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.

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