US embassy cable - 05ANKARA3824

UNCLAS SECTION 01 OF 02 ANKARA 003824 
 
SIPDIS 
 
SENSITIVE 
 
TREASURY FOR INTERNATIONAL AFFAIRS - MMILLS AND CPLANTIER 
 
E.O. 12958: N/A 
TAGS: EFIN, PGOV, TU, IMF 
SUBJECT: GOT STRUGGLING TO PUSH THROUGH IMF-REQUIRED 
LEGISLATION BEFORE PARLIAMENTARY RECESS 
 
REF: ANKARA 3354 
 
1. (SBU) Summary: Parliament, which normally goes on summer 
recess July 1, is working long hours to complete its work on 
two legal reforms needed for a successful IMF review in July, 
and is being held over at least through July 3, and perhaps 
longer, to pass these laws.  The problem seems to be 
political, rather than substantive, with opposition deputies 
using delaying tactics to undermine and embarrass the AK 
Party.  The IMF seems firm in sticking to its June draft 
letter of intent with the GOT: unless the legislation is 
passed before the recess, the IMF review will have to wait 
until autumn. The GOT seems to be making a major effort to 
get the legislation passed and secure the first review in 
July in order to shore up the IMF anchor to balance ongoing 
concerns about EU accession.  End Summary. 
 
Cliffhanger in the Turkish Parliament 
------------------------------------- 
 
2. (SBU) Since the IMF mission reached agreement with the GOT 
on a Letter of Intent in June, the Fund's understanding with 
the GOT is that both the banking reform law and the social 
security reform law would be passed before parliament's 
summer recess, which normally begins July 1.  (Passage of the 
two laws is one of the structural performance criteria in the 
program, so that only if these laws are passed would the Fund 
staff be in a position to bring the first review under the 
program to the IMF board in July.)  After Deputy Prime 
Minister Sener floated the idea that passing only the banking 
law would be sufficient, the IMF Resrep publicly pointed out 
that both laws need to be passed for a board vote in July. 
Treasury Department Head Ozgur Demirkol, responsible for GOT 
coordination on the IMF program told Econoff July 1 that 
Sener does not have the lead responsibility for the IMF 
program and was poorly informed.  Note: This is not the first 
time Sener has made statements out of sync with broader GOT 
economic policy, even though he heads a committee of economic 
ministers that is supposed to coordinate economic policies. 
End Note. 
 
3. (SBU) The GOT has been trying to work both pieces of 
legislation through the multiple required stages of 
sub-commission, commission and general assembly 
consideration.  Parliamentarians tell us they are working 
until late at night every night (and on weekends) to pass all 
the urgent legislation (not just banking and social security) 
but that passage of these two laws in time is still not 
assured.  On June 30, the banking law was sent from the 
commission to the general assembly and the social security 
legislation was reported out of the sub-commission for 
consideration by the full commission.  Demirkol, who attended 
the Plan and Budget Commission's consideration of the Banking 
Law, said there had only been minor changes which should not 
be of concern to the IMF.  Also on June 30, parliament 
decided to stay in session through Sunday night, July 3. 
 
4. (SBU) In a controversial move designed to expedite the 
proceedings, the AK Party parliamentary leadership changed 
internal procedural rules, so as to allow the articles to be 
considered in bunches of 15.  This is critical to faster 
consideration of the bills because otherwise, each 
parliamentarian is allowed to comment on each article -- the 
banking law, for example has 190 articles. On July 1, Turkish 
media speculated the opposition CHP would apply to the 
Constituional Court, which has blocked such rule changes in 
the past, to again annul it, but predicted that the ruling 
would not come before the legislation passes.  If the GOT 
succeeds in passing the IMF-required legislation, the Court 
could later invalidate the law.  Press reports also said the 
GOT may hold the parliament over further, as it has done in 
the past two years, to get the job done.  An AK Party 
parliamentarian told the press that Parliament would be held 
over to pass these two bills but Demirkol wondered whether 
the parliamentarians would rebel at a further extension as 
they are keen to return to their constituencies. 
 
Opposition Party Obstructionism 
------------------------------- 
 
5. (SBU) Over the past few weeks, the opposition CHP party 
has ratcheted up its criticism of GOT cooperation with the 
IMF, directing its harshest criticism at the controversial 
privatization program.  Now the CHP is reportedly doing 
everything it can to slow down passage of the banking and 
social security law.  According to Demirkol, CHP deputies at 
the Plan and Budget Commission, are using every speaking 
opportunity permitted under the rules to slow down the 
proceedings.  He said their comments were not directed at the 
substance of the legislation but were purely designed to take 
up time. 
 
PM Intervenes to Squelch (Yet Another) Rearguard Action 
by BRSA Chairman Bilgin 
--------------------------------------------- --- 
 
6. (SBU) At an earlier stage of consideration of the Banking 
Law, the IMF Resrep told us that BRSA (Bank Regulatory and 
Supervisory Agency) Chairman Bilgin, apparently determined to 
fight the IMF to the bitter end on the sworn bank auditor 
issue, succeeded in convincing the parliamentary 
sub-commission to partially restore one of the provisions in 
the banking law that was deemed inimical to the sworn bank 
auditors' interests.  Whereas the IMF-approved text would 
have reorganized the BRSA in such a way as to break down the 
separation of on-site (sworn auditor) and off-site 
inspectors, the Bilgin version retained the Board of Sworn 
Auditors as a separate unit in the BRSA.  The Resrep said 
"messages were passed" (presumably by the IMF) and the Prime 
Minister himself intervened and ensured the original version 
of the law was restored.  The Resrep wonders, however, how 
Bilgin's agency will cooperate with the Fund staff on the 
necessary regulations to implement the new Banking Law after 
its passage. 
 
Can the GOT Pull it Off? 
------------------------ 
 
7. (SBU) If the GOT fails to pass the required legislation 
before the recess it will not be for lack of trying. Earlier 
this week, the Resrep told us he believes the GOT sincerely 
wants to pass the two laws before the recess, particularly 
given potential questions about EU accession.  He drew a 
parallel with the GOT's efforts to announce agreement with 
the IMF in the run-up to the December 17 EU summit: when the 
EU anchor looks wobbly, the GOT seems to care more about 
shoring up the IMF anchor.  GOT actions such as extending the 
session for three days and changing parliamentary procedure 
lend credence to the Resrep's analysis.  But it's still hard 
to say whether the GOT will succeed.  Demirkol was optimistic 
that the banking law, at least would be passed by Sunday 
evening, but he was less confident about the social security 
law which still has to go through commission consideration. 
Since the decision will be taken at the highest levels of the 
GOT, Demirkol could not say whether the GOT will keep 
parliament in session beyond July 3. 
MCELDOWNEY