Cablegate: Got Moves Slowly to Complete 8th Review, Not Ready

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

211547Z Jun 04

UNCLAS ANKARA 003503

SIPDIS

SENSITIVE

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

E.O. 12958: N/A
TAGS: EFIN PREL TU
SUBJECT: GOT MOVES SLOWLY TO COMPLETE 8TH REVIEW, NOT READY
TO COMMIT FOR 2005

REF: A. (A) ANKARA 3409

B. (B) ANKARA 3202

1. (SBU) IMF ResRep Odd Per Brekk told us June 21 that the
IMF mission working on the 8th review expected to leave June
22 (later than expected), but he still was not sure whether
they would resolve all issues before their departure. The
main outstanding issue concerns the GOT's insistence on
continuing to squeeze the petroleum excise tax -- to keep
domestic fuel prices steady in the face of rising prices
worldwide -- despite its negative fiscal impact. The team
will meet State Minister Babacan tonight in hopes of
resolving this last big obstacle.

2. (SBU) Brekk said that, as expected,the team and the GOT
had not formally discussed a possible follow-on program, and
the GOT as yet was unwilling to commit to seek one (even with
growing concerns about the current account deficit). He
added that the GOT was not even willing to commit to a
primary surplus target for 2005. While there was "nothing
magical" about the 6.5 percent of GNP figure from a
mathematical perspective, the GOT's mishandling of the issue
had made it harder for the Fund to agree a lower number.
Brekk explained that, with the Prime Minister having publicly
called for reducing the target to 5.5 percent (without
consulting with the Fund), IMF agreement to such a lower
number now would add to perceptions that it was too "soft,"
and would thereby undermine the credibility of the program.

3. (SBU) In a separate conversation June 19, ex-Treasury
Undersecretary Faik Oztrak sharply critized the government
for failing to recognize the country's continuing economic
vulnerability and for failing to begin lobbying G-7 countries
to support a new, large Stand-By Arrangement. Oztrak
estimated the country's 2005 external financing gap at $8
billion or greater, and argued that Turkey would need a new
$12 billion (over three years) Stand-By. He warned that, out
of ignorance, the GOT was making two dangerous
miscalculations that could come back to haunt it: (a) that
the Fund was anxious to provide additional funding (despite
its huge exposure) because it needs a success story, and (b)
that IMF team leader Reza Moghadam -- not the IMF Board and
the G-7 Finance Ministers -- would be the key player in
determining additional IMF support.

4. (SBU) Oztrak also took a shot at the IMF, arguing (as
have many others) that the Fund was not tough enough in 2003,
and let the GOT get away with a weak policy performance.
Oztrak believes Fund staff decided that a more flexible
approach was the best way to convince the GOT leadership of
the need for reform, but that this approach failed because
senior government officials "just don't understand and will
not understand" the need for sound policy and further reform.

EDELMAN

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