Turkish Government Teeters on Verge of Ruin

ANKARA (Reuters)–Ailing Turkish premier Bulent Ecevit’s three-party government teetered on the brink of collapse on Tuesday after ministers resigned and his party mutinied in the face of possible early elections.

But the 77-year-old veteran premier seemed unwilling to go–telling the head of an opposition party that he had not yet reached the point of quitting.

Ecevit appointed a new deputy premier in place of Husamettin Ozkan–who resigned from the government and Ecevit’s party on Monday–and three replacemen’s for ministers who had resigned.

Markets–awaiting word on whether Ecevit will quit–fear polls could scupper a $16 billion IMF plan drawn up to tackle two crippling financial crises. The political crisis has pushed up interest rates that are throttling nascent economic recovery.

The treasury suffered from the political turmoil at two debt auctions on Tuesday–paying interest of nearly 80 percent on 238-day debt sold. Interest rates on domestic debt have risen some 25 points since Ecevit fell ill.

Ratings agency Standard & Poor’s said it had revised its outlook on Turkey to negative from stable citing political concerns in a worrying signal for foreign lenders.

"We just 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," said Hakan Avci at Global Securities.

Turkey is the IMF’s biggest ever debtor–its loans topped up after crises in November 2000 and February 2001 triggered by an unstable banking system. Washington has pressed hard in the past for support for its key Muslim ally on the edge of the Middle East and needs a stable Turkey to help with its "war on terror."

But loan repaymen’s are already pushing Ankara to the limit.

The IMF said it would go ahead with a progress review of the program this week–but it is unclear what political lineup Turkey Desk chief Juha Kahkonen will find in Ankara on Thursday.

As Ecevit’s grip on power slips after two months of illness that has stirred conflict and exasperation in his coalition and party–an alternative government could be hard to find.

Ecevit gave no signals on Tuesday that he was ready to go.

"I had the opportunity to ask him whether he would resign and he told me that he saw the difficulty in the continuation of the government but that he had not yet come to the point of resignation," opposition True Path Party (DYP) leader Tansu Ciller told reporters after meeting the prime minister.

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 form of 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.

"The market is looking for possible combinations of parties to make a coalition. 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 European Union membership–vital to foreign investment.

"There is a clear downturn on the financial markets but there is not excessive instability," he added.

"If a formula is found to seriously reduce the uncertainty it (the economy) could go well very quickly," Dervis said later after meeting Ecevit.

In early trade–the lira hit an all-time low of 1,706,000 to the dollar before pulling back. Stocks were also weak.

The politicians are not alone in following events closely–Turkey’s powerful generals–often a firm "guiding hand" in politics–may be eager to see a political deal that would avert polls and allow a resumption of effective government.

They may be alarmed that the likely winner of polls Tuesday would be the opposition AK Party–viewed with suspicion by the military because of its Islamist roots. A predecessor of AK was edged from power by military-led pressure in 1997–and the generals would not want a repeat of those traumatic days.

As the ship of state drifts–Turkey’s hopes of carrying out key rights reforms to qualify for European Union membership talks dwindle.

The US treasury said on Tuesday it was monitoring Turkish progress on economic reform amid the turmoil.

Turkish media compared Monday’s dramatic events to an earthquake – strong imagery in a land plagued by memories of recent deadly tremors.

Five ministers have now resigned from Ecevit’s government and the DSP–and more than 25 deputies have also quit the party.

If Ecevit were to resign–the way forward would be unclear.

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 a prime minister-designate to try to form a government.

He could name Devlet Bahceli–head of what has become the biggest party in parliament.

An uncertain future hangs over the DSP–dominated by Ecevit and his wife Rahsan since its foundation in the 1980s as Turkey emerged from three years of military rule.

A new party could emerge–changing the parliamentary balance and opening the way for a new interim "election" government or a stronger coalition able to pursue economic reforms.

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