Lira at heart of the Turkish Election

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Turkish election

Last year, Turkey’s citizens voted in a referendum which would dramatically up the stakes for its next election. In April 2017, article 18, which changed the country’s parliamentary system to an executive presidency, was marginally passed with 51.4% of the vote. Under its implementation, the president holds executive power, can be a member of political party, and has the power to publish decrees. President Recep Tayyip Erdogan triggered a snap election which, if he wins, will see him be given an even more powerful presidency. This Sunday the country will decide.

But what if he loses? President Recep Tayyip Erdogan has held his position since 2014, and is certainly used to winning elections. However, the latest polls suggest that this victory may not be so easy. Erdogan’s main competitor is Muharrem Ince from the centre-left Republican People’s Party. Ince received greater crowds than Erdogan in the election run-up, and is being hailed as a much more enthusiastic leader who will grant Turkey’s people more personal freedoms. Despite Erdogan leading the polls, at this point it seems unlikely that he will win 50 per cent of the vote. If this was the case, a new round would be rescheduled on the 8th of July.

The currency, and the Turkish Lira, are the heart of the election. The Turkish lira has fallen 40 per cent since July 2016, and the central bank has increased interest rates to almost 18 per cent. The country’s inflation is currently at 12 per cent, and overall the lira lost 25 per cent of its value this year.  The economy is generally in trouble, as its imports outweigh its exports and it consistently depends on foreign finance to close the gap.

Erdogan views the country’s lower interest rates as an incentive for investors. Against economists’ recommendations, the president believed the low rates would encourage investors to take advantage of the lower borrowing costs.

Many Turkish citizens have spoken out about the effects of the damaged economy on their daily lives. If Erdogan intends to continue his election success, he will have to contend with the dissatisfaction of many of the country’s citizens. For now, investors must closely watch how the lira reacts to Sunday’s vote, and monitor its ripples across the global markets.

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