US embassy cable - 04ANKARA3503

UNCLAS ANKARA 003503 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR E, EUR/SE AND EB/IFD 
TREASURY FOR OASIA - LOEVINGER, MILLS, ADKINS 
NSC FOR BRYZA AND MCKIBBEN 
 
E.O. 12958: N/A 
TAGS: EFIN, PREL, TU 
SUBJECT: GOT MOVES SLOWLY TO COMPLETE 8TH REVIEW, NOT READY 
TO COMMIT FOR 2005 
 
REF: A. (A) ANKARA 3409 
 
     B. (B) ANKARA 3202 
 
1.  (SBU) IMF ResRep Odd Per Brekk told us June 21 that the 
IMF mission working on the 8th review expected to leave June 
22 (later than expected), but he still was not sure whether 
they would resolve all issues before their departure.  The 
main outstanding issue concerns the GOT's insistence on 
continuing to squeeze the petroleum excise tax -- to keep 
domestic fuel prices steady in the face of rising prices 
worldwide -- despite its negative fiscal impact.  The team 
will meet State Minister Babacan tonight in hopes of 
resolving this last big obstacle. 
 
2.  (SBU) Brekk said that, as expected,the team and the GOT 
had not formally discussed a possible follow-on program, and 
the GOT as yet was unwilling to commit to seek one (even with 
growing concerns about the current account deficit).  He 
added that the GOT was not even willing to commit to a 
primary surplus target for 2005.  While there was "nothing 
magical" about the 6.5 percent of GNP figure from a 
mathematical perspective, the GOT's mishandling of the issue 
had made it harder for the Fund to agree a lower number. 
Brekk explained that, with the Prime Minister having publicly 
called for reducing the target to 5.5 percent (without 
consulting with the Fund), IMF agreement to such a lower 
number now would add to perceptions that it was too "soft," 
and would thereby undermine the credibility of the program. 
 
3.  (SBU) In a separate conversation June 19, ex-Treasury 
Undersecretary Faik Oztrak sharply critized the government 
for failing to recognize the country's continuing economic 
vulnerability and for failing to begin lobbying G-7 countries 
to support a new, large Stand-By Arrangement.  Oztrak 
estimated the country's 2005 external financing gap at $8 
billion or greater, and argued that Turkey would need a new 
$12 billion (over three years) Stand-By.  He warned that, out 
of ignorance, the GOT was making two dangerous 
miscalculations that could come back to haunt it:  (a) that 
the Fund was anxious to provide additional funding (despite 
its huge exposure) because it needs a success story, and (b) 
that IMF team leader Reza Moghadam -- not the IMF Board and 
the G-7 Finance Ministers -- would be the key player in 
determining additional IMF support. 
 
4.  (SBU) Oztrak also took a shot at the IMF, arguing (as 
have many others) that the Fund was not tough enough in 2003, 
and let the GOT get away with a weak policy performance. 
Oztrak believes Fund staff decided that a more flexible 
approach was the best way to convince the GOT leadership of 
the need for reform, but that this approach failed because 
senior government officials "just don't understand and will 
not understand" the need for sound policy and further reform. 
 
EDELMAN