Türkiye re-elects Erdogan for another 5 years; The challenges in the economy remain great.

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Recep Tayyip Erdogan, the current president of Turkey, has won the presidential election and will extend his 20-year rule for another 5 years. According to international agencies and Turkish media, Erdogan’s victory, based on preliminary numbers, over Kemal Kilicdaroglu, came with about 52% of the vote.

Erdogan’s alliance achieved a parliamentary majority in the elections two weeks ago, when the first round was held, giving the current president the necessary impetus for direct confrontation. Kilicdaroglu represented a broad opposition coalition, including Social Democrats, nationalists and former Erdogan allies.

In the first round, Erdogan obtained 49.5% of the vote against Kilicdaroglu’s 44.9%. For today’s vote, one of the candidates’ strategies was to attract the approximately 8 million voters who did not go to the polls on May 14.

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Erdogan, 69, who has made his role the nexus of power in Turkey, entered the race under threat, and the opposition saw an opportunity to oust him after two decades.

Polls and financial markets predict a close election, due to the cost of living crisis, inflation, as well as his performance after two devastating earthquakes.

Erdogan, however, responded by mobilizing the state media machine to split the opposition alliance and mobilize its conservative base.

Among his promises to this new government is keeping interest rates at low levels, despite rampant inflation.

What to expect from Türkiye?

according BloombergThe main challenge for the Turkish government is whether it will maintain its economic policy, which has generated a strong outflow of external resources.

For world leaders, what is at stake is how Turkey will maintain its delicate balancing act between NATO allies and Russia as President Vladimir Putin continues to wage war in Ukraine.

As such, it is likely that over the next five years Turkey will reassert its role as a critical buffer for migrants moving to Europe. Erdogan will also work to maintain grain exports from the Black Sea after securing another extension two weeks ago.

The Turkish president also plans to promote peace in Ukraine while continuing to refrain from imposing sanctions on Russia because Turkey believes they are counterproductive, according to people familiar with the situation.

“It’s a pyrrhic victory for Erdogan,” said Nihat Ali Ozcan, a strategist at the Economic Policy Research Foundation in Ankara.

“He may have extended his unprecedented tenure, but his new term will be fraught with challenges from the economy to foreign policy.”

Can interest rates go up?

In addition, economists consulted by the Bloomberg they say that a tightening in monetary policy will be inevitable.

As central banks around the world raised interest rates to try to curb inflation, politicians in Turkey heeded Erdogan’s calls for ultra-low borrowing costs.

In this way, the Central Bank of Turkey cut the reference rate by 550 basis points since last year, even with inflation exceeding 85%.

“Demonstrated by the election result, Erdogan is unlikely to take a straightforward economic orthodox approach,” said Wolfango Piccoli, co-chairman of Teneo Intelligence in London. However, some adjustments could occur before the local elections in March 2024, he said.

To keep the lira stable, Turkey relied on restricting banks in the foreign exchange market and intervening.

However, deposit rates now differ markedly from the benchmark and this is unsustainable, according to economists.

Barclays Plc’s Ercan Erguzel said interest rates will have to rise even if Erdogan’s victory is confirmed. Erguzel projects the rate to reach 36% by the end of this year, up from 8.5% today.

Meanwhile, the cost of insuring against sovereign default would continue to rise, said Cagri Kutman, a specialist in Turkish markets at London-based KNG Securities.

“Erdogan will take care that the management of the new economy has high credibility,” Kutman said. However, he will not “give up his low-interest policy,” he said.

Erdogan celebrates victory in Türkiye

President Tayyip Erdogan said today that the Turks have given him the responsibility to rule for the next five years, noting that Turkey turned out to be the sole winner of the second round of the presidential election.

Addressing supporters atop a bus in Istanbul, Erdogan thanked people for voting and said he had completed Sunday’s runoff against challenger Kemal Kilicdaroglu with their support.

reactions

Through Twitter, President Lula congratulated Erdogan on the victory, reaffirming the desire for “partnership in global cooperation for peace and in the fight against poverty and development in the world.”

Greeting @RTErdogan for re-election as president of Türkiye. I wish you a good mandate, with a lot of work for the best of the Turkish people. And count on Brazil’s alliance in global cooperation for peace and in the fight against poverty and development in the world 🇧🇷🇹🇷

– Lula (@LulaOficial) May 28, 2023

Russian President Vladimir Putin also congratulated Erdogan, saying the poll results showed the appreciation of the Turkish people for Erdogan’s work and independent foreign policy.

“The election victory was the natural result of his selfless work as the head of the Republic of Turkey, clear evidence of the Turkish people’s support for his efforts to strengthen state sovereignty and pursue an independent foreign policy,” Putin said.

“We highly appreciate your personal contribution to strengthening Russian-Turkish relations and mutually beneficial cooperation in various areas,” Putin added.

(With Bloomberg, Reuters and Agência Brasil)

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