Erdogan Says Graft Probe Seeks to Hurt Him Amid New Protests (1)

Bloomberg News

Turkish Prime Minister Recep Tayyip Erdogan lashed out four times yesterday at a graft probe that's ensnared his government as anger over the scandal sparked protests and clashes.

Protests erupted in at least five cities overnight, including Istanbul and Ankara, before being broken up by police with tear gas and water cannons, reminiscent of anti-government demonstrations that roiled the country in June. Police detained 70 people in Istanbul, the state-run Anatolia news agency said.

The country's stock, currency and bond markets fell this week on concerns the scandal is widening. Erdogan said the investigation, which has split the judiciary and pitted bureaucrats against one another, is an attempt to derail the government and will only benefit financial speculators.

'The operations that started under the guise of corruption are an obstacle to building a new Turkey,' Erdogan said yesterday from Sakarya, a city east of Istanbul.

Turkey's economy, the largest in the Middle East, has more than tripled in size in nominal terms over Erdogan's 10-year leadership. The majority Muslim country, the region's only member in the North Atlantic Treaty Organization, shares borders with Syria, Iraq and Iran.

Erdogan is slated to address his supporters in the western city of Manisa later today.

Last night, on his return to Istanbul, Erdogan was greeted by supporters at the airport. They chanted 'traitor Bayraktar,' in reference to former Environment Minister Erdogan Bayraktar, who this week urged Erdogan to step down. One woman, her head covered with a scarf, kissed Erdogan's hand after he addressed flag-waving supporters from on top of a bus.

Coverup Alleged

'There is an effort to cover up corruption allegations and the public is aware of this,' Haluk Ozdalga, a lawmaker who quit the ruling party yesterday, said in a press conference in Ankara. 'Turkey must immediately turn away from this wrong path.'

Erdogan spoke after a top judicial body blocked his order requiring the government to be notified of probes, deepening a standoff that has sent markets tumbling. That ruling was unconstitutional, Erdogan said.

The currency weakened as much as 2.3 percent to 2.1764 against the dollar on Dec. 27, before trading at 2.1549 in Istanbul. The Borsa Istanbul 100 Index (XU100) fell 1 percent at the close to 63,885.22, the lowest level since August 2012. Two-year bond yields climbed above 10 percent for the first time since August.

U.S.-Based Imam

The corruption investigation has become the battleground in a struggle between the government and followers of a U.S.-based imam, Fethullah Gulen, who is blamed by Erdogan's supporters for instigating the crackdown. The cleric broke with Erdogan recently, ending a partnership that has helped sustain the single-party government since 2002.

'They brought the issue this far,' Erdogan said. 'These incidents are a continuation of the prep school process,' he said in a reference to tensions with the movement over a government decision to shut down prep schools, a major source of influence and income for Gulen's followers.

Erdogan said no one had the right to put innocent people, including himself, under a cloud of suspicion and vowed to hold accountable anyone found guilty of stealing from the state.

As police moved in on demonstrations overnight, onlookers in Istanbul chanted 'government resign.' Police also clashed with hundreds of anti-government demonstrators in the Turkish capital, Ankara.

'They are attacking for the last time,' Erdogan said of those pushing for the investigations. 'God willing, and with the support of our nation, we will destroy this resistance and repel these attacks.'

Spreading Fallout

The fallout spread, with former Culture Minister Ertugrul Gunay and Ozdalga quitting Erdogan's ruling party yesterday, a day after the resignation of lawmaker Erdal Kalkan. All three faced expulsion for their criticism of the party's response to graft allegations.

'Security forces can't collaborate with the government,' Gunay told reporters in Ankara. 'I'm warning civil servants who are following unlawful orders not to carry them out -- you will be held accountable tomorrow, for today's violation of the rule of law.'

European Union Enlargement Commissioner Stefan Fule said he was concerned by 'the removal of a large number of police officers from their duties' and urged Turkey to 'take all the necessary measures to ensure that allegations of wrongdoing are addressed without discrimination.'

Police Dismissals

Turkish police have been caught in the power struggle between Erdogan and Gulen. About 500 police chiefs were dismissed after the sons of three cabinet ministers were among dozens detained. Sons of former interior and economy ministers were charged and jailed so far, while the son of Bayraktar was released pending trial. All three ministers were replaced by Erdogan this week.

'The government seized the judiciary in a government coup,' Faik Oztrak, deputy chairman of the main opposition Republican People’s Party, said in a statement. 'The prime minister must resign to be held accountable as soon as possible.'

Turkey's military, which as recently as 1997 pressured the country's first Islamist prime minister to step down, has stayed clear of the fray.

'The Turkish Armed Forces in no way wants to be involved in political debates,' the military said in a statement.

Selling Bonds

Foreign investors have dumped Turkish bonds at the fastest pace in two years amid the growing scandal. Investors pared their holdings by $532 million to a three-month low of $53.8 billion in the week through Dec. 20, after selling a net $1.38 billion the week before, the central bank said this week. They've cut their holdings from a record $72 billion in May.

'The government's response to corruption allegations grew into the question of the rule of law,' Mahmut Akpinar, a professor of political science at Ankara's Turgut Ozal University, said by phone. 'This may have consequences in the ballot box, especially if people begin to feel the worsening in economy in their pocketbooks.'

The outflows are a reversal of the investment that helped finance Turkey's growth during Erdogan's more than 10-year stint, a period in which nominal gross domestic product more than tripled and the country's dollar bonds posted an average 9.7 percent annual gain.

To contact the reporters on this story: Selcan Hacaoglu in Ankara at shacaoglu@bloomberg.net; Onur Ant in Ankara at oant@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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