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Cablegate: Markets Rally On Imf/Inflation News

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

051505Z Aug 03

UNCLAS ANKARA 004914

SIPDIS


SENSITIVE


STATE FOR E, EB/IFD AND EUR/SE
TREASURY FOR OASIA
NSC FOR BRYZA
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO
USDA FOR FAS FOR EC AND CCC/FSA


E.O. 12958: N/A
TAGS: EFIN ECON PGOV TU
SUBJECT: MARKETS RALLY ON IMF/INFLATION NEWS


1. (SBU) Turkish markets rallied Monday and Tuesday on the
back of good inflation news and the IMF Board's August 1
decisions to approve the 5th Review and extend 2004-2005
Turkish repurchases. The lira strengthened to 1.406
million/dollar, yields on the benchmark August 8, 2004 t-bill
dropped to 43.64 percent, and the stock market rose eight
percent to 11,499.89. Amid much good news, the markets
shrugged off Moody's August 5 announcement that it was not
considering an upgrade of its currently negative outlook on
Turkey.


2. (SBU) The State Statistical Institute announced over the
weekend that that the Consumer Price Index (CPI) fell 0.4
percent in July, while the Wholesale Price Index (WPI)
dropped 0.5 percent. Analysts had expected CPI to increase
slightly and WPI to hold steady. Declining food and clothing
prices, which usually soften in the summer due to seasonal
factors, were the driving force behind the drop in the
indeces, along with the continuing strength of the lira. The
drop in prices has prompted several analysts to predict
another Central Bank rate cut, adding to the positive
momentum in the markets.


3. (SBU) Markets welcomed the Fund's decision to extend
Turkey's 2004-2005 repurchases, which should reduce the
country's debt service load by nearly $7 billion over the
next two years. Although most analysts had expected some
kind of "roll over," few expected the Fund's decision to be
made this soon and to include 2005 as well as 2004 payments.
Today, State Minister Babacan told the press that the Fund's
decision would ease Turkey's debt burden over the next two
years, and also announced that Treasury officials would
travel to Washington August 18 to discuss U.S. assistance.
There were, he said, no impediments to the U.S. release of
$8.5 billion in loans.


4. (SBU) Separately, Parliament passed late last week
legislation that should strengthen BRSA's hand in dealing
with Imar Bank and potentially other bank fraud cases. The
legislation includes provisions that:


-- authorize the Council of Ministers to determine the
principles and methods to be used by the Savings Deposit
Insurance Fund (SDIF) to pay legitimate deposits of banks
that are being liquidated;


-- in cases where banking regulators determine that the
amount of bank deposits exceed the amount of deposits the
bank has officially declared (such as in the Imar Bank case),
criminal courts -- upon the recommendation of SDIF -- are
authorized immediately to freeze an equivalent amount of the
assets of bank owners and managers, including branch
managers, and their families. Depending on the results of
further investigation, SDIF could be authorized to seize
assets sufficient to cover the difference between declared
and actual deposits;


-- makes anyone who uses false documents to file a fraudulent
claim for deposits in a taken-over bank subject to
imprisonment for 4-8 years. plus a fine equal to ten times
the amount received from the bank.


5. (SBU) At first glance, this legislation appears to be
very similar to that sought by BRSA President Akcakoca. We
will report further details after discussing this with BRSA.
DEUTSCH

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