Eyes on Ankara for the next round of crises

When money market interest rates toy with the 5,000% level, as they did in Turkey yesterday, it is time to take notice. The crises in south-east Asia in 1997 and Russia in 1998 showed how quickly contagion can spread through emerging markets. Already investors as far apart as Warsaw and Buenos Aires are looking nervously at events unfolding in Ankara.

To date the Turkish crisis is seen as essentially political - the result of a simmering row between the president and prime minister which reached boiling point at the beginning of the week.

But the line between political rows and economic fallout can be thin.

The stock market is on the floor; the central and commercial banks are locked in a battle of wills - leading to a massive spike in short-term rates.

Worst of all, the row has put a question mark over how effectively the Ankara government will be able to implement an International Monetary Fund programme designed to curb rampant inflation.

Hot money is already on the way out - £3.5bn so far this week - and rating agency downgrades for Turkish debt are on the way.

The stakes are high domestically. Last year, Turkey won its long-running campaign to be considered for European Union membership. At present, income per capita is a third of EU levels. Ankara hopes that joining the European club will boost investment and trade links, and help it close the gap.

It is a big challenge: its population of 65m is growing rapidly. Simply to keep up, it needs to grow much faster than other European countries. Anything that threatens to blow apart the economic reform programme threatens Turkey's hopes for a prosperous, western-oriented future.

But as Ankara's politicians squabble the IMF faces a dilemma, too.

If President Necdet Sezer and prime minister Bulent Ecevit are unable to bury the hatchet - except in each other's backs - Turkey may be forced to devalue. That would ease the country's short-term problems but would hardly sit well with the IMF's disinflation programme - which might then be pulled, precipitating a crisis. To date, Turkey has had 16 standby programmes with the IMF. Two have been completed. Don't hold your breath for number 17.

Maestro epitaph


Ed Wallis, the old maestro of power generation, is not quite ready to spend more time listening to opera or messing about in his two boats. But yesterday's overdue decision to give up his long-standing role as chief executive at Powergen marks the beginning of the end of his era as dominant - and domineering - architect of this privatised utility.

The smaller of the two generators formed from the break-up of the CEGB, Powergen quickly surpassed the former National Power in terms of leanness, fitness and shareholder value, driving out costs and exploiting the wholesale market to boost profits.

Mr Wallis then set it on an early course towards an integrated power group, paying £1.9bn for East Midlands - acquiring 2.3m retail customers at a hefty price.

But the man who in City eyes could do no wrong fell out of favour as the cost of trying to escape the harsh UK regulatory climate and moving into the US via the top-dollar acquisition of Kentucky-based LG&E sapped investor confidence. With its growing debt and uncertain disposals policy, Powergen became an obvious bid target for larger groups, such as Germany's E.On, itself keen to enjoy the laxer US climate.

City discontent focused on Wallis'dual role as chief executive and chairman, but that masked a desire to see him out of the way so a younger man such as Nick Baldwin, of the "consumer services" approach, could address the takeover with fewer hang-ups. But Wallis's comments yesterday show he is reluctant to give up the reins as non-executive chairman, sketching out a US-oriented strategy to restore profits. A lucrative pay-off can only be a matter of time.

In confidence


It used to be the case that when a DTI document such as the draft of the Maxwell report now wafting around the trade department was leaked, it would mean an injunction. Now we get formal statements, admonishing unnamed witness who may have broken confidence.

Progress of a kind, perhaps, except for the fact that in warning that the report on the Mirror Group Newspapers float is still unfinished, the DTI has again confirmed how painfully slow its investigations department is. It is also worth noting that certain corners of the DTI are locked in a power struggle with the FSA, whose own special powers come on stream this summer

The DTI may not have leaked on this occasion - but it has had the effect of reminding us that its companies inspectors do actually exist.