Sharing Turkey's Pain.(discussion of economic conditions in Turkey and Argentina)(Brief Article)

Shades of 1997. Once again, there's hand-wringing over a global financial crisis, loose talk of spreading "contagion" and toppling dominoes. The lira's crash in Turkey sets the next most vulnerable economy awobble--Argentina. After that, who knows?

Few economists reject that scary scenario out of hand. Turkey's troubles could conceivably spread elsewhere. If the experts had to pick a likely victim, many would in fact point to Argentina, also under International Monetary Fund care and struggling to protect its peso, just as Turkey fought a losing battle to buoy its currency. But how seriously do they take the threat? Not very. Turkey's virus is very different from Argentina's, and both are far less contagious than the epidemic that hit Asia three years ago.

Contrast Turkey today with Thailand, South Korea or Indonesia then. Back in '97, all the Asian Tigers were borrowing recklessly from Western banks and actually owed more dollars than they held in foreign reserves. Most of the debt was short term and financed a spending binge that was running up trade deficits. In short, these countries were broke and going broker when a financial scandal in Thailand exposed a morass of corruption and uncollectible loans at the nation's banks. Foreign banks suddenly started calling in loans. Big speculators started attacking the Thai baht, then went to work on the neighbors. The Asians desperately bought back their own currencies in a futile attempt to thwart the attacks. Voila, a cascading regional crisis.

It's a new world now. Western banks and investors are wary of possible links between "emerging markets." Yet Turkey is no Thailand. Trade and budget deficits are in check. Foreign-exchange reserves are ample, backed by generous IMF credits. There is little foreign investment to panic, thanks to a corrupt and out-of-date court system that routinely stripped outsiders of their rights. Instead, the lira was crushed in recent weeks by the flight of capital held by Turkey's own oligarchs, who were spooked by a bank scandal and half measures to reform the economy in hopes of gaining membership in the European Union. (Until only recently the retirement age for men was 53.) Failed reform sent inflation skyrocketing last year and provoked a crisis in confidence in Turkey's ability to gain Western economic standards. Since Turkey finally abandoned pegging its currency to the dollar last month, the lira has crashed by 33 percent. It was the 17th time an IMF ...