US embassy cable - 03ANKARA1442

UNCLAS ANKARA 001442 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, P, EUR/SE AND EB 
TREASURY FOR U/S TAYLOR AND OASIA - MILLS 
NSC FOR QUANRUD AND BRYZA 
 
 
E.O. 12958: N/A 
TAGS: ECON, PREL, TU 
SUBJECT: TURKEY'S ECONOMY MARCH 6 AM: MARKETS STABLE, 
ERDOGAN HINTS AT BUDGET RELIEF FROM U.S. PACKAGE 
 
 
Sensitive but unclassified, and not for internet 
distribution. 
 
 
1.  Summary:  Turkish financial markets were flat during the 
morning of March 6, awaiting confirmation of their 
expectation that a new GOT, led by AK Chairman Erdogan, would 
deliver a U.S. financial package.  Erdogan and State Minister 
Babacan, facing public complaints about the new taxes in the 
draft 2003 budget, hinted that a U.S. package would be used 
to ease fiscal restraints.  End Summary. 
 
 
Markets In Waiting Mode 
----------------------- 
 
 
2.  (U) On Thursday morning March 6, Turkish financial 
markets were flat.  Turkish investors told us market 
expectations of a U.S. financial package continue, and 
underpin the current relative state of calm.  Some foreign 
hedge funds sold off on Monday, March 3 (JP Morgan/Chase 
trader Gumisdis told us the house account sold off Monday in 
"stop loss" transactions.)  But some amount of foreign hedge 
fund money is still in the market, given what some see as a 
large upside potential if the U.S. package does come through. 
 
 
--  At mid-day March 6, Turkish T-bills were stable at 57 
percent compounded (having strengthened 5 percentage points 
from March 4, but still two percentage points higher than 
Friday, February 28 close). 
 
 
--  The lira was unchanged at TL 1,605,000 to the dollar. 
 
 
--  The Istanbul Stock Exchange was up 0.2 percent in light 
trading in the morning. 
 
 
Erdogan and Babacan Hint At 
Budget Relief From U.S. Package 
------------------------------- 
 
 
3.  (U) In separate comments to the press March 4 and 5 AK 
Chairman Erdogan and MinState in Charge of Treasury Babacan 
hinted that a U.S. package would be used to ease the fiscal 
measures announced by PM Gul on March 3. 
 
 
--  On March 4, Erdogan spoke to journalists in Istanbul 
outside a court where he was giving testimony.  Asked if a 
second parliamentary resolution would lead the GOT to revise 
its just released 2003 budget, Erdogan said (per Embassy's 
unofficial translation):  "The draft budget, which takes into 
consideration measures needed under the current conditions, 
is the prepared budget.  What would you do under 
extraordinary circumstances?  You could provide a 
supplemental budget.  If developments move in an optimistic 
direction, the government could make a surprise." 
 
 
--  In a March 5 TV interview with Mehmet Ali Birand, Babacan 
was asked about Erdogan's comments.  Babacan, according to 
the daily Milliyet March 6, replied that Chairman Erdogan's 
statements were consistent with GOT plans.  The loan portion 
of the U.S. financial package would be used to restructure 
government debt.  The grant portion, however, would be used 
to support current budget expenditures, he said. 
 
 
4.  (SBU) Comment:  IMF Resrep pointed to these press 
statements as evidence of his view that this government might 
reluctantly agree with reform conditionality, but in 
practical terms it plans to use any U.S. package to get away 
from implementing the IMF program. 
PEARSON