Ecevit’s fragile health rattles Turkish markets, demonstrates precariousness of recovery

ANKARA – Prime Minister Bulent Ecevit’s sudden illness at the weekend reminded all those who needed reminding in Turkey that the country’s frail economic recovery is alarmingly vulnerable to the unexpected political event. Inflation is falling steadily and some see the first twitches of economic growth. But dark clouds seem never far away; any US action in Iraq, a widening Middle East crisis or cabinet feuding could all pitch Turkey back into debt crisis. Ecevit, 76, whose health has been an underlying concern for financial markets, spent Saturday night in hospital with stomach pains. Doctors discharged him on Sunday after finding only an intestinal infection. Ecevit vowed to get straight back to work. The episode, played out thankfully on a weekend, nonetheless sent a tremor through markets at opening yesterday. Stocks fell 2 percent and best lira bids fell to 1,375,000 to the dollar on the interbank market from Friday’s 1,367,000 lira. The busiest April 9, 2002 bonds weakened to yields of 53.97 percent from a previous 52.95 percent. The scare may fade, though doctors acknowledged for the first time Ecevit has a muscular-nervous disorder treated by steroids. «Ecevit is the amalgam of this coalition government,» said Hursit Gunes, an economist and columnist at the daily Milliyet. «His political experience and meticulousness whenever needed have got the government this far… Therefore, continuation of this government without Ecevit seems difficult,» he said. Ecevit himself has not always shown a steady hand. He triggered a financial crisis in February 2001 with a political showdown with his president in public. He vows now he will stay on until his government’s five-year term expires in 2004. If he departs, the coalition of his Democratic Left Party (DSP), the rightist Nationalist Action Party (MHP) and the conservative Motherland may be unable to agree on a successor. A $16-billion IMF-backed recovery program would be in question. CPI drops, growth slack If no alternative government could be formed in Parliament, then elections would hold little allure for any of the parties. All would risk falling below the 10-percent threshold for parliamentary representation, unpalatable news for the markets. Several domestic issues could divide the uneasy left-right coalition, from disputes over layoffs of state employees to a decision on hanging condemned Kurdish rebel Abdullah Ocalan. Unpredictability, though, is the bane of Turkish politics. The current recovery from the crisis that cut the value of the lira by 50 percent is a plant of weak growth, for all the successes of recent days. Consumer price inflation (CPI) was 2.1 percent in April. Although this was above their expectations, markets were not worried as year-on-year CPI again fell, to 52.7 percent, as the very high post-devaluation figures in the same month of 2001 were replaced by lower figures. However, economic growth is essential for maintaining belief in the program and relieving the pain of unemployment and poverty. «The inflation data have not yet provided substantial and conclusive evidence for the presence of recovery in demand,» said Baturalp Candemir of HC Istanbul. The central bank governor, Sureyya Serdengecti, says Turkey can meet growth goals to claw its way out of its worst recession since 1945. Serdengecti said an 11-percent cut in the bank’s overnight interest rates since February would aid growth while helping to meet a government target of 35 percent CPI by year-end. Fears beyond frontiers «In the absence of a currency or political shock, assuming commitment to the program, inflation targets still look achievable,» said Emin Ozturk, economist at Bender Securities. But many doubt Turkey can meet a 3-percent GNP growth target in 2002 after a historic contraction of 9.4 percent last year. Constrained by promises to the IMF of tight fiscal and monetary policy, the government will not be able to stimulate growth, as it has in the past, by cutting taxes or printing money. «With current policies, I am not very optimistic about growth in the short run,» said Ahmet Akarli of Finans Invest. «We could start seeing positive growth in the last quarter,» he said, adding his year-end growth target was 2 percent. Markets may, rightfully, focus more on the vagaries of domestic politics. But the «unexpected» still lurks abroad. Immediate fears of US military action in neighboring Iraq have eased, but may return to haunt markets again. The danger of a widening Middle East conflict with rising oil prices, a blow for importer Turkey, cannot be dismissed. Turkey’s drive to join the European Union has raised many disputes over human rights, Cyprus and political reform. The EU is an emotive issue here quite capable of stirring conflict. None of these «outside shocks» need materialize. But a weekend scare may serve to awaken a fickle political establishment to the dangers it faces.