BANKERS' TAKE ON POSSIBLE ELECTION OUTCOMES

UNCLAS SECTION 01 OF 02 ISTANBUL 000258

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR INTERNATIONAL AFFAIRS - JROSE/KMATHIESEN
USDOC FOR 4200/ITA/MAC/EUR/PDYCK/CRUSNAK

E.O. 12958: N/A
TAGS: PGOV EFIN TU
SUBJECT: BANKERS' TAKE ON POSSIBLE ELECTION OUTCOMES

REF: ISTANBUL 252

ISTANBUL 00000258 001.2 OF 002



1. (SBU) Summary: Istanbul bankers and key business leaders
are evenly divided on Prime Minister Erdogan's presidential
aspirations with some claiming he would be a fool to take the
highly respected but largely ceremonial position while others
claim Erdogan's ego will not allow him to forego the
opportunity to claim the highest position in the Turkish
political structure. They agree however that the Presidency
is his for the taking, noting that the AK Party has both
strong party discipline and sufficient votes to triumph
without having to seek support outside the party. Most
private sector observers agree that a decision by Erdogan to
forgo the presidency will improve the AKP's chances in the
November parliamentary elections as well as reassure
investors and the business community. End Summary.

Background
--------------


2. (SBU) As noted reftel, Istanbul based business leaders do
not appear overly concerned by the possibility of current PM
Erdogan becoming President. Bankers and business leaders
tend to agree that an Erdogan decision to forgo the
Presidency would both place the AK Party in a stronger
position for the November Parliamentary elections and give
strong impetus to economic growth for the remainder of the
year. Business community observers are divided over whether
Erdogan will opt to run for President, but agree that if he
runs he has the votes needed to succeed.


3. (SBU) Agreeing with comments recently made by Economy
Minister Babacan to an investor group, most private sector
analysis indicates Parliamentary elections will be shaped by
the number of parties that cross the 10% threshold rather
than the percentage of votes each party receives. If three
parties cross the 10% threshold AKP would need 27.5% of the
vote to obtain a slim one seat majority and about 30% for a
sustainable majority. However, if four parties cross the
threshold AKP would need 33.5% of total votes cast for a one
seat majority and more than 35% for a sustainable majority.
The one seat majority analysis does not take into account the
possibility of several DTP politicians winning seats as
independents, which would dilute the impact of an AKP
plurality. Given current poll ratings, this analysis
indicates that if more than two parties make it into
parliament the AKP will find it very difficult to hold onto a
majority.

Scenario 1: Erdogan Remains as Prime Minister
-------------- -


4. (SBU) A financial analyst who believes opting for the
presidency would be "completely illogical and therefore very
unlikely" argues poll numbers and the likelihood AKP would be
forced into coalition come November will make Erdogan choose
to remain Prime Minister. If PM Erdogan chooses not to run
for President, his decision will be greeted with a strongly
positive market reaction, according to every observer we have
spoken with. This would likely include increased foreign
direct investment on the part of companies currently awaiting
election results as well as increased confidence that a
reform-minded AKP would retain majority control of parliament
in November's elections. Although often accompanied by
disdain for AKP's social / cultural platform, most financial
analysts and many business leaders agree that the Erdogan-led
AKP government has been the most reform-minded, liberal
government in the history of the Republic. The large AKP
majority and the longevity of the government have also
provided a rare, extended period of political stability that
has supported business confidence.

Scenario 2: Erdogan Opts for the Presidency
--------------


5. (SBU) Market analysts agree that an Erdogan presidency
would not lead to mass protests or other civil disturbance.
A well-connected industrialist told us Erdogan's months-long
flirtation with the presidency was carefully orchestrated to
"exhaust opponents and inure public opinion to the idea of
President Erdogan." A leading financial analyst who believes
Erdogan will run for President recently told us he expected
an Erdogan candidacy would not "trigger the army's wrath in a
traditional sense." He expects a more subtle reaction
instead with the media and the 'secular establishment'
working to create a "perception of besiegement" by arguing it

ISTANBUL 00000258 002.2 OF 002


is unhealthy for one party to control the prime ministry, the
parliament and the presidency. Private sector observers
generally agree that if a coalition government emerges after
the November elections it would likely be both more populist
and less reform oriented than the current AKP majority
government. In fact, the private sector seems far more
worried about the possibility of a coalition government prone
to populist economic policies than about an Erdogan
presidency.

Comment
--------------


6. (SBU) It is impossible to know whether PM Erdogan will
opt for the presidency, however from the Istanbul private
sector perspective it would clearly be better for market and
investor confidence if he did not. In contrast to our
academic and media contacts, business leaders (who as a rule
are just as "secular" as the others) aren't arguing that an
Erdogan presidency would be bad from a social / cultural
perspective, but instead have focused on the potential for
sustained orthodox economic policy that could come from
continued majority party control of parliament. Several more
years of AKP control of Parliament would potentially enable
the government to tackle social security entitlements as well
as engage in a gradual reduction of tax rates. These
far-reaching economic reforms are key to sustaining long-term
growth, but are next to impossible to enact in an election
year and extremely unlikely to occur under a populist-leaning
coalition government. End Comment.

OUDKIRK