Cablegate: Turkey's Economy April 7: First T-Bill Auction Of

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. Not for internet distribution.

1. (SBU) Summary: On April 7, Treasury raised $844 million
in the first of three T-bill auctions scheduled for April
7-8. Treasury's target is to raise a total of $3 billion
ahead of $3.2 billion in debt service payments on April 9.
Today's auction results came in at market expectations; the
major focus will be on the one-year bond to be auctioned
tomorrow. Markets expect rates to remain in the 62/63
percent range in that auction, declining to about 60 percent
in the secondary market. MinState Babacan's April 6
announcement that the LOI had been signed, and the IMF
announcement of an April 18 board date, were well received.
Markets also welcomed the news that the Fourth Review
disbursement had been reduced, and that more IMF reviews had
been added, indicating to commentators here that the IMF
shares their view that this government needs the extra
supervision. End Summary.

Markets Agree with Revised IMF
Disbursement Schedule

2. (U) On April 7 am, Turkish markets were pleased with
MinState's April 6 announcement that the IMF letter of intent
had been signed, and with the IMF announcement of an April 18
board date for the Fourth Review. The lira appreciated
slightly to TL 1,650,000 (from TL 1,656,000 at Friday's
close); T-bill yields were slightly lower at 62.5 percent
(from 63 percent on Friday); the Istanbul Stock Exchange was
up 2 percent in morning trading.

3. (SBU) Markets greeted news of the revised IMF
disbursement schedule, which reduced the Fourth Review
tranche from $1.6 billion to about $660 million, and which
added reviews during 2003 and 2004 (details at para 8.) As
Yapi Kredi Treasurer Imece told us, "The IMF confirms the
market's view that there's no reason to trust this
government." Hurriyet columnist Erdal Saglam wrote in his
April 7 column that the IMF had tried to reduce the Fourth
Review to $300 million, but raised it at GOT insistence.
Saglam's column also applauds the IMF move to increase the
frequency of reviews.

Successful Four-Month T-bill Auction

4. (U) On April 7, Turkish Treasury raised TL 1.393
quadrillion ($844 million) by auctioning a four-month T-bill.
The interest rate was 56.5 percent in annual, compounded

5. (U) Today's auction is the first of three T-bill auctions
this week. On Tuesday April 8, Treasury will auction two
longer dated papers: a six-month bill (October 8 maturity);
and a one-year bond (April 28, 2004 maturity). Treasury's
target is to raise TL 5 quadrillion ($3 billion) in these
three auctions, per Treasury's Volkan Taskin, ahead of
Wednesday's TL 5.3 quadrillion ($3.2 billion) in debt service.

6. (SBU) According to banking sector contacts, Turkish banks
bought today's four-month bill largely for their retail
customers, and will look at tomorrow's auctions, especially
the one-year bond, for their own investment portfolios.
Interest rates on the one-year bond are expected to remain
62-63 percent at the auction, but then declining to the 60
percent range in the secondary market. Treasury offered the
six-month bill, trying to limit the duration of the current
relatively high rates, but investors told us they expect
little demand for that paper.

Highlights of the April 6 Babacan Press Conference
--------------------------------------------- -----

7. (U) State Minister Babacan held a televised press
conference on Sunday afternoon April 6 to announce signing of
the IMF letter of intent, and World Bank letters of
commitment (extending the Bank's Economic Reform and
Programmatic Public and Finance Sector Adjustment Loans). TV
networks only partially covered his conference, cutting away
to a meeting of PM Erdogan in Istanbul. Highlights from his
statement, as posted on Treasury's website in Turkish,
follow. (Full text will be e-mailed to Washington agencies.)

-- The 2003 budget will meet the 6.5 percent of GNP primary
surplus target, and we will implement the budget with
decisiveness. In addition, in order to ameliorate the impact
on Turkey of the continuing war in Iraq, the Government has
taken measures to generate TL 4 quadrillion in cash, which
amounts to 1.2 percent of GNP.

-- The primary surplus realized at year-end 2002 was 4
percent of GNP because of loose fiscal policies in the second
half of the year. This required taking additional
tightening measures to meet the 6.5 percent target in 2003.
All measures add to TL 15.8 quadrillion. The primary surplus
realizations in the first two months exceeded our targets.

-- The primary surplus target is important for increasing
confidence in the Government's reform program, and it also
helps to decrease the net public sector debt to GNP ratio.
This ratio has declined from 92 percent at year-end 2001 to
79.6 percent at year-end 2002.

-- State Economic Enterprises - Excess Employment:
Originally an excess of 45,800 positions was identified in
the state economic enterprises. As of January 2003, this
excess was decreased by 20,718 through retirement. We will
fully resolve this problem by year-end. A legal arrangement
to strengthen SEE management will be implemented before
end-June this year.

-- Privatization: The Council of Ministers will adopt a
privatization plan for Turk Telekom by end April. The High
Privatization Council will adopt a privatization calendar for
the sugar refineries by end June. Work continues to
liberalize the energy sector, leading to free competition
through market mechanisms.

-- State Banks. Ziraat and Halk will not make any subsidies
without a budget allocation.

-- Improving the Business Environment: A draft law on
direct foreign investment, currently in the parliament, is
expected to be adopted by end April.

8. (U) Local press also released details of the revised IMF
Stand-By Disbursement schedule. Following the $660 million
in the Fourth Review (board date of April 18), the IMF is
planning seven further reviews over the next 20 months, each
with about $500 million. The Fifth and Sixth Reviews will be
bi-monthly (staff missions in late May and late July), to be
followed by quarterly reviews starting with the Seventh
(staff mission tentatively in late October).

Uzans, but No Foreigners, Bid on PETKIM

9. (U) On April 4, the Privatization Administration
announced that five firms had bid on PETKIM, the state
petrochemical monopoly that is the first large privatization
of the year. There were no foreign bidders, despite PA hopes
for bids from Russian oil and gas giants Lukoil and Gazprom.
Among the five bidders were two prominent Turkish exporters -
Zorlu (Vestel TV screens) and Sanko (textiles), one state
bank (Vakif), and two relatively petrochemical traders
Standard Chemical and Chemorbis. Standard Chemical is owned
by the Uzan family, of Motorola infamy.

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