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Cablegate: Turkey Revises Gdp Up Sharply, but Negative Trend

VZCZCXRO9174
RR RUEHLN RUEHRN RUEHVK RUEHYG
DE RUEHAK #0527/01 0791328
ZNR UUUUU ZZH
R 191328Z MAR 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 5630
INFO RUCNCIS/CIS COLLECTIVE
RUEHSS/OECD POSTS COLLECTIVE
RUEHDA/AMCONSUL ADANA 2788
RUEHIT/AMCONSUL ISTANBUL 4011
RUEAIIA/CIA WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 ANKARA 000527

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN TU
SUBJECT: TURKEY REVISES GDP UP SHARPLY, BUT NEGATIVE TREND
REMAINS

REF: ANKARA 473

ANKARA 00000527 001.2 OF 002


1. (SBU) Summary: Turkstat, the Turkish statistical agency,
released a long-awaited GDP revision on March 8, increasing
Turkey's 2006 GDP by 31.6%, and making upward revisions to
all Turkish GDP calculations since 1998. Final 2007 GDP
figures will be released on March 31, and the upward revision
is estimated at 39.4%. The revision expands the size of the
private sector by including modern sectors like internet
services and leasing, as well as capturing more of the shadow
economy through better methodology. With this revision,
Turkey's 2007 GDP per capita is estimated to be USD 9,663,
and it is expected to exceed USD 10,000 in 2008 (aided by a
4.5% reduction in Turkey's population from recent household
survey). Turkey's 2007 debt-to-GDP ratio will fall from
39.4% to 29.5%, and its Current Account Deficit "shrinks"
from 8.0% of GDP to 6.1%. The revision gives a more accurate
picture of the Turkish economy, but it does not change any of
Turkey's economic fundamentals nor the negative trend. It is
not expected to result in a bond ratings upgrade, despite
Minister Simsek's call for an upgrade in a March 12 press
conference. The revision does, however, make Turkey's
economy look comparatively more stable and prosperous than
other emerging markets, which will be to Turkey's advantage
as it competes to attract foreign investment and tries to
make itself an attractive EU accession candidate. End
summary.

What Has Changed
-----------------------

2. (U) Turkstat released its GDP revisions on March 8. The
new data revises GDP calculations from 1998 to 2006, with
revised 2007 data scheduled to be released on March 31.
Analysts had expected an upward revision of 2006 GDP of
between 5 and 40%, so the 31.6% revision came at the upper
end of expectations. Turkstat has been working on this
revision for nearly four years, in cooperation with Eurostat.
This is Turkey's first GDP revision since 1990, and updates
its statistical methodology from the 1968 OECD System of
National Accounts method to the 1995 European System of
Accounts (ESA 95) method. The base year has moved up from
1987 to 1998.

3. (U) The large GDP increase is the result of expanding
data coverage to include new sectors (e.g., internet
services, leasing, private pension funds) and more of the
shadow economy (particularly notable in manufacturing and
construction), and using better statistical methodology and
more recent survey data. The number of homes, for example,
was revised up 38.1%, and the number of manufacturing
businesses went up 146.3% (even as manufacturing's share of
the economy dropped from 30% to 26%).

Chart A
Old GDP (USD) New GDP
(USD)
-------------------- -----------------
-----------------------------------
-----------------------------
2006 GDP 400
Bn 526.4 Bn.
2006 GDP per capita 5,480
7,500
2006 GDP Growth (%) 6.1
6.9
2007 GDP (estimated) 489.4 Bn.
682.1 Bn.
2007 GDP per capita (estimated) 6,625
9,663
2007 GDP growth (%) 5.0
5.0

4. (SBU) The jump in 2006 GDP per capita is 36% because the
new series reflects not only the GDP increase but also the
4.5% population reduction that Turkstat announced in late
February, from 73.9 million to 70.3 million, as a result of
2007 census and better methodology. It pushes Turkey up to
into the "high middle income" class of countries by World
Bank and European Union standards. Turkey looks
comparatively much stronger economically. The estimated USD
9,663 GDP per capita figure for 2007 puts Turkey ahead of

ANKARA 00000527 002.2 OF 002


emerging economic powers Brazil and Russia, and also ahead of
recent EU entrants Bulgaria and Romania, on a per capita
basis.

5. (SBU) Turkey's financial ratios generally look better
following the revision, although the primary fiscal surplus
for both 2006 and 2007 now appears to have been well below
the IMF's 6.5% target:

Chart B


Old GDP (USD) New GDP (USD)
-------------------- -------------------------
---------------------------- ----------------------------
2006 Public Sector Debt/GDP % 45.0
34.2
2007 Public Sector Debt/GDP % 39.4
29.5
2006 Budget Balance (% GDP) -0.7
-0.5
2006 Primary fiscal surplus (% GDP) 7.3
5.5
2007 Budget Balance (% GDP) -2.1
-1.6
2007 Primary fiscal surplus (% GDP) 5.4
4.0
2006 Current Account Balance (% GDP) -8.0
-6.1
2007 Current Account Balance (% GDP) -7.8
-5.6

What Has Not Changed
----------------------------

6. (SBU) In a March 12 press conference, Treasury Minister
Simsek complained that rating agencies should give Turkey a
ratings upgrade as a result of the GDP revision. While it is
true that many of Turkey's macro ratios have improved, its
economic fundamentals and negative trends have not. Even if
the 2007 Current Account Deficit was really "only" 6.1% of
GDP instead of 8%, the deficit was still USD 41.6 billion and
it is still increasing, at a time when financing is much
harder to come by. CPI inflation has not changed and
remains over 8%, double the Central Bank's target. The GDP
growth rate for 2007 remains at 5% (but 2006 GDP growth
increased from 6.1% to 6.9%). Other financial ratios that
rating agencies use in rating decisions -- the Current
Account Balance/Current Account Receipts and External
Debt/Current Account Receipts ratios -- also were not
affected by the GDP revision, so it is not a surprise that
agencies chose not to upgrade Turkey's current, below
investment grade sovereign rating.

7. (SBU) The revision will, however, help Turkey in a
comparative sense, making it look much stronger and more
stable vis--vis other emerging market economies with whom it
competes for investment funds. In the current global
financial environment, this comparative strength is not a
trivial advantage. It should also make Turkey a much more
attractive and viable EU accession country. The increase in
GDP per capita also is likely to make Turkey's domestic
market more attractive for companies looking to expand their
sales of goods and services to middle and upper income
consumers.


Visit Ankara's Classified Web Site at
http://www.intelink.sgov.gov/wiki/Portal:Turk ey

WILSON

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