US embassy cable - 03ANKARA1623

UNCLAS ANKARA 001623 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE ALSO FOR E, EB/IFD AND EUR/SE 
TREASURY FOR OASIA - MILLS AND LEICHTER 
NSC FOR QUANRUD AND BRYZA 
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO 
 
 
E.O. 12958: N/A 
TAGS: EINV, ECON, PGOV, TU 
SUBJECT: TURKEY STILL STRUGGLING TO IMPROVE INVESTMENT 
ENVIRONMENT 
 
1.  (SBU) Summary:  Treasury Director General for Foreign 
Investments Melek Us told us March 13 that the lack of 
high-level direction over the past several months has stymied 
the bureaucracy's ability to take decisions needed to improve 
the foreign investment environment.  The government has 
submitted a draft bill to improve the investment environment, 
and soon will send forward a bill to create an investment 
promotion agency.  However, Us admitted that foreign 
investors were unlikely to look seriously at Turkey until the 
Iraq "crisis" passes and the GOT convinces would-be investors 
that it is committed to full implementation of its reform 
program.  As a result, 2003 probably will not see significant 
investment inflows, though it would not take much to surpass 
2002's amazingly low total of $569 million.  End Summary. 
 
 
2.  (SBU) Treasury Director General for Foreign Investment 
Melek Us provided EconCouns with an update March 13 on the 
government's efforts to improve the foreign direct investment 
environment.  She acknowledged that there had been little 
progress in the past six months, as bureaucrats put off 
decisions due to uncertainty, first over the elections, and 
subsequently over how long the Gul government would last. 
 
 
3.  (SBU) Us said the interagency committee set up under the 
previous government to propose measures to improve the 
investment environment had finally met last week, after a 
nearly five month hiatus.  The committee, chaired by State 
Minister Ali Babacan, agreed to recommend to the government 
that it submit legislation to create a new investment 
promotion agency.  The agency, Us explained, would not be a 
one-stop shop.  Rather, its mission would be to explain to 
potential investors all the steps involved in investing in 
Turkey, help then should they run into problems, and -- most 
importantly -- market Turkey internationally as a good place 
to invest. 
 
 
4.  (SBU) Us admitted that this was not a propitious time to 
try to "sell" Turkey to foreign investors.  Investors will 
only begin to look at Turkey seriously, she said, once the 
Iraq situation was resolved and the government demonstrated a 
firm commitment to economic reform.  In the meantime, the 
bureaucracy -- working with the private sector -- will try to 
improve the legislative framework.  She expects Parliament to 
pass both the investment promotion bill and long-pending 
foreign investment legislation (an IMF condition) by 
end-April.  Also, the government has submitted a new mining 
law to Parliament; the only problem, per Us, is that no one 
likes the draft, which apparently puts severe restrictions on 
foreign investment in mining. 
 
 
5.  (SBU) In addition, the government is planning to issue 
decrees to ease restrictions on land use for investors. 
Starting January 1, 2004, the government will shift to an 
inflation accounting system (the lack of which has been a 
huge subject of complaint), and to an automatic, uniform 
mechanism for granting tax allowances to foreign investors 
(so they will not need to obtain a Treasury certificate to 
obtain the allowance). 
 
 
6.  (SBU)  EconCouns noted the importance of resolving 
problems facing existing investors, and mentioned as examples 
Cargill's land problem, the sugar quota, the cola tax, the 
lack of effective IPR protection, and recent government 
efforts to force energy companies to lower their prices.  Us 
agreed, and admitted that the government was facing great 
difficulty in resolving these problems.  She noted, for 
example, that there was a consensus among the relevant 
ministries in favor of finding a solution to Cargill's land 
problem, but that nonetheless the government had not been 
able to find such a solution.  She noted that Turkey's 
constitution -- not just ordinary law -- prohibited 
conversion of "first degree" agricultural land into 
industrial land. 
 
 
7.  (SBU) Comment;  The outlook for FDI inflows in 2003 is 
not rosy, though the second-half of the year could see some 
improvement if the Iraq issue is resolved and the government 
successfully implements its economic program, including some 
major priviatzations.  In any case, it will be hard for 
Turkey to attract less investment this year than it did in 
2002, when inflows totaled an incredibly low $569 million. 
PEARSON