ABSTRACT
Turkey initiated an extensive disinflation program in December 1999, which was backed and supervised by the International Monetary Fund (IMF). The aim of this program was to decrease the inflation rate to a single digit by the end of 2002. It relied exclusively on a nominally pegged (anchored) exchange rate system for disinflation, which has been a major concern for Turkish policymakers for over three decades. In November 2000, however, one year after introducing the program, the country experienced a very severe financial crisis. More than $6 billion of short-term capital fled the country, creating a severe liquidity shortage and skyrocketing interest rates.
