Turkey is finally enjoying a measure of economic and political stability after two years of turbulence stemming from the inconclusive elections in 1995.

The new coalition government led by Prime Minister Mesut Yilmaz has safely negotiated its first 100 days in office. Thoughts of early elections have been jettisoned, and Yilmaz is fixing his sights on the medium term, affirming that the government will stay in power at least until the end of the present parliament's term in 2000. His political confidence has been underpinned by an economic programme aimed at cutting inflation and enacting structural reforms, which has a good chance of winning IMF and World Bank support.

Equally important for Yilmaz's confidence has been the support of the military. His administration owes its existence largely to the military's role in undermining the previous government, led by Necmettin Erbakan and his Islamist, conservative Refah (Welfare Party). From the outset of 1997, the military raised a series of objections to the social programmes of Erbakan's government, with the result that the coalition's parliamentary majority slowly ebbed away. Turkish politicians refer to the process as a 'soft coup'.

On taking power, Yilmaz envisaged calling elections at least by autumn 1998. However, the military do not want early elections which might return another hung parliament and leave Refah once more as the largest party, political analysts say.

Much will now hinge on whether or not Refah is closed down by a constitutional court case alleging that the party sought to encourage civil strife. The court prosecutor's indictment and the party's defence are due to be read in court on 11 November, and a final verdict in the case is expected by the end of the year.

Senior military officers are said to have argued that the closure of Refah and the enactment of secularist measures such as the recent educational reforms would inflict grievous blows on the Islamist movement. Refah itself says the case is undemocratic and unfair, and its leaders claim a surrogate party already in the wings would take over its share of the national vote in the event of closure.

Analysts also point to the possibility that Refah followers may take their cause to the streets if they feel their views are to be denied a legitimate hearing in parliament.

One plus for Yilmaz is that former premier Tansu Ciller, the leader of the True Path Party allied with Refah in the previous coalition, has continued to lose ground, and cannot be regarded as a serious threat to the administration.

However, the key to Yilmaz's political future will be whether his new economic programme will succeed in bringing down inflation, the bane of the Turkish economy.

'It is estimated that Turkey has one of the worst, if not the worst, inflation records in the world,' Finance Minister Zekeriya Temizel said when unveiling the 1998 budget on 17 October. The draft, medium-term programme aims to reduce inflation to a level acceptable to the EU, Temizel added, in an implicit reference to Turkey's long-term (but temporarily thwarted) EU membership ambitions.

The programme will seek to lower wholesale inflation to 3 per cent by the end of 2000, compared with a targeted 50 per cent in the draft 1998 budget, and an expected 85 per cent at the end of 1997. Growth in gross national product (GNP) is planned to be halved to 3 per cent next year and resume more comfortable levels of around 4-5 per cent for the remainder of the plan period.

The fiscal scenarios by which this will be achieved exclude revenues from privatisation. The government is planning to sell its stakes in the state telecommunications agency, several refineries, a refined products distributor, a petrochemical combine, steelworks, and most state banks. The target for privatisation revenues in 1998 alone is $14,000 million, which will be used to finance new investments.

Encouraging messages came from senior IMF officials visiting in October. They included Willy Kiekens, an IMF executive director, who said the 1998 budget could be successfully implemented. However, Turkish press reports say the IMF has also expressed some doubts about the longer range inflation and growth targets.

Domestic economists also say the budget, while sound, cannot produce miracles on its own. The determining factor for inflation will be the growth rate - not the budget deficit - as it will be relatively easy to curb the 1998 consolidated deficit to about 8.1 per cent of GNP compared with the 9 per cent expected in 1997, the economists point out. To cool the overheating, particularly in the private sector, the government may have to introduce further belt-tightening measures in the first half of 1998. That could prove to be unpopular.

However, if the government can secure IMF support for its programme, it will improve its access to international loan markets in 1998, thereby alleviating the domestic debt burden. Although a primary budget surplus will be achieved by cutting back heavily on investments, the government's interest burden for internal and external debt will remain huge at around 40 per cent of total expenditure.

If the 1998 budget targets seem broadly attainable, achieving the medium- term goals will depend on how far the coalition's left-wing will permit further sacrifices by lower-income constituencies. The IMF and the World Bank are also debating whether the government has sufficient political will to carry out essential reforms to the social security and taxation systems.

Ajay Chhiber, the World Bank's Turkish director, said on 28 October that he considered the government to be on the right track. However, he cautioned that the programme must be underpinned by effective structural reform. Should there be progress in these areas, the World Bank could expand its projected lending of $3,000 million over the next three years to $4,500 million, he said.

Ankara diplomats say the IMF will probably agree by January to a renewed support programme for Turkey, aimed primarily at ensuring Ankara can borrow more abroad in 1998. However, the programme will not be unduly severe and may not involve direct IMF financial assistance, the diplomats add.

Fund officials will claim the Yilmaz administration has demonstrated sufficient political resolve through its commitment to social security and taxation reforms, the diplomats say. When reviewing his government's first 100 days on 20 October, Yilmaz said work on these two reforms will be ready for presentation to parliament by the end of 1997.

The IMF is considering several options, ranging from a short-term standby facility to a 'shadow' programme extending a fund seal of approval without direct financial input, say the diplomats. Kiekens in Ankara said the IMF's verbal support might be sufficient as Turkey did not require IMF financial assistance at present.

Turkey's case is being helped at the moment by a number of wider considerations, relating to its strategic importance to Western powers. One factor is the desire of the IMF and the West generally to limit the global fall- out of the financial crisis in South-east Asia. Turkey's possible role as a major conduit for the export of Central Asian oil is also a factor, together with the Western obsession with curbing the rise of Islamist movements. These factors suggest that Turkey will get an easy ride when the IMF executive board gets down to detailed examination of its case.

Even without the formal backing of the IMF, domestic borrowers are already feeling the benefits of improved international perceptions of Turkey's risk factor. The treasury and a number of local banks have had little difficulty raising funds from international markets in recent weeks on favourable terms, despite Turkey's lowly ratings from agencies such as Standard & Poor's and Moody's Investors Service. 'Turkey for all its shortcomings at present seems a haven of stability amongst emerging markets in a sea of uncertainty about Asian and Far East turmoil,' says one Istanbul-based banker.

The challenge facing the Yilmaz government is to take full advantage of the positive shift in Turkey's favour and turn the promise of effective counter-inflationary measures into reality.