With elections looming around the corner, I decided to gather up the 6 to 8 most likely scenarios set forth by literally everyone including political polling companies, financial and political experts, and economists. But today, I will share only four of these scenarios with you.
In the first scenario, President Erdoğan wins the elections in the first round and the People’s Alliance (Cumhur İttifakı) achieves a parliamentary majority. In such case, it will be a nervous wait for foreign investors. But things are expected to improve after a while, especially with more moderate statements from Ankara including the lifting of Turkey’s State of Emergency. After all, a presidential administration coming to power with the majority of people’s votes is legitimate and everyone will have to respect this legitimacy sooner or later. USD/TRY may be expected to stand at a band of 4.20-4.50. As for the interest rates, they may be expected to go downward in the medium-term. However, statements that are disruptive to the economy may bring irreparable damage to markets. If this happens, then we should be ready to face circumstances even harsher than those previously experienced.
In the second scenario, presidential candidates advance to the second round with the People’s Alliance achieving a parliamentary majority. Although it is viewed as one of the least likely scenarios, in this scenario, President Erdoğan is expected to guarantee the Presidency after a nervous15-day wait until the second round of the elections. Therefore, all the expectations set forth the in the first scenario apply to the second one as well, for better or worse.
“Consecutive Elections… What impact would they bring to the country?”
In the third scenario, President Erdoğan wins the elections in the first round but the People’s Alliance cannot achieve a parliamentary majority. According to this one, the Government may have to rule by decree for a little while more. And Parliamentary elections may be held once again. Because, as we know it, the AK Party has clearly stated that elections will take place again if such scenario becomes a reality. Although it is viewed by foreign investors as one of their “least favourite scenarios”, I must remind them of the fact that there Turkey had a well-managed economy during the period from June 7th, 2015 to November 1st, 2015. But, as we all know quite well, the perception is reality, and things might turn sour if the Government decides to extend further the State of Emergency. In such case, we should all expect the USD/TRY to test a level of 5.00 along with interest rates resisting going down.
In the fourth scenario, another candidate, outside Erdoğan, wins the elections in the second round with People’s Alliance failing to achieve a parliamentary majority. Although it is one of the least likely possibilities, this one is viewed as more “American” by foreign investors, which means they think the Presidency should be able to bring a to the powers of parliament. Besides, as AK Party insists on holding another round of elections in case of non-majority, parliamentary elections are not expected to take place again if another candidate becomes the winner of the presidential election. In such case, President’s cabinet and his messages will be of the utmost importance. The impact of such turn of events on exchange and interest rates, however, remain unpredictable.
Nevertheless, I expect USD/TRY to fluctuate within a band of 4.20-5.00. As for the interest rates, it will be unlikely for them to go down.
Well, there is one too many scenarios. These four, however, are viewed as the most likely results of upcoming elections. I earnestly beg you not to take offence as I am not the one who made these scenarios. I have just made a short summary of people’s thoughts and opinions on the issue and shared with you possible market reactions to the electoral results.