Turkey Turns to IMF to Ease Crisis

With words of encouragement from President Bush, Turkish officials began talks Friday with the International Monetary Fund on a new strategy to curb inflation after a political and financial crisis forced them to abandon currency controls.

A week of market turmoil cost the Turkish lira more than 40% of its value, but it steadied at about 1 million to the dollar Friday as banks held back from currency trading. Istanbul’s stock market gained 6%, its second modest rally after losing nearly a third of its value since the crisis erupted Monday.

Key interest rates fell to about 530% from peaks of more than 5,000%.

Although the government’s decision Thursday to float the lira calmed jitters in emerging markets around the world, the currency’s free fall was traumatic to Turks, who now see their savings and wages threatened by a new burst of inflation brought on by soaring import prices.

By abandoning exchange controls, Turkey tossed out an essential element of its plan to achieve single-digit inflation by year’s end--a pledge on which the government had staked much of its credibility and for which it was receiving $11 billion in loans from the IMF.

Turkish Finance Minister Sumer Oral went back to the drawing board Friday with Carlo Cottarelli, head of the IMF’s Turkey desk, to devise a new anti-inflation plan. Prime Minister Bulent Ecevit said the plan “is much more realistic.” Other officials said Turkey’s central bank will rely more on interest rates to keep prices in line.

In a phone call from Washington, Bush urged Ecevit to cooperate with the IMF and “expressed his ongoing support for Turkey’s economic policy,” White House spokesman Ari Fleischer said.

Fleischer said Bush “noted the importance of preserving the important gains Turkey has already made” and encouraged Turkey to press ahead with economic reforms, “working in cooperation with the IMF.”

White House officials sought to portray the call as one that reflected the importance the United States attaches to its relations with Turkey. But Bush spent no more than five minutes on the call and had waited more than a month into his term to introduce himself to the Turkish leader.

Nonetheless, the call was a political boost for Ecevit, whose emotional public clash with Turkish President Ahmet Necdet Sezer triggered this country’s second financial crisis in three months and damaged the prime minister’s credibility at home. Sezer had accused Ecevit of protecting corrupt Cabinet ministers in his three-party coalition.

The latest crisis is widely expected to slow the economy and trigger layoffs.

Importers who had borrowed in dollars were hard hit. They had calculated earnings on the basis of government forecasts of a year-end exchange rate of 720,000 liras to the dollar.

“All my debt is in dollars. My earnings are in liras. I am ruined,” said Mehmet Ovacik, a cellular-telephone salesman in Istanbul.

Ecevit, 75, showed few signs of strain as he exchanged toasts Friday at a Balkans summit in Macedonia with Greek Prime Minister Costas Simitis.

But Ecevit, resisting pressure to resign and call new elections, is expected to shake up his Cabinet soon. Among those likely to lose their jobs is Energy Minister Cumhur Ersumer, who has been tarnished by widespread allegations of corruption.

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Times staff writer James Gerstenzang in Washington contributed to this report.