Turkey at long last has a new coalition government ending two months of political wrangling following the hung parliament produced by the December general elections. Headed by Prime Minister Mesut Yilmaz, the centre-right coalition of his Motherland Party (ANAP) and former premier Tansu Ciller's True Path Party (DYP) has pledged to continue the country's Western, free-market direction in an ambitious programme dominated by economic reform.

By denying power to the Islamist, conservative Refah Partisi (Welfare Party - RP), the largest parliamentary grouping. the coalition has relieved Turkey's secularists and Western allies. Talks for a partnership between Yilmaz and RP leader Necmettin Erbakan failed only four days before Yilmaz and Ciller reached a preliminary agreement on 28 February, including Ciller's remarkable concession of the first year in a rotating premiership.

Business and industry leaders have also welcomed the agreement, hoping for bold action to bring the drifting economy back on course. However, caution has tempered their relief - the influential Turkish Industrialists' & Businessmen's Association, for example, has refrained from comment until after a parliamentary vote of confidence on 12 March.

Whether the fragile coalition can survive its five-year term is still very uncertain. Chief among its challenges at home is the recovery of electoral ground lost to the RP because of the secular parties' persistent economic failure. Abroad, closer integration with Europe through an EU customs union starting on 1 January - a key stage towards full EU membership - must be cemented against Greek hostility and obstruction.

Naming his cabinet agreed with the DYP on 7 March, Yilmaz pledged honest, efficient and open government. Ciller backed this up with a promise that the coalition would act like a single-party government.

But Yilmaz and Ciller have still to prove they can bury their differences which have hitherto blocked the marriage of the two broadly similar parties. Lacking an outright majority in the 550-seat house, the coalition also depends for its survival on lukewarm support from other parties. The Democratic Left Party (DSP), led by former premier Bulent Ecevit, has indicated that it will go no further than abstaining in votes of confidence.

On the other hand, vigorous, unremitting opposition can be expected from the jilted Islamists. Nor can Ciller expect to be forgiven for abandoning the left-wing Republican Peoples Party (RPP), a coalition partner of the DYP since the 1991 general elections.

The RPP's leader, Deniz Baykal, on 7 March likened the coalition's cabinet to a 'third national front,' a reference to the predominantly right-wing but weak coalitions of the 1970s. Divisions could hamper the 33strong cabinet, which tilts broadly towards the hard-right.

In their ministerial selections, both Yilmaz and Ciller aggravated dissent within their own parties ahead of critical annual conventions. Paradoxically, Ciller passed over dissidents who had previously argued that she should give way to Yilmaz. Yilmaz himself sidelined opponents of ANAP's proposed partnership with the Islamists.

Another testing point will be political accounting on the first change of premiership at end-1996, when Yilmaz hands over to Ciller for two years. He will take over again for the fourth year, while a DYP figure agreed on by both parties will hold the premiership ahead of general elections in the fifth.

Holding his party behind him may prove more difficult for the premier, who for key ministries has hand-picked four party whips in previous ANAP governments. In the 1991 elections, Yilmaz led ANAP into defeat and four years of opposition after eight years of unbroken rule, most of it under the party's founder, the then premier and late president Turgut Ozal.

Ciller's choice of ministers reflects a purge of old-guard figures loyal to Demirel, the DYP's founder. She chose former interior minister Nahit Mentese as her proxy Deputy Prime Minister and favoured top civil servants who resigned with her encouragement to contest the December elections.

Hawkish line

Amongst these are former security officials noted for their nationalist views. They include State Minister Unal Erkan, former governor of the Kurdish south-east, and Justice Minister Mehmet Agar, previously chief of police in Ankara and Istanbul. The cabinet profile means an unrelenting struggle against the eleven-year Kurdish insurgency, observers say. However, the programme promises to address Kurdish concerns and gradually to lift the state of emergency in the region.

The government may also adopt a hawkish line in relations with Greece strained recently over the Aegean, although its programme pledges to resolve disputes with Athens peacefully. The new foreign minister, Emre Gonensay, is a moderate who proved his diplomatic skills as an adviser to Ciller in lobbying for Central Asian oil export routes across Turkey.

