Turkey has become the latest country to fall victim to the whirlwind of financial speculation. A huge outflow of money forced the government of Bülent Ecevit to announce on Thursday of last week that it was allowing the Turkish currency, the lira, to float freely on the foreign exchange markets. Within two days the lira had been devalued by 36 percent.
This wasn't supposed to happen. Turkey had been accepted as a full candidate for membership of the European Union. The government had agreed a programme of economic 'reforms' with the International Monetary Fund (IMF). One bewildered banker said, 'This is the equivalent of something falling from outer space.'
Ecevit himself is getting the blame. On Monday of last week a full scale row developed between Ecevit and the Turkish president, Ahmet Necdet Sezer, at a meeting of the National Security Council. Sezer accused the government of blocking investigations into corruption. Ecevit stormed out of the meeting and issued an angry statement.
The financial markets then went into freefall. That day Turkey suffered the biggest outflow of money in its history. By Wednesday of last week overnight interest rates had reached over 4,000 percent in a desperate effort to stem the flight of capital.
A row among elderly politicians couldn't on its own provoke such a panic. Deeper forces were at work, reflecting the divisions in Turkish society. The IMF programme involved neo-liberal 'reforms' designed to open Turkey up to the world market. These require dismantling many of the state-controlled structures of national capitalism built up since Kemal AtatŸrk set up the Turkish republic in the early 1920s.
As ex-diplomat Ozdem Sanberk put it, 'We are talking about overhauling national society in its entirety. But that is shaking the very structures of society and the people who use those structures.' According to the Financial Times, 'Opposition to the reforms has been growing not just in the ranks of the government and the bureaucracy, but also from the business sector. Apart from those who believe in continued state control of the economy. There is a powerful 'inflation lobby', accustomed to making its living from high interest rates and inefficiently awarded state tenders financed by runaway government spending.'
The IMF programme also made the Turkish economy more vulnerable to financial speculation. Turkish banks borrowed heavily abroad to finance their loans to the government and companies. Some 70 percent of Turkey's $110 billion debt is commercial debt-European banks loaned them nearly half. German banks alone lent $12.118 billion. But Stanley Fischer, the IMF's deputy managing director, flew into Ankara in the middle of last week's crisis.
He is reported to have told Ecevit, 'Either you agree to float the currency or there is nothing to talk about.' This inevitably led to the massive devaluation that has now taken place. He ruled out lending Turkey any more money.
This is simply the latest in a series of financial crises to have hit individual so called 'emerging markets' over the past decade-Mexico 1994-5, East Asia 1997-8, Russia 1998 and Brazil 1999. A few months ago there was widespread concern about Argentina. In each case the pattern is the same. The government adopts neo-liberal policies-privatisation, deregulation, cutting public expenditure-conforming to the 'Washington consensus' enforced by the IMF, World Bank, and the US Treasury.
Speculative capital pours into the country, attracted by expectations of a quick profit. The inflow helps to fuel, if not a boom, then at least the expansion of some sectors of the economy.
Then something happens to scare the foreign investors -an economic setback or, as in the Turkish case, a political crisis, and panic sets in. Money floods out as quickly as it entered in the first place. And the IMF steps in to protect the interests of the speculators. It imposes a standard 'rescue' package that always includes devaluation along with yet more neo-liberal measures.
The Turkish crisis underlines the fragility of the free market capitalism that currently dominates the world. It also dramatises its inhumanity. The price of last week's panic will be paid not by the foreign speculators or the Turkish ruling class, but by workers and peasants in the shape of lost jobs and lower living standards.