Cold Turkey

Individual investors holding stock in the "emerging market" of a distant country might do well to ask about the honesty and openness of that nation's leaders. Without a clean government, a country's economy can go south overnight.

Last week, it was Turkey's turn to experience how eagerly investors will flee a market when it appears political leaders are not committed to ending the vestiges of state corruption.

Turkey's currency fell by a third on Thursday after a public spat between President Ahmet Necdet Sezer and Prime Minister Bulent Ecevit. The two men argued over the slow pace of selling off state industries that still benefit powerful interests.

This political crisis forced the government in Ankara to end controls on the currency's exchange rate. The lira quickly hit 1 million to the dollar, setting Turkish banks back on their heels and triggering instant inflation. It's a pity, too, because Turkey was making progress in fighting inflation and privatizing its economy.

Now this key Near East nation, which straddles the Islamic and Western worlds with the largest economy in the region, joins the ranks of Mexico, Thailand, Korea, Indonesia, Russia, Brazil, and Argentina, all of which have needed a large financial bailout in recent years.

Unlike the big Asian crisis of four years ago, however, the flight of investors from Turkey has defied any expectations of contagion. Investors are not bolting from other markets like lemmings, just out of raw fear.

Asia's crisis began in July 1997, when it was discovered that officials in Thailand had been lying about the nation's foreign-currency reserves. The Thai currency fell, creating a rout among investors worried that other economies might falter in the face of similar corruption or mismanagement. Many nations felt the loss of confidence. Since then, investors have become smarter about checking for any trapdoors in an emerging market.

Even though Turkey's crisis may be contained for now, its plight can't be ignored. President Bush, despite his administration's attitude to let markets take their course, called Mr. Ecevit on Friday to offer United States support.

Turkey is a pivotal nation. It's the Islamic nation friendliest to Israel. This former center of the Ottoman Empire is a big player in shaping the former Soviet states of Central Asia. It's a NATO member that controls the entrance to the Black Sea and whose military bases help the US contain Iraq. And it's on the list to join the European Union - a goal driving its economic reforms. Any political instability in Turkey caused by this financial crisis must be prevented.

Still, the US and other nations should insist that Turkey show it can curb official graft as well as end the influence of the Army in politics. Elected officials need to clean up the banking, telecom, and energy industries, as well as improve human rights.

Any rescue package from the International Monetary Fund - whose advice doesn't always work - won't succeed until the Turks themselves chose to elect an honest government.

(c) Copyright 2001. The Christian Science Publishing Society

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