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How Has Turkey's Instability Affected Markets, IMF Loans, Investors - 2002-07-12

As we have been reporting, Turkey's government now appears to be on the brink of collapse, and Prime Minister Bulent Ecevit is calling on members of his coalition who have been defecting to return to their posts. We spoke with Bulent Aliriza, the director of the Turkish program at the Center for Strategic and International Studies here in Washington. Watching the story in Turkey unfold, he says it is impossible to measure the extent of political damage that is occurring there. But the economic damage is measurable in terms of the Turkish stock market, which plunged yet again Thursday. Here is the text of an interview with News Now's Tom Crosby.

Mr. Aliriza: It is difficult to put a figure on it on the political Richter scale, but it's right up there. What makes it particularly worrisome for those who are watching Turkey is, one, that inevitably the political crisis is feeding into and exacerbating the Islamic crisis that Turkey has been going through. And secondly, because the prime minister will not resign, although his party is crumbling, literally, under him, and his opponents do not yet have the numbers to bring him down, we're going through one of these periods when it is not clear exactly when and, more importantly, how this particular crisis is going to end.

Reporter: Let's talk about the economic aspect of this. The International Monetary Fund has put forward a $16 billion economic recovery program. Is that in jeopardy right now?

Mr. Aliriza: We had the IMF Turkey Desk Officer, Mr. Juha Kahkonen, who is currently in Turkey now, speak at one of our meetings last week. And he was erring, if anything, on the side of optimism. He was saying that the government had come through with all its promises that it had made for the standby agreement. In fact, Turkey has had three standby agreements with the IMF and the sum involved is actually over $30 billion when you add them all together. There is $4.5 billion left in the pipeline and the IMF will give it only if Turkey lives up to certain promises that it has made.

If we have a situation in which the government is crumbling, it's not sure if the prime minister will be able to stay on, the economy minister, who is the main interlocutor for the IMF, resigns shortly after he meets Mr. Kahkonen as part of the periodic review, and then takes his resignation back and clearly the IMF has every reason to begin to get worried, then yes, there is now considerable doubt over the government's ability to live up to its commitments that it made to the IMF.

But the question for the IMF is "Can you ditch a country to which you have already lent so much money and refrain from giving additional funds to this country, thus forcing it to default, first on its domestic debt and then begin to question its creditworthiness in every other way beyond its shores?"

It's a difficult decision that the IMF and ultimately and indirectly the U.S. government, will have to make.

Reporter: Given all of that, what has this done to Turkish markets?

Mr. Aliriza: The Turkish markets themselves have fallen, predictably. The Turkish stock market is open to manipulation, and it's not always a good indicator of the health or otherwise of the Turkish economy. Nonetheless, that and the lira-dollar ratio is something that everybody looks at on a daily basis. And both are down. The stock market is down to about 9,000, which is, again, much lower than it had been earlier on. Not only do foreign investors fear going into the Turkish market because of the volatility, but the domestic investors themselves are clearly getting burnt by the current situation.

Reporter: This week Turkey's third Deputy Prime Minister began the procedures that would call Parliament back into session, and thereby, perhaps produce some early elections. How likely is that?

Mr. Aliriza: Well, it's beginning to look more and more likely. The Deputy Prime Minister you refer to is Mr. Devlet Bahceli, the leader of the National Action Party, NAP is the Turkish acronym, which is now the biggest party in the Turkish National Assembly, with 127 seats out of 550. And Mr. Bahceli has called for a special session of the Turkish National Assembly, which is currently on its summer vacation, to come back at the beginning of September to vote to dissolve itself, that is the only way that you can have elections in Turkey before the mandated five-year period is up, and to have it after 60 days, on the 1st of November.

Reporter: Could that be too late?

Mr. Aliriza: It is far from certain whether the elections are going to produce a clear and decisive winner. And if they do and it happens to be the Justice and Development Party, which is an Islamist party as its detractors allege, whether that would prove to be the answer to Turkey's problems, if it were, if Turkey could actually have elections and produce a result that everybody would respect and it would not cause any kind of tension with respect to Turkish secularism, particularly with respect to how the military would view the results, I would also argue that the sooner, the better; even though elections are not normally held during the summer in Turkey, that they should go ahead and have it now.

Bulent Aliriza is head of the Center for Strategic and International Studies here in Washington. He said the United States could find itself in a difficult position if it tries to engineer a financial bailout of Turkey, given the country's uncertain political future and crumbling economy.