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Cablegate: Turkey's Economy March 6 Am: Markets Stable,

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

UNCLAS ANKARA 001442

SIPDIS


SENSITIVE


STATE FOR E, P, EUR/SE AND EB
TREASURY FOR U/S TAYLOR AND OASIA - MILLS
NSC FOR QUANRUD AND BRYZA


E.O. 12958: N/A
TAGS: ECON PREL TU
SUBJECT: TURKEY'S ECONOMY MARCH 6 AM: MARKETS STABLE,
ERDOGAN HINTS AT BUDGET RELIEF FROM U.S. PACKAGE


Sensitive but unclassified, and not for internet
distribution.


1. Summary: Turkish financial markets were flat during the
morning of March 6, awaiting confirmation of their
expectation that a new GOT, led by AK Chairman Erdogan, would
deliver a U.S. financial package. Erdogan and State Minister
Babacan, facing public complaints about the new taxes in the
draft 2003 budget, hinted that a U.S. package would be used
to ease fiscal restraints. End Summary.


Markets In Waiting Mode
-----------------------


2. (U) On Thursday morning March 6, Turkish financial
markets were flat. Turkish investors told us market
expectations of a U.S. financial package continue, and
underpin the current relative state of calm. Some foreign
hedge funds sold off on Monday, March 3 (JP Morgan/Chase
trader Gumisdis told us the house account sold off Monday in
"stop loss" transactions.) But some amount of foreign hedge
fund money is still in the market, given what some see as a
large upside potential if the U.S. package does come through.


-- At mid-day March 6, Turkish T-bills were stable at 57
percent compounded (having strengthened 5 percentage points
from March 4, but still two percentage points higher than
Friday, February 28 close).


-- The lira was unchanged at TL 1,605,000 to the dollar.


-- The Istanbul Stock Exchange was up 0.2 percent in light
trading in the morning.


Erdogan and Babacan Hint At
Budget Relief From U.S. Package
-------------------------------


3. (U) In separate comments to the press March 4 and 5 AK
Chairman Erdogan and MinState in Charge of Treasury Babacan
hinted that a U.S. package would be used to ease the fiscal
measures announced by PM Gul on March 3.


-- On March 4, Erdogan spoke to journalists in Istanbul
outside a court where he was giving testimony. Asked if a
second parliamentary resolution would lead the GOT to revise
its just released 2003 budget, Erdogan said (per Embassy's
unofficial translation): "The draft budget, which takes into
consideration measures needed under the current conditions,
is the prepared budget. What would you do under
extraordinary circumstances? You could provide a
supplemental budget. If developments move in an optimistic
direction, the government could make a surprise."


-- In a March 5 TV interview with Mehmet Ali Birand, Babacan
was asked about Erdogan's comments. Babacan, according to
the daily Milliyet March 6, replied that Chairman Erdogan's
statements were consistent with GOT plans. The loan portion
of the U.S. financial package would be used to restructure
government debt. The grant portion, however, would be used
to support current budget expenditures, he said.


4. (SBU) Comment: IMF Resrep pointed to these press
statements as evidence of his view that this government might
reluctantly agree with reform conditionality, but in
practical terms it plans to use any U.S. package to get away
from implementing the IMF program.
PEARSON

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