The humanitarian disaster of Turkey's earthquake has caused an outpouring of concern by international investors, but also an acknowledgement that President Tayyip Erdogan's handling of the crisis will now dominate the run-up to May's elections.
With more than 14,000 people already confirmed to have been killed in Turkey by the quake, many of the issues expected to have defined the election scheduled for May 14 such as sky-high inflation and regional security have suddenly been overtaken by the rush to save lives.
The immediate focus will be squarely on the rescue efforts and the homes that have been destroyed, but by the time elections come around voters will be judging the competence of the government's actions.
"The earthquake is now a big wild card here," said Christian Kopf, head of Fixed Income and Currencies at Union Investment in Frankfurt, which holds tens of millions of euros in Turkish bonds.
"There is the view that voters unite behind the government after a natural disaster, but that wasn't the case 21 years ago and it might not be the case again."
Kopf was referring to Turkey's 2002 election which came three years after a 7.6 magnitude earthquake in Izmit near Istanbul that killed nearly 18,000 people.
The then coalition government was decisively ousted as voters viewed its disaster and subsequent financial crisis response as poor and that it was responsible for some of the construction practices that contributed to the deathtoll.
This time Erdogan's government faces a similar risk but it has been quick to react, not only by vowing support and visiting the affected region, but also in terms of the financial markets.
Istanbul's stock exchange, which has seen around 15% or $5 billion wiped off share prices since Monday, has suspended trading for five days, and in an unprecedented step, said that all of Wednesday's trades will be cancelled.
The backdrop though is that Turkish stocks soared 200% last year as locals, beset for years by spiralling inflation and currency crashes, piled in looking for a place to shelter their money.
They now own 70% of all stock holdings, up from 35% in 2020, while the share held by foreign investors, who have also been dumping Turkey's government bonds, has plunged to below a third.
That exodus is largely due to Erdonomics - the president's insistence on low interest rates and cheap loans even in the face of eyewateringly-high inflation fuelled by repeated collapses in the lira.
Graphic: Turks stock up, international investors flee-
CENTRALISED POWER
Tim Ash, another veteran Turkey analyst at BlueBay in London, said that while this week's disaster will hit the country's economy, it might not be as hard as in 1999 when real gross domestic product (GDP) contracted by 3.3%, after 3% growth the previous year.
Izmit's proximity to Istanbul meant the 1999 quake struck the economic heart of the country. The southeast region hit by Monday's disaster accounts for a much smaller 9.3% of national GDP and a modest 8.5% of exports.
"The IMF World Economic Outlook has a 3% growth assumption for this year, and my bias would be to think lower from that," Ash said about Turkey's forecast. "But it's finger in the air at this stage."
Whatever that number is, the wider issue is how the quake and Erdogan's response to the humanitarian disaster influence the elections which are already seen as the most consequential in the century-long history of the Turkish republic.
Not only has the opposition bloc vowed to return to more orthodox economics if it wins the presidential and parliamentary votes, but also to reverse changes that have given the 68-year old Erdogan almost complete control of decision making in recent years.
Erik Meyersson, a senior economist at Handelsbanken, said it was that power that voters would now need to see working.
"If there was ever a situation where all the centralised power Erdogan has accumulated over the years could be used for good, this is it," Meyersson said.
"But if he bungles the response, perhaps this is the straw that breaks the camel's back."
Graphic: Strong earthquake hits Turkey-
(Reporting by Marc Jones; Editing by Susan Fenton)
