After shocking elections, Turkey’s economy depends on stable coalition

After shocking elections, Turkey’s economy depends on stable coalition

The Turkish President Recep Tayyip Erdogan had hoped to win enough parliamentary seats to push forward a plan that would grant him the ability to change the Constitution. But though the elections look like a sweeping victory for Turkish democracy, there is a certain amount of uncertainty associated with the surprising results.

Erdogan’s Power Grab

Since coming into power thirteen years ago, President Erdogan’s Justice and Peace Party (AKP) has instituted a series of changes that created a distinctly more diverse and tolerant Turkish public sphere. However, more recently Erdogan has taken dramatic steps back from many of these policies.

Policies aimed at the Kurds, Sunnification efforts, and social media bans have made the AKP and Erdogan come off as increasingly authoritarian. To give himself even greater power, Erdogan and the AKP sought to win a supermajority that would consolidate power in Erdogan and grant him the ability to change the Turkish Constitution.

Surprising Results

Instead of a win for Erdogan, the June 7th election results provided a resounding win for the opposition parties. The AKP not only failed to reach the supermajority, but also lost the majority they have held since 2002.

A Turkish court’s decision to uphold the 10% electoral threshold seemed likely to deliver a severe blow to the People’s Democratic Party (HDP), which serves as the primary Kurdish nationalist party. However, the party was able to capture enough votes to break the threshold and collect 80 seats, which helped to prevent the AKP from retaining their majority.

The elections arose in the shadow of Turkey’s continued involvement in the conflict with ISIS in Syria, in which Turkey has been aligned with Qatar and Saudi Arabia. The major opposition party, the Republic People’s Party (CHP), made it clear throughout the run-up to the elections that they would no longer lend support to radical groups in Syria like the Nusra Front.

Turkey’s recent lenience towards many radical groups – both inside and outside of Turkey – likely led AKP to lose votes when it became a rallying cry for the opposition. Furthermore, liberalization of the HDP’s politics (who pushed for gender equality and LGBT rights) and a growing restlessness amongst urban youth towards Erdogan’s patriarchal policies resulted in the perfect storm for the AKP to lose power.

The Critical Role of the Turkish Economy

The AKP has always been able to point to the economy as their party’s major strength. When the AKP originally came into power, they did so by promising to reform the stagnant economy, and for the past decade they have been successful. From 2002 to 2013, the party helped to increase per capita GDP from $3,600 to $11,000, and Turkey is now one of the world’s top-20 economies.

However, since 2011 the AKP have been pushing against predictions of an economic collapse despite a stagnant economy and a lira that is low compared to the dollar. Moreover, Turkish unemployment topped 10% in February-April, up almost a full percentage point from last year.

Unfortunately, the tide does not seem to be changing. Immediately following the elections, the lira tumbled 5% against the dollar, which was its worst showing in seven years, and the stock market fell 8%.

Creating A Stable Coalition

The challenge for the AKP now is to create a stable coalition amongst these disparate parties, without resorting to a second election. The second biggest winner in terms of seats was the far-right National Action Party (MHP), with whom many believe AKP has made it a priority to form a coalition.

However, the MHP has made it clear that they want the Kurdish peach process halted, which could be a potentially disastrous decision on the part of Erdogan as a coalition with the MHP threatens not only the relationship with the Kurds but also ties with the European Union.

On the other hand, a coalition with the HDP does not present an appealing option either. This would require Erdogan to rethink many of the nationalist policies he has recently instituted and to accept some of the more liberal views espoused by the HDP, something unlikely to play well to his conservative AKP base. The most appealing (and difficult) option would be to convince the CHP to join a coalition.

To make things more difficult, all of the major parties have been resistant to forming a coalition with the AKP, and some of the CHP leaders have even called for the opposition parties to form a coalition excluding the AKP. Ultimately, investors should be bear in mind that Turkey has had an unsuccessful economic track record with coalition governments.

Nevertheless, if a coalition cannot be formed within the next six weeks, fresh elections can be called unless a minority government is formed. There is a very real concern that no coalition will be formed in time and new elections will be required. Erdogan’s power grab backfired, but he may have a second chance to convince voters in the very near future.

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