Turkey currency float crisis

ANKARA, Turkey (CNN) -- Turkey has been plunged into political and economic turmoil after a government decision to abandon its exchange-rate controls.

The government announced it was floating its currency -- effectively allowing a devaluation of the lira -- in a dramatic move to deal with one of its worst financial crises in decades.

The move sent the Turkish lira into freefall and was described by CNN business correspondent Todd Benjamin as "very bad news for the man on the street in Turkey."

Now labour and business groups in Turkey have called for a government shake-up as wage-earners fear serious economic hardship.

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A coalition of labour unions and business groups, the Civil Initiative, said in a statement: "Unsuccessful ministers and bureaucrats must be replaced and more qualified people put in their place."

Turkey's lira tumbled in afternoon trade, causing the central bank to fix a dollar rate nearly 30 percent lower to end a slide that looked ready to go further in the first day of free trade.

In the afternoon the central bank set bid/offer rates of 957,879/962,499, slightly more than 28 percent below its fixing the previous day -- but stronger than lira deals of more than one million earlier in the day.

Prime Minister Ecevit is embroiled in a bitter dispute with President Sezer

Many analysts had predicted a depreciation of 30 to 40 percent, and most remained convinced that the newly freed currency has yet to find a settled rate.

On Wednesday, the central bank's dollar purchase rate was 685,391 lira to the dollar.

But the stock market is bouncing back. The national 100 index in Istanbul was up 10 percent -- having plunged by 29 percent in the first three days of this week.

The crisis was triggered by a bitter dispute between Prime Minister Bulent Ecevit and President Ahmet Necdet Sezer, which escalated earlier this week.

Ecevit stormed out of a meeting with Sezer, upset after the president criticised the government for failing to battle corruption, and the row sparked turmoil in financial markets.

At a 10-hour crisis meeting, the government decided to abandon its defence of the Turkish lira that had already cost it $3 billion and driven overnight interest rates to 4,000 percent.

The International Monetary Fund, which has provided $11.5bn in loans to Turkey says it supports the currency float, and will discuss changes to its aid programme.

The clash between Turkey's two top leaders led to fears of a government collapse, and the row terrified Turkish banks. Ecevit's three-party coalition government is Turkey's most stable in years.

Panicked investors drained more than $7bn from central bank reserves on Monday, leading the central bank to cut off the taps to them in a bid to wrest those dollars back, sending key lending rates over 4,000 percent.

The government and Turkey's central bank hope the new move will bring skyrocketing interest rates under control.

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Turkish Prime Minister's Office
Turkish Prime Minister (In Turkish)
Turkish President (In Turkish)
International Monetary Fund

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