Magic from polls could end soon in economy

While there have been positive developments in the markets due to the Justice and Development Party’s (AKP) success in scoring a single-party victory in the Nov. 1 elections, it is interesting that a debate has begun on whether or not this positive atmosphere will continue even though only two days have passed. 

It should not be disregarded that there is a possibility that this positive climate associated with the election results may last shorter than expected. There are serious concerns as to whether or not the AKP will immediately take the economic measures it has been delaying. 

The fact that the U.S. Federal Reserve’s rate increase is approaching constitutes a serious threat to the continuation of the positive atmosphere. The uncertainty of the new economic administration should be eradicated as soon as possible. There is also uncertainty and distrust on issues such as whether or not there will be institutionalization in the management of the economy, primarily in terms of the independence of the Central Bank and correspondingly, whether or not the political authority will abandon its grip on daily economic decisions. These have to be clarified soon. 

It is not adequate for a single-party AKP government to fix the disrupted management equilibriums, but it has to form a new economic vision soon. One of the questions that require an answer is how budget discipline will be maintained in the process of fulfilling election campaign promises regarding the economy. At the same time, long-term, stable growth has to be introduced, while a new economic plan including radical changes needs to be created and implemented by the beginning of next year. 

All of these are time-consuming decisions regardless of whether the AKP has secured single-party rule. Their need for urgency is one of the serious threats to the positive atmosphere in economy.

That is not the whole story either. A solution to the Kurdish issue is urgently needed as well because the situation in the region requires major changes in foreign policy and the prevention of terror domestically. It should not be forgotten that these are serious political decisions that will affect the economy.

International warnings   

International warnings following the elections could be regarded as alarm signals for the positive atmosphere in the economy. Indicating the knife-edge nature of the situation, the United States congratulated the AKP on its election victory, while also calling for respect for the fundamental rights written in the constitution. 

As well, international ratings agencies issued statements immediately after the elections, welcoming the end of the long election period, but also warning that the things that needed to be done should be done immediately. 

For instance, Fitch reminded that the country, in terms of political integrity and credibility, is in a more fragile position than other countries that have the same rating. “It is not yet clear whether the election outcome will support structural reform and help resolve tensions among policy makers on how best to support growth, rebalance the economy, lower reliance on net capital inflows and reduce inflation,” it said.

Possible initiatives on the presidential system might cause the domestic political tension to rise, Fitch predicted, emphasizing that there was uncertainty regarding the restart of the resolution process. It also drew attention to new appointments to the economic administration and the political pressures on the Central Bank. 

In short, unless there is very urgent action, the positive atmosphere may not last long.