Turkish AKP wins huge victory but reform could still stall

By bne IntelliNews July 23, 2007

Nicholas Birch and Nicholas Watson -

Turkish Prime Minister Recep Tayyip Erdogan won, as expected, a sweeping victory in general elections and pledged to continue reforms and the often-times seemingly doomed efforts to join the EU. However, the parliament that will result from these elections could end up consolidating the country's divisions between nationalists, ultra-secularists and the mildly Islamic AKP.

Unofficial results gave the PM's ruling Justice and Development Party (AKP) about 47% of the vote, but will probably lack the two-thirds parliamentary majority to force through his presidential choice and constitutional change.

These elections were called after opposition parties in parliament blocked the AKP's nominee for the post of president, who they saw as not secular enough, causing political deadlock as the president is elected through parliament, not a direct election.

Two opposition parties won the 10% share needed to guarantee seats in parliament: the secularist Republican People's Party (CHP) polled 20%, and the right-wing Nationalist Action Party (MHP) 14%. Estimates said the CHP would win up to 112 seats and the MHP some 70 seats, with up to 27 going to independent candidates, including pro-Kurdish politicians. Although the AKP has been returned to power with a larger share of the vote, the presence of a third political party in the parliament means it will have fewer seats, analysts say.

It's the economy, stupid

For international investors, wowed by AKP's pro-Western, pro-market policies, but chary of its sometimes confrontational relations with secularists in the judiciary and the army, the win by the PM is an ideal outcome. Last week, Istanbul's stock exchange – more than 70% foreign-owned – shot to historic highs.

Under the AKP, national income per head has more than doubled; inflation has dropped steadily from 70% to single figures; and even unemployment, still high at 10%, is creeping down.

However, Erdogan's vow to continue reform, seek national unity and respect Turkey's secular constitution, won't be helped by the parliament's make-up.

Author of a recent book on the AKP, political scientist Hakan Yavuz is one of many who think investors are being over-optimistic. The parliament that Turkey will wake up to, he said ahead of the elections, will contain Kurdish and Turkish nationalists, ultra-secularists and the AKP - "an incendiary collection."

"Turkey desperately needs to bridge its divisions, but it looks set to elect a parliament that will only consolidate them", he said.

There are two immediate sources of tension: a rerun of presidential elections whose collapse into farce in May sparked this poll, and a surge in Kurdish separatist violence which has pushed Turkish-US relations to the verge of collapse. 140,000 Turkish soldiers are massed on the Iraqi border, poised to clear out PKK camps in northern Iraq that the US has so far been unwilling to dislodge.

But the biggest question mark of all remains the AKP. The radical reforms it pushed through between 2002 and 2004 secured a start of EU accession proceedings that Turkey had dreamed of for 40 years. Since then, pressured by the secular establishment, it appears to have lost its way.

"I don't think AKP has a vision beyond the Copenhagen criteria," Hakan Yavuz says, referring to the broad rules defining whether a country is eligible to join the EU.

On the economy, too, the AKP has yet to really convince. Nobody doubts the sincerity of its efforts to reduce Turkey's bloated state, or the vital importance of the reforms it has brought to the social security system, among others. But the party was in large part only following a reform package begun under a previous government, and sponsored by the IMF. International liquidity has played a major role in stimulating growth that has averaged an annual 7% over five years.

With Turkey's IMF agreement due to end early next year, and the country's Privatisation Administration running out of things to sell, it remains to be seen whether the government can come up with new policies to finance the $30bn current account deficit.

There are positive signs. Parachuted in from his position as Middle East and Africa desk chief at Merrill Lynch, AKP candidate Mehmet Simsek has talked convincingly of the need to begin micro-reforms – to increase labour productivity and improve education, for example - and imbue Turkey's public sector with a spirit of competition. The problem is that you need consensus for reforms of this sort, and consensus is in short supply in Turkey at the moment.

"Before the excitement of this spring, I thought Turkey was ready to jump to a new dimension", says Fatih Ozatay, a former Central Bank vice governor. "Now, I think that will be much more difficult."

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