Crisis rocks Turkish government

Ecevit said the government would not resign over the crisis

ANKARA, Turkey (CNN) -- Turkey's financial markets face a test of confidence as they attempt to weather the bitter public row between president and prime minister.

The government is tasked with regaining the confidence of the markets and international donors as panicky investors drained nearly $5 billion from central bank reserves.

Prime Minister Bulent Ecevit stormed out of a National Security Council meeting with military and political leaders on Monday saying President Ahmet Necdet Sezer had insulted him, sparking the crisis.

AUDIO CNN's Ercan Kumcu: Abnormally high interest rates 527kb/48sec. AIFF or WAV sound

Turkish press was scathing in their reaction and said the row would cost Turkey dear as the country struggles to recover from an earlier financial crisis.

"We are going to do everything possible to make sure this will not lead a new economic crisis," Ecevit said, ruling out the possibility that his government would resign.

It could not have come at a worse time -- an IMF delegation is visiting for talks on Turkey's reform commitments that are a condition of an $11 billion aid package.

IMF Deputy Director Stanley Fischer met Ecevit with other fund officials on Monday evening, but made no statement to reassure markets afterwards.

Observers said the tension had already damaged the economy, draining $4.8 billion from central bank reserves out of a total of around $26 billion in a single day. Share prices closed 14.62 percent down.

But the first test of market confidence will come during Tuesday's domestic debt auctions. Early morning trading saw shares open steadily and nudge up two percent.

Turkish Economic Analyst Ercan Kumcu said interest rates would continue to be abnormally high today in the wake of the crisis but expected stability to return to the markets.

"It is also important for the government to continue to pursue what it promised to the IMF," he said.

As for the political row, Kumcu said he expected the president and prime minister to find a way to open communication channels once again.

Financial crisis

Ecevit gave no details of the dispute, but he and Sezer have frequently been at odds since the president was elected by parliament, with Ecevit's backing, last May.

Political newcomer, Sezer is determined to root out corruotion

Sezer, a newcomer to politics and determined to root out corruption, has questioned his government's will to act to investigate.

Allegations of corruption within the banks scared off foreign investors and led to a financial crisis in November.

The government has been angered by Sezer who last week instructed the State Inspection Board to investigate the transactions of state-owned banks over the last 10 years.

His cabinet demanded that Sezer apologise and said the president had thrown a copy of the constitution during a heated exchange with ministers.

The media were scathing in the wake of the row -- the daily Milliyet's front-page headline blasted "You don't have the right," while another leading daily, Hurriyet, said "Here's the bill -- the fight will cost Turkey dearly."

But there appears to be no hint of reconciliation between the two with Sezer issuing a terse statement which he said was to set the record straight.

"In the face of this reality, for the prime minister to hold the president responsible for what happened is, to put it mildly, unfair," he said.

Reuters contributed to this report.

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Office of the Prime Minister
Turkish Prime Minister
President of the Turkish Republic
International Monetary Fund
Hurriyet
Milliyet

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