Turkey teeters on the brink of a financial and economic crisis. A political feud sparked the troubles, the effects of which have been felt far beyond the country's borders. The Turkish government has moved quickly, but some of its new policies may well create their own difficulties. International support will be a critical component of any recovery program.
The trigger for the near-collapse was a political spat. When President Ahmet Necdet Sezer criticized the government last week for failing to fight corruption, Prime Minister Bulent Ecevit walked out of a National Security Council meeting. Smelling a crisis, investors panicked. The stock market plunged, losing a third of its value in three days. Interbank interest rates -- the amount banks charge to lend each other money -- soared to 4,000 percent. The currency, the lira, dropped as foreign investors fled, pulling $5 billion -- about one-fifth of Turkey's foreign-exchange reserves -- out of the country in one day.
After only a brief hesitation, the government let the lira float. The move was smart; there was little hope of defending the existing exchange rate. But the currency lost 40 percent of its value in two days, which has effectively wiped out many individuals' savings and could trigger inflation.