Turkey fights banking crisis

ISTANBUL, Turkey -- Turkey's banking regulatory body took over a private bank -- one day the government announced a raft of banking and privatisation reforms.

Iktisat Bank had put its operation in danger by transferring its resources to firms owned by its shareholders, the Banking Regulatory and Auditing Board said on Thursday.

It was the second move against a bank since a financial crisis broke in February, slashing the value of the lira by about 30 percent and scuppering a three-year International Monetary Fund-backed financial reform plan.

Kemal Dervis, the cabinet minister in charge of the economy, said on Wednesday that an economic recovery programme would be put together soon.

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Dervis, appointed to deal with the crisis triggered by a political row last month and restore foreign confidence in Turkey, said all bank deposits would be guaranteed by the state.

"There is no reason for foreign and domestic depositors who have relations with this Bank and the Turkish banking system to be concerned," the Banking board said in a statement.

Last month the government abandoned currency exchange rate controls sending the Turkish lira plunging in value against the dollar and prices spiralling upwards.

Petrol prices rose another 10.2 percent on Thursday, the second hike in two weeks, and was expected to trigger a wider price rises.

Before the crisis, Turkey had planned to bring annual inflation rate down to 10 to 12 percent by the end of 2001, under a three-year plan backed by $11.5 billion in IMF loans. But analysts say the inflation rate could shoot up to 50 percent this year.

Analysts believe Turkey has hesitated too long in tackling critical imbalances in the banking sector that have repeatedly choked off funds and pumped up interest rates.

Dervis said he would take measures to overcome the structural problems of private banks, and the short term liabilities of private banks already in receivership would be liquidated.

Hakan Azci, strategist at Global Securities in Istanbul, said most of what Dervis announced had been expected by the market.

"But it's a plan that is exactly in line with what should be done to pull the country out of the crisis."

However he remained cautious. "Given the troubles in world markets, and the domestic debt situation we will have to deal with next week, given the uncertainty over how much foreign support this programme will attract, we will remain defensive on the markets right now," he said.

Dervis, a U.S.-educated economist, portrayed the crisis as an opportunity for wholesale reform of problems that have long plagued the economy of NATO member and EU membership candidate Turkey.

The IMF says it still supports Turkey, but has held back from any promises of extra assistance until the country has a coherent economic plan.

Reuters contributed to this report.

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