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Cablegate: Turkey's Economy: Market and Imf Update

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

Sensitive but unclassified, and not for internet

1. (SBU) Summary: Turkish markets remain hopeful that the
GOT will respond positively to the USG by the weekend, though
Deputy PM Sener's late afternoon press statement of "no
agreement yet" sparked some selling. IMF mission staff in
Ankara are less hopeful of reaching agreement on the 2003
budget primary surplus, following a late February 18 meeting
with State Minister Babacan. We include for the curious a
spring calender of Turkey's debt redemptions. End Summary.

Markets Stable But Uneasy, Some Profit-Taking

2. (SBU) On February 19, Turkish financial markets were
basically stable, in high trading volumes, with some
profit-taking after the market rallies of the past two days.
The lira ended the day unchanged from yesterday's close at TL
1,626,000 to the dollar; T-bill rates inched downward to 56.5
percent (from 57 yesterday); the Istanbul Stock Exchange was
down 1.5 percent.

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3. (SBU) There was some selling (hedge fund clients of
Deutsche Bank we understand) following Deputy PM Sener's late
afternoon press statement, coming out of the Cabinet meeting,
that there was no agreement yet on the U.S. troop deployment.
But the predominant sentiment remains positive about the
prospects of a deal. JP Morgan/Chase bond trader summed up
the market expectation as a positive GOT response to the U.S.
before the weekend.

4. (SBU) CEO of Akbank Zafer Kurtul sounded one cautionary
note: he told us that the GOT needs to clear up its U.S.
package negotiations before the next large T-bill auction on
March 3. If not, there will be a major "market disruption"
he predicted. (Note: Akbank is Turkey's largest private
sector commercial bank, and the largest holder of T-bills.)

Spring Debt Redemption Calendar: Beware March 5
--------------------------------------------- ---

5. (SBU) Turkish Treasury deputy DG for public finance
Volkan Taskin provided us the following domestic debt
redemption calendar. For the remainder of February, there is
only a TL 394 (about $238 million) domestic debt redemption
to state banks on February 26; Taskin said the Treasury may
hold a small auction on February 25, or may not, depending on
market conditions.

Date Payment to Payment to public sector
Market (Cenbank/state banks/etc)
---- -------------- -------------------------

3/5 TL 3.8 quad TL 100 trillion
3/12 - TL 511 trillion
3/15 - TL 9 trillion
3/19 TL 4.5 quad TL 500 trillion
3/24 - TL 25.8 trillion
3/26 - TL 339 trillion

March total: TL 9.8 quadrillion ($6 billion) in domestic
debt service; $0.8 billion in external debt service.

4/9 TL 4.6 quad TL 600 trillion
4/24 TL 1.6 quad

April total: TL 7.8 quadrillion ($4.4 billion) in domestic
debt service; $0.5 billion in external debt service.
Smaller redemption dates in April not given.

5/7 TL 4.2 quad TL 200 trillion

5/10 - TL 2.8 quadrillion
(payment to CenBank)
5/14 TL 1.2 quad TL 1.2 quad

5/21 TL 3.6 quad TL 100 trillion

May total: TL 13 quadrillion ($7.4 billion) in domestic debt
service; $1 billion in external debt service. Smaller
redemption dates in May not given.

6. (SBU) Taskin's comment to us echoed that of Akbank CEO
above: the GOT must provide clarity to the markets before
the March 5 redemption date. Taskin said good press
announcements on both the U.S. package and the IMF program
would be enough. In that positive scenario, he saw no need
for a bridge loan. In the absence of this positive scenario
(i.e., no U.S. package or IMF program annoucement) Taskin
said Treasury would work with local banks to try to ensure
high debt roll-over rates for as long as possible. In this
case he predicted March 4 auction rates in the 65-70 percent
range. (Comment: Given the average maturity of
TL-denominated T-bills of about 8 months, this means a much
higher debt service in late 2003 than projected. It would
immediately reignite concerns of debt sustainability. End

IMF Less Hopeful

7. (SBU) IMF resrep reported Feburary 19 that the late
February 18 meeting with State Minister Babacan had not gone
well. Treasury U/S Oztrak had met with PM Gul on February
14, and then reported to the IMF team GOT agreement on
several 2003 budget issues. On February 18 Babacan appeared
to step back from this agreement.

-- The draft LOI had included a GOT commitment not to
undertake new amnesties or re-schedulings of back taxes or
other public receivables (e.g., employer's social security
premiums, state bank loans, electricity arrearages, all of
which AK figures have publicly mentioned). PM Gul
reportedly agreed with Oztrak to this commitment, but Babacan
explicitly told the IMF team that he couldn't agree.

-- Babacan said there would be no new fiscal saving
measures, though the primary surplus shortfall is, per the
IMF calculations, now 1. 7 percent of GNP or about TL 6
quadrillion (about $3.8 billion). Oztrak had indicated that
Gul was committed to taking measures needed to close this

8. (SBU) Comment: IMF/GOT negotiations on the 2003 budget
are ongoing, and will likely continue up to the last minute
before the GOT submits the budget to its parliament. Though
GOT staff are pushing for a budget submission this week, the
interim budget goes through end March. GOT staff appear to
be pushing becuase of the fragility of market sentiment. But
even if IMF staff and the GOT reach agreement on the 2003
budget, IMF staff told us they will not recommend a Fourth
Review board date, given the long list of outstanding
structural reform conditions. Full update septel.

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