P.A. Turkey

Can Erdogan win municipal elections despite economic turmoil?

For several years now, commentators have suggested that the Turkish economy is on the brink of collapse.  And yet, like the famous ‘energizer-bunny’ it seems, at least on the surface, to carry-on with little to no regard for market forces. Nevertheless, Türkiye’s new economic team, appointed last summer, has been pursuing an aggressive interest rate hike policy recently in a last-ditch attempt to rectify the country’s long years of unorthodox policymaking that has left many Turks struggling to afford food and other basic goods.

 

Upcoming municipal elections, where control over Türkiye’s cities will be contested between the country’s major political parties, will also test, among other things, people’s reaction to the tough economic times they are going through, argues Leyla Batu.

 

Batu  explains the importance of end-March elections to the opposition, which remains  divided and dispirited.  On the other hand, CHP mayors are largely popular, commanding high approval ratings. Will the electorate grant Erdogan another victory?

 

U-turn in economic policy averted crisis, but the cost is high

After his re-election in May 2023, Turkish President Recep Tayyip Erdoğan appointed his new economic team led by Hafize Gaye Erkan, a former U.S.-based bank executive, as central bank governor and former Merrill Lynch banker Mehmet Şimşek, who returned as finance minister, a post he previously held from 2009 to 2015.

 

Under their watch, the central bank quickly began raising interest rates – a traditional cure for high inflation – from 8.5% last May to 42.5% on 21 December.

 

So far, the central bank has delivered its seventh interest rate hike in a row to reduce soaring annual inflation, which, according to the government-run Turkish Statistical Institute (TÜİK), reached 64.77% last December compared with 61.98% in November. However, the independent Inflation Research Group (ENAG), said the annual inflation rate last year was actually 127.21%.

 

The central bank is likely to complete its rate hikes with an expected increase to 45% this month before municipal elections in March, and as a result forecasts inflation to drop to 36% this year, 14% in 2025, and eventually to single digits in 2026.

Cost-of-living crisis morphs into deep poverty

 

However, the central bank also conceded that inflation would rise in the short-term, particularly due to the increase in minimum wage, impacting some 7 million workers. Indeed, the minimum wage was raised to TRY 17,002 (USD 578.1) beginning on 1 January, a 49% increase. Later this month pensions are also set to increase by at least 37.57%, while civil servant salaries will see a 49.2% increase.

 

However, and despite significant hikes in the minimum wage, pensions and civil servant salaries, many Turks, according to the Confederation of Turkish Labor Unions (Türk-İş) are living below the poverty level and unable to pay for basic food needs, rent and utilities.

 

 

Distrust in Erdogan’s economic policies define the landscape

While interest rate hikes are necessary, investors do not have much confidence that Erdoğan, the architect of the previous long years of the “low rates, low inflation” strategy, before his U-Turn after the May elections, will support these rates for long or that he will implement the required structural reforms to ensure sustainable growth.

The lack of independence of the central bank has also led to a lack of confidence in bank decisions and as a result, the Turkish lira (TRY). The currency did not react to dramatic rate hikes last year that only helped to slow its collapse while not controlling rising inflation. Indeed, the Turkish lira has continued to weaken to a new record of 30 per USD with forecasts that it will reach 40 per USD by the end of this year.

This is not good news at all for the central bank, and the lira has depreciated by over 50% against the USD last year, ranking it as the second-worst performing emerging market currency, following the Argentine peso, according to the Trading Economics.

 

The new monetary tightening policy was also aimed at reducing chronic trade deficits, depleted foreign exchange reserves and to attract foreign investors after a years-long exodus. However, one-man rule, unqualified staff, unstable political and economic decisions, injustice and insecurity prevented money from coming to the country, leading Turkish economists noted.

 

As Taha Akyol, with Karar daily stated late last year: “The way to ensure full confidence is to cancel the related laws and make the Central Bank independent again…to adapt the Public Procurement Law to European standards…. In other words, structural reforms. But there is no talk on these problems. That’s why our road for “recovery” is very long and difficult, unfortunately.”

