Possible outcomes and economic implications

While polls point to another hung Parliament in Turkey, there are signs politicians would be more willing to form a coalition this time, the first since President Recep Tayyip Erdogan's Justice and Development Party (AKP) swept to power in 2002. Here are some possible outcomes for the vote and implications for the nation's US$800 billion (S$1.1 trillion) economy:


AKP wins at least 276 seats in Parliament, eliminating the risk of another vote and averting coalition talks. This would be the best outcome for investors in the short term because it would "immediately eliminate some of the question marks that markets desperately want to avoid", said Mr Inan Demir, the chief economist at Finansbank AS in Istanbul.

A single-party victory may reignite the debate over Constitutional changes sought by the AKP that would lead to a government run by the president. If the AKP wins at least 330 seats in Parliament, it can call a referendum on the matter.

SCENARIO TWO: Hung Parliament and coalition

If no party gets a majority, a new Parliament would convene within five days and elect a speaker. Mr Erdogan would then task someone from Parliament with forming a coalition government, a process that can take up to 45 days.

Polls show this is the probable result. Indications that the AKP and the opposition Republican People's Party (CHP) would be more willing to form a coalition this time around have increased investor confidence.

Prime Minister Ahmet Davutoglu said on Tuesday the AKP would be open to a coalition if his party doesn't get the majority he expects.

The same day, CHP head Kemal Kilicdaroglu said it is incumbent on politicians to work together on a solution if no party wins.

SCENARIO THREE: Hung Parliament and another election

While the AKP may win a single party majority, if it falls short by a narrow margin, the party may want to hold another vote or form a minority government, according to Mr Ozgur Altug, chief economist at BGC Partners in Istanbul.

Market volatility under this scenario "is likely to remain high", leading to a steep decline in the lira and higher interest rates, he said.

Failed coalition talks "would be a disaster because the parties now have the electorate's mandate to cooperate", said Mr Tatha Ghose, an emerging-market economist at Commerzbank AG in London.

"If they still cannot do so and waste more time and resources to repeatedly hold elections, then the system will be viewed as broken."

SCENARIO FOUR: Peoples' Democratic Party (HDP) below the electoral threshold

Investors are wary of the potential for violence should the pro-Kurdish HDP fail to win the 10 per cent of the vote it needs to gain Parliamentary representation.

The peace process between the government and the Kurdistan Workers' Party (PKK) ended after the June election, which gave the HDP Parliamentary representation for the first time. Since then, violence has intensified, especially in the predominantly Kurdish south-east.

While unlikely, this would be the "worst outcome," according to Mr Ilan Solot, an emerging-market currency strategist at Brown Brothers Harriman in London. It would have a big impact on Turkish markets by raising the risk of "a situation of constant civil unrest", he said.


A version of this article appeared in the print edition of The Straits Times on November 02, 2015, with the headline 'Possible outcomes and economic implications'. Print Edition | Subscribe