The Turkish lira crashed by 21.7 per cent today in initial trading after the government abandoned the currency's sliding peg against the dollar.
The Turkish lira plummeted after a pre-dawn announcement that the currency would be left to float in the face of Turkey's second financial crisis in three months.
The economic turbulence was sparked by fears of political instability after Prime Minister Mr Bulent Ecevit and President Mr Ahmet Necdet Sezer clashed in an unprecedented row over ways to fight corruption.
Yesterday Turkish financial markets were hit by a severe liquidity crisis, with overnight interest rates hitting about 4,000 per cent and the Istanbul stock market slumping by 18 per cent, before recovering 10 per cent this morning.
The devaluation will revive inflation, which could now reach 40 per cent this year, compared to the government's target of a 12 per cent.
The IMF supported the government's new strategy and even suggested that it might provide additional help for restructuring the flawed banking sector.
However, analysts said the abandoning of the peg, a key element of a three-year inflation reduction program approved by the IMF in Dec 1999, will necessitate a thorough revision of Turkey's strategy in fighting inflation.
Following a cash crisis in November the IMF lent Turkey $10 billion in exchange pledges of reforms of Turley's creaking financial sector.
But Turkey did very little, only initiating procedures for the sale of 10 of the 11 bailed out banks and the privatisation of Turkish Airlines and Turkish Telecom stakes.
The Turkish central bank, meanwhile, asserted it "will play an active role at the markets" to ensure that the new economic balances are set at sustainable levels and to preserve the hitherto gains in the fight against inflation.
AFP