Turkey's president surprised markets Wednesday by announcing that he would hold snap presidential and parliamentary elections in June with experts saying the move is a sign of both panic and genius.
Recep Tayyip Erdogan said elections will be held on June 24, far earlier than previously expected, saying uncertainty over Turkey's neighbor Syria, and macroeconomic imbalances, were a reason not to delay the vote originally scheduled for November 2019.
He also said the country urgently needed to make the switch to an executive presidency, implementing changes to the Turkish constitution which give the president more power.
Fadi Hakura, Turkey analyst at Chatham House, told CNBC Thursday that the move was a sign of panic amid a deteriorating economy.
"Erdogan's calling of the election is a sign of panic and despair. Erdogan has previously viewed early elections as weakness and dishonorable to democracy, but now he's panicking over the state of the Turkish economy," Hakura said.
"The very fact he's called brought them forward by almost a year and a half should mitigate the fallout of a worsening economy on his popularity," he said.
Robin Bew, managing director of The Economist Intelligence Unit, agreed that the election was also called on the back of the ailing economy.
Economic problems
If Erdogan wins the election, as widely expected, he will be able to consolidate power following changes to the constitution which have changed Turkey from a parliamentary to a presidential republic, concentrating power in the hands of the president.
It will not be plain sailing for the president, however, with Turkey's economy dealing with high inflation (at 10.2 percent) fueled by fiscal and monetary policies that have promoted rampant growth — the economy expanding 7.3 percent in the fourth quarter of 2017, according to the last reading available.
The Turkish lira has been on a rollercoaster ride in recent months, reflecting wider fears on the prioritization of growth over inflation control, but the announcement of a snap election — and the likelihood that Erdogan will win – has calmed the currency somewhat.
In September 2017, the lira traded around 3.4 against the dollar but it hit a low of 4.19 last week. On Thursday after the election was announced, it was trading at 4.02 against the dollar and the Borsa Istanbul 100 index was trading in positive territory.
Bluebay Asset Management strategist Timothy Ash said in a note Wednesday that the market was "loving" the news.
"I think most people assumed that the macro (economy) would not hold out until scheduled elections in November 2019. By going early he reduces the period of uncertainty in Turkey, and (I) guess the hope is that a new government in place by late June they can better address some of the big challenges facing Turkey."
Turkey's central bank has disappointed investors so far by not raising interest rates in a bid to deal with inflation but Chatham House's Hakura said that, if re-elected as expected, Erdogan "might look to pursue economic policies which bring some temporary respite to the economy, such as allowing rates to rise to contain inflation."
"But whatever he does, there are signs that Turkey is approaching a financial and economic crisis," he said. "We know that that is the destination, we just don't know how long it will take to get there, " Hakura said.
Growing power
Erdogan, who founded the ruling Justice and Development party (AKP) in 2001, has been president since 2014 although he was prime minister from 2003 up until that point.
During his tenure, Erdogan has been praised for turning Turkey into a growing economy but he has also faced criticism for his increasingly authoritarian stance, particularly after a failed coup to depose him in 2016. Turkey is still functioning under a state of emergency that was imposed after that failed uprising.
In 2017, Erdogan and his allies narrowly won a referendum that has changed the country from a parliamentary to a presidential republic. The changes will allow the president to streamline policy implementation, Erdogan said, and bypass drawn-out parliamentary processes that had restricted progress.
Chatham House's Hakura told CNBC that Erdogan and his allies had also made it almost impossible for the opposition to mount a serious challenge to his rule after overhauling electoral law this year.
Passed in March, the law changes election regulations and allows security forces to be present at polling stations and allows for ballot boxes to be moved. Government opponents decried the changes, saying they will make the election unfair.
"The likelihood of a genuine contest looks minimal," Hakura said.