Turkish govt struggles with response to slowdown, financial crisis

By bne IntelliNews September 29, 2008

Bernard Kennedy in Ankara -

A call for a cabinet reshuffle from the conservative businessmen's association MUSIAD has highlighted the declining confidence of Turkish business and financial circles in the ability of the ruling Justice and Development Party (AKP) government to handle the twin challenges of a slowing economy at home and financial and economic uncertainty abroad.

When the AKP narrowly escaped closure by the Constitutional Court for its alleged Islamist goals at the end of July, economists and entrepreneurs looked forward to a period of political stability that would allow the government to concentrate on the economy. Instead, the agenda has been dominated by corruption allegations, the row between Prime Minister Recep Tayyip Erdogan and the country's largest media group, and the detention of retired generals, journalists, actresses and other public figures allegedly connected to a coup plot.

"I think you have to be able to trust in the government at these times and that is what is missing. There are serious issues facing the country and we have not been talking about the real agenda," underlines Taylan Erten, who writes about politics for the business daily Dunya.

Scarcely a day goes by without one business leader or another politely trying to draw the government's attention to the economy. But when Erdogan finally addressed the issue at a press conference on September 22, it was only to assert that Turkey would suffer limited damage as a result of the turmoil in the US, and that it might even be turned into an opportunity.

"The first thing to be done to turn the crisis into an opportunity was to make a comprehensive agreement with the [International Monteray Fund]. This could have been done a couple of months ago," retorted columnist Erdal Saglam in the daily Hurriyet. Erdogan said that the issue of relations with the IMF - in limbo since the most recent standby accord expired in May - would be resolved in November at the latest. But Saglam suspects that the government does not want to tie its hands with fiscal policy and structural reform commitments ahead of the local government elections due in March 2009.

Istanbul's depressed financial markets share all these concerns. "The fiscal side is going well, but we were hoping for more positive signals on the IMF, the EU accession process and structural reform," says Banu Kivci Tokali, chief economist of Finansinvest. "And the global situation should have speeded things up."

"There is a sense that in the past the AKP has always done what the markets told it to do in the end," she adds, "But if it looks like it's going to carry on like this until the local elections, I think the real sector will harden its tone as well."

Reshuffling the pack

Could changes in the cabinet usher in a sense of urgency, clearer policies, better communication and stronger leadership?

Curiously, the call for new faces came from an organisation politically close to the government - although not always sympathetic to the IMF or what it perceives as the high interest rate policies of the central bank. Citing a long list of woes from low profits and falling demand to exchange rate uncertainty and the threat of financing problems, the conservative businessmen's association MUSIAD suggested that key ministries should be headed by "engineers with a production background."

Others have been looking forward to a cabinet reshuffle for different reasons. According to Tokali, "It would have been much better if they had renewed their image after the closure case... to reassure secularist circles and business circles. In the current climate, the slightest incident raises fears [of renewed political uncertainty]."

Yet Erdogan has a five-year record of loyalty to his ministers. The 25-member cabinet formed after last July's general election contained only a handful of new names, and any alterations that the premier may make as parliament convenes in October could be limited to an unconvincing game of musical chairs between ministers and top party officials.

Among the ministers responsible for the economy, Deputy PM Nazim Ekren, Industry Minister Zafer Caglayan and Treasury Minister Mehmet Simsek are all relatively new in their posts. Moreover, Caglayan and ex-Merrill Lynch analyst Simsek have strong support among industrialists and bankers respectively. Likewise, Trade Minister Kursat Tuzmen enjoys immense popularity among exporters. More likely to bow out are the agriculture minister, Mehdi Eker, and the energy minister, Hilmi Guler. The latter most recently came under the fire when the tender for Turkey's first nuclear plant, which Guler insisted on holding at a moment of intense global financial uncertainty, attracted only one bid.

A possible surprise would be the "retirement" of Finance Minister Kemal Unakitan, a close associate of the prime minister who has been the butt of corruption allegations in the past. Meanwhile, the appointment of a new chief negotiator for the EU talks, separating the post from the foreign ministry, could signal renewed commitment to the EU process. Alternatively, Erdogan may wait until April or later, but by doing so he will only add to a growing impression that he himself is responsible for the government's inertia.

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Turkish govt struggles with response to slowdown, financial crisis

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