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Cablegate: Scenesetter for Treasury Das Loevinger

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

091324Z Dec 04







E.O. 12958: N/A
SUBJECT: Scenesetter for Treasury DAS Loevinger

1. (SBU) Summary: Your visit to Turkey comes at a bumpy
period in the bilateral relationship, in large measure
connected with developments in Iraq. It is also a
delicate moment in relations with both the IMF and EU.
This message provides a brief overview of the state of
bilateral relations, cooperation in Iraq, Turkey's EU
accession prospects and the state of play with the IMF
and EU. End Summary.

The Bilateral Relationship

2. (SBU) Bilateral relations have entered another choppy
period. The Turks are freely criticizing U.S. policy in
Iraq and elsewhere in the Middle East, but do not offer
constructive alternatives. A barrage of media
disinformation about Falluja and U.S. actions in general
in Iraq -- fanned by statements by PM Erdogan and by
Foreign Minister Gul alleging excessive use of force and
civilian casualties - is creating negative public
opinion. Some observers have characterized the general
attitude in Turkey toward the U.S. and our role in the
world as the most negative in memory.

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3. (SBU) Turkey shares our goals for Iraq: a secure and
stable, democratic country, united and territorially
whole. To that end, Turkey has provided valuable
assistance and cooperation. Ankara offered to send
troops to Iraq, approved the use of Incirlik Air Base
for tankers to refuel aircraft on support missions for
both Operation Enduring Freedom (OEF) and Operation
Iraqi Freedom (OIF), authorized the transit of US troops
from Iraq, and permitted the transit of supplies for our
forces and humanitarian goods. Turkey is also active in
reconstruction efforts, including providing electricity
for Iraq and training Iraqi diplomats, and has offered
senior military leadership training in Turkey as its
contribution to NATO's Iraq training mission.

4. (SBU) This cooperation is provided despite the fact
that our actions in Iraq are highly unpopular with the
Turkish public. Many Turks in and out of government
worry about the fragility of Iraq's territorial
integrity, fearing that the Kurds in the north aspire
for independence and that the tensions between Sunni and
Shia Arabs might become intractable. The Turks have
gone on record supporting the IIG and full participation
in elections, which they want to see move forward by
January's end.

5. (SBU) More recently, the rising number of Turkish
truckers abducted and executed in Iraq has raised
concerns among the public and Turkish officials. To
address this issue, the first trilateral US/GOT/IIG
talks on security in Iraq were held on November 30.

6. (SBU) On Iraq debt, despite our demarches, the GOT
has not articulated its position. Lower level officials
and Governor Serdengecti have expressed reluctance to
provide forgiveness, claiming poverty, however, we have
yet to get an official reply endorsed by senior
Government officials. As far as we are aware, the issue
was not discussed at Secretary Snow's recent meeting
with Minister Babacan in Berlin.


7. (SBU) The Turks have been an active partner on other
fronts in the global war on terrorism and international
security: our militaries coordinate on a range of
security and counter-terrorism issues, Ankara has been
supportive of international efforts to press Iran to
meet its commitments to the IAEA. Turkey will again
assume the command of ISAF in Afghanistan in February
for a six-month period during which they will
significantly increase their contribution to this
important NATO mission.

8. (SBU) Turkey's regime to combat money laundering and
the financing of terrorism is quite weak. A combination
of technical weakness, poor interagency coordination,
and inadequate attention from government leaders has
stalled efforts to upgrade the legal framework or to
vigorously cooperate internationally. A recent FINCEN
mission found that Turkey not in compliance with some
FATF recommendations and considered that Turkey would
not qualify to get into the Egmont Group if it had to
apply today. The FBI and DOJ are currently providing
training programs on investigating and prosecuting
financial crime cases and post continues to press GOT
officials to beef up its anti-financial crimes regime.

EU Accession

9. (SBU) The European Commission in its October 6 report
recommended the EU open accession talks with Turkey. At
the December 17 Summit, the EU is widely expected to
follow through on this recommendation by setting a date
for talks. This would be a major step forward in
anchoring Turkey's future and in our strategic vision
for Turkey and the region. However, the GOT is
concerned about some of the conditions that may be
attached to the EU offer. They worry the EU is still
not committed to its membership and continues to raise
barriers. For example, the EU is pressing the Turks to
sign, before the Summit, a protocol extending the EU
Association agreement to the 10 new EU members,
including the Republic of Cyprus. GOT officials say
they are willing to negotiate on this point, but insist
they are not required to sign before beginning accession
talks, and they tell us this is presented as a
concession to and recognition of the Republic of Cyprus,
something they are only willing to see as part of a
settlement of the island's division.

10. (SBU) The Turks are also concerned about how the EU
will define the "open ended" nature of accession talks.
They recognize the successful outcome of the talks
cannot be pre-determined. GOT officials say they cannot
accept language indicating that Turkey may be offered
something less than full membership even if it meets all
accession criteria, as some (the Austrians, German CDU
leader Merkel) have suggested.

11. (SBU) The EU has indicated that it plans to apply a
"screening process" before opening formal talks on each
chapter of the EU acquis. The Turks say they can accept
this, as long as the screening begins in early 2005 and
the formal talks start later in the year. However, they
reject any arrangement that would postpone the start of
formal talks until 2006.

12. (SBU) Many in Turkey see the U.S. and EU
relationships as a zero-sum choice. They believe that
relations with the EU can improve by distancing
themselves from us. Others also look for a third
alternative based on partnership with Russia - which was
a theme in the recent Putin visit.


13. (U) The Turkish economy has recovered strongly from
the financial crisis of 2000-2001 and is growing at an
annual pace of around 10 percent. However, the recovery
remains vulnerable due to a large current account
deficit (about 5 percent of GDP) and a large debt with a
short maturity structure. Some recent data releases and
comments by analysts are encouraging on the current
account outlook: there are signs the strong growth is
decelerating, auto sales are down, and the dollar fall
against both the euro and lira is positive for the trade
deficit. Macroeconomic success has also bred a sense
of complacency about the need to persist with difficult
reforms, such as privatization, and reform of the
banking, social security and tax systems.

14. (U) Due to historic economic/political volatility
and opaque regulatory/judicial systems, Turkey has long
received less foreign direct investment than other
countries of similar size and potential. Many in the
Turkish elite and the GOT are convinced that there will
be a flood of foreign investment if the Turks get a date
for EU accession negotiations later this month.
However, this is unlikely to materialize unless more is
done in the area of structural reform. In addition,
there appears to be a lack of appreciation for the
enormous challenges Turkey will shoulder in the
accession negotiations, for the fact that EU accession
will affect nearly aspect of their lives, and that it
may in the end be quite costly for Turkey to comply with
EU directives in environmental protection and other


15. (Sbu) At this writing, the GOT is in the thick of
negotiations with the current Fund Mission. Though Fund
staff told us they would not have come if they did not
think they were close enough to agree on the terms of a
program by the end of the mission, some politically-
difficult issues remain outstanding. Social Security
reform, in particular, requires the Prime Minister to
approve increases in payroll taxes and/or a later
retirement age. On a range of other issues--such as
banking law, tax rate details, and out-year fiscal
targets--it is not clear how close the two sides are to
a deal. Economic technocrats like U/S Canakci have told
us they are keen to be able to announce a deal with the
IMF before December 17, even if they are not ready to
have a signed LOI. Markets are widely-considered to
have priced in an IMF deal and a conditional yes from
the EU, such that there could be a sell-off if things go
worse than expected on either front.


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