Corruption sets Turkey adrift

The magnificent dome of the Selimiye Mosque - one of the finest architectural achievements of the Ottoman Empire - soars high above the streets of this small city near the border with Greece.

People living in the shadows of the famous building are proud of their heritage, but now they are looking for something more down-to-earth: solid economic foundations in an uncertain world.

More than 3,000 jobs have been lost in Edirnesince Turkey was plunged into a new economic crisis little more than a month ago. It is a similar story right across the country.

"We blame the politicians," says Sabahattin Eryurek, a local trade unionist, as he sits in a small cafe with a group of men who have just been fired. "The people at the top are responsible for this, but they have no idea how to put things right."

There is growing concern, both in Turkey and abroad, that the politicians have lost direction. If the country's economic problems were to intensify, the consequences would be felt far beyond its own borders.

Turkey's strategic position makes it a vital ally of the United States. It sits between the Balkans, the Middle East and the former Soviet republics in the Caucasus - a key member of NATO surrounded by flash points of instability.

Turkey is one of Israel's few friends in the Muslim world and, as the base for US-led air sorties in the no-fly zone over northern Iraq, plays an important role in Washington's campaign to contain Saddam Hussein. It is also deeply involved in American plans to export oil and gas from Central Asia to world markets.

"The West cannot stand by and watch Turkey self-destruct," says Soli Ozel of Istanbul's Bilgi University. "There is too much at stake".

Turkey's internal problems are already having an effect on some regional issues, however.

The economic crisis has renewed pressure on Turkey to resume trade with Iraq, at a time when the Bush administration wants to reinvigorate the UN sanctions regime. Turkey says it has lost more than $30 billion in border trade since the end of the Gulf War.

With big issues at stake, the overall challenge facing Turkey's allies is how to help keep the country on a relatively even keel, as it goes through a painful and disruptive process of reform.

The current economic turmoil is just the tip of the iceberg, a symptom of a wider political malaise which has allowed corruption and patronage to flourish for years. State-run banks, for example, have run up losses of about $20 billion by handing out bad loans in return for political favors.

The system was able to survive as long as reform was off the agenda. Turkey's desire for closer links with the West, however, in particular for membership in the European Union, meant that a radical overhaul had to come sooner or later.

So the turmoil of the past few weeks was a crisis waiting to happen. It was triggered when Prime Minister Bulent Ecevit stormed out of a meeting with President Ahmet Necdet Sezer after the president criticized the government for failing to fight corruption.

The Turkish stock market plummeted, and the local currency, the lira, lost 30 per cent of its value against the dollar. A tough anti-inflation program, agreed on with the International Monetary Fund, was left in ruins. Now prices are rising, and ordinary people are suffering the consequences of years of mismanagement.

In small cities like Edirne there is a palpable sense of bitterness among workers and business leaders alike. Export-based companies, which make their profits in hard currency, should be able to ride out the storm. For everyone else, times are hard.

"It's a cash economy now," says one local factory owner, Mehmet Edip Agaogullari. "There is no credit available, and everyone is cutting back while they can."

The beleaguered Turkish government has moved to contain the damage by head-hunting one of the vice-president's of the World Bank, Kemal Dervis, to serve as its new economy minister.

Mr Dervis has two advantages: He is a political outsider with a clean record, and he has the confidence of international lending agencies. His problem is that some members of the coalition distrust him and resent the power he has been given.

As the political struggle intensifies behind the scenes, Turkey's allies abroad are watching anxiously, and voicing their support. There is some concern that an economic meltdown here could spread to other emerging markets."The United States will stand by Turkey as it continues on the path of economic and political reform," President Bush said last week in a letter to a meeting of theAmerican-Turkish Council in Washington. "Courage, wisdom, and perseverance are needed, and I believe the Turkish people understand the challenges ahead."

At the moment, though, Turkey needs more than encouraging words. Kemal Dervis wants up to $12 billion in new financial support, but he knows the money will not come until international lenders are confident that Turkey has the political will to push a reform program through.

Now the clock is ticking, and many economists are warning that a prolonged delay could prove disastrous. Some of the signs are not good.

Prime Minister Ecevit said last week that it was impossible for the Turkish parliament to pass 15 legal amendments in 15 days - the timetable set by Mr. Dervis for implementing an initial package of economic-stability measures.

"The old system has come to the end of the road; it has to change," says Turkish columnist Metin Munir. "But I have my doubts about whether the old guard will be able to reform itself. This is a very critical moment."

(c) Copyright 2001. The Christian Science Monitor