Bloomberg News

Erdogan Sets Sights on Presidency With Promise of Growth

October 03, 2012

Turkish Prime Minister Recep Tayyip Erdogan

Turkish Prime Minister Recep Tayyip Erdogan's need for support in presidential elections, where polls signal he isn’t the nation’s first choice, puts him on the go-for-growth side of a debate splitting Turkish policy makers. Photographer: Michele Tantussi/Bloomberg

Turkish Prime Minister Recep Tayyip Erdogan told his party this week that he’s entering his last term as its leader, then reassured them: “This isn’t goodbye.”

The comment at an Ankara congress Sept. 30 was one of the clearest signs yet that Erdogan plans to run for president, an above-party post, in 2014 when Turks will elect their head of state for the first time since the republic’s foundation in 1923. He also told supporters that economic growth, currently the slowest in three years, is poised to rebound in the fourth quarter and accelerate next year.

Erdogan’s need for support in presidential elections, where polls signal he isn’t the nation’s first choice, puts him on the go-for-growth side of a debate splitting Turkish policy makers. The other camp says there are bigger risks such as above-target inflation and the swollen current-account gap that accumulated during recent booms.

“Erdogan’s presidential ambitions are the main focus for him,” said Naz Masraff, a London-based analyst at Eurasia Group, which monitors political risk. Economic success has underpinned his support, and “now that growth has slowed down in Turkey, it’s becoming more disconcerting,” she said. “That’s why he definitely wants to bring growth back.”

Turkey’s economy has grown an average 5.5 percent since Erdogan’s party came to power in 2002. The only contraction was in the year after the collapse of Lehman Brothers Holdings Inc. in September 2008. The economy grew 2.9 percent from a year earlier in the second quarter of 2012. Erdogan has set growth targets of 5 percent for the next two years.

‘Still Too High’

At the congress, Erdogan was re-elected leader of the Justice and Development Party for the third time, the most allowed under party rules. He replaced 21 members of the party’s 50-seat executive board.

Foreign leaders attending included Egyptian President Mohamed Mursi, northern Iraqi chief Massoud Barzani and Hamas’s Khaled Mashaal. Under Erdogan, Turkey has expanded trade with Middle Eastern countries as demand in crisis-hit Europe declines, while relations with Israel have deteriorated.

The rare public dispute within Erdogan’s Cabinet surfaced last week when Economy Minister Zafer Caglayan argued for lower interest rates to boost growth. Erdogan has backed him, telling ATV television that “the policy rate is still too high.”

Central bank Governor Erdem Basci has eased rates within his so-called corridor, which allows him to vary borrowing costs daily, without moving the benchmark of 5.75 percent. Basci and Deputy Prime Minister Ali Babacan have signaled that the priority is fiscal discipline.

‘Same Trap’

There are risks in pursuing “growth for political purposes,” said Aurelija Augulyte, an emerging-market analyst at Nordea Markets in Copenhagen. “Turkey might fall into the same trap of an expanding current-account deficit and rising inflation.”

Inflation accelerated to 9.2 percent in September from 8.9 percent, the official statistics office said today.

Tim Ash, head of emerging market research at Standard Bank Group in London, said a growth rate close to Erdogan’s target is “probably sustainable.” He sees a bigger risk in the possible splintering of Erdogan’s party if he leaves for the presidency.

“The biggest risk is that succession is not clear,” Ash said. “Erdogan is such a dominant force.”

Erdogan engineered the move to an elected president with a constitutional change in 2007. He has floated the idea of going further by turning Turkey’s parliamentary system into a presidential one, in which the head of state could have ties to a party, instead of the current largely symbolic role.

Gul Popularity

In the run-up to the party congress, Erdogan’s government announced increases in taxes on cars and gasoline, and in electricity and natural gas prices. The measures helped push benchmark bonds up more than 30 basis points in two weeks.

“Erdogan wants to realize these kinds of unpopular measures long before the electoral cycle kicks in,” Masraff said. Turkey is set to hold local elections in October 2013 before the presidential vote.

Outside the economy, another threat to Erdogan’s elevation may be the incumbent, President Abdullah Gul.

Rifts have surfaced between the longtime allies. Erdogan this week rejected a call by Gul for the release of eight opposition lawmakers who were elected last year while they were in jail on charges of Kurdish terrorism or coup plots.

“I don’t want to go into a polemic with the president,” Erdogan said. “It is obvious that we don’t share this opinion.”

‘Different Titles’

Gul also hinted at differences on the economy, saying Turkey must “break the vicious circle of growth and current- account deficits.” The gap reached a record above 10 percent of economic output last year.

Researcher MetroPOLL last month reported 51 percent support for another Gul term, with only 23 percent saying Erdogan should take over. The survey of 1,275 people cited a 2.7 percent margin of error.

Still, the politicians have cooperated for two decades with Erdogan backing Gul’s presidency in 2007. Now the premier is signaling his own aspirations.

Addressing thousands of delegates in Ankara at this week’s congress, Erdogan told them: “We will again be united, we will again be together, with different titles.”

To contact the reporter on this story: Selcan Hacaoglu in Ankara at shacaoglu@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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