US embassy cable - 05ANKARA2032

C O N F I D E N T I A L ANKARA 002032 
 
SIPDIS 
 
TREASURY FOR INTERNATIONAL AFFAIRS - MMILLS AND CPLANTIER 
NSC FOR BRYZA AND MCKIBBEN 
 
E.O. 12958: DECL: 04/07/2009 
TAGS: EFIN, TU 
SUBJECT: IMF MISSION MAKING PROGRESS BUT NO LOI BEFORE 
BANK/FUND MEETINGS 
 
REF: ANKARA 1727 AND PREVIOUS 
 
Classified By: Economic Counselor Thomas C. Goldberger for reasons 1.4( 
b) and (d). 
 
1. (C) Summary: IMF Deputy Resrep confirmed that the mission 
currently in town is making progress with two out of three 
prior actions completed. The Regional Investment Incentives 
Scheme remains an issue, however, with improvements still 
needed before the IMF can accept it.  In terms of timing, the 
need to go through IMF's internal procedures process again 
means the Letter of Intent (LOI) will not be ready for 
signature until after the Bank-Fund spring meetings.  If all 
goes well, the mission could make a positive statement 
regarding the prior actions before leaving Turkey, and the 
LOI could be signed before Managing Director Rato comes to 
Turkey for the April 29 Investors' Advisory Council. End 
Summary. 
 
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Two out of Three Prior Actions 
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2. (C) IMF Deputy Resrep confirmed the IMF mission that 
arrived in Turkey on April 4 is making progress.  Reiterating 
that they would not have come if the GOT had not itself made 
progress on the prior actions, he said that two of the three 
prior actions had been completed: cabinet approval and 
submission to parliament of the banking law and social 
security reform law.  Regarding the third prior 
action--passage into law of the tax administration reform 
law--the Deputy Resrep confirmed that the law has been 
approved in committee and is expected to be voted on the 
floor of parliament next week. 
 
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Regional Investment Incentives Still a Problem 
--------------------------------------------- - 
 
3. (C) The GOT's expansion of the Regional Investment 
Incentives continues to create problems, however.  The Deputy 
Resrep confirmed press reports that the GOT and IMF had 
cooperated to improve the scheme, reducing its scope, but he 
said some features of the proposal continue to be 
unacceptable to the Fund, such as the per employee incentive 
being three times the minimum wage.  He said Fund staff had 
an understanding at the technical and ministerial level but 
that the issue will need to go to the Prime Minister.  If the 
most objectionable features remain, the IMF will insist on 
other measures that will be unpalatable to the GOT. 
 
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No LOI before Spring Meetings 
----------------------------- 
 
4. (C) On timing, the Deputy Resrep explained that with four 
months elapsed since the earlier version of the LOI had been 
drafted, it needs to go through the full internal vetting and 
approval process at the Fund. This makes it impossible to 
have a LOI ready for signature in time for the Bank/Fund 
Spring meetings (April 18-19).  The Deputy Resrep said that 
if all the issues were resolved, the mission could make a 
positive public statement about the prior actions, and shoot 
for signature of the LOI and announcement of a board date 
before Managing Director Rato comes to Turkey April 29 for 
the Investors Advisory Council meeting. 
EDELMAN