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opinion polls showed a decline in popularity which some suggested might be terminal—and the AKP alliance with the nationalist MHP showed the vulnerability of the ruling party and its fear of failing to secure outright majorities in its own right.
Some of the swagger of the ruling party has been restored by Turkey’s successful intervention in northern Syria, and by Erdogan’s apparent out-witting of President Trump therein. Recent opinion polls have suggested a modest bounce in support for the AKP—up 2-3% but still sub-40%. But whether this bounce will prove enduring will depend still on how the ceasefire in northern Syria plays out. I fear that the ceasefire deal will prove short-lived, and as is, Turkey does not have control over the 400km-plus buffer zone it initially targeted. It hence was only a partial and perhaps temporary win.
Peace on Turkey’s border with Syria, and indeed in its own southeast region might only come with a broader settlement with the Kurds both within and outside its borders. Erdogan proved in the past he can deliver this, but after a bitter upsurge in conflict over the past four years or so, the mood in the country does not yet seem right for such an iteration for Erdogan—albeit it could bring big political wins for Erdogan both at home and abroad, particularly with the US and the West.
The biggest near-term challenge to Erdogan likely will come from his coalition with Devlet Bahceli and the MHP. Bahceli has recently suffered ill health, and questions surround the durability of the AKP-MHP coalition in a scenario where Bahceli is no longer able to remain as leader of the MHP. Could Erdogan forge a lasting coalition with a future leader of the MHP, would he seek new coalition partners, for example with Meral Aksener and the Iyi Party (Good Party), or even go for early elections? All are possible.
But in terms of economic policy I think what is important is that Erdogan is facing a challenging domestic political outlook—early elections are possible in a scenario where the coalition with the MHP breaks, and at this stage AKP popularity is flagging. Thus even though formal elections are not slated to take place until 2023, Erdogan is likely to be very mindful of his poll ratings; the temptation still will be to run more populist and pro-growth policies. Indeed, I think this is already evident from the CBRT’s breakneck and front-loading pace of policy rate cuts.
Geopolitics—binary outcomes dependent on the Supreme Leader (Trump, that is)​. Given all the high-level exposure therein with respect to the Rudy Giuliani/Mike Flynn axis, it’s hard to see any wiggle room from Trump. On the S-400 issue I think the Turkish side thinks they have called the US bluff, again, and will try and play for time with both the US and Russia. Obviously going back on commitments to Russia, would risk escalation and big refugee flows from Idlib in Syria, which would risk further undermining domestic political support for Erdogan given the rising sensitivity of the Syrian refugee problem in Turkey. ​Congress though still remains unpredictable in all this​. ​The Halkbank issue is a further complication​ and Trump now seems unable to stall the judicial process which has now begun. Indeed, with the recent SDNY [Southern District of New York] indictment against Halkbank, Trump signalled that this was now beyond his control. The Turkish side does not appear to be helping its own case by seemingly refusing to accept US jurisdiction—the appointment of the indicted felon, Atilla Hakan, as Borsa Istanbul CEO also does not help the mood music around this case.
Continuation on this path looks set to risk fines for contempt of court, which could well escalate, even before any formal judgement is made, or even eventual penalty from OFAC [Office of Foreign Assets Control]. Now while Halkbank might have no assets in the US, Halkbank’s failure to accept US jurisdiction might have broader implications for other Turkish state-owned banks, and also the Turkish banking sector in general. Turkish state ownership
14​ TURKEY Country Report​ December 2019 ​ ​www.intellinews.com