Bigger Victory Margin for the Incumbent AKP
After another big victory, AKP once again claimed its dominant place in Turkish politics. Despite the liberal concerns over civil liberties and the secularist concerns over Turkish secular lifestyle, half of the voters thought that AKP was their best choice among more than dozen parties in the elections. After impressing these voters with their two term performance since 2002, Erdogan and company will face serious challenges right after this election victory. How they respond to these challenges will shape the athmosphere of Turkish politics.
Overheating economy
The most immediate concern is the overheating Turkish economy. After experiencing a significant boom last year, Turkey is facing the twin trouble of accelerating trade deficit and inflation. Both of these problems stemmed from expansion of domestic credit to fight the recession. Although the Turkish Central Bank increased the reserve requirements for the commercial banks earlier this year, their interest rate policy stayed largely expansionary. With almost 0 real interest rates, banks had no trouble increasing their reserves and lending more. The most troublesome lending was lending to consumers, as they preferred to buy more imported goods. Increasing domestic inflation partly caused by rising energy prices, partly by increased domestic credit, became another sign of overheating. As global economy has its own concerns, Turkey can’t rely on capital flows to finance its current account deficit for too long. Macroeconomic policy should be on top of the agenda for prime minister Erdogan.
