Turkish elections - in the cold light of day

The dust has settled after an extraordinary election in Turkey over the weekend, so I thought some cold light of day thoughts might be appropriate. And I have been in Istanbul this week, so it’s interesting to give some local colour.

First things first, the pollsters got this election totally wrong. And wrong again after their dismal showing in last year’s general election. But what is so crazy about the two elections is that last year, Erdogan and the AKP massively outperformed expectations, but this time around the exact opposite happened, with the opposition outperforming their and everyone else’s expectations. Actually speaking to both sides after the elections, both were in shock, almost stunned silence.

And I also got this election totally wrong - read my comments from last week where I expected a close race, likely the opposition retaining the three big cities but not the devastating losses for the AKP.

The shear scale of the defeat for the ruling AKP was extraordinary - its poorest performance since taking office in 2002, albeit its poll share actually was still higher (36%) than back in 2022, when just 34% was enough to secure a parliamentary majority. But strikingly the opposition CHP outpolled the AKP with just under 38%, and posted its best performance since 1977. Many people had written the CHP off as a party in terminal decline but this election breathed new life in the party.

For the AKP these elections were disastrous as it failed to win any of Turkey’s six largest cities, and saw many of its historical heartlands lost to the opposition. In Istanbul the AKP even lost die hard AKP districts, including the working class district where Erdogan himself was born and grew up. These elections were as close as could be described as a humiliation for the AKP.

So why were these results so different to the general election just one year on?

A range of factors came to play here.

First, and foremost, these elections were about inflation, and are a protest vote against the failed economic policies of the past decade, at least, under the ruling AKP. True inflation was a factor in the general elections, the population were also hurting from a standard of living perspective back then, but other factors weighed in the general election result, including national security, leadership (or the lack of leadership from the opposition). The local elections were really a one issue election, and the population wanted to send a strong message to Erdogan that enough is enough, act to do something about inflation.

The different poll results might also suggest that the population still rather trusts Erdogan with managing international affairs - dealt with difficult characters like Putin - but prefers the opposition to run the economy and local government which impacts their packet.

Second, looking back at the general election, Erdogan was able to deploy his considerable political prowess to weaken and undermine the opposition. Changing the election law to his advantage, lodging a legal case against the charismatic now second term mayor of istanbul, Imamoglu, and ensuring that the opposition CHP fielded a weak and uninspiring leader, Kilicdaroglu, of the then joint six party opposition alliance, the Table of Six. The choice back in

May 2023 was between the strong, tried and tested, Erdogan, with all his known faults, versus a weak opposition led by a weak leader in Kilicdaroglu. Erdogan back then won hands down.

But in the local elections this time, the opposition fielded strong candidates in Imamoglu in Istanbul and Yavas in Ankara. The shear scale of both their victories against AKP candidates in both cities, with Imamoglu winning by over 10 points in Istanbul and Yavas by 30-odd in Ankara was just extraordinary. Yavas in particular. In contrast in both Istanbul and Ankara the AKP fielded weak, ineffective candidates, and this was reflected in the election outcomes.

The Kurdish issue and the Islamist issue also hurt the AKP in these elections.

Kurds appear to have voted en masse for Imamoglu in Istanbul, with the Kurdish DEM vote dropping to just 6%, as the DEM fielded a pretty low key candidate in

Istanbul and made it clear with their indifference to the campaign that they were not willing to bail Erdogan out this time around.

And the rise of the Islamist New Welfare Party, under Fatih Erbakan, also hurt the AKP vote, as this constituency would inevitably have gone to the AKP, and the YRP took 6.2%. Many had expected Erdogan to cut a prelection deal with Erbakan but the longer this failed to materialise the more bad blood seems to have developed between the two politicians, then making a deal impossible.

What does all this mean?

I heard many in the opposition describing this as a turning point in Turkish politics, against Erdogan. That this result was about democracy and a vote against the centralising policies under Erdogan. Some of that yes, and I guess the big plus here is that these elections proved that democracy is still alive in Turkey. In dictatorships the opposition simply do not win elections, they are not allowed to win elections, as is the case in Russia, et al. But people campaigned, they voted, their votes were counted and called correctly, and Erdogan in his post poll speech accepted the results.

