US embassy cable - 04ANKARA6835

UNCLAS SECTION 01 OF 03 ANKARA 006835 
 
SIPDIS 
 
RABAT -- PLEASE PASS TO TREASURY DAS LOEVINGER 
 
TREASURY FOR IA - MMILLS AND RADKINS 
 
STATE FOR EB/IFD AND  EUR/SE 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN, TU 
SUBJECT:  Scenesetter for Treasury DAS Loevinger 
 
 
1. (SBU) Summary:  Your visit to Turkey comes at a bumpy 
period in the bilateral relationship, in large measure 
connected with developments in Iraq.  It is also a 
delicate moment in relations with both the IMF and EU. 
This message provides a brief overview of the state of 
bilateral relations, cooperation in Iraq, Turkey's EU 
accession prospects and the state of play with the IMF 
and EU.  End Summary. 
 
The Bilateral Relationship 
-------------------------- 
 
2. (SBU) Bilateral relations have entered another choppy 
period.  The Turks are freely criticizing U.S. policy in 
Iraq and elsewhere in the Middle East, but do not offer 
constructive alternatives.  A barrage of media 
disinformation about Falluja and U.S. actions in general 
in Iraq -- fanned by statements by PM Erdogan and by 
Foreign Minister Gul alleging excessive use of force and 
civilian casualties - is creating negative public 
opinion.  Some observers have characterized the general 
attitude in Turkey toward the U.S. and our role in the 
world as the most negative in memory. 
 
Iraq 
---- 
 
3. (SBU) Turkey shares our goals for Iraq: a secure and 
stable, democratic country, united and territorially 
whole.  To that end, Turkey has provided valuable 
assistance and cooperation.  Ankara offered to send 
troops to Iraq, approved the use of Incirlik Air Base 
for tankers to refuel aircraft on support missions for 
both Operation Enduring Freedom (OEF) and Operation 
Iraqi Freedom (OIF), authorized the transit of US troops 
from Iraq, and permitted the transit of supplies for our 
forces and humanitarian goods.  Turkey is also active in 
reconstruction efforts, including providing electricity 
for Iraq and training Iraqi diplomats, and has offered 
senior military leadership training in Turkey as its 
contribution to NATO's Iraq training mission. 
 
4. (SBU) This cooperation is provided despite the fact 
that our actions in Iraq are highly unpopular with the 
Turkish public.  Many Turks in and out of government 
worry about the fragility of Iraq's territorial 
integrity, fearing that the Kurds in the north aspire 
for independence and that the tensions between Sunni and 
Shia Arabs might become intractable.    The Turks have 
gone on record supporting the IIG and full participation 
in elections, which they want to see move forward by 
January's end. 
 
5. (SBU) More recently, the rising number of Turkish 
truckers abducted and executed in Iraq has raised 
concerns among the public and Turkish officials.  To 
address this issue, the first trilateral US/GOT/IIG 
talks on security in Iraq were held on November 30. 
 
6. (SBU) On Iraq debt, despite our demarches, the GOT 
has not articulated its position.  Lower level officials 
and Governor Serdengecti have expressed reluctance to 
provide forgiveness, claiming poverty, however, we have 
yet to get an official reply endorsed by senior 
Government officials.  As far as we are aware, the issue 
was not discussed at Secretary Snow's recent meeting 
with Minister Babacan in Berlin. 
 
Counter-Terrorism/Non-Proliferation 
----------------------------------- 
 
7. (SBU) The Turks have been an active partner on other 
fronts in the global war on terrorism and international 
security:  our militaries coordinate on a range of 
security and counter-terrorism issues, Ankara has been 
supportive of international efforts to press Iran to 
meet its commitments to the IAEA.  Turkey will again 
assume the command of ISAF in Afghanistan in February 
for a six-month period during which they will 
significantly increase their contribution to this 
important NATO mission. 
 
8. (SBU) Turkey's regime to combat money laundering and 
the financing of terrorism is quite weak.  A combination 
of technical weakness, poor interagency coordination, 
and inadequate attention from government leaders has 
stalled efforts to upgrade the legal framework or to 
vigorously cooperate internationally.  A recent FINCEN 
mission found that Turkey not in compliance with some 
FATF recommendations and considered that Turkey would 
not qualify to get into the Egmont Group if it had to 
apply today.  The FBI and DOJ are currently providing 
training programs on investigating and prosecuting 
financial crime cases and post continues to press GOT 
officials to beef up its anti-financial crimes regime. 
 
