CONFIDENCE in the Turkish government’s economic competence received a fresh blow on 31 January with the resignation of central bank governor Bulent Gultekin, after only six months in office. Like his predecessor, he quit over a policy dispute with Prime Minister Tansu Ciller.
‘I feel that the atmosphere of confidence in Turkey is fading,’ Gultekin said. A medium-term economic programme was required, he said.
The resignation came after strenuous but belated efforts by the central bank and treasury to brake a run on the local currency. These included devaluation of the lira by 11.97 per cent on 26 January, and the abandonment, temporarily at least, of a policy of lowering interest rates. There were indications that excess liquidity fuelling the run was being mopped up finally by central bank and treasury market operations as MEED went to press on 2 February, and that both the free market and central bank rates had stabilised at about $1=TL 17,250. But bankers and economists had criticised the authorities for not moving fast enough when downgradings in mid-January from leading US ratings agencies triggered the crisis (MEED 4:2:94, see page 27). The central bank itself had advised a faster devaluation coupled with an austerity package, or no devaluation at all.
Analysts still fear the crisis could deepen if banks are driven to cut their losses and close on their sector’s overall short position – the difference between banks’ foreign ex-change and do-
mestic lira assets – of nearly $6,000 million. The position was built up in 1992-93 by capitalising on an over-
valued lira when currency depreciation lagged behind domestic inflation.
The costs of the crisis will probably include higher external borrowing rates. Before Gultekin’s resignation, international banks had been prepared to wait until after critical local elections on 27 March for firm action by Ciller to address the source of the downgradings, the budget and foreign trade deficits. ‘But now it would take a brave man to dip his toe in there,’ says a London-based banker.
The government is likely to be hard hit in the elections, its first major popular test since coming to power in 1991. Neither interest nor inflation rates look likely to fall beforehand, which could alienate the core constituencies of workers and artisans supporting Ciller’s True Path Party (DYP), fixed- income public-sector workers behind its minority partner in the coalition, the Social Democratic Populist Party (SHP), and an increasingly important, floating middle-class vote in the large cities such as Istanbul and Ankara. Big business is also becoming increasingly disenchanted with Ciller.