Turkey’s strongman takes on the markets as elections draw near - analysis
The volatile mix of electoral populism and a rising dollar have pushed Turkey to the brink of a currency crisis shaped by a president obsessed with growth who feuds with the country's central bank, Laura Pitel says in her article in the Financial Times.
The Turkish lira’s slump to a record low of 4.92 to the dollar on Wednesday created panic in the nation and with investors. The Turkish government was quick to state that the plunge was part of a plot against Turkey by foreign forces.
‘’While outside Turkey, he is cast as a strongman or even a dictator, Mr Erdogan still relies on victories at the ballot box to justify his domineering style of rule,’’ Pitel says, while taking a snapshot of the climate in Turkey ahead of the June 24 presidential and parliamentary elections.
Erdoğan’s victory could allow him to remain in power for years and would cement his dream of becoming the most important leader of modern Turkey since Mustafa Kemal Ataturk, Pitel says, as the election will usher in the new presidential system narrowly approved in a referendum last year and is set to grant the president extended powers.
Erdoğan’s desire to micro-manage, Pitel points out, has left some investors worried that Turkey's economy, which has grown rapidly for most of the past decade, will be permanently damaged.
Without a change of direction from the political leadership, Turkey was likely to remain trapped in a "recurring nightmare," Pitel points Phoenix Kalen, an emerging markets strategist at Société Générale, as saying: "We believe that an opposition win of the executive presidency would spark a phenomenal rally in [the lira]."
With Turkey is facing growing warnings about the health of the economy, which has come to form the backbone of the AKP's support, Erdoğan faces a challenge at the ballots next month.
According to Atilla Yesilada, an Istanbul-based analyst with the consultancy GlobalSource Partners, "They [the ruling AKP] have to feed the voters." However, the dilemma is that "But each step they take to feed the domestic audience spooks foreign investors."
Meanwhile, on Wednesday, the Turkish lira lost 5 per cent in a day and Erdoğan, after much imploring by deputy prime minister Mehmet Simsek (a former Merrill Lynch banker) and central bank governor Murat Cetinkaya, agreed to raise interest rates.
‘’Some argue that if Mr Erdogan wins the election, he could change course and seek to cool down the economy. But with difficult local elections in March 2019, the temptation to pursue more giveaways and more growth will remain,’’ Pitel wrote.
The Turkish president has vowed to increase his control over monetary and economic policy following the upcoming snap elections.