The treasury is planning a $750 million, five to 10-year global bond issue in early March despite the recent foreign exchange crisis triggered by risk downgradings by US ratings agencies in mid-January. It has mandated Merrill Lynch and Salomon Brothers for the deal, which would be Turkey’s first global issue.

The treasury is also hoping to raise a further $750 million in February in the Japanese Samurai bond market, expected to be arranged by Daiwa Bank. This indicates that the policy of borrowing more abroad rather than at home, while also leaning on the central bank to cover widening public deficits, will continue in the short term.

Some bankers say spreads may be wider than before the crisis. Others say the markets expect 225-250 basis points over US treasury rates. They point out that the de facto devaluation during the crisis could stablilise domestic money markets and encourage exports through enhanced price competitiveness. Foreign exchange reserves remain strong despite the crisis, they add.

The crisis has cost the central bank dearly through its interventions to halt the lira’s slide. Its own foreign reserves contracted to $5,390 million on 28 January from $6,300 million at the end of 1993.

Prime Minister Tansu Ciller has appointed a new minister of state for economic affairs, Aykon Dogan, a specialist in tax issues. But Ciller had still not appointed a replacement central bank governor to Bulent Gultekin as MEED went to press on 10 February. He resigned on 31 January over policy differences with Ciller.

Dogan is to preside over daily meetings of a new money management committee to include the central bank, treasury, the watchdog Capital Markets Board (CMB) and the Public Participation Administration (KOI), which is in charge of privatisation.

As Ciller struggles with damage limitation, a new shock has come from January’s inflation figures. Although the annualised consumer price index fell back marginally to 69.6 per cent from the 1993 year-end figure of 71.1 per cent, economists said a near doubling in the rate of increase in wholesale prices to 5.3 per cent in January compared with the previous month would push inflation higher in February. Some observers think the rate of inflation will soar as high as 110 per cent in 1994.

Business leaders and economists are calling for an austerity package, but analysts say it still seems doubtful that Ciller will risk already battered electoral support by harsh measures before the local elections on 27 March. However, she has imposed a ban on new recruitment by the civil service and state industries.

The Istanbul stock exchange index has slumped by about 40 per cent since the crisis broke in mid-January. The market is dominated by sellers, and buying demand has been underpinned by bargain-hunters from abroad.

Efforts by the CMB have failed to regenerate domestic demand through decrees permitting equity funds to trade in the exchange, and to back repurchase (repo) agreements. As the demand for tax-free equity funds has faded, banks have also pulled back.

Devaluation has eroded the profits of many companies in the first quarter of this year, and has put year-end forecasts in doubt. Many firms are expected to shelve dividend payments for 1993.