Markets, awaiting word on whether Ecevit will quit, fear elections could scupper a $16 billion IMF plan drawn up to tackle the financial crisis. The political crisis has pushed up interest rates that are throttling economic recovery. At two debt auctions yesterday, the Treasury paid nearly 80% interest of percent on a 238-day debt sold. Ratings agency Standard & Poor said it had revised its outlook on Turkey from stable to negative. Political concerns worry foreign lenders. Hakan Avci at Global Securities said: "We don't want to blow the IMF program in such a critical period. I hope a few of the parties realize it will create a very unpalatable environment if the IMF says it's going to suspend the program." After crises in November 2000 and February 2001 triggered by an unstable banking system, Turkey became the IMF's biggest ever debtor. But loan repayments are pushing Ankara to the limit.
Washington has pressed hard in the past for support for its key Muslim ally on the edge of the Middle East. It needs a stable Turkey to help with its "war on terror". The IMF said it would go ahead with a progress review of the program this week, but it is unclear what political lineup it will find in Ankara on Thursday.
Ecevit's grip on power slipped after two months of illness that caused conflict in his coalition and party, but an alternative Government could be hard to find. Ecevit met party allies and Devlet Bahceli, head of his rightist Nationalist Action Party (MHP) coalition partner, who unleashed the drama on Monday by moving for November polls. Financial markets and mainstream newspapers looked to some arrangement allying Husamettin Ozkan, who resigned from Government and Ecevit's party on Monday, Foreign Minister Ismail Cem and Economy Minister Kemal Dervis, father of IMF rescues. "Anything including Cem and Dervis would be positive," Emin Ozturk, economist at Bender Securities, said.
Dervis met Cem, a key figure in Ecevit's Democratic Left Party (DSP), but gave no hint on his or the foreign minister's political plans, saying only that Turkey must accelerate efforts towards EU membership, which is vital for foreign investment. "There is a clear downturn on the financial markets but... no excessive instability," he added. "If a formula is found to... reduce the uncertainty [the economy] could get well very quickly." In early trade, the lira hit an all-time low of 1,706,000 to the dollar before pulling back.
Turkey's powerful generals, often a firm "guiding hand" in politics, may want a political deal that would avert elections and allow the Government to function smoothly. They may be alarmed that the Opposition AK Party - viewed askance by the military due to its Islamist roots - might win the elections. A predecessor of AK was forced from power by military pressure in 1997, and the generals would not want a repeat of those traumatic days.
Five ministers have now resigned from Ecevit's Government and the DSP. More than 25 deputies have also quit the party. If Ecevit were to resign, the coalition of DSP, MHP and Motherland would seem unlikely to survive in an effective form. Desertions from the DSP have weakened it in parliament.
President Ahmet Necdet Sezer could ask Ecevit to stay on for a short time and then appoint Devlet Bahceli, head of MHP - now the biggest party in parliament - Prime Minister, asking him to form a Government. The future of the DSP is uncertain. Ecevit and his wife Rahsan dominated it since its foundation in the 1980s when Turkey emerged from three years of military rule. A new party could emerge, changing the parliamentary balance.
