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Cablegate: Turkey Still Struggling to Improve Investment

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

UNCLAS ANKARA 001623

SIPDIS


SENSITIVE


STATE ALSO FOR E, EB/IFD AND EUR/SE
TREASURY FOR OASIA - MILLS AND LEICHTER
NSC FOR QUANRUD AND BRYZA
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO


E.O. 12958: N/A
TAGS: EINV ECON PGOV TU
SUBJECT: TURKEY STILL STRUGGLING TO IMPROVE INVESTMENT
ENVIRONMENT

1. (SBU) Summary: Treasury Director General for Foreign
Investments Melek Us told us March 13 that the lack of
high-level direction over the past several months has stymied
the bureaucracy's ability to take decisions needed to improve
the foreign investment environment. The government has
submitted a draft bill to improve the investment environment,
and soon will send forward a bill to create an investment
promotion agency. However, Us admitted that foreign
investors were unlikely to look seriously at Turkey until the
Iraq "crisis" passes and the GOT convinces would-be investors
that it is committed to full implementation of its reform
program. As a result, 2003 probably will not see significant
investment inflows, though it would not take much to surpass
2002's amazingly low total of $569 million. End Summary.


2. (SBU) Treasury Director General for Foreign Investment
Melek Us provided EconCouns with an update March 13 on the
government's efforts to improve the foreign direct investment
environment. She acknowledged that there had been little
progress in the past six months, as bureaucrats put off
decisions due to uncertainty, first over the elections, and
subsequently over how long the Gul government would last.


3. (SBU) Us said the interagency committee set up under the
previous government to propose measures to improve the
investment environment had finally met last week, after a
nearly five month hiatus. The committee, chaired by State
Minister Ali Babacan, agreed to recommend to the government
that it submit legislation to create a new investment
promotion agency. The agency, Us explained, would not be a
one-stop shop. Rather, its mission would be to explain to
potential investors all the steps involved in investing in
Turkey, help then should they run into problems, and -- most
importantly -- market Turkey internationally as a good place
to invest.


4. (SBU) Us admitted that this was not a propitious time to
try to "sell" Turkey to foreign investors. Investors will
only begin to look at Turkey seriously, she said, once the
Iraq situation was resolved and the government demonstrated a
firm commitment to economic reform. In the meantime, the
bureaucracy -- working with the private sector -- will try to
improve the legislative framework. She expects Parliament to
pass both the investment promotion bill and long-pending
foreign investment legislation (an IMF condition) by
end-April. Also, the government has submitted a new mining
law to Parliament; the only problem, per Us, is that no one
likes the draft, which apparently puts severe restrictions on
foreign investment in mining.


5. (SBU) In addition, the government is planning to issue
decrees to ease restrictions on land use for investors.
Starting January 1, 2004, the government will shift to an
inflation accounting system (the lack of which has been a
huge subject of complaint), and to an automatic, uniform
mechanism for granting tax allowances to foreign investors
(so they will not need to obtain a Treasury certificate to
obtain the allowance).


6. (SBU) EconCouns noted the importance of resolving
problems facing existing investors, and mentioned as examples
Cargill's land problem, the sugar quota, the cola tax, the
lack of effective IPR protection, and recent government
efforts to force energy companies to lower their prices. Us
agreed, and admitted that the government was facing great
difficulty in resolving these problems. She noted, for
example, that there was a consensus among the relevant
ministries in favor of finding a solution to Cargill's land
problem, but that nonetheless the government had not been
able to find such a solution. She noted that Turkey's
constitution -- not just ordinary law -- prohibited
conversion of "first degree" agricultural land into
industrial land.


7. (SBU) Comment; The outlook for FDI inflows in 2003 is
not rosy, though the second-half of the year could see some
improvement if the Iraq issue is resolved and the government
successfully implements its economic program, including some
major priviatzations. In any case, it will be hard for
Turkey to attract less investment this year than it did in
2002, when inflows totaled an incredibly low $569 million.
PEARSON

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