Incoming data suggest there are incongruities almost everywhere. There is no way so many jobs could be created in a business world surrounded by so many uncertainties. Indeed, industrial production figures don’t square with employment data. Inflation is another conundrum. The real issue isn’t whether inflation is about two times higher than the official print. The real issues are threefold: first is the inflation low income groups –the majority- face is higher than the official print? Second, is producers’ inflation much higher than the consumer inflation? Indeed, it is almost the double, and that reflects cost pressure as well as potentially much higher a consumer inflation waiting around the corner. Third, what does people ‘perceive’ about inflation? Do they think it is double the official print? Because perceptions count more than facts, and this is a fact politicians know only too well. Answer: yes, yes and yes. Furthermore, dollarization can’t come to a halt anytime soon because people think the exchange rate isn’t in equilibrium. Overseas investors continue to sell, and the current account deficit may not fall as drastically as envisioned a few months ago. Absent strong tourism revenues, reserves would be depleted to finance the deficit, but there are only gross reserves, the net being deeply in negative territory. Yes, a few billion dollars current account deficit can still be funded via reserve depletion, as it happened last month, but larger deficits would pose a problem. The perhaps only short-term good thing is the corporate sector’s net FX liabilities have fallen last year. They are net payers to the outside world. This is good because everybody else has incurred larger FX debts over the last three years. At least the private sector is in better shape.
When would elections be held?
Almost all actors tend to believe everything hangs by a thin tread. Because there is no way to sugar-coat all these economic realities and the risks they engender and because people at large are aware of them –they should know how they fare in the market better than anyone, shouldn’t they? – snap elections are continually postponed. The time isn’t ripe for an incumbent party to rush to elections. Can early elections be held this autumn? Well, yes and no. Who knows? Anything can happen anytime.
What is the current political situation?
Because the irreducible “core” of the AKP constituency is still around 25%, if not higher, and because the opposition isn’t homogenous, there is fierce competition about some 10% of the undecided voters. They are perhaps truly undecided because the AKP clientele consists of three layers: the “core” (25%), the “protective belt” (15%) and the “swing voters” (10%). This we have seen time and again, for instance in 2009 local elections when the incumbents lost 10-11% of their votes, and for instance in 2015’s two elections when the pendulum swung back and forth between 41% and 49.5% within the span of 5 months only. Ordinarily swing voters are ‘economic’ voters. Given the current economic woes there is no wonder the swing voters have already deserted the incumbent party. Furthermore, there has been a flux between AKP and MHP in recent years, and from there to İYİP. That trend eats into the ‘protective belt’ also. This is all there is to say because no opposition party can offer an ideological-cum-cultural-cum political a platform against the incumbent. There is and can only be a patchwork therein. Yet opposition parties seem to fare much better than the past these days. So much so that if the average of polls provide a good indicator, Erdoğan loses against Yavaş if those two are left in the second round, and the incumbent bloc also loses against the CHP + İYİP bloc if the Kurdish party gives them support. For the first time ever, polls favour both the opposition parties in the general election and either of the two opposition mayors of İstanbul and Ankara in the presidential race. No wonder any pending decision of resorting to snap elections is probably continually postponed.
Would economic voting alone help the opposition win next time?
It is economic voting all right, but through a thickly veiled cultural & ideological lens. AKP voters who are below age 25, those most affected by the rapidly rising youth unemployment, were in the past more inclined to vote for either MHP –which is in the incumbent electoral bloc, but a different party nonetheless- or İYİP. This may have already happened back in 2019. Now this tendency exacerbates and may extend to DEVA or Gelecek. İYİP may not have won any significant municipality back then, but it has certainly helped the opposition bloc candidates pass the ideological & cultural affinity test, and shored up many an opposition victory. Now İYİP may still not carve a monopolistically competitive space for itself along the political spectrum; it is neither an extension of MHP nor a reincarnation of the old ‘centre-right’. But it has had a crucial role to play, and its ‘centre-right’ profile and the performance of its leader carries this party up in the polls to even 13%. The easy passage from CHP to İYİP also suggests that not only the former centre-right but even the secular voters of CHP can migrate if there is a viable centre-right alternative. Actually, I got the impression that CHP sees İYİP as a strategic partner, and as long as İYİP goes up in the polls CHP wouldn’t care even if this happens at the expense of its votes. I think they count on a solid 38-40% consolidated vote the two parties combined, and add HDP and other opposition parties support on top of that.
Is this economic voting? Well, in the case of MHP it is probably not. After all, if voters swing back and forth between MHP and AKP, now in electoral and parliamentary alliance, what is the point of this in terms of economic expectations? In the case of İYİP, yes there is an element of economic voting. Because economic voting only implies that voters do migrate to the ideologically neighbouring party first, İYİP’s gains from MHP in the coastal regions are those who think the economy isn’t in a healthy state. Those who think problems are exaggerated or that the incumbent party –even if voters partly believe that the incumbent party polices are inaccurate- may solve them better than the alternatives stayed either with MHP or with AKP. The easy passage from CHP to İYİP also suggests that not only the former centre-right but even the secular voters of CHP can migrate if there is a viable centre-right alternative. MHP has definitely benefitted from the tide, and it has yet again proven itself to be an indispensable element in the formation of any political equilibrium. This time around, İYİP also has shown a similar aptitude if only on a smaller scale.
What is the economic situation?
There are two hopes, or so it seems. First, tourism will pay off and some USD 20-30 billion will pour in. This is highly unlikely though because the pandemic is still ravaging out there. Second, something will happen in the NATO meeting in June, and the U.S. and Turkey will be good partners anew. This is also highly unlikely although of course there is room for manoeuvre and negotiation. As long as the NATO membership stands negotiations are mandatory whatever people may say. Yet I don’t understand how coming to relatively good terms with America would automatically generate FX inflows. Having eroded all net reserves –plus a non-extant amount so net reserves are still negative- there is little room left for displaying yet another round of monetary policy “prowess” and the only thing to do now is to keep the policy rate constant for the entire year.