The Turkish lira resumed its steep fall yesterday as International Monetary Fund (IMF) officials met in Ankara to seek a way out of a financial crisis which has provoked widespread condemnation of the Prime Minister, Mr Bulent Ecevit.
With the currency down 40 per cent in two days, the Deputy Prime Minister, Mr Mesut Yilmaz, said the government planned a shake-up of economic management. A senior official who asked not to be named said the reshuffle might extend to ministerial level.
Economists feared the onset of a "crisis within a crisis" in the vulnerable banking sector, an issue certain to be at the centre of emergency talks with IMF officials in Ankara.
"I do not understand. You tell me for God's sake. Is this the way to rule Turkey?" said Mr Emin Colosan, a commentator in Hurriyet newspaper, reflecting widespread bitterness after the virtual collapse of an IMF-backed financial reform prog ramme.
"This horrible picture, this disgrace is their [the government's] work," he said of what is widely regarded as a needless crisis.
Mr Ecevit, whose emotional public row with his President provoked the crisis, flew abroad to a Balkan summit after a week that has seen his authority seriously eroded. His row with the President, which he declared a state "crisis", grew into a financial crisis which now threatens to have political fallout.
The public sees inflation now being sucked into the economy by soaring import prices, and dreams of single-digit inflation by the end of 2002 are receding quickly.
Mr Carlo Cottarelli, head of the IMF's Turkey desk, began work in Ankara to hammer out a new, revised package to replace the one abandoned so ignominiously this week, 14 months into its three-year term.
Its collapse was signalled by a decision in the early hours of Thursday to end controls on the lira that were central to the programme. The lira plunged 28 per cent on Thursday, continuing its fall yesterday to around 40 per cent below prefloat rates.
Equity investors chose to look on the bright side for a second day, as shares rose over 4 per cent on expectations that the flotation would alleviate recurring shortages of funds, freeing up money for share purchases.
Key interest rates fell back to around 550 per cent from peaks of over 5,000 per cent at the height of the crisis.
Devaluation holds deep dangers for a banking system whose weaknesses triggered a crisis only three months ago. The IMF then put up $7.5 billion to rescue Turkey, only to see the programme collapse this week.
The system - some 80 banks - grew fat over years of high inflation that allowed easy profit from trading government debt. Failure to reform it as inflation fell in line with the IMF programme presents one of the greatest risks for Turkey.
Eleven banks have been taken under administration, but high debts in foreign currency, which will now cost more to service, could well damage others. The crisis began on Monday when Mr Ecevit and Mr Sezer bickered over the pace of an anti-corruption drive.
The next political landmark in the crisis will be viewed with much apprehension not only by markets but by the people. Mr Ecevit must return on Monday to the meeting of the National Security Council (MGK) he stormed out of and once again confront the President he so vehemently denounced there.
The minutes of MGK meetings, which give the powerful military the opportunity to transmit their views formally to the politicians, are secret. But the tone of Monday's meeting will soon become apparent to the public and markets.
There are no signs of public demonstrations or protests, though a civil action group of top trade unions and businessmen is pressing the government to give it some influence.
Turkey has no tradition of mass defiance but social security has been eroded and unemployment looms with implementation of the IMF-backed programme and its privatisation plans.
"The Turkish people gave whatever was asked of them, did not say a word . . . did not rebel," the Sabay newspaper commented. The government and officials "failed but everyone stays in their places and with the same words as 14 months ago . . . they go on asking for sacrifices from the people".