ANKARA (Reuters) – Turkey’s economy is bracing for a “lost year”, no matter who wins landmark elections on Sunday, political insiders say, even if the opposition pledges to tear down President Tayyip Erdogan’s unorthodox policies.
The main opposition alliance, which is leading in some opinion polls, promises to free up the economy and financial markets from state controls and return independence to a Central Bank that would then aggressively raise interest rates to cool inflation.
Erdogan’s ruling party said it would press on with its low-rates and high-growth program, despite inflation at 44 percent and depleted FX reserves after years of authorities stabilizing the lira currency.
An opposition government could face economic and market instability as an overvalued lira weakens and as monetary stimulus is removed, analysts say. On the other hand, they say the current government could face its own volatility as its policy program runs out of steam and could need a revamp.
An official from Erdogan’s ruling AK Party (AKP) said the economy, especially the cost-of-living crisis facing Turks, presented difficulties for its election campaign.
“I admit, the budget is not doing great. Election years are difficult. It will be like a lost year,” the AKP official said, adding stronger economic growth would be expected in 2024.
The official noted that the AKP could pivot to a more balanced program if it wins the vote, given Erdogan’s recent comments that former Finance Minister, Mehmet Simsek, could return to help shape policies.
Simsek, who is well known internationally, also worked as a banker at UBS on Wall Street and Merrill Lynch in London.
“I believe that Simsek will come and provide support … and there would be a very serious forex inflow if he comes,” the official said.
Simsek could not be reached for comment. Erdogan’s office did not respond to a query about a “lost year” for the economy.
Financial markets are bracing for volatility after the presidential and parliamentary votes on 14 May. A runoff between Erdogan and opposition challenger, Kemal Kilicdaroglu, is likely on 28 May, polls show.
A senior opposition official said it would inherit the “wreckage” of Erdogan’s economy that would take time to fix because “there is no magic wand”.
A second opposition official said the new government would reform the bureaucracy as it seeks to understand the economic problems.
“It has become clear that 2023 will be a lost year but 2024 is not a year we can lose,” the official said.
The stakes are high after Erdogan’s drive to cut rates sparked a historic currency crisis in late 2021, and sent inflation as high as 85.5 percent last year. Economists expect inflation to rise from a low of 44 percent last month.
The election “will make or break macroeconomic stability in Turkey,” said Liam Peach, senior EM economist at Capital Economics.
Erdogan has prioritized growth, investments and exports by cutting rates and stabilizing the lira currency via regulations and foreign reserves.