Search

 

Cablegate: Turkey Ready for for 8th Imf Review, 2005 Still Up

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

221356Z Jul 04

UNCLAS SECTION 01 OF 02 ANKARA 004095

SIPDIS

SENSITIVE

TREASURY FOR OASIA - LOEVINGER, MILLS, ADKINS
NSC FOR BRYZA AND MCKIBBEN

E.O. 12958: N/A
TAGS: EFIN PREL TU
SUBJECT: TURKEY READY FOR FOR 8TH IMF REVIEW, 2005 STILL UP
IN THE AIR

REF: ANKARA 3662

SENSITIVE BUT UNCLASSIFIED. MARKET SENSITIVE NOT FOR NON-USG
RELEASE.

1. (SBU) Summary. The IMF Executive Board has scheduled
its eighth review of Turkey's performance under its stand-by
program for July 30. The Board will also discuss an IMF
staff "Article IV" report on Turkey's economic developments
and policies over the last three years. Turkish officials
and the IMF resrep expect the Board meeting to go smoothly,
although they acknowledged that the discussions leading up to
the board meeting were more protracted than expected. An IMF
mission in September will discuss the ninth review, which
should go to the Board in October, as well as Turkey's
relationship with the IMF after the stand-by expires in early
February 2005. End Summary.

----------
8th Review
----------

2. (SBU) On July 16, Turkish authorities signed a letter of
intent with the IMF for completion of the 8th review of its
current Stand-by Arrangement with the IMF. The signing came
nearly a month after the departure of the country team review
mission (reftel) and during the last hours of parliament's
session before going on its summer recess. At the completion
of the review mission, there were three unmet structural
benchmarks that delayed what perhaps should have been an
easier process given higher than expected GDP growth, strong
fiscal results and continued disinflation. (Structural
"benchmarks" are not formal requirements necessary for
completion of reviews, but are indicators that the Fund uses
to assess performance under a program.)

-- The first such benchmark concerned petroleum excise
taxes, which the GOT had been reducing as a way to keep
fuel prices low in the face of the current high global
oil price environment. The Fund argued that this was a
departure from the established framework for taxation
) a recurrent issue with Turkish fiscal policy -- and
that it was unwise given the widening current account
deficit. IMF staff and the GOT finally agreed to
reinstate the excise tax at close to the level assumed
in the budget, thus partially fulfilling the benchmark.

-- Second was the benchmark related to the process of
privatization of state banks. In one of its last
actions before going on recess on July 16, the
parliament passed a law approving the merger of state-
owned Halk bank with Pamukbank, a troubled private
sector lender taken over by the Savings Deposit
Insurance Fund (SDIF). This, along with publication of
a privatization strategy for the merged bank, served to
partially satisfy the IMF benchmark. Publication of
privatization strategies for state-owned banks Ziraat
and Vakif has yet to occur.

-- The final issue holding up the letter of intent was
passage of legislation providing for a separate revenue
office under the Ministry of Finance, which the Fund
had originally sought to have passed in May. The IMF
had hoped to see this legislation enacted before the
board meeting. Despite the goverment's efforts,
however, parliament was unable to complete action
before going on recess. The GOT and IMF agreed that
passage of the legislation would be elevated to the
level of a formal performance criterion to be met prior
to the ninth review.

3. (SBU) Another issue not included as a specific benchmark
in the program, but that surfaced during the discussion
surrounding the signing of the LOI was that of local
government debt. During its last week, parliament passed a
new local administration law that sets limits on municipality
borrowing and addresses the restructuring of current arrears
on Treasury-guaranteed liabilities. The IMF and World Bank
were concerned about this law due to its implications for
debt management and debt sustainability, but the GOT actively
prevented their involvement in its design. The law is part
of the AK party decentralization agenda; how it will be
implemented will continue to be a subject of discussion for
the Fund.

