Kivanc Dundar in Istanbul -
After coalition talks between the ruling AKP and the opposition centre-left CHP and nationalist MHP failed, Turkey is headed towards fresh parliamentary elections with President Recep Tayyip Erdogan showing no signs of giving up on his ambitious plans to establish an all-powerful executive presidential system. Erdogan claims the change has already effectively taken place since he was elected president last year in the country’s first direct presidential election. What’s needed now, he argues, is to rewrite the constitution to reconcile the de facto situation with the new reality.
Erdogan and the AKP’s main target appears to be the Kurdish HDP party, which cleared the 10% threshold in the June elections to enter parliament, depriving the AKP of its parliamentary majority for the first time since 2002. Erdogan hopes that the AKP can regain its majority in fresh elections if nationalist voters switch to the AKP.
Meanwhile, the Turkish military has been pounding bases of the separatist Kurdistan Workers' Party (PKK) in northern Iraq and inside Turkey since July. The renewed clashes between the security forces and PKK militants have killed more than 50 security personnel and scores of PKK militants already, reminiscent of the country’s no-so-distant bloody past.
The political deadlock and heightened security concerns are taking their toll on the already slowing $800bn economy, setting the currency and stock markets on fire. The lira has been in free fall and the central bank’s inaction is only making matters worse.
Failure to agree
Ahmet Davutoglu, caretaker prime minister and leader of the AKP, approached first the party’s arch-enemy, the secularist CHP, about forming a government, even though Erdogan had already publicly made it clear that he favours a single-party government.
Talks between the two major parties failed shortly after Kilicdaroglu accused Erdogan of blocking the coalition efforts. Erdogan denied the claims. It later emerged that what Davutoglu actually offered Kilicdaroglu, the CHP’s leader, was an interim government to lead the country into fresh elections.
Then Davutoglu turned to Devlet Bahceli, a nationalist hawk who calls for an immediate and unconditional end to the peace talks with the PKK. Following a short meeting with the nationalist leader, Davutoglu appeared before the press to declare that early elections are the only option. Davutoglu also said he disagreed with Bahceli over Erdogan’s role in politics. “Erdogan is back in the driver's seat,” Svante Cornell, director of the Central Asia-Caucasus Institute, told the Associated Press on August 18. “But... the car is breaking down.”
Some recent public opinion surveys suggest the AKP could reverse its losses of the June election and regain its parliamentary majority in a snap poll. But other surveys suggest any new election would not change the parliamentary arithmetic dramatically. In the June 7 parliamentary election, the AKP won 40.7% of the vote (258 seats), CHP 25.1% (132 seats), MHP 16.5% (80 seats) and HDP 13% (80 seats).
Working against the AKP could be the perception that it has forced early elections on a recalcitrant Turkish electorate at a time when there are severe challenges, both from the security perspective and also economically.
Davutoglu finally on August 18 returned the mandate he had been given to form a government to Erdogan. But the president signalled he would not give the task to the opposition leader Kilicdaroglu. Turkey is quickly heading toward early elections, said Erdogan only a day after Davutoglu handed back the mandate.
If no government is formed until August 23, Erdogan must call on an interim power-sharing government to take the country to a new election that is expected in November.
The CHP was furious, not only over being denied a mandate to form a government, but also over Erdogan’s comments about the de facto change in the country’s system of democratic governance. The MHP and HDP were equally angry about the president’s bold and controversial statement.
“Whether you agree or not, Turkey's system has changed,” Erdogan declared on August 14 in a public speech in his hometown of Rize, adding that what needs to be done now is to confirm the legal framework of this de facto change with a new constitution. What Erdogan refers to is his election as president last year not by parliament but by the popular vote, for the first time in Turkey’s history.
Analysts say it appears that Erdogan is pushing his agenda to turn the country into a presidential system even though those plans suffered a serious setback in the June parliamentary elections. Even Davutoglu declared that the electorate had rejected the presidential system. But Erdogan is not giving up so easily.
“It is, in fact, unbelievable how he [Erdogan] could declare that. He might be encouraged by the political uncertainty that has ensued since the general elections of June 7,” wrote political commentator Mustafa Akyol on August 18 in an article for Al Monitor. “Perhaps Erdogan and his team feel that the time has come for the nation to honour its saviour – a resolute leader with an iron will who will crush all the enemies within. Little do they realize, though, that the nation needs the exact opposite: a gentler leader who can heal scars, build bridges and offer some reconciliation to a bitterly divided society.”
