US embassy cable - 05ANKARA6898

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 006898 
 
SIPDIS 
 
TREASURY FOR INTERNATIONAL AFFAIRS - CPLANTIER 
NSC FOR MERKEL AND MCKIBBEN 
 
E.O. 12958: DECL: 11/21/2009 
TAGS: EINV, ECON, EFIN, TU 
SUBJECT: ECONOMY MINISTER: TURKEY TO LAUNCH INVESTMENT 
PROMOTION AGENCY 
 
 
Classified By: Charge Nancy McEldowney for reasons 1.4(b) and (d). 
 
1. (C) Summary: Minister Babacan says the GOT will create a 
foreign investment promotion office reporting to the Prime 
Minister and Babacan makes the case that foreign direct 
investors can now have confidence in the GOT's three-year 
track record of political stability and economic 
stabilization.  By next year, he said Turkey would meet the 
Mastricht criteria for debt/GDP and budget deficit to GDP. 
Babacan contrasted Turkey's relatively low levels of extreme 
poverty with higher levels in Latin America.  End Summary. 
 
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New Investment Promotion Agency 
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2. (C) Babacan told the Charge November 18 that the 
long-dormant proposal for an investment promotion agency has 
been revived and the GOT is in the final stages of drafting a 
law to create it. He said the new agency, which would focus 
on attracting foreign corporate investors, would report to 
the Prime Minister.  (In the past, we understand Babacan had 
insisted that this agency--the creation of which had long ago 
been pushed by an investment advisory group and by the World 
Bank--report through him.) Babacan claimed that the 
investment office at Treasury was already, in effect a 
"one-stop shop" for foreign and domestic investors, but that 
the new office would hone in on large foreign corporations. 
 
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Attracting FDI: It's all about Confidence 
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3. (SBU) When asked how Turkey will attract a level of FDI 
appropriate to its size and potential, Babacan said investors 
will come if they have confidence in political and economic 
stability.  Pointing to the improving macroeconomic 
fundamentals, Babacan said the GOT now had a track record 
that would appeal to investors. He said he had asked IMF 
Deputy Managing Director Anne Krueger whether she had ever 
seen a Turkish government maintain this level of fiscal 
austerity for three years.   He said Turkey will be growing 
faster than any EU country and is now an accession country. 
If investors wait much longer they will miss out on "first 
mover" opportunities. 
 
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Training to Improve Judiciary 
----------------------------- 
 
4. (C) Regarding foreign investors' problems with the 
judiciary, Babacan said the GOT could not change the system 
overnight.  It could take time to "educate" and change the 
attitudes of the ensconced judicial establishment.   Babacan 
said the Government intends to send more judges to training 
programs as a long-term means of reforming the judiciary. 
 
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Macro and Mastricht 
------------------- 
 
5. (C) Although the GOT is reportedly on the verge of 
wrapping up the final details of its Letter of Intent, 
setting up an IMF board vote tentatively scheduled for 
December 9, Babacan declined to talk about the IMF program, 
saying "The Government has already proven itself on these 
issues."  As he has repeatedly said in public, Babacan 
predicted that in 2006 Turkey will have met the debt-to-GDP 
Mastricht criteria and the budget deficit-to-GDP ratio.  On 
both of these criteria, Turkey would be near the median of EU 
members. 
 
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Unemployment Stabilized at High Level 
------------------------------------- 
 
6. (C) With 500,000 to 700,000 entrants to the labor force 
each year, Babacan said Turkey has to create an equivalent 
number of new jobs to keep the unemployment rate from 
increasing.  He expects the year-end 2005 unemployment rate 
to be slightly below 10%.  He said a State Statistics 
Institute study found that 45% of those currently unemployed 
had jobs a year earlier, suggesting many of the unemployed 
are in and out of the work force rather than being 
structurally unemployed.  He also was encouraged that a 
million people moved from agricultural sector employment to 
other sectors, since ag sector employment tends to overstate 
the number of real jobs. 
 
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Very Little Extreme Poverty 
--------------------------- 
 
7. (C) Babacan said the number of Turks living on less than a 
dollar a day is perhaps 60,000.  A substantially larger group 
lives on $2 a day or less, but this kind of extreme poverty 
is still a much lower percentage of the population than in 
Latin American countries.  (According to a 2002 World Bank 
study 30% of the Turkish population lives on less than 
$4.30/day).  Babacan attributes this to extended family 
structures: "people don't let members of their family get in 
too bad a shape." 
 
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Comment 
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8. (C) Though we suspect the AKP government would happily 
remove many retrograde judges, it is politically impossible, 
given many secular Turks' suspicions of AK's intentions 
vis-a-vis the judiciary.  Babacan's comments on economic 
issues are notable mainly for what he left out: any 
discussion of the IMF program status. It was as if he was 
saying he--and the GOT--have transcended IMF conditionality. 
This is undoubtedly posturing on Babacan's part, but it is 
striking that he would feel confident enough to take this 
line. 
MCELDOWNEY