ANKARA/LONDON (Reuters) – Turkish Economy Minister Ali Babacan said yesterday the government was prepared to take any measures necessary to protect Turkey’s frail economy from the fallout from war in Iraq, which many investors fear could plunge it back into recession. «We will not avoid taking the most difficult measures, if necessary, which will depend on the length of the war and be enacted within the legal framework of the market,» he told an Ankara meeting. Investors say government indecision on the economy and in recent talks on the Iraq war with the United States may not bode well for a $16 billion IMF pact and Turkey’s massive domestic debt load, swollen by financial crisis in 2001. Babacan predicted that government determination on economic policy would curb recent wide fluctuations in prices on Turkey’s financial markets, nervous about war in neighboring Iraq. «We expect government decisiveness to curb fluctuations and extreme reactions in the markets,» he said. Turkish markets added to recent falls this week amid tensions with the United States over Turkey’s role in Iraq and after Parliament’s rejection of a US request to station troops along the country’s southern border with Iraq. The lira and domestic debt prices firmed off earlier lows yesterday on hopes a US aid package proposal of some $8.5 billion, announced by Washington late on Tuesday, would be passed by Congress. The aid is likely to be tied to progress on economic reform, though congressmen might also look for signs of support in the US campaign in Iraq. Bond values up Turkey’s benchmark 2030 dollar bond rose in value yesterday, boosted by continued optimism after Monday’s announcement of aid and comments from the White House on Tuesday. The bond was up three points at 89.375 percent of face value at 0925 GMT. Turkey’s segment of the industry benchmark, JPMorgan’s Emerging Market Bond Index plus, was quoted 15 basis points lower in yield, at 982 basis points over treasuries. Last week, Turkish assets crashed in price, as traders began to believe Turkey would be left to face the economic consequences of war in Iraq without any financial aid. «The aid from the USA certainly came in the nick of time for Turkey, given Turkish markets have been under heavy downside pressure,» said Tim Ash, emerging debt strategist at Bear Stearns in London. «It affirms that the USA continues to see Turkey as important geopolitically, for the time being,» he said. At the beginning of March, Turkey’s Parliament narrowly rejected a motion to allow up to 62,000 US troops to station in southern Turkey. That squashed a $30 billion grant and loan deal Turkey had expected to receive from the USA in exchange. Although Parliament later voted to allow US use of Turkey’s air space, Turkey’s benchmark 2030 bond remains 15.6 percent lower in price on the month. Analysts also warned that this week’s smaller aid package could still hit snags. «It must be stressed that this is conditional money. It is conditional on approval by the US Congress,» said Phillip Poole, senior economist at ING Barings in London. The aid to Turkey is part of Bush’s emergency war budget, worth nearly $75 billion, which also offers aid to Israel, Egypt and Jordan. In addition, the aid, «can be canceled by the US administration if any of the (undisclosed) terms or conditions are breached,» Poole said.