Turkey will hold a run-off vote to determine if President Recep Tayyip Erdogan extends his time in power into a third decade.
Although Erdogan was leading the race by than two million votes, it wasn’t enough to secure more than 50 percent of the ballot and avoid a second round. Another vote on May 28 will pit him against top rival Kemal Kilicdaroglu, 74, who’s backed by Turkey’s broadest-ever grouping of opposition parties.
Erdogan won 49.5 percent of the votes, while Kilicdaroglu secured just under 45 percent support with nearly all the ballots counted, Turkey’s High Election Board said on Monday. Another contender, Sinan Ogan, received 5.2 percent and was eliminated from the race.
A run-off would be the first under the current electoral system and suggests a more divided electorate than in 2018, when the 69-year-old won in the first round. That was the first vote under the new executive presidency Erdogan set up that extended the role’s powers and which critics say eroded Turkish democracy.
Turkey’s markets slumped after it became clear that the country was headed for a run-off, surprising investors who were betting for an end to Erdogan’s rule and his unconventional economic path. The lira, equities and Turkey’s eurobonds sold off.
“Our nation has made its decision,” Erdogan said in a speech from the balcony of his party headquarters in Ankara before the outcome became official. His alliance retained a majority in Turkey’s parliament, which Erdogan said will help him get re-elected in the second round of voting.
His main rival portrayed the election results as a sign of weakness for the incumbent. “If our nation says second round, we respect that,” Kilicdaroglu said. “Erdogan could not get the results he desired.”
Uncertainty for markets
The polarising campaign has whipsawed markets. Turkish stocks slumped as much as 6.7 percent Monday before triggering a halt in trading. The lira fell and Turkish state lenders sold foreign-exchange to support the currency on Sunday evening ahead of official results.
“Two weeks of uncertainty is a scenario that markets dislike the most,” said Cagri Kutman, Turkish markets specialist at KNG Securities.
In the end, Erdogan powered through and did better than many polls predicted ahead of the toughest election battle of his political life.
“Sunday’s result marks a huge win for Erdogan,” Emre Peker, Europe director for Eurasia Group, said in an e-mailed note. “The president is likely to ride his strong approval rating, surprise win in parliament, and incumbency advantages to secure re-election in the run-off.”
"A staggering win for Erdogan," emerging markets economist Timothy Ash said in a note to clients. "He has the magic dust at these times. And he just gets Turks – the nationalist, socially conservative and Muslim ones."
A surprise showing by Ogan, the third candidate in Sunday’s race who ran on anti-immigrant platform, was a key factor in keeping the front-runners from securing a majority.
How Ogan’s voters might behave in the second round could swing the vote in either direction. In remarks late Sunday, Ogan criticised Erdogan’s unconventional economic views and refrained from endorsing either of the top two contenders.
Kilicdaroglu, however, was endorsed by Turkey’s pro-Kurdish party, making it difficult for Ogan to throw his support behind Erdogan’s rival.
“In comparison to his opponent, Erdogan is better positioned to win the votes that went to ultra-nationalist candidate Ogan in the first round,” said Wolfango Piccoli, co-president of Teneo Intelligence in London.
Erdogan, the country’s longest-serving leader, has moulded the NATO member into a regional power that plays a growing role from Ukraine to Syria.
He even maintained strong support in much of the area hit by the devastating February earthquakes that left more than 50,000 people dead. Survivors and opposition parties have accused the government of not responding to the disaster adequately.
But increasingly erratic economic policies left him vulnerable after an inflation crisis last year gutted household budgets.
“It would be good if there was a change,” said 55-year-old gas station worker Cengiz Caliskan, who had voted for Erdogan in the past but backed Kilicdaroglu this time. “I didn’t think Kilicdaroglu would do a better job than Erdogan but the same people were getting rich by staying in power too long.”
Kilicdaroglu was running on a promise to restore the rule of law, mend strained ties with the West and return to economic orthodoxy.
Another term for Erdogan would likely mean a continuation of “unorthodox and unsustainable policies” and macroprudential measures, Moody’s Investors Service wrote in a note. This would have a heightened risk of very high inflation and severe currency pressures, it added.
If Kilicdaroglu were to win a second round and implement more orthodox economic policies, that would be positive for Turkey’s credit rating, Moody’s said, adding the path to this would be challenging.
All eyes on economy
It’s Erdogan’s approach to the economy that will likely dominate the final stretch of campaigning.
The lira has been under pressure since Erdogan ramped up a slew of unorthodox policies starting in 2018, including state interventions in FX markets and interest-rate cuts even as inflation surged. Turkey will be under pressure to double down to hold the lira stable in the coming weeks.
The central bank will hold its next rate-setting meeting on May 25, three days before the run-off vote.
“I would expect Erdogan and his government to maintain market stability at all costs going into the second round,” said Nick Stadtmiller, head of product at Medley Global Advisors in New York. Any dip in Turkish markets “would suggest a chink in the armor of Erdogan’s policies.”