The lira dropped like a stone to close at between 18,500 and 20,000 to the dollar (between 27,800 and 30,000 to the pound), down from 16,600. State television news readers called for calm and repeated official pleas to the public to buy government treasury bills that will be offered for sale again today at annual compound interest rates of more than 100 per cent.
'Everything will find its level. Everything is under control,' said the Prime Minister, Tansu Ciller. But for once the Turkish public may be unwilling to be charmed by the former professor of economics' trade-mark, the flash of a determined smile.
The treasury chief, Osman Unsal, had to call in television cameras to promise that Turkey would continue to pay interest rates on lira-denominated treasury bonds in excess of both the country's 70 per cent inflation and the appreciation of foreign currencies.
'This is pure speculation. We have no foreign currency problem: at dollars 18bn ( pounds 12bn) our international reserves are at their highest level ever,' Mr Unsal said. 'This is a Turkish lira problem. That is linked to the deficit, which is not today's or yesterday's problem but dates back 10 years. The fact is, government revenues only just cover personnel expenditure and interest payments.'
Mr Unsal has a point. Turkey's fiscal problems date back to the late 1980s, when the late Turgut Ozal started spending freely in the run- up to his controversial election as president in 1989. Subsequent years of weak government and gridlock in economic decision-making followed, slowly undoing Turkey's reputation as an economic success story for the International Monetary Fund.
The government has also been saddled with huge expenditures on its 200,000 security troops fighting Kurdish rebels in south-eastern Turkey, which some estimate may eat up to a quarter of the budget. The budget deficit has soared to more than 16 per cent of GNP. Privatisation has faltered, inflation is rising again, and the currency is so weak that the business pages of the press have introduced the concept of a quadrillion or a thousand million million lira.
The straw that broke the camel's back fell on Friday, when two big international rating agencies, Moody's and Standard and Poor's, said they were downgrading Turkish debt to a riskier investment grade. Standard and Poor's said the outlook was still negative.
The lira's fall will hit Turkish businesses that borrowed in foreign currency, and inflation will rise. But others still have faith in Turkey's growth rate of 7 per cent. They also hope that a weaker lira will help right Turkey's record trade deficit in 1993, which helped push the current account dollars 5bn into the red. Luckily, the impact of the currency drop may not be completely devastating. Turks living in the cities have long known better than to keep their money in lira, buying foreign currency for their savings. In the countryside, peasant women since time immemorial have kept the family nest-egg safely on their arms in easily tradeable bangles of gold.