EU Accession 
------------ 
 
9. (SBU) The European Commission in its October 6 report 
recommended the EU open accession talks with Turkey.  At 
the December 17 Summit, the EU is widely expected to 
follow through on this recommendation by setting a date 
for talks.  This would be a major step forward in 
anchoring Turkey's future and in our strategic vision 
for Turkey and the region.  However, the GOT is 
concerned about some of the conditions that may be 
attached to the EU offer.  They worry the EU is still 
not committed to its membership and continues to raise 
barriers.  For example, the EU is pressing the Turks to 
sign, before the Summit, a protocol extending the EU 
Association agreement to the 10 new EU members, 
including the Republic of Cyprus.  GOT officials say 
they are willing to negotiate on this point, but insist 
they are not required to sign before beginning accession 
talks, and they tell us this is presented as a 
concession to and recognition of the Republic of Cyprus, 
something they are only willing to see as part of a 
settlement of the island's division. 
 
10. (SBU) The Turks are also concerned about how the EU 
will define the "open ended" nature of accession talks. 
They recognize the successful outcome of the talks 
cannot be pre-determined.  GOT officials say they cannot 
accept language indicating that Turkey may be offered 
something less than full membership even if it meets all 
accession criteria, as some (the Austrians, German CDU 
leader Merkel) have suggested. 
 
11. (SBU) The EU has indicated that it plans to apply a 
"screening process" before opening formal talks on each 
chapter of the EU acquis.  The Turks say they can accept 
this, as long as the screening begins in early 2005 and 
the formal talks start later in the year.  However, they 
reject any arrangement that would postpone the start of 
formal talks until 2006. 
 
12. (SBU) Many in Turkey see the U.S. and EU 
relationships as a zero-sum choice.  They believe that 
relations with the EU can improve by distancing 
themselves from us.  Others also look for a third 
alternative based on partnership with Russia - which was 
a theme in the recent Putin visit. 
 
Economy 
------- 
 
13. (U) The Turkish economy has recovered strongly from 
the financial crisis of 2000-2001 and is growing at an 
annual pace of around 10 percent.  However, the recovery 
remains vulnerable due to a large current account 
deficit (about 5 percent of GDP) and a large debt with a 
short maturity structure.  Some recent data releases and 
comments by analysts are encouraging on the current 
account outlook: there are signs the strong growth is 
decelerating, auto sales are down, and the dollar fall 
against both the euro and lira is positive for the trade 
deficit.    Macroeconomic success has also bred a sense 
of complacency about the need to persist with difficult 
reforms, such as privatization, and reform of the 
banking, social security and tax systems. 
 
14. (U) Due to historic economic/political volatility 
and opaque regulatory/judicial systems, Turkey has long 
received less foreign direct investment than other 
countries of similar size and potential.  Many in the 
Turkish elite and the GOT are convinced that there will 
be a flood of foreign investment if the Turks get a date 
for EU accession negotiations later this month. 
However, this is unlikely to materialize unless more is 
done in the area of structural reform.  In addition, 
there appears to be a lack of appreciation for the 
enormous challenges Turkey will shoulder in the 
accession negotiations, for the fact that EU accession 
will affect nearly aspect of their lives, and that it 
may in the end be quite costly for Turkey to comply with 
EU directives in environmental protection and other 
areas. 
 
IMF 
--- 
 
15. (Sbu) At this writing, the GOT is in the thick of 
negotiations with the current Fund Mission.  Though Fund 
staff told us they would not have come if they did not 
think they were close enough to agree on the terms of a 
program by the end of the mission, some politically- 
difficult issues remain outstanding.  Social Security 
reform, in particular, requires the Prime Minister to 
approve increases in payroll taxes and/or a later 
retirement age.  On a range of other issues--such as 
banking law, tax rate details, and out-year fiscal 
targets--it is not clear how close the two sides are to 
a deal. Economic technocrats like U/S Canakci have told 
us they are keen to be able to announce a deal with the 
IMF before December 17, even if they are not ready to 
have a signed LOI.  Markets are widely-considered to 
have priced in an IMF deal and a conditional yes from 
the EU, such that there could be a sell-off if things go 
worse than expected on either front. 
 
Edelman