It looks like the incumbent Turkish President Recep Tayyip Erdoğan has defied the odds yet again. He topped the polls in the first round of the election on May 14, with provisional results suggesting a 49%-45% vote in his favor against his main rival, Kemal Kılıçdaroğlu.

The two men will now go into a run-off vote on May 28, where one will need to secure 50% plus one vote to win. With momentum on his side, and with the third candidate — a nationalist, Sinan Oğan, polling around 5%— voters likely to switch to Erdoğan, it looks as though the incumbent will secure another term in office.

That Erdoğan looks like winning again is incredible when one considers that polls were indicating a big lead for Kılıçdaroğlu before the vote, and that he might even secure a first-round win. It is also set against a background of Erdoğan’s generally failed economic policies, which have seen inflation soar, peaking at over 80% at one point this year and moderating to around 40% at present. And then there were suggestions that the earthquake earlier this year would hurt Erdoğan’s poll standings due to failures in planning and building standards which perhaps accentuated the death tolls, and then the initially slow recovery response.

But Erdoğan again defied the odds. And it also looks as though his party, the AKP, in alliance with the nationalist MHP, will also secure a majority in the parliamentary elections also held in parallel to the presidential vote on Sunday. Assuming his health holds — and there have been recent scares — Turkey’s 69-year-old leader is set to reign supreme until 2028.

So how did Erdoğan confound expectations?

First, he is a one-man election machine. He is a brilliant campaigner and tends to read the Turkish political mood unerringly. His election campaign played up to a nationalist and national pride agenda — it was all about military and technological achievements. It highlighted a new electric car, the first Turkish helicopter/drone carrier, plus a new unmanned fighter plane. He also played up Turkey’s independent foreign policy which plies a line between Russia and the West, exploiting strong anti-Western sentiment in parts of Turkish society. 

Second, while Erdoğan’s monetary policy has been disastrous for inflation, fiscal policy during his time in office has been prudent. He went into this election with public finances in decent order. This enabled him to partake in huge lamb barreling — offering massive hikes in pensions, public sector wages, and benefits, while also hiking the minimum wage. 

Third, he played on the weakness of the opposition candidate — Kılıçdaroğlu has a long track record of losing elections to Erdoğan. They are diametrically opposed characters. Erdoğan is the experienced political leader, a doer, a pugnacious public speaker, and hard-nosed geopolitical game player. Kılıçdaroğlu is academic in nature and slightly mousy in appearance. People just did not seem to think that Kılıçdaroğlu would be able to mirror his opponent’s geopolitical dexterity for Turkish interests. And I think Erdoğan played on Kılıçdaroğlu’s Alevi identity (Alevi are a minority Islamic sect, while Erdoğan hails from the Sunni faith, which is the majority in Turkey.)

Fourth, the Erdoğan team played the Kurdish card, as the Kurdish opposition HDP appeared to back Kılıçdaroğlu. This allowed them to suggest that any opposition administration would be at the mercy of the Kurds, a message popular with many nationalist Turks.

What now?

There’s a high chance, of 80%-plus, that Erdoğan wins the run-off.

Soon thereafter, a crisis looms with the West over the delayed Swedish bid for NATO membership. Western capitals have put this on hold, understanding of Erdoğan’s attempt to milk the issue for votes. But once the election is concluded, there will be a unified push for Sweden’s accession to NATO by its July summit. Failure by Erdoğan to agree could risk sanctions (there’s more than sufficient evidence to show Turkey has aided Russia’s sanctions busting.) I think with the election won, Erdoğan will relent, and Sweden will join NATO — Turkey’s request to buy 40 F-16s from the US is seen as contingent on Turkey playing ball and would allow Erdoğan to describe it as a victory.

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Yet the biggest post-election challenge for Erdoğan will be the economy. 

Turkey faces a huge balance of payments gap, with gross external financing needs of close to $220bn, a current account deficit of $50bn, and short-term debt of $180bn. Central bank reserves are around the $100bn mark, but reserves are unable to fill the gap. To close the external financing gap, the central bank could hike policy rates to slow domestic demand for imports and cut the current account deficit.

The president has made clear his aversion to interest rate hikes. So the options for the central bank are either to let the currency adjust downwards, and then use capital controls and macro-prudential policies to anchor the currency, and then market controls to fight inflation; or to get extra foreign currency from abroad, with Russia or the Gulf.

The second option is unlikely since Russia will probably be unable or unwilling to provide the foreign exchange on the scale needed. Gulf states could provide ample financing, but now demand orthodox policy measures in return, as seen in Egypt and Bahrain. This would require a big currency correction and higher policy rates to cut demand, which means lower growth when Erdoğan again faces a poll challenge next year with local elections due.

It’s likely, therefore, that Erdoğan will choose to continue his muddle-through approach; in other words, a bid for higher growth and live with the high-inflation consequences.

Can this work? It means Turkey will continue to be subject to the perennial balance of payments mini-crisis we have seen over the past decade, whereby the lira almost continuously weakens and higher inflation results. The question then is does this lead to a bigger systemic crisis where Turks lose confidence in their money and their banks.

That is the big, unanswered question. Erdoğan has been playing with fire and has so far escaped without a burn. It’s a risky game, for him and the country.

Timothy Ash is a Senior Emerging Markets Sovereign Strategist at RBC BlueBay Asset Management. He is an Associate Fellow at Chatham House on their Russia and Eurasian program.  

The opinions in this article are those of the author.  

Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.

Europe's Edge
CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America.
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