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EDITIONS
Friday, 1 November, 2002, 09:54 GMT
Turkey's economic rollercoaster
Former economy minister Kemal Dervis
The support of Kemal Dervis has boosted the CHP


As Turkey gears up for its general elections on Sunday, BBC News Online reports on how the economy has become a hot issue for the country's political parties.
Certainly, economics has a reputation as an imprecise science.

But to forecast Turkey's performance in recent years, you may as well have turned to lottery numbers as an analyst.

Leading parties' economic profiles
AKP: Would stick by IMF loan package, with minor changes
CHP: Backed by former economy minister; committed to IMF deal
True Path Party: Led by US-trained economist; would revise IMF deal, and lower taxes
Youth Party: Would end all IMF dealings; policies mix free market ideas with spending pledges

It was only in April, for instance, that the OECD, one of the best respected economic research bodies, forecast economic growth in Turkey of less than 2% this year.

Last week that estimate was doubled, after official data for the first half of 2002 showed growth running at an annual rate of more than 8%.

Search the archives for 2000 and you will find many commentators praising Turkey as an economic miracle as its output revived, and inflation and interest rates dropped sharply.

That was before the currency and banking crisis which hit late in the year.

Shares rise

Recent months have seen Turkey repeat its history of reversal.

Tipped a year ago, after the 11 September attacks, as a country set to exploit its position as a bridge between the West and the Middle East, Turkey first seemed to have squandered its chance, as political instability took root.

The prospect of Turkey, as a member of NATO, having to back a US war against Muslim Iraq, and the rise of a Justice and Development Party (AKP) - deemed too Islamic for the West's liking - hit financial markets and only worsened the country's prospects.

Yet on Thursday, with the general election but days away, the likely emergence of the AKP as the most popular party cheered investors.

"This kind of increase should be seen in the context of the election," said Niyazi Atasoy, at Ata Invest in Istanbul, as the price of Turkish shares and government bonds rose.

Status quo

Crucial to the increased confidence has been the acceptance by the AKP of the bulk of the terms of a $16bn (10.2bn) loan package agreed by the International Monetary Fund (IMF) after the 2000-2001 crisis.


The recent pick-up in interest rates due to an outbreak of political uncertainty has already had costly consequences

OECD

Failure to maintain repayments on the loan, which has been widely credited with underpinning Turkey's recent recovery, would destroy the faith of foreign investors in the country.

This at a time when, even if it has been snubbed over joining the European Union, Turkey faces the prospect of a doubling in financial support from Brussels as part of a membership preparation package.

Investors have been further settled by the continuing popularity of the Republican People's Party (CHP), the only other election contender consistently to score double figure popularity ratings in voter polls.

Backed by former economy minister Kemal Dervis, the CHP is the most pro-IMF of the major parties, and likely to defend the status quo, at least in terms of economic reforms.

Political risk

Stability is exactly what Turkey needs if it is to build on its "surprisingly brisk" recovery, the OECD believes.

"The recent pick-up in interest rates due to an outbreak of political uncertainty has already had costly consequences for the Turkish public finances," last week's OECD report said.

"The biggest risk to the consolidation programme is the political one."

The country needed to maintain its "impressive progress" in reforming banks whose loan policies, and lack of reserves, were so instrumental in the 2000-2001 crisis.

With progress in privatisation, and liberalising sectors such as telecoms - Turkey is the only one of the 30 OECD member nations to have a monopoly on fixed line phone services and infrastructure - the scene is set for a revolution in the country's international standing, the report added.

'Kick out' IMF

Still, many observers will question the conclusions of such a Western-oriented organisation.

And, as ever in Turkey, upset is never far away.

Election candidates prepared for their last hours of campaigning in the knowledge that one quarter of the electorate had yet to decide on which party to back.

It was only a couple of weeks ago that election-watchers were focusing on the rise of the Youth Party, headed by multi-millionaire Cem Uzan, who has pledged to give the West a "good kicking" and to "kick out" the IMF.

The OECD's latest forecasts for Turkey may yet need revision again.

Turkey's election

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09 Oct 02 | Europe
08 Oct 02 | Europe
02 Oct 02 | Country profiles
10 Sep 02 | Business
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