Demands for economic reforms and tightening
The Turkish markets seem to be volatile after the presidential and parliamentary elections on June 24. While the market players wait to see the new economic management team and the policy agenda, the business world has already declared their demands for reform.
The two biggest business organizations in the country, the Union of Chambers and Commodity Exchanges of Turkey (TOBB) and the Turkish Industry and Business Association (TÜSİAD), both released statements on June 25 saying the results of the elections have ended political uncertainty, and the government should focus on economic reforms in the upcoming period.
The exchange rate initially dropped to 4.53 on June 25, then increased to 4.73, and then moved downward again. Experts predict the volatility in the markets may continue until economic policies that will be implemented become clear.
At the beginning of July, the new parliament will start working, the re-elected President Recep Tayyip Erdoğan will take the oath of office, and the new cabinet members will be announced.
The markets will closely watch who will take the posts in charge of managing the economy, and on top of that, any statements made by Erdoğan on the economic policies will be followed with greater attention than before.
Meanwhile, several decrees are expected to be issued to start shaping the new executive system before the president takes the oath. Thus, it will be clarified which units of the economy’s management will be combined. Of course, speculations about the prospective ministers will be voiced more loudly.
That is why experts think the volatility in the markets in the upcoming two weeks is almost inevitable.
In brief, the market players and the business world demand tightened monetary and fiscal policies, and a series of structural reforms in several areas including the legal system. They will also watch closely if the promise to lift the state of emergency, which has been in place since the defeated coup attempt in July 2016, will be kept or not. The anticipated steps to be taken to decrease the polarization in the society will also be followed.
Recovering the relations with the rest of the world, especially the EU, and helping foreign direct investment flow by institutional arrangements and structural measures are also included in the demands of the business world from the new government.
In this context, the administrative arrangements regarding the autonomy of the institutions, the Central Bank coming first, will be watched closely by foreign investors and market players.
Although they do not say it openly, it is well known that market players and the business world want the mega projects, such as the Canal Istanbul project, to be postponed while fiscal discipline and institutional restructuring are implemented. They are also concerned some political decisions may increase the spending ahead of the local elections in March 2019.
Briefly, despite the fact that the elections are now left behind, the uneasiness in markets continue because the Turkish economy has still been undergoing a tough period, and if not acted cautiously, the disparities and problems may get bigger. It is very critical for the future of the economy to ease these concerns as soon as possible.