At times crash has seemed imminent. Then relative calm has been found. For two years Turkey has lived dangerously. Its flight towards membership of the European Union and economic stability will remain hazardous for at least another year to come.
In 2000 it was the fragile banks that brought the country close to the brink. This time, it is illness. Since May the 77-year-old Prime Minister, Bulent Ecevit, leader of the center-left Democratic Left Party (DSP), has been unwell. His illness has invigorated his rivals. They see an imminent succession.
Politicians and parties have abandoned the coalition led by Ecevit. It now looks likely that a general election will be held Nov. 3. The complexion of the government that emerges will help to decide whether Turkey makes a safe landing.
Ecevit's term in office has been important. After decades of muddling along with high budget deficits and three-figure inflation, Turkey embraced reform. The bait, one still being dangled before the country, was membership of the European Union. Among Turkey's modernizers this is seen as the way forward, away from the factionalism of the past, the tense rivalries between nationalists, Islamists, army, right-wing, center-left, towards integration with the West and membership of a rich man's club, the EU.
Progress has been made. Tim Ash, economist for Eastern Europe at Bear Stearns in London, points out that Turkey is running a primary (excluding interest payments) fiscal surplus of around six per cent of Gross Domestic Product. That reflects a big effort to bring government finances under control, an effort supported last year by a $16 billion agreement with the International Monetary Fund. Yet the overall fiscal deficit remains high, at about 12 percent of GDP, when the government's interest payments are included, because both debt and inflation are high.
Turkey has about $114 billion of debt, equivalent to about two-thirds of its gross national product, and about 70 percent of the debt is domestic. With inflation currently running at about 45 percent, the interest payments on that debt are high. Only by bringing inflation under control and by maintaining the fiscal discipline achieved under Ecevit can Turkey hope to avoid an eventual debt crisis.
Inflation is coming down. In February, it was much higher than now, at 75 percent. And the banking system, which had been dangerously weak, is much stronger than it was, Ash believes. The banks have been one of the successes of Kemal Dervis, the former senior official in the World Bank, who joined Ecevit's government as economy minister in March 2001, and helped to pilot the country away from financial crisis.
Now Dervis is expected to play an important part in the next government. He and other reformers are drawn to a new center-left party, the New Turkey Party, that has broken away from Ecevit and the DSP. The party is led by the former foreign minister, Ismail Cem, and has been joined by about 40 deputies from the DSP. In order to help maintain confidence in the economy, however, Dervis is continuing to serve under Ecevit as economy minister.
The outcome of the election -- if it is indeed held in November; Dervis has suggested of late that he will serve out the remainder of his term, till April 2004 -- is quite uncertain. No opinion polls have been held for some months. But Ash says that polls taken earlier this year suggested there would be support for a new center-left movement, separate from the now unpopular Ecevit.
Cem and the new party are focused on attaining EU membership. In December Turkey will put its case for membership to the EU Council of Ministers at their summit in Copenhagen, Denmark.
But to convince the EU of Turkey's credentials, not only will continued economic reform be needed. The EU wants an end to the death penalty, and improved rights for the Kurds and Turkey's other minorities. The second largest party in Ecevit's coalition, the right-wing Nationalist Action Party (MHP), is opposed to these reforms and wants Abdullah Ocalan, the Kurdish leader, to be executed.
There are other contradictions, some undemocratic, that appear to distance Turkey from the West. For example, the Turkish army allows Islamic parties to stand in elections but not to hold public office.
Bear Stearns' Ash says it is not impossible that an attempt will be made to pass the necessary reforms before November when the Parliament reconvenes after its summer recess. But success is far from certain.
Turkey remains vulnerable, midway between the chaotic, corrupt, politically unstable and fiscally irresponsible past and a possible future within the EU. A virtuous circle can be depicted, Ash argues, whereby the prospect of EU membership helps to encourage investment and raise growth which, after a sharp contraction last year, is expected to be about 3 percent this year, in line with Turkey's high population growth. If inflation, too, keeps falling, the fiscal position will improve greatly, and Turkey's long search for a safe landing will be over.
But none of this is assured. Reforms to minority rights may not be passed and the EU, Ash thinks, may fail to be persuaded of Turkey's claims. In that case, Ash's concern is that growth will remain weak and that, not now, "but in the second or third crisis after this one," Turkey would risk having to restructure its debt. In any event, Ash thinks it is "hard to imagine Turkey getting by without further support from the IMF next year."
IMF aid may well be forthcoming. Argentina was abandoned by the IMF, in part, it would seem, at the prompting of the U.S. Treasury Secretary, Paul O'Neill. But the United States sees Turkey as strategically important to its efforts to pursue Iraqi dictator Saddam Hussein. Turkey is applauded as an ally, and will not readily be allowed to slide into crisis.
Yet the country remains between two worlds. It will be some time before we know whether Turkey's ambitious flight towards the wealthy West ends happily.
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