Turkish Treasury and Finance Minister Berat Albayrak speaks during a presentation to announce his economic policy in Istanbul. Photo: AFP
Turkish Treasury and Finance Minister Berat Albayrak speaks during a presentation to announce his economic policy in Istanbul. Photo: AFP

Recep Tayyip Erdoğan faced the biggest upset of his political life in Turkish local elections last week. The president and his ruling Justice and Development Party (AKP) lost four out of five of the country’s largest cities, including Istanbul, where Erdoğan and his ruling party have yet to concede defeat.

After stumping for allies all across Turkey during the campaign, the president is well aware that he was the one who lost the big cities. The number of municipalities under AKP administration has dropped from 48 to 39, though Erdoğan is engaged in various legal and illegal measures to increase this number.

Vote recounts continue in several cities and districts two weeks after the elections, creating a major legitimacy crisis for Turkey’s already struggling system. Erdoğan tried to appear confident after the upset and promised there would be no more polls until the general elections in four and half years. But economic indicators do not agree with him. As the dispute over local elections continues, the Turkish Lira weakens every day, increasing the risks and burdens for a country already in stagflation.

Long-awaited plan

Ten days after the elections, Finance Minister and Erdoğan son-in-law Berat Albayrak appeared before the cameras with a glossy power-point presentation to explain his economic reform package.

The Turkish economy suffered its worst quarterly contraction in nearly a decade after the currency crisis in August 2018, which left its companies and banks with a rocketing burden of foreign currency debt. Economists and markets were eagerly waiting for the election fervor to die down for the AKP to issue serious, long-term measures for the country to overcome its structural problems.

They were to be sorely disappointed.  

The most important component of Albayrak’s economic package was a promise to boost the capital levels of Turkish banks and to relieve bad debts in the financial sector. He pledged that Ankara would deliver 28 billion lira ($4.9 billion) in public bonds to recapitalize state banks, and that private banks would have access to capital if needed. 

He also announced the creation of two new funds for energy and real estate, which would take on problem loans in those sectors. Local banks, and hopefully international investors, would be expected to support these new funds. The power point presentation also suggested that the export and agricultural sectors would gain new support. 

What Albayrak did not offer was a timetable for when the measures would be implemented, or how they would be carried out.

Throughout his ten-page presentation, the son-in-law reverted to his old tactic of trivializing the problems facing the Turkish economy. The title of the presentation was “structural transformation”, yet he introduced no serious measures to indicate how Ankara plans to structurally transform the economy.

Albayrak’s next stop was Washington, where he attempted to win over investors amid a weakening Turkish Lira and a rising need for foreign capital. But the finance minister offered “little convincing detail of his economic turnaround plan” and failed to convince some 400 potential investors gathered on Thursday, Reuters reported.  

“I don’t think he persuaded anybody, it did not go well,” the agency quoted one attendee as saying.

Losing Istanbul

Erdoğan stated repeatedly during his campaign that, “Who[ever] loses Istanbul, loses Turkey”. More than two weeks after the local elections, the president continues to challenge unfavorable results in the metropolis, where his AKP lost by a narrow margin to the opposition Republican People’s Party (CHP) candidate Ekrem İmamoğlu. 

It was in Istanbul that Erdoğan launched his political career a quarter-century ago as mayor, winning over a wide spectrum of the populace as he oversaw an economic boom. Neither he nor his Justice and Development Party had lost the city until now. 

The metropolis, straddling Europe and Asia, served as a critical well of support as the nation’s financial, cultural, and touristic center. Erdoğan has long been using local resources to distribute urban rents through infrastructure and reconstruction privileges, which not only gave him control over capital groups, but also allowed him the chance to create his own capital groups. The Turkey daily Cumhuriyet reported in April that valuable properties and public funds had been donated to political Islamic foundations in Istanbul, including those controlled by Erdoğan’s son Bilal, which would in turn be used for AKP charity networks.

But the economic downturn has soured the population against the AKP, and on March 31, voters rejected the economic polices of Erdoğan and his son-in-law at the ballot box. Istanbul, where Erdoğan’s ally lost, controls nearly a third of the country’s gross national product. Provincial capitals, which contribute some two-thirds of Turkey’s gross national income, voted for candidates from the CHP and the Kurdish-led Peoples’ Democratic Party, or HDP. 

Now, Turkey’s Supreme Electoral Board (YSK) is at the center of election disputes. While the electoral authority has declined to look into multiple recount demands from the opposition on the grounds that the margin between candidates is too narrow, almost all recount demands from the ruling AKP have been accepted, namely in Kurdish-majority areas, where the body has also refused to certify HDP mayor-elects. 

Legal experts have repeatedly warned that the YSK decisions are contrary to its own previous verdicts and the constitution, yet the electoral authority continues to announce decisions in favor of Erdoğan and his ruling party. While a recount drags on in Istanbul, citizens who voted for the opposition have grown increasingly convinced that Erdoğan will do anything to cling to power. 

With democratic institutions and rule of law eroded under his presidency, Erdoğan’s moves to reject defeat in Istanbul marks a worrying sign for the economy and investors, as well as for national confidence. Turkey’s five-year credit default swaps had already hit a record 432.8 on the eve of the elections, while the Turkish Lira dropped to 5.81 against dollar on Friday. 

The Lira has now plunged 54% since the beginning of 2018, increasing the risk of collapse for the externally-indebted private sector. The IMF’s latest update on the world economy suggests that the Turkish GDP will contract 2.5% in 2019 and inflation will remain as high as 17.5%. Those predictions may even be optimistic for Turkey, economists say, citing local political conditions, the AKP’s mishandling of economic issues, and the state of the world economy.

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