US embassy cable - 03ANKARA6209

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 006209 
 
SIPDIS 
 
 
STATE FOR E, P, EB AND EUR 
TREASURY FOR OASIA - LOEVINGER, MILLS AND LEICHTER 
NSC FOR BRYZA AND MCKIBBEN 
 
 
E.O. 12958: DECL: 10/02/2013 
TAGS: EFIN, PREL, TU 
SUBJECT: GOVERNMENT ON THE DEFENSIVE ON LOAN AGREEMENT 
 
 
(U) Classified by Ambassador Eric S. Edelman.  Reason: 1.5 
(b,d) 
 
 
1.  (C) Summary:  Under fire for having agreed to political 
conditions (i.e., not sending troops unilaterally into 
northern Iraq) in the financial agreement with the United 
States, the government is on the defensive.  State Minister 
Babacan told the press last night that the "loan will be used 
if it suits us," and "there is no hurry to use it." PM 
Erdogan was slightly firmer this afternoon, dismissing the 
criticism as "misinformed" and saying Treasury would decide 
when to request the first disbursement depending on its 
financing needs.  Treasury officials told us this morning 
that they had not submitted the agreement to the Council of 
Ministers for ratification, and could not say when they would 
do so.  They also indicated that they were comfortable on 
financing for the near term.  All this suggests the 
possibilty of a delay in requesting the first disbursement 
beyond October 7-8.  End Summary. 
 
 
2.  (C) In the past several days, the opposition CHP and 
elements of the press have suddenly discovered that the $8.5 
billion U.S. financial assistance package includes the 
condition that Turkey should not unilaterally intervene in 
Northern Iraq.  They have used this "fact" to launch a fierce 
attack on the governmnent. Over the weekend, CHP Deputy Onur 
Oymen and independent MP Emin Sirin accused the government of 
giving up its responsibility for defending Turkish borders, 
and called on it to resign.  CHP leader Deniz Baykal claimed 
the government had given the nod to the establishment of the 
PKK/Kadek in northern Iraq.  Establishment columnists Sedat 
Ergin and Fikret Bila also criticized the deal. 
 
 
3.  (C) The criticism continues, and is being played up by 
the press.  At the reception marking Parliament's opening 
last night, Chief of the General Staff Ozkok told the press 
that he was "uneasy" with the agreement's conditionality, and 
said economic and political issues should be separated. 
Separately, Deniz Baykal called on the government to cancel 
the agreement, while Milliyet columnist Fikret Bila (who 
generally reflects TGS thinking) argued that the agreement -- 
which he termed an "indecent proposal" -- impinges on 
Turkey's sovereignty.  DCHOD Basbug told the Ambassador that 
the original legislative condition, although based on 
misinformation and incorrect interpretation at the time, was 
understandable.  However, its reproduction in the financial 
agreement was inappropriate now and lent itself to 
misinterpretation. 
 
 
4.  (C) This new burst of criticism, combined with continuing 
charges that the U.S. assistance is linked to a Turkish 
decision on contributing troops to the Iraq stabilization 
force, has forced the government on the defensive.  Over the 
weekend, Foreign Minister Gul said Turkey might reject the 
$8.5 billion loan if the U.S. tied it to pulling troops out 
of Northern Iraq (which of course we are not doing).  PM 
Erdogan yesterday told Parliament that Turkey could opt not 
to accept the loan (this was in the context of a discussion 
on whether the money was linked to a contribution to the 
stabilization force.)  State Minister Babacan was quoted last 
night as saying "the loan will be used if it suits us, and 
not if it does not."  He pointed out that the U.S. 
legislation -- which includes the northern Iraq condition -- 
had been public since April 16 -- but then added that "This 
loan is not a sine qua non.  There is no hurry to use it." 
 
 
5.  (C) Prime Minister Erdogan was slightly firmer in a 
televised interview this afternoon.  He dismissed the 
criticism of the loan as "misinformed," noted that positive 
relations with the U.S. had contributed to the market's 
current optimism, and said Treasury would determine the 
timing of Turkey's disbursement request based on its 
financing needs.  The first disbursement, he added, could 
come by the end of this month. 
 
 
6.  (C) Treasury U/S Canakci told us this morning (septel) 
that Treasury had not submitted the agreement to the Council 
of Ministers for ratification yet, and he could not say when 
it would do so.  Some people, he noted, are insisting that 
Parliament must approve it.  Canakci added that Treasury was 
in a comfortable position on financing, implying it did not 
need the money for its October 22 disbursement. 
 
 
7.  (C) Comment:  As often happens in Turkey, a positive 
gesture -- offering a large, generous loan -- has been 
demonized.  In our view, this is mostly about the opposition 
and Establishment using the agreement's conditionality to 
attack the ruling AK Party, though there is also an 
anti-American element to this.  The government, which has 
been anxious about this loan package all along, now has 
another reason to be nervous, which probably explains why it 
has not yet pursued ratification.  While ratification and a 
disbursement request could still happen by early next week, 
the growing controversy surrounding the loan, coupled with 
Treasury's comfortable financing position and the Turkish 
bureaucracy's penchant for delay, suggest a growing 
possibility of delay.  Whether that delay happens -- and how 
long it lasts -- would seem to depend on the government's 
willingness and ability to explain the agreement publicly, 
and the extent to which uncertainty surrounding the agreement 
makes the markets nervous. 
EDELMAN