Turkish Turmoil Slams Markets

The country is reeling from mass rallies and the military's threats to intervene in Turkey's presidential election

Even as Turkey tries to convince other countries that it is ready to join the European Union, continued domestic issues cloud its prospects. Nearly 1 million people have joined political demonstrations in recent weeks in Istanbul and Ankara, and now the crisis is spreading to the economy.

The current situation was precipitated by a struggle over who should be the country's next president: After removing himself from the running, Prime Minister Recep Tayyip Erdogan nominated his debonair foreign minister, Abdullah Gul, for the post. Problem is, while neither man is a rabid Islamic fundamentalist, both are more religious than national leaders have tended to be during the 84-year history of the secular Turkish Republic.

Plunging Stocks and Lira

Concern that Islamic values could permeate the highest levels of the government prompted an all-too-typical response: Turkey's fiercely secular military, which has overthrown four governments since 1960, suggested on Apr. 27 that it might intervene if Gul became president.

Over the weekend, 700,000 people rallied in Istanbul in support of secularism. And on Monday, Apr. 30, came the inevitable market reaction: The Istanbul bourse plunged more than 6% and the Turkish lira fell 4% against the dollar.

"It is obvious that the situation is very serious and the massive sell-off in the markets is fully justified, especially in light of the military's confrontational reaction to Gul's presidential candidacy," Danske Bank senior analyst Lars Christensen told Reuters.

The Rallies: Allaying Europe's Fears?

Most observers believe that the Turkish economy is strong enough to withstand the shock. But what matters over the long term, says analyst Serhan Cevik of Morgan Stanley (MS), is institutional modernization toward a truly liberal democratic regime. "After all, foreign as well as domestic investors prefer to put their money in a country where the rule of law is unquestionable," Cevik says.

EU officials condemned the Turkish military's threat to intervene in the presidential election. But Zeynep Gogus, a veteran commentator on EU affairs who also runs TR Plus, a nonprofit group in Brussels dedicated to furthering Turkey's membership bid, cautions that the public reaction will likely be more nuanced. "Europeans will likely take heart from the huge pro-secular rally in Istanbul, for it will help allay their fears that Turkey could become an Islamic republic," Gogus says.

The stock market and currency declines underscored a witches' brew of discontent facing the ruling Justice & Development (AK) Party as it attempts to put its man in the presidential palace in May. The incumbent president, Ahmet Necdet Sezer, will complete his seven-year term in mid-May, and Turkey's parliament has begun the electoral procedure to appoint his successor.

Head Scarf a Political Statement

Long before the military weighed in on the dangers of political Islam, opposition parties mobilized to boycott and contest the election, and a powerful business association called for early elections, currently slated for November. Erdogan, who was once jailed for inciting religious hatred, faces the toughest test of his political career so far. He planned to make a televised speech on Apr. 30 to address the political crisis.

After months of speculation about whether he would run for president—and fully aware of the secular establishment's unease with his candidacy—Erdogan last week took himself out of the race in favor of Gul. But despite the foreign minister's worldly demeanor, Gul also is a devout Muslim whose wife wears a head scarf. In Turkey, that is seen as a political statement—at best, supporting Islam, and at worst, promoting Islamic law, or shariah.

In the first round of voting last week, Gul fell 10 votes short of the required 367. But by the third round, when only a simple majority is needed, he could easily win. The AK party holds 353 seats in the 550-member parliament.

Pursuing Economic Reforms

Now, the main opposition party, CHP, has filed suit with the constitutional court asking for the parliamentary procedure to be annulled. The opposition claims that the AK Party did not have enough members present in parliament to open the first electoral session. The court started hearing the case on Apr. 29 and promised to issue a ruling by May 2, before the second round of voting, scheduled for that day. Legal experts expect the court to support the government, but if the ruling goes against it, then the AK Party would have no choice but to hold general elections within 90 days.

The Islamist-rooted government under Erdogan has won grudging praise from Turkey's secular establishment for its success since 2002 in pursuing an array of economic and political reforms under the auspices of the International Monetary Fund. To a large extent, these reforms are intended to qualify Turkey for membership in the EU, which could happen in a decade or so.

The government has brought chronic high inflation down to single-digit territory for the first time in a generation and the economy has posted 20 successive quarters of growth, the longest in modern times.

Military No Stranger to Coups

But all that goodwill has apparently run out when it comes to filling the symbolic and powerful role of president at Cankaya Palace in Ankara. The dour Sezer, a former chief justice at the constitutional court and a strict secularist, has often vetoed AK Party legislation and has blocked several official nominees whom he found unsuitable.

Standing firmly at his side was the Turkish military, which proclaims its mission to defend the secular and democratic republic established in 1923 under Mustafa Kemal Ataturk, who as the first president of Turkey abolished the caliphate and Islamic brotherhoods, declaring them an obstacle to his goal of Westernization.

The military has brought down four governments in the last 50 years, the last time in a so-called soft coup in 1997 when it forced out Necmettin Erbakan, premier and head of the Welfare Party. Today's AK party is an offshoot of that party.

No Relief in Sight

Turkey's top military officer, General Yasar Buyukanit, held a surprise press conference in mid-April at which he said that the armed forces stand united in their determination to defend the principles of Ataturk. He said a commitment to such ideals also was necessary in the president, "commitment not just by word, but in the heart."

That seemed to be the extent of the military pressure on Erdogan until a message was posted on the army's Web site on the night of Apr. 27 warning of the tendency of the current government to allow Islam to enter into politics. Among other examples cited, the message said that some schoolchildren have been forced to participate in celebrations of the Prophet Mohammed's birthday.

Gul wouldn't likely try to institute Islamic law in Turkey if he became president. But observers such as Asli Aydintasbas, a columnist with daily newspaper Sabah, think his real challenge will be representing the large swaths of society that don't support AK. "Whichever way it goes I think he will have to widen the scope of public participation in making policy and really listen to women's and other civic groups," Aydintasbas says. Otherwise, she says, "the country faces the danger of becoming polarized on important social issues."

Even the definition of secularism is now up for debate in Turkey's charged atmosphere. The kind of secularism practiced in Turkey is similar to that of France in that it protects the state from religion. But many liberals in Turkey now prefer the so-called Anglo-Saxon model, whose focus is more on protecting religion from the state, says Cengiz Aktar, a columnist with the daily newspaper Vatan. Either way, Turkey's crisis will likely continue to roil markets and raise eyebrows in Brussels.

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