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O'Neill talks Turkey

In his first weeks in office, blunt-spoken U.S. Treasury Secretary Paul O'Neill surprised the financial community with his disdain for International Monetary Fund bailouts and his dim view of interventions.

His message to financiers was clear: Let the markets sort things out on their own.

Then, last month, Turkey's financial problems exploded. A political spat between Prime Minister Bülent Ecevit and President Ahmet Necdet Sezer sparked a crisis of confidence that forced the government to abandon the pegged exchange rate underlying the IMF's inflation-fighting program. Coming just weeks after the IMF anted up an $11.4 billion rescue package for Turkey, the latest setback was a fiasco not just for Ecevit but also for the IMF, which has a record of failed attempts to support currency pegs. Indeed, Turkey's central bank chief, Gazi Erçel, who helped design the IMF program, was forced to resign.

But if market participants expected O'Neill to criticize the IMF or reveal how the Bush administration plans to approach financial crises in developing nations, they were disappointed. "Turkey is an important ally and good friend of the U.S.," said O'Neill, highlighting the country's strategic significance. "The U.S. continues to back the IMF's ongoing support for Turkey's economic reform program."

Although O'Neill's rhetoric differed from predecessor Larry Summers', his pragmatic approach didn't vary that much. "O'Neill has made bold statements about IMF interventions," says Desmond Lachman, head of emerging-markets research at Salomon Smith Barney. "The question is what it means in practice. More important than what he says is what he does."