The political uncertainty coincides with renewed clashes between the security forces and PKK militants. According to media reports, more than 50 security personnel lost their lives between July 7 and August 19, while the state-run news agency Anadolu claims that hundreds of PKK militants have been killed.
Eight soldiers were killed in a single attack on August 19 in the Silvan district in the country’s southeast, the deadliest incident since July when the government started to launch airstrikes on PKK bases in northern Iraq in response to the killings of two police officers in their sleep in the town of Ceylanpinar, blamed on the PKK. Since then, Turkish jets have pounded suspected targets in northern Iraq, the PKK’s stronghold.
The Ceylanpinar killings ended the ceasefire and the already fragile peace talks with the PKK were put on ice. Selahattin Demirtas, co-chair of the Kurdish HDP party, called for a truce and asked both sides to end the violence, but Erdogan has vowed to fight till the end. A ceasefire to be declared by the PKK would not be enough, stated Erdogan: “Turkey will continue its fight against terrorism until weapons are laid down and not one single terrorist remains within Turkey’s borders.”
Neither side wants to be the first to blink. Cemil Bayik, a senior PKK field commander, said his militants would not disarm or withdraw from Turkey for as long as the military conducted airstrikes against PKK camps in Turkey and northern Iraq.
Erdogan’s critics say the president’s uncompromising stance on the Kurdish issue is a bid to win support from the nationalist MHP in the upcoming elections and to undermine the HDP, which Erdogan dismisses as the civilian arm of the PKK. This tactic, however, could well backfire, according to some critics. “Erdogan and AKP officials had ramped up the nationalist rhetoric in their speeches ahead of the June election, which saw a drop in the AKP’s vote share and a slight increase in the votes of the MHP,” observes Ozgur Kormaz, a columnist for Hurriyet Daily News.
Nationalist sentiment and anger are running high among Turks as more and more young conscripts in their early 20s return home in body bags. But this could cut both ways and alienate the nationalist voters from AKP.
Lira plunges, stocks fall
The political vacuum and escalation of violence could not have come at a worse time for the Turkish economy, which is likely to face strong headwinds in the months to come when the US Federal Reserve is expected to start raising rates.
The Turkish lira almost everyday is flirting with fresh lows against the dollar. It was trading at a new all-time low of 2.965 per dollar on August 20 after the central bank decided to leave its benchmark rates unchanged. The bank’s inaction disappointed the markets.
The lira has been the second worst performing currency in the emerging markets universe this year after Brazil’s real, losing around 27% of its value. The main BIST 100 stock market index slumped 8.6% over the past month and yields on the benchmark two-year government bond rose to 11.11% on August 20.
The Turkish economy has other problems to deal with, such as its large current account deficit and heavy reliance on external funding. Turkey’s annual external financing needs are put at a hefty $200bn. “Turkey is one of the most vulnerable emerging markets in the Fed policy normalization process,” Phoenix Kalen of Societe Generale told the Wall Street Journal, adding that inflows into Turkish assets will be inverted as soon as the US hikes rates.
The surge of capital pouring out of emerging markets has risen toward $1tn over the past 13 months, roughly double the amount that fled during the 2008 financial crisis amid slumping confidence in the world’s developing economies, reported the Financial Times on August 18.
The depreciation of the Turkish lira is expected to continue over the coming months, which will have serious repercussions. The weakness of the lira added TRY11bn (around $3.8bn) to the country’s gas import bill since the beginning of the year, admitted Energy Minister Taner Yildiz. The weaker currency could also derail the central bank’s efforts to combat inflation, which slowed to an annual 6.81% in July from 7.2% in the previous month, thanks to seasonal factors such as cheaper food and discounts in clothing.
The political uncertainty and the flare-up in violence is seen hurting consumer sentiment and investment appetite. Turkey’s exports fell for the seventh consecutive month in July, foreign tourist visits declined by 5% on year in June, probably because of the rise in violence and geopolitical risks. “From a sentiment standpoint, Turkey needs a snap election right now like it needs a hole in the head,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, told Reuters on August 13.
Analysts at Standard Chartered said in a report published on August 20 that the political uncertainty combined with a depreciating currency has prompted the bank to lower its 2015 growth forecast to 2.8%. What is more worrying is that addressing foreign investor’s concerns might not be enough to reverse the depreciation, as local players have played a major role in the recent lira fall, said Standard Chartered.
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