Can Erdogan’s economic record help him keep seat amid challenges?

Istanbul, Turkey – Sitting by his small telephone sale and repair shop in the buzzing Istanbul district of Besiktas, Hasan Kus is pessimistic about the future of Turkey’s economy.

A little over a week before the country’s key elections, the 44-year-old believes the financial situation will worsen regardless the outcome of the June 24 polls.

“People are merely trying to pick the better scenario, compared to the other ones,” says Kus, before trying to sell a phone charger to a customer.

The economy is going to be a decisive factor in the upcoming vote that will transition Turkey from a parliamentary system to an executive one, in line with constitutional changes approved in a referendum last year.

The presidential and parliamentary polls will be held under a state of emergency, in place since July 2016 following a failed deadly coup blamed by the government on the movement of Fethullah Gulen, a US-based self-exiled religious leader.

On the economic front, the polls come against a conflicting backdrop of skyrocketing growth rate – up 7.4 percent last year – and a depreciating currency.

The Turkish lira dropped more than 20 percent against the US dollar this year, prompting the Central Bank to raise interest rates multiple times to shore up one of the world’s worst-performing currencies. Meanwhile, both inflation and current account deficit are on the rise.

Under these circumstances, the Turkish electorate appears divided about who is best equipped to deal with the ongoing economic uncertainties.

Voters who blame the uncertainty on President Recep Tayyip Erdogan and his ruling Justice and Development Party (AK Party) believe change is needed after 15 years to correct the policies that spawned the current problems.

But others say only Erdogan and his party can maintain stability in the country.

“A change in the government will only make things worse as it will decrease the level of confidence in Turkey – and therefore, there will be less investment and jobs,” Kus, the telephone shop owner, told Al Jazeera.

He said he will vote for Erdogan and his alliance; the AK Party has joined forces with the far-right Nationalist Movement Party (MHP), with Erdogan being their joint presidential candidate.

“People with financial constraints do not look at this election only in terms of politics. They just want to make it to the next day with the best option for themselves and their families,” added Kus.

“We need stability.”

‘We need change’

Cengiz Kurekci, a 33-year-old architect, disagreed.

“The opposition’s promise to lift the state of emergency is even enough to give a boost to the economy. We can start living in normalcy and that would reflect to the economy,” he said between sips of tea by the Bosporus.

Calling for a change, Kurekci argued that the government and the president are suffering from what he described as fatigue.

“All the recent economic problems point to that,” he said, adding that he will vote for the main opposition alliance led by the centre-left Republican People’s Party (CHP) and right-wing IYI (Good) Party.

According to last year’s constitutional changes, the new president will have significantly enhanced powers – from appointing vice-presidents, ministers, high-level officials and senior judges to dissolving parliament, issuing executive decrees and imposing states of emergency.

Erdogan has often said he will take a more dominant role over economic policies if he takes over the powerful executive presidency.

He has repeatedly blamed “foreign powers” for the falling lira and the rising inflation, accusing them of trying to manipulate the economy. He has called interest rates “the mother and father of all evil” and urged Turkey’s autonomous central bank on many occasions to decrease them.

When the AK Party took over in 2002, Turkey’s economy was suffering from rising inflation and high unemployment. But over the following years, it managed to transform the country into an emerging market by pushing growth through trade and foreign investment. 

“Turkey’s economy, in all areas, is now far beyond developed countries,” Erdogan said at a rally earlier in June, while asking citizens to convert their dollars and euro to Turkish liras “to teach a lesson to those who are trying to unbalance Turkey through currency rates”.

‘Steady growth’

Despite the recent financial challenges, as well as macroeconomic and geopolitical risks, the Turkish economy has seen steady growth for more than a decade.

Last year’s 7.4 percent economic growth was the second-best performer after Ireland among the 37 members of the Organisation for Economic Co-operation and Development (OECD). Turkey kept the same year-on-year growth rate in the first quarter of 2018.

However, its gross domestic product (GDP) decreased in terms of dollars from $863bn a year ago to $851bn this year, reflecting the significant fall of the currency against the US dollar.

Likewise, GDP per capita also dropped from $10,883 to $10,597 in current prices year-on-year.

The International Monetary Fund (IMF) recently praised Turkey’s growth numbers, but warned of potential “overheating” – unsustainable economic growth.

According to the IMF, Turkey’s economy is predicted to grow 4.3 percent in 2018 and in 2019.

But critics say growth in Turkey has happened through tax cuts, government incentives – particularly in the construction sector – and excessive borrowing, which drives inflation and current account deficit up. Inflation rose to 11.9 percent last year, the highest since 2004.

While the fall of the lira has made imports more expensive and driven production costs up, foreign direct investment has also taken a hit.

Last year, it fell to its lowest since 2010, at $10.8bn, with analysts citing the state of emergency and Turkey’s worsening relations with the West as the main reasons for the fall.

Over the past few years, Erdogan’s administration has regularly traded barbs with the United States and European Union member states over domestic affairs, such as the rule of law and the arrests of journalists, as well as foreign policy issues, including the war in Syria.

“The vast majority of the real direct investments that come to Turkey are in the construction sector, not industrial or production,” Ugur Gurses, a senior Turkish economist and columnist, told Al Jazeera, noting that the level of foreign investments is far lower than Turkey’s potential due to the state of emergency.

Gurses said that Turkey has been growing faster than its capacity with low levels of direct investment – with the exception of the construction sector – adding that this has made the country vulnerable to high inflation and currency fluctuations.

“The purchasing power of the working and middle class has been decreasing. Various big companies restructured their debt in order to be able to pay them, while many small and medium enterprises are surviving through loans and incentives,” he said.

But government officials insist that a solid executive administration after the elections will bring about stability and growth, wiping out the recent “prevailing uncertainties” blamed on foreign powers.

Nihat Zeybekci, the economy minister, said last week the goal for the rest of the year will be to grow Turkey’s economy at a faster pace, while also predicting record tourism figures over the summer.

“The fight against inflation is the top priority for us. We never choose between ‘growth or inflation’ … Both are absolutely indispensable for us,” he was quoted as saying by the state media.

As political parties go on with their campaigns, it will be up to the Turkish voters to soon choose who will be tasked to deliver a better economic future.

Follow Umut Uras on Twitter @Um_Uras