Stockholm (Ekonamik) – In a stunning development, the two largest cities in Turkey appeared to have voted against President Recep Tayyip Erdogan’s Justice and Development Party (AKP) in Sunday’s municipal elections, with the capital Ankara and possibly Istanbul slipping from Mr Erdogan’s grip.
The municipal election had effectively become a referendum on Mr Erdogan personally amid Turkey’s first recession in a decade, forcing local issues to the back seat. Inflation stands at 20%, and living costs, unemployment and food-price increases are soaring, rallying the opposition and also denting Mr Erdogan’s core base of support. The Turkish lira lost 30% of its value when the country’s financial crisis hit last year, and GDP fell 2.4% in Q4 2018.
The AKP refused to concede defeat in Istanbul and said it would contest the count, although Turkey’s electoral council said the opposition was in the lead of an extremely tight race as both the opposition and the government declared victory. As of Monday, just 28,000 votes separated the mayoral candidates, AKP candidate Binali Yildirim, a former prime minister, and opposition candidate Ekrem Imamoglu, in the city of 10 million.
The vote counts remain unofficial pending verification by the electoral commission. 84% of eligible votes were cast, and the vote was the first local election under the new adopted presidential system following the national referendum in April 2017 that saw Mr Erdogan accrue yet more power.
The Republican People’s Party (CHP) candidate Mansur Yavas was declared the winner outright in Ankara, and Mr Erdogan was forced to acknowledge some loss of support, although he stressed that the AKP together with its ally, the Nationalist Movement Party (MHP), had won a majority of the nationwide vote.
Still, the result came as something of a shock to Mr Erdogan, who was relying on a powerful and well-funded political apparatus across the country. He had already removed scores of mayors and other officials following the coup attempt in 2016 by alleging links to terrorism and replacing them with government loyalists. But the CHP now controls the municipal governments of Turkey’s three largest cities and won a net gain of at a minimum seven municipal governments held by the AKP or the MHP, including Adana, Antalya and Mersin, all among Turkey’s largest cities.
No local or national elections are scheduled in Turkey for the next four years, which might prompt Mr Erdogan to disrespect some election results. He has already vowed to remove candidates he alleges to have ties to Kurdish militants and is likely to fight the Istanbul result with all means at his disposal.
Still, Mr Erdogan has suffered a personal defeat and a significant loss of popularity, which may, according to Nikko Asset Management Portfolio Manager Lucas Irisik, push him to adopt an even more populist agenda, “which will prevent the economy from reaching sustainable growth dynamics, with high inflation and current account deficit at its core.”
“Rebuilding investors’ trust (which clearly is paramount considering the country’s large external financing needs) isn’t likely to happen overnight,” Mr Irisik said, not least given Mr Erdogan’s negative rhetoric towards financial market practitioners, placing further pressure on lira-denominated assets and increasing risk on Turkish domestic assets.
In addition, there are signs that Turkey’s credit bubble may be about to burst, following aggressive interest rate hikes to stem the decline of the Turkish lira. The lira sank 1.9% Monday morning, with overnight swap rates climbing and stocks retreating. All eyes will be on what Mr Erdogan does next, but he will have to focus on policy over populism if he wishes to stem Turkey’s economic downturn and consequently the decline in his own support.
Image: AKP presidential candidate Recep Tayyip Erdoğan holding his last rally in İstanbul before the 2018 election (Wikimedia Commons)