Erdogan Calls Snap Election for June; Lira, Stocks Rally

(Bloomberg) -- Turkish President Recep Tayyip Erdogan called elections a year earlier than scheduled, moving to consolidate his one-man rule of the region’s largest economy.

The vote will complete the transformation of the political system, eliminating the prime minister’s job and weakening the role of parliament. Turkish markets rallied after Erdogan’s announcement in Ankara that the country will go to the polls June 24 to pick a president, almost certainly ratifying his hold on power.

“In calling an early election, Erdogan must feel confident he and his AK Party have the necessary numbers to achieve victory," said Paul Greer, a London-based portfolio manager at Fidelity International. "That itself should reduce market uncertainty."

Erdogan’s ruling party has never called early elections in the nearly 16 years it’s been in power, and repeatedly rejected speculation that it’d call them this year. Many analysts had predicted an early vote nonetheless, saying a deteriorating economic outlook and fighting in neighboring Syria would prompt him to move up the date rather than risk re-election in a downturn.

Erdogan, who defeated an attempted coup in 2016, has stoked nationalist fervor since launching an incursion into Syria in January, playing the same card as other strongmen, such as Russia’s Vladimir Putin.

“It has become a necessity for Turkey to overcome uncertainties as soon as possible amid developments of historical importance in our region as well as the cross-border operation we’re carrying out in Syria,” Erdogan said in announcing the vote.

Syria Incursion

Turkish forces captured swaths of northwestern Syria from U.S.-backed Kurdish militants, including the Kurdish stronghold of Afrin. Turkey refused to return the territory it has captured to the Syrian government of Bashar al-Assad until after independent elections there to make sure that territorial integrity of Syria remains intact.

Devlet Bahceli, leader of the nationalist party allied with Erdogan, proposed on Tuesday that the vote be moved forward to Aug. 26 of this year from November 2019.

The lira extended gains after the announcement, appreciating 1.6 percent to 4.03 per dollar as of 6:30 p.m. in Istanbul; it has weakened this year against all 17 major currencies tracked by Bloomberg. The benchmark stock index added 3.1 percent, its biggest one-day gain in a year.

The market rally reflects investor hopes that once a vote has passed, policy makers will dial back efforts to promote growth at the expense of a possible credit bubble, widening budget deficit and accelerating inflation.

Market Hopes

Such hopes of a normalization may be misplaced, said Jan Dehn, head of research in London at Ashmore Group Plc, which focuses on emerging markets. He compared the situation to optimistic forecasts for the late Hugo Chavez in Venezuela and Argentina’s Cristina Fernandez de Kirchner.

"Markets hope that if Erdogan wins he can do some adjustment and get a bit more normal," said Dehn. "A bit like how markets used to view Chavez and even Kirchner. In reality of course, they did not get more moderate. They got more radical instead."

Turkey has become the world’s leading jailer of journalists, and Erdogan’s government in March widened the powers of its radio and television censor to include the Internet.

Since the failed putsch in 2016, the government rounded up of opponents by the tens of thousands, including workers in every branch of government and leading members of the media, academia and the judiciary. Even Miss Turkey was dethroned and jailed for criticizing Erdogan on Instagram.

The Committee to Protect Journalists in December identified 73 jailed Turkish journalists, the most in the world for the second year running.

It has also banned or blocked access at times to Twitter, YouTube and Facebook, as well as the virtual private network services, or VPNs, that allow users to mask their locations and skirt the bans. Wikipedia -- in all languages -- has been blocked for almost a
year.

©2018 Bloomberg L.P.