Turkey has experienced a strong recovery from a severe economic contraction it experienced in 2001 due to a devastating financial and currency crisis. During 2004, Turkeys real gross domestic product (GDP) grew by a rapid 8.9 percent, with an inflation rate of 8.6 percent. For 2005, real GDP growth is forecast at 5.6 percent, with inflation of 8.0 percent. Unemployment was running around 11.7 percent in the first quarter of 2005, down from 12.4 percent in the first quarter of 2004. In response to Turkeys 2001 economic crisis, the International Monetary Fund (IMF) began working closely with the country. In early 2002, the IMF and Turkey agreed to an $18.6 billion Stand-By assistance package. On May 11, 2005, the two parties agreed to a further $10 billion, 3-year package. IMF assistance to Turkey is conditioned on implementation of a variety of reform measures aimed at addressing the root causes of the countrys economic problems. Among other things, Turkey has pledged to cut state spending and subsidies, reform the countrys banking sector, accelerate privatization of state-owned industries, lower the inflation rate, reduce the countrys heavy debt burden, and in general create a stable macroeconomic environment conducive to economic growth. In May 2005, the IMF stated that Turkeys economic performance is the strongest in a generation. The IMF called for measures ranging from continued independence of the central bank to full inflation targeting in order to facilitate further reductions in interest rates and generate sustained growth. Despite the positive signs seen recently, Turkey continues to face numerous economic challenges, including: a large underground economy; sharp income inequalities; a large, inefficient state sector; overly complicated legal and administrative procedures; a relatively inhospitable foreign investment climate; and a stalled privatization program. In addition, Turkeys desire to join the European Union (EU) has increased political debate over such issues as rights for ethnic Kurds, the death penalty and human rights, emergency rule in four eastern provinces, economic reform, and democracy in general. In March 2004, Turkey held local elections, in which the ruling, Islamist-based Justice and Development Party (AKP) won a significant victory.