Kivanc Dundar in Istanbul -

This will be a decisive moment for President Recep Tayyip Erdogan and for Turkey when millions of Turks go to the polls on November 1 to cast their votes in the parliamentary election, the second one in less than five months.

Political and economic stability, the peace process with the Kurds, and Turkey’s fragile democracy all hang in the balance. The prospect of Turkey plunging deeper into turmoil is not be out of question if Sunday’s elections fail to break the current political deadlock.

The polls are taking place at a time when the 78mn nation is more polarised than ever and its $800bn struggling economy faces numerous challenges, while Islamic State has emerged as a new and serious threat to a country that is already battling Kurdish insurgents who resumed their attacks after a two-year ceasefire collapsed in July.

Even though he is not running in this election, at least officially, the polls are overshadowed by the irascible President Erdogan, founder of the governing Justice and Development Party (AKP), who still rules the party behind the scenes. According to the opposition leader Kemal Kilicdaroglu, Erdogan himself torpedoed the efforts to form a coalition after June’s inconclusive elections.

Most opinion polls have pointed to a yet another hung parliament. And it is far from certain how unpredictable and ill-tempered Erdogan will react if his party fails to win an outright majority this time again.

A nation divided

The election in July was a blow not only to the AKP that has dominated Turkey’s political scene for 13 years, but also to Erdogan, whose plans to turn the country into an all-powerful executive presidential system were dashed.

Independent pollsters say support for the AKP is stuck somewhere at between 40% and 43% – not enough for the party to win 276 seats in the 550-seat in parliament that would give it the required majority to form a single-party government.

The polls see support for the main opposition, the secularist Republican People’s Party (CHP) at around 26%-27%. But it was the Kurdish party HDP’s surprisingly strong performance in the last election that deprived the AKP of its majority for the first time since 2002. And in this upcoming election Kurdish votes will again be crucial. “I am expecting the HDP to win over 15% of the vote on Sunday because of larger sympathy for the party after the Ankara bombings,” says Ahmet, a 25-year-old, half-Armenian gay student, referring to a twin suicide bombing on October 10 at a peace rally that killed 102 people, suspected to be the work of IS.

Perhaps Ahmet is overestimating the share of the vote the HDP can garner. But the polls show the Kurdish party is set to clear the notoriously high 10% threshold to gain representation in parliament, which many hope will leave the AKP with little choice but to finally accept the bitter reality that the only way to end the current political deadlock is in a coalition with the opposition.

Ahmet has a point though; security has become a real concern for the electorate. “I am hopeful for a governing coalition that includes the CHP because I want peace at home, a better foreign policy, better economy and a new constitution,” says CHP supporter Tamay, a 67-year-old retired army colonel.

The government’s Syria policy, focusing only on toppling the regime in Damascus by supporting anti-Assad groups – almost indiscriminately – has collapsed. And the situation clearly has spun out of control.

According to security reports, there are IS cells operating in Turkey, ready to strike at any time on orders from IS commanders in Syria. IS militants were responsible not only for the Ankara attack, but the authorities say the extremist group also carried out the suicide bombing in the south-eastern town of Suruc that killed more than 30 Kurdish-leftist activists. And it was behind the bomb attack at a HDP rally in Diyarbakir, the largest Kurdish city, ahead of the June elections. Four people died in that attack.

Turkey has become increasingly isolated in the international arena as its bold – and rather ill-conceived – plans to create a sphere of influence in a wider area, stretching from Libya to Egypt and to Syria, have failed miserably. Turkey agreed to allow the US to use its airbases to launch airstrikes on IS militants, while Turkish jets have bombed some IS positions in Syria after the Suruc attack.

Critics say the government’s disastrous, short-sighted policies in the end provoked retaliation by IS. AKP supporters of course disagree. “Erdogan is a world leader, the leader of the Muslim world. See? Even [German Chancellor] Merkel came to seek his support. But the West tries to undermine Turkey whenever our nation grows stronger. That is the reason behind all these smear campaigns against him. Erdogan is a dictator? Nonsense. Our girls and sisters can now go to schools wearing their headscarves. Could you imagine this happening 20 years ago? We can practice our religion freely thanks to Erdogan,” says Hikmet, a 45-year-old shop-owner, sitting at the AKP booth set up in Besiktas’ busy main square with a couple of comrades, under the watchful eyes of the police.

But people just walk past the AKP’s desk, because Besiktas is one of the CHP’s strongholds in Istanbul. The police are there to prevent trouble. There have been confrontations between the leftists and AKP activists during past election campaigns in this middle-class neighbourhood, which is not exactly the AKP’s typical support base.

Deep divisions

Hikmet is one of the many happy religious people who are becoming more visible in the public sphere now that a devout leader is running the country. The rising influence of Islam in social life and Erdogan’s increasingly Islamic rhetoric are exactly what the country’s secularists are deeply concerned about. “The CHP will bring an element of modernity that the AKP doesn't have, such as the separation of religion and state. Voters must come together on Sunday and choose a government that will not continue to scare and oppress them,” says 32-year-old Ebru, a costume designer.

