The lira, Turkey's national currency, will now be determined by market forces rather than being pegged to a mixture of the U.S. dollar and the euro. The Turkish government's decision to float its currency resulted from a developing financial crisis that has seen interest rates soar and stock prices plummet. The market's response to the devaluation was to reduce the price of the lira about 25 percent.
Analysts expect there to be little impact on other economies as a result of Turkey's devaluation.
Turkey's gross domestic product decreased by 5 percent in 1999. Its inflation rate is 65 percent. The government's efforts to reduce inflation included measures aimed at reducing government spending and corruption in the banking sector. The decision to float the lira will, however, have adverse affects on inflation. The sharp rise in the lira increases import prices and reduces the incentive for domestic producers to hold down price increases.