So, it should be enjoying a period of respite before the next political cycle, when it has to start gearing up for a fresh general election. What it does now will test its true intentions and very much determine its fortunes when the country votes again in 2011. There are no end of issues to grapple with, from EU accession to the conduct of the Ergenekon trial of the "state within the state," to relations with neighbors Armenia, Iran and Iraq. However, the government will rise or fall by the way it parries the global economic crisis.That the Justice and Development Party (AK Party) did reasonably well in the March local elections is a fair indication that the electorate did not hold the government responsible for the downturn in the economy. In part, they listened to the government denials that the crisis would affect Turkey as badly as other parts of its region. And partly they were prepared to accept that the bad news had its origins in the banking system of countries elsewhere. The government did its best to mitigate the effects of the brewing storm by keeping the levels of public spending relatively high (and channeling that spending through local governments) and keeping the spoilsports in the International Monetary Fund (IMF) away.
Even so, the AK Party's share of the vote fell from 47 percent to 39 percent in the March polls, which is almost certainly a warning shot that the AK Party cannot blame exogenous factors forever. And, of course, things are going to get a lot worse before they get better. There is speculation that the contraction in the economy could even surpass the pessimistic projection of 5 percent negative growth. Unemployment will rise. Graduates are already getting used to the idea that there may not be jobs for them at the end of their degrees, and the industrial centers where the AK Party has been strong -- like Bursa, Adapazarı and Kayseri -- could well use their next ballot to send a message of discontent.
The obvious problem the government faces is that, with the local election over, it now faces a very different sort of constituency. The international markets don't understand Ergenekon, but they do grasp when primary surpluses turn into deficits. When it was first elected in 2002, the AK Party dazzled an initially skeptical investment community by reining in expenditures, keeping to IMF targets and maintaining a primary surplus of 6.5 percent of gross domestic product (GDP). These were deeds, not words. Now, the government is being hit by falling revenues as the economy shrinks and tax income recedes, and now the bill for the local election economic measures is due. The attempts to stimulate demand with a cut in the value-added tax here and an incentive there appear to be piecemeal measures. The danger is that Turkey is slipping back into the 1990s, when all the country's productive energies went into refinancing government debt.
What the markets are looking for are the three C's: "confidence," "competence" and "coherence." The assumption is that these qualities must now be outsourced. It is rare to meet the banker who does not believe that the government's most urgent priority is to complete a stand-by agreement with the IMF. At the same time, the markets are looking for a different balance of finance ministers, ones who combine intellect with political clout. There is a wish that it is more than a rumor that Foreign Minister Ali Babacan might return to his old job in charge of economic policy.
Perhaps the government's most urgent job is to demonstrate that it is not playing the markets and the electorate against each other. After all, the AK Party not only survived an IMF program, but went on to win an even greater share of the vote in 2007. It could still reap the rewards of having a clear strategy for the hard times ahead.
