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Cablegate: Se Turkey's Initial Reactions To

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 ADANA 0022

SIPDIS


SENSITIVE


ANKARA PASS APP IZMIR


E.O. 12958: N/A
TAGS: ECON ADANA
SUBJECT: SE TURKEY'S INITIAL REACTIONS TO
NEW ECONOMIC INCENTIVES' LAW


l. (SBU) President Ahmet Necdet Sezer approved
an "economic incentives" law
on January 29, 2004, which grants tax and
insurance privileges, as well as energy support
and free land, to regional investor in an effort
to increase employment opportunities in eastern
and southeastern Turkey.


2. (SBU) According to a statement released by the
Presidential Press Office, the law
has been printed in the Official Registry as of
February 6, 2004. The Law grants these privileges
to all cities with less than $1,500 per capita
annual income as of 2001. The free land provision
includes all cities with less than $1,500 per
capita income and special economic development
areas. Thirty-six cities are going to benefit
from this law. Incentives in these cities include
provisions that new employees and workers
employed since October 2003 will pay only 20
percent of their required taxes. The Treasury
will pay the insurance premiums of all new
employees. For other regions, the Treasury will
pay 80 percent of the insurance costs.


3.(SBU) Firms which employ at least 10 people in
these 36 cities will be allocated free Treasury
or state lands. In order to receive the free
land, the firm has to employ the agreed number of
employees for five years.Energy support for
investors will be provided until 2008. The
Treasury will pay 20 percent of the electricity
costs of firms which employ at least 10 people
and are in the mining production, greenhouse,
animal, tourism, education or health sectors.
Every additional employee above ten will increase
the rate paid in the electrical subsidy by half a
point. Public sector enterprises will benefit
from energy support, but not insurance subsidies.
Firms operating in free-trade areas will also
receive tax and insurance incentives.


4.(SBU) Of 36 affected cities, 14 are in the
Adana Consular District: Malatya, Diyarbakir,
Osmaniye, Batman, Sanliurfa, Mardin, Adiyaman,
Van, Bingol, Mus, Siirt, Bitlis, Hakkari and
Sirnak. Conspicuous by its absence is the
southeast province of Tunceli which Consulate
Adana initially estimated would meet the low per
capita income threshold for this initiative.
However, upon consultation with Tunceli Chamber
of Commerce and Industry General Secretary, Adana
Consulate found out that reason why Tunceli was
excluded from this list because its per capita
annual income was $1,584.


5.(SBU) Chamber of Commerce and Industry
officials in southeast Turkey found
the recently passed Economic Incentive Bill
positive but inadequate. They said the
majority of the western entrepreneurs who would
like to benefit from these incentives
would not go to their cities, but rather to
Duzce, which also receive regional subsidies,
because of its proximity to their existing
investment in Istanbul. If there had been a 100
percent investment and tax exemption in the
region, then the businessmen said that they might
attract either foreign direct investment or
shifting domestic investment to the southeast
Turkey region. They also said that the Incentive
bill would have been more useful if it had
offered some concessions on provincial and
sectoral bases. Generally, they expect some small
scale investments from businessmen already
active in the southeast region.


6.(SBU) One notable new domestic investment
possibility emerged in Sanliurfa province,
Mr. Ismail Demirkol, Sanliurfa Chamber of the
Commerce and Industry, President said that, after
endorsment of the bill, he was called by
unspecified businessmen in the Istanbul garment
sector who said that they would like to do some
research on starting new garment factories in
Sanliurfa. Mr. Demirkol believes such factories
would contribute to mitigating the significant
unemployment problem in the region.


COMMENT: The IMF sought to eliminate these
investment incentives as part of the
broader tax reform effort, but accepted a
compromise incentive package in the face of the
Prime Minister's insistence. There is
considerable skepticism among Fund and World Bank
staff that these incentives will result in
significant new investments in the poorer
parts of Turkey, but senior government officials
in Ankara are convinced they are essential to the
region's development.
REID

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