US embassy cable - 03ANKARA6071

C O N F I D E N T I A L ANKARA 006071 
 
SIPDIS 
 
 
STATE FOR E, EB/IFD AND EUR/SE 
TREASURY FOR OASIA - MILLS AND LEICHTER 
NSC FOR BRYZA AND MCKIBBEN 
 
 
E.O. 12958: DECL: 09/26/2013 
TAGS: EFIN, PREL, ECON, TU 
SUBJECT: THE 6TH REVIEW AND OUR DISBURSEMENT 
 
 
REF: ANKARA 5951 
 
 
(U) Classified by DCM Robert Deutsch.  Reasons: 1.5(b,d). 
 
 
1.  (C) IMF Deputy ResRep (protect) told us last night that, 
given Turkey's strong macroeconomic performance and positive 
public statements by Fund management, the GOT would have to 
stumble badly on one or more key issues to prevent the 6th 
review from moving ahead in a more or less timely fashion. 
He highlighted fiscal performance as well as direct tax 
reform as potential "dealbreakers" if the GOT fails to take 
the right steps, but said Fund staff would not hold up the 
review over issues such as the GOT's failure to meet targets 
for reducing the number of redundant workers at state 
enterprises. 
 
 
2.  (C) Deputy ResRep said the Fund team, which arrived 
yesterday, was optimistic it could complete its work by the 
end of its visit on October 10.  He asked if we were likely 
to disburse before then.  We responded that we had told GOT 
to hold off on its disbursement request for a few weeks, 
which would give us time to assess how the Fund team was 
proceeding.  We said it was critically important that the 
team keep us informed of progress and, in particular, let us 
know if any significant problems arose.  Deputy ResRep 
agreed, and said he, the ResRep and the team would be 
available over the next two weeks to debrief us. 
 
 
3.  (C) Comment:  While the Fund has been effective in 
Turkey, we worry that staff recently has adopted an overly 
narrow focus on fiscal and banking issues, and is not paying 
enough attention to the structural reforms that are essential 
if Turkey is to achieve sustained growth.  We also have heard 
from technocrats, including the Central Bank Governor, that 
Fund staff was "soft" in the negotiations leading up to the 
5th review.  At this late date, it would be difficult for the 
USG to take a harder line than the Fund.  That said, being 
more lenient than the IMF -- i.e., disbursing before Fund 
staff is satisfied that the Turks have met the 6th review 
conditions -- would undermine the Fund, rattle the markets 
(which want us to condition our assistance on economic 
performance), and set an unhealthy precedent.  To ensure this 
does not happen, we will need to make a preliminary USG 
determination on Turkey's economic reform performance no 
later than October 6, so that -- should we see significant 
problems in reform implementation -- we can advise the Turks 
that it is premature to request a disbursement. 
 
 
4.  (C) Comment continued:  Embassy will stay in close 
contact with Fund staff over the next two weeks, and will 
keep Washington apprised of developments on the 6th review 
and on Turkey's overall economic reform effort.  We also will 
send in septel our thoughts on those issues that might be 
"dealbreakers" in terms of our first disbursement, as well as 
those issues on which we might want to lay down some markers 
now as critical to our decision on the second disbursement. 
EDELMAN