After a landslide victory by the AKP in the 3 November general election, which left Turkey with its first single party government in years, markets soared. The softer than soft Turkish currency, the lira, also showed an impressive performance against international heavy hitters such as the US dollar and the euro while interest rates began to flutter downwards.
The last of these developments was particularly good news, as analysts predicted market goodwill would seriously impact interest rates further, bringing down the awesome debt burden the incoming government faced. Plans for an end of 2003 primary surplus of 6.5% looked suddenly achievable, along with targeted economic growth of 5%. Yet now the party seems well and truly over.
"The first sign was the Treasury bond auction in early January," says Emin Ozturk of the Istanbul finance house Bender. Turkey has quite phenomenal debts, largely extended by a $16bn IMF loan programme to back up its IMF economic recovery programme. This was brought in by the previous government following the February 2001 financial meltdown. Servicing this debt requires successful bond auctions, and market goodwill in purchasing these at a good rate. However, early January's sale saw a disappointing turn out.
"Then there was the protest by a whole clutch of business organisations that the government was straying from the programme," Ozturk continues.
He is referring to a mid-January barrage of criticism by TUSIAD, Turkey's top Industrialists and Businessmen's Association.
"The balance established right now is a very fragile one," said TUSIAD chairman Tuncay Ozilhan, "and the government is just sitting on it."
The change of heart seems to have largely stemmed from two factors. The first was a growing sense that the AKP victory had been something like a much-hyped and correspondingly over valued share issue. Artificially high in the first place, it therefore required some market correction.
The second factor was the performance of the government itself.
"We thought that getting a single party government would make for a strong sense of leadership," says Global Securities Hakan Avci. "Yet what happened then was that questions of competency and experience began to be asked."
The AKP administration had few established economic talents in its ranks. It also had a problem with being constantly trapped between a rock and a hard place.
In common with all the mainstream parties contesting last November's election, on the campaign trail...