US embassy cable - 04ANKARA854

UNCLAS ANKARA 000854 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB/IFD/OMA, EUR/SE; AND NEA/NGA 
TREASURY FOR OASIA - JLEICTHER AND MMILLS 
NSC FOR MBRYZA AND TMCKIBBEN 
 
 
E.O. 12958: N/A 
TAGS: EFIN, TU, IZ 
SUBJECT: IRAQI DEBT TO TURKEY 
 
REF: STATE 26336 
 
 
1. (Sbu) Summary: In meetings with Central Bank and MFA 
officials, econoffs gathered preliminary information on Iraqi 
debt to Turkey.  These officials put the debt at USD 1.3 
billion, almost entirely owed by the Central Bank of Iraq to 
its Turkish counterpart.  Based on these meetings, Turkey 
does not yet appear to have a position on a future debt 
treatment.  End Summary. 
 
 
2. (Sbu) Econoffs met February 11 with the Suha Mirahur, 
Director General of the Foreign Relations at the Turkish 
Central Bank. Also in the meeting were his deputy, Y. Bora 
Enhos and three other Central Bank officials, including one 
from the accounting department.  Mirahur presented econoffs 
with a small file on Iraqi debt held by the Turkish Central 
Bank.  Mirahur specified that the Central Bank was not 
responsible for the Government of Turkey's overall policy on 
Iraqi debt to Turkey, but that this debt was a special case, 
being mostly Central Bank to Central Bank.  Though Turkey has 
participated in Paris Club debt negotiations, Turkish 
Treasury, and possibly Foreign Ministry officials 
participated, not the Central Bank.  Mirahur even referred to 
the relevance of the Central Bank's autonomous status. 
 
 
3. (Sbu) The file (post is faxing to EB/OMA) shows a total of 
USD 1.291 billion USD in claims, arising from two facilities: 
a) claims arising from Turkish Central Bank endorsement of 
promissory notes from the Iraqi government authority 
responsible for dam construction, and b) a 1980's-era 
agreement between the two central banks covering payment for 
Turkish exports to Iraq.  On the first facility, the CB shows 
about USD 92.574 million of principal outstanding and about 
USD 17.7 million of interest.  These notes were guaranteed by 
Rafidain Bank and covered work on the Bekhme dam by the 
Turkish firm Enka. The second facility, arising from Turkish 
exports, was a 1989 rescheduling of instalments due between 
1986 and 1989. On this facility the Central Bank shows 
approximately USD 1.181 billion in outstanding principal 
(though some of this derives from interest capitalized in the 
1980's) and about 1.14 million of outstanding interest. 
Mirahur and Enhos explained that, on the Turkish export 
facility, the two central banks worked out an arrangement in 
the 1980's whereby Iraq would ship oil to Turkish state 
refiner Tupras to pay for Turkish exports, after which Tupras 
would remit the proceeds of the oil sale to the Turkish 
central bank.  Mirahur specified this had nothing to do with 
the Iraqi-Turkish "border trade" arrangement.  According to 
Mirahur and Enhos, all trade and payments under this facility 
ceased in 1990 when UN sanctions were imposed. 
 
 
4. (Sbu) The Central Bank officials are hopeful the Iraqis 
will not dispute the authenticity of the debt, since they 
have had correpondence as recently as 2001 from the Iraqi 
central bank disputing minor interest charges, and the same 
official who signed the Central Bank-to-Central Bank 
agreement, Hassan Al-Haidary, was still signing 
correspondence from the Iraqi Central Bank in October, 2003. 
 
 
5. (Sbu) In a meeting late last year with econoffs, Akif 
Ayhan, an MFA official responsible for Iraqi issues, also 
referred to this roughly USD 1.3 billion in Iraqi debt as 
being Iraq's only debt to Turkey, except for a USD 10 million 
claim from the Turkish Ministry of Forests arising from 
pollution caused by Iraq.  Comment: Post understands the IMF 
has reported a total of USD 1.6 billion of Iraqi debt to 
Turkey but post cannot account for the difference with 
Central Bank and MFA figures.  End Comment. 
 
 
 
 
EDELMAN