[A-List] Turkey: Turbulence continues

[Sabri Oncu <soncu@xxxxxxxxxxx>]

By the way, below is old news from yesterday. Today, 1 US dolar
is 1,510,550 Turkish liras and the stanbul Stock Exchange
national 100 index is at 9721 points.

Sabri

+++++++++++++++++++

Ankara - Turkish Daily News
June 11, 2002

Politics casts shadow on good economic news

Despite an appearance on Sunday by Prime Minister Bulent Ecevit
in front of cameras, in response to the apparent conflict within
the government, Turkish financial markets remain turbulent. The
Istanbul Stock Exchange national 100 index dives 2.80 percent to
end the day at 9,866 points below a psychological threshold of
10,000 points. The dollar exchange rate reaches TL 1,478,000 in
the interbank market

During the one month that has passed since the hospitalization of
Ecevit, good news on the economic front have been overshadowed by
scenarios over the prime minister's prospects to remain at the
head of the government and what would happen in the case of a
sudden resignation. Markets have kept their fingers crossed
hoping to see the prime minister getting back to work

-----------

By Elif Kelebek

Political uncertainty will likely continue clouding the outlook
for Turkish markets for sometime at least, as nervous investors
keep an eye on the health of Prime Minister Bulent Ecevit and on
intra-coalition differences over European Union reforms.

During the one month that has passed since the hospitalization of
Ecevit, good news on the economic front have been overshadowed by
scenarios over the prime minister's prospects to remain at the
head of the government and what would happen in the case of a
sudden resignation. Markets have kept their fingers crossed
hoping to see the prime minister getting back to work. But it is
now clear that Ecevit will be absent at least until July, while
the integrity of the coalition seems at risk after Deputy Prime
Minister and Nationalist Movement Party leader Devlet Bahceli's
announcements on Friday.

"There's little doubt that we have entered a much more uncertain
political environment, specifically EU relations are at a
difficult juncture, which is creating tensions within the
government," Austrian investment bank CA-IB said in a recent
research note, predicting that political uncertainty will
continue to overshadow Turkish equities in the short term. The
Istanbul Stock Exchange national-100 index has lost about 3
percent in U.S. dollar terms over the last three months with an
average daily trading volume of around $317 million since the
beginning of the year.

Turkish financial markets were turbulent yesterday as well in
response to the apparent conflict within the government, despite
an appearance on Sunday by Prime Minister Bulent Ecevit in front
of cameras. The Istanbul Stock Exchange (IMKB) national 100 index
dived 2.80 percent to end the day at 9,866 points below a
psychological threshold of 10,000 points.

Over the past 60 days, the IMKB national 100 index declined
around 20 percent. The depreciation in the value of the TL
against the American greenback was comparably moderate. The lira
against the dollar over the past 60 days weakened from 1,298,000
to 1,478,000.

Market outlook remains dull despite the improvement in economic
fundamentals. A surprisingly low inflation reading for May, for
instance, which confirmed expectations that the year-end 35
percent inflation target is within comfortable reach, has caused
only limited joy due to Ecevit's ill-health.

"The 0.4 percent month-on-month rise in the wholesale prices
index (WPI) and the 0.6 percent rise in the consumer prices index
(CPI) were the lowest May figures since 1970. In fact, were it
not for the rise in oil prices, the May WPI would have been
flat," said economist Yarkin Cebeci of JP Morgan.

Industrial production figures for April, which showed a rise for
the second consecutive month, arrived just in time to provide
further evidence for a turnaround in economic activity. Overall
industrial production rose 14.1 percent, on top of an 18.7
percent rise in March, turning up significantly above a consensus
market expectation of 7.8 percent. The four-month rise in
industrial production amounted to 6.1 percent compared to the
same period of last year. Industrial production declined 4
percent in Jan.-Apr. 2001.

Both the economic management and analysts are now optimistic that
a 3 percent economic growth target can be attained this year on
the back of the strong data for industrial output which accounts
for approximately 30 percent of gross domestic product. High
interest rates would, however, put Turkey's recovery prospects at
risk and the yield on Treasury's debt papers have climbed an
average 15 percentage points to above 65 percent since Ecevit was
hospitalized a month ago.

Analysts say rising lira yields once more urged the Treasury to
issue foreign currency-denominated debt. The Treasury plans to
hold a public offer from June 12-14 to sell one-year
euro-denominated papers carrying quarterly coupon payments of 1.6
percent, for a compound yearly interest rate of 6.56 percent.

As Economy Minister Kemal Dervis pointed out over the weekend,
Turkey is still wrestling with a massive debt problem. Turkey's
domestic debt stock is around TL 123,000 trillion and a sharp
rise in interest rates could still threaten the debt
sustainability in the longer term, in an unnerving reminder of
last year's turmoil. But next year there will be no bulk fresh
IMF aid to relieve off the pressure.

"Debt dynamics are still problematic," Morgan Stanley's Serhan
Cevik said in his most recent report. "It's true that the IMF
funding reduced the rollover risk. However the system is not
stress-tested for political uncertainties."

The fact that June is a heavy debt service month is simply bad
luck. The Treasury must repay TL 10,435 trillion domestic debt
and TL 1,800 trillion external debt in June. "The domestic debt
service schedule will remain challenging at least until October.

"It's true that the Treasury's cost of borrowing has so far been
less than the projected average interest rate for the current
year. Coupled with the lira's nominal appreciation, lower
interest rates may lower the annual interest burden this year.
Nevertheless, given the composition of domestic debt stock,
rising political uncertainty may easily increase the interest
burden. Furthermore, real interest rates are prohibitively high
and highlight the risk of debt unsustainability in the long
term," Cevik added.