Domestic political and economic climate disturbed

The reaching of a cease-fire in the Ukrainian crisis and the signs of a possible agreement between Greece and the EU have caused the tension in global markets to ease last week. Thus, accordingly, while optimistic winds started to blow in global markets, even though indicators did not go down to their former levels, some ease has been observed in domestic markets also.

This relaxation was limited because the tension in the global markets was experienced harsher here domestically compared to other developing countries because of the already ongoing debates over the independence of the Central Bank. While global markets generated the relaxation, the fact that there was a break in this debate here was also influential; however, this does not mean it will not be rekindled. The break was due to the long overseas trip of President Recep Tayyip Erdoğan when he did not make any statements on this issue. On the other hand, upon the interest rate decision to be made at the scheduled meeting of the Central Bank Monetary Policy Council on Feb. 24, it is likely that this debate will be rekindled.

Recently, it is being discussed that this debate is not only an interest rate debate, but it was the fundamental differences of opinion between Erdoğan and Prime Minister Ahmet Davutoğlu on basic political and economic matters. Actually, it was Erdoğan’s statement saying that he was against the Undersecretary of National Intelligence Organization (MİT) Hakan Fidan’s resignation from his port to run for office in the next elections that sparked the beginning of these discussions. Erdoğan invited Justice and Development Party (AKP) administrators and deputies and openly criticized the government, highlighting this growing difference of opinion. One other factor was his insistence to preside over the council of ministers. His opposition to the taxation of development profits, a topic the government was especially focusing and the latest, his coming down on the governor of the Central Bank, implying that this institution would not be independent once the presidential system was installed, all looked like economic extensions of the political differences.

Different this time?

While elections are approaching, it looks as if the easing of their internal three-term ban rule within the party and the new candidate lists to be made seem like seriously problematic matters. Also, it was revealed that there was no agreement on the Kurdish issue because not all sides have been convinced, which will be another problematic topic for the government. The persistence on the homeland security package might cause further protests, starting from parliament.

While all these political developments are happening, the decline in growth figures, as well as the high course of foreign exchange rates and the high unemployment rate, shows that things are not going well. While elections are nearing, Davutoğlu is constantly announcing new packages, trying to look cute to social segments. We had seen before that when basic parameters are disturbed, populist decisions do not have too much of an effect on elections. We have also experienced that populism may cause further disruption in equilibriums.  

Despite all these negative developments, the AKP’s vote rate appears around 45 percent in preliminary surveys. We know that despite all of the troubles, the AKP wins every election, but this time we have to say things look more complicated.