Cablegate: Slow Movement On Imf Negotiations

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


1. (Sbu) Summary: According to the IMF Resrep, negotiations
with the GOT
on a new Standby are moving forward slowly. Though a major
step was achieved
with agreement on headline 2005 budget numbers, the details
of tax reforms and
the absence of progress on a banking law remain to be sorted
out. Though none
of the problems seemed insurmountable, they will take time,
and may well require
a third mission in November. End Summary.

2. (Sbu) In a phone conversation just before going into a
negotiating session,
the IMF Resrep provided a general overview of the state of
play, promising a
fuller brief next week. He said there wasn't much to tell
because so much remained
to be worked out. Agreement on headline numbers for the 2005
the 6.5% primary surplus target (reftel)--had obviously been
a signficant step
forward. Other issues, while not insurmountable, were taking
much longer than
IMF staff had anticipated. As after the first mission, the
Resrep said the GOT
had not adequately prepared for the mission.

3. (Sbu) The biggest single area of difficulty is the details
of tax reforms.
These involve both medium-term measures to rationalize
taxation and specific
measures for 2005. Since the budget has already been
submitted to parliament,
the Resrep said that for 2005 the measures would have to be
which is difficult. The GOT has provided its ideas to Fund
staff and staff has
responded with its own (unspecified) proposals.

4. (Sbu) Lack of progress on the new banking law (a key
structural reform) is
also holding up negotiations. A World Bank expert (septel)
working with the Fund
told us there had been virtually no progress on the banking
law during this mission
because the bank regulators had proposed new, unacceptable
features. Fund staff had
to go over the regulators' heads to secure Minister Babacan's
agreement to go back
to negotiations on the basis of the August draft.
5. (Sbu) In terms of timing and next steps the Resrep said
that little had been
decided. It was not yet clear whether the mission would
leave as planned October
26 or extend its mission. It could also return in November.
(The Bank expert told
us the joint World Bank-IMF team on the banking law would
return the week of
November 9.)

6. (Sbu) Without explicitly saying so, the Resrep implied
that the mission and GOT
had not yet reached agreement on the size of the financing
gap and the amount of
Fund financing the authorities would request. The Resrep
pointed out that, under
exceptional access country rules, staff still needed to get
definitive authorization
from the IMF board to conclude negotiations for a specific
amount.The Resrep said
that the staff had hoped to go to the board "remotely" while
in Turkey, but that
now was considering going to the board after returning to

7. (Sbu) Comment: Though we will have to await next week to
get the details, Fund
staff seems to be exercising caution and trying to get things
right. Continued USG
support for the Fund's efforts could only help at this stage.


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