Turkish Government On The Brink

Turkey

Economic News

22 Jul 2010
Text size +-
Recommend
The Turkish government was reeling after a key member in the fractious three-party coalition quit on July 8th, followed by a mass defection of over 30 deputies from Prime Minister Bulent Ecevit’s Democratic Left Party (DSP).



Deputy Prime Minister Husamattin Ozkan, who is credited with bringing together the disparate elements in the shaky coalition, said he was pulling out of the government and the DSP.



Ozkan, Ecevit's right hand man and once touted as a likely candidate to take the party reigns after the prime minister's exit from politics, did not announce any plans for his future.



Ozkan's resignation was just the beginning of a slew of departures of deputies from the DSP's parliamentary grouping. After Ozkan's announcement came word that two more state ministers and more than a dozen DSP deputies had quit the party.



The following day on July 9th saw more resignations still - over 30 by late afternoon, including six state ministers. The DSP, the senior member of the coalition, has now dropped below 100 deputies, well below the 127 of the junior partner National Action Party (MHP).



Both the MHP and the Motherland Party (ANAP) – the third partner in the coalition - have said they are in favour of early polls.



ANAP leader Mesut Yilmaz said elections could be held as early as September. He said on July 9th that his party would wait two or three days to make a decision, based on the position of the DSP.



The benchmark Istanbul Stock Exchange (ISE) fell 1.84% on July 9th, to close the day at 8747 points.



And an International Monetary Fund (IMF) delegation arrived on July 9th to review the country's economic progress. If their findings are favourable, a $1.1bn tranche of their stand-by agreement could be discussed as early as August, the fund said.



But there are signs of increasing concern abroad over the political instability. Credit agency Standard and Poor's on July 9th downgraded Turkey's credit rating from stable to negative, citing political uncertainty.



And Devlet Bahceli, deputy prime minister and leader of the MHP, called on July 7th for early polls in November, citing political uncertainty under the leadership of the ailing Ecevit. Elections are currently scheduled for April 2004.



"There is political uncertainty in Turkey which is seen as the factor counteracting all of the success in implementing the economic programme… You're blaming this on the government's breaking down," Bahceli said.



"Let's announce the election for November 3rd", Bahceli said.



Mass circulation daily Hurriyet likened Bahceli's comments to a seismic event in its front page headline, "November 3rd Earthquake."



Ecevit, also speaking on Sunday, said in an interview with TV news channel CNN Turk that he would not resign.



"For me to resign I would have had to make mistakes, acted in a way that would have hurt Turkey. Just the opposite. This three-way government has brought solutions to long-outstanding issues facing Turkey," Ecevit said.



The benchmark Istanbul Stock Exchange (ISE) opened the week's trading on July 8th down 5.96% at 8,794 points.



Bahceli's comments seemed to negate a pledge on July 1st by political leaders to hold elections in April 2004. A statement after a meeting of party leaders said "everybody should make their plans according" to the April 2004 timeframe for elections.



"The fluctuations observed in the markets in recent weeks were not caused by economic factors but were caused by expectations and uncertainty, which were created by the effects of some political and economic interests, purposes and intentions and speculations," the statement said.



The statement warned that accomplishments under the country's economic programme could be undone if uncertainty continued unabated.



However, the meeting did little to quell unrest in the market, with the ISE tumbling on July 2nd trading, ending the day down 4.5% to close at 9134 points.



Haunting efforts at carrying out key economic reforms are questions about the health of the 77-year-old Ecevit, who has been away from his duties for the past two months because of a variety of ailments.



Turkey, the biggest debtor to the IMF, is trying to implement a $16bn economic stabilisation package backed by the fund to pull itself from its worst economic crisis since 1945. Since the current crisis hit in February 2001, the Turkish Lira has lost half of its value and the economy has shrunk by nearly 10%.



But persistent questions about the government's ability to push through the required reforms threatens the stabilisation programme.



"What is most important from our point of view is that the programme continues to be implemented fully," Odd Per Brekk, the IMF representative to Turkey, told Reuters on July 8th.



On the same day, Economy Minister Kemal Dervis said the country could fulfil the terms of its pledge to the IMF if political uncertainties were dispelled.



There was good news on July 3rd, with the State Statistics Institute announcing inflation figures for May. The country's consumer price inflation (CPI) rose 0.6% month-on-month in June, with annual inflation now 42.6%. This is a drop on May's figure of 46.2%.



Wholesale price inflation (WPI) was 1.2% month-on-month, for a 46.8% rate for the year, down from May's figure of 49.3%.



The country is currently on target to meet a year-end figure of 35% inflation, the standard by which economic recovery is judged and a key requirement of its deal with the IMF.



But other economic concerns loom on the horizon. The country is servicing a massive debt load of $77bn due in May, and debt yields have jumped some 20% to around 76% since Ecevit became ill.



Meanwhile, Dervis, brought into the government last year from a post at the World Bank to guide the country's economic recovery, announced on July 5th that he would enter politics.



"I've met with the president and other authorities. I'm going to take on a more active role and search for a political solution," Dervis said.



Dervis is widely credited with steering the country towards recovery, but is not currently a member of any political party. He is popular in Turkey and is favoured outside the country for supporting the country's bid to join the European Union and sticking to tough economic reforms.



Dervis had a series of marathon sessions on July 9th to discuss his political future, with many predicting the troika of Dervis, Ozkan, and Foreign Minister Ismail Cem, also of the DSP, likely to form a new party.

Read Next:

In Turkey

Turkey’s electoral results show uptick in confidence

The return to single-party government and a commitment to fast track economic reforms have boosted investor confidence in Turkey, though rising inflation and low growth rates could hamper the...

Latest

Tracking Saudi Aramco’s multibillion-dollar IPO move

In what is slated to be the world’s biggest-ever initial public offering (IPO), Saudi Aramco is moving ahead with listing shares on the Saudi Stock Exchange (Tadawul).