"Erdogan's Party Divided On Economic Plan Before Turkey Runoff"

Ebru Tuncay, Orhan Coskun, and Nevzat Devranoglu wrote a blog.

Insiders say there is disagreement and uncertainty within Tayyip Erdogan's government. This is days before Turkey's runoff presidential election. Some insiders want to stick with the current economic programme, but others say it is unsustainable. They are considering abandoning the current economic programme.

Recently, a group of ruling-party members have met informally. The group wants to discuss a new policy. The policy would involve gradual interest rate increases and a targeted lending programme. Nine sources, including government officials, shared this information.

Erdogan isn't in the talks. AK Party members who aren't in the government, but were important before, are talking. Four sources shared this info, but they want to be anonymous. They explained this in private meetings.

Some officials and cabinet members want to continue with the current programme. The idea is to increase exports and economic growth. They plan to do this by reducing rates and managing forex, credit and debt markets.

The situation is tense in Turkey. The leader, Erdogan, is in the lead after the first vote. This is a big deal for Turkey because they have been struggling with a lot of problems. They have a cost-of-living crisis and their currency has crashed a few times. There's a lot on the line.

Turkey may experience another economic crash this year due to declining foreign reserves. Analysts warn that this could cause inflation to soar and put pressure on the country's balance of payments. The government needs to change course to prevent this from happening.

A leader said they're checking out another money plan. Why? The old way isn't good anymore. This new way pumps up the interest rate and drops using many kinds of rates.

An official said that the group has not given Erdogan the complete plan yet.

The office of Erdogan didn't comment right away.

Erdogan wants to continue his rule for a third decade. He says that interest rates will go down while he is in charge. He also wants to control inflation. These are his promises during the campaign.

Everyone agrees that Erdogan hasn't decided yet. People have told him about their worries about the economy. They say that reserves of foreign currency are getting lower.

Some people say he will continue leading for a few more months. They feel good because he did better than they expected on May 14th. In the election, he got 49.5% of the votes and his opponent got 44.9%.

Experts predict that the president is likely to win the next race.

A member of the ruling AK Party said there are two opinions in the party. Their decision will aim to maintain economic stability for the upcoming municipal polls in March 2022.

Another official said that the election outcome might make leaders think they don't need to make big changes quickly.

Economists say Erdogan's economic policies caused the lira to lose almost 80% of its value to the dollar in five years. The lira hit new record lows after the vote, and investment risks increased.

The opposition alliance led by Kilicdaroglu said they will undo Erdogan's plan by raising taxes and returning to free-market principles. This news made international investors happy before the elections.

Erdogan sometimes becomes more traditional during economic crises but later goes back to his stance against interest rates.

A group is working on a new plan. They are not going for aggressive monetary tightening. They prefer a gradual approach. They want to focus on lending markets and policy rates. Four people confirmed this. They also discussed an alternative. They could use a public institution for selective credit. State subsidies could also help.

Many ideas were discussed, but nobody knew exactly what they were. We don't know if the group even talked to Erdogan about the plan, or if he even cares.

Turkey's credit rating is "B negative," according to Fitch. This rating is based on whether the post-election policy is credible and consistent. The lira is under pressure, and there is a wide current account deficit. Additionally, reserves are declining while inflation remains high.

In 2021, the president selected a new economy minister and central bank governor. They want to lower interest rates from 19% to 8.5%.

In late 2021, a historic currency crash occurred. The crash caused inflation to rise above 85%. As a result, over 100 new regulations were put in place. These regulations discouraged foreign currency holdings and increased banks' bond holdings.

The central bank wants to keep the lira stable. This means they've run out of foreign reserves. This hasn't happened since 2002. They've also sold $9 billion in gold since March. This is because people wanted it before the election.

Economists say that authorities may either ask foreign allies for more foreign exchange or suppress the demand, which can slow down economic growth. This could also increase the possibility of further restrictions on capital.

Francesc Balcells, who works at FIM Partners, says the outlook is very bad. He doesn't think it can go on like this.

He said that Erdogan could change his mind and become orthodox. But he thinks that Erdogan won't change his economic beliefs.

Before the elections, Erdogan suggested a change. He mentioned that Mehmet Simsek, a former finance minister, could come back to the government. International investors recognize him, and he could assist in developing policies.

The interviews did not make it clear if Simsek will have a role if Erdogan wins the runoff.

Some officials want to keep the current programme. The selective loan policies focus on technology, energy, natural resources and tourism. These policies will contribute about $289 billion to the current account balance by 2030. This will help support the currency.

More reporters, including Rodrigo Campos from New York, contributed to this article. Jonathan Spicer wrote it and Alexandra Hudson edited it.