US embassy cable - 03ANKARA7784

C O N F I D E N T I A L ANKARA 007784 
 
SIPDIS 
 
 
STATE FOR E, EB AND EUR/SE 
TREASURY FOR OASIA -- LOEVINGER, MILLS AND LEICHTER 
NSC FOR BRYZA AND MCKIBBER 
 
 
E.O. 12958: DECL: 12/18/2013 
TAGS: EFIN, PREL, TU 
SUBJECT: AMBASSADOR AND BABACAN DISCUSS FINANCIAL AGREEMENT 
 
 
REF: ANKARA 7096 
 
 
(u) Classified by Ambassador Eric S. Edelman.  Reasons: 1.5 
(b,d) 
 
 
1.  (U) This is an action request -- see para 6. 
 
 
2.  (C) At the end of their December 17 discussion on 
economic and investment issues (septel), Ambassador told 
State Minister Babacan that, in response to the Prime 
Minister's request, the U.S. was exploring ways -- within the 
parameters of our legislation approving the funds -- to help 
the GOT overcome its difficulties with the Financial 
Agreement's political conditionality language.  Ambassador 
noted that he had recently passed to MFA U/S Ziyal draft 
revised language that eliminated much of the conditionality 
wording in the Agreement and instead simply referred to the 
conditionality in the legislation.  He stressed that the 
amended language was, in essence, a "fig leaf"; the 
conditionality would still be there, only less obvious in the 
Agreement itself. 
 
 
3.  (C) Babacan said he understood what the U.S. was 
proposing, but doubted it would solve the GOT's political 
problem.  He then recounted, with considerable frustration, 
how this problem had come about.  The political 
conditionality was clear in the legislation, and was heavily 
publicized in Turkey back in March-April.  "We assumed 
everyone knew."  Then, before signing the agreement in 
September, he discussed the conditionality with Foreign 
Minister Gul, who checked with MFA experts and told Babacan 
the political conditionality was okay.  After the agreement 
was signed, the press and military began to complain. 
Babacan said he was "shocked" to hear TGS generals saying 
they were unaware of the conditionality -- "how could 
everyone else have known about this, but they didn't?" 
 
 
4.  (C) The biggest problem, Babacan continued, was that the 
President did not like the conditionality.  While he could 
not block the Agreement if Parliament approved it, he likely 
would refuse to sign a Council of Ministers decree ratifying 
it.  Thus, the GOT had been forced to hold off on Council of 
Ministers ratification.  Babacan complained that many who 
were critical of the conditionality did not actually 
understand it, probably including the President.  Even U/S 
Ziyal, he said, had not initially understood how the 
conditionality worked, and Babacan had needed to explain it 
to him. 
 
 
5.  (C) Babacan recounted that Treasury Secretary Snow had 
told him in Mexico recently that the Agreement could be 
changed to make it a 100 percent grant.  Even in that case, 
however, conditionality would still apply.  The Minister 
acknowledged that the domestic political problem surrounding 
conditionality could become a less important factor after 
March's local elections, but wondered if ratification in 
April 2004 or later would create problems because it would 
extend the 18-month disbursement period (which begins when 
the Agreement becomes effective, i.e, is ratified) beyond 
September 2005, the end of the period of availability for the 
money, per the legislation.  Ambassador promised to look into 
this question. 
 
 
6.  (C) Action Request:  Embassy's understanding is that the 
funds in question only have to be obligated by September 2005 
(and in fact already have been obligated), and that there 
would be no problem, legally, if the disbursement schedule 
extended beyond that date.  We further understand that the 
more relevant question, in terms of timing, is how long we 
can keep this money on hold pending GOT ratification of the 
agreement. We certainly do not want to encourage further GOT 
delay on this.  Embassy would appreciate Washington agencies' 
confirmation of our understanding, and would welcome guidance 
for use in responding to Babacan's query. 
EDELMAN