Cablegate: Turkey's Economy March 6 Cob: Return of Complacency

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

"Never Never Land in Our Markets"

1. (U) On March 6, Turkish financial markets were stable.
The lira remained unchanged at TL 1, 608,000 to the dollar.
Yields on lira-denominated T-bills strengthened slightly to
57.5 percent compounded (yesterday's close was 58 percent).
The Istanbul Stock Exchange closed up 0.2 percent.

2. (SBU) Lehman Bros Turkey analyst Tolga Ediz told us
Turkish markets are living in "never never land" where all
hopes rest with the U.S. financial package coming true. Ediz
added that "as long as U.S. ships are anchored off the
Turkish coast," market participants will continue to believe.
Further confirmation comes from Turkish press reports of
ongoing site prep work. Some foreign funds are getting back
into Turkish markets on the prospect of the U.S. package, he

3. (SBU) Comment: After reaching quick agreement with IMF
staff on the budget overnight March 2, a mood of complacency
seems to have returned to the GOT, and is settling on the
markets as well. IMF staff in Ankara report no further
progress on finalizing the draft LOI (more IMF readout March
7). All this leaves open the prospect of Turkey entering
next week with no agreement on the IMF Fourth Review, and no
actual progress towards a U.S. package. Bender Securities
analyst Murat Golkan volunteered to us March 6 that this
prospect concerns him, though he said he appears to be a lone
voice. Asked about possible market reaction to such a worst
case scenario, Golkan said "meltdown." End Comment.

Meanwhile World Bank Prepares to Cancel
Pending Loans

4. (SBU) The World Bank's Country Director for Turkey Ajay
Chhibber told us March 6 that the World Bank is moving to
cancel $1.375 billion in pending loans that are due to expire
on March 31. The reason is World Bank unhappiness with the
2003 budget, which postpones the "Direct Income Support"
payments to farmers (TL 1.4 quadrillion) into 2004. Chhibber
said he had instructions from headquarters to publicly come
out against the budget, but he is holding off. He told
MinState Babacan this week that unless the GOT put back in
the 2003 budget at least TL 1 quadrillion (about $600
million), then the pending loans would be canceled. Babacan
said he would come back to Chhibber.

5. (SBU) The World Bank's assessment, per Chhibber, is that
this government is highly unlikely to do any significant
reforms in 2003. The Bank will seek to limit further
exposure to Turkey this year (both its $1.375 billion in
direct budget loan programs and some of its $600 million in
project financing), and "keep powder dry" for 2004. "They
would waste the money anyway," he concluded.

6. (SBU) Comment: The World Bank theoretically has a high
loan limit for Turkey ($5 billion over three years under its
"high case" scenario, which it is now downgrading), but in
fact the Bank only disbursed a total of $680 million to
Turkey in 2002, and about $1 billion in 2001. So downgrading
its presence in Turkey would not have an immediate, large
effect on budget financing. The bigger impact of such a move
would be on market confidence, and then only if the Bank
publicized its discontent.

© Scoop Media

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