Reuters: Days before Turkey’s runoff presidential election, there is disagreement and uncertainty within Tayyip Erdogan’s government over whether to stick with what some call an unsustainable economic programme or to abandon it, insiders say. According to interviews with nine sources, either government officials or others with direct knowledge of the matter, an informal group of ruling-party members have gathered in recent weeks to discuss how it might adopt a new policy of gradual interest rate hikes and a targeted lending programme.
Erdogan is not directly involved in the talks, which include some AK Party members who are outside the administration but held senior positions in the past, four of the sources said, requesting anonymity to discuss the private meetings. On the other side are officials and cabinet members who publicly state they want to stick with the current programme of boosting exports and economic growth via rate cuts and heavily-managed forex, credit and debt markets. Given Erdogan led after the initial vote, much is at stake for the major emerging market economy that has been gripped by a cost-of-living crisis and series of currency crashes. With foreign reserves tumbling, some analysts say Turkey could face another economic crash as soon as this year that sends inflation soaring again and strains its balance of payments – unless the government changes course.
“They are studying a new economic model… since the existing model cannot be sustained,” said a senior official close to the matter. “Basically, it would gradually raise the interest rate and end the structure of using multiple rates.” The group has not yet presented the full plan to Erdogan, the official said. Erdogan’s office was not immediately available for a comment. Seeking to extend his reign into a third decade in the yesterday runoff, Erdogan has said in the campaign that interest rates would decrease as long as he is in power, and inflation would be brought under control. All sources said there is no suggestion Erdogan has made a decision and most said he has previously heard the concerns over growing economic strains and depleted foreign reserves. Three of the sources said he could stay the course for the next several months at least, emboldened by a better-than-expected result yesterday when he took 49.5% of the first-round vote versus his challenger Kemal Kilicdaroglu at 44.9%.
Analysts say the president is in pole position to win the runoff. “There are two different opinions within the party,” another source, a ruling AK Party official, said. He added that any decision would seek to preserve economic stability through to the next critical election test: municipal polls in March next year. A third official said the strong election results could ultimately convince leaders “that a rapid change is not needed.”