US embassy cable - 03ANKARA1033

UNCLAS ANKARA 001033 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, P, EB AND EUR/SE 
TREASURY FOR U/S TAYLOR 
STATE PASS USTR - NOVELLI AND MOWERY 
 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, PREL, TU 
SUBJECT: TURKEY'S ECONOMY: IMF STAFF SEE LITTLE TO NO 
PROGRESS ON FOURTH REVIEW 
 
 
Sensitive but unclassified.  Not for internet distribution. 
 
 
1.  (SBU) On February 12, IMF resrep told us the IMF Mission 
currently in Ankara has achieved little to no progress on the 
Fourth Review.  On the budget side, there was agreement on 
technical adjustments to the draft baseline that decreased 
the primary surplus shortfall to about 2.25 percent of GNP 
(about $4.6 billion), but no GOT acceptance of new measures. 
There has been no progress on the structural reform 
conditions (principally:  overstaffing in the public sector 
workforce; privatization plan for TEKEL; direct tax reform; 
banking sector reforms.). 
 
 
2.  (SBU) 2003 budget. IMF staff returned to Ankara to 
complete the Fourth Review based on two understandings: that 
the GOT agreed to the IMF assessment of a 3.1 percent of GNP 
primary surplus shortfall in the draft 2003 budget (which was 
reduced to 2.5 percent through additional measures); and that 
the GOT was committed to identifying further measures, from 
an IMF list of suggested measures, to close the shortfall. 
Resrep told us there has been no progress on identifying new 
measures.  Instead, the GOT officials led by Treasury U/S 
Oztrak are arguing over definitions of primary spending, 
trying to cut out of the baseline certain expenditures (the 
main issue here is over foreign-financed in-kind supplies, 
for instance, dam building equipment, which amounts to about 
0.75 percent of GNP.)  IMF staff has agreed to several 
technical adjustments to the baseline that bring down the 
shortfall to 2.25 percent of GNP (about TL 8 quadrillion or 
$4.6 billion). 
 
 
3.  (SBU) Letter of Intent.  The GOT gave IMF staff a revised 
LOI on February 10, drafted by Treasury and State Planning 
staff without political level clearance.  IMF staff is now 
re-drafting it.  State Minister Babacan told IMF Mission 
Chief Kahkonen on Feb. 10 that he hadn't yet read the entire 
LOI.  Resrep opined that this lack of cabinet-level approval 
belies the AK claim of political ownership of the reform 
program. 
 
 
4.  (SBU) Comment:  IMF resrep believes the GOT is stalling 
in the hope that State Minister Babacan, now en route to 
Washington, will obtain USG understanding (and consequent 
pressure on IMF staff) to agree to "water down" the Fourth 
Review conditions. 
PEARSON