Cablegate: No Progress On Resolving Pamukbank Issue; Imf Takes Firm Line

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

C O N F I D E N T I A L ANKARA 008972



E.O. 12958: DECL: 12/13/2007

REF: A. (A) ANKARA 8728
B. (B) ANKARA 8596
C. (C) ANKARA 8545

Classified by Economic Counselor Scot Marciel. Reason:

1. (C) Summary: Three weeks after the state administrative
court (Danistay) suspended BRSA's takeover of Pamukbank,
there has been no progress toward a permanent resolution.
Cukurova Holding, which owns both Pamukbank and Yapi Kredi
Bank, is taking a hard line in talks with the BRSA. The
government has said nothing. IMF officials -- who privately
say the Danistay ruling cannot be legally justified -- are
insisting that the government resolve this issue as a
condition for completing the fourth review. They argue,
correctly in our view, that the government needs to stand
solidly behind BRSA on this case and that failure to resolve
it positively will undermine both BRSA and the entire bank
reform effort. End Summary.

2. (C) IMF officials tell us that, in the three weeks since
the Danistay suspended BRSA's takeover of insolvent
Pamukbank, there has been no progress toward a resolution.
The Danistay has not even forwarded the official decision and
justification to the BRSA; as a result, the 30-day period in
which BRSA was to return Pamukbank to the Cukurova Group (and
restore the group's ownership rights over Yapi Kredi Bank)
has not begun. In BRSA discussions with Cukurova, the group
has taken a very hard line: offering to drop its lawsuits
against BRSA in return for getting Pamukbank back, complete
with the nearly $2 billion in assets the BRSA injected into
the bank when it took it over.

3. (C) The government has said almost nothing publicly on
the issue since Prime Minister Gul told the Financial Times,
shortly after the Danistay decision, that the GOT supported
bank reform and would not bail out corrupt bank owners. The
government has told the IMF that it cannot interfere in the
case because it is under the purview of the independent

4. (C) IMF officials tell us privately that they believe the
Danistay was unduly "influenced" by the Cukurova Group, and
that there is no legal justification for the Danistay's
decision. They also note that the AK Party's strong
criticism of BRSA during the election period may have sent
the wrong signal to any Danistay members who were testing the
political winds before voting.

5. (C) The IMF is insisting that the Turkish Government find
a way to resolve the Pamukbank and Yapi Kredi ownership
issues as a condition for completing the fourth review. Fund
staff acknowledge that the government cannot interfere in the
independent Danistay, but argue that the return of the banks
to the Cukurova Group poses such a systemic threat to the
banking system that the Fund cannot ignore it. Moreover,
they believe that a failure to resolve this case positively
(i.e., with BRSA winning) would cripple the BRSA, and thus
Turkey's bank reform efforts. The solution, they say, is for
the government to make clear via strong public statements
that it fully supports its banking regulator in this case.
This, they believe, would encourage the lower Danistay (which
supported the BRSA in the initial case and which must now
make a final decision on it) to consider the case quickly and
with full knowledge of where the new government stands.

6. (C) Comment: Turkey's fixation on the Copenhagen Summit
in the past few weeks has diverted attention away from this
case, but we agree with the IMF that the GOT needs to resolve
it. We are heartened by the IMF staff's firm line on this,
and will continue to press the new government -- which Fund
officials believe is starting to become "educated" on the
issue -- to make clear its strong support for banking reform
and for the BRSA.

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