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Monday, 4 December, 2000, 15:05 GMT
Turkish crisis deepens
The sun rises in Istanbul
Turkey is holding emergency talks with the International Monetary Fund (IMF) in an attempt to tackle the growing financial crisis in the country.

Interest rates hit 1,000% on Friday and the Turkish stock market has slumped 40% in a fortnight as the economic woe spreads.

The task is now to preserve these gains and strengthen policies and market confidence in the Turkish economy

IMF chief Horst Köhler

On Monday the stock market dropped another 8% as the main interest rate soared to 19,500% - compared to the 40% it stood at a fortnight ago.

It all added urgency as the special IMF team continued what is expected to be 10 days of meetings with Turkish treasury officials.

Reports suggest that Turkey wants $5bn in short term loans - but the IMF is expected to impose strict conditions.

Banking probe

These type of conditions - likely to include further privatisation and cuts in state spending - have already triggered widespread demonstrations.

The current crisis was largely sparked by a corruption probe into 10 smaller banks which were placed in receivership.

The economic policies, the structural reforms... have an effect - it means that wage rises are low, unemployment is rising - people feel extremely uncertain

The BBC's Chris Morris

The investigation has now been widened, leading to fears of a growing banking crisis. The banking system is reported to be close to a standstill as many Turkish banks are too wary to deal with each other.

There have also been rumours of a possible currency devaluation - which would destroy Turkey's anti-inflation programme - and growing fears that privatisation plans might be slowing down.

The IMF delegation was led by the Fund's European department director Michael Deppler.

As it began its work, IMF managing director Horst Köhler added his support, saying Turkey had made significant progress under its reform programme.

"The task is now to preserve these gains and strengthen policies and market confidence in the Turkish economy," said Mr Köhler.

Quick outcome needed

He said he hoped talks would be concluded quickly to enable the IMF to decide on an enhanced support package for Turkey in time for a meeting on 21 December.

An announcement by the IMF over the size of the additional fund for Turkey could reduce some of the pressure on the markets, lead to an inflow of money into the country, and so pull down interest rates.

The government has based much of its policy on slashing inflation, and has used a high exchange rate and tight monetary conditions to do this.

Turkey's central bank governor Gazi Ercel said in a Sunday newspaper interview that the country had $18.8bn reserves to deal with the "speculative attack".

Bankers are reported to have said about $6bn has been sold by the central bank since the start of the crisis as foreign investors pull their money out of the country.

The central bank's room for manoeuvre is also restricted by an existing $4bn IMF-imposed anti-inflation plan.

BBC correspondent Chris Morris said: "The economic policies, the structural reforms, as we have seen elsewhere, especially in Asia, have an effect - it means that wage rises are low, unemployment is rising - people feel extremely uncertain."

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See also:

03 Dec 00 | Europe
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04 Dec 00 | Europe
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