TURKEY: Controversial start for new Islamist-led coalition

26 July 1996

The coalition led by Prime Minister Necmettin Erbakan has got off to a controversial start, facing accusations of populist extravagance to win votes ahead of early general elections. The coalition has also been rocked by resignations from the True Path Party (DYP), minority partner to Erbakan's Islamist Welfare Party (Refah).

Eight more resignations on 16 July from the DYP, led by Foreign Affairs and Deputy Prime Minister Tansu Ciller, reduced the government's parliamentary majority to a fragile 279 seats in the 550-member house.

The resignations mean the coalition more than ever depends on support from the seven MPs of the ultra-right Grand Unity Party, which helped to secure a confidence vote on 8 July.

Ciller herself attempted to calm fears about the coalition's aims with a renewed pledge of free-market policies to reduce high public deficits, adding that the coalition would follow a real exchange rate policy for the lira Revealing plans for a sale of state housing and real estate to raise TL 300 million million ($3,600 million), she said details of a programme to raise new financial resources would be announced on 22 July.

This followed a week of controversy aroused by reported rifts between the coalition partners over the detailed objectives of a compromise policy platform chiefly aiming to curb high inflation. The platform contains little of Refah's previous radicalism, apart from a vague transition from a so-called rentier' regime to a productive economy.

After granting a 50 per cent pay increase for civil servants and retirees on 9 July, Erbakan said inhabitants of villages evacuated by the security forces in the southeast to deny support to Kurdish rebels would be permitted to return to their homes. Interior Minister Mehmet Agar says a total of 918 villages and 700 hamlets have been abandoned in the region over the past decade, displacing 330,000 people. Erbakan also pledged the state would operate all idle meat processing plants in the region, purchasing all livestock farmers were prepared to sell.

Other controversial and potentially expensive proposals attributed by Turkish press reports to Erbakan and other leading Refah figures include:

Agricultural debt forgiveness Exemption of an increased minimum wage from taxation External borrowing to offset domestic debt Taxes on so-called profiteering by rentiers, but at the same time easing the burden of taxation on so-called productive factors in the economy.

In addition, remarks by Refah's Finance Minister Abdullatif Sener about interest rate ceilings and taxes during an 11 July debate on budgetary resources sent jitters through the domestic financial community. Sener subsequently said the media had distorted his remarks, but investor concerns were reflected in tight volumes and a declining index on the Istanbul Stock Exchange, and a poor sale with rising yields at a Treasury auction of 204-day bills on 16 July.

For all the coalition's assurances of increased production, however, economists wonder where the money will come from in an already hard-pressed budget. They fear the extra spending will push up inflation, which was 82.9 per cent in annualised consumer terms to end-June.

Sener himself says the 1996 budget deficit is now expected to amount to about TL 1,300 million million ($15,850 million) as compared with the TL 861 million million ($10,300 million) targeted by the previous coalition.

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