Erdogan pays electoral price for Turkey's tumbling economy

After a decade and a half of dominance built on Turkey’s buoyant growth Tayyip Erdogan has paid a heavy electoral price for an economic slump and will make changes to his government to halt the damage, senior officials in his party said on Monday.

Erdogan saw his Islamist-rooted AK Party lose the capital Ankara in Sunday’s local elections and appeared set for defeat in Turkey’s largest city Istanbul - stunning reversals in two bastions of the party since he took power in 2003. The setbacks came despite a relentless two-month campaign by the president who addressed up to eight rallies a day, condemned his opponents as terrorists and warned that the vote was a “matter of survival” for Turkey.

The secularist Republican People’s Party (CHP) overcame overwhelming media support for the AKP and an environment which European observers said fell short of requirements for “genuine democratic elections”. The AKP said it would appeal against the results in both cities.

Turkey has experienced years of rapid economic growth under Erdogan, underpinned by a construction boom and cheap loans, that have driven living standards ever higher and ensured the AKP won votes well beyond its core constituency of pious and conservative Turks.

But the recent economic troubles took a toll on party support, two AK Party sources said, after the lira slumped against the dollar last year, inflation jumped to 20 percent, unemployment climbed and the economy tipped into recession. “We saw the impact of the economy in the field, because there was serious unease,” one of the sources said, adding that Istanbul accounted for 40 percent of Turkey’s economy, meaning that any slowdown would hit the city hard.

Erdogan appeared to recognize the scale of the challenge ahead, pledging on Sunday night to use the four years until Turkey’s next national elections to carry out economic reform based on free market rules. “We now have a four-and-a-half-year uninterrupted period to work,” he said. However, economists say the president has made similar reform pledges after all recent elections, before focusing instead on short-term fixes.

This time, his economic choices are narrowed by the conflicting priorities of supporting a fragile currency and restarting a stalled economy. Turkey’s benchmark interest rate of 24 percent barely keeps the currency stable and at the same time puts a prohibitive cost on borrowing for Turkish firms.

Ulrich Leuchtmann of Commerzbank said authorities still have some room to increase government spending without driving the lira down further, but signals about Turkey’s monetary policy were less encouraging.

Central Bank “backdoor tightening” over the last week to prevent a repeat of last year’s lira crisis, when the currency fell 30 percent, “did not really increase confidence in their policy making”, Leuchtmann said.

A crackdown following a 2016 failed military coup has seen more than 77,000 people jailed pending trial, and widespread arrests are still routine. Authorities have suspended or sacked 150,000 civil servants and military personnel.

Erdogan’s critics accuse him of using the failed putsch as a pretext to quash dissent. Turkish authorities say the measures are necessary to combat threats to national security, threats which Erdogan repeatedly highlighted on the campaign trail. After campaigning almost yearly for national elections, referendums and local votes, Erdogan’s horizons have reduced to relatively short-term goals, Jenkins said, casting doubt on his stated plan to avoid bringing forward elections slated for 2023.

Defeat in both Ankara and Istanbul, if confirmed, would also mark a watershed in Erdogan’s popular appeal - even though his AKP/MHP alliance still succeeded in securing over 51 percent of the vote nationally, leading him to declare an overall victory.

“He can apply some brakes, he can slow the decline,” Jenkins said. “But I think we are seeing another milestone in that decline. I don’t see him ever being able to increase his popularity again”.