Economic Update
The way forward from two months of uncertainty over a hamstrung Turkish government and a stifling political impasse over European Union-demanded reforms seems clearer, with the government’s announcement on July 16th that early polls would be held on November 3rd.

Markets responded positively to the news of early elections and the possibility of an end to the political uncertainty that has gripped the country since Prime Minister Bulent Ecevit, 77, fell ill two months ago and received treatment for a variety of ailments.

Turkey’s benchmark Istanbul Stock Exchange (ISE) soared on July 17th 10.13% to 10 523 points – its highest mark in over a month. The Turkish Lira rallied from Tuesday’s 1 691 000 at top bids of 1 639 000.

But the climb was short lived, as trading levelled off on July 18th, closing up slightly at 10 552 points.

Turkey has been trying to implement a strict austerity package backed by the International Monetary Fund (IMF) worth $16bn that is meant to wrest the country from a severe economic crisis that struck in February 2001 and sheared off half the lira’s value. The economy has shrunk by 9.4% in the country’s worst recession since 1945.

The coalition partners – the Democratic Left Party (DSP), the Nationalist Action Party (MHP) and the Motherland Party (ANAP) – had favoured August 1st to consider controversial EU reforms, including an end to the death penalty and the removal of curbs on the use of the Kurdish language in education and broadcasting.

But Devlet Bahceli, MHP leader and deputy prime minister, has since come out in favour of convening parliament on July 29th.

Bahceli warned on July 22nd that his party would not continue in the current government if elections were postponed beyond the November 3rd date that is now receiving broad support among the opposition.

“If early elections are postponed to a future date … the MHP will not continue to share the responsibility of the coalition government any longer,” Bahceli said.

He said parliament’s priority when it meets should be to lock in November 3rd as election day and then consider EU reforms.

The opposition True Path Party had garnered enough signatures to recall parliament on July 22nd, but too few deputies showed for a quorum to be called.

Ecevit’s frail health played havoc on the country’s already jittery markets, as uncertainty over the stability of the government – at loggerheads over key EU-demanded reforms – sent confidence in the government’s ability to keep its commitment to the IMF on track spiralling.

But the IMF – although publicly concerned over the political uncertainty and the future of its biggest debtor – has expressed satisfaction in the state of the programme.

IMF Turkey desk chief Juha Kahkonen, who is heading a visiting delegation from the Fund, said on July 18th that he was “generally pleased” with Ankara’s progress in reforming the country’s beleaguered banking system, but said reforms had to move forward.

Thomas C. Dawson, the director of the IMF’s External Relations Department, also offered a qualified assessment of the programme.

“[W]e have made it clear that we think the programme is broadly on track and this is still our view,” he said at a press briefing from Washington on July 18th.

A key element of the country’s IMF pact is reform of the banking sector, which was at the heart of the current crisis.

Turkey must also continue to pay down its burdensome public debt.

In the year up to July 17th, the country had paid back a combined $12.43bn, according to the State Statistics Institute.

The decision to go to early polls was forced on Ecevit, stubbornly staying on despite his illnesses, after a mass exodus from his DSP left his parliamentary grouping a rump of its former strength. To July 22nd, over 60 MPs had quit his party, led by Ecevit’s erstwhile close aide Husammetin Ozkan.

But no defection was more prominent than that of Ismail Cem, who also left his post as foreign minister. The respected Cem announced the birth of a new political formation whose aim would be to lead the country to EU membership.

The profile of the nascent party was helped immensely in the eyes of foreign observers by the inclusion of Kemal Dervis, the still sitting economy minister credited with steering the country towards recovery.

As uncertainty continued in the capital Ankara, Paul Wolfowitz, the US Deputy Defense Secretary, arrived in town to court NATO’s only Muslim member to support President George Bush’s possible plan to invade neighbouring Iraq.

Ankara is vehemently opposed to an attack on Iraq, fearing that it would lead to instability in the region and a future independent Kurdish state in the north of the country. Turkey fears this could foment separatist sentiment among its own Kurdish minority.

Turkey fought a 15-year war against Kurdish separatists in the southeast of the country that cost some 30 000 lives.

“Before making those decisions it its very important for [Bush] to have the benefit of perspective of key countries who are key partners, and Turkey is as important as any country in figuring out how to grapple with this issue.

“When there is a democratic Iraq – and that is our goal – an Iraq that truly cares for the welfare of its own people, it won’t only be the people of Iraq who benefit from that, it will be the whole world and very much this region,” Wolfowitz told a news conference on July 17th.

Ecevit, speaking on television on July 17th, said the United States had made it clear that it was determined to strike Iraq.

“The US administration does not hide its determination to launch a military operation against Iraq.

“The US administration has not been able to decide on the details of the attack,” he said.

Turkey claims that it has lost billions of dollars in cross border trade with Iraq since it threw its support behind the United States in the 1991 Gulf War.

Wolfowitz also said that Turkey’s current economic health was “hugely important.”

Reports in Turkish newspapers have suggested that Turkey would expect monetary aid for its support of any US operation against Iraq.

US and British planes currently monitor a self-declared no-fly zone above northern Iraq from Incirlik airbase in the south of Turkey.