(Bloomberg) -- Turkish President Recep Tayyip Erdogan is aiming to drive home an election victory to extend his rule well into a third decade and maintain the mix of foreign and economic policies that have set the country apart on the world stage.
Erdogan, 69, defied opinion polls that had projected a slim win for opponent Kemal Kilicdaroglu, 74, in the first-round vote for the presidency two weeks ago, sending the currency to new depths and corporate bonds and stocks tumbling.
The pair now face each other in Sunday’s runoff, with the momentum behind the incumbent after the governing alliance led by his AK Party retained its majority in parliament. Voting started at 8 a.m. local time and polls close at 5 p.m., with the first results expected a few hours later.
Kilicdaroglu focused his campaign on restoring Turkey’s credibility among international investors, ending the authoritarian style of leadership and rooting out corruption from state institutions. A win for him would see the end of Erdogan’s diktat that the only way to fight inflation is to cut, rather than raise, interest rates. That, though, now appears less likely and financial markets are bracing for more pain.
The president’s power looks undiminished by the worst cost-of-living squeeze in decades and allegations of negligence following the disastrous earthquakes that killed more than 50,000 people in February. He also won kudos among voters for his leadership in securing grain supplies from Ukraine and for standing up to NATO allies like the US over Sweden’s membership bid.
Helped by a state media machine, Erdogan has sowed division among the opposition alliance. Turkey’s longest serving leader doubled down on nationalist, religious rhetoric to mobilize his grassroots and court fringe Islamists and the right, while accusing the opposition of failing to fight terrorism. He also played on the electorate’s aversion to broad coalitions following collapses of governments in the 1990s.
An upset could still happen, but Erdogan has emerged as more persuasive than Kilicdaroglu, according to Can Selcuki, managing director of pollster Istanbul Economics Research. “This is about confidence, and Erdogan has managed to establish confidence by being in the power for 20 years,” he said.
Traders are predicting a clear Erdogan victory. The cost of protecting investors against default on Turkish bonds shot up after the first round of voting, when Erdogan won 49.5%. The lira hit new record lows, slumping to a symbolic 20 per dollar.
Both candidates urged Turks to vote after casting their own ballots on Sunday. “I ask my citizens to participate without reaching complacency,” Erdogan said after voting in Istanbul.
People should choose “to get rid of oppression, to get rid of an authoritarian rule,” Kilicdaroglu said in Ankara. “We have faced all kinds of defamation, all kinds of slander but I trust the common sense of the people. Democracy will definitely come to this country.”
Turkey’s leader has exerted greater control over the media landscape, with mainstream networks devoting airtime to mostly his interviews and rallies. He also dominated cities with banners and his pictures accompanied by the remarks “The right time, the right man.”
Throughout his rallies and dozens of televised interviews, the narrative pushed by Erdogan to the more conservative voters he needs to secure victory is that Kilicdaroglu and his allies are appeasers of Kurdish militants and pro-LGBTQ. Erdogan said he hopes his “patriotic, nationalist people will teach the opposition a lesson” at the ballot box.
Kilicdaroglu repeatedly said he condemns all forms of terrorism and also ramped up his nationalist rhetoric, promising the expulsion of migrants. He managed to get endorsement from the minor right-wing Zafer Party, though the danger is that he alienates some of the Kurdish support he garnered in the first round and needs to ouster Erdogan.
He also has targeted the fears among some voters over Erdogan’s electoral alliance, which includes fringe Islamist parties. For many pro-secular Turks, the vote amounts to a referendum with consequences from daily life under an increasingly authoritarian pro-Islamic government.
“What will happen when the mentality that stares at our daughters with evil eyes comes?” Kilicdaroglu said. “Don’t forget you’re casting that vote not for me, but for your daughter.”
Read More: Turkey’s Runoff Election Has Investors Bracing for More Pain Erdogan Teeters Before Turkey Vote That’s Got the World Watching Turkey’s Micromanager-in-Chief Faces Test of His Political Life
But whatever happens, the most immediate challenge for Turkey and whoever prevails on Sunday is the economy. The president will be faced with a weakening currency, depleted foreign currency reserves and tangle of regulations implemented by Erdogan’s inner circle of technocrats that have caused disarray in the banking industry.
Erdogan’s fixation on ultra-low borrowing costs sent foreign investors to the exit and inflation over 85% last year. The opposition’s top economy aides have warned that the country is headed for a balance of payments crisis.
By contrast, Erdogan said Turkey will soon have a current account surplus and continues to relentlessly defend the view that inflation could be brought down with low borrowing costs. To make up for the erosion in purchasing power, he has increased the minimum wage and pensions, widened early retirement and subsidized utility bills to the tune of $32 billion in the latest budget.
While economists say Turkey will have to revert to conventional policymaking, that transition would be slower under Erdogan. Getting global investors back will be a “mammoth undertaking,” according to Selva Bahar Baziki at Bloomberg Economics, requiring a complete unpicking of the country’s economic policy mix.
“Investors shouldn’t expect a fundamental shift to Turkey’s unorthodox approach to economic policymaking anytime soon,” said Hamish Kinnear, a senior analyst at risk intelligence company Verisk Maplecroft. “Erdogan’s belief that lower interest rates lead to lower inflation, which influences monetary policy, will continue to spook the markets.”
(Updates with comments from candidates after voting.)
©2023 Bloomberg L.P.
BNN Bloomberg Picks
One-third of Canadians unsure if they’re covered for climate risk
Artists are worried about AI. Here is why
What is it like to live in a converted office building?
Carbon tax, trade barriers: experts on how to reduce food costs
Variable rate mortgage holders on the hook for thousands in interest: report
Half of Canadians don't think they will be ever buy a home: survey