Erdogan Urged to Quit as Ministers Resign Amid Graft Probe

Prime Minister Recep Tayyip Erdogan came under pressure to resign today after a cabinet minister said the Turkish leader had approved some decisions under investigation in graft probes rocking the government.

Environment Minister Erdogan Bayraktar, one of three ministers to quit today, said Erdogan ordered the redevelopment plans mentioned in an inquiry led by public prosecutors. “I have nothing that I can’t explain,” he said on NTV television. “I believe the prime minister should also resign.” Erdogan, in a speech, defended his party’s record and said corruption won’t be tolerated.

Bayraktar headed the state housing authority TOKI, which reports directly to Erdogan, before joining the cabinet. Economy Minister Zafer Caglayan and Interior Minister Muammer Guler also resigned, their sons having been entangled in the probes that they say are a plot to smear the government before local elections in March.

Six months after routing opposition-led protests in the center of Istanbul, Erdogan is mired in a power struggle that has divided the police and judiciary. Its outcome may determine the fate and legacy of the 59-year-old premier, who says he is fighting what amounts to a coup attempt.

Suspected Bribery

The investigations into suspected bribery, money laundering and gold smuggling started 15 months ago, according to prosecutors. Erdogan’s supporters, though, accuse followers of U.S.-based imam Fethullah Gulen of instigating the crackdown. The cleric broke with the prime minister this year, rupturing a partnership that sustained the longest period of political stability since Turkey adopted a multiparty system in 1946.

The lira weakened 0.2 percent to 2.0809 a dollar at 4:40 p.m. in Istanbul. The Borsa Istanbul 100 Index fell 3.6 percent. The national currency and equity index both reversed earlier gains after Bayraktar’s resignation was announced.

Erdogan, in a speech to members of his ruling party today, described the probe as “an ugly conspiracy.” He said the party has a “tough stance on corruption” and called on Turks to maintain their trust in his government.

The prime minister may announce a cabinet reshuffle after meeting with President Abdullah Gul, the president said yesterday. Ten ministers may be replaced as early as today, according to Turkey’s Dunya newspaper, which did not say where it got the information.

‘Increasing Concerns’

“There is an erosion of confidence and increasing concerns within the core of the ruling party that Erdogan may have difficulty steering through this crisis,” said Ilter Turan, a professor of political science at Istanbul’s Bilgi University. “Erdogan has been acting as the top commander, directing all projects, and now the expectation among his ranks is rising for him to shoulder the responsibility.”

Sons of Caglayan and Guler were charged and jailed in connection with the police investigations, while Bayraktar’s son was released pending trial. Caglayan said in a written statement that he was stepping down to expose a “dirty game” and allow “the truth to be uncovered.” Guler’s office released a statement warning of a “dark conspiracy against the government, the ruling party and Turkey.”

‘Propaganda War’

Erdogan, who was unaware of the probe until the arrests began on Dec. 17, removed hundreds of police chiefs and officers from their posts in response, eliciting charges that he is trying to hamper the investigation.

Erdogan’s actions show that the government lacks “self-confidence,” Lawmaker Idris Bal, who resigned from ruling party this month, said in a phone interview. “If you’re waging propaganda war through the media, it means you have no confidence and there is corruption involved.”

“If anyone is taking what belongs to the people from their purses and safes, both the judiciary and we will hold them accountable,” Erdogan told hundreds of supporters yesterday.

A total of four ministers have been implicated in the probe, according to the government. EU Minister Egemen Bagis was also implicated in three secret investigations that broke open on Dec. 17 with a police sweep that took dozens into custody, according to Hurriyet newspaper Dec. 19.

Gold Smuggling

Other suspects include Suleyman Aslan, chief executive officer of state lender Turkiye Halk Bankasi AS, top bureaucrats from the economy ministry and Reza Zarrab, an Iranian-Azeri businessman, who is accused of gold smuggling and illicit money transfers from Iran to Turkey. Zarrab is also said to have given a $335,000 watch to Caglayan as a gift, according to Zaman newspaper, which did not say how it got the information.

Shares of Emlak Konut Gayrimenkul Yatirim Ortakligi AS, the real estate unit of the state housing agency TOKI, has plunged 20 percent since the probe broke.

Caglayan used to run a family aluminum business and headed the Ankara Industrialists’ Association for 12 years until he was elected as a lawmaker in 2007. Before he was appointed Economy Minister in 2011, he served as minister of trade and industry and minister of foreign trade.

Interest Rates

The 56-year-old minister frequently accused the Turkish central bank last year of depressing economic growth with high interest rates. In his speech today, Erdogan said an “interest-rate lobby” was trying hard to raise borrowing costs and pledged to deal a “final blow” to their efforts.

Guler, who served as a governor of Istanbul for seven years until 2010, became minister of interior in January. Photographs showing his son’s bedroom with several safes and a money-counting machine were publicized following his detention last week. Guler said his son moved the safes home after recently shutting down a business he owned because he is “stingy.”

Before it's here, it's on the Bloomberg Terminal.