Cablegate: Latest Embassy Meetings On Economic Reform

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

REF: A. (A) ANKARA 326
B. (B) ANKARA 301

1. (SBU) Embassy pressed the economic reform message January
16-17 in meetings with State Planning Under Secretary Ahmet
Tiktik, Parliamentary Budget Committee Chairman Sait Acba,
and AK Parliamentarian (and former Finance Minister official)
Bulent Gidikli. In each of the meetings, we noted that we,
the IMF, the World Bank, and -- most importantly -- the
markets shared serious concerns about the direction of the
government's economic policy. We also reiterated that any
U.S. assistance related to Iraq would be conditioned on
Turkish implementation of the reform program and, in any
case, could not substitute for sound policy.

2. (SBU) Tiktik, Acba and Gidikli all argued that the
government was fully committed to economic reform, would
avoid populist spending policies, and was moving in the right
direction. Acba argued that the markets had confidence in
the government, and blamed concerns about Iraq for the recent
market decline. We pointed to the government's spending
measures, movement to pass a tax "truce," and effort to gut
the public procurement law as examples of steps in the wrong
direction that undermined market confidence and raised
serious questions about the ability of the IMF and World Bank
to disburse. AK still had a chance to recapture market
confidence and restore the post-election momentum, but it
needed to move quickly and wisely. Turkey's enormous debt
burden, we warned, meant there was little room for error.

3. (SBU) Tiktik agreed that the government had to reach
the 6.5 percent of GNP primary surplus target, and said Prime
Minister Gul would chair a January 18 meeting of the High
Planning Council to consider specific fiscal measures to
achieve that goal. Acba and Gidikli echoed the commitment to
the primary surplus, but stressed the need to address "social
problems." They also defended proposed amendments to the
procurement law, saying they were necessary to fix flaws that
made the law inoperable. We responded that we understood the
desire to help the poor, but that spending measures such as
increasing civil service pensions did not help the poor (who
do not receive pensions). We also noted that the investor
community, World Bank, IMF, and the EU all strongly opposed
the proposed amendments to the procurement law.

4. (SBU) Comment: Embassy will continue to deliver the
economic reform message to senior officials, party members
and parliamentarians in the days ahead. We note some
positive developments in recent days, such as new fiscal
measures and an ambitious privatization program, but do not
yet see any signs of a turnaround on other problem areas such
as the procurement law and tax truce. Also, there remains a
disturbing gap between AK's "all is well, we are committed to
reform" rhetoric and its actions.

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