Cablegate: Problems Meeting the 2002 Primary Surplus Target

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





E.O. 12958: N/A


1. (SBU) Summary: The IMF and Central Bank are worried
about the caretaker government's failure to fully implement
fiscal measures needed to meet this year's primary surplus
target of 6.5 percent of GNP. We have expressed our concern
about this to senior economic bureaucrats this week -- who
say that without political support there is little they can
do -- and have also discussed the problem with AK Party
officials in hopes they will put pressure on the bureaucracy
to take the right steps. We will follow up with AK's
economic team next week. End Summary.

2. (SBU) IMF ResRep and Central Bank Governor have told us
recently of their concern that, in the aftermath of the
recent election, the current government did not appear to be
fully implementing the additional fiscal measures -- agreed
to during the last IMF mission -- needed to reach this year's
primary surplus target of 6.5 percent of GNP. IMF ResRep
told us November 8 that, in light of recent data indicating
that the GOT had met primary surplus targets through August,
the Fund is now revising downward its estimate for the gap
still to be filled, but nonetheless believes the amount is
significant. The lowest estimate for the remaining gap we
have seen, from the Central Bank, is $700 million, and that
does not include social security fund deficits.

3. (SBU) In the past few days, we have met with the Under
Secretaries of Finance, Treasury, and State Planning to

stress the need for full implementation of these measures.
The responses have not been reassuring. State Planning U/S
Izmerlioglu refused to say whether his office was delaying
certain spending measures, insisting that the IMF should not
be getting involved in such detail. Finance U/S Dikmen
agreed there was a problem, but argued that (a) the
government had never actually signed an agreement with the
IMF to implement these measures, and (b) the bureaucracy
could not implement them until the new government came into
office and gave its blessing. Treasury U/S Oztrak said he
was doing as much as possible (mostly in terms of raising
state enterprise prices), but that it was difficult "in the
absence of political support." He suggested the best way out
was for members of the incoming AK government to give the
bureaucracy the green light to pursue these measures.

4. (SBU) IMF ResRep advised that, during a meeting earlier
this week, State Minister Turker also was not optimistic the
caretaker government would implement the fiscal measures,
although he did agree to push for raising prices of TEKEL
products (alcohol and tobacco). This is one of the major
measures needed to close the shortfall, per the Fund.

5. (SBU) We have raised the problem with AK Party officials,
including during Ambassador's November 7 call on Party
Chairman Erdogan (reftel). We will follow up with AK's
economic coordinator on November 11, and will stress that it
is in the incoming government's interest to convince the
bureaucracy to implement the fiscal measures right away.

6. (SBU) Comment: The caretaker government does not appear
to have any incentive to implement these measures, and the
bureaucracy is hesitant to act until it knows what the
incoming government wants. Thus, convincing AK's economic
team of the need to apply pressure will be critical.

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