Amberin Zaman

This selection first appeared in the Los Angeles Times on 23 February 2001.

Istanbul -- The Turkish currency lost more than 40 percent of its value yesterday after a political and financial crisis brought on by tumbling stock prices forced the government to abandon exchange controls.

Turkey's second financial crisis in three months has sent the stock market tumbling, weakened the government of this key U.S. ally and sent jitters through emerging markets from Russia to Brazil.

As the Central Bank injected $3 billion into the banking system to cushion the lira's free fall, Prime Minister Bulent Ecevit tried to assure Turkish and foreign markets that the moves would end the country's latest financial crisis.

"We believe the floating regime will revive the economy in a significant way," Ecevit said after four days of market turmoil. He insisted Turkey will continue to carry out anti-inflation measures backed by $11 billion in loans from the International Monetary Fund, although other officials said the program had to be revised.

IMF officials offered cautious support for the end of currency controls, announced at 3 a.m. after a 13-hour Cabinet meeting. Horst Koehler, the fund's managing director, said the decision "should help stabilize the exchange rate and ensure possibly, after an initial increase, that the inflation rate continues to decline."

The lira plunged from a value of about 680,000 to the dollar on currency markets yesterday to 960,000 to the dollar.

The Istanbul stock exchange registered a slight recovery, with its main index registering a 10 percent gain after plummeting 18 percent Wednesday in its worst single-day loss. Interest rates, which shot up to a dizzying 7,000 percent Wednesday, hovered around 700 percent yesterday.

Similarly, stock prices in other key emerging markets rallied after diving Wednesday on fears that Turkey's woes could hurt capital-raising worldwide. Brazil's main stock index rose 2 percent and Mexico's added 0.4 percent. Russian stocks also rebounded.

Central Bank Gov. Gazi Ercel acknowledged that Turkey would have to revise the targets it had worked out with the IMF for reducing inflation from its current annual rate of 30 percent to 10 percent by year's end.

Western diplomats expressed concern that economic troubles could bring down Ecevit's three-party coalition and plunge Turkey, a member of NATO, into a prolonged period of political instability.

The government's damaged credibility will make it even harder for Ecevit to push through democratic reforms required by the European Union as conditions for advancing Turkey toward membership in that alliance.

A deeper worry among the country's pro-Western elite, however, is that the crisis will exacerbate unemployment, playing into the hands of ultranationalists and Islamic zealots.

The government's slowness in overhauling a weak and corruption-plagued banking system and in privatizing debt-shackled state companies is widely viewed as the underlying cause of the crisis.

But the immediate trigger was an extraordinary public feud Monday between Ecevit and President Ahmet Necdet Sezer during a meeting of the National Security Council.

Even the usually unflappable military commanders who sit on the council are said to have been shocked when Sezer accused Ecevit of not doing enough to halt corruption in government-run banks and ministries.