The lira began to slide again in the week beginning 28 February. This follows a reduction in support measures from the central bank (MEED 25:2:94). The strategy of the new central bank governor, Yaraman Toruner, apparently aims to curb high interest rates while allowing lira depreciation, bankers say.

In the first three days of the week, the lira's effective devaluation against the dollar according to market rates was about 7.5 per cent, to about $1=TL 20,095. Some observers saw the relaxation as a way of permitting lower interest rates, thereby encouraging banks to cover the budget deficit by lending more to the treasury through auctions of bills and bonds; demand for these has been lacklustre since the foreign exchange crisis broke in mid-January. The treasury would then have the funds it requires for maturing bills and bonds, and to pay public-sector salaries.

However, others believe that, as the banks' treasury paper matures over the next six months, Toruner wants to herd the institutions into a proposed swap option for about $1,000 million-worth of replacements for five-year revenue-earning certificates, denominated in or index-linked to foreign exchange, which also fall due shortly. The certificates entitle holders to shares in the revenues of major state utilities, such as the Keban hydroelectric power station.

The replacement certificates would carry interest rates of at least 1 per cent over the London interbank offered rate (Libor). This operation would help the treasury satisfy its cash needs. At the same time, it would reduce the danger to the financial sector of exposed short positions in foreign exchange totalling about $4,000 million.