Sound and Fury

When Turkey’s parliament reconvened October 1 after its protracted summer break, a brace of controversial issues lay in wait. With the possibility that last year’s elections might be cancelled and Turkish-US relations might once again go into a nose-dive over Iraq, many Turks were bracing themselves for a bumpy start to the new legislative year. Yet within a few days, the government had successfully negotiated the policy rapids and was in an upbeat mood for the mid-October IMF review.



The market too had started out the month sharing these political concerns, first over the impact of the court verdict that the pro-Kurdish party, DEHAP, had committed breaches of the electoral code in the run up to the November 2002 general election. This raised the possibility that the election itself might be invalidated, along with all the legislation passed by the Justice and Development Party (AKP) since.



Second, there was the government’s determination to put to a vote a resolution authorising them to send Turkish troops to Iraq to bolster the US-led occupation forces. Market watchers recalled the March 1 vote in parliament, prior to the Iraq war, when parliamentarians had rejected a government-sponsored resolution allowing US troops to use Turkey as a base camp for launching a second front against the Iraqis. That rejection had sent US-Turkish relations into a tailspin, while also consigning to oblivion a potentially massive US financial aid package that investors had assumed would help avoid a looming debt crisis.



This time, another aid package was on offer, a more modest - though still substantial - USD8bn loan. Economy Minister Ali Babacan was anxious to point out that the package was not linked to a vote in favour of Turkish troop deployment, but few in the markets seemed to believe him.



In the end though, Turkey’s Supreme Board of Election (YSK) ruled October 4 that it was not going to cancel the election, while three days later the parliament passed the government resolution with a healthy majority.



Share prices performed a corresponding dance, bounding back noticeably higher than they had fallen in the days of doubt and uncertainty before the YSK and parliamentary decisions. The Istanbul Stock Exchange (ISE) 100 index closed the week October 3 at 14 210 points, prior to the YSK decision, only to reopen after the decision on Monday October 6 at 15 719. Profit taking that followed brought the index down, but it stabilised at around the 15 000 mark, higher than it had set out the week before.



So the rumours of impending doom had proved somewhat exaggerated. When the IMF team arrived in Ankara to conduct its sixth review of the economic programme, Finance Minister Kemal Unakitan could say the country was well on course to meet its budget targets, with no cause for alarm in sight.



Unakitan later added that the draft 2004 budget had been prepared and would go to cabinet for approval before a parliamentary debate on October 17, provided negotiations over it with the IMF team had been concluded. “Talks” on this, Unakitan said, “still continue. All will be concluded soon.”



The 2004 budget targets a primary surplus of 6.5% of GDP -- the same level it did for 2003. Such discipline is a condition of the IMF backed economic programme, while the pressure exerted by the country’s USD130bn domestic debt load also severely restricts the government’s spending options. A declining inflation rate should help and the strong Turkish Lira has reduced the value of USD based debts.



In addition to a Consumer Price Index (CPI) of 12%, the budget also predicts economic growth of 5% for 2004. Such targets may turn out to be optimistic, yet the market currently seems inclined to forgive any minor transgressions from the plan’s forecasts.



All may not be plain sailing, however. Despite this confidence in meeting its objectives, the government is also now looking for ways to boost revenue, with a wrangle over additional taxes on motor vehicles underway. Meanwhile, public workers are preparing a series of nationwide protests against a 13.8% pay rise announced by the government October 13. This renewed offer came after the collapse of arbitration talks held by the Conciliatory Board, which had been called in after government and union representatives had failed to agree on a pay settlement back in September. The unions had earlier staged a hunger strike in protest at the original government offer, which had been 13% for 2004 plus a TL160m bonus to cover the rest of 2003.



So the government still faces some formidable obstacles in the pursuit of its targets, although there have been some significant positive developments. “However,” as State Planning Organisation under-secretary Ahmet Tiktik told Turkish business chiefs October 9, “we should not be overcome by languor.”