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Cablegate: Exports Remain Strong, but Lira Worries Persist

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

UNCLAS SECTION 01 OF 02 ISTANBUL 000796

SIPDIS


SENSITIVE


STATE FOR E, EUR AND EB
TREASURY FOR U/S TAYLOR AND OASIA - MILLS
NSC FOR QUANRUD AND BRYZA


E.O. 12958: N/A
TAGS: ECON EFIN PREL TU
SUBJECT: EXPORTS REMAIN STRONG, BUT LIRA WORRIES PERSIST


Sensitive but Unclassified. Not for internet distribution.


1. (SBU) Summary: New figures released by the Turkish
Exporters Assembly (TIM) on June 2 show that Turkey's
exporters withstood the challenge of a strengthening lira and
set a new monthly export record of USD 3.9 billion in May, a
30.7 percent increase over 2002. For the year ending May 31,
exports were USD 40.7 billion, up 28 percent from the
previous 12 month period. Meanwhile, however, declining
tourism revenues and an even sharper pickup in imports led
the GOT to revise its 2003 current account deficit projection
from USD 3.7 billion to 6.1 billion. Exporters warned too
that the appreciating lira threatens their competitiveness
and added their voice to calls on the Central Bank for a
decline in interest rates and more consistent exchange rate
policy. Central Bank officials counter that continued low
unit labor costs and productivity increases are keeping
Turkish exports competitive, and that exporters are focusing
excessively on the lira-dollar rate, which--for trade
purposes--is much less important than the lira-Euro rate,
where the lira's appreciation has been much smaller. End
Summary.


2. (SBU) A new record: The statistics unveiled June 2 in
Istanbul show Turkish exports moving from record to record,
with April's USD 3.74 billion giving way to May's 3.916
billion, despite the lira's appreciation. For the first five
months of the year exports were USD 17.9 billion (versus
13.36 billion in the same period last year), while for the
last twelve months they totalled USD 40.7 billion. The
record was paced by sharp gains in exports of textiles (up
28.6 percent to USD 993 million) and automotive products (up
48.4 percent to USD 596 million).


3. (SBU) But a widening deficit: Even with the export record,
however, the GOT also moved on June 2 to revise Turkey's
projected 2003 current account deficit up to USD 6.1 billion.
While projected exports were revised up to 40.6 billion from
39.4 billion, even more quickly growing imports and a
projected decline in tourism revenues (though of a lesser
magnitude than was predicted earlier in the year) account for
the widening gap. In announcing the shift, State Minister
Babacan also pointed to the impact of the strong lira and
what he characterized as strong private sector demand.


4. (SBU) Statistical Anomolies: While a welcome and positive
development, commentators argue that the headline export
figure is not necessarily as impressive as it first appears.
Given that the bulk of Turkey's exports (nearly 66 percent)
goes to the European Union and is priced in Euros, "Sabah's"
Abdurrahman Yildirim noted, a portion of the January-May
increase (perhaps as much as a quarter by our rough
calculations) stems from the Euro's increase in value against
the dollar.


5. (SBU) Shoals Ahead: In announcing the May figures, TIM
Chairman Oguz Satici warned that notwithstanding the positive
results of the last five months, export growth is becoming
unsustainable because of the appreciating lira. May's
figures, he said, reflect orders placed in the first three
months of the year, while currently exporters are coming to a
situation where they "cannot accept orders" because the
appreciating exchange rate does not permit them to accurately
predict costs and income, and consequently prices. Arguing
that the current rate serves the interests of "rentiers" and
not the real economy, he called for an exchange rate "in the
same line as inflation and input costs," and warned the
Central Bank that "those who avoid responsibility even though
they have authority will be called to account."


6. (SBU) Comment: Central Bank officials question exporters'
arguments. First, they point out that, while the lira-dollar
exchange rate is important in financial markets, the
lira-Euro rate is much more significant for trade. Although
the lira has appreciated against the Euro, its rise has been
much more modest than against the dollar. Furthermore,
imported inputs for exports tend to be priced in dollar
terms, so the lira's appreciation against the dollar is not a
complete negative for exporters. In addition, these
officials point out, Turkish exporters continue to benefit
from low unit labor costs, which still have not recovered
from the 2001 crisis, and from rising productivity. End
Comment.


ARNETT

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