Turkey: Erdogan re-elected as president with 52.1% of vote in second round

Turkey: Erdogan re-elected as president with 52.1% of vote in second round

  • Domestic voter turnout comes at 85.7%, falls from first round
  • Election board YSK set to publish final outcome on Jun 1, Erdogan and elected MPs may take office on Jun 4
  • New cabinet seen to be announced in early June, most current members may change, in our view
  • Erdogan hints near-term policy to prioritise post-quake reconstruction, compensating households for inflation
  • Erdogan sets eyes on 2024 local elections, signals election economics may remain in place, in our view
  • We expect monetary policy to stay unorthodox in short run with fine-tunings
  • Erdogan signals no compromise to political prisoners, vows fight against terror, return of 1mn Syrian refugees

Incumbent President and the ruling party AKP's leader Recep Tayyip Erdogan was re-elected as president in the second round of the presidential elections on May 28, according to the temporary results by the Supreme Council of Elections (YSK). YSK chair Ahmet Yener said in the evening on May 28 that Erdogan collected 52.14% of the votes, and his rival main opposition CHP leader Kemal Kilicdaroglu received 47.86% of the votes when 99.43% of ballots were counted. Erdogan gathered 27.5mn of the votes, which were 2.3mn higher than the votes for Kilicdaroglu. The remaining 809K ballots to be counted will not change the outcome, Yener said, and declared Erdogan's victory, according to the temporary results. Erdogan's victory in the runoff vote was expected following his 4.6pps vote lead over Kilicdaroglu in the first round of presidential elections on May 14 and the fact that the AKP-led alliance of parties mustered majority in the parliament in the May 14 elections.

Erdogan ran in the elections as the candidate of the People's Alliance, including the AKP, the nationalist parties MHP and BBP, and the Islamist YRP. The small Islamist pro-Kurdish party HUDA-PAR and the small centre-left DSP supported Erdogan in the first and second round of presidential elections, although they are not officially part of the People's Alliance. Furthermore, presidential contender nationalist Sinan Ogan, who dropped out of the race by finishing third in the first round, endorsed Erdogan in the runoff vote against Kilicdaroglu.

Kilicdaroglu was nominated by the opposition Nation's Alliance, consisting of the centre-left CHP, centre-right IYI Party and the small right-wing parties DEVA, DP, Gelecek and SP. The pro-Kurdish party HDP did not field a presidential candidate and supported Kilicdaroglu against Erdogan in both election rounds. Moreover, the small nationalist parties ZP and AP of the Ancestral Alliance endorsed Kilicdaroglu in the second round. The Ancestral Alliance nominated Ogan in the first round, but Ogan and the leading parties of the alliance ZP and AP supported rival camps in the second round. The temporary outcome of the second round suggests that first-round supporters of Ogan were split between Erdogan and Kilicdaroglu, in our view, given that Erdogan's vote share rose by 2.6pps from the first round, while the vote share of Kilicdaroglu increased by 3.0pps.

The domestic turnout of the runoff presidential elections was 85.7% and the overseas turnout was 55.5%, according to the state-run news agency AA. The domestic turnout fell from 88.8% in the first round, while the overseas turnout improved from 53.9%. The visible decline in the domestic turnout in the second round could be explained by expectations for Erdogan's victory following his comfortable lead over Kilicdaroglu in the first round, in our view. Moreover, province-based turnout and vote data by AA signalled that some HDP voters abstained from voting either because of expectations for Erdogan's victory or to protest Kilicdaroglu's protocol with ZP leader Umit Ozdag ahead of the second round, which included statements that irked the HDP. Specifically, the unofficial results by AA showed that the reduction in the voter turnout was more pronounced in the south-eastern cities - strongholds of the HDP, and Kilicdaroglu's vote share dropped slightly in most of these cities, compared to the first round.

