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Erdogan May Need to Seek Kurdish Parliament Allies, Demir Says

Prime Minister Recep Tayyip Erdogan, who won a third term in office pledging to rewrite Turkey’s constitution and continue its economic growth, may have to seek alliances with the main Kurdish party in order to move forward with a new national charter, Inan Demir, chief economist at Finansbank AS, said today in a telephone interview.

The governing Justice and Development Party, or AKP, has about 51 percent of the votes with 91 percent of ballots counted, according to preliminary results published by local media.

The main opposition Republican People’s Party, or CHP, is projected to get 26 percent of the vote, early results showed.

On constitutional change:

“We have an interesting picture in that the AKP has increased its vote but the number of MPs has declined below the three-fifths needed to pass constitutional change.

We now need to see what Erdogan says about the new constitution. With a popular vote that’s close to 50 percent I think he’ll be inclined to press ahead with constitutional change. He may try to garner support from others in parliament and that will be the key issue.”

On market reaction:

“Market expectations had been converging on such a result, so I think this result will be neutral. The most market friendly result would have been with the AKP somewhat weaker.”

On possible allies:

“The BDP (the pro-Kurdish Peace and Democracy Party) is the closest to the AKP in terms of hostility to the current constitution, but Erdogan has recently stepped up the rhetoric against the BDP. Still, there are some sweeteners he could offer the BDP, such as a lower threshold (for representation in parliament). The BDP could, or at least some of the BDP might, back him. He also might be counting on some defections from the MHP. Ideally for markets he would reach out across the board but that seems unlikely.”

On economic policy:

“The AKP will be focused on the constitution with the numbers hanging in the balance. So I don’t expect a blanket tightening of fiscal policy. There could be some selective moves against particular sectors: the automotive sector stands out. Equally I don’t expect any great loosening, or any attempts to spend the additional revenue (from the tax debt restructuring).”

-- Editors:

To contact the reporters on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net;

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

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