The scenario where Erdogan loses the election
According to columnist Hugo Dixon’s latest Reuters article, the bleak economic and political situation in Turkey can be turned around by an opposition victory in the upcoming general elections by virtue of the fact that the February 6 earthquakes cost Erdogan popularity with the electorate.
Dixon notes that the Table of Six coalition, if its candidate comes to power, has promised to reinstate democracy and the rule of law in the country, as well as decreasing inflation and ameliorating relations with NATO. These policies would bode well for Turkey as it could encourage an influx of Western investment.
If Erdogan loses the election, the administration succeeding his might have to deal with a financial crisis brought on by previous economic policies, such as the central bank cutting interest rates to 8.5% as well as forcing “lenders to buy low-yielding government bonds.”
The new government may attempt to resolve the skyrocketing inflation by increasing interest rates, at least in the short term. However, Dixon writes that this could lead to a lower approval rate among the public.
The Reuters article also acknowledges that there may be other economy-related “skeletons in the closet,” due to the lack of transparency in the Erdogan government.
In that case, Dixon explains that the Table of Six coalition could turn to the International Monetary Fund to combat a financial crisis.
The Reuters analysis encourages any new administration to strengthen ties with the European Union and the US by strengthening democratic norms in Turkey, as well as approving Sweden and Finland’s NATO membership bids, which has been a recent point of contention.
Fostering a closer relationship with the West would be made easier if Turkey commits to ending Russian sanctions-busting, a practice which US Undersecretary Brian Nelson had already warned may cause Turkey to lose access to markets as well.
However, even if the administration in Turkey changes, it is rather unlikely that trade with Russia would be cut off entirely, says Dixon, as Turkey “depends on imports for 99% of its gas and 93% of its oil. It [also profits] from buying discounted Russian oil, refining it and selling it to other countries.”
Customs and Trade
According to Dixon, though Turkey has been a candidate country to join the EU since 1999, this will not happen any time soon. A new administration in Turkey should instead focus on modernizing its existing customs union with the EU.
The EU had refused to modernize the customs union since member states had raised concerns regarding Erdogan’s increasingly authoritarian rule. Dixon writes that if the administration changes, the customs union could be enhanced by including public procurement, trade in services and agriculture, climate policy, and trade in digital services.
According to a Turkish think tank, if the opposition comes to power, it could implement a carbon pricing policy similar to that in the EU. Then, says Dixon, Turkey could “avoid the carbon tariffs the EU is planning to impose on imports. An expanded customs deal would attract foreign investment even before it took effect.”
Dixon is also optimistic that a new government in Turkey, with a clear “geopolitical orientation” could increase its trade volume with the US by benefiting from the US’s “friendshoring” initiative which seeks to build supply chains in other countries to counteract China.