US embassy cable - 02ANKARA8111

UNCLAS ANKARA 008111 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE ALSO FOR E, EB/IFD AND EUR/SE 
TREASURY FOR OASIA - MILLS 
NSC FOR BRYZA AND QUANRUD 
 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PGOV, TU 
SUBJECT: PROBLEMS MEETING THE 2002 PRIMARY SURPLUS TARGET 
 
 
REF: ANKARA 8108 
 
 
1.  (SBU) Summary:  The IMF and Central Bank are worried 
about the caretaker government's failure to fully implement 
fiscal measures needed to meet this year's primary surplus 
target of 6.5 percent of GNP.  We have expressed our concern 
about this to senior economic bureaucrats this week -- who 
say that without political support there is little they can 
do -- and have also discussed the problem with AK Party 
officials in hopes they will put pressure on the bureaucracy 
to take the right steps.  We will follow up with AK's 
economic team next week.  End Summary. 
 
 
2.  (SBU)  IMF ResRep and Central Bank Governor have told us 
recently of their concern that, in the aftermath of the 
recent election, the current government did not appear to be 
fully implementing the additional fiscal measures -- agreed 
to during the last IMF mission -- needed to reach this year's 
primary surplus target of 6.5 percent of GNP.  IMF ResRep 
told us November 8 that, in light of recent data indicating 
that the GOT had met primary surplus targets through August, 
the Fund is now revising downward its estimate for the gap 
still to be filled, but nonetheless believes the amount is 
significant.  The lowest estimate for the remaining gap we 
have seen, from the Central Bank, is $700 million, and that 
does not include social security fund deficits. 
 
 
3.  (SBU) In the past few days, we have met with the Under 
Secretaries of Finance, Treasury, and State Planning to 
 
SIPDIS 
stress the need for full implementation of these measures. 
The responses have not been reassuring.  State Planning U/S 
Izmerlioglu refused to say whether his office was delaying 
certain spending measures, insisting that the IMF should not 
be getting involved in such detail.  Finance U/S Dikmen 
agreed there was a problem, but argued that (a) the 
government had never actually signed an agreement with the 
IMF to implement these measures, and (b) the bureaucracy 
could not implement them until the new government came into 
office and gave its blessing.  Treasury U/S Oztrak said he 
was doing as much as possible (mostly in terms of raising 
state enterprise prices), but that it was difficult "in the 
absence of political support."  He suggested the best way out 
was for members of the incoming AK government to give the 
bureaucracy the green light to pursue these measures. 
 
 
4.  (SBU)  IMF ResRep advised that, during a meeting earlier 
this week, State Minister Turker also was not optimistic the 
caretaker government would implement the fiscal measures, 
although he did agree to push for raising prices of TEKEL 
products (alcohol and tobacco).  This is one of the major 
measures needed to close the shortfall, per the Fund. 
 
 
5.  (SBU) We have raised the problem with AK Party officials, 
including during Ambassador's November 7 call on Party 
Chairman Erdogan (reftel).  We will follow up with AK's 
economic coordinator on November 11, and will stress that it 
is in the incoming government's interest to convince the 
bureaucracy to implement the fiscal measures right away. 
 
 
6.  (SBU) Comment:  The caretaker government does not appear 
to have any incentive to implement these measures, and the 
bureaucracy is hesitant to act until it knows what the 
incoming government wants.  Thus, convincing AK's economic 
team of the need to apply pressure will be critical. 
PEARSON