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Turkey's Economy Faces Some Painful Music


Economic Trends

TURKEY'S ECONOMY FACES SOME PAINFUL MUSIC

From 1983 to 1993, Turkey was the shining star of Europe's emerging economies, turning in average growth of better than 5%. No more. Economist Vincenzina Santoro of J.P. Morgan & Co. notes that after posting a first-quarter rise of 3.5%, Turkey's real gross domestic product last quarter plunged 11.3% below the year-earlier level, with no revival yet in sight.

Turkey's woes were self-inflicted. For a half-dozen years, the nation managed to foster rapid growth and investment despite high double-digit inflation. But heavy government deficit spending, an excessively easy monetary policy, and soaring trade deficits and foreign debt sparked a financial crisis early this year. In the wake of 7.5% growth in 1993 and accelerating inflation, the nation's international credit ratings were downgraded and the Turkish lira plunged by nearly 60% at last count.

The crisis inspired a shock-therapy austerity package that pushed up government-controlled prices by as much as 125%. Both inflation and interest rates hit triple digits last quarter, and gross investment plummeted 22%. Now, in light of growing social unrest and elec-toral gains by an anti-Western Islamic political party, some observers are questioning Turkey's ability to continue to swallow the bitter fiscal medicine needed to regain economic health.GENE KORETZ


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