/ 8 June 2015

Turkey: Erdogan loses stranglehold on power

Turkey: Erdogan Loses Stranglehold On Power

Turkey’s governing party lost its majority in Parliament, dealing a blow to President Recep Tayyip Erdogan’s ambition to consolidate power and threatening to usher in the kind of political instability the country hasn’t seen for more than a decade.

With more than 99% of votes counted after Sunday’s general election, the AK Party, which has ruled on its own since 2002, is set to win 258 seats in parliament, according to preliminary results published by the state-run Anadolu Agency. That’s 18 short of the number needed to win a vote of confidence to form a government.

The results raise the possibility of a fragile minority administration, weeks of coalition bargaining, or a return to the ballot box for another election to break the deadlock. Such outcomes may be unwelcome to investors who have mostly enjoyed stability and economic growth under Erdogan and his party, even as domestic critics accused the government of corruption and authoritarian leanings. The lira plunged to a record low against the dollar early Monday.

Turkey is set to experience “heightened political instability and uncertainty over economic policy”, Wolfango Piccoli, managing director at Teneo Intelligence in London, said by email. The loss of the AK Party’s majority may derail plans by Erdogan, who won the presidency last year after more than a decade as premier, to shift the nation’s center of power from parliament to his office. Those changes would require a large parliamentary majority to change the constitution, which now seems beyond the AK Party’s reach.

Unwilling partners
The constitution requires a coalition to be formed within 45 days. If that proves impossible, the president can call another election. All three opposition parties signaled they don’t want to form an alliance with the AK.

The likeliest outcome is for the AK to remain in government as a minority administration that probably won’t complete a full four-year term, leading to another election within the next 18 months or so, Credit Suisse said in an emailed report.

“The likely economic outlook is one of muddle-through,” wrote Berna Bayazitoglu, the bank’s managing director for emerging-markets economic research in London. While the election result “has favorable democratic implications for Turkey”, it will also “lead to uncertainty for the markets”, she wrote.

Lira slide
The lira fell more than 3% to a record low of 2.7525 against the dollar early Monday, bringing the year’s losses to about 15%, the second-most among 24 emerging-market currencies tracked by Bloomberg after Brazil’s real.

Turkish growth has lost momentum after averaging about 5 percent under Erdogan, with unemployment at its highest level in five years, the currency plumbing record lows, and a spat between the government and the central bank worrying investors. Deputy premier Ali Babacan, the AK Party’s key economic strategist, is stepping down and didn’t seek re-election on Sunday.

The main opposition CHP, which won 25% of the vote, focused much of its campaign on the government’s handling of the economy. Devlet Bahceli, leader of the second-largest opposition party MHP that won 16% of the vote, signaled reluctance to form a coalition with the AK, saying the best outcome would be an early election if other parties fail to form a coalition government.

‘Crisis scenarios’
Prime Minister Ahmet Davutoglu, fighting his first election as party leader after taking over from Erdogan last year, called the result an “epic success”. In a speech to party members in Ankara as the last votes were being counted, he warned against “investing in crisis scenarios” and said “all precautions” will be taken to maintain economic stability.

Davutoglu was often overshadowed on the campaign trail by Erdogan, who pushed for a large AK Party majority that would enable the constitutional changes he wants, even though the president is supposed to be politically neutral.

Among the election’s biggest gainers was the pro-Kurdish HDP party, which for the first time captured more than the 10% percent of the vote needed to enter parliament. The party won 13% of the vote, according to preliminary results, published by Anadolu. That may have implications for the government’s efforts to end the three-decade war with Kurdish rebels, one of Erdogan’s main goals.

“Kurds will be buoyed by the election result and definitely be more assertive in their demands,” Nihat Ali Ozcan, an analyst at the Economic Policy Research Foundation in Ankara, said by phone. “Early election results show that AKP will bear the results of its policies, which polarised society.” – Bloomberg