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Leadership of Turkey’s Economy After Elections Uncertain

By Jessica Michek

Wednesday, June 3, 2015

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As we approach the Turkish parliamentary elections on June 7, the Bipartisan Policy Center (BPC) will examine a variety of factors that may influence the results of these significant elections, including the economy, election oversight, and the process of forming a new government. Read our new report on what’s at stake in Turkey’s elections. You can also view all of BPC’s past work on Turkey.

Turkey’s economy has grown considerably over the past 13 years under the leadership of the Justice and Development Party (AKP). When the AKP came to power in 2002 in the aftermath of an economic crisis, per capita GDP was $3,600. By 2013, it was $11,000. The AKP’s role in guaranteeing economic growth led the party to successive electoral victories.

Now, however, the AKP is heading into parliamentary elections on June 7 with a weakening economy: stalling growth, high inflation, rising unemployment, surging private debt, a low savings rate, a high current account deficit, and a weak lira—Turkey’s currency has fallen by nearly 13 percent against the dollar in 2015. These local economic concerns are compounded by uncertainty from international investors: Recep Tayyip Erdoğan’s strongman tactics as president coupled with political uncertainty leading up to the parliamentary elections are spooking foreign investors, which threatens to further harm Turkey’s economy.

A major source of concern is who will be part of the team leading Turkey’s economy after the June 7 vote. Ali Babacan, current Deputy Prime Minister in charge of the economy, has been the steward of Turkey’s economy for much of the AKP’s 13 years in power. While foreign investors look to Babacan as a source of economic stability and rationality, he is unable to run for re-election due to the AKP’s three-term limit, and it is unclear in which capacity he will stay on.

Babacan has stood up against some of the Erdoğan government’s excesses, speaking out on the negative economic effects of deteriorating rule of law and government interference in the judiciary. “Our economy is only as successful as we are in the area of the judiciary,” Babacan said in a May speech at an Istanbul think tank. “If the [current] weak picture continues, we will end up in a place where we long for the situation that we currently have, both in the areas of democracy and the economy.”

To reassure investors ahead of the elections, Prime Minister Davutoğlu has suggested that Babacan might be able to retain a leadership role in Turkey’s economy, stating that party members subject to the three-term limit may still be appointed as ministers from outside parliament. However, it has also been rumored that Erdoğan’s son-in-law Berat Albayrak, who has no experience in government, will be appointed to a high-level position in economy management. Another contender is Yiğit Bulut, a close advisor to Erdoğan.

Increasing Turkey’s economic uncertainty, another central figure in Turkey’s economy will soon vacate his post: Central Bank head Erdem Başçı, whose term ends in 2016. While eligible for reappointment, his widely publicized struggles with President Erdoğan over interest rates make his reappointment unlikely, opening the door for Erdoğan to put in place a more compliant Central Bank head, further eroding the institution’s independence.

Dissatisfaction with the economy at home may cost the AKP at the ballot box: an April survey showed that 57 percent of voters disapproved of the government’s management of the economy. Another survey showed that for 53 percent of Turks, economic issues are their primary concern. Under these conditions, it is possible that the AKP might not be able to secure a parliamentary majority, necessitating the formation of a coalition government—a prospect which foreign investors view as inherently unstable.

Whether the elections result in a coalition government or an AKP victory, Turkey’s deteriorating rule of law and structural economic weaknesses mean that, absent a comprehensive reform agenda, Turkey’s economic stability—both short-term and long-term—is far from assured.