Mounting Crises in Turkey

[Michael Pugliese <debsian@xxxxxxxxxxx>]

----- Original Message -----
From: <SOncu@xxxxxxx>
To: <debsian@xxxxxxxxxxx>
Sent: Friday, June 29, 2001 7:55 PM
Subject: Mounting Crises in Turkey
MIchael,

Would you forward this to PEN-L?

Best, Sabri


Turkey's Dervis challenged by govt right

By Ralph Boulton


ANKARA, June 29 (Reuters) - Economy Minister Kemal Dervis [Sabri's note: The
USA appointed Governer of Turkey; alternatively the twin of Cavallo of
Argentina] looks increasingly beleaguered as guardian of an IMF-backed
crisis
package following a public defeat at the hands of nationalist opponents in
Turkey's three-party government.

"Setting aside the burning question of whether Dervis can stomach this, we
must ask ourselves if Turkey can ever straighten itself out," commentator
Ismet Berkan wrote in the Radikal daily. "After yesterday it is difficult to
say 'yes'."

Tensions between the nationalist wing of premier Bulent Ecevit's government
and Dervis , 20 years a senior World Banker, have grown steadily since he
was
summoned to Ankara from Washington in March to tackle a devastating
financial
crisis.

Thursday saw Dervis something of a lone figure as he attempted to install a
new board of professionals for the Turk Telekom landline monopoly, a first
step to privatisation and a condition for release of $1.5 billion by the IMF
next week.

Media portrayed the board that emerged from days of public bickering as an
outright victory for nationalist Communications Minister Enis Oksuz. Oksuz,
they argued, had placed many of his own party nominees rather than accepting
the professional team with market experience demanded by Dervis and the IMF.

But some felt Dervis had achieved limited success in excluding some of the
most inappropriate political nominees. "I guess this is as good as it gets
in
these fierce negotiations," said Selim Cevikel, an economist at Credit
Lyonnais.

Nationalist Action Party (MHP) [Sabri' s note: Fascist Nationalists also
known as Gray Wolves] deputy parliamentary group head Ismail Kose suggested
Dervis had been taught a lesson.

"He does not seem to have been successful so far. He could perhaps have been
successful had he been able to grasp Turkey's realities and the needs of the
people," he told NTV television.

"We saw yesterday the collapse of the assumption that some centres of power
under the influence of the foreign press or the IMF and the World Bank are
portrayed as superior to the government and the political parties," Kose
said.

CONSTANT DRAMA

Most analysts believe the IMF will go ahead with the loan, part of a $15.7
billion loan negotiated by Dervis and subject to strict conditions. But
Kose's words spelt out very clearly for those in any doubt that the MHP has
little enthusiasm for the IMF-backed plan's central goal of freeing the
economy from the control of politicians and the patronage that dogs Turkey.

A thickening air of melodrama can only work against Dervis, eroding market
confidence in the coalition and keeping interest rates at levels crippling
to
commerce. Moreover, there are signs the truculence within the MHP is
growing.

The MHP, the second biggest party in the coalition, could soon become the
biggest if it absorbs deputies from the Islamist Virtue Party banned last
week by the Constitutional Court.

Ecevit publicly praised MHP leader Devlet Bahceli in the thick of the debate
on Thursday -- a signal that will do little to encourage Dervis and much to
strengthen MHP dissidents who see his reforms as dictated by the IMF and
unsuitable for Turkey.

"The market will have been reminded once again that every policy decision
turns into a controversy within the coalition," said Kasper Bartholdy,
senior
emerging markets economist at CSFB in London. "Every one of these episodes
is
a reminder of that.

"It's clearly one of the reasons for domestic treasury yields being so high,
which is the main threat to the programme."

Turkey faces a hefty domestic debt repayment of 8,400 trillion lira ($6.7
billion) in August, then 5,134 trillion in September and 6,213 trillion in
October. A debt auction on Tuesday produced yields of 92.29 percent, though
on Friday they had eased to 85.60 on the secondary market.

Parliament goes into recess this weekend, having pushed through much of the
legislation demanded by the IMF. The departure of deputies for the beaches
will limit the opportunity for friction and may even allow time for a
cooling
of passions.

INDUSTRY WAITS IMPATIENTLY

Optimists might also look to inflation for sustenance. State Minister Tunca
Toskay says June inflation could show a month-on- month rise below three
percent, well shy of recent levels.

Foreign currency earnings are also expected to rise sharply, boosted by a
fall of over 40 percent in the value of the lira against the dollar since
the
crisis struck in February.

But if Turk Telekom proved a controversial issue, there are many other
potential Dervis-MHP conflicts implementing painful reforms in, to name but
a
few, banking, agriculture and energy.

If interest rates stay high through the summer, the burden on the Treasury
will be enormous and predictions of a recovery in output growth could come
to
nothing. September or October could prove a decisive test of Dervis's
programme.

"The economy (businessmen) can't pay 85 percent, 80 percent, even 70
percent," Husamettin Kavi, head of the Istanbul Chamber of Industry, told
Reuters. "Last year we had a limited ability to pay 50 percent but since the
currency was floated, we've lost 60 percent of our assets and my members
can't even manage 50."

Dervis leaves this week on a long tour of the United States and Europe for
talks on foreign lending. He may hope on his return for at least two months
of relative political calm.