Famous last words: the macro sequel…

TURKEY - In Brief 12 May 2023 by Murat Ucer

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Having done quite a few reports, calls and zooms over the past month or so, many of them jointly with my colleague Atilla (see the brief sent out earlier today on his latest thoughts), I thought it might be useful to provide a quick recap on what I’ve been saying on the macro side. Broadly speaking, there are two questions atop our minds: What happens until the time we have a new political configuration, i.e., until a new parliamentary and presidential set-up is certified, and what happens in its aftermath? Let us start with the second question, which is less messy, and let us assume that (the only) constructive scenario materializes, which, incidentally, is the most likely one at the moment: an opposition takes all scenario (well, sort of), whereby the opposition candidate Kemal Kilicdaroglu wins the presidency and his Nation Alliance (NA) reaches parliamentary majority (>300) with help from the third alliance (Labor and Freedom), the bulk of which includes the Kurdish rights party HDP (or the Green Left with its new moniker). The latter means that the NA can count on their support in its basic legislative efforts, such as the passing of a supplementary budget, though probably not on more vexing political issues. The key in this scenario is for the opposition to act as cohesively, swiftly and boldly as possible so that the system starts herding around a “good equilibrium”, i.e., initiating a virtuous cycle of capital inflows, TL stability, orderly unwinding of deposits under the F/X-protected scheme (at a whopping $113 billion as of May 5), improved credibility, further capital inflows, and ultimately, like later this year, a visible decline in the monthly pace of cor...