Cablegate: Turkey's Economy: Budget Could Be Passed "in Two

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. Not for internet distribution.

1. (SBU) Summary: The Turkish Ministry of Finance's top
budget expert told us the process of enacting the 2003 budget
could take as little as two weeks. But the Government is
delaying submission of the budget to parliament, per this
expert, because it has not agreed with the IMF over measures
needed to reach the 6.5 percent of GNP primary budget
surplus. This expert confirmed that the IMF position still
shows a 1.5 percent of GNP or $3 billion shortfall towards
this primary surplus target. By not moving quickly to pass a
2003 budget which the IMF can support, the GOT risks putting
itself in a vulnerable situation vis a vis the markets. One
foreign bank told us of indications that one of the major
European bank lenders to Turkish banks is already limiting or
pulling its lines. End Summary.

Budget Process "A Matter of Two Weeks"

2. (SBU) Turkey's 2003 budget could be enacted into law in
as little as two weeks, according to Turkish Finance Ministry
Deputy DG for the budget Ahmet Kesik. Kesik outlined the
four-step process for us:

-- The "Higher Planning Council" (a subset of Cabinet
ministers and econ agency heads) must meet and approve the
budget law (status: done);

-- The full Cabinet must approve and submit the budget to
parliament (status: Cabinet has discussed but not yet
submitted it to parliament.)

-- The Parliament's Budget and Planning Commission approves
the budget, and prepares a report recommending its passage by
the full parliament (Kesik said this could take as little as
two days);

-- The full parliament votes on the budget
article-by-article (the 2003 budget law has about 50
articles, but the two political parties in parliament could
agree to limit debate.)

3. (SBU) Kesik added that the reason the full Cabinet has
not yet approved the budget was the impasse with the IMF. He
confirmed that the IMF sees the draft budgetary measures they
would accept as yielding a 5.0 percent of GNP primary surplus
(the IMF cannot accept the GOT's proposed delay of the
"Direct Income Support" for farmers, worth about 0.5 percent
of GNP), whereas the GOT sees a 6.5 percent primary surplus
in its existing draft. (The 1.5 percent of GNP gap is about
$ 3 billion).

4. (SBU) Comment: The current interim budget expires March
31. The GOT could in theory pass another interim, and
continue negotiating with the IMF over the full year primary
surplus measures, but then it risks the following dangerous
scenario: a conflict with Iraq, no budget, no IMF agreement
and an unhappy bond market. On the IMF front, resrep told us
there is still no progress on closing the 1.5 percent of GNP
primary surplus gap. In fact, MinFin Unakitan, in a meeting
this week, raised with IMF staff the possibility of new VAT
tax cuts for certain sectors (milk products and funeral
services.) IMF staff believes the GOT still hopes to move
the USG off our conditionality language, and thus obviate the
need to take difficult budget measures required by the IMF.
End Comment.

An Initial Sign of Trouble with Foreign Bank Confidence
--------------------------------------------- ----------

5. (SBU) Barclays Bank Turkey managers Matt Vogel and Burak
Ince told us 2/27 that they see signs, and are hearing
rumors, that one of the major European bank lenders to
Turkish banks has pulled or at least limited credit lines to
Turkish banks. The sign is that over past two days several
Turkish banks approached Barclays seeking short-term "repo"
(i.e., Turkish T-bill-backed) loans. Barclays is not a major
lender to Turkish banks and the sudden, large-scale demand
for these repo deals indicates that one of the three major
European lenders (currently Dresdner, Credit Agricole and
West LB) has stopped lending.
6. (SBU) Comment: Turkish banks may want to continue to
roll-over their T-bill lending to the GOT, even in the
absence of a U.S. package or an IMF agreement, but their
ability to do so has funding constraints, and foreign bank
credit lines are an important element in these constraints.

© Scoop Media

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