US embassy cable - 02ANKARA8972

C O N F I D E N T I A L ANKARA 008972 
 
SIPDIS 
 
 
STATE ALSO FOR E, EB/IFD AND EUR/SE 
TREASURY FOR OASIA - MILLS AND LEICHTER 
NSC FOR QUANRUD AND BRYZA 
 
 
E.O. 12958: DECL: 12/13/2007 
TAGS: EFIN, ECON, PGOV, TU 
SUBJECT: NO PROGRESS ON RESOLVING PAMUKBANK ISSUE; IMF 
TAKES FIRM LINE 
 
REF: A. (A) ANKARA 8728 
     B. (B) ANKARA 8596 
     C. (C) ANKARA 8545 
 
 
Classified by Economic Counselor Scot Marciel.  Reason: 
1.5(b). 
 
 
1.  (C) Summary:  Three weeks after the state administrative 
court (Danistay) suspended BRSA's takeover of Pamukbank, 
there has been no progress toward a permanent resolution. 
Cukurova Holding, which owns both Pamukbank and Yapi Kredi 
Bank, is taking a hard line in talks with the BRSA.  The 
government has said nothing.  IMF officials -- who privately 
say the Danistay ruling cannot be legally justified -- are 
insisting that the government resolve this issue as a 
condition for completing the fourth review.  They argue, 
correctly in our view, that the government needs to stand 
solidly behind BRSA on this case and that failure to resolve 
it positively will undermine both BRSA and the entire bank 
reform effort.  End Summary. 
 
 
2.  (C) IMF officials tell us that, in the three weeks since 
the Danistay suspended BRSA's takeover of insolvent 
Pamukbank, there has been no progress toward a resolution. 
The Danistay has not even forwarded the official decision and 
justification to the BRSA; as a result, the 30-day period in 
which BRSA was to return Pamukbank to the Cukurova Group (and 
restore the group's ownership rights over Yapi Kredi Bank) 
has not begun.  In BRSA discussions with Cukurova, the group 
has taken a very hard line:  offering to drop its lawsuits 
against BRSA in return for getting Pamukbank back, complete 
with the nearly $2 billion in assets the BRSA injected into 
the bank when it took it over. 
 
 
3.  (C) The government has said almost nothing publicly on 
the issue since Prime Minister Gul told the Financial Times, 
shortly after the Danistay decision, that the GOT supported 
bank reform and would not bail out corrupt bank owners.  The 
government has told the IMF that it cannot interfere in the 
case because it is under the purview of the independent 
judiciary. 
 
 
4.  (C) IMF officials tell us privately that they believe the 
Danistay was unduly "influenced" by the Cukurova Group, and 
that there is no legal justification for the Danistay's 
decision.  They also note that the AK Party's strong 
criticism of BRSA during the election period may have sent 
the wrong signal to any Danistay members who were testing the 
political winds before voting. 
 
 
5.  (C) The IMF is insisting that the Turkish Government find 
a way to resolve the Pamukbank and Yapi Kredi ownership 
issues as a condition for completing the fourth review.  Fund 
staff acknowledge that the government cannot interfere in the 
independent Danistay, but argue that the return of the banks 
to the Cukurova Group poses such a systemic threat to the 
banking system that the Fund cannot ignore it.  Moreover, 
they believe that a failure to resolve this case positively 
(i.e., with BRSA winning) would cripple the BRSA, and thus 
Turkey's bank reform efforts.  The solution, they say, is for 
the government to make clear via strong public statements 
that it fully supports its banking regulator in this case. 
This, they believe, would encourage the lower Danistay (which 
supported the BRSA in the initial case and which must now 
make a final decision on it) to consider the case quickly and 
with full knowledge of where the new government stands. 
 
 
6.  (C) Comment:  Turkey's fixation on the Copenhagen Summit 
in the past few weeks has diverted attention away from this 
case, but we agree with the IMF that the GOT needs to resolve 
it.  We are heartened by the IMF staff's firm line on this, 
and will continue to press the new government -- which Fund 
officials believe is starting to become "educated" on the 
issue -- to make clear its strong support for banking reform 
and for the BRSA. 
DEUTSCH