Cablegate: Turkey's Economy April 25: Positive News On

This record is a partial extract of the original cable. The full text of the original cable is not available.

251144Z Apr 03





E.O. 12958: N/A

Sensitive but unclassified. Not for internet distribution.

1. (SBU) Summary: Some positive news came at the end of a
relatively quiet week in Turkish markets: the GOT announced
a well-regarded macro-economist bureaucrat, Ibrahim Canakci,
to replace Faik Oztrak at Treasury. The Central Bank
announced a 3 percentage point cut in its short-term
borrowing rate, which led immediately to a one percentage
point decline in T-bill yields. Market sentiment at end
April is much improved from earlier in the month, but
investors both local and foreign remain wary of AK's
commitment to the reform program. Further improvements on
interest rates (below the low 50's) are likely only to follow
tangible progress on reforms, as measured by the next IMF
staff mission, now scheduled to start May 21. End Summary.

Markets Quiet, T-Bill Rates Decline

2. (U) On April 25, yields on the lira T-bills declined
about one percentage point to 55 percent compounded,
immediately following the Central Bank's announcement of a
rate cut (see below). T-bill yields, trading all week at the
56-57 percent level, are now expected to decline to the low
50's. The lira was flat, trading at TL 1,595,000 to the
dollar while the Istanbul Stock Exchange 100 index was up 1.3

Central Bank Cuts Key
Lira Borrowing Rate

3. (SBU) At OOB April 25, the Central Bank announced a cut
in its short-term borrowing rates: the key lira borrowing
rate, one week maturity, went from 44 to 41 percent simple
(or to about 51.5 percent compounded).

4. (SBU) Comment: The markets exerted some pressure for this
rate cut and responded immediately by lowering T-bill yields.
PM Erdogan also predicted interest rates declines in his
weekly meeting with AK parliamentarians April 24. In an
April 24 meeting with Central Bank Governor Serdengecti on
other topics (Iraqi assets), the Governor told us such
political pressure didn't work on him - former MinState
Dervis's many attempts to dictate interest rate policy had
just slowed down the Central Bank decision making process.
However, he continued, the outlook on inflation was turning
positive. Serdengecti spoke about the need for an
inflation-targeting Central Bank to help shape expectations
through interest rate policy, not just react to market
perceptions. Today's decision may be viewed by some analysts
as premature (given continuing strong concerns in the
market), but it may also help bring down inflationary
expectations. End Comment.

New Treasury Undersecretary A Good Choice

5. (U) On April 26, MinState Ali Babacan announced the
appointment of Ibrahim Canakci as Treasury Undersecretary,
replacing Faik Oztrak. (Note: "Undersecretary" in case of
Treasury and some other GOT agencies is the head of the
agency.) Canakci, 41 years old, worked at the State Planning
Organization from 1986-2000, rising to head of the Economic
Forecasting Department. While at SPO, he earned a Masters in
Economics from Michigan State University. In 2000, he moved
to the Bank Regulatory and Supervision Agency, first to run
the research department, later to be the Deputy Chairman.
he is married, with two children and speaks fluent English.

6. (SBU) Comment: The Treasury Undersecretary runs the
GOT's main economic policy agency and serves as the
day-to-day contact with the IMF and World Bank. Canakci,
well known to the Embassy since his SPO days, is an excellent
choice; markets are likely to be relieved given the other,
less credible names bandied about. He has a strong
macro-economic background (and worked for Faik Oztrak when
they both were at SPO), understands and supports the reform
program, and furthermore has a good background on banking
sector issues. Canakci is religiously observant (observes
the dawn-dusk Ramadan fast), though he is not an AK partisan
and has independent views on the party's economic policies.
His low-key, mild-mannered approach may well help in
educating AK politicians on economic reforms in a
non-confrontational way.

© Scoop Media

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