US embassy cable - 05ANKARA31

UNCLAS ANKARA 000031 
 
SIPDIS 
 
TREASURY FOR INTERNATIONAL AFFAIRS - RADKINS AND MMILLS 
NSC FOR BRYZA AND MCKIBBEN 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, TU 
SUBJECT: New Currency Rings in the New Year; 2004 
Inflation lowest since 1975 
 
Ref: Ankara 5553 
 
1. (SBU) Summary: Turkey rang in the New Year by 
successfully putting into circulation  the New Turkish 
Lira, which eliminated six zeros from the old lira. 
Despite fears of operational problems associated with the 
introduction,  the Turkish Central Bank said today that 
commercial banks, inter-bank payments systems and money 
markets adjusted to the new currency in a shorter period 
than expected on New-Year's Eve.   The successful 
introduction symbolizes a fresh start for Turkey, after 
three decades of high inflation devalued the old lira. 
It is also another feather in the cap of the GOT and, 
especially, the independent Central Bank, which had the 
lead on introducing the new bills.  After trading closed 
today, the release of full-year 2004 inflation data 
showed that Turkey experienced the lowest inflation since 
1975, with the consumer price index increasing only 
9.32%.  End Summary. 
 
Successful Introduction of the New Lira 
--------------------------------------- 
 
2. (SBU) The process of introducing the New Turkish Lira 
(YTL in Turkish), which was launched on January 31, 2004 
with the new currency law, culminated in the placement in 
circulation of  the new currency  on January 1, 2005.  As 
reported reftel, the new currency deletes six zeros from 
the old currency's value, and will circulate along with 
old lira banknotes and coins until December 31, 2005. 
 
3. (SBU) The Central Bank established a "surveillance" 
team on New Year's Eve to react immediately as any 
problem occurs during the transition.  Central Bank vice- 
governor Sukru Binay, who is heading the new Turkish Lira 
project, told econ specialist that as of 2:30 p.m. local 
time January 3, 2005 -- first business day for the new 
currency -- the CBT has not observed any significant 
problems in any markets about applicability of the New 
Turkish Lira.  Press reports also describe a generally 
problem-free weekend conversion, with over 99% of ATM's 
and retail points of sale changing over to YTL. 
 
4. (SBU) Markets were quiet on the first working day of 
the New TL, partially because London was closed and local 
markets waited for 2004 inflation figures to be announced 
today after markets closed.  Neither currency nor 
government securities markets have moved significantly 
today, with the YTL being traded at 1.3448 in the inter- 
bank market, and the benchmark government bond yield 
around 20.31 percent.  The more volatile stock market 
(IMKB-100) is up almost 2 percent. 
 
2004 Inflation Lowest since 1975 
-------------------------------- 
 
5.  (U) After financial markets closed, the National 
Statistics Institute (DIE) announced the December 
inflation data that put the CPI and WPI inflation at 9.32 
percent and 13.84 percent respectively for 2004.  CPI 
increased 0.45 percent, WPI increased 0.13 percent and 
core (private sector Manufacturing index) increased only 
0.2 percent in December -- lower than markets' 
expectations.  The CPI number was better than the 10 
percent target (originally 12 percent) for 2004.  Reuters 
reported a Central Bank source saying the 9.32 percent 
annual CPI inflation was the lowest since 1975. 
 
Comment 
------- 
 
6. (SBU) Though only a symbolic and practical step, 
rather than one of fundamental macroeconomic importance, 
the apparently successful changeover to the New Lira 
symbolizes Turkey's transition to a more stable, low- 
inflation economy.  Coming at the same time as 2004 
inflation came in at record low single digits, it is also 
another feather in the cap of the GOT and, especially, 
the independent Central Bank.  Though the GOT had 
responsibility for minting new coins, the Central Bank 
had the more critical responsibility for banknotes. 
Edelman