US embassy cable - 03ANKARA1793

UNCLAS SECTION 01 OF 02 ANKARA 001793 
 
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: TURKISH ECONOMY MARCH 20: CONTAINED REACTION FOR 
NOW 
 
Sensitive but unclassified, and not for internet 
distribution. 
 
 
Initial Market Reaction Limited 
------------------------------- 
 
 
1.  (U) At OOB March 20, Turkish markets opened sharply down, 
but recovered somewhat as the morning went on.  JP 
MOrgan/Chase bond trader Gumisdis, Yapi Kredi Bank Treasurer 
Imece and other market players here all pointed to the Ari 
Fleischer statement that "the White House has not ruled out 
assistance for Turkey in this matter." 
 
 
--  The lira is currently trading at TL 1,703,000 to the 
dollar (a one percent depreciation from yesterday); 
--  T-bill yields are 67 percent compounded (up two 
percentage points from yesterday); 
--  The Istanbul Stock Exchange 100 index is down 1.5 percent 
in morning trading. 
 
 
Helpful Central Bank Statement 
------------------------------ 
 
 
2.  (U) At OOB March 20, the Central Bank issued a statement 
that traders this morning credited with dampening dollar 
demand.  It  said the CBT is prepared to take certain 
measures that may be needed to maintain financial stability. 
They are: a TL liquidity facility so banks could borrow (at 
rates higher than the current money markets) to meet 
extraordinary cash needs; one-week dollar deposits to banks, 
again at higher than market interest rates.  The statement 
(issued only in Turkish) read in part: 
 
 
--  "Turkish Lira Market.  The liquidity level of TL is 
sufficient to meet the needs of the financial system.  Still, 
if any liquidity need arises, the required liquidity could be 
provided through the Central Bank establishing a 'Late 
Liquidity Window' in the interbank money market that would 
become active, if needed, during the hours 16:00-16:30." 
 
 
--  "Foreign Exchange Market.   In the extraordinary case of 
extra FX demand in the market, and in order to secure the 
smooth operation of the FX market, the Central Bank would be 
prepared to provide to banks U.S. Dollar deposits of one-week 
maturities, within the borrowing banks' borrowing limits. 
The interest rate on such deposits would be between 12-8 
percent per annum." 
 
 
Other Public Statements Less Helpful 
------------------------------------ 
 
 
3.  (U) Deputy PM and FM Gul gave a Reuters interview given 
on March 19 and published mid-morning March 20.  It reads in 
part as follows: 
 
 
-- "It would be wrong to link the whole Turkish economy to a 
U.S. package.  It is important to take the right measures in 
the economy and to implement the economic program in a right 
way, to prepare the budget accordingly and to provide fiscal 
discipline." 
 
 
--  "We already told the U.S. that we would have military 
forces in Northern Iraq and there was a mutual understanding 
on this in yesterday's (i.e. March 18) meeting." 
 
 
Treasury U/S Oztrak Plan 
------------------------ 
 
 
4.  (SBU) IMF resrep Brekk met with Treasury U/S Oztrak on 
March 20 am and told us that Oztrak has proposed to the GOT 
that PM Erdogan issue a statement today with detailed, 
strengthened economic reform measures.  Oztrak's strategy, 
per IMF resrep, was for Erdogan to make a statement by early 
afternoon Ankara time, to which the IMF spokesman could 
respond at the IMF weekly press meeting at 9:30 am Washington 
time today.   However, as of 2:30 pm local time, Oztrak had 
not yet obtained full GOT agreement on the content of the new 
measures, and thus no statement is planned for the moment. 
 
 
5.  (SBU) Resrep added that he was prepared to work urgently 
with the GOT, acting on guidance from his headquarters (since 
IMF staff cannot travel to Turkey now).  Resrep believes the 
draft LOI could be revised in several days of work to reflect 
a war scenario, involving more GOT borrowing needs, a tighter 
budget and fiscal measures to support it.  He stressed that 
the IMF had already given the GOT a list of fiscal measures, 
most of which they have yet to adopt, that could achieve the 
needed fiscal tightening.  He singled out public sector wage 
cuts as the most important measure, which he said MinSate 
Babacan is resisting in talks with Oztrak. 
PEARSON