The economic consequences of the elections
wrote a little gem of JOHN MAYNARD KEYNES a book in 1919 entitled The Economic Consequences of the Peace. There, he explored the possibilities of further escalation in Europe and even another world war with unprecedented clarity. The Versailles Treaty was nothing but the harbinger of another catastrophe. It is impossible to be that prescient in Turkey where the forecast horizon is too short. Yet the municipality elections delivered a result that was unanticipated and gross of consequences. Not only the landscape has changed but also the political function that maps large electorates to such and such parties on the basis of ideological/ religious/ethnic allegiances may have been dismantled to some extent. Let us explore some possibilities on account of economic policy implications and political change.
POLITICAL CHANGE
The fact that Yavaş and İmamoğlu won has only confirmed that these two are architects of political change, a phrase coined by Norman Schofield. But also Fatih Erbakan has now that chance. In contrast, Akşener lost all her appeal and missed a tremendous opportunity. That chance was offered to her on a plate by Kılıçdaroğlu back in 2018. The leadership of İYİP may not have understood that the c. 10% votes –more could possibly come- were cast only on the premises that they were a clear-cut opposition party that would carve for itself a nationalistic but democratic centre-right position. The moment that party wavered the moment clouds gathered on its electoral performance. Already some 3-4% may have migrated to the main opposition party last year when Akşener had left the Table of the Six. Today the remaining 3-4% may have been gone for good. This brings CHP on the edge of the 30% threshold. Note that whatever votes CHP has gathered last week –c. 34% in the municipal council elections, a metric we usually use as a proxy for national elections- are not all CHP votes. The voting was almost a purely economic voting and those votes are more likely to be protest votes. CHP can make them permanent though but this is far from certain an outcome. What is important is that ideology did not prevent citizens to vote for CHP in places hitherto known as bastions of rightwing parties. Also, DEM did not succeed and this is not new in fact. Ethnic nationalism may have been losing its appeal on citizens of Kurdish ethnicity who are now living in western cities of Turkey. MHP has a long-standing tradition and its voters are faithful but its leader is old. So, change is in the air on all fronts. CHP has grasped this first and moved first.
ECONOMIC CONSEQUENCES
There are scenarios. The limiting cases are (a) continue in the same vein with Mr. Şimşek and follow in the footsteps of an implicit stabilization programme even though it will not be under the auspices of the IMF and (b) retreat to the 2021-2023 episode and face a balance of payments crisis. We do not know who knows what because we do not know the mind-set of the AKP elite. Perhaps some people can only look at a snapshot and think “high” interest rates –with respect to what?- are the main culprit. We do not know if even businessmen of sorts think in terms of equilibrium, endogenous and exogenous variables, controllability, reputation, credibility end all that. If the decision is in favour of disinflation and stability, well, it will take time and it will be costly. If there is a return to previous and wrong policies, then all reserves –and they stand at minus c. USD 65 billion net of swaps- will be sold
again and interest rates will be cut. But this is a dead end and is not sustainable because the budget does not allow that. Therefore, there will be twin deficits, i.e. both external and internal. Moreover, because savings will be suppressed with negative real rates and financial repression, there will be a third deficit: the savings gap. Dollarization will pick up big time, and inflation will be runaway inflation. This automatically implies capital controls. . I would call it the Route Irish scenario. All in all, I do not think –but nobody can be sure- this is the route the government will take. A third option would be a muddle through scenario but a middleof-the road approach will serve nobody and will end up in disaster also.
THE ORTHODOX SCENARIO
Inflation will fall in Q2 on account of favourable base effects. Perhaps, foreign capital would pour in if overseas investors think Mr. Şimşek is fully given a green light and there is enough time to stabilize before the next elections due in 2028. If nobody dilutes the programme, in two years we will see the light at the end of the tunnel. This option –best for everyone- has an interesting side effect though. Disinflation will require a drastic fall in domestic demand. Wages will be suppressed: no more minimum wage hikes etc. Because income and wealth distributions are tilted towards the rich and the super-rich, millions of retirees and low-wage employees will have a hard time. Municipalities have already provided examples of providing relief to the poor in Ankara and Istanbul, and this policy has handsomely paid off in the elections. Maybe CHP, which will administer 63% of total municipalities, will in toto resort to such policies. Maybe municipalities will act in lieu of central government in terms of shoring up the average citizen’s quality of life. The government will no doubt use incomes policy, i.e. lower real wages, but non-wage supports at the local level can alleviate the pain. I think this is a big challenge for CHP, but also a big opportunity.
KURDISH VOTES
In Van, one of the eastern cities where DEM (Kurdish) has won by a very high margin –c. 55% against 27%- the winner has not been given a mandate on account of previous charges. But the supreme authority that decides on who has the right to run for mayor had already declared that the candidate was cleared. This is an incredible situation. It also explains to some extent why the Kurdish political entities had always developed a dualist approach. A leader says X and another Y just to be sure the movement as a whole is politically insured. It is not just that of course because Kurdish politicians do that quite often but so do others. In a similar vein, although DEM participated to elections separately and not supported opposition candidates as it did last year Kurdish votes did not follow that pattern. In İstanbul, half of DEM voters preferred İmamoğlu whom they believed could win. It is like for architects of political change such as İmamoğlu running against does not work and is not a good choice if you simultaneously claim you are an opponent.
WHAT HAS HAPPENED TO THE IDEOLOGICAL DIMENSION?
As you all know, the political space is a simplex based on the economic and ideological axes. In Turkey, ideology means religion-cum-nationalism (including Kurdish nationalism) and some vague sense of social justice. Furthermore, regions and cities are landmarked by them: there are cities where no other party than X or Y can win. Well, in general the ideological lenses are still there present but there were dramatic changes in the way they functioned last week. YRP (Fatih Erbakan) has a natural appeal for the religious youth because they think he is sincere in his beliefs. The reactions to the atrocities of Israel along the Gaza Strip must surely have been a factor. If we add the c. 6% of the YRP vote to the AKP+MHP+BBP votes, we still come up with 47-48%. Also, do not pass unnoticed the fact that the turnout rate is low compared to both 2019 local (6% less) and 2023 national (9% less) elections. It is likely that AKP voters refrained from voting as a protest against high inflation etc. Yet there are dramatic political shifts in many places. They cannot all be explained by the popularity of the mayoral candidates or by the protest against economics hardships. There are also elements of hope and confidence therein. People had a hard time believing their eyes in many places. Kastamonu for one displayed a complete reversal of votes: CHP jumped from 18% in 2019 to 49% in 2023. Compered to May 2023 national elections, CHP is up from 21.9%. Even the Opposition Bloc had only gathered 29%, with so many parties’ pooling of votes. This means that people were not blindfolded by ideology as before. Ideology works, but in different ways –in different places. It is according as people ‘perceive’ their ideological affiliations and maybe revise the way they believed them.