Turkish PM Davutoglu bows out as Erdogan aims at stronger presidency

By Ercan Gurses and Nick Tattersall

ANKARA/ISTANBUL (Reuters) - Ahmet Davutoglu announced on Thursday that he was stepping down as leader of Turkey's ruling AK Party and therefore as prime minister, bowing to President Tayyip Erdogan's drive to cre-ate a powerful executive presidency.

In a speech defending his record but also vowing loyalty to Erdogan, Davutoglu said he had kept his party and the government intact during a tumultuous period and pledged that "strong" AKP government would continue.

After a leadership meeting of the party founded and dominated by Erdogan, Davutoglu told reporters that, under the current circumstances, he would not run again for leader at an extraordinary party congress on May 22.

"I am telling our members, up until today I was leading you. F-rom now on, I am among you," he said.

Davutoglu's departure plunges the NATO member into political uncertainty just as Europe needs its help in curbing a migration crisis and Washington needs support in fighting Islamic State in Syria and Iraq.

There could now be a third parliamentary election in less than 18 months.

Davutoglu's departure follows weeks of tensions with Erdogan. His successor is likely to be significantly more willing to back Erdogan's aim of changing the constitution to cre-ate a presidential system, a move that opponents say will bring growing authoritarianism.

Main opposition leader Kemal Kilicdaroglu condemned what he called a "palace coup" and rejected attempts by AKP officials to dismiss it as an internal affair.

Mehmet Ali Kulat, head of the pollster Mak Danismanlik, which is seen as close to Erdogan, forecast an election in October or November. "F-rom now on, Turkey's sole agenda is the presidential system and an early election," he said.

Erdogan sees rule by the head of state as a guarantee against the fractious coalition politics that hampered the government in the 1990s. His opponents say he is merely furthering his own ambition.

CENTRAL CONTROL

"These are critical developments in my mind in Turkey - likely setting the long-term direction of the country, both in terms of democracy, but (also) economic and social policy and geopolitical orientation," said Timothy Ash, strategist at Nomura and a veteran Turkey watcher.

"Turkey changes as a result to an Asiatic model of development, with strong central control f-rom the presidency, and most key decisions taken by the president and a small group of likely unelected advisers."

With growth slowing and inflation well above target, investors were nervous about the prospect that economic reforms could be delayed further. But the lira recouped around half the previous day's losses after Davutoglu indicated he would go quietly, while Istanbul's BIST 100 share index <.XU100> also rebounded to finish slightly below Wednesday's close.

Davutoglu said the fact that his mandate had been cut short was "not my choice but a result of necessity".

But he said he bore no grudges and urged the AKP, which has governed Turkey since 2002, to remain united.

Government spokesman Numan Kurtulmus and Justice Minister Bekir Bozdag, both Erdogan loyalists, are potential candidates to replace Davutoglu, three sources close to the presidency said. Transport Minister Binali Yildirim and Energy Minister Berat Albayrak, Erdogan's son-in-law, have also been touted, they said.

Presidential adviser Cemil Ertem said the economy would stabilize further when a prime minister more closely aligned with Erdogan took office. He said economic policy would not change, and that no election was likely before the government's mandate expires in 2019.

But a member of the AKP's executive board and a source close to the party both told Reuters an autumn election was the most likely scenario. The aim would be to win two-thirds of the 550 seats in parliament - a gain of 50 f-rom the AKP's current 317 - to allow the party to change the constitution without the need for a referendum.

"Erdogan will move fast and try to reach enough of a majority for the executive presidency. A party structure and a leader who will design that will be put in place," the second source said. "He does not want to lose any more time."

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