Despite the fact that many Turks face growing economic hardship, the government is unable to offer them any immediate relief because it is committed to a harsh IMF-sponsored regime of belt tightening.
Were the government to relent, the country of more than 65 million people could be forced to default on its foreign borrowings, effectively ending hopes of European Union membership and economic development.
Negotiations between Prime Minister Recep Erdogan’s government and Kamu-Sen, the main union group representing state employees, broke down last week after the AKP broke a pre-election promise to increase wages in line with inflation.
The AKP had also pledged to make back payments promised in a previous round of negotiations.
"Even though this government has a two thirds majority in the parliament…its hands are tied."
By mid-week, as many as 80 Kamu-Sen members had been hospitalised after going on hunger strike.
Despite a recent upturn in Turkey’s economic fortunes, the recovery remains fragile.
Since 2001 – when the economy contracted 9.8% and interest rates briefly hit 7000% - Turkey has adhered to a tight fiscal austerity regime, supported by $18 billion of IMF and World Bank loans.
These loans are tied to structural reforms that included major public sector cost cuts.
Though the government offered to raise public workers salaries by 26%, (spread over two six month terms) the country's main unions rejected the olive branch.
Erdogan snapped back, accusing the unions of pursuing populist policies and ignoring economic realities.
He also dismissed Kamu-Sen’s call to channel funds intended to pay off Turkey’s debts into social programmes and wage increases.
“We can only give what is being produced in this country,” Erdogan said. “Are we not going to repay debts domestically and to the international bodies?”
Currently, the state spends 24% of its revenues on salaries to its employees, far more than any of the members of the European Union.
Turkey is required to speed up privatisation and increase accountability, produce a non-interest budget surplus, overhaul its banking sector and cut subsidies to farmers
Cutting the wage bill is a key condition of the IMF’s standby agreement with Turkey. However, it is the IMF, along with the government, that bears the brunt of the strikers’ anger.
"This is a single party government", says Erden Ozguven, a spokesman for Kamu-Sen. "It could do what it wants. However, as we see it, there are red lines drawn by the International Monetary Fund and the World Bank. The government cannot cross them."
The dispute over public sector wages is the latest and most public indication of the pressure Turkey’s economy is under.
"Even though this government has a two thirds majority in the parliament…its hands are tied," one market analyst told Aljazeera.
According to the IMF-approved economic programme, Turkey is required to speed up privatisation, increase accountability, produce a non-interest budget surplus, overhaul its banking sector and cut subsidies to farmers.
However, it is behind schedule.
World Bank report
In a report issued last week, the World Bank was cautiously optimistic that Turkey could slowly work its way out of the economic quagmire.
Still, failure to adhere to the promises made to international lenders and to push through structural reforms will result in a return to high inflation, a "boom and bust economy" and crippling interest rates, the report said.
It is unlikely that Turkey will this year generate the minimum $2.1 billion from privatisation mandated as a minimum by the IMF and World Bank for the servicing of its debts.
The government raised a meagre $52 million in the first half of 2003 and many of the proposed sales of state assets are being slowed by court action and a lack of interest from buyers reeling from slow economic growth in both the US and Europe.
Non-interest budget surplus
Turkey’s total debt has risen to a staggering $255.7 billion, a 178% increase over the past decade. This happened after consumer inflation fell to its lowest point in 20 years at 24.9%.
Despite upcoming local elections, it remains unlikely that the government will play a populist card and ignore either IMF or World Bank stipulations
According to one Istanbul-based market observer, failure to meet its non-interest budget surplus in the short term – will be one of the biggest problems the AKP government faces.
"I do not believe that the non-interest surplus target of US$6.5 billion will be met," he said. "Despite the good eight months, there is suspicion over the programme and the fiscal performance."
Despite upcoming local elections, it remains unlikely that the government will play a populist card and ignore either IMF or World Bank stipulations.
The line has been drawn in the sand, and both public sector workers and the government look unwilling to back down.
The situation will likely prove critical both for Turkey’s economic development and Erdogan's political survival.