Elections vs. economic crisis

"They, the businessmen, are insisting on demanding Turkey should make a new standby deal with the International Monetary Fund in the hope that Turkey will again receive billions of dollars in assistance in exchange for signing a new standby dealÉ We will make a deal with the IMF as a precautionary measure."

It is obvious the government is against a fully-fledged new standby deal with the IMF, or engaging in any sort of obligation that would pose a constraint to its election economics, or populist spending spree plans ahead of the March local elections. Prime Minister Recep Tayyip Erdoğan conceded that the week of technical talks with the IMF in Washington were progressing but, there were still some disagreements over budgetary issues.

Indeed, many economic analysts writing for various newspapers underlined in the past week that unless Turkey restructures the draft fiscal 2009 budget, that Parliament is preparing to debate soon, in a manner to eradicate some major objections voiced by the IMF at the Washington talks it will be very difficult for the Erdoğan government to get much-needed IMF support.

That would mean the introduction of some bitter austerity measures and tighter controls on government spending at a time when there are increasing problems in the real economy sector and local elections approaching, which could pose a serious impediment for the electoral success of the AKP in the March local polls. Indeed, besides Gedikli’s statement, the surprise move of the Turkish Central Bank on Wednesday to cut its benchmark interest rate to 16.25 percent from 16.75 percent, was considered by analysts as an indication that the Bank knew more than the market and is anticipating a strong IMF program to fall into place in the coming weeks.

Meanwhile, as some $100 billion of external debt, mostly in the private sector, is falling due over the next 12 months, the government is forced to seek IMF assistance. A deal with the IMF will mean tighter austerity measures, a lower rate of growth, less investment and a higher unemployment rate. However, increasing unemployment could be a killer factor as well at the elections.


Local polls are important...
Furthermore, while it is perceived as nothing extraordinary for a ruling party to increase its vote share in local elections, a five to six point decrease in popularity could be taken as an indication of the beginning of a downward slide, like what had happened to the Motherland Party in 1989 when it received only 23.7 percent of the vote, representing a sharp decrease from the 43.24 percent it received in the 1984 local polls. From that point on, the Motherland Party continued its decline and despite its shining political history, gradually became today’s most insignificant political grouping with almost no hope of making a comeback.

According to one rumor, some top executives of the AKP have suggested to Prime Minister Erdoğan that Turkey may as well make the best use of the crisis and win some new markets, following the French example of subsidized exports, and even by making some donations, to some new markets in Africa and elsewhere. "Instead of direct support to the automotive or household appliances industries, for example, we may buy their products and donate them to some of our target markets, or provide some real incentives for such exports," an AKP official said. Can Erdoğan accept such an indirect support program for the real economy sector? Will the IMF approve such a high cost subsidy to the sector?

What is sure, for now, is the AKP is realizing the "existential" need to do something to salvage the Turkish real economy sector from the impacts of the crisis, but just do not know what to do, or how to do it. And how to get IMF support for some populist openings.