Turkish Premier Steps Up Fight Against Corruption Probe
Erdogan Removes 400 More Police Officers, as Battle With Judiciary Escalates
ISTANBUL—Turkish Prime Minister Recep Tayyip Erdogan on Tuesday removed an additional 400 police officers from their posts, intensifying his fight against a corruption investigation that plunged his government into crisis in December.
The shuffle was concentrated in Ankara, where some 350 directors and other senior officers from key posts in the intelligence, organized crime and antiterrorism units were reassigned, state news agency Anadolu reported.
The move, which brought the total number of police officers purged in recent weeks to around 500, came as prosecutors in the Aegean province of Izmir unveiled a new corruption case targeting port authorities and the national railway, detaining more than 20 people, including officials.
The battles between the judiciary and the government, which exploded into public view in December, look set to continue ahead of local and national elections this year, heightening political risk and weighing on investor confidence.
Prosecutors on Dec. 17 unveiled an investigation into alleged bribery and other charges, targeting dozens of people close to Mr. Erdogan and his allies. The premier has decried the probe, calling it a foreign-backed effort to topple his government. He has vowed that the government wouldn't budge from pursuing corruption, without directly addressing the charges, while suspects in the case haven't publicly commented on the allegations.
Mounting political instability is threatening Mr. Erdogan's decadelong economic success, a cornerstone of his electoral prowess. The premier has nearly quadrupled Turkey's gross domestic product to more than $800 billion in his three terms, and has pledged to repeat the feat and make the country a top-10 world economy by the republic's centenary in 2023.
Underscoring the divide is a public spat between Mr. Erdogan and Fethullah Gulen, an Islamic cleric and a former ally who now lives in Pennsylvania. Mr. Gulen, who moved to the U.S. in 1999, citing health reasons as he faced trial for seeking to topple Turkey's secular order, has millions of followers who have helped the governing Justice and Development Party, or AKP, retain power. Members of the cleric's congregation hold key posts in the judiciary and the police, leading Mr. Erdogan to accuse Gulenists of establishing a "state within the state," a claim they deny.
"The struggle between the AKP and the Gulen movement shows no signs of abating," said Wolfango Piccoli, managing director at Teneo Intelligence. "As part of the government's retaliation, purges of senior police and intelligence officers are still continuing.…From this all-out power struggle, neither the AKP nor the Gulenists are likely to emerge as a clear-cut winner."
The local elections in March will help determine if Mr. Erdogan will run in August to become Turkey's first directly elected president. The country is also scheduled to hold parliamentary elections in June 2015, where the premier is barred from running for a fourth term by AKP rules.
Domestic headwinds aren't Mr. Erdogan's only challenge. The U.S. Federal Reserve this month started curbing bond purchases that had triggered investments in emerging markets like Turkey. The abundance of global cheap cash helped underwrite rapid economic growth and plug external funding shortfalls.
Concerns over Turkey's chronic current-account deficit, around 7.5% of GDP, and a weakening currency that helped push inflation to 7.4% in 2013, way above the 5% official target, are also damping investor appetite for Turkish assets.
Turkey's lira slumped to a low of 2.1948 against the dollar on Monday as foreign investors returning from Christmas and New Year's holidays joined the selloff. The currency has been a leading loser in emerging markets, shedding 7% against the dollar since the graft probe became public Dec. 17.
"Given that the latest political tensions come ahead of local and presidential election this year and worsening fundamentals, we think there is more room in terms of lira weakness," said currency strategists led by Marc Chandler at Brown Brothers Harriman & Co. "If anything, the outlook is even murkier now than it was last month when the corruption charges first emerged."
The case has also sent Turkey's borrowing costs soaring above 10% to near two-year highs. The government saw its benchmark two-year bond yields drop to a record low of 4.61% mid-May as Moody's Investors Service became the second credit-rating firm to give Turkey an investment-grade rating.
Fitch Ratings said Tuesday that recent developments won't affect Turkey's credit score, at triple-B-minus since a November 2012 upgrade lifted the country to the lowest investment-grade status for the first time in almost two decades. But the firm's London-based analysts also issued a warning, which economists in Istanbul interpreted as a signal that the outlook may turn negative from stable.
"To date, macroprudential measures have been insufficient to restrain the current-account deficit and inflation," Fitch Ratings said. "If the corruption scandal drags on, it could weaken the government and undermine its ability to take timely policy measures that would maintain economic stability."