Turkish President Recep Tayyip Erdogan sealed an election victory that appeared unlikely just weeks ago, raising the prospect of more friction with Western governments and more uncertainty for investors.
The country’s longest-serving leader prevailed 52.2 percent to 47.8 percent in a runoff vote on Sunday against challenger Kemal Kilicdaroglu to take his rule well into a third decade, based on results with almost all ballots counted. Erdogan spoke from on top of a bus in Istanbul and thanked Turks for keeping him in power.
“The winner of today is Turkey only,” he said.
The stage was set on May 14, when Erdogan defied opinion polls in the first round of the presidential election while his alliance of parties captured a parliamentary majority. That sent stocks and bonds declining, while the lira sank to new depths against the US dollar.
Erdogan, 69, who turned his office into the nexus of power in Turkey, has shown resilience before. Yet pollsters and financial markets had predicted a tighter election because of a cost-of-living crisis and two devastating earthquakes.
Erdogan responded by deploying the state media machine to divide the opposition alliance and mobilize his conservative grassroots.
The most pressing question for investors now is whether he will stick to his promise of maintaining an economic policy that has seen an exodus of foreign money.
Erdogan said later on Sunday night in Ankara that inflation was still afflicting the country and he would put together a new team that would have “international credibility” to manage the nation’s finances.
For world leaders, at stake is how Turkey maintains its delicate balancing act between NATO allies and Moscow as Russian President Vladimir Putin continues to wage war in Ukraine.
“It’s a Pyrrhic victory for Erdogan,” said Nihat Ali Ozcan, a strategist at the Economic Policy Research Foundation in Ankara. “He may have extended his record rule, but his new term will be full of challenges from the economy to foreign policy.”
Economists say that a monetary policy adjustment is inevitable. While central banks worldwide have raised interest rates to try to quash inflation, Turkey’s policymakers heeded Erdogan’s calls for ultra-low borrowing costs. They have cut the benchmark rate by 550 basis points since last year in the face of inflation that climbed to more than 85 percent.
“Vindicated by the election’s outcome, Erdogan is unlikely to embrace an outright economic orthodox approach,” said Wolfango Piccoli, copresident of Teneo Intelligence in London.
However, some adjustments might come ahead of local elections in March next year, Piccoli said.
Instead, Turkey has relied on restricting banks in the foreign-exchange market and interventions in an attempt to keep the lira stable. Deposit rates now diverge sharply from the benchmark and that is unsustainable, economists say.
Barclays PLC’s Ercan Erguzel said that interest rates would have to rise regardless of Erdogan’s victory, albeit at a more gradual pace than if Kilicdaroglu had won.
Erguzel projected that the benchmark would hit 36 percent by the end of this year, up from 8.5 percent currently.
Meanwhile, the cost of insuring against sovereign default would continue to soar, said Cagri Kutman, Turkish markets specialist at London-based KNG Securities.
“Erdogan will be careful that the new economy administration has serious credibility,” Kutman said.
However, it would not “give up on its low interest rate policy,” he said.
When it comes to foreign policy, another five years of Erdogan is likely to see Turkey continue to assert its independence in the power struggle over everything from trade to the war in Ukraine.
The country is a critical buffer for migrants moving toward Europe and Erdogan will work to maintain grain exports from the Black Sea after securing another extension two weeks ago.
However, he also made clear where his friends are, name-checking leaders in Azerbaijan — a traditional ally — Uzbekistan and Libya in his victory speech on Sunday evening.
“They are calling back-to-back and saying if necessary, declare it, invite us and we’ll come now,” Erdogan said. “No one can look down on our nation, drag our youth into the void. No one can wag their finger at Turkey.”
Putin also congratulated his “friend” in a statement on the Kremlin’s Web site.
US President Joe Biden wrote on Twitter that he looked forward to working with Erdogan as NATO allies.
The Turkish president plans to foster peace in Ukraine, although he will continue to stay out of the sanctions push against Russia because Turkey believes they are counterproductive, people familiar with the situation said.
They declined to be identified when speaking about Erdogan’s thinking.
Erdogan would only agree to ratify Sweden’s bid to join NATO after first looking at Stockholm’s implementation of its new terrorism legislation, which is to go into force today, the people said.
However, Erdogan might need to balance his tougher approach toward Sweden to get US congressional support for Turkey’s purchase of US-made F-16 jets.
In his new term, Erdogan is expected to give an increasing priority to developing Turkey’s homegrown defense industry in pursuit of a military edge to back his aspirations to make Turkey a regional power, the people said.
“Turkey is about to reach the point of unsustainability in foreign policy with its expansionist initiatives in Syria and Iraq,” said Dogu Ergil, professor emeritus of political science at the University of Ankara. “As for the economy, the country is already in the red zone. There will either be significant changes or a deep social and political crisis — or both.”
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