Confirmation that Turkey's Constitutional Court will hear a lawsuit aimed at banning the ruling Justice and Development Party (AKP) could have longer term implications for the economy, although at present seasoned observers see the case as - for now - very public verbal fisticuffs.
On March 31 the 11-member Constitutional Court unanimously agreed to accept the lawsuit filed by Chief Prosecutor Abdurraham Yulcinkaya against the ruling AKP, demanding its closure on the grounds that the party has become a "focal point of anti-secular activities". The court also convened to consider Yulcinkaya's proposal to impose a five-year ban from politics on 71 AKP members including Prime Minister Recep Tayyip Erdogan, and seven judges agreed to hear the case against President Abdullah Gül.
Turkey's constitution allows for the banning of political parties by judicial process if they threaten the country's strong secular values. The case against the AKP was built in the wake of the government's decision in January to lift the ban on headscarves in universities. Although widely considered a 'conservative-liberal' party, and despite its commitment to economic and social reforms, the AKP stands accused of harbouring strong anti-secular political goals. According to Yulcinkaya's indictment, "All actions and rhetoric of the party are aimed at establishing an Islamic society in which Islamic rules and values have priority... and then carrying out legal arrangements to move toward sharia."
In many respects it is the threat of banning the party's most charismatic and experienced leaders that serves as the biggest threat for the AKP, a party that retained power in 2007 with 47% of the vote, the biggest share in four decades. Political parties can easily be reformed under a new name - the AKP is itself heir to the Welfare Party and the Virtue Party, which were closed down in 1997 and 2001 respectively - but the loss of senior members would be a severe blow.
Few political analysts believe that the case will result in severe punishments for the AKP and its leadership but the decision to press ahead with the case has given rise to long-held fears about Turkey's commitment to democracy. Olli Rehn, the EU Commissioner for Enlargement, said the case "revealed a systemic error in the Turkish constitutional framework". He also alluded to the damage the case could do to Turkey's EU membership bid, "In EU member states the kind of political issues referred to in this case are debated in the parliament and decided in the ballot box, not in the court rooms."
The effects of the court's decision reverberated on the markets with the Istanbul Benchmark Share Index (ISE National 100) falling 3.1% to 38,147 points by close on March 31, its lowest level since January 2007. Turkish stocks, which have fallen 30% year-to-date, have underperformed other emerging markets this year after a stellar 2007. At the same time the lira, which has remained strong in recent years as a result of high interest rates, fell 2.2% against the dollar to a seven-month low of 1.324 YTL to the dollar. A research note from Merrill Lynch said, "The lira appears vulnerable in the period ahead in our view, and we no longer believe it will outperform its peers in the region."
Turkish business leaders are also critical of the impact the political situation could exert on the economy. Rizanur Meral, chairman of the Turkish Confederation of Businessmen and Industrialists, said, "We have been shocked by the news... and our anxiety about the future of the economy has soared. This may jeopardise the future of the economy."
Although political fears were at the forefront of market sentiment, the news that the court case would proceed coincided with the release of disappointing Gross Domestic Product (GDP) growth figures. The Turkish Statistics Institute showed fourth quarter growth in 2007 standing at just 3.4%, leaving annual GDP growth at 4.5%, significantly down on the 5% annual growth that the government had anticipated. A breakdown of the figures reveals significant slowdowns in the agricultural sector, mainly due to last year's drought, and in the construction sector, where the boom years of 2004-2006 appear to be at an end. Citigroup economist Ilker Domac said the government's target of 5.5% GDP growth for 2008 was 'unobtainable' and predicted a rate of 3.9%. Even so, the reassessment of Turkey's GDP last month by calculating it according to criteria used in Europe meant the figure rocketed by more than 30% overnight. It follows that growth rate targets should be judged according to what level is being used for current GDP.
While the timing of the release of the figures could scarcely have been worse for the stockbrokers, the public's attention remains focused on the political scene. Now that the court has accepted the indictment, the trial will formally begin. A verdict is expected to take up to six months. According to the constitution, at least 7 of the 11 members of the court have to vote for closure in order for the court to shut down a political party.
The AKP may well attempt to amend the constitution, making it harder for the judiciary to close down political parties. Such an amendment is drawing criticism as it is seeking to circumvent checks in the system to save itself. Legal experts are divided on whether such an amendment would help the AKP fight an eventual ban, some saying the constitution forbids parliament from debating or ruling on issues under judicial process.
President of the Turkish Exporters Assembly Oguz Satici told the media, "The court's decision means that Turkey will have to pass a serious and hard test of democracy... Such kinds of cases have done no good for Turkey and to the Turkish people so far, as our past is full of closed and banned parties. Everyone has to keep in mind that the economy grows only in a politically stable environment."
Certainly the whole situation spooked analysts at global rating agency Standard & Poor's, which unexpectedly downgraded Turkey's outlook from stable to negative on April 3.