Cablegate: Business Groups Warn Got On Unemployment and Industrial

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1. (SBU) Summary: Three major business organizations warned the
government on February 21 about rising unemployment and slowing
industrial activity. The Turkish Union of Chambers and Commodity
Exchanges (TOBB), Turkish Industrialists' and Businessmen's
Association (TUSIAD) and Turkish Clothing Manufacturers' Association
(TGSD) all issued statements saying the government needs to move
quickly to avoid further job loss and cuts in manufacturing. Deputy
Prime Minister Ekren and Foreign Trade Minister Tuzmen will meet
with business leaders in response to these apparently-coordinated
business warnings. Some of their proposals would be welcome,
particularly action to free up Turkey's rigid labor markets.
Others, however, will be costly sectoral incentives that will test
the government's commitment to fiscal discipline. These warnings
came the same day that the IMF announced it would again delay
closing the seventh review, adding to nervousness about the lack of
GOT attention to economic policy. End summary.

2. (U) TUSIAD's statement drew attention to unemployment figures, in
particular the loss of 52,000 industrial sector jobs in the last
quarter of 2007, a 40% increase in job loss from the 35,000
industrial jobs lost in the third quarter. TUSIAD noted that the
job loss was occurring in sectors that had consistently created jobs
since 2004. "The increase in productivity of the manufacturing
industry sub-sectors slowed down in 2007, which reduced the need for
the producing sector to increase employment." The increase in per
capita productivity dropped to 2.6% in 2007, from 6.3% in 2006.
With the slowdown in domestic demand, job creation in the services
sector also slowed. New service jobs created in 2007 fell to
77,000, compared to 344,000 in 2006 and 776,000 in 2005.

3. (U) TUSIAD's statement added: "The current trends in the Turkish
economy do not enable increases in employment. We do not expect
private consumption and investment to be strong enough to support
high growth and employment rates, as they did in the 2002-2006
period. Considering the slowdown in the world economy, external
demand conditions will not be strong either. The possibility of
further deterioration of international liquidity conditions, more
increases in oil prices, and dollar appreciation against the Euro,
may have a worsening impact on external demand."

4. (U) Speaking at a conference on February 21, TUSIAD Business
Affairs Commission Head Ali Kibar said fluctuations in global
financial markets had reached a point where they threaten the
producing sector in Turkey, and urged the GOT to initiate a new
reform effort. TUSIAD Risk Management Working Group Head Tamer Saka
called on the GOT to come up with new economic methods to address
the recent developments in the economy: "At a time when the economy
is slowing down, the current account deficit is growing, and
inflation is accelerating, Turkey would be one of the first
countries to experience the negative impacts, once the disturbances
in financial markets are reflected in the producing sector and
investment funds."

5. (U) The TOBB Industrial Chambers Council issued its declaration
after a four-hour long meeting with Industry Minister Zafer
Caglayan. TOBB warned that industry was in a "bottleneck," and
needed "very urgent" measures to increase its competitiveness.
Rising imports resulting from the Central Bank's foreign exchange
and interest rate policies have hurt domestic production, and the
GOT should take "the necessary measures" to address this problem
while watching growth rates and industrial capacity utilization
(which we note also has begun to drop, to 80.5% in January, down
from 81.2% in December, and 83.5% in June 2007). TOBB also noted
recent employment data and market developments, and said these
signaled a further drop in employment. "The GOT should not forget
the importance of creating production and employment for the Turkish
economy, and should express strong will to put these issues at the
top of the agenda," said TOBB. The declaration also highlighted the
importance of implementing a correct incentives policy, to prevent
"unfair competition." Sector and project-based incentives,
implemented in the right regions, would prevent Turkish investors
from going abroad, according to TOBB. TOBB also urged the GOT to
lift measures hindering production and trading in free trade zones.

6. (U) While warning the GOT to maintain fiscal discipline, which it
said was "vital to economic stability," TOBB said that "the GOT
should come up with a roadmap on future efforts to reduce the cost
of employment-- starting with the 5% reduction in the social
security premium." According to TOBB, the GOT also should work on
measures to increase the competitiveness of sectors with high
employment levels.

7. (U) TGSD Chairman Ahmet Nakkas also issued a written statement,
warning the GOT that hundreds of thousands of Turks could be left
unemployed in the clothing manufacturing sector. Nakkas noted that
the textile sector provides 20% of employment in Turkey, close to
three million people. Nakkas said he was disappointed to see that
dire predictions his organization made last year were coming true.

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"There are several companies who are at a point of shutting down
their facilities, despite the fact that they have customers, due to
the GOT's delayed measures to support the sector." Nakkas said the
GOT should support establishment of specialized industrial zones,
and implement the incentives currently available in 49 provinces for
all textile exporters, at least for the next couple of years.
Nakkas called on the GOT to implement an Emergency Action Plan for
the textile sector. Nakkas also warned the GOT to start focusing on
the economy" or else sectoral losses will be "too heavy to bear."

8. (U) These business group warnings followed other business
criticisms of GOT policy, the most notable from the retired Chairman
of Koc Holding, Rahmi Koc, on February 20. Koc said: "the GOT
should get ahead of events, instead of following them from behind,"
and urged the GOT to support employment-creating foreign
investments. Finance Minister Unakitan responded to Koc's
statement, saying that the Turkish economy was resilient to shocks
and had never defaulted on its debts. The GOT was taking all the
measures needed to minimize the impact of global fluctuations on
Turkey, and Turkey would attract at least $22 billion in FDI in

9. (SBU) In response to this unified criticism, Deputy Prime
Minister for Economic Coordination Ekren announced he would meet
with representatives of TUSIAD and TOBB's Apparel and Ready-Wear
Industry Council next week. Minister Ekren and State Minister for
Foreign Trade Tuzmen will separately meet with exporters on Feb 24
and discuss a roadmap for Turkish exports for the coming year.
(Comment: Minister Ekren also is expected to meet separately with
TOBB Apparel and Ready-Wear Industry Council Chairman and Southeast
Anatolia Project Development Platform member Umut Oran on Feb 27, to
discuss issues relating to the GOT's Southeast Anatolia economic
package. Details of this package have not been released yet, but
investment incentives are expected to be among its proposals. End

10. (SBU) These business warnings, apparently coordinated between
groups that do not often work together, increases pressure on the
government to act on labor market and industrial sector incentive
proposals. Action to liberalize Turkey's rigid and high-cost labor
markets would be welcome. Some of the proposed industrial
incentives, however, will be very costly and test the government's
commitment to fiscal discipline, or will be protectionist trade
measures. We note that the business warnings came the same day that
the IMF announced yet another delay in closing the seventh review
under the current IMF program, due to yet the GOT's continuing delay
in acting on the social security reform package. This only adds to
nervousness (reftel) about the lack of GOT attention to economic
policy, which the business sector is saying, loudly, that it shares.
End comment.


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