LEX Turkish elections
The victory of the Justice and Development Party (AKP) in Sunday’s parliamentary elections got a cheery welcome from Turkey’s financial markets. With good reason.
The AKP has presided over impressive economic gains in Turkey since 2002. The economy has grown about 7 per cent a year on average, and the budget deficit has been reduced from nearly 15 per cent of gross domestic product to just 0.7 per cent of GDP last year. Backed by an IMF programme, inflation has fallen from more than 70 to less than 10 per cent. Meanwhile, the domestic stock market has quintupled in value. Even if serious economic concerns remain – the yawning current account deficit, for one – investors should be pleased that Turkey will remain under the same management.
The AKP is likely to use its strengthened electoral mandate – it won nearly 47 per cent of the vote – to pursue reform. Pension legislation will be revived and more big-ticket privatisations, including the country’s highways, are on the cards.
Investors may also be encouraged that the AKP does not have the two- thirds majority necessary to change the constitution, although it could perhaps garner it with the help of independent members of parliament. It may again choose to put forward Abdullah Gul for the presidency, the candidate who caused the military so much disquiet, or may choose to build consensus around a more widely acceptable candidate. What seems clear is that the army, seeing the level of popular support the AKP has just received, will be less enthusiastic about confronting it.
Assuming that the presidential elections do happen smoothly, domestic interest rates of 17.5 per cent will fall. That is one reason bank shares leapt on Monday. And declining political risk should allow investors to focus, once again, on Turkey’s attractive economic fundamentals.