And new life has been breathed into the opposition CHP - albeit other opposition parties seemed to post near terminal performances, including IYI (Aksener), Deva (Babacan), Gelecek (Davutoglu), et al, and perhaps even the MHP in the ruling coalition which polled just 5% nationally. The CHP led the national vote, picked up numerous regions, mayors and in Imamoglu, Yavas et al they have potent potential candidates for a future presidential poll.

But 24 years covering Turkey has taught me, that Erdogan is never writtten off. He remains Turkey’s preeminent political operator. He still has four years now until the next scheduled elections. Talk of early general elections, constitutional reform and a constitutional referendum surely will be put on the back burner and pushed way back off the agenda.

Erdogan in his post election speech accepted fault, and mistakes, and seemed to understand that inflation lay at the heart of his defeat in these local elections. He seemed to double down there on support for his finance minister, Mehmet Simsek, and the return to orthodoxy we have seen since May 2023. Simsek and the team at the CBRT provide Erdogan with a path for the economy to rebalance and for inflation to be reined in, even beaten. That path will be harsh, with brutal fiscal austerity and tight and likely tighter monetary policy lying ahead. Erdogan will have to accept a period of much lower growth over the next 1-2 years to bring inflation lower - classic inflation versus growth trade off. Likely real GDP growth will have to slow to 1-2% for the next few years and in the Turkish context that will feel like a recession. Many will ask how can Erdogan live with that when his time in office, and electoral success has been built on pump primed growth, investment, job creation. Well it is now the only path to political resurrection for Erdogan. Inflation is now the number one problem in Turkey - everyone feels it, while only a more narrow section of the population feels growth going from 4% to 1%. Inflation inflicts everyone, growth benefits a narrower section of the population and it is less discernible.

And in Simsek et al, Erdogan has a strong, capable team with a plan that can turn the inflation story around. He just has to back them for the duration.

It is encouraging here that I heared little criticism from across the political spectrum of Simsek at al. All seem to accept that the country has no option but to bite the economic policy bullet. On the FX and rate front at least, we are entering the summer months and seasonals should help with tourism inflows, and reduced energy consumption. And expectations of a post election devaluation will fade the longer the CBRT holds to the current high interest rate policy, and eventually those that borrowed lira at expensive rates before the election, assuming a post election devaluation, will suffer and be forced to sell dollars. We should begin to finally see dedollarisarion helped from mid year by favourable trends also on inflation as base period effects come into play. Inflation to year end could even surprise positively given the tightness of fiscal and monetary policy and the strong disinflationary trends we are likely to see, including real FX appreciation. Bad for exporters but great for reining in inflation.

And the opposition?

Well the election has brought both opportunities and challenges. For the CHP it now has two potential presidential candidates in Imamoglu and Yavas, and Erdogan will seek to exploit rivalries therein which will inevitably surface.

The collapse of the opposition vote for IYI, Deva and Gelecek, plus the rise of the Islamist New Welfare Party, means their constituents are now up for grabs. Erdogan could still do deals with any of these parties to secure support from their MPs in Parliament - perhaps for constitional reform later down the line - and their voter bases. This 10-20% voter share is “up for grabs” from both Erdogan and the CHP. Now whether these voters see Erdogan’s defeat as a turning point and move more permanently behind CHP is open to question - I tend to think not, their constituency will wait and see as was perhaps even in last year’s general election. If Erdogan turns the economy around, and plays the nationalist, techno card again, he could still recover to a winning position four years down the line.

Similarly, the Kurdish vote was lent to Imamoglu and the CHP in this election, but the DEM and its leader, Demirtas, will surely deal with whoever offers the best prospect of Kurdish reforms. If Erdogan can deliver that without hurting his nationalist constituency (if that is ever possible) he will surely try it. What we know about Erdogan is that he is ever the pragmatist - as we are now seeing on the 180 degree turn away from unorthodox economic policies.

And the succession? Well if Erdogan was thinking about a quiet life on the fringes, he now faces four more years of hard graft to counter the resurgent threat now from Imamoglu or Yavas. Before thinking of handing over the baton he will surely want to dull these threats first.

Overall the positives from the election are that democracy in Turkey is clearly still alive and kicking - even vibrant. And the clear understanding from all that the key issue is inflation suggests continued and much needed orthodox policy adjustment.