Wednesday February 21 9:58 AM ET
Turkish PM Faces Crisis, Markets Rock
By Ralph Boulton
ANKARA (Reuters) - Turkey's prime minister, battered by financial crisis, pledged on Wednesday that his government would continue to function despite a bitter public row with the president over issues of power sharing and corruption.
Prime Minister Bulent Ecevit summoned senior aides for an emergency meeting on Wednesday afternoon as his junior coalition party dismissed speculation the veteran premier might resign.
``There's no power vacuum, there won't be early elections,'' deputy Beyhan Aslan quoted Motherland leader and deputy premier Mesut Yilmaz as telling a closed party meeting. ``Turkey must continue on its path as though this event never happened.''
But markets delivered a harsh verdict on Ecevit's efforts to smooth over a political crisis which many see as self-inflicted and which now threatens to cripple the financial system. Stocks plummeted and vulnerable banks sent out alarm signals.
The Istanbul Stock Exchange recorded its biggest single day percentage loss, over 18 percent. Money markets froze amid reports some state banks were unable to square accounts on Tuesday night.
Overnight lending rates, around 40 percent last week, soared up to 5,000 percent in a squeeze more intense than that which forced Turkey to seek $7.5 billion in new IMF (news - web sites) aid in December.
Standard and Poor's rating agency said it was concerned about the situation in Turkey and was monitoring it closely.
Ecevit, clearly stung by a clash with the president at a meeting on Monday of political and military leaders, said his row was not linked to Turkey's International Monetary Fund (IMF)-backed financial reform program.
SIGNS OF RECONCILIATION?
``It's clear, the (president and I) have serious political differences. We are still obliged to work together,'' he told an emotionally charged meeting of his parliamentary group.
``Whatever happens, we must ensure that the work of the state continues,'' said Ecevit, 75, who later met central bank Governor Gazi Ercel and Treasury Undersecretary Selcuk Demiralp to discuss the economic crisis.
Despite official denials, rumors circulated in the markets that the Turkish lira might be devalued, something that would have profound implications for the IMF-backed program.
On Monday Ecevit stormed out of a meeting of the National Security Council (MGK) -- a body that embraces political and powerful military leaders -- accusing President Ahmet Necdet Sezer of insulting him and declaring a ``serious crisis.''
The clash, in which Sezer apparently questioned the efficacy of government anti-corruption operations, was the culmination of months of tension between the two men. Sezer has drawn Ecevit's anger several times by overriding his decrees and vetoing laws.
Sezer, a former constitutional court head, has since kept silent, beyond rejecting the premier's demands that he apologize.
The MGK meeting, suddenly abandoned, will resume on Monday. ''I'm not sure what the atmosphere will be,'' Ecevit said.
Sezer said on Wednesday he fully supported the IMF anti- inflation program and government efforts to strengthen it.
Turkey's problems come less than three months after a financial crisis that brought its IMF-backed reform program to the brink of collapse. Since then, the country had appeared to be making progress on its three-year program.
Politics Thwarts Economics
Inflation, which had soared toward 100 percent in the 1990s, was coming down, if not as quickly as hoped. Fiscal balances have improved, the primary surplus has increased and the lira has been stable in line with targets.
Ultimately political leadership appears to be lacking.
``The government looks very shaky,'' commentator Mehmet Ali Birand said. ``It's difficult to find a new government but a revision would be in order.''
Corruption in government and commerce is a barrier both to economic reform and European Union (news - web sites) entry. The energy ministry, run by Ecevit's conservative coalition allies, has been the focus of one notable probe. Top-level officials have been charged but the minister resists calls for his resignation.
Some fear that by hacking at the walls too vigorously, the whole edifice of Turkish government could be endangered.
The military, widely seen as the ultimate guardian of civil order here, has made no public comment but must be wary. The generals would have been unimpressed by scenes at the MGK when politicians threw around a copy of the constitution.
Banking operations, an Achilles heel of the Turkish economy, looked vulnerable. Turkey extended the trading hours of key money markets on Wednesday to allow banks time to settle their accounts with each other, a symptom of the growing problems.
``These latest developments have even put banks with no problems in difficulty. I expect the banking operation to speed up. It looks like a process of weeding out in the system,'' said analyst Alper Ozge of GFC.
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