ISTANBUL, (Reuters) - Turkish shares fell more than three percent on Wednesday, May 9, and the lira lost ground against the dollar as nerves frayed over the fate of a law to privatise Turk Telekom, necessary to secure $10 billion in foreign loans.
Istanbul's National-100 share index dropped 451.62 points or 3.55 percent to 12,276.33 on news that the government had not yet reached agreement on the Telekom law, which foresees a majority sale of the state-owned landline monopoly.
Economy Minister Kemal Dervis and Communications Minister Enis Oksuz have disagreed in public over a way forward.
"The (Telekom) developments might have been used as an excuse to sell...but they awake worries about the government. In this atmosphere we don't want to see the limited trust in the government being damaged further," said Mukbil Yalcin of Ekspres Investment.
The lira ended the day at 1,154,000 against the dollar on the spot market , down from 1,144,000 at yesterday's close and representing a depreciation of 40.2 percent since it was floated amid economic crisis in February.
"Failure to deal with Telekom made the market nervous," said one banker. "There wasn't serious dollar buying demand but sales came in at around 1,160,000."
Turkey is all but guaranteed $10 billion dollars in new loans from the IMF and World Bank to bail its economy out of crisis, but is dragging its feet on some key reform laws it has pledged to international lenders.
Economy Minister Kemal Dervis hopes to push the Telekom law through parliament ahead of an IMF board meeting on May 15 when the fund is due to make a final decision on the loan package.
Dervis had hoped to calm concerns from the military and a nationalist coalition party over the strategic implications of sale to a foreign investor, but the legislation remains incomplete amid wrangling with the Communications Ministry.
The worries over Telekom spread to the bond market, where trade has been thin since the crisis. Yields on the busiest paper, maturing on March 6 2002, rose one percentage point to 90.29 percent.
"There are market nerves over the prolongation of privatisation work and the market is showing that but since this is a precondition for foreign aid there is an expectation it will be resolved," said one banker.
Looking ahead, investors said the market will be closely following progress on the Telekom law and an amendment to a banking law, now before parliament's planning and budgetary commission.
"People are looking to see how the (Telekom) licence will be solved," said Yalcin.
Parliament has passed eight of 15 laws deemed crucial to end Turkey's financial crisis, but has yet to take up important laws on Telekom, tender procedures, tobacco and government borrowing.
By Mark Bentley
© 2001 Mena Report (www.menareport.com)