The Government’s Election Plan: Electoral Economics

Presidential elections in Turkey that are planned to take place in June 2023 are drawing near. The Erdogan government seems to open the coffers before the elections and it is taking populist steps to attract different sections of the population. It is a matter of interest to what extent a society that is living under over 80 percent inflation and has started to experience deep poverty for at least a year, will continue to support the AKP despite these maneuvers. Meanwhile, economists are worried that election economics that is implemented will lead the country to disaster following the elections.

The Financial Times article titled: “Erdoğan gears up for huge pre-election spending spree in Turkey,” underlines that there is a big spending spree taking place in the country. According to the article, the Erdogan government has undertaken financial transfers targeting various sectors as it takes the risk of creating imbalance in the economy. .

What is the money spent on?

While the preparation for the 2023 budget continues, the budget deficit forecast of 460 billion Turkish liras (25 billion USD) is a sign that we have entered a period of big spending. The prediction is that the wage increases for civil servants and to the minimum wage will be close to 100 percent for the upcoming year. While the inflation rate has exceeded 100 percent in the country, this is clearly a policy that targets the sections of the population that are struggling economically.

President Erdogan also announced the biggest public housing drive in the country’s history. Accordingly, 500,000 cheap houses will be built and they will be distributed to those without homes with favorable interest rates and terms. 7 million people have applied for the project so far. The forecast is that the project will cost the budget an additional 50 billion USD. (https://www.aa.com.tr/tr/gundem/cumhurbaskani-erdogan-sosyal-konut-projesini-tanitti/2683854)

While these preparations continue, the government also announces many social assistance packages; some large and some small. Paying students who are in school in provinces away from home a transportation stipend twice a year is one of them. We see that the AKP, which is unpopular among the youth, is taking initiative on this matter in this way. Another proposed legislation would stop interest payments on student loans and the borrowers would only pay back the principal.

There is also expectation that a new retirement package will be announced for those who were unable to become pensioners due to the legislative change that took place in 1999. Accordingly, many people will become pensioners and they will start to receive retirement wages. Meanwhile, the penalties that were imposed in relation to measures taken for the Covid-19 pandemic have also been pardoned.

What is the source of the money?

Due to the economic crisis that began in August 2018 and reached new heights in 2021, the Turkish economy is going through a very difficult period. On the one hand, people’s purchasing power is declining due to a record-level inflation rate while on the other hand the capital inflow into the country has become problematic due to foreign investors leaving the country. In order to stop the devaluation of the Turkish Lira, the government has developed a tool called the Foreign Currency Protected Accounts and encouraged people to keep their money in the bank with currency rate guarantee.

The belief is that the government’s initiatives to practice electoral economics is largely based on foreign resources. There is a strong belief that Turkey is receiving hot money from regimes that it politically cooperates with. It is assumed that the 25 billion USD that is in the “net errors and omissions” entry of the budget is based on Russian oligarchs that are trying to circumvent the embargoes that are imposed on Russia.

The CHP Zonguldak MP Unal Demirtas has asked the Turkish Grand National Assembly for the formation of a parliamentary commission rapidly in order to investigate the source countries for the foreign currency that is coming into the country. Demirtas pointed out that the amount of money coming into the country from unknown sources has exceeded 24,3 billion USD and is moving towards a new record, remarked that the claim is that this money is coming in from countries like Russia, Qatar and Saudi Arabia.

Economists are worried

Economists who think that the money being distributed from the budged before election will lead to serious damage to the Turkish economy after elections think that Turkey will face a very deep economic wreck even if the AKP is to win the elections. The economists are in agreement that Turkey, which is already undergoing an economic crisis, is seeing its future being put at risk.

Atilla Yesilada, who is on the country’s popular economists, draws attention to the fact that the money that is distributed will create pressures on the US dollar exchange rates and inflation. Yesilada says: “Everyone is happy when they see money put in their pickets. They want to respond in kind and the in-kind here is votes. Yet, there is the flip side of the coin. You put money in my pocket and I will spend it but that will lead to prices going up. Imports will go up. A significant portion of the spending will go towards making payments on rising prices and you will feel the risk of a foreign currency crisis over your head. You will see that the money you put in your pocket each month gets stolen by inflation.”

Economist Oguz Demir from Istanbul Commerce University also said that the budget proposal is a sign of electoral economics. Demir said: “In the next six months that lie ahead when the government is forecasting inflation to fall, we will see rapid spending. The reason is clear. They made the necessary preparations in the budget for the elections next year. For example, there is the social assistance spending. The social assistance spending that reached 148 billion Turkish Liras after the supplemental budget in 2022 increase by 100 billion Turkish liras in 2023.”

Prof. Dr. Ozgur Orhangazi from Kadir Has University adds that Turkey has been practicing electoral economics for some time. Orhangazi posited: “Trying to grow through reducing interest rates and expanding loans and giving up completely on setting inflation targets is partially due to not giving up on economic growth while elections draw near. Now we are entering a period when there will more spending due to elections and perhaps employment packages will be on the agenda.”

Orhangazi thinks this is a deliberate choice: “The government chose this path willingly and intentionally. By keeping interest rates as low as possible and with the credit expansion, it preferred to grow the economy and especially the construction sector and it risked high inflation and high foreign currency exchange rates in return. In other words, this was a political economy preference.”

It looks like the Erdogan government will continue its policy of large budgetary spending in order to recover from its falling popularity before the 2023 elections. In order to finance the spending, it is expected that it will make plenty of concessions in its foreign policy and increase taxes on the sectors of the population that do not support it. Ultimately, no matter what the results of the elections turn out to be, a big economic wreck awaits the incoming government.