ECONOMY

Turkey prepares to wipe lira clean of chronic inflation, effective January 1

ANKARA (AFP) – Turkey launched yesterday a nationwide campaign to introduce a new currency, hailing it as proof that chronic inflation that has plagued the country for decades has been defeated. The New Turkish Lira – or YTL, as it is called here – will circulate from January 1, 2005, wiping out six zeroes from the current money, which has been a source of national shame for many Turks as a symbol of economic failure. The biggest banknote now circulating – the 20-million-lira bill (about $13) – is the biggest banknote in the world. Monthly wages are measured in billions, while the budget, for instance, is calculated in quadrillions. «This is an event of historical importance because it achieves something the Turkish people have been yearning for for years,» Economy Minister Ali Babacan told reporters as he formally launched the campaign. «It proves that the country is on an irreversible road of (economic) progress and that the nightmares are now behind us,» he added. Ankara decided to introduce a new currency, minus six zeroes, after it pulled inflation down dramatically as part of a tight economic program backed by the International Monetary Fund (IMF). Annual inflation, which surpassed 100 percent in the mid-1990s, now stands at about 10 percent. «Our money will gain respect… Our people’s confidence in their national currency will be restored,» Babacan promised. One New Turkish Lira will equal 1 million Turkish lira – at current rates, it will be worth about 65 US cents or 55 euro cents. Both currencies will circulate during a transitional period until December 31, 2005, during which labels will list prices in both versions of the lira. The reform will also reintroduce the kurus, which disappeared from circulation more than two decades ago; there will be 100 kurus to the New Turkish Lira. Babacan downplayed concerns that rounding off prices – as happened after the adoption of the euro – might fan inflation. «The current legal tender is already pretty much rounded, so there will be almost no rounding effect,» he said. «Even if there is, it will be so minimal that it will have no bearing on inflation.» Babacan said he is confident people will easily adapt to the old and new money together because «Turks already trade in different currencies,» Babacan said, referring to the frequent use of dollars and euros in many daily transactions. The promotion campaign will extend to the breakaway Turkish-Cypriot state in northern Cyprus, which uses the Turkish lira, as well as European countries that are home to large Turkish immigrant communities. Central Bank President Sureyya Serdengecti said they would ask mosques across the country to support the reform by mentioning the arrival of the new bills in sermons at Friday prayers. The new banknotes and coins will be kept under wraps for security reasons until October, he said. The Turkish economy began its downward slide after a massive devaluation against the dollar in 1970. More than a dozen standby deals with the IMF since then had failed to bear fruit, abandoned by consecutive governments. The current program, backed by a 16-billion-dollar IMF loan, was signed in 2002 after turmoil in the banking sector plunged the economy into its worst recession since World War II. In exchange for the aid, Ankara implemented far-reaching reforms that helped it stabilize its banking system, decrease inflation and boost growth. The program expires in February 2005 and is expected to be followed by a new three-year stand-by deal, currently under discussion.