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Cablegate: Investment Conference Praises Turkey's Progress

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

UNCLAS SECTION 01 OF 02 ISTANBUL 001941

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: EINV ECON EFIN TU
SUBJECT: INVESTMENT CONFERENCE PRAISES TURKEY'S PROGRESS
BUT HEARS WARNING ABOUT CONTINUING RISKS

REF: A. ISTANBUL 692

B. ANKARA 2070
C. ISTANBUL 1716

This message is sensitive but unclassified-- not for internet
distribution. This message was coordinated with Embassy
Ankara.

1. (SBU) Summary: A November 8-9 investment conference
organized by Turkey's Foreign Investors' Association (YASED)
offered GOT policymakers a chance to highlight progress
registered in recent years and to underline their readiness
to accept foreign investment, whatever its source. Business
participants generally applauded Turkey's achievements, while
stressing that much remains to be done. Press coverage,
however, focused on Johns Hopkins University economist Steven
Hanke's warning of the risk of another financial crisis, as a
result of the country's current account deficit and
overvalued currency, which he argued parallel the conditions
that preceded the country's 1994 and 2001 financial crises.
Hanke, a well-known critic of IMF programs, neglected to note
key differences with 1994 and 2001: a floating exchange rate
and stronger fundamentals. End Summary.

2. (U) Open Arms: The two-day YASED Conference,
optimistically titled "The New Favorite Destination for
Foreign Direct Investment: Turkey, Where Opportunities
Abound," brought together a range of GOT policymakers and
foreign and domestic business leaders. Both Prime Minister
Erdogan and State Minister Babacan used the platform to
stress the Turkish government's determination to attract
foreign direct investment without regard to its "color or
identity." In his address to participants, Erdogan said he
would welcome foreign investment "with respect, be it Arab,
Jewish, or Western." He criticized those who oppose foreign
investment, and in a pointed rejoinder to critics of his
earlier meetings with Israeli investor Sami Ofer, who won a
controversial tender for Istanbul's Galataport earlier this
year (ref C), met with Ofer's son, who was attending the
conference. Both Erdogan and Babacan stressed that foreign
investment is critical to Turkey's future, as only it will
permit the country to overcome its central economic
challenge-- continued high unemployment.

3. (U) Still work to do: For their part, both Turkish and
international business leaders repeated messages that were
delivered earlier this year at Turkey's second Investment
Advisory Council (IAC) meeting (ref a). They praised the
country's newfound macroeconomic stability, but stressed the
need for continued work to improve the country's legal and
financial infrastructure. Mohammed Hariri, Vice President of
the Saudi Oger Group, which won the tender for Turk Telekom,
praised the GOT for the "transparency" and fairness of that
privatization process, but stressed that high tax rates on
telecommunications services are a real drag on the sector. A
number of Gulf business leaders argued that Turkey should
more actively target Gulf capital, given that it has become
"more difficult" for such capital to invest in the U.S. and
Europe since September 11. YASED President Saban Erdikler
also pressed for action to create a national investment
promotion agency under the Prime Ministry, an issue that has
been stalled for years as a result of disagreements both over
whether the body should be primarily private or public in
nature, and over whether it should report to the Prime
Minister or to Babacan.

4. (SBU) Clouds: Given these fairly standard messages, press
attention fixed on the warning delivered by Johns Hopkins
University economics professor Steven Hanke that Turkey's
current account deficit and overvalued exchange rate are
reminiscent of conditions that prevailed before the country's
1994 and 2001 financial crises. Hanke stressed that he is
not predicting such a crisis, but simply wished to highlight
risks that exist in the economy. Other participants were
quick to take issue with his analysis, however-- World Bank
Turkey Representative Andrew Vorkink pointed out that other
elements are quite different from earlier years, in that
inflation has dropped drastically and longer term foreign
investments are on the rise. He predicted that FDI will
increase 2-3 times in coming years. (Babacan noted that in
the first eight months of the year the country received 2.9
billion USD in foreign investment; above the 1.9 billion
registered last year.)

5. (SBU) Comment: The YASED event broke little new ground but
offered a useful opportunity for the Turkish government to
take on nationalist critics who have spoken up in opposition
to foreign investment in recent months. Prime Minister
Erdogan in particular addressed the issue head on, both
through his public comments and his meeting with Eylal Ofer.
More generally, business leaders took the opportunity to
highlight the fact that work is not yet done to make Turkey
an attractive destination for foreign investment, and that
attention needs to be paid to structural issues such as
Turkey's tax and legal system. Hanke's point regarding the
current account deficit is one that economists here have been
grappling with for months. The need to finance a large
current account deficit does make Turkey vulnerable to
external shocks, as a Lehman Brothers report concluded last
week. However, Hanke-- a well-known critic of IMF programs--
is in a distinct minority. Most analysts downplay the risk
of a full-blown crisis. Embassy Ankara concluded in ref B
that Turkey, with its floating exchange rate regime (since
2001), is more likely to experience a "correction" than a
crisis if short-term investors, who currently finance the
bulk of the deficit, head for the exits. The debate did put
something of a damper on the conference's celebration of
Turkey's progress-- "Storm warning over Turkey's economy"
(from the Financial Times) was likely not the international
reaction YASED was seeking. End Comment.
JONES

© Scoop Media

 
 
 
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