Turkish court opens way for early election

By Vincent Boland in Ankara, Financial Times, 01/05/2007

Turkey’s constitutional court on Tuesday declared the first round of electing a new president invalid, opening the way for early general elections that could resolve the country’s damaging political crisis.

The ruling came after the stock market fell 3.2 per cent, taking losses over the past two days to nearly 10 per cent, as foreign investors kept selling Turkish assets in the belief that the crisis would not end soon.

Analysts said foreign investors were starting to reduce sharply their exposure to Turkey, which until last week was attracting record inflows of foreign capital.

“There’s a lot of uncertainty around,” said Mahmut Kaya, head of research at Garanti Securities. “There is a general tendency to reduce exposure to Turkey because the consensus is that political stability has been derailed.”

The constitutional court upheld a petition by opposition parties claiming last Friday’s first round of parliamentary voting on a new president was invalid on procedural grounds. Abdullah Gul, foreign minister in the government, which has its roots in political Islam, is the only candidate.
The government met last night to consider the court’s decision. “We are ready for an early election,” said Cemil Cicek, a government spokesman.

The military, which has overthrown four elected governments since 1960, at the weekend threatened to intervene to prevent Mr Gul from taking up the post. The threat initiated Turkey’s most serious political crisis for several years. Some analysts said a general election could be called within days.

The crisis has prompted the biggest sell-off on the Istanbul stock market for a year, reflecting a sharp reversal of perceptions. The selling was fuelled by investment banks in London urging investors to reduce their exposure to Turkish assets.

Foreign investors own some 70 per cent of the Istanbul stock market. Much of that investment – up to $75bn, by some estimates – is “hot money” that can be withdrawn quickly.

The lira recovered after the court decision late on Tuesday. It has fallen nearly 4 per cent in the past two days as investors reduced their exposure to risky “carry trades”, in which the lira has been a popular instrument because of high interest rates.

Ali Babacan, the minister responsible for the economy, acknowledged in a television interview the tougher conditions the country faced. “Turkey is poorer today than it was last week,” he said.

In a sign of the tense atmosphere, nearly 600 demonstrators were detained in Istanbul after clashes between police and left-wing trade unionists marking May Day, in a protest that took on an anti-government mood.