Turkey's Final Act?

CAMBRIDGE: Turkey has been escaping trouble seemingly forever. As an escape artist, indeed, it even beats Brazil! But the bill for this bravura performance keeps growing: high and rising debt, high and rising deficits, very high inflation. All are symptoms of Turkey's perverted politics.

Dodgy politics usually means four things: first, cover up and avoid government transparency like the pest that it is for wayward politicians. Second, procrastinate on all but inevitable adjustments, because reform, restructuring and cleaning up financial messes never attracts new cronies. Third, keep spending and paying off anyone who risks upsetting the process. Lastly, don't take too dogmatic a view of corruption and or the looting of the public coffers; they are part of the system. Remember, corruption keeps things stable.

An IMF program in 2000 was meant to offer a framework for Turkey to work its way out of its troubles. But as is the way with exchange rate-based programs, interest rates were indeed brought down and imports made cheap, creating a boom that undermined the viability of the disinflation strategy. What politician, after all, says no to a boom?

Act I started last December, with a financial crisis to blow Turkey's cozily corrupt system wide open. In haste, the IMF arrived on the scene, waving $10 billion at the problem. It soon seemed to have restored some normality. Not quite, because interest rates remained high and creditors remained alarmed. The precariousness of the situation called for early and dramatic declines in interest rates driven by an early restoration in confidence. In February, however, the opposite happened: political support for the IMF program broke down when President and Prime Minister had a shouting match. Act II began with a renewed speculative attack and a deep collapse of the currency.