This Selected Issues paper on Turkey describes the link between budget deficits and inflation. The paper outlines the key elements of the recent reforms and additional measures to reform the system. The study assesses the impact that inflation has had on the banking system, examines the sources of volatility of Turkey's external balance, and presents empirical estimates of the elasticities governing the behavior of exports and imports. The paper analyzes the costs of agricultural support policies along these methodological lines, and also provides a statistical appendix for the country.