Cablegate: Turkey's Economy April 11: Interest Rates Remain
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS ANKARA 002363
STATE FOR E, P, EUR/SE AND EB
TREASURY FOR U/S TAYLOR AND OASIA - MILLS
NSC FOR QUANRUD AND BRYZA
E.O. 12958: N/A
TAGS: ECON PREL TU
SUBJECT: TURKEY'S ECONOMY APRIL 11: INTEREST RATES REMAIN
Sensitive but unclassified. Not for internet distribution.
Markets Flat, Lack of Confidence Looking Forward
1. (U) At mid-day April 11, Turkish markets were quiet. FM
Gul's April 10 statements that U.S. forces would prevent a
(Kurdish) fait d'accompli calmed market fears of a Turkish
military intervention. However, T-bill yields at week's end
remain above the April 8 auction levels, meaning the Turkish
banks who bought in the auction have lost money. Market
sentiment remains generally gloomy as described below.
-- The April 28, 2004 bond is trading at 64.5 percent
compounded; the lira is flat at TL 1,650,000; the Istanbul
Stock Exchange is 0.03 percent.
2. (SBU) Interest rates on government securities aren't
coming down partly because they reflect a higher than usual
risk of debt default, according to market contacts like OYAK
Holding Exec VP Ergun Okur. (He does expect some decrease in
rates as northern Iraq fears subside, but only to the
mid-50's.) Concerns about an eventual "debt event" also
affect companies' investment decisions, he added. Turkish
companies are staying liquid, making money from the high
interest rates rather than investing. OYAK (Turkey's second
largest car manufacturer) reports exports are also down
slightly from last year because of weak conditions in their
main European markets. He and others here expect low growth
this year, 1-2 percent rather than the GOT's 5 percent growth
3. (SBU) Lack of foreign inflows into Turkish markets is a
problem for Bender Securities, a local stock brokerage half
owned by Deutsche Bank and with Turkey's largest foreign
equity client base. Bender analyst Golkan returned from a
"depressing" road show in Europe. He told us that long-time
Turkey investors are staying out, and have no trust in AK's
ability to turn around the negative sentiment. Golkan said
the GOT's recent personnel changes just further damage
credibility. On the high roll-over rates in the April 9
auctions, Golkan said this isn't a sign of Turkish bank
confidence; instead it's a sign that Treasury needs the cash
now. Otherwise, he asked, why would Treasury lock in this
amount of debt at the current high rates? From the London
investment bank perspective, Citigroup emerging markets
analyst Wyman said the only foreigners in Turkish lira
investments are now in purely for the moral hazard based on
prospects of U.S. aid.
4. (U) The Central Bank released the results of its early
April survey of inflationary expectations on April 10.
Increases in the consumer price index, looking 12 months into
the future, averaged 28.3 percent in early April (compared
with the GOT year-end target of 20 percent). In early March,
CPI expectations averaged 26.2 percent.