Turkey currency plunge

Turks face more inflation as the lira tumbles

The Turkish currency lost 28% of its value on Thursday, after the government floated the lira to resolve a serious economic crisis.

The crisis had been triggered by a political row between President Ahmet Necdet Sezer and Prime Minister Bulent Ecevit, over the government's record in tackling corruption.

On the foreign currency markets, the lira lost as much as 37% during trading in the morning. But by the end of the day it had recovered 9% of its value.

Ecevit: Committed to fighting inflation

Speaking after the decision to remove the currency controls, Prime Minister Ecevit said he was committed to continuing the country's reforms and still viewed fighting inflation as a priority.

He added the government would wait for the lira exchange rate to settle before taking necessary action.

A slight recovery

By the end of Thursday, the stock markets in Istanbul rebounded 10%.

Inter-bank interest rates - the rate at which the banks lend money to each other - also responded favourably.

They had risen above 5000% on Wednesday, as the government held a marathon session to decide on its response to the crisis.

By the end of Thursday, they had eased to about 1,200%.

Meanwhile, Mr Ecevit's opponents, including Tansu Ciller, head of the conservative True Path Party, called for his resignation.

Ms Ciller said on Thursday that the Prime Minister no longer enjoys public confidence in the country's economic reform programme.

Cornerstone

The floating of the lira undermines a cornerstone of the government's three-year anti-inflation programme, backed by $11bn from the International Monetary Fund (IMF).

The IMF's Horst Kohler supports floating lira

Despite this, IMF managing director Horst Kohler said the organisation supported the Turkish Government's move, adding that it "should help stabilise the exchange rate and ensure - possibly after an initial increase - that the inflation rate continues to decline".

But he also said the "macroeconomic framework for the economic program" would have to be revised.

Ms Ciller was more critical.

"The programme has collapsed. This is a new burden on the public. This is obvious devaluation to be followed by inflation," she said.

Inflation currently stands at an annual rate of about 30%, down from 70% in 1999.

The government's plans to bring it down to single digits by the end of 2002 are regarded as crucial to the country's hopes of moving forward its application to join the European Union.

The Turkish problems are in fact more political than economic

Professor Faruk Selcuk of Bilkent University

On Wednesday the Turkish stock market saw its steepest fall ever, losing 18%.

Panicked investors drained over $7bn from central bank reserves on Monday, prompting the unprecedented rise in interest rates.

Rift continues

Mr Ecevit stormed out of a national security council meeting on Monday claiming he had been insulted.

He later demanded an apology, and is reported to be refusing to attend regular meetings with the president.

Turkish media said President Sezer accused Mr Ecevit of being "too passive" in the fight against corruption, of trying to prevent an investigation of the banking sector and of "not respecting" laws.

Allegations of corruption within the banks scared off foreign investors and led to a financial crisis in November, from which markets had only just begun to recover.

"The Turkish problems are in fact more political than economic," said professor of economy Faruk Selcuk, at Ankara's Bilkent University.

BBC Istanbul correspondent Chris Morris says that both Mr Ecevit and Mr Sezer are seen as honest men, but they preside over a system where corruption is deeply entrenched.

Some investigations have been closing in on people in positions of real power, and President Sezer has made it clear that he believes no one should be deemed untouchable.

Mr Ecevit's main concern is trying to maintain government stability. But the corruption investigations have created a deep sense of unease in Turkish politics.