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Cablegate: Turkey Fdi: Got Expectations Tied to Eu Accession

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

271309Z Dec 04

UNCLAS SECTION 01 OF 02 ANKARA 007154

SIPDIS

DEPT FOR EB AND EUR/SE
USTR FOR LERRION
TREASURY FOR INTERNATIONAL AFFAIRS - MILLS AND ADKINS
USDOC/ITA/MAC/DAVID DEFALCO
DEPT PASS EXIM FOR PAUL TUMMINIA

SENSITIVE

E.O. 12958: N/A
TAGS: EINV TU
SUBJECT: Turkey FDI: GOT Expectations Tied to EU Accession
Negotiations

REF: Ankara 6009

Sensitive But Unclassified. Please handle accordingly.

1.(SBU) Summary: Government and private sector
representatives participated in an event organized by the
Foreign Investment Association (YASED), where Prime Minister
Erdogan also gave a speech. In his speech, Erdogan
attributed the increase in FDI this year to the positive
developments in the Turkish economy. However, business
sector representatives complained about lack of action and
progress on the GOT's side. They were particularly critical
about a "misleading" Turkish Treasury report, which claimed
that the GOT had made significant progress in FDI reform.
While FDI inflows have risen in 2004 and the PM and others
in the GOT look forward to rising FDI following the EU
Summit, working-level Treasury contacts and private sector
representatives agree that the GOT's investment climate
reform efforts have stalled. Though there may be some
increase in FDI flows arising from the EU decision and new
IMF program, we do not expect Turkey to have asustainable
quantum leap in FDI, unless it continues to demonstrate
its commitment to investment climate reform. End Summary.

2. (U) Speaking at a November 25 conference hosted by the
Foreign Investment Association (YASED), Prime Minister
Erdogan claimed that positive developments in the economy in
the last two years had contributed to a more favorable
investment environment in Turkey. Erdogan stated that 95
percent of the increase in FDI in 2004 came from European
Union (EU) countries. Erdogan said all investors, domestic
and foreign, would be treated equally in Turkey and the GOT
was ready to take action if there was any complaint about
unfair treatment. Note: Though the GOT has taken action--
albeit delayed--on some U.S. company problems, for the most
part the GOT has failed to help U.S. investors resolve their
problems here. End Note. Erdogan noted that recent FDI and
Incentives Laws had eased conditions for foreign investors
and brought about a significant increase in the number of
companies established in Turkey. Erdogan said the GOT was
committed to take any steps necessary to attract foreign
investment to Turkey.

3. (U) The participants welcomed Erdogan's remarks on
improving the investment environment in Turkey, but
complained that the GOT failed to take action on these
statements. In his opening speech, YASED President Saban
Erdikler praised the GOT's efforts to improve the investment
environment, noting the need for continued progress. At a
reception prior to Prime Minister Erdogan's speech, the
participants discussed the status of FDI in Turkey. The
business sector was particularly critical about a long-
delayed FDI report Turkish Treasury was getting ready to
publish, which the businesses thought was biased and
reflected an "overly positive FDI outlook" for Turkey.
Treasury was expected to prepare this report within six
months of the Investors' Council held in Istanbul in March
2004, and to send it to the CEOs of 19 international
companies who participated in that meeting. Speaking
privately at a reception before the speeches,
representatives of YASED, the Turkish Union of Chambers and
Commodity Exchanges (TOBB) and Turkish Industrialists' and
Businessmen's Association (TUSIAD) complained about lack of
progress in the GOT's efforts to improve the investment
environment. Treasury Foreign Capital Deputy Director
General Osman Emed, who also participated in the event,
confirmed the delay in FDI reform efforts, and attributed
this to the GOT's focus on December 17, the decision date
for the GOT's EU accession negotiations.

4. (U) Following YASED's event, the press reported that the
business representatives told Erdogan about the problems
with the report, and complained that most of the problems
listed in the Investors' Council remained unresolved.
Erdogan reportedly directed Treasury to revise the report
and include businesses' comments in it. Press reports
claimed that Erdogan also personally contacted relevant GOT
offices about the problems investors raised with him during
the event.

5. (U) The GOT announced its EU pre-accession economic
program on December 2. The GOT's program included ambitious
macroeconomic targets, including its $15 billion FDI inflow
target for the 2005- 2007 period. In its economic program,
the GOT also committed to continue its efforts to improve
the investment environment. The EU announced on December 17
that the accession negotiations with Turkey would begin on
October 3, 2005. Following the EU decision, Deputy Prime
Minister Abdullatif Sener reiterated the GOT's $15 billion
FDI target.. Business representatives commented that EU
accession alone would not be sufficient to bring Turkey the
FDI boom it expects, and the GOT should continue to
demonstrate its commitment to reform in the investment
climate and the judicial system to attract investments.

6. (SBU) Comment: While the GOT continues to tout FDI data
showing an increase in this year's flow of foreign capital,
much of it derives from investment in real estate rather
than long-term, employment-generating investments. There
has apparently been an increase in company formation and in
the number of foreign businesses sniffing for opportunities
in Turkey recently. The GOT seems to be relying on the
prospect of EU accession to act as a significant magnet for
FDI, rather than continuing to implement needed reforms in
the business climate. We think despite the EU's "green
light," the GOT will not be able to achieve a sustainable
increase in FDI, nor will it reach its ambitious FDI target
in the short-term, if it continues to delay its investment
climate reform efforts.

Edelman

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