The Middle East

Turkey’s privatisation programme took another step forward this week with announcements on tendering for oil refiner Tupras and alcohol and tobacco giant TEKEL. However, controversy surrounded the successful bid for petrochemical company Petkim by a firm controlled by the Uzan family - who are currently facing a USD3bn lawsuit in New York.

The announcement that a preliminary agreement had been reached merging Turkey’s two smaller mobile phone networks during Italian Prime Minister Silvio Berlusconi’s visit May 12 brought relief on a number of fronts. Not the least of these was that it effectively headed off a potential USD3bn lawsuit against Turkey’s telecommunications regulatory authority. But the deal also served as a positive sign to potential foreign investors, with the government anxious to encourage more FDI and a good return on the year’s first major privatisation – the state alcohol and tobacco giant, TEKEL.

With the war in neighbouring Iraq appearing to be winding down, attention in Ankara and Istanbul turned this week to the probable financial and economic costs of the conflict. There was also an almost audible sigh of relief from most analysts, whose pre-war 'optimistic scenarios' looked to be proving more accurate.

When Turkey’s prime minister starts suggesting the government should issue war bonds, and citizens pay $100 a head or donate a slice of personal wealth to pay off the national debt, there is bound to be a suspicion or two about the state of public finances. But when these proposals come after a recent failure to secure major loans from the US, while an IMF review has been going on for months without result and a major war has broken out next-door, anxiety ratchets up another notch. However, despite all these worrying signs, Turkey continues to return some remarkably healthy looking vital statistics.

With hopes all but vanishing of a US financial aid package offsetting Turkey’s war losses, the country’s markets spent last week in gloomy mood. While interest and dollar rates jumped, financial institutions moved fast to try and head off a more general decline.