Jan. 28 (Bloomberg) -- Turkish Prime Minister Recep Tayyip Erdogan may stress his opposition to Kurdish autonomy in northern Iraq when he meets U.S. President George W. Bush today, said Ilter Turan, professor of politics at Istanbul Bilgi University.

Turkey's stance risks prolonging a dispute that has held up $8.5 billion in U.S. loans, pledged in September, which the government needs to reduce borrowing costs that soaked up 42 percent of its fiscal spending last year.

Erdogan's White House visit, his first since taking office in March, comes as Iraq's U.S.-backed Governing Council draws up a federal system allowing Kurdish regions of Iraq to retain their semiautonomous status. Turkey has been fighting Kurdish separatists in eastern Turkey since 1984 and is concerned independence for the Iraqi Kurds may intensify that conflict.

``Erdogan will push for more sympathy for Turkey's northern Iraq views,'' said Turan. ``The U.S. realizes that it cannot go on with only Kurdish support in Iraq. Still it's hard for the U.S. to balance Turkish concerns and Kurdish desires.''

The prime minister on Monday said Kurdish autonomy would threaten political stability in all of Iraq.

Kurdish areas of northern Iraq contain oil reserves the U.S. estimates at more than 10 billion barrels, which the Turkish government is concerned may be used to finance Kurdish fighters.

Turkish Troops

Turkey keeps about 5,000 soldiers in northern Iraq to prevent Kurdish guerillas fighting for autonomy in eastern Turkey from carrying out cross-border raids. Iraqi Kurds say Turkey keeps the troops in their region partly to block their self-rule plans.

Nechirvan Barzani, a leader of the Kurdistan Democratic Party, called yesterday for Turkish troops to leave the region and said the Kurds would take measures to force them out if necessary, Hurriyet daily reported. Unidentified Turkish officials said that would trigger a military conflict, the paper said.

The U.S. Congress, when approving the Turkish loan, demanded withdrawal of the troops. Turkey resisted, saying the U.S. hasn't kept its promise to crack down on the Kurdish rebels in Iraq.

``Northern Iraq is a thorn in Turkish-U.S. relations,'' said Baturalp Candemir, chief economist at HC Istanbul Securities. ``If Bush and Erdogan can sort out the differences, that would clear the way for the $8.5 billion. But that's probably too much to expect.''

Governing Council

The Kurdish demand for autonomy also is hampering negotiations within the Iraqi Governing Council, an ethnically diverse body that is supposed to create a provisional assembly that would take power this year from the U.S. occupation administration and draft a constitution.

The impasse has delayed a loan Turkey needs to cut borrowing costs and lengthen the maturity of its $203 billion debt. Turkey pays about 11 percent, once inflation is taken into account, to borrow from local banks at an average maturity of 12.5 months. The U.S. loan would be payable in 10 years and cost 7.5 percent.

The U.S. has relied on Turkey traditionally as a second stronghold after Israel in the Middle East. After the 1991 Gulf War, the U.S. used a Turkish base for 12 years to monitor the no- fly zone in northern Iraq. Since last month, it has been using the same base for a rotation of its troops in Iraq.

Turkey exported $3.2 billion of goods to the U.S. in 2002 while importing $2.9 billion. Turkey's trade with the EU was about six times more, with $17.9 billion of exports and $22.7 billion of imports.

Cyprus Talks

For his part, Bush will press the Turkish leader for a solution to the four-decade-old division of Cyprus, the third- largest Mediterranean island, analysts said. Erdogan has advocated resuming United Nations-brokered talks between Greek and Turkish Cypriots, which collapsed in April. The UN blamed Turkish Cypriot leader Rauf Denktash for the breakdown.

Erdogan has been pressing Denktash for more flexibility on the UN proposal for a Cypriot federation. The Turkish military, which has pushed four governments out of power since 1960, backs Denktash and opposes most of the UN plan.

The U.S. is conducting ``muscular diplomacy,'' putting heavy pressure on the Turkish army and the Greek Cypriots to ensure they don't obstruct negotiations, said Bulent Aliriza, head of the Turkish program at the Center for Strategic and International Studies in Washington.

``The Turkish side has budged, and now the U.S. wants to use this visit to take things forward,'' Aliriza said. Bush may appoint a ``big name'' as a special Cyprus envoy to accelerate the talks, he added. Erdogan has called on the UN to replace its Cyprus mediator, Alvaro de Soto.

Other issues Bush and Erdogan will discuss may include Turkish-Armenian relations and Turkish-U.S. trade, analysts say.

Bush will reiterate the U.S. desire to see Turkey open its borders with Armenia, Bilgi University's Turan said. Turkey won't agree unless Armenia makes peace with Azerbaijan, he said. Armenia controls one-third of Azerbaijan after a four-year war fought over an ethnic Armenian enclave within its neighbor's territory.

Erdogan will press Bush to reduce trade barriers for industrial zones Turkey plans to set up. The U.S. never passed the legislation that would authorize the zones after Turkey insisted textile production was included. Textiles and clothing are Turkey's largest export items. The U.S. keeps quotas on Turkish textile imports.

Last Updated: January 28, 2004 02:28 EST