US embassy cable - 02ANKARA8454

UNCLAS ANKARA 008454 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR EUR/SE, EB/IFD/OMA AND E 
TREASURY FOR OASIA - MILLS AND GUNARATNE 
STATE PASS USTR - NOVELLI AND BIRDSEY 
 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, PREL, TU 
SUBJECT: TURKISH MARKET RALLIES HALT, AWAIT GOT ACTION; NEW 
TREASURY MINISTER'S FIRST STATEMENT 
 
 
REF: ANKARA 8381 
 
 
Sensitive but Unclassified.  Not for internet distribution. 
 
 
Markets Await GOT Next Steps 
---------------------------- 
 
 
1.  (U) In morning trading November 20, yields on the 
benchmark lira Treasury bill rose to the 52 percent 
compounded level, having dropped earlier in the week of 49 
percent.   The lira depreciated slightly to TL 1,590,000 from 
yesterday's low of TL 1,580,000.  Two days of profit taking 
in the Istanbul Stock Exchange has brought the index down to 
13,276, from Monday's height of over 14,000. 
 
 
2.  (SBU) Comment: The market rallies have halted for three 
reasons.  First, T-bill rates rose largely for a technical 
reason - an inverted yield curve.  At 49 percent in 
compounded terms, the eight month maturity T-bills were 
offering a lower rate (about 40 percent in simple terms) than 
overnight money market investments (a simple rate of 44 
percent.)  Unless one was willing to bet that the Central 
Bank would soon cut its overnight borrowing rate, the 49 
percent compounded level was not sustainable.  Second, some 
investors, including a large U.S. investor, took advantage of 
the greater liquidity in the stock market to sell.  Third, 
many investors and analysts now say they want to see actions 
by the new GOT before buying more.  Credit Suisse's local 
trader, reflecting a widely held sentiment, told us, "we need 
to be assured that this is not another temporary volatile 
swing, that the new GOT will take steps to keep it going." 
 
 
Babacan's First Statement as 
State Minister in Charge of Treasury 
------------------------------------ 
 
 
3.  (U) New State Minister in charge of the Treasury Ali 
Babacan gave brief press remarks on November 19 evening, 
following a hand-over with outgoing Minister Turker.  Babacan 
said the new GOT program would aim to decrease inflation, and 
strengthen debt dynamics in a permanent way by decreasing the 
public sector debt to GNP ratio (Note:  Babacan appears to be 
taking the advise of Treasury U/S Oztrak, who stressed these 
points in a meeting with us November 19, septel.) 
 
 
4.  (SBU) On IMF relations, Babacan said "there is a great 
possibility the IMF will visit Turkey within several weeks." 
(Comment:  IMF resrep told us IMF Europe Director Deppler and 
Turkey Mission Chief Kahkonen are now planning a trip to meet 
with new GOT ministers on or about December 1-3, before the 
end Ramadan holiday that starts mid-day December 4.) 
 
 
5.  (U) Asked about the 2003 budget, Babacan said: 
"Everything will be fully announced by the end of December, 
after holding talks with the IMF."  Babacan didn't directly 
address the primary budget surplus issue, but he did add that 
a major part of the GOT program would include "social 
measures" to alleviate unemployment, measures for the real 
sector and agricultural support projects.  "we will do what 
we promised, " Babacan concluded. 
 
 
6.  (SBU) Comment:  The extent of Babacan's portfolio has not 
yet been spelled out - in addition to the Treasury 
Undersecretariat, he may also supervise privatization, and 
have oversight responsibility for the banking and capital 
market boards (Dervis and Turker also had the later two 
agencies.) Reftel has Babacan's bio. 
PEARSON