Turkey's Top Four Generals Resign Amid Dispute With Erdogan; Lira Weakens - Bloomberg

Turkey's top four generals stepped down, the first such mass resignation in the country's history, after tension with Prime Minister Recep Tayyip Erdogan increased over the alleged role of military leaders in a coup plot.

Chief of General Staff Isik Kosaner asked to leave because the military is being treated ``like a criminal gang," NTV television reported yesterday. The chiefs of the army, air force and navy resigned soon after. Those three were due to retire at the end of August, NTV said. The lira fell as much as 1.3 percent and credit-default swaps rose 10 basis points to 193, data provider CMA said.

Erdogan, re-elected in June, has reduced the secularist armed forces' power over Turkish politics since he came to power in 2002. His party was formed after the closure of an Islamist movement he belonged to. More than 40 serving generals, or about a tenth of the senior ranks of NATO's second-largest army, are under arrest after prosecutors alleged that they planned bomb attacks to undermine Erdogan's administration.

The government "will try to get things under control fast this weekend and try to emphasize that the relations between a democratically elected government and the military will proceed like in western countries," Tunc Yildirim, director at broker Standard Unlu in Istanbul, said in an e-mailed comment. Still "this came at an unfortunate junction for markets."

President Abdullah Gul appointed Necdet Ozel, formerly head of the military police, as the chief of the army and acting Chief of the General Staff after a meeting with Erdogan at his palace in Ankara, according to a statement on the website of Erdogan's office.

Lira Slides

Turkey's lira, the worst performer today among 178 countries excluding Gambia, fell 0.7 percent to 1.6891 against the dollar in Istanbul yesterday. It has lost 4.1 percent this month. Bond and stock markets were closed.

Erdogan campaigned for June 12 elections on a pledge to rewrite the constitution that was drafted under military rule after a coup in 1980. That would cement his victory over the generals, who accuse him of imposing Islamic values.

The armed forces have deposed four governments in the past four decades and see themselves as guardians of the secular state established by national founder Mustafa Kemal Ataturk in 1923.

The departures come as Erdogan tries to keep intact an economic boom that swept him back to power in a victory that put him on course to be the longest serving Turkish leader since Ataturk. The country's trade deficit swelled to a record $10.2 billion in June, the statistics office said today, and the lira fell to the lowest in more than two years this week.

Controlling Army

Erdogan has chipped away at the powers of the military since his Justice and Development Party was elected with a mandate to press for European Union membership. In 2003, he ended army control over the National Security Council, the body on which politicians and general meet to discuss security threats. In the same year he ignored the generals' objections to a United Nations plan for the reunification of Cyprus. The army failed to block the appointment of Erdogan ally Gul as president in 2007 after Erdogan called elections.

Courts in Istanbul have jailed scores of former and current military officers, as well as journalists and academics, on charges that they conspired to weaken Erdogan's government through violent attacks designed to create instability. The defendants say the cases are based on forged documents.

'Pulling Trigger'

"The fact that Kosaner, who had a relatively better relationship with the Erdogan's party than his predecessors, was the one to pull the trigger, reflects the depth of tensions," Kaan Nazli, director of emerging markets at Medley Global Advisors in New York, said in e-mailed comments. "In recent weeks a series of new indictments were unveiled that implicated more officials, directly impacting the process of appointments at the Supreme Military Council."

Generals are appointed by the Supreme Military Council, a bi-annual meeting of the prime minister and the armed forces. Final approval lies with the president.

Today's resignations followed a meeting in Ankara between Kosaner, Erdogan and Gul to discuss promotions of senior military staff that are due to be decided at a Supreme Military Council that starts Aug. 1.

Erdogan was pushing to block the promotions of the generals and admirals who were jailed as part of the coup plot trials and force their retirement, according to a report in Cumhuriyet newspaper on July 5. None of them have been convicted.

To contact the reporters on this story: Ercan Ersoy in Istanbul at eersoy@bloomberg.net Steve Bryant in Ankara at sbryant5@bloomberg.net.

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