----------------------------------------
POST FEBRUARY 2005 RELATIONSHIP WITH IMF
----------------------------------------

4. (SBU) In several meetings with the Turkish Treasury, we
have been able to get few specifics on thinking about the
economic framework for 2005. The GOT is currently preparing
a three-year program that will orient budget and financing
strategies going forward with a goal of continued debt
reduction through a high primary surplus, according to
Treasury U/S Canakci. The GOT recently announced broad
targets for next year, including GDP growth of 5%, an
inflation rate of 8%, and an exchange rate of 1.7 New Turkish
Lira (i.e. 1,700,000 current lira) per dollar. Other key
variables such as the role of the IMF and size of the primary
surplus are still under discussion and are not set to be
announced until September. In a recent conversation with
embassy economic section, Canacki made a reference to a
successor IMF program by stating "the need for external
anchors has to decline".

---------------------------------
FURTHER PRIVATE SECTOR CRITICISMS
---------------------------------

5. (SBU) Adding to the private sector criticism of the IMF
voiced to the embassy by former GOT officials (reftel),
another ex-official now consulting for a major bank raised
concerns that the Fund has been "too easy" on the GOT. He
specifically mentioned the new local administration law and
the lack of IFI involvement in its design, explaining that it
was not strict enough in limiting municipalities ability to
incur debt. (Note: the Deputy Director General of Budget and
Fiscal Control at the Ministry of Finance expressed similar
discontent in another meeting with econ officers.) The
consultant also spoke more generally about how markets have
off-loaded the role of economic policy watchdog to the IMF
and World Bank and that the GOT should do more to demonstrate
to markets its ownership of economic reform.

-------
COMMENT
-------

6. (SBU) The delays in signing the letter of intent and
scheduling the Board meetings highlighted the risk of
complacency about structural reforms that post has described
in previous reporting. Rather than easing enactment of
crucial structural reforms, better than expected growth and
disinflation are perversely making the politics of reform
more difficult for the government to manage. During her
recent visit to Turkey, State/EUR DAS Kennedy reinterated our
message on the centrality of maintaining market confidence.
We are taking advantage of other opportunities to reinforce
this message. The process of designing a new three-year
program is positive in that it may address complaints that
the GOT was simply interested in how much financing the IMF
could make available without demonstrating "owned" a coherent
framework that financing would support. At the same time,
however, lack of clarity about a follow-on relationship with
the IMF serves to exacerbate market uncertainty regarding
future Turkish policy.
DEUTSCH

© Scoop Media

 
 
 
World Headlines

 


Save The Children: Tonga Volcano Ash And Smoke Cause Concern For Air And Water Safety
Families in Tonga are at risk of exposure to unsafe air and water due to ash and smoke from the Hunga Tonga-Hunga Ha’apai volcano that erupted on Saturday, reports Save the Children...
More>>



Sudan: 15 Attacks On Health Facilities And Workers In Two Months

With the crisis escalating in Sudan, there have been 15 reports of attacks on healthcare workers and health facilities since last November, the World Health Organization (WHO) said on Wednesday... More>>

Kazakhstan: Bachelet Urges Peaceful Resolution Of Grievances
Amid alarming reports of deadly violence in Kazakhstan, UN High Commissioner for Human Rights Michelle Bachelet on Thursday urged all, including security forces, protesters and others, to refrain from violence and to seek a peaceful resolution of grievances... More>>


Tigray: Agencies Suspend Aid As ‘Scores’ Are Killed Due To Airstrikes
Recent airstrikes on camps for internally displaced persons and refugees in Tigray, northern Ethiopia, have reportedly killed scores of civilians, including children, and left many more injured... More>>


UN News: For 25th Year In A Row, Greenland Ice Sheet Shrinks

2021 marked the 25th year in a row in which the key Greenland ice sheet lost more mass during the melting season, than it gained during the winter, according to a new UN-endorsed report issued on Friday... More>>


Afghanistan: Economy In ‘Freefall’, Threatening To Take Entire Population With It

Afghanistan’s economy is in “free fall”, the UN Emergency Relief Coordinator told a special meeting on Sunday, warning that if decisive and compassionate action is not taken immediately, it may “pull the entire population with it”... More>>