Turkey beset by financial, political crises

By Batuk Gathani

BRUSSELS, FEB. 23. Turkey is reeling under political and financial crises which have seen the country's currency devalue by about 20 per cent and the stock market indices knocked out by about a third in three days. The ongoing turmoil also threatens to destroy the country's ambitious economic reforms programme.

Both the IMF and Turkish officials have come to the conclusion that the country's exchange rate regime is no longer sustainable and on Thursday, the currency (lira) was allowed to float freely against the dollar. The Government was reluctant to officially devalue the over-valued currency. The inter-bank interest rates hit an unprecedented high of 7,500 per cent and currently fluctuates around 4000 per cent compared to 60 per cent recently.

According to financial analysts in major European capitals, the turmoil in Turkey has had a spillover effect on other emerging markets - particularly Russia and Brazil where investors are displaying nervousness with the financial haemorrhage in Turkey. The Russian stock market tumbled eight per cent on Wednesday. Turkey's foreign debt is estimated to be $ 110 billions of which about 70 per cent is commercial. The European private sector lender's exposure to Turkey is around $ 54 billions and obviously this has triggered an eerie nervousness in European financial capitals. According to current estimates, the Turkish banking system is exposed to $ 20 billions in bad debt. It remains to be seen if the weak Turkish banks would be able to meet their financial obligations.

The root cause of the current crisis is a public row between the Prime Minister, Mr. Bulent Ecevit and the President, Mr. Ahmet Necdet Sezer, on how to contain the massive corruption in the country. There is also an unprecedented personal animosity between the two men and the military is watching the development with many Generals wondering if the President has the right to interfere with or scrutinise the actions of an elected Government.

The row between the President and the Prime Minister broke out at a meeting of the National Security Council, after which the latter walked out of the meeting. The President was reminded that he was not an elected leader but was chosen by Parliament. Mr. Sezer is a compromise candidate and is the first member of the judiciary to become Turkey's President.

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Section  : International
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