Turkish markets plunge after war vote

Turkish markets plunge after war vote

Turkey's currency and leading stock market index have both fallen heavily in the first day of trading since parliament narrowly failed to approve US troop deployment in the country for a war on Iraq.

The lira dropped about 5% against the dollar, trading at about 1,660,000 lira.

The National 100 index of leading Turkish shares slumped 12.5% to 10,129 points.

The falls prompted the central bank to hint that it might intervene in the financial markets, which helped the lira to recover some of its losses.

The government is now going to have to work twice as hard to repair its reputation with investors

Merrill Lynch

Turkey's government has now postponed "indefinitely" a second vote on the issue.

It is also pondering the impact of losing out on secure loans and aid from the United States, estimated at $30bn, to offset the economic impact of a war in neighbouring Iraq.

"The future just got a lot more uncertain," investment bank Merrill Lynch said in a research note.

"The government is now going to have to work twice as hard to repair its reputation with investors."

US soldiers wait in port

The rejection could also threaten a $16bn loan from the International Monetary Fund (IMF), in which the US is the largest shareholder.

Expectations that the parliament would approve the stationing of 62,000 US troops on Turkish soil had pushed the stock market and currency higher on Friday.

US troop carriers - ready to disembark soldiers and military equipment - remain in Turkish ports while both sides discuss whether parliament can be swayed to approve the deployment in a second vote.

Over the weekend, an anti-war demonstration in the capital Ankara attracted upwards of 100,000 people.

Economic trouble

The Turkish economy is recovering from its worst recession since 1945.

Turkey claims it suffered losses of up to $40bn (£27.8bn) from the last Gulf War and the years of UN sanctions imposed on Iraq.

An IMF team is in Turkey to review the progress of privatisations, public sector job cuts and tax reforms.

Turkish Prime Minister Abdullah Gul outlined a draft budget for 2003 at a news conference on Monday morning.

The IMF representative in Turkey, Juha Kahkonen, said in a statement that the draft appeared to meet financial targets agreed between Turkey and the Fund.

"It is wrong to see a link between the (parliamentary) motion and the IMF. The IMF is an independent institution," he said.

Turkey's budget depends on the $16bn loan from the IMF so that it can meet its $73.5bn debt repayments this year.

Mr Gul tried to reassure markets on Monday by saying that Turkey would have no difficulties in servicing its debts if US economic aid was not forthcoming.