow back into Turkey,” Ash said.

Source : TheMedialine