Last Call For Nobody's Business But The Turks, Con't

Turkey has once again elected Tayyip Erdogan as president, as his relentless two-decade rule continues.

President Tayyip Erdogan extended his two decades in power in elections on Sunday, winning a mandate to pursue increasingly authoritarian policies which have polarised Turkey and strengthened its position as a regional military power.

His challenger, Kemal Kilicdaroglu, called it "the most unfair election in years" but did not dispute the outcome.

Official results showed Kilicdaroglu won 47.9% of the votes to Erdogan's 52.1%, pointing to a deeply divided nation.

The election had been seen as one of the most consequential yet for Turkey, with the opposition believing it had a strong chance of unseating Erdogan and reversing his policies after his popularity was hit by a cost-of-living crisis.

Instead, victory reinforced his image of invincibility, after he had already redrawn domestic, economic, security and foreign policy in the NATO member country of 85 million people.

The prospect of five more years of his rule was a major blow to opponents who accused him of undermining democracy as he amassed ever more power - a charge he denies.

In a victory speech in Ankara, Erdogan pledged to leave all disputes behind and unite behind national values and dreams but then switched gears, lashing out at the opposition and accusing Kilicdaroglu of siding with terrorists without providing evidence.

He said releasing former pro-Kurdish party leader Selahattin Demirtas, whom he branded a "terrorist," would not be possible under his governance.

Erdogan said inflation was Turkey's most urgent issue.

Kilicdaroglu's defeat will likely be mourned by Turkey's NATO allies which have been alarmed by Erdogan's ties to Russian President Vladimir Putin, who congratulated his "dear friend" on his victory.

 

At this point, Turkey walking away from NATO, Ukraine, and the EU seems more likely than not. Putin has been wanting to peel off Ankara from NATO for a while now, and with Erdogan having secured power for a fifth term, that's the immediate issue.

Turkey is the second-largest NATO military, behind the US. If they decide to pull the plug on arming Ukraine, it's going to be a bloody summer.

Meanwhile, domestically, Erdogan won based on promises to fix inflation. The world markets don't believe him for a moment.

The Turkish lira sank to a fresh record low Monday as incumbent Recep Tayyip Erdogan secured his victory in the 2023 presidential election, extending his rule into a third decade in power.

The currency briefly touched 20.0608 against the greenback at around 11 a.m. Monday morning local time, surpassing a low seen last week. It was at 20.0913 against the dollar near 12:45 London time.

“We have a pretty pessimistic outlook on the Turkish Lira as a result of Erdogan retaining office after the election,” Wells Fargo’s Emerging Markets Economist and FX Strategist Brendan McKenna told CNBC.

McKenna forecasts that the lira will reach a new record low of 23 against the dollar by end of the second quarter, and then 25 as early as next year. It has lost some 77% of its value against the dollar over the last five years. He expects Turkey’s unorthodox monetary and economic policy frameworks to remain in place going forward.

Turkey’s monetary policy places an emphasis on the pursuit of growth and export competition rather than taming inflation, and Erdogan endorses the unconventional view that raising interest rates increases inflation.

“The current set up is just not sustainable,” said BlueBay Asset Management’s Senior EM Sovereign Strategist Timothy Ash via email.

“With limited FX reserves and massively negative real interest rates the pressure on the lira is heavy,” Ash continued.

Istanbul’s main index, the Turkey ISE National 100 gained roughly 4.31%.

Credit default swaps, which measure the cost of insuring exposure to Turkish debt, also spiked.

Five-year CDS were trading at around 664.18 basis points, marking a 20% climb from the 550 basis point level prior to the run-offs, according to Refinitiv data.

These developments reflect market participants’ belief that orthodox policies, which were promised by the political opposition, were the only way to get the Turkish economy out of a potential crisis, said Selva Demiralp, a professor of economics at Koç University.

Meanwhile, MarketVector’s CEO Steven Schoenfeld wrote in an e-mail. “If the Lira continues to plunge and inflation surges again due to the policy of inappropriately-low interest rates, we could see a repeat of the ‘flight to safety’ allocation to Turkish equities by local investors which moved the market sharply higher in 2022.”

 

So nobody's happy in Turkey right now except, of course, for Erdogan.