Turkish Election: Political Risk, Any Way You Slice It

A parliamentary majority that backs President Recep Tayyip Erdogan means stability in one sense of the word, but it’s not exactly fodder for market tranquility.


Kerem Uzel

Back when he was the mayor of Istanbul in the mid- to late 1990s, Turkish President Recep Tayyip Erdogan said of democracy, “You ride it until you arrive at your destination, then you step off.” After Turkey’s parliamentary elections this past Sunday, Erdogan might be looking for a parking space.

Erdogan’s Justice and Development Party (AKP in Turkish) won 49.3 percent of the vote in snap elections held Sunday, restoring its majority after June parliamentary polls saw the AKP lose control for the first time in 12 years — and only the second time during its 13 years in existence. Markets noted the nod toward political stability. The Turkish lira recovered 3 percent against the U.S. dollar amid the currency’s worst yearly showing since its redenomination in 2005, yields on lira-denominated bonds fell by 40 basis points, and shares of AKP-affiliated or state-owned companies notched double-digit gains.

Ruminate on that last data point for a bit.

After Erdogan led the AKP into power in the fall of 2002, the country pulled itself out of a cycle of recurring financial crises, rampant inflation and currency devaluation to become one of the stars of the emerging-markets decade. Foreign media and international development types celebrated Erdogan as a liberalizing economic dynamo, opening the channels toward that long-aspired-to prize of European Union membership. As the environment for emerging markets took a turn for the worse in recent years, however, Turkey became one of the so-called Fragile Five, a group of developing economies wracked by current-account deficits and capital outflows. Factor in Fed tapering, the Halkbank scandal — which implicated the president’s son, Bilal, in a variety of charges such as bribery for construction deals — and Erdogan’s thumb on interest rates, and you have a lira that brings back memories of the early 2000s with its record lows.

Also facing turmoil is the nation’s collective psyche. These elections were called because the non-AKP majority elected in June — consisting of a ragtag group of the Republican People’s Party (CHP), the secularist party of Mustafa Kemal Atatürk, the founder of the Turkish Republic; the People’s Democratic Party (HDP), a Kurdish liberal democratic party; and the ultranationalist MHP, the Nationalist Movement Party — failed to gel into a stable parliamentary coalition. (Since the AKP has taken power, the CHP has also skewed toward the right.) MHP was not exactly thrilled about the prospect of sharing power with Kurds, for one. These divisions trace their roots, of course, to the socioeconomic and cultural gulfs spanning the country. The body of three-year-old Syrian Kurdish refugee Aylan Kurdi , discovered ashore in the clubby beach resort of Bodrum, personified the migrant crisis. A bombing on October 10 believed to have been instigated by ISIS killed more than 100 in Ankara in the deadliest attack in Turkey’s history. And the cease-fire has ended between Turkish forces and the Kurdish, Marxist-rooted terrorist group PKK.

Erdogan and the AKP, deciding to hew more toward nationalism than its usual Islamism this time around, snared votes of some religiously conservative Kurds and Turkish ultranationalists on a platform of safety and stability, presenting themselves as a far cry from the fractious governments of the late 1990s and very early 2000s.

In case your Turkish is rusty, let me clue you into a double entendre here. “AK,” in addition to being the initials of the party, is also a Turkish word, ak, which means “white, clean or pure.” The party strolled into power in 2002 on a platform of mopping up the mess left by years of ineffective, occasionally corrupt, coalition governments. The lingering sting of the 2001 economic crisis didn’t hurt.

Starting in the mid-2000s, though — much to the blind eye of international media — the AKP’s Ivory soap platform changed to one of green.

When I say “green,” I’m not talking about investing with environmental sustainability in mind, nor am I referring outright to dollars — even though there’s certainly cash involved here. In Turkish parlance, “green” is the color of Islam, and “green capital” means at least on some level “connected to Erdogan.” Alcohol taxes blew up in the land of anise-based tipple raki. The same bottle of cheap Turkish bubbles I bought in 2002 for the equivalent of about four bucks was $22 five years later. A bill criminalizing adultery was floating around parliament in 2004, and some time not long thereafter, state-run broadcaster TRT, once the domain of secularism, stopped airing Piglet cartoons, claiming that the pig didn’t fit in with Turkish culture. Yet what Erdogan and his apparatchiks pushed in the name of moral cleanup was accompanied by cronyism elsewhere. Construction contracts and permits wound up in the hands of religiously conservative businessmen. And among the biggest sins of this time was speaking out against Erdogan and the AKP.

One morning in Istanbul in April 2007, I texted a Turkish journalist friend of mine working at Turkish daily Sabah, asking her a rather quotidian question of whether she wanted to head to the gym after work. She responded, “Didn’t you hear?”

The Savings Deposit Insurance Fund of Turkey, known by its Turkish initials, TMSF, a former central bank arm that has been used to do governmental bidding, had come to seize the paper’s assets. The official reason was that a legal document had not been properly cited when the paper was sold in 2001. According to her, though, the reason was more likely an article that ran the previous day dedicated to a point-by-point analysis of allegedly corrupt activities undertaken by the AKP government.

From that day forward, Sabah has maintained a strict pro-Erdogan editorial line. It’s now owned by Zirve Holding, part of the Kalyon Group, a conglomerate with strong AKP ties that has also won contracts for the public bus system and the Ottoman-military-barracks-style shopping mall that eventually led to the massive Gezi Park protests in Istanbul in June 2013 that woke up international consciousness on Turkey. TMSF and punitive taxation have become an Erdogan tool of choice to fight dissent, with TMSF having its hands across the Turkish media.

Let’s go back to the second paragraph now. Stability should be a plus for the economy. That companies connected to the increasingly autocratic party got a bump after its reelection should be a cause for concern.

Follow Anne Szustek on Twitter at @the59thStBridge.

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