Post-Election Procedure

Following the YSK's announcement of the temporary results of the second round of the presidential elections on May 28, the process of challenging the results will begin on May 29. The YSK is scheduled to make its final decisions on any challenges and send the final outcome of the second round to related authorities for publishing in the Official Gazette on Jun 1, according to the YSK's election calendar. We do not expect challenges to change the outcome of the vote, especially given that unofficial results of the pro-government state news agency AA and the pro-opposition private news agency ANKA were very close to each other, and both were in line with the temporary results, announced by the YSK. We note that the YSK has not published the final outcome of the May 14 parliamentary elections yet, although the process of challenging the May 14 vote expired on May 18. The opposition criticised the YSK for deliberately and unlawfully delaying the parliamentary vote results to the benefit of the incumbent government. We think the opposition may have some point, because if the parliamentary results had been out together with the first-round presidential election results on May 19, the parliament would have already opened with elected MPs taking oath. This situation would bring disruption in the cabinet until after the second round of presidential elections because fifteen members of the current cabinet were elected as MPs in the May 14 vote. If they took oath at the parliament, they would automatically drop out of the cabinet, given that the presidential system of government does not allow holding ministerial and parliamentary seats simultaneously.

We now expect that the YSK will publish the final outcome of the parliamentary elections together with the final result of the runoff presidential vote. The new parliament convenes three days after the YSK publishes the final outcome of the parliamentary elections, according to the parliament's bylaw. The first session is allocated to oath-taking by elected MPs, which is necessary for them to start work. Similarly, the law on presidential elections says that the elected president takes oath at the parliament three days after the YSK publishes the official election result. Assuming that the final election results will be out on Jun 1, we expect that Erdogan and elected lawmakers will take oath on Jun 4 and officially start duty.

Erdogan's victory speech, macro policy outlook

Erdogan gave two speeches after the YSK announced his victory, based on the temporary results. In his first and brief speech in Istanbul, Erdogan signalled that he did not consider the election period completed with an eye on the local elections due Mar 2024. Now, we have the 2024 elections on the horizon, Erdogan said, and added that they will work hard to win Istanbul in the next elections. We recall that the AKP-MHP alliance lost mayor posts and/or municipal parliamentary majority in several cities to the opposition CHP-IYI Party alliance in the previous local elections in 2019. These cities include large ones such as Istanbul, Ankara, Antalya, Adana and Mersin. The province-based unofficial results of the second round of presidential elections signalled that locals of these cities were content with the opposition municipalities, in our view, given that Kilicdaroglu collected higher votes than Erdogan in all of them. Kilicdaroglu's vote lead over Erdogan was comfortable in Antalya, Adana and Mersin, while it was mild in Istanbul and Ankara. Kilicdaroglu collected 51.8% of the votes in Istanbul and 51.2% - in Ankara. Erdogan's emphasis on the 2024 local elections as one the first things to say after his victory in the May 28 vote lends support to our earlier forecast that election economics may remain in place in the short term.

Erdogan's main victory speech in Ankara generally had a campaigning tone as well, rather than a post-election tone, in our view. Although Erdogan gave some conciliatory messages at the beginning of his speech, he continued to attack opposition parties, particularly Kilicdaroglu's CHP. Within the context of conciliatory messages, Erdogan declared all 85mn people of Turkey victorious in the elections, saying that he and his party were not offended by anyone's choice, referring to opposition voters. Erdogan added that it was time to set aside everything and become united to achieve national dreams. We think Erdogan's conciliatory messages are just symbolic. Otherwise, we do not expect Erdogan to give up his authoritarian stance at any point. Erdogan's attack on the opposition centred on his allegation that Kilicdaroglu cooperated with terrorist groups. He said Kilicdaroglu had promised the HDP's jailed former leader Selahattin Demirtas would be released. Erdogan added that "terrorist" Demirtas cannot be released. His note on Demirtas is particularly important because it suggests that suppression of political opponents, especially Kurdish politicians, will continue under the new term of Erdogan, in our view, especially given the AKP-MHP's high influence in the judiciary. As part of his criticisms of the opposition, Erdogan also vowed continued fight against terrorism, especially along Turkey's south-eastern borders, and to ensure return of around 1mn of Syrian refugees in Turkey back to Syria within a few years.

