Turk lira, bond yields feel heat of likely conflict in neighboring state

ISTANBUL – Turkey’s lira hit a record low against the dollar yesterday and bond yields soared over 10 percentage points as the prospect grew that the country’s frail economy may have to weather war in Iraq without billions of dollars in US aid. The lira lost 3.6 percent to close at 1,710,000 to the dollar, beating a previous record set in July 2002, after the government gave no indication that it was poised to ask Parliament to reconsider a motion allowing up to 62,000 US troops into the country. March 3, 2004 debt weakened to yields of 65.77 percent from Friday’s 59.84 percent and was trading at yields of 70.75 percent in deals value-dated Tuesday. «This is the negative reflection of war being near, that cooperation with America is not secured and of fears that Turkey will suffer deep losses,» said Ali Guler, research head at Deger Securities in Istanbul. The main ISE National-100 share index fell 10.57 percent to 9,482.92 points, its lowest close since mid-October. Ankara has dragged its feet on a US request to allow in the troops in return for up to $30 billion in aid. In a further sign of deep market anxiety, the treasury fell well short of its sale target in an auction of three-month debt. It is due to hold two further auctions today ahead of a hefty redemption to the market tomorrow. While the country has the support of a $16 billion IMF loan pact, the bulk of that loan has already been paid out. Debt troubles The 10 percentage-point hike in debt yields spells more problems for Turkey as it wrestles with a debt burden of around $95 billion, swollen by a February 2001 financial crisis. The treasury sold a net 1,063.5 trillion lira (some $630 million) in 91-day debt yesterday in an auction, well short of the 1,400-trillion target. The auction yield of 58.34 percent was sharply higher than the 47 percent at which it last sold three-month debt on February 3. «Because the motion has been delayed, hopes for financial aid have weakened,» said Hanefi Ozbilen at TSKB in Istanbul. The aid was designed to shore up NATO member Turkey’s economy against blows from lower tourism revenue, higher oil prices and a higher cost of borrowing. Turkey is due to auction 147-day and 350-day debt today, where analysts hope for better demand than yesterday’s sale, ahead of a 5,212-trillion-lira ($3.14 billion) redemption tomorrow, 4,947 trillion lira of which is to the market. US officials indicated late last week the loan deal, which Washington had offered in exchange for the deployment in Turkey, was now off the table. But some think there may still be time for a deal to be struck, especially as US ground troops may not be needed until some days after the war begins, probably with a bombing campaign from the air. «This could be quickly followed by a vote on deployment, which would allow troops to be deployed before the aerial phase of the war was complete,» ING Barings said in a research note. Public and parliamentary opposition to war is running high and new Prime Minister Recep Tayyip Erdogan has given no sign that he will risk a party rebellion by asking the assembly to reconsider the motion after it rejected an initial request on March 1. Erdogan’s Cabinet gathered for the first time yesterday, but a government spokesman did not indicate the government was ready to present the motion to Parliament for a second time in a news conference after the meeting.

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