Turkish financial markets hit by political tumult
The Turkish stock market plunged and the national currency fell sharply on Monday as investors reacted to political uncertainty in the country and fretted about the impact on the economy.
A tense stand-off between the Islamist-rooted government and the secularist Turkish army over presidential elections risked unnerving foreign investors who have returned to the high-growth country since a financial crisis in 2001, analysts said.
"Turkish markets will obviously be driven by politics this week," said economist Claire Dissaux at Calyon, an investment bank.
On the Istanbul stock exchange, the leading index grouping the 100 biggest Turkish companies fell 8.0 percent at the opening on Monday before recovering to finish the day 4.0 percent lower.
The Turkish currency, the lira, showed a loss of 2.4 percent against the euro in late European trading, after opening 4.0 percent weaker, its biggest fall since a broad selloff hit emerging country markets in May and June last year.
Tensions rose late Friday when, hours after a first, inconclusive round of voting in parliament for a new president, the army General Staff issued a stiff statement threatening to take action if the government did not do more to preserve the republic's secular tradition.
The government responded the next day in words just as strong by calling the General Staff to order and reminding it that it remained under the orders of the prime minister's office.
"After the army stepped in, everything changed. We all remember what happened 10 years ago," said analyst Arzu Odabasi at Global Securities, a brokerage.
She was referring to the ousting in 1997 of Turkey's first Islamist prime minister Necmettin Erbakan after strong pressure from the army, which accused him of damaging Muslim-majority Turkey's jealously guarded secular system.
"For the moment, the situation is confused," she said. "We have 48 hours to get all this over with and then we'll see things more clearly."
The army, Turkey's most respected institution, has toppled four governments in less than 50 years, the last in 1997.
The military move followed legal action by the opposition to have the Constitutional Court, Turkey's highest tribunal, annul the first round of the election whose sole candidate is Foreign Minister Abdullah Gul, a former Islamist.
The court is expected to return a verdict within 48 hours, before the second round of voting on Wednesday afternoon.
Dissaux at Calyon said the reaction on Monday was because investors "had practically failed over the past few weeks to price any of the risks related to the election period, with the lira at its strongest level versus the dollar since May 2006 and equities booming."
Analyst Nicolas Bouzou at French research group Asteres said the political uncertainty risked scaring foreign investors and the army's role in Turkish public life could scupper the country's bid to join the European Union.
"If the situation gets worse, if the army's interference in the democratic process is more visible, then that could dissuade companies from investing in Turkey," he warned.
Turkey has staged an impressive economic recovery since the current government stormed to power in 2002, ending more than a decade of weak coalition governments.
Inflation, which stood at 29.7 percent in 2002, has been reduced to 9.65 percent in 2006, and economic growth averaged more than 7.0 percent between 2003 and 2006, compared with an average of 2.6 percent in the decade to 2002.
Analysts believe further political stability is crucial as Turkey needs to address remaining weaknesses in its booming 400-billion-dollar economy, such as a record current account deficit of 31.3 billion dollars in 2006.
AFP
