Election economics and thereafter…
Aperson monitoring Turkey from afar would probably think: “This is a country with many frequent elections. It must be one helluva a democracy! Wow!” We’ve seen a dozen elections, including local, general, presidential etc., in the past decade.
I do not know if there is an exception, but in almost all countries an ‘election economy’ is deployed ahead of an election. More or less bolts are loosened. It’s also clear which bolts will be loosened. The political authority is in a relatively loose position with respect to state finances. The monetary authority is also loosening its policy. The electorate, which will increase its expenditures after experiencing a sense of enrichment, will give more votes to the political cadre which gave it this opportunity and it is expected that the ruling party will once again retain power. Once the election is complete and the results are clear, however, we need to turn in the opposite direction and re-tighten the bolts because loosening policies in economics break the basic balances of an economy and create serious problems. After the election, it is necessary to overcome these issues by turning politics in the opposite direction and tightening the policies for a while.
We are the masters of election economics. Sometimes we do this without pushing the limits. Most of the time we push the limits. Bolts start to loosen. There are signs again that we have shifted into election economics. It’s too early to tell whether we’ve already pushed the limits but the stimulus packages announced recently imply that the government is in pursuit of serious loosening. Fiscal policy, which will directly and immediately affect the electorate, seems to be the main artery along the loosening path. Despite what has been said, even in monetary policy there seems to be some kind of loosening.
The disruptive effects caused by these policies on economic balances have also emerged. Accelerated growth is almost entirely driven by domestic demand. It is possible to say that this accelerates already rapid inflation. The Central Bank’s newly announced inflation report says that the year-end inflation target for 2018 has been raised from 7.9 percent to 8.4 percent. Domestic demand-driven growth will accelerate imports and may disrupt the foreign trade balance. The total foreign trade deficit amounted to $20.7 billion at the end of first quarter this year. It is estimated that the deficit may reach $70 billion. The current account deficit as a share of GDP, which has also jumped from 3.8 percent in 2016 up to 5.5 percent by 2017, indicates that the external deficit has reached an alarming level.
In addition to the external environment, the domestic budget deficit is also widening. While the central government budget made a surplus of TRY 4.6 billion in the January-February period of 2017, it fell into deficit territory of TRY 201 million in the first two months of 2018. When we consider that all new measures announced recently are more spending-oriented, we can say that the budget deficit of 2018 is likely to reach a significant scale.
You may have noticed that the dreaded “twin deficit” has again emerged in the election period. Deficits incurred during election processes – foreign or domestic – will definitely extend beyond the election date. It’s not prophecy to say that tightening to tidy up all this deficit will be the first thing to do after the elections. So, snap elections will allow us to recover earlier than expected.