US embassy cable - 03ANKARA2151

UNCLAS ANKARA 002151 
 
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 APRIL 2:  MARKETS QUIET, GUARDED 
OPTIMISM; SLOW TOURIST SEASON BEGINS 
 
Sensitive but unclassified, and not for internet 
distribution. 
 
 
1.  (SBU) Summary:  Turkish financial markets improved 
slightly in morning trading April 2.  Local analysts see a 
positive scenario for the April 8 debt auctions, based on the 
GOT signing the IMF letter of intent, and Congress passing 
the aid for Turkey.  The 30-week tourist season opens this 
week, and early anecdotes suggest a slow year.  Despite the 
dire warnings from Turks, it is too early to predict how this 
war will affect Turkey's tourism revenue and other balance of 
payments components in 2003 (the IMF has postponed its 
assessment until the late May Fifth Review).  In any case the 
greater macro-economic problem for Turkey remains financing 
the budget.  End Summary. 
 
 
Guarded Optimism in Markets 
--------------------------- 
 
 
2.  (U) Turkish financial markets on the morning of April 2 
were quiet and guardedly optimistic. The lira appreciated 
about 0.5 percent to TL 1,690,000; T-bill yields were steady 
at 65 percent compounded; the Istanbul Stock Exchange was 
down 0.2 percent in light trading. 
 
 
3.  (SBU) The Secretary's visit has a positive potential for 
market sentiment, per JP Morgan/Chase bond trader Gumisdis, 
since it is seen as increasing the probability of Congress 
approving the $1 billion grant aid.  Markets are seek 
confirmation of this in the Secretary's afternoon press 
conference in Ankara.  Analysts see a positive scenario for 
the April 8 debt auctions based on signing of the LOI (now 
expected for April 3), and Congress passing the U.S. aid. 
 
 
4.  (U) The focus remain on the April 8 T-bill auctions. 
Treasury Deputy U/S Ozyildiz told us U/S Oztrak will go to 
Istanbul on April 4 to talk up debt dynamics with the Turkish 
banks. Ozyildiz said latest year-end calculations show 
Turkey's net public sector debt to GNP ratio declining to 78 
percent, largely because of the lira's real appreciation 
during 2002 and the high percentage of debt linked to the 
exchange rate. 
 
 
Tourist Season Opens Weakly; 
Too Early to Predict Macro Effects 
----------------------------------- 
 
 
5.  (U) Turkey's 30-week, April - October tourist season 
begins this week, and anecdotal evidence suggests a slow 
year.  Hotels on the Mediterranean coast are delaying their 
spring re-open date and reporting a high cancellation rate 
for summer.  President of Turkey's tourism agencies 
association claimed to the local press that if the war 
doesn't end in April, the tourism sector "will collapse." 
 
 
6.  (SBU) In 2002, tourism revenues amounted to between $9.5 
- 10 billion (initial projections were $8.5 billion).  In the 
1991, Turkey's tourism revenues dropped about 20 percent. 
Using the last Gulf War's effect on tourism as an indicator, 
we could speculate that Turkey might lose about $2 billion in 
tourism revenue this year.  But using the last Gulf War 
(which ended in February) as a model might well understate 
the effect on tourism this war, depending on the duration of 
this war. 
 
 
7.  (SBU) Comment: It is too early to predict how this war 
will affect Turkey's balance of payments (capital flows, 
which are larger than tourism revenues, are also uncertain). 
The IMF is postponing its revision of the macro framework 
until the Fifth Review, tentatively scheduled for late May. 
In any case, Turkey's main problem remains financing the 
budget, not the balance of payments.  The floating exchange 
rate should over time correct balance of payments deficits 
via lira depreciation.  The problem is lira depreciation 
leads to higher inflation, higher interest rates, and greater 
debt burdens; lira depreciation also increases the 
foreign-exchange-linked debt.  It's the budget. End Comment. 
PEARSON