The President's Choice
AKP has some valid reasons to demand recounts, which have now spread to 22 provinces, with MHP emulating its bigger partner. However, election councils breaking with precedent in assessing the appeals and HDP and IYIP being discriminated against in their appeals smacks of a con-game.
By early Sunday morning (when this report was concluded), the recount in Istanbul had not resulted in a material narrowing of the gap between Messrs. Imamoglu and Yildirim. It is unlikely to change the outcome in Ankara, based on the experience of Istanbul Yalova and Kirklareli provinces. In an ideal world, “in a week or two” the High Election Council will pass down a verdict in favor of CHP in Istanbul and Ankara. Yet, Turkey is President Erdogan’s world, who has not joined the “repeal” campaign wholeheartedly. There are large costs associated with conceding defeat in the a.m. cities, but there are advantages of doing so as well. We conjecture with a large margin of error that he shall let the HEC make the decision. The alternative means Turkey exiting the democratic fraternity and possibly another market quake to devastate the economy.
Regarding the S-400 dispute, NATO should tell Turkey this week to choose between itself and Russia, a choice Turkey will defer until sanctions talk brings the economy on its knees.
As an aside, in celebration of the inauguration of the Istanbul Airport, we review nagging questions about structural soundness, navigation safety and financial viability.
Manufacturing PMI data has shown further evidence of the economy bottoming out in March, but we continue to think a sustainable recovery is far, far away. In fact, weak cash budget data through March and the huge surge in state bank lending in recent weeks suggest that this relative pick-up is being engineered at great costs, namely the loss of the fiscal anchor, as well as a severe damage to state bank balance sheets.
Moreover, the mystery over the CBRT reserves continues. Net reserves have finally increased in the week through March 29th but, taking into account the amount of foreign exchange that has been “borrowed” from the financial sector, it looks like the decline has continued. An informal consensus of sorts on the cause appears to have emerged among analysts (read: intervention by state banks), as we still await a formal explanation from the Bank.
The key attractions of this week are the announcement of a new “reform package” by Minister Albayrak (Wednesday) and the release of February balance of payments data (Thursday). The package is likely to underwhelm, with the Minister likely offering a mixed bag of a few reform headlines (e.g., tax reform, the new “financial architecture”) combined with some stimulus/pro-growth measures. There is a chance we may hear some specific steps regarding state bank recapitalization, which was in the newsabout a month ago, but we do not think this is all that likely either, not least because the funding question remains unresolved.
Lastly, we estimate the current account deficit at around $1 billion in February, which, if true, should lower the 12-month cumulative deficit further to just over $18 billion, from $21.6 billion in January. Preliminary March trade data suggests that the 12-month cumulative CAD might have narrowed further to some $14.5-$15 billion in March, but the narrowing continues to be driven by import compression rather than export strength.
Cosmo is out with a chemically-induced brain injury this week, but His final words are shared by the Political analyst in his essays.
Now read on...
Register to sample a report