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Turkish lira muted as Turkey votes for constitutional reforms

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Image via World Economic Forum

Amid the Easter celebrations on Sunday, investors were keeping a close watch on the unfolding events from Turkey as the nation went to polls on constitutional reforms. The event marked a turning point in the history of the country.

President Recep Tayyip Erdogan’s bid to push for constitutional reforms to give the presidency wide reaching powers succeeded with a 51.4% vote in favor of the reforms. The results were met with celebrations and protests at the same time. There was an 85% turnout for the referendum, according to the Turkish electoral office.

Turkish referendum – The proposed reforms

Following the victory, the new reforms are expected to be implemented within a year, the deputy Prime Minister Canikli said. The new reforms included the following:

The post of the prime minister was to be abolished, and a new post of vice president with up to three posts would be created

  • The president is the head of the executive, head of the state and can retain ties to their political party
  • The president has the power to appoint ministers at their discretion, prepare the budget and even choose senior judges
  • The president has the sole power to announce a state of emergency and to dismiss the parliament
  • The president’s term is limited to two terms, and the presidential and parliamentary elections will be held on the same day, every five years

The next general parliamentary and presidential elections are due in November 2019.

Political stability expected under new reforms

During the campaign trail, President Erdogan argued that the reforms would streamline decision making and also avoid parliamentary coalitions that were seen as one of the reasons for hampering growth.

The referendum verdict is expected to strengthen Erdogan’s grip with some expecting the presidency to last a decade. On the monetary policy front, some complications are expected as the Turkish central bank battles to contain high inflation and an ever-widening current account deficit.

Consumer prices in Turkey hit 11.3% in March this year with the central bank only relying on liquidity measures to tighten policy.

However, the new reforms are expected to strengthen the political stability in the nation. The Turkish economy came under pressure last year after July’s failed coup attempt. It followed a political crackdown and as a result, tourism suffered strongly in the immediate aftermath.

Turkey unemployment rate at a 7-year high

The Turkish lira slipped to a 2-week low on the open on Monday. The referendum news overshadowed Monday’s unemployment report which showed that Turkey’s unemployment rate rose to 13% in January, from 12.7% previously.

Turkey Unemployment Rate - January 2017
Turkey Unemployment Rate – January 2017

The next main economic event from Turkey will be the central bank’s interest rate decision due on April 26th. Interest rates currently stand at 8%. Interest rates have been kept steady since the rate hike of 50 basis points in November last year.

Reacting to the referendum results, Turkey’s main opposition party, the Republican People’s Party (CHP) cited irregularities and violations in the voting process. However, Turkey’s head of the electoral body brushed aside the claims and said that the referendum results were valid.

Some critics also went as far as to say that the referendum results could potentially wreck havoc with Turkey’s bid to join the European Union. The Austrian foreign minister, Sebastian Kurz said that the result was a clear signal against the European Union, while a member of Angela Merkel’s CDU party said that the door to EU accession was “truly shut.”

The pro-Kurdish, Democratic Party (HDP) said that with the referendum held under a state of emergency and with two of its main party leaders behind bars, it called the vote, illegitimate.

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