US embassy cable - 05ANKARA2732

UNCLAS SECTION 01 OF 02 ANKARA 002732 
 
SIPDIS 
 
SENSITIVE 
 
TREASURY FOR INTERNATIONAL AFFAIRS - MMILLS AND CPLANTIER 
NSC FOR BRYZA AND MCKIBBEN 
 
E.O. 12958: N/A 
TAGS: EFIN, PGOV, TU 
SUBJECT: TREASURY DAS MEETING WITH TURKISH TREASURY U/S 
 
 
1. (SBU) Summary: On the margins of the Asian Development 
Bank annual meeting in Istanbul, U.S. Treasury DAS David 
Loevinger met with Turkish Treasury U/S Ibrahim Canakci on 
May 5.  Council of Economic Advisors Member Kristin Forbes 
also attended.  Canakci downplayed the link between the 
French referendum and Turkish financial markets, asserted 
Turkish ownership of its economic program, and elaborated on 
Turkish Treasury's better-than-projected financial situation. 
 End Summary. 
 
French Referendum/EU: 
-------------------- 
 
2. (SBU) After congratulating Canakci on the immiment IMF 
program and reiterating US support, DAS Loevinger asked about 
the implications of the upcoming French referendum.  Canakci 
suggested the question was better directed to the Foreign 
Ministry.  Though he admitted there may be some impact on 
markets, Canakci doubted there would be a major impact or 
that it would last long.  Suggesting any ramifications were 
already largely priced in, Canakci noted Prime Minister 
Schroeder's strong message on his visit to Turkey that EU 
issues should not be used as instruments of domestic 
politics. Canakci said the EU has committed to a date to 
begin accession negotiations provided Turkey signs the Ankara 
Agreement and enacts a package of legal reforms relating to 
human rights issues.  He said the Ankara Agreement has been 
quietly sent to Brussels so as not to "cause speculation" and 
that the required legislation was moving well.  The 
Constitution is Europe's choice, and he asserted that the 
Prime Minister, Foreign Minister and Minister of Economy have 
all emphasized the importance of the structural reform of 
Turkey's economy, which has its own benefits. 
 
Ownership of the Economic Program: 
--------------------------------- 
 
3. (SBU) Taking up a common GOT refrain, Canakci said the 
economic program was the Government's own, its basic outlines 
prepared in the spring and early summer of 2004, after which 
the GOT invited the IMF to begin discussions.  Comment: 
Though he is technically correct that the GOT technocrats 
preparing a first draft of the program, Canakci's claim 
glosses over serious problems of ownership outside the group 
of economic technocrats led by Minister Babacan.  End 
Comment.  As the program produces results, Canakci believes 
that this gives incentives to politicians to continue the 
program. He also suggested the degree of 
"institutionalization" of reform has increased with the 
independent institutions like the Central Bank and other 
regulatory bodies. 
 
Tax Administration Reform Veto: 
------------------------------ 
 
4. (SBU) Canakci confirmed that President Sezer's veto of the 
Tax Administration Reform bill will not upset the IMF 
program.  Canakci said parliament would once again pass the 
portion of the law that the President had vetoed, at which 
point the President could no longer veto it but could refer 
it to the Constitutional Court.  Meanwhile, the rest of the 
law would take effect, according to Canakci.  In any case, he 
said the provision Sezer vetoed related to the appointment of 
the new Administration's Vice Chairman and Department Heads, 
and the status of the Revenue Controllers, which were not 
issues that were important to the IMF.  Note: This is post's 
understanding as well. End Note. 
 
Debt Management: 
-------------- 
 
5. (SBU) Given the likelihood of continued high oil prices 
and further Fed tightening, DAS Loevinger asked whether 
Turkish Treasury would become more aggressive in lengthening 
maturities.  Canakci responded that Turkish Treasury has 
already taken a number of steps.  He pointed out that in the 
Eurobond market, Turkey had issues its first ever 10-year 
issue denominated in Euros.  In January and February Turkey 
had raised $2 billion in the Eurobond market, out of a 
full-year target of $5.5 billion.  Canakci thought they might 
even exceed this target. 
 
6. (SBU) Domestically, Treasury had issued three- and 
five-year fixed-rate TL debt for the first time. When market 
conditions became less favorable in March and April, Treasury 
had issued shorter maturities and reduced rollover rates, not 
wanting to lock in high real rates for long periods.  More 
recently, when markets improved, they had reissued their 
five-year paper the last week of April. 
 
7. (SBU) More broadly, Canakci said they were in a good cash 
position, well ahead of their very conservative budget and 
program assumptions on the exchange rate, interest rates, and 
cash flows.  As a result, the delay in the IMF program and 
its initial disbursement has not been an issue.  On 
privatization receipts, for example, the program assumed $1 
billion for the year, whereas Canakci said the Privatization 
Authority  has already transferred $800 million to Treasury. 
Note: Since the meeting, Privatization Authority Kilci has 
announced transfers of $1 billion so far this year. End Note. 
 Canakci said the program assumed zero transfers from the 
Savings Deposit Insurance Fund's asset recoveries, whereas he 
expects SDIF to transfer about $1 billion to Treasury very 
soon.  At the same time, the primary surplus continues to be 
on track with program projections. 
 
8. This cable has not been cleared by DAS Loevinger. 
EDELMAN