Economic success backs gov’t for final week of campaign
Posted by meb at July 16th, 2007
Despite a surge in oil prices over the past two months that brought benchmark crude prices to the middle $70s, other economic data and stock market performance in Turkey have converged to make the ruling Justice and Development Party (AK Party) a clear favorite with one week remaining before Turks go to the polls next Sunday in the general elections.
The Istanbul Stock Exchange (İMKB) rallied in the last two days of the week, breaking 53,000 on Friday before profit-taking pulled the main index down, still closing at a record high of 52,086. The rally came on the back of positive sentiment in global markets and the Japanese Central Bank’s decision not to increase interest rates, and also on indications from the US that turmoil in the sub-prime mortgage market would not spread.
These factors and “mounting expectations of a market-friendly election outcome all boosted local sentiment,” said a report to institutional investors from Finansinvest.
Market-friendly means the AK Party, which for nearly five years has pursued liberal economic and political reforms, reforms to which the market responded by posting real economic growth rates averaging 7.4 percent per year since the party came to power in November 2002.
Recent supportive data includes May’s current account deficit coming in below expectations and pulling the annual deficit down to its lowest level since August 2006. Support in the fuzzy area of investor sentiment came from Turkey’s Central Bank, which left interest rates on hold after the latest meeting of its Monetary Policy Committee, but became noticeably more dovish in its stance when it hinted at a moderate easing in the fourth quarter.
In its July market report issued last week, Deutsche Bank posed the scenario of an average investor being able to summon a genie from a bottle and tell it his wishes for an ideal election outcome, specifically, a single-party government, but not one with unbridled control.
“If the genie then snapped his fingers and granted the investor his wish, we believe the result would not be too different from what reality entails,” said Tevfik Aksoy, the author of the report. “Thus, it could be said that the current election outlook is shaping up to be the ideal scenario for the markets. The AK Party has a comfortable lead in the polls, hovering around 40 percent. It is followed by the [Republican People’s Party] CHP (ostensibly a social democrat party) at around 20 percent and the [Nationalist Movement Party] MHP (nationalist) at roughly 10 percent.”
According to Deutsche Bank’s calculations, this translates to 300-350 seats for the AK Party. Recall that Parliament has a total of 550 seats, where 276 is the simple majority required for most ordinary pieces of legislation, and 367 is the 2/3rds majority required to amend the Constitution (and risk the ire of the establishment).
“This, for the market, is just about right,” said Aksoy. “It puts the AK Party into the sweet spot as described above. Conversely, it should put the establishment in its place, but stop short of backing it into a corner.”
Hedging bets
One analyst chose to hedge his bets by examining the possibility of a surprise at the polls next weekend. Serhan Çevik, an economist with investment bank Morgan Stanley, said in a report last week that although opinion polls show the ruling AK Party in a leading position, the likelihood of a fragmented outcome is not insignificant. Coalitions are not necessarily distressing, he said, but Turkey’s own history with fragile coalitions shows sub-optimal policies and economic disturbances throughout the 1970s and 1990s.
While a single-party government with market-friendly credentials would be the best possible outcome for economic and institutional progress, nonetheless voters have acted irrationally on occasion, making what Çevik called “systematic errors.” Given the data constraints on socio-political factors, voter rationality in making political choices is defined as the reward or penalty for good or bad economic outcomes, which can be tested with a set of economic indicators, the report said. His model assumes that rational voters would oust politicians who deliver disappointing economic results or re-elect those delivering favorable outcomes.
Çevik pointed out that despite the overall good economic performance of the past five years, not every segment of Turkish society has paid the same price for restructuring or benefited equally from stabilization.
For example, the share of labor income kept declining from 30 percent in 1999 to 26 percent last year, he said. That means we are likely to see divergences in economic voting behavior, reversion in political preferences that allows non-economic factors to have a greater influence.
“And the result could be a more fragmented Parliament and a weak (coalition) government,” said Çevik. “This is why we worry about the possibility of systematic voting errors, as has happened so many times in the past four decades.”
Okay, the bet is hedged — now let’s see who wins.
source: MICHAEL KUSER - Today’s Zaman
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