 

Daron Acemoğlu, a Turkish-American professor of economics with the Massachusetts Institute of Technology was also pessimistic about Türkiye’s economic future. Türkiye’s institutions, he noted, were broken and simply increasing interest rates was not a solution. In particular, he said that big policy changes were needed in Türkiye to turn the economic around including, “combating corruption, ending anti-competitive practices, safeguarding the independence of the judiciary, and facilitating investments, which are particularly critical.”

 

Özgür Özel, head of the main opposition Republican People’s Party (CHP), addressing a parliament session on 11 December, argued that there was a “criminal economy” in the country due to the faulty policies followed by the government and the handing over of the economy to incompetent people.

 

Despite severe economic challenges, the government has continued allocating high amounts for the religious affairs directorate (Diyanet) as well as for military expenditures for fiscal year 2024. For example, the Diyanet’s budget will be TRY 91.8 billion, a 151% increase from its 2023 budget.  The combined budgets of the Ministry of National Defence, as well as  gendarmerie and other security units will also amount to some TRY 1.1 trillion for 2024, or 10.2 % of the central government budget. And there is an unknown amount of extrabudgetary resources earmarked for defence and security. These budget increases point to the further Islamization and militarisation of Turkish society.

And, now come local elections

 

Amid the continued downward trend in the economy, there are less than three months left before voters head to the ballot box to elect mayors, district mayors and local headmen called mukhtars in villages and neighbourhoods across Türkiye. The outcome of these elections is more than the simple appointment of a mayor, as Türkiye’s major political parties will battle for control of cities, including Ankara and Istanbul.

 

Whoever wins has the potential to either reinforce the existing political dynamics or shift the broader political balance. Hence, for Erdoğan, who served as Istanbul mayor from 1994 to 1998, “winning Istanbul is winning Turkey.”  Indeed, the mayor of Istanbul, the country’s biggest city and economic hub, holds a position of considerable influence.

 

Mansur Yavaş and Ekrem İmamoğlu were the first opposition CHP mayors who garnered enough votes in 2019 to win in Ankara and Istanbul respectively after decades of control by the Justice and Development Party (AKP).  Naturally, the AKP is determined to recapture both, as well as other municipalities in the hands of the CHP.

 

Elections? Sure, but not free and fair

 

Much like the national election last year, municipal elections will not be free and fair either. The media is largely controlled by the government, and politicaly motivated court cases against leading opposition politicians such as Ekrem İmamoğlu, along with the widespread persecution of senior Turkish-Kurdish figures has become a part of normal daily life in the country.

 

And while opposition parties collaborated and carried the day in 2019, winning many of the municipal elections, the same is not true at the moment.  Instead, the opposition is divided while the AKP and its ally, the ultra-nationalist Nationalist Movement Party (MHP) have teamed up once again.

 

Puzzlingly, the AKP might actually win even if the opposition was not so divided.  It seems a collapsing economy, and the devastating earthquakes last February in the south and southeast that killed more than 50,000 people while flattening cities and towns, has not deterred voters from casting their votes for the AKP-led alliance bent on sliding the country towards authoritarianism.

 

Bekir Ağırdır, general manager of the polling company Konda, said in a recent article in Oksijen online weekly that despite the economic crisis and the widespread lawlessness within the administration, the fact that the AKP repeatedly wins elections was not because of the success of the government, “but the failure of the opposition.”

 

How opposition parties can build trust in the electorate in the next few months remains to be seen. If they don’t, it could mean handing Istanbul to the AKP on a silver-platter. On the other hand, in the national elections last May, Turkish voters were really left having to decide between the politician they knew and the politician and his six-party alliance they really didn’t.

 

The municipal elections, however, offer Turkish voters a safer opportunity to signal their frustrations much like in 2019.  The question is, will they?