Cablegate: Turkish Economy April 2: Markets Quiet, Guarded

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: Turkish financial markets improved
slightly in morning trading April 2. Local analysts see a
positive scenario for the April 8 debt auctions, based on the
GOT signing the IMF letter of intent, and Congress passing
the aid for Turkey. The 30-week tourist season opens this
week, and early anecdotes suggest a slow year. Despite the
dire warnings from Turks, it is too early to predict how this
war will affect Turkey's tourism revenue and other balance of
payments components in 2003 (the IMF has postponed its
assessment until the late May Fifth Review). In any case the
greater macro-economic problem for Turkey remains financing
the budget. End Summary.

Guarded Optimism in Markets

2. (U) Turkish financial markets on the morning of April 2
were quiet and guardedly optimistic. The lira appreciated
about 0.5 percent to TL 1,690,000; T-bill yields were steady
at 65 percent compounded; the Istanbul Stock Exchange was
down 0.2 percent in light trading.

3. (SBU) The Secretary's visit has a positive potential for
market sentiment, per JP Morgan/Chase bond trader Gumisdis,
since it is seen as increasing the probability of Congress
approving the $1 billion grant aid. Markets are seek
confirmation of this in the Secretary's afternoon press
conference in Ankara. Analysts see a positive scenario for
the April 8 debt auctions based on signing of the LOI (now
expected for April 3), and Congress passing the U.S. aid.

4. (U) The focus remain on the April 8 T-bill auctions.
Treasury Deputy U/S Ozyildiz told us U/S Oztrak will go to
Istanbul on April 4 to talk up debt dynamics with the Turkish
banks. Ozyildiz said latest year-end calculations show
Turkey's net public sector debt to GNP ratio declining to 78
percent, largely because of the lira's real appreciation
during 2002 and the high percentage of debt linked to the
exchange rate.

Tourist Season Opens Weakly;
Too Early to Predict Macro Effects

5. (U) Turkey's 30-week, April - October tourist season
begins this week, and anecdotal evidence suggests a slow
year. Hotels on the Mediterranean coast are delaying their
spring re-open date and reporting a high cancellation rate
for summer. President of Turkey's tourism agencies
association claimed to the local press that if the war
doesn't end in April, the tourism sector "will collapse."

6. (SBU) In 2002, tourism revenues amounted to between $9.5
- 10 billion (initial projections were $8.5 billion). In the
1991, Turkey's tourism revenues dropped about 20 percent.
Using the last Gulf War's effect on tourism as an indicator,
we could speculate that Turkey might lose about $2 billion in
tourism revenue this year. But using the last Gulf War
(which ended in February) as a model might well understate
the effect on tourism this war, depending on the duration of
this war.

7. (SBU) Comment: It is too early to predict how this war
will affect Turkey's balance of payments (capital flows,
which are larger than tourism revenues, are also uncertain).
The IMF is postponing its revision of the macro framework
until the Fifth Review, tentatively scheduled for late May.
In any case, Turkey's main problem remains financing the
budget, not the balance of payments. The floating exchange
rate should over time correct balance of payments deficits
via lira depreciation. The problem is lira depreciation
leads to higher inflation, higher interest rates, and greater
debt burdens; lira depreciation also increases the
foreign-exchange-linked debt. It's the budget. End Comment.

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