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Cablegate: Istanbul Investment Conference Highlights Familiar

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





E.O. 12958: N/A

Sensitive but Unclassified - not for internet distribution.

1. (U) Summary: The long-planned but oft-delayed
International Investment Advisory Council (IAC) meeting
grouping CEO's from leading multinationals finally took place
in Istanbul on March 15. Organized by the Turkish government
with cooperation from the World Bank and International
Monetary Fund, the council brought together key government
economic policymakers and 19 business leaders, including
executives from Citigroup, Fiat, Ford, Hyundai, Nestle,
Siemens and Toyota. In its final communique, the council
praised the GOT for its progress towards macroeconomic
stability, but reiterated the need for it to tackle a range
of other long-standing problems that impede investment.
Among the seven issues singled out were lingering
administrative and bureaucratic hurdles to investment,
failure to protect intellectual property rights, Turkey's
cumbersome tax code and inefficient legal system, and the
need to rein in the country's unregistered economy.
Attendees also pressed for creation of an Investment
Promotion Agency and steps to encourage investment in
research and development. Prime Minister Erdogan, who
attended the session, pledged that the GOT would tackle these
issues and report back to the council in eight months. End

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2. (U) Making a Splash: Originally scheduled for 2002, and
subsequently postponed first to 2003 and ultimately to 2004,
the council was intended to make a major splash by including
top tier business leaders like Bill Gates of Microsoft.
Organizers ultimately scaled back their expectations, but did
secure participation by top executives from 19 leading
multinationals, most of whom already have operations in
Turkey. A number of other companies expressed interest in
attending, but at a lower level, and consequently were not
invited because of the GOT's concern that only CEO-level
executives participate. (Note: World Bank officials told
Emboffs last month that Bank President James Wolfensohn
himself had sought to persuade the GOT of the utility of
getting executives from the next tier, given their role in
making investment decisions, but was unsuccessful.) In the
end attendees included the Presidents or CEO's of Citigroup,
Hyundai, Lafarge, Metro AG, Nestle, Newmont Mining
Corporation, Pirelli, Siemens, Toyota, Unilever. The World
Bank's Wolfensohn co-hosted the event, as did Belgian IMF
Executive Director Willy Kiekens, who also represents Turkey.
(IMF Acting Managing Director Anne Krueger was to have
represented the IMF following Managing Director Kohler's
resignation, but ultimately neither she nor European
Department Vice President Deppler was able to attend, leaving
Kiekens to fill in, though he doesn't really speak for IMF
management or staff.) Representatives of Turkish NGO's
including TUSIAD, the Turkish Exporters' Assembly (TIM), the
Union of Chambers (TOBB), and Foreign Investors' Association
(YASED) also participated. From the Turkish government Prime
Minister Erdogan attended the session, accompanied by his top
economic aides.

3. (U) Familiar Recommendations: If the level of attendance
and attention garnered by the conference were new, the
results were familiar. While praising Turkey's progress
towards economic and political stability over the last three
years, council members also highlighted both a number of
continuing impediments to investment and steps that need to
be taken to attract investment. Among them were:

-- red tape and bureaucracy, particularly at the sectoral
-- need for improvement in implementation of laws and dispute
resolutions mechanisms.
-- need for tax reform, to provide a corporate taxation
regime which avoids double taxation and provides incentives
for investment in R & D.
-- need for improved infrastructure, particularly in
telecommunications, power and transportation, and for further
investment in education and training.
-- the need to rein in Turkey's unregistered economy.
-- lack of protection of intellectual property.
-- creation of an investment promotion agency.

Attendees also focused on issues particular to their sectors,
such as the ongoing labor dispute that threatens to disrupt
Pirelli's tire production here, and legislation that prevents
companies like Metro A.G. from placing superstores in
metropolitan areas.
4. (U) Follow-on steps: Attendees agreed that the council
will become an annual event, with an initial progress report
to be delivered to participants in eight months. Prime
Minister Erdogan pledged the government will report back on
implementation of the group's core recommendations at next
year's meeting. Economic Minister Babacan was named
goverment liaison for the council, and it was agreed tht
its work would also be pursued through the lon-standing
Coordination Council for the Improvemet of the Investment
Environment (YOIKK). The later's technical committees,
which bring together oth government and private sector
representative, will serve as the working groups to develop
cocrete measures to implement IAC recommendations.
5. (SBU) Comment: Though primarily a public relatons
exercise, the council meeting was undoubtedly useful in
ensuring that GOT decisionmakers heard again at a high level
the message that macroeconomic stability alone is not enough
for Turkey to improve its dismal record in attracting
investment-- progress on structural reforms is also
essential. Indeed, coming at a time when Turkey continues to
struggle to attract foreign investment (having received only
500-600 million USD in each of the last two years), and in
the same week that the Economist Intelligence Unit
(admittedly not a Turkey fan) rated the country 78th out of
100 emerging and heavily indebted countries (on a par with
Nigeria, and below the Ukraine and Azerbaijan), the meeting
could not have been more timely. The key will be
implementation, however, and on that score the GOT's record
is mixed at best. YASED officials, who attended the meeting
but were largely cut out of its preparation, have noted that
the YOIKK committees have not met since November 2003,
precisely because the government wanted to wait on the IAC
meeting and its outcome before moving ahead. Coming months
will thus test the GOT's willingness to re-engage on these
issues. A number of our private sector contacts in Istanbul,
noting the IMF's own difficulty in securing progress on
structural reforms, are frankly sceptical that anything
except harmonization as part of EU accession negotiations
will move Turkey forward on many of these issues. End

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