Cablegate: Fund Mission and Got Reach Agreement On Loi, Shoot

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

211040Z Jul 03

UNCLAS ANKARA 004551

SIPDIS

SENSITIVE

STATE FOR E, EB/IFD AND EUR/SE
TREASURY FOR OASIA - MILLS AND LEICHTER
NSC FOR BRYZA

E.O. 12958: N/A
TAGS: EFIN ECON PGOV TU
SUBJECT: FUND MISSION AND GOT REACH AGREEMENT ON LOI, SHOOT
FOR AUGUST 1 BOARD DATE

REF: ANKARA 4480

1. (SBU) IMF Mission Director Reza Mogdaham and State
Minister Ali Babacan announced July 20 that they had reached
initial agreement on a Letter of Intent. In a brief
telephone call, IMF ResRep (protect) advised July 21 that,
assuming IMF management approval of the agreed-upon text,
they hope to sign the LOI this Friday (July 25) and have the
Board review the following Friday (August 1). He said Fund
staff supported this accelerated approach to compensate for
some of the delays in completing the Fifth Review.

2. (SBU) As reported reftel, the main factor facilitating
the agreement was the GOT's decision to take a series of
measures to close the projected TL 2.5 quadrillion fiscal gap
in this year's budget. IMF ResRep said implementation of
these measures -- already underway -- along with
Parliamentary passage of the two remaining pieces of social
security legislation, without amnesty provisions, were prior
actions for the Board review. We understand the full
Parliament will consider these two bills this week. (Note:
The press reported last week that Parliament had approved the
legislation; in fact, only a Parliamentary committee had
approved them. End note) ResRep said a Fund technical
assistance team had made good progress working with the GOT
to narrow differences on a proposed social security amnesty.
Based on that, ResRep is now hopeful that the GOT's proposal
on this issue will address the Fund's concerns.

3. (SBU) ResRep said Fund staff continue to work with GOT
officials on the Financial Management and Control Law as well
as direct tax reform legislation. On the latter, he said the
GOT had "so many bad ideas" that Fund staff had asked them to
postpone the legislation, pending arrival of another Fund
technical assistance team. Embassy will report more fully on
structural issues following a July 23 meeting with ResRep.

4. (SBU) Separately, the Central Bank intervened in the
currency markets in a big way on Friday, buying $940 million
above its normaly daily purchase in response to what the Bank
called excessive volatility. The intervention (actually the
Bank intervened 2-3 times during the course of the trading
day) pushed the lira, which had reached TL 1.375
million/dollar, back to TL 1.4 million/dollar before it
recovered to close at TL 1.395 million. The Bank also cut
overnight interest rates three percentage points and
increased its daily dollar purchases from $40 to $50 million
late last week. Local analysts, such as Istanbul-based
Bender Securities, are growing increasingly skeptical of the
Bank's claim that it is intervening only in response to
excessive volatility.
PEARSON

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