Ebru is right. Turkish people, and not just a few but a lot, are scared. In a survey in October, Gezici, a polling company, asked the question directly: “Are you afraid of Erdogan?” 68.5% answered “Yes”.

Many middle-class, educated and Western-minded CHP supporters, like Ebru and Tamay, are well aware that the AKP will not be crushed at the ballot box this Sunday. But some people even fear that the AKP government might try to rig the election in its favour. “It's a messy situation and I can't see a way out. The AKP is so unwilling to cooperate with anybody, as proven after the June elections, that this state of affairs is worrisome,” Dr Can Erimtan, an independent scholar in Istanbul, tells bne IntelliNews.

A third round of elections would be a disaster, but a feasible scenario, according to Erimtan who also thinks there might be violence in the Kurdish areas on Sunday.

Only a coalition government, preferably one between the AKP and CHP, is regarded by many as being able to reduce social tensions and put the economy back on track. This is the scenario that the markets have priced in, and business circles and investors would like to see it materialise if Sunday’s election is inconclusive. The economy cannot afford another cycle of elections.

Economy needs stability

Business and consumer sentiment remain fragile, exports have been weak, inflation is stubbornly high, unemployment is more than 9%, and Turkey’s $800bn economy will have to struggle with strong headwinds as an interest rate hike by the US Federal Reserve approaches. The economy’s huge reliance on outside funding and large external debt leave Turkey vulnerable to a possible shift in foreign investor sentiment and exodus of capital from emerging markets that would be triggered by a Fed rate hike.

However, responsible governance and stability would help reignite the engine of economic growth and restore investor confidence, many argue. “Turkey needs a reform-oriented and pro-business government that will push for structural reforms, get rid of instability and solve the terrorism problem,” said Ozgur Altug, chief economist at BCG Partners, speaking at the rating agency Fitch’s annual conference in Istanbul on October 22.  “Whether that government will be a coalition or single-party government is irrelevant, as long as these problems are addressed.”

However, for a coalition government to address the economy’s pressing problems, its partners must cooperate. Moreover, the coalition needs to stay in power long enough to draft, approve and implement these reforms. But how long could a possible coalition of AKP-CHP survive given their sharp ideological differences and if Erdogan continues to interfere with politics? “The wild card is the [nationalist] MHP,” says Erimtan. “Their modus operandi is similar to the AKP's.”

The revival of the peace talks with the militant Kurdistan Workers’ Party (PKK) would be nearly impossible under an AKP-MHP government; the nationalist MHP says there is no Kurdish problem in Turkey and there is only a military solution to the PKK.

After the Ankara bombings, the Kurdish insurgents declared a unilateral ceasefire until after the November 1 election. This means Turkey could see new wave of attacks after the election. “We are looking for the response [to the terrorist attacks]. If there is a clear response from security forces that would minimize future risks, such incidents will not have an impact on the economy – or the rating,” Paul Gamble, senior director of the sovereign group at Fitch, told the audience at the rating agency's conference in Istanbul. “The question we pose is: is this something that will happen regularly, or are the government and security forces able to prevent it?"

The Kurdish conflict will not end unless the state/government and the PKK sit down to the negotiating table. This, however, will not happen until Turkey has a government that is determined to solve this long-lasting problem.

It was Erdogan who actually launched the peace talks in 2013 with the PKK. But he decided to change his tactic in the run-up to the June election, hardening his rhetoric to appeal to Turkish nationalists.

The government’s arbitrary, unpredictable and increasingly authoritarian rule is also spoiling the business climate. Heavy tax fines have been imposed on businessmen who are critical of the government. Even worse, the authorities have seized companies belonging to Erdogan’s foes, as the Koza-Ipek Group recently experienced at first hand. Prosecutors appointed a panel of trustees to manage the Koza companies on October 27, following an investigation into Koza-Ipek over its alleged links to US-based cleric Fethullah Gulen, a previous ally of Erdogan now turned archenemy.

Critics say Turkey needs a better legal system to break politicians’ influence over the judiciary. The World Bank reported that Turkey dropped to 55th place out of 189 economies in its latest “Doing Business 2016” ranking from its 51th place in the previous survey. “The only country which saw a noticeable absolute deterioration was Turkey – and the sub-sectors responsible for this are the legal system,” said Charles Robertson from Renaissance Capital in an emailed comment. “Legal processes are getting longer and resolving insolvency procedures are becoming less effective.”

A stable political environment with a reform-minded government would restore the kind of investor confidence that is key to reviving the country’s economic prospects, say analysts. But be careful what you wish for: some fear that if the AKP regains its parliamentary majority in Sunday’s election, Turkey will move closer to authoritarian rule, threatening to increase the polarisation in the county instead of reducing it. “If the AKP secures 45% votes, they will continue driving home their liberal economic policies and their policies of Sunni-fication,” warns Erimtan, pointing to the fault lines cutting through the Secular-Muslim and religious divides.

What’s at stake in the November 1 election is not only the AKP’s future, but the future of the country.