Cablegate: Turkish Economy March 20: Contained Reaction For

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

Initial Market Reaction Limited

1. (U) At OOB March 20, Turkish markets opened sharply down,
but recovered somewhat as the morning went on. JP
MOrgan/Chase bond trader Gumisdis, Yapi Kredi Bank Treasurer
Imece and other market players here all pointed to the Ari
Fleischer statement that "the White House has not ruled out
assistance for Turkey in this matter."

-- The lira is currently trading at TL 1,703,000 to the
dollar (a one percent depreciation from yesterday);
-- T-bill yields are 67 percent compounded (up two
percentage points from yesterday);
-- The Istanbul Stock Exchange 100 index is down 1.5 percent
in morning trading.

Helpful Central Bank Statement

2. (U) At OOB March 20, the Central Bank issued a statement
that traders this morning credited with dampening dollar
demand. It said the CBT is prepared to take certain
measures that may be needed to maintain financial stability.
They are: a TL liquidity facility so banks could borrow (at
rates higher than the current money markets) to meet
extraordinary cash needs; one-week dollar deposits to banks,
again at higher than market interest rates. The statement
(issued only in Turkish) read in part:

-- "Turkish Lira Market. The liquidity level of TL is
sufficient to meet the needs of the financial system. Still,
if any liquidity need arises, the required liquidity could be
provided through the Central Bank establishing a 'Late
Liquidity Window' in the interbank money market that would
become active, if needed, during the hours 16:00-16:30."

-- "Foreign Exchange Market. In the extraordinary case of
extra FX demand in the market, and in order to secure the
smooth operation of the FX market, the Central Bank would be
prepared to provide to banks U.S. Dollar deposits of one-week
maturities, within the borrowing banks' borrowing limits.
The interest rate on such deposits would be between 12-8
percent per annum."

Other Public Statements Less Helpful

3. (U) Deputy PM and FM Gul gave a Reuters interview given
on March 19 and published mid-morning March 20. It reads in
part as follows:

-- "It would be wrong to link the whole Turkish economy to a
U.S. package. It is important to take the right measures in
the economy and to implement the economic program in a right
way, to prepare the budget accordingly and to provide fiscal

-- "We already told the U.S. that we would have military
forces in Northern Iraq and there was a mutual understanding
on this in yesterday's (i.e. March 18) meeting."

Treasury U/S Oztrak Plan

4. (SBU) IMF resrep Brekk met with Treasury U/S Oztrak on
March 20 am and told us that Oztrak has proposed to the GOT
that PM Erdogan issue a statement today with detailed,
strengthened economic reform measures. Oztrak's strategy,
per IMF resrep, was for Erdogan to make a statement by early
afternoon Ankara time, to which the IMF spokesman could
respond at the IMF weekly press meeting at 9:30 am Washington
time today. However, as of 2:30 pm local time, Oztrak had
not yet obtained full GOT agreement on the content of the new
measures, and thus no statement is planned for the moment.

5. (SBU) Resrep added that he was prepared to work urgently
with the GOT, acting on guidance from his headquarters (since
IMF staff cannot travel to Turkey now). Resrep believes the
draft LOI could be revised in several days of work to reflect
a war scenario, involving more GOT borrowing needs, a tighter
budget and fiscal measures to support it. He stressed that
the IMF had already given the GOT a list of fiscal measures,
most of which they have yet to adopt, that could achieve the
needed fiscal tightening. He singled out public sector wage
cuts as the most important measure, which he said MinSate
Babacan is resisting in talks with Oztrak.

© Scoop Media

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