Turkey's vibrant economy could plunge into long-term turmoil after state prosecutors moved to shut down the governing party, raising financial risks amid a global credit crisis, analysts said on Thursday. The legal onslaught against the business-friendly Justice and Development Party (AKP) comes at a time when strong growth has already begun to slow down, with the government struggling to contain inflation and a gaping current accounts deficit. The chief prosecutor, who filed an indictement at the Constitututional Court last week, wants the Islamist-rooted AKP outlawed for undermining Turkey's secular order and 71 officials, among them Prime Minister Recep Tayyip Erdogan, banned from politics. The business community, which has sought to maintain a neutral stance in the simmering battle between the AKP and its powerful secularist opponents in the judiciary, the military and the academia, quickly rang the alarm bells. The country's largest business group, TUSIAD, denounced the prospect of AKP's closure as “unacceptable for Turkish democracy” and the Association of Foreign Investment warned that “a long period of political instability will affect all investment plans.” The court is widely expected to accept the prosecutor's indictement and formally launch the case within days, plunging Turkey into deep political uncertainty until a verdict is announced within a period of up to six months. “The trial and all political tensions that will result from it will make the economy a secondary issue for a long while. The government will forget all its (economic) projects,” columnist Tevfik Gungor wrote in the financial daily Dunya. The government is already grappling with trade unions over a long-delayed social security reform sought by the International Monetary Fund (IMF) under a three-year economic stability programme it sponsors for Turkey. It is also under pressure to tighten fiscal discipline to rein in inflation after missing its targets over the past two years and introduce measures to boost prosperity in the impoverished Kurdish-majority southeast. Fiscal policies were loosened last year as Turkey held elections, in which the AKP won a second five-year term in power, and inflation reached 8.39 percent. Growth, which averaged 7.0 percent between 2003 and 2006, slowed down to 5.0 percent in the first three quarters of 2007. The prospect that the AKP might be closed is a doomsday scenario for investors in a country where weak coalition governments over the decades have been blamed for financial instability. “Outlawing the AKP and banning its leaders from politics will be a big earthquake... a big crisis,” said Seyfettin Gursel, an economist at Istanbul's Galatasaray University. “The European Union will not accept that, the membership negotiations will be suspended and foreign capital will most probably flee,” he said. The start of Turkey's EU membership talks in 2005 and IMF-backed economic reforms have provided major boosts for the Turkish economy in the wake of two severe financial crises that helped the newly-found AKP came to power in 2002. Under the AKP, inflation in Turkey dropped from 29.7 percent in 2002 to 9.65 percent in 2006 and public debt dropped from 78 percent of GNP to 45 percent in the same period. The country attracted a record $21.87 billion of foreign direct investment last year and the government pursued aggressive privatisation. The three-year $10-billion deal with the IMF expires in May and the government is yet to say how its relations with the Fund will proceed. The prosecutor's move against the AKP took a toll at the Istanbul Stock Exchange Monday, with the national index slumping 7.5 percent, driven down also by global financial fears. Even though shares have since rebounded, economists see no reason for enthusiasm, saying that political frictions expected during the course of AKP's trial would be a perfect recipe for volatility. “There will be new developments every day and each of them will create jitters,” said Haluk Burumcekci, chief of research at Fortis bank. __
