Turkey - The old economy is dead, let's bury it
Winds of change are blowing through the marbled corridors of Turkish banks, which have grown rich from inflation. Contrary to all expectations, the government has received the backing of the IMF for an ambitious economic programme whose success is widely predicted.
Turkish banks face a major shake-up that will inevitably lead to consolidation. For years most of them have fed off hyper-inflation. At long last, though, the government has committed itself to a programme of disinflation with the backing of an IMF standby agreement. The target of the three-year long standby agreement is to bring down inflation to single digits by the end of 2003. For the first time there is widespread public support for this and the government has displayed remarkable determination and consistency. "This is not a three-year programme - it is a 10-year programme and the 10 years recommence every morning," Gazi Ercel, central bank governor and one of the programme's chief architects told Euromoney.
His meaning was that there will be no going back. "The old economy is dead. There is no choice except to bury it," he says.
It will be a traumatic process. A generation of Turks has come of age with no idea of life without inflation, and businessmen have long forgotten how firms behave in a stable macroeconomic environment.
Banks were the chief financiers of the public debt and benefited hugely from real interest rates that have averaged between 20% and 30% since 1998.