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beral exchange rate regime in which Turkish Lira is convertible against other currencies. Actors of the free market mainly determine the value of Turkish Lira. Money markets, which have reached considerable volume supported by well-performing technological infrastructure, forms a solid ground for efficient flexible foreign exchange regime.

The Central Bank of Turkey declares its quotations on daily basis as official rates of foreign currency. Widely determined by the factors in the free market, Turkish Central Bank’s intervention to money markets is a rare occasion under current circumstances.

Since November 1995, the Central Bank of Turkey had been following an exchange rate policy of devaluing the Turkish Lira in line with the Wholesale Price Index (WPI) against a currency basket consisting of USD 1.00 and DM 1.50. In line with the launch of the Euro, the Central Bank had replaced the DM with Euro, then with a new basket of USD 1.00 and Euro 0.77.

In year 2000, in conformity with the economic program carried with IMF, foreign exchange rate system was changed to crawling peg system. By another definition, the devaluation of the TL was realized over predetermined rates in a given period.

However, financial and macroeconomic developments led the exchange rate system to be based on floating exchange rate system, as the result of the financial crisis faced in year 2001 mainly resulting from the current account deficit.

Inflation

Inflation has been Turkey’s most important economic problem, with increases in both retail and wholesale prices.

The most recent programs that have been carried with IMF mainly focused on fighting inflation, reducing government debt financing need, while sustaining continuous economic growth.

The inflation rates for years 1998 – 2002 and 2003 (first 6 months) have been presented in the Table 15.

With the committed measures taken by the former and current governments, inflation has entered into a decreasing trend. As could be noted from Table 15, with the exception of the inflation rate in 2001 for wholesale and retail prices respectively were, 88.6% and 68.5%; whereas wholesale and retail prices have dropped to 30.8% and 29.7% in 2002.

Turkey’s Integration with European Union

Turkey is an official candidate for accession to European Union. Turkey’s Accession Partnership Document has been announced by EU, which outlines the reforms that are required to be met by Turkey for its accession as full member.

Turkey’s performance in fulfilling and executing the reforms, which are implemented under a National Program, is very promising to meet the political, economic and social criterions.

Turkey’s performance and committed approach are interpreted as very encouraging by the Member States.

Turkey is committed to implement the program to fully comply with the criterions and there are strong signs that the negotiations for full membership will start in 2004.

The expectancy of starting the negotiations for full membership, as perceived for a strong indication of the ultimate phase of accession of Turkey with the EU, will certainly be the trigger for the investors seeking opportunities to take share from the growing Turkish economy.

RECENTLY ECONOMICS IN TURKEY AND IT IS AFFECT ON INVESTMENT<