On the?economic policy?front, Erdogan hinted strongly that the initial focus of the new government will be on recovery and reconstruction efforts in the provinces hit by the February earthquakes as well as overcoming problems caused by inflation and compensating for welfare losses. He reiterated the government's promise that reconstruction of residences in the quake region will be completed within a year. Erdogan stated that the past AKP governments were successful in lowering inflation, and pledged to do it again. The interest rate has fallen to 8.5% now, Erdogan said, referring to the monetary policy rate. He added that inflation will too fall in the coming term. Erdogan did not outline any strategy to reduce inflation in its victory speech, while his remarks on compensation for purchasing power losses suggest that the new AKP government may proceed with its pre-election strategy of pay hikes and other income-support measures to relieve households against excessive inflation. In this context, we recall that Erdogan already pledged an interim hike in the minimum wage as of July along with strong hikes in civil servant wages and further improvements in retirement pensions.

We are designing a finance management with global credibility and an economy focusing on employment, investment and production, Erdogan said. Other than this brief remark, Erdogan did not elaborate on the economy policy team of the new cabinet. We expect the cabinet to compose of new names to a significant extent because fifteen of the current cabinet members were elected as lawmakers in the May 14 vote, and Erdogan may be unlikely to appoint them as ministers in order not to weaken the parliamentary position of the AKP. The People's Alliance won 323 seats in the 600-seated parliament. The AKP won 268 seats, but four of them belong to the HUDA-PAR and one - to the DSP, which fielded their MP candidates under the lists of the AKP. The MHP secured 50 seats and the YRP - five. That said, the combined number of the AKP-MHP seats in the parliament is 313. The AKP and the MHP did not face major conflicts during their alliance in the previous parliamentary term. Their alliance with the newly included YRP and HUDA-PAR is yet to be seen, noting that the two parties differ from the AKP-MHP alliance in several political aspects. Accordingly, we think that the AKP may prefer to keep most of its current ministers that are elected as MPs in the parliament so that the AKP-MHP partnership could continue to hold majority.

The upcoming government will face severe economic imbalances, ranging from high inflation and current account deficits to weak confidence in Turkish lira and financial assets, and depleted FX reserves. Against economic challenges and sustainability issues with the current economic model, journalists and economists have been divided in their post-election economic policy outlook under an Erdogan government. Some expect that the current unorthodox policy stance will be maintained, while others project gradual switch to more orthodox policy. We place ourselves in the first group that see no radical change in the macro policy mix in the short term. In other words, we project that monetary policy will remain unorthodox as far as possible with a deeply negative real policy rate and interventionist measures on the banking sector, given Erdogan's well-known preference for low interest rates and his unorthodox view that interest rates and inflation are correlated positively. We also think that Erdogan may consider his election victory as receiving vote of confidence in the current economic model. Should the new government stick to unorthodox policy settings, we expect some minor policy adjustments towards to ease market stress. We also project the government-controlled central bank to allow the lira exchange rate to depreciate to some extent with the purpose of relieving pressure on its FX reserves.

We do not rule out some modest transition towards orthodox policy under the new economy policy team. We, however, see this scenario less likely, especially given the local elections in Mar 2024, which may prompt the government to keep an expansionary policy stance. We think the new economy team of the cabinet will provide more insight into the short-term macro policy outlook. Erdogan is expected to unveil the new presidential cabinet in the first week of June, according to the pro-government local media. It is possible that the new cabinet may include members also from AKP's partners in the People's Alliance, in our opinion.

Dan Raghoonundon

ESG Investment Research Lead | PhD in Finance | EM PM | Macroeconomist

1 年

For the lira to stabilize, central bank independence and rebuilding high-quality FX reserves are necessary. Strengthening debt management, monitoring quasi-fiscal operations and extra budgetary institutions, and enhancing fiscal transparency is also vital. A normalization of Turkish economic policies would require a multi year effort

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