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Emerging markets: Municipalities disown debt

Edited by Brian Caplen

"As long as I am paid, I don't care where the money comes from. But I will have to think 10 times before I lend to another Turkish municipality again."

This was the reaction of a European banker to a new phenomenon in the Turkish borrowing scene: municipalities which are refusing to pay their debts to foreign banks.

The trend was started by mayors of the Islamist Welfare Party Refah, which won the greatest number of votes in the December general election, and has just formed a coalition to replace the caretaker government of Motherland party leader Mesut Yilmaz. Refah also controls a large number of municipalities, including Istanbul, Turkey's most populous city, and Ankara, the capital. It was the mayors of these two cities who first told the treasury that they would not be paying their foreign debts.

Melih Gokcek, the Ankara mayor, first came to the nation's attention with his comments on an abstract statue erected in the capital by one of his predecessors. "If this is art, I spit on it," he said. He seems to have the same disdain for his predecessor's foreign debts. Ankara is among the biggest non-payers and has already declined to pay a Dm150 million bond arranged by Dresdner Bank, according to banking sources.

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