A new era for the Turkish economy?

President Recep Tayyip Erdoğan’s victory over the alliance of opposition parties in Turkey’s May elections, in which he secured another term as president and maintained his alliance’s majority in parliament, came as a surprise to many, as credible pollsters had forecast just the opposite. Investors had to quickly adjust their market positioning as a result. At the same time, Erdoğan was making rapid adjustments of his own, backtracking on his campaign promise that he would maintain the existing economic model, which has been a major source of financial instability over the past five years. His change was likely driven by the high likelihood of a balance of payments crisis — that is, an inability to redeem external debt or pay for imported goods. His only other options were to impose strict capital controls, a move that would be perceived negatively by both business owners and households alike or to sign a stand-by agreement with the International Monetary Fund (IMF), a dramatic policy shift with unmeasurable domestic and external political outcomes. Not wanting to go down these paths, Erdoğan retreated from the so-called “Turkish economic model,” at least temporarily or partially, and brought in a new economic team.