Erdogan's Fight Shows Control of Turkey Runs Through Istanbul

(Bloomberg) -- President Recep Tayyip Erdogan’s latest political battle is about much more than keeping one major city under his party’s control.

Hours after Turkey’s top election watchdog accepted the ruling AK Party’s appeal to redo Istanbul’s mayoral vote, the costs of greater political uncertainty inflicted on the economy were already on display. The lira weakened the most in emerging markets, stocks were battered and critics began to wonder whether the Middle East has lost its biggest democracy.

For the president, conceding defeat after the election handed control of Istanbul to the opposition would have forced him to confront emerging signs of weakness after 16 years at the top of a seemingly invincible political juggernaut. It would also have stripped his party of the nation’s commercial power center, and allowed an opposition political upstart to prove himself capable of doing the job that launched Erdogan’s own career.

Erdogan's Fight Shows Control of Turkey Runs Through Istanbul

“As the beating heart of the Turkish economy and a major source of patronage, Erdogan could not afford to lose Istanbul,” said Anthony Skinner, Middle East and North Africa director at risk analyst Verisk Maplecroft. “He genuinely sees the city as a measure of his long-term political survival. Erdogan will draw lessons from the initial vote and will pull out all the stops to bag it this time.”

An Ottoman capital for almost half a millennium and now home to a fifth of Turkey’s population, Istanbul is ground zero of a model Erdogan first perfected as its mayor two decades ago by marrying politics and money. The city’s heft still dwarfs the rest of Turkey, accounting for about a third of the country’s entire economy and by some estimates absorbing a quarter of all public investment.

Even with a budget of $4 billion, however, the numbers alone don’t begin to explain why Erdogan is making a stand in Istanbul. By contrast, he gave up the capital, Ankara, without much of a fight after the opposition won there in the recent election.

But as Erdogan told lawmakers two years ago, “if we lose Istanbul, we lose Turkey.’’

Erdogan’s government has been investing in mega projects to create jobs and showcase Turkey’s rising prosperity ever since the AKP’s rise to power. While Turkey’s economy has contracted in dollar terms since a 2013 high of $950 billion and it’s now in the midst of its first recession since 2009, real per-capita income has almost doubled since Erdogan took power in 2003 to an estimated $24,850 last year, according to the International Monetary Fund.

About $30 billion are in play, with Istanbul host to much of the building frenzy. Projects range from a new airport and an eight-lane suspension bridge to a rail tunnel, Turkey’s biggest mosque and a planned shipping canal to bypass the Bosporus.

While the money came from the central government’s budget, it ultimately benefited the conglomerates closely linked to Erdogan, creating fortunes for his allies that could then be used to buy up media and support his campaigns.

For 25 years, Erdogan and parties affiliated with him have held on to Istanbul. As mayor, he made his mark by focusing on issues that have long been neglected, delivering better garbage collection, cleaner water and a support system for lower-income households.

By expanding social programs and handouts, Erdogan struck up a bond with the poor, cultivating an appeal that has remained a signature part of his political persona. After he parlayed that success to become prime minister and then president, Erdogan made sure to keep the fiscal taps open.

But the fine line between politics and government has become increasingly blurry. As the money kept flowing, Istanbul residents would find that it made a difference if they happened to vote AKP. Last year, Istanbul’s former mayor Mevlut Uysal was cited as saying that “our priority with metro stations will be the districts where the AKP won the most votes.’’

The ruling party’s top official in charge of municipal services, Mehmet Ozhaseki and the municipal legislature’s whip, Mehmet Tevfik Goksu weren’t available to comment for this story. Erdogan’s office referred all questions to the AK Party, whose spokesman Omer Celik didn’t respond to a request for comment.

The opposition often complained that the local government prioritized investments in areas that are mostly home to the ruling party’s supporters. The municipality also owns 30 companies in industries ranging from energy to transport, providing jobs and other perks to thousands of people.

Erdogan's Fight Shows Control of Turkey Runs Through Istanbul

In an example of how politics could drive local spending, a $50 million food program for the impoverished drew legal scrutiny over accusations by the Turkish Court of Accounts, the country’s highest auditor, that qualifying businesses were selected unlawfully -- ostensibly to benefit friendly companies.

Beyond tending to the AKP’s voter base, the grip over Istanbul meant control over sharing the spoils by picking contractors and helping associations and businesses close to the ruling party.

A report by the municipality seen by Bloomberg, whose authenticity was verified by opposition members of Istanbul’s local legislature, details the aid the city’s government doled out in 2014-2018.

Roughly $100 million was spent on foundations run or managed by the president’s allies and family members including one of his sons, by way of paying for their rent and other costs. Those foundations describe themselves as committed to Turkey’s religious roots, with an explicit objective to build the New Turkey envisaged by Erdogan as a nation of young, pious Muslims.

But their aid was dwarfed by other forms of assistance from local authorities, usually in the form of permits to use some of the most sought-after real estate free of charge, according to Tarik Balyali, a member of Istanbul’s municipal parliament from the opposition CHP party who closely tracks aid to foundations.

While assistance to students and others in need is a responsibility of the local government, critics say the spending resembles a way of buying political loyalty with taxpayer money.

In remarks last November, Uysal -- Istanbul’s former AKP mayor -- bristled at criticism that the municipality gave preferential treatment to parts of the city that show greater support to the ruling party. The local government was serving all Istanbul residents equally and will continue to do so, Uysal was cited as saying by the state-run Anadolu agency.

What’s more, Erdogan takes pride in the services Istanbul has delivered starting during his term as mayor in the mid-1990s, portraying them as a party achievement that met the needs of Istanbul residents rather than a ploy to buy loyalty. In the standoff over the Istanbul election, the president said he was ready to concede defeat but changed his mind after seeing what he called increasing evidence of widespread irregularities that tainted the vote.

Still, the opposition CHP, whose candidate edged out Erdogan’s ally in the March 31 election for mayor, is making no secret that it was about to take aim at the heart of the AKP’s political project.

“Everyone in Turkey knows that AK Party’s main strategy is to consolidate votes through municipal social aid,’’ CHP’s Balyali said. “We will get rid of this injustice and distribute social aid without looking at political affiliations of our people.’’

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