ASIA MINOR : Fiscal Woes, Ethnic Conflicts Underscore Turkish Elections : Sunday’s municipal vote amounts to a national referendum on the struggling government of Prime Minister Tansu Ciller.

At a bank branch along the windy Bosphorus, manager Sema Ozturk has devised a practical response to the high-turnover tumult of Turkey’s seesaw currency market. Never mind the vault: She keeps a cash box full of foreign currency under her desk.

“The head office is bringing in currency by the planeload. It goes out just as fast,” she said. “Nobody wants Turkish lira. Today we had one customer take away $500,000 in dollar bills inside his briefcase.”

Down the street, as many as 200 customers a day frequent Ismail Yucelsin’s storefront currency-exchange shop.

“Even schoolchildren are buying dollars with their pocket money. Who has confidence in the lira?” he asked.

An almost universal lack of confidence in government fiscal policies underlines the preeminence of pocketbook issues in preparation for Sunday’s municipal elections in every city, town and village across this nation of 60 million.

Local issues and personalities will also weigh heavily. So will a growing polarization between Turks and ethnic Kurds in an election that amounts to a national referendum on the young, struggling government of Prime Minister Tansu Ciller. A four-party stalemate seems the most likely outcome.

“I think we will see more of the same after the election and a situation that will therefore become more dangerous,” said commentator Cengiz Candar.

Nine months after taking office, the 47-year-old Ciller, Turkey’s first female prime minister, is an economist buffeted by national economic alarm. Recession looms. After a decade of strong 5% annual growth and rapid modernization, production is slowing. The unloved lira has lost 70% in value against the dollar since January. Inflation may hit triple digits this year. Every Turk is a millionaire, but two new purple 500,000 lira notes are worth about $40, compared to $1,000 six years ago.

Massive rejection Sunday of her conservative True Path Party could cost Ciller her job and might force forward parliamentary elections scheduled for 1996.

Polls, though, say True Path, which won power in 1991, will finish respectably this time. Its candidate in Istanbul, former Mayor Bedrettin Dalan, is running neck-and-neck with Zulfu Livaneli, a movie director making his political debut as a candidate of the center-left Social Democrats.

The Social Democrats and the True Path are coalition partners in national government in Ankara, but there and in other major cities their competing mayoral candidates face stiff challenges. The center-right Motherland Party, which directed ‘80s modernization under the late Turgut Ozal, and the Welfare Party, an Islamic movement with a fundamentalist fringe, should profit from the government discomfiture.

Critics score Ciller’s inexperience and lack of decisiveness on bringing government spending under control. They also fault her for not enacting a broadly approved privatization program whose receipts might have helped balance the government’s books.

Once the votes are counted, analysts believe, the headstrong armed forces will launch a major campaign against Kurdish separatist guerrillas. By some published accounts, at least 350,000 troops are massed in the southeast, where brutal anti-insurgency policies have brought international condemnation of Turkey for human rights abuses.

Ciller’s opponents charge that she has abdicated authority to the generals in confronting unrest among Turkey’s 12 million Kurds. The United States and Turkey’s European allies support the drive against terrorism, but they urge that underlying issues of Kurdish cultural and ethnic aspirations be addressed on political and social levels. So far there has been no sign of that.

If, as expected, the election delivers no strong mandate to Ciller--or fails to reinforce her opponents’ calls for change--Turkey may drift closer to stormy seas.