Cablegate: Turkish Economy March 31: Progress On Imf Fourth

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

1. (SBU) Summary: The parliament passed the 2003 budget,
and AK dropped a controversial amendment to the Public
Procurement Law after the IMF complained, according to
Turkish press. Ahead of the April 8 debt auction and April 9
$3 billion debt payment, markets expect an LOI signing and
IMF Fourth Review board date. The GOT should be in a
position to sign the LOI this week. Further good news came
in final 2002 GNP numbers showing 7.8 percent growth. At the
same time, however, AK leaders to continue send populist
signals contrary to the fiscal austerity message the markets
need to hear. End Summary.

Markets Improve For End Of Quarter; Focus on IMF
--------------------------------------------- ---

2. (U) In morning trading March 31, Turkish banks worked to
boost the value of T-bills and the lira, to improve their end
of first quarter results. The benchmark T-bill fell to 64.7
percent (down nearly one percentage point from Friday's
close); the lira strengthened slightly to TL 1,704,000 to the
dollar; the Istanbul Stock Exchange was down 1.3 percent in
light trading.

3. (SBU) Ahead of the April 8 debt auction and April 9 $3
billion debt payment, markets expect to hear good news on the
IMF Fourth Review (see below), and hope not to hear bad news
on Congressional approval of the U.S. package. Markets
believe the GOT will successfully roll-over the debt on April
8 (discounted yields on the April 9 bill reflect this
confidence). Looking forward, however, sentiment remain very
negative. ING Barings General Manager in Turkey told us his
bank estimates Turkey's default risk at 30 percent in 2004,
based mainly on incompetence of the AK government in handling
its ever increasing debt burden.

Final GNP Data Shows Strong Recovery in
2002; A Different Story Expected for 2003

4. (U) On March 31, the State Statistics Institute released
2002 fourth quarter and full-year data: GNP growth for 2002
was 7.8 percent; fourth quarter growth, compared with the
fourth quarter 2001, was 11.5 percent. In lira terms, GNP in
2002 was TL 273.5 quadrillion. In dollar terms, GNP was
about $171 billion and per capita GNP was $2,584.

5. (SBU) Comment: Former President Suleiman Demirel's
famous saying, "Yesterday was yesterday, today is today,"
seems appropriate. Strong growth in 2002 had two main
elements: inventory rebuilding/bouncing back after a 9.5
percent contraction in 2001; a pick-up of exports. Looking
ahead, the growth story should be based more on the return of
domestic demand. However, consumer and investor confidence
surveys do not indicate strong demand. Private sector banks
and market analysts predict 2003 growth in the 1-3.5 percent
range, all under the GOT's target of 5 percent. End Comment.

Progress on IMF Fourth Review:
Budget Adopted Without Problem Amendments

6. (SBU) On March 29, the parliament passed the full-year
2003 budget, and the AK Party dropped a proposed amendment to
the budget law which would have exempted state energy
companies from the provisions of the new Public Procurement
Law. World Bank economist Parks told us the Bank advised
the GOT to follow the EU practice on energy sector
procurements (the EU has a separate directive for government
procurement for commercial transactions in certain sectors,
including energy, telecom, transportation).

7. (SBU) According to the World Bank, the GOT is moving
forward on the other three main prior actions for the IMF
Fourth Review in addition to the budget:

-- Privatization Administration chief Bozkurt told the Bank
that the High Privatization Council had approved the TEKEL
privatization plan.
-- The direct tax reform bill is scheduled to be voted by
parliament's Budget and Planning Commission this week.
-- On eliminating redundancies in the state enterprises, the
prime ministry issued a directive to all ministries canceling
earlier prohibitions on forced retirement; and the Prime
Minister is scheduled to announce this week the targets for
lay-offs in SEEs over the remainder of year.

8. (SBU) Comment: The GOT needs to sign the LOI and have
the IMF announce a 4th Review board date this week, ahead of
the large April 8 debt auction. Deputy PM Sener told local
TV news that the LOI would be signed this week. At the same
time, however, AK leaders continue to undercut this fiscal
austerity message, key to market confidence, with populist
signals to their constituents. Thus, Sener in the same
interview said farmers would not have to pay interest on
outstanding loans from state bank Ziraat (appears to
contradict an LOI undertaking). MinState Babacan told the
press that AK was studying the possibility of adding an
Islamic-type non-interest loan facility to the state banks.
Newly appointed Ziraat Bank GM Caglar later said this would
take at least two years to implement, but for Turkey's
secular-oriented financial markets, this was another reason
to remain skeptical of GOT fiscal commitments.

© Scoop Media

World Headlines


Save The Children: Ukraine: 21 Children Killed Or Injured In Horrific Week Of Violence

At least 21 children have been killed or injured in just a week in an uptick of violence across Ukraine, Save the Children said today... More>>

UN: Visionary ‘Blue Transformation’ Strategy To Enhance Underwater Food Systems

Record levels of fisheries and aquaculture production are making a critical contribution to global food security, the UN Ocean Conference under way in Lisbon, Portugal, heard on Wednesday...
Abu Akleh Shooting: Fatal Shot Came From Israeli Forces, Says OHCHR
Israeli forces were behind the fatal shooting of Al Jazeera journalist Shireen Abu Akleh in the West Bank - not indiscriminate Palestinian firing - the UN human rights office, OHCHR, alleged on Friday... More>>

UN Ocean Conference: Opens With Call For Urgent Action To Tackle Ocean Emergency
With climate change, biodiversity loss and pollution exacting a devastating toll on the world’s ocean — critical to food security, economic growth and the environment... More>>

World Vision: Deeply Concerned For Thousands Affected By Afghanistan Quake
World Vision is deeply concerned about the deteriorating humanitarian situation in Afghanistan in the wake of a powerful earthquake in the early hours of this morning... More>>

Malaysia: UN Experts Welcome Announcement To Abolish Mandatory Death Penalty

UN human rights experts* today commended an announcement made by the Malaysian government that it will abolish the country’s mandatory death penalty and encouraged Parliament to take concrete steps to pass the agreement into law... More>>