US embassy cable - 04ISTANBUL402

UNCLAS SECTION 01 OF 02 ISTANBUL 000402 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EUR AND EB 
TREASURY FOR U/S TAYLOR AND OASIA - MILLS 
NSC FOR BRYZA 
 
 
E.O. 12958: N/A 
TAGS: ECON, EINV, EFIN, TU, Istanbul 
SUBJECT: ISTANBUL INVESTMENT CONFERENCE HIGHLIGHTS FAMILIAR 
ISSUES 
 
 
Sensitive but Unclassified - not for internet distribution. 
 
 
1. (U)  Summary:  The long-planned but oft-delayed 
International Investment Advisory Council (IAC) meeting 
grouping CEO's from leading multinationals finally took place 
in Istanbul on March 15.  Organized by the Turkish government 
with cooperation from the World Bank and International 
Monetary Fund, the council brought together key government 
economic policymakers and 19 business leaders, including 
executives from Citigroup, Fiat, Ford, Hyundai, Nestle, 
Siemens and Toyota.  In its final communique, the council 
praised the GOT for its progress towards macroeconomic 
stability, but reiterated the need for it to tackle a range 
of other long-standing problems that impede investment. 
Among the seven issues singled out were lingering 
administrative and bureaucratic hurdles to investment, 
failure to protect intellectual property rights,  Turkey's 
cumbersome tax code and inefficient legal system, and the 
need to rein in the country's unregistered economy. 
Attendees also pressed for creation of an Investment 
Promotion Agency and steps to encourage investment in 
research and development.  Prime Minister Erdogan, who 
attended the session, pledged that the GOT would tackle these 
issues and report back to the council in eight months.  End 
Summary. 
 
 
2. (U) Making a Splash: Originally scheduled for 2002, and 
subsequently postponed first to 2003 and ultimately to 2004, 
the council was intended to make a major splash by including 
top tier business leaders like Bill Gates of Microsoft. 
Organizers ultimately scaled back their expectations, but did 
secure participation by top executives from 19 leading 
multinationals, most of whom already have operations in 
Turkey.  A number of other companies expressed interest in 
attending, but at a lower level, and consequently were not 
invited because of the GOT's concern that only CEO-level 
executives participate.  (Note: World Bank officials told 
Emboffs last month that Bank President James Wolfensohn 
himself had sought to persuade the GOT of the utility of 
getting executives from the next tier, given their role in 
making investment decisions, but was unsuccessful.)  In the 
end attendees included the Presidents or CEO's of Citigroup, 
Hyundai, Lafarge, Metro AG, Nestle, Newmont Mining 
Corporation, Pirelli, Siemens, Toyota, Unilever.  The World 
Bank's Wolfensohn co-hosted the event, as did Belgian IMF 
Executive Director Willy Kiekens, who also represents Turkey. 
 (IMF Acting Managing Director Anne Krueger was to have 
represented the IMF following Managing Director Kohler's 
resignation, but ultimately neither she nor European 
Department Vice President Deppler was able to attend, leaving 
Kiekens to fill in, though he doesn't really speak for IMF 
management or staff.)  Representatives of Turkish NGO's 
including TUSIAD, the Turkish Exporters' Assembly (TIM), the 
Union of Chambers (TOBB), and Foreign Investors' Association 
(YASED) also participated.  From the Turkish government Prime 
Minister Erdogan attended the session, accompanied by his top 
economic aides. 
 
 
3. (U) Familiar Recommendations: If the level of attendance 
and attention garnered by the conference were new, the 
results were familiar.  While praising Turkey's progress 
towards economic and political stability over the last three 
years, council members also highlighted both a number of 
continuing impediments to investment and steps that need to 
be taken to attract investment.  Among them were: 
 
 
-- red tape and bureaucracy, particularly at the sectoral 
level. 
-- need for improvement in implementation of laws and dispute 
resolutions mechanisms. 
-- need for tax reform, to provide a corporate taxation 
regime which avoids double taxation and provides incentives 
for investment in R & D. 
-- need for improved infrastructure, particularly in 
telecommunications, power and transportation, and for further 
investment in education and training. 
-- the need to rein in Turkey's unregistered economy. 
-- lack of protection of intellectual property. 
-- creation of an investment promotion agency. 
 
 
Attendees also focused on issues particular to their sectors, 
such as the ongoing labor dispute that threatens to disrupt 
Pirelli's tire production here, and legislation that prevents 
companies like Metro A.G. from placing superstores in 
metropolitan areas. 
4. (U) Follow-on steps: Attendees agreed that the council 
will become an annual event, with an initial progress report 
to be delivered to participants in eight months.  Prime 
Minister Erdogan pledged the government will report back on 
implementation of the group's core recommendations at next 
year's meeting.  Economic Minister Babacan was named 
goverment liaison for the council, and it was agreed tht 
its work would also be pursued through the lon-standing 
Coordination Council for the Improvemet of the Investment 
Environment (YOIKK).  The later's technical committees, 
which bring together oth government and private sector 
representative, will serve as the working groups to develop 
cocrete measures to implement IAC recommendations. 
5. (SBU) Comment: Though primarily a public relatons 
exercise, the council meeting was undoubtedly useful in 
ensuring that GOT decisionmakers heard again at a high level 
the message that macroeconomic stability alone is not enough 
for Turkey to improve its dismal record in attracting 
investment-- progress on structural reforms is also 
essential.  Indeed, coming at a time when Turkey continues to 
struggle to attract foreign investment (having received only 
500-600 million USD in each of the last two years), and in 
the same week that the Economist Intelligence Unit 
(admittedly not a Turkey fan) rated the country 78th out of 
100 emerging and heavily indebted countries (on a par with 
Nigeria, and below the Ukraine and Azerbaijan), the meeting 
could not have been more timely.  The key will be 
implementation, however, and on that score the GOT's record 
is mixed at best.  YASED officials, who attended the meeting 
but were largely cut out of its preparation, have noted that 
the YOIKK committees have not met since November 2003, 
precisely because the government wanted to wait on the IAC 
meeting and its outcome before moving ahead.  Coming months 
will thus test the GOT's willingness to re-engage on these 
issues.  A number of our private sector contacts in Istanbul, 
noting the IMF's own difficulty in securing progress on 
structural reforms, are frankly sceptical that anything 
except harmonization as part of EU accession negotiations 
will move Turkey forward on many of these issues.  End 
Comment. 
ARNETT