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Cablegate: Central Bank Governor On Post-Election Tasks,

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ANKARA 007763

SIPDIS


SENSITIVE


STATE FOR EUR/SE, EB/IFD/OMA AND E
TREASURY FOR OASIA - MILLS AND GUNARATNE
STATE PASS USTR - NOVELLI AND BIRDSEY


E.O. 12958: N/A
TAGS: ECON EFIN PREL TU
SUBJECT: CENTRAL BANK GOVERNOR ON POST-ELECTION TASKS,
INCLUDING KEEPING THE CARETAKER GOT HONEST


Sensitive but Unclassified. Not for internet distribution.


1. (SBU) Summary: In a October 30 meeting, Central Bank
Governor Serdengecti told us he and Treasury U/S Oztrak have
prepared a document to give to the election winners which
explains in non-technical terms the GOT's commitments to the
IMF and why they should be honored. The length of the
education period with the new GOT depends on who is the new
Economy Minister (and obviously Serdengecti hopes it's
Dervis.) He is also focused on working with the caretaker
GOT during the transition period to make sure that it takes
the necessary measures in November to keep the program on
track. He is concerned that the lame duck GOT will have
little incentive in the post-election period to implement the
fiscal measures it agreed to with the IMF, to the meet the
6.5 percent of GNP primary surplus target for the year. End
Summary.


Post-Election Mission: Educate the New GOT
-------------------------------------------


2. (SBU) Serdengecti said he and Treasury Undersecretary
Faik Oztrak have prepared a document to give to the winners
of the election. It describes in non-technical terms the
GOT commitments under the existing letter of intent to the
IMF. It stresses the need to continue with these
commitments, and explains why this is both necessary and
urgent. He previewed the document to the Central Bank's
newly formed Monetary Policy Council (includes Treasury and
academics as well as CenBank officials).


3. (SBU) "Our job will be easier if CHP is in the government
and Dervis gets the Economy Minister portfolio," Serdengecti
continued. "We can start working right away with Dervis on
next year's program. We won't have to wait for parliament to
convene. But the education period will be longer with
others." Serdengecti commented that other possible
ministerial candidates in a AKP-CHP coalition are known not
to be market friendly - he singled out AKP's Ali Coskun and
CHP's Yakup Kepenek. "If they put forth names like this, the
markets will react and will pay a higher price in terms of
higher interest rates," Serdengecti opined. Serdengecti said
he understood that AK had some younger officials who were
market-oriented and could be educated quickly. He commented
negatively about DYP's Ciller ("she doesn't know what she's
talking about on the economy") and on the "deep-down
isolationist" MHP.
4. (SBU) Asked whether senior USG visits in the
post-election period would help him reinforce the reform
points, Serdengecti demurred. "Give us some time to educate
them first." Serdengecti surmised that this initial period
could last until mid-December.


Dealing With the Caretaker GOT
------------------------------


5. (SBU) In the meantime, Serdengecti is also concerned with
the post-election policies of the existing GOT. For
instance, the GOT, which had fallen somewhat off track on its
primary budget surplus target, must implement certain
measures in November in order to meet the year-end fiscal
targets. Most important is raising the prices of goods
controlled by public sector companies (tobacco, spirits, oil
products among others). Serdengecti is concerned that the
lame duck GOT will have little incentive to take these
unpopular measures.


6. (SBU) Serdengecti explained that delaying the fiscal
measures will also affect inflation targets. If the GOT
delays public sector prices increases until 2003, then
year-end 2002 inflation will be below target. However, this
comes at a high cost in terms of reducing the primary surplus
for 2002 and pushing inflationary pressures into 2003. In
that case, the GOT might have to revise the year-end 2003
inflation target from 20 to 25 percent consumer price index
increase. This would in turn affect inflationary
expectations. A year-end 25 percent target may appear to the
public as little to no decrease, making it more difficult to
get the private sector to continue lowering expectations.
7. (SBU) On the 2003 inflation target, he said there are
three unpredictable variables: agricultural prices (which
depend to some extent on weather and growing seasons); energy
prices (even without an external regional shock); and "slow
adaptation of the public sector."


8. (SBU) Comment: Serdengecti appears committed to staying
on and working with the new GOT. His concerns with educating
the new GOT are mirrored in what we are hearing from the
private sector. The elections will result in reduced
political uncertainty, which should further encourage the
local capital markets. But, soon after the elections, the
focus will be on how soon the new government gets formed and
continues the hard work of economic reforms.
PEARSON

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