National Agenda : Honeymoon Is Over for Turkish Prime Minister : After a slew of setbacks, Tansu Ciller’s political rivals are challenging her leadership. Municipal elections in March will test her party’s power.

Few people go to Sarajevo to get away from it all, but Turkish Prime Minister Tansu Ciller’s recent solidarity visit to the embattled Muslims of Bosnia-Herzegovina must have seemed almost a relief after a disastrous January that has almost derailed her 7-month-old premiership.

Not even applause from her countrymen and the outside world for her brave defiance of Bosnian Serb gunners in the Sarajevo hills could quite put Turks back under the spell of 47-year-old Ciller and her ever-present television smile, foreign diplomats and Turkish commentators said.

“It’s the end of the Ciller dream,” said one foreign envoy in Ankara, the Turkish capital, where knives are being sharpened by her embittered rivals for leadership of the center-right True Path Party, which leads Turkey’s coalition government.

January dealt blow upon blow to this Muslim country of 60 million people, which has tried to present itself as an island of stability and secular government astride a devil’s triangle of the Balkans, the Caucasus and the Middle East.

The Turkish lira dived almost 20%, the stock market crashed to half its dollar value, interest rates shot up and an inflation rate of 70% seems set to rise sharply. Police beat demonstrating civil servants, and the U.S. State Department again criticized its NATO ally’s human rights record, citing torture and excessive use of force by officials.

Most of the human rights violations allegedly occurred in Turkey’s ethnically Kurdish southeast, where another 273 people were killed in January in the nation’s ever-bloodier 10-year-old conflict with separatist Kurdish rebels.

Turkey also saw its hopes set back of creating a Turkic commonwealth with five former Soviet states that share dialects of the Turkish language. The six--Turkey, Azerbaijan, Turkmenistan, Uzbekistan, Kazakhstan and Kyrgyzstan--failed to hold a planned summit in Baku, Azerbaijan.

Disorganization and the Armenian-Azerbaijani conflict played a part in the postponement, but pressure from a resurgent Russia also played a role.

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Meantime, in yet another blow to Turkey’s ambitions, its first satellite had to be destroyed shortly after takeoff, victim of a rare fault in the European Ariane rocket program.

“There is no need to panic. These problems are nothing to what we have faced before,” President Suleyman Demirel kept repeating in public speeches. With grass-roots dynamism feeding an estimated 7% growth in its gross national product in 1993, it is true that Turkey is in a much better position than its last major financial-political crisis the late 1970s.

That period was capped in 1980 when Turkey’s armed forces staged their third coup in 20 years, arresting Demirel and an entire generation of squabbling politicians.

The army may be worried again now. But it appears to receive everything it wants from Ciller and has huge statutory influence in government. Diplomats do not expect it to intervene directly in the latest crises.

Indeed, the latest financial problems have proved the resilience of Turkey’s free foreign-exchange regulations and a stock exchange that many experts deemed the world’s No. 2 emerging market last year. Foreign investors are sensing a buying opportunity as Turks feed on gloomy sentiment.

“The future of the market may not be clear, but foreign investors are coming back in. Shares are now very cheap,” said Hakan Ulutas, a broker at Istanbul’s Ottoman Bank.

But such considerations take little pressure off Ciller as she plunges toward the test that will decide her political future: nationwide municipal elections, scheduled for March 27. The former economics professor’s headstrong nature and inexperience made her seem fresh and strong but have proved a disastrous mix.

In one example, the Central Bank last month wasted $180 million supporting the Turkish lira just hours before the currency was devalued by 12%.

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Bulent Gultekin, Ciller’s hand-picked governor of the Central Bank, resigned his post in protest over what he termed the poor communications and bad decision-making associated with the lira defense.

“The government decision-making system is completely locked up,” Gultekin said.

Altan Oymen, chief commentator of the nationalist daily Milliyet, observed: “It’s not a question of there being no coordination in government. There is not even dialogue.”

In the wake of recent events, Gungor Mengi, an editorialist with Turkey’s biggest-selling newspaper, Sabah, searched his soul for an explanation as to why he and others had been so enthusiastic when Ciller was chosen to be Turkey’s first woman prime minister in June. “As our old proverb says, ‘Those who fall in the sea will embrace a snake.’ The fact that we embraced Ciller was just another mistake of our adventurous character,” Mengi said.

Turkey fell into the sea when the main architect of the country’s reforms since 1980, President Turgut Ozal, died last April. Ozal left Turkey deregulated and dynamic, but with mounting financial and political problems that needed careful management if they were not to burst out of control.

A consensus is growing that if the March municipal elections show a collapse in public support for Ciller’s center-right True Path Party, then general elections should be conducted sooner than the planned 1996.

Ozal’s Motherland Party, now led by Mesut Yilmaz, leads Ciller in polls. But ideological differences between the two parties are so small they are each running candidates poached from each other in the mayoral race for Turkey’s biggest city, Istanbul.

“Either by the ballot box or by party executives, the two big center-right parties must be made one for political stability,” said Hasan Cemal, a left-wing editorialist.

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In the absence of such a strong lead, even Ciller has said her supporters are drifting off to the pro-Islamic Welfare Party. Some polls say the Islamists are now the second party, backed by the most energetic house-to-house activists in Turkish politics and financial support from Saudi Arabia.

As the discredited political classes snipe at each other in their struggle for lucrative patronage, the bureaucracy is gridlocked, and the state’s financial problems continue to mount.

The 1993 budget deficit was triple its target. Up to a fifth of the budget is being spent on the war against Kurdish rebels, tax revenue is inadequate, a flood of imports have sent the trade deficit off the chart and privatization has failed to solve the problem of overstaffed and inefficient state industries.

“With these policies, neither inflation nor interest rates will fall,” said Sakip Sabanci, a leading Turkish industrialist. “I’m afraid that the mistakes will make both of them rise. Politicians now think of nothing except running after votes. (Democracy) no longer tastes so good.”

Turkey’s Troubled Month January dealt several setbacks to new Prime Minister Tansu Ciller, left, and her nation’s image as an island of stability amid the turbulent Middle East, Balkans and Caucasus: *

* Turkish lira dived almost 20%. * Stock market crashed to half its dollar value. * Interest rates shot up. * U.S. State Department criticized Turkey’s human rights record--especially in ethnically Kurdish southeast. * A summit between Turkey and five former Soviet states fell through, hurting Turkey’s hopes for creating a Turkic commonwealth. * Turkey’s first satellite had to be destroyed shortly after takeoff.