Despite demands by Yilmaz for overall control of the economy, the DYP appears to have obtained a commanding hand in its direction. Where ANAPs control is limited to the Finance & Customs Ministry, the DYP will oversee the Treasury, State Planning Organisation and State Institute of Statistics, amongst other important economic departments.

Ministers from bureaucratic backgrounds include Ciller's previous so-called A-team' for the economy, comprising former treasury head Ayfer Yilmaz, privatisation chief Ufuk Soylemez and central bank governor Yaman Toruner. They must work in harness with Rusdu Saracoglu, the ANAP-appointed State Minister responsible for overall economic coordination. He resigned as central bank governor in 1993, following clashes with the abrasive Ciller on her accession to the premiership.

The past six months of political uncertainty have stalled the economic recovery programme, and the coalition cannot afford any delays in reducing inflation and cutting back the state's role in the economy. In particular, the programme aims to revive privatisation with legislation in the first half of 1996 for the denationalisation of energy, transportation and telecommunications.

New laws are required to overcome the constitutional court's obstruction of the privatisation programme. Most recently the court partly annulled law no 4,000, which provided for the sale of Turk Telekomunikasyon (Turk Telekom). This alone had been expected to provide much of the $20,000 million anticipated in privatisation revenues during 1996.

The government's Privatisation Administration (OIB) was due to wait until the court published its reasons for the late-February decision before responding. It is now in a much stronger position to act.

High on the coalition's economic agenda is likely to be the negotiation of renewed support from the IMF. Due to the political uncertainty prior to the elections, the IMF withheld the last SDR 150 million ($221 million) tranche of an SDR 610 million ($899 million) stand-by facility attached to a recovery programme first agreed during the economic crisis of 1994. A renewed IMF 'monetary anchor' programme could be in place by mid-year, setting out quarterly performance targets to stabilise key indicators in the economy.

The economic conditions are likely to force the government to adopt austerity measures.

These may combine with high interest rates to restrict growth to around 2.5-3 per cent in 1996, compared with around 7.5 per cent for the whole of 1995, analysts say. Previous governments have struggled to control inflation, with little success. There are few signs that the new government will fare any better than its predecessors: inflation is likely to remain at the level of 60-80 per cent reached at the end of 1995, the analysts add.

The heavy weight of public sector borrowing is expected to keep the consolidated budget deficit in real terms at its 1995 level of around TL 316 million million ($4,828 million), equivalent to about 6 per cent of gross domestic product. However, the austerity measures may trim it to show a substantial primary surplus. The EU customs union which began on 1 January is likely to exacerbate the trade deficit, which could reach $15,000 million in 1996.

Nevertheless, if the new government adheres to IMF advice and agreed targets, by the end of 1996 the economy could be poised for higher, more balanced expansion as the customs union starts to bear fruit in increased trade and capital inflows, the analysts believe. However, all this assumes that the fragile coalition can survive until then.

Government of Turkey:

(announced 8 March 1996)

Prime Minister Mesut Yilmaz

Deputy Prime Minister Nahil Mentese

Ministers of State in the Prime Ministry

ANAP

Rusdu Saracoglu

Mrs Ayfer Yilmaz Abdulkadir Aksu

Eyup Asik Ms. Imren Aykut

Gemil Cicek Ali Talip Ozdemir

Ersin Taranoglu

DYP

Ufuk Soylemez

Yaman Toruner

Ayvaz Gokdemir

Yasar Dedelek

Unal Erkan

Halit Dagli

Departmental Ministries

ANAP

Interior Ulku Guney

DefenceOltan Sungurlu

Finance & CustomsLutfullah Kayalar

Public Works & Housing Mehrnet Keciciler

Labour & Social Security Emin Kul

Energy & Natural Resources Husnu Dogan

CultureAgah Oktay Guner

Environment Mustafa Tasar

DYP

Foreign Affairs Emre Gonesay

National Education Turhan Tayan

Health Yildirim Aktuna

Agriculture Ismet Atilla

Transport & Communications Omer Barutcu

Industry & Trade Yahm Erez

Tourism Istlay Saygin

Forestry Nevzat Ercan