US embassy cable - 03ANKARA2197

UNCLAS ANKARA 002197 
 
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 4:  GOOD NEWS ON U.S. 
PACKAGE, EXPECTED GOOD NEWS ON IMF LETTER OF INTENT 
 
 
Sensitive but unclassified, and not for internet 
distribution. 
 
 
Lira Appreciates on Good News From U.S. 
--------------------------------------- 
 
 
1.  (U) News that both houses of Congress passed the 
supplemental appropriation of $1 billion for Turkey buoyed 
the money markets in morning trading April 4.   The lira 
appreciated about one percent to TL 1,655,000.  The Istanbul 
Stock Exchange was up 2.3 percent in morning trading.  The 
benchmark T-bill was unchanged at 63 percent compounded. 
2.  (SBU) Markets are waiting for the GOT to sign the IMF 
letter of intent.  Local press carried good news on this 
front from IMF spokesman Dawson, who predicted a mid-April 
board date for the Fourth Review.  IMF resrep told us he has 
not heard back from the GOT about signing the LOI, that 
MinState Babacan is in Istanbul for European Investment Bank 
meetings, and that the LOI could be signed anytime, 
preferably today (for preparing markets ahead of the April 8 
debt auctions). 
 
 
March Inflation Higher Than Expected 
------------------------------------ 
 
 
3.  (U)  On April 3, the State Statistics Institute released 
March inflation data that were slightly higher than market 
expectations of CPI increase in the 2.2 - 2.5 percent range. 
The numbers were: 
 
 
               March 2003    March 2002 
               ----------    ---------- 
 
 
Consumer 
Price Index      3.2 pct      1.9 pct 
 
 
Wholesale 
Price Index      3.1 pct      1.2 pct 
 
 
4.  (SBU) Comment:  March's higher than expected CPI reflects 
a jump in food prices, owing to cold weather, and thus should 
not affect interest rates in the T-bill auctions April 8. 
But the upward trend of CPI inflation is a concern, given 
March is higher than February (2.3 pct).  While it's still 
too early to predict that the year-end CPI target of 20 
percent is out of reach, the first quarter trend is not 
promising for forward looking inflationary expectations.  End 
Comment. 
 
 
Financial Community Views 
------------------------- 
 
 
5.  During a round of meetings April 4, Istanbul 
bankers/economists told EconCouns and Congen Pol-Econ chief 
that, while market sentiment had improved enough in the past 
two weeks to reduce fears of a financial crisis/debt default 
in the very short-term, the best-case scenario is that the 
government manages to muddle through for a few months, with 
the hoped-for arrival of U.S. assistance perhaps extending 
that muddle-through period into late summer or fall. 
Investors expressed no confidence in this government's 
ability to manage the economy successfully, and a few bankers 
asserted that some kind of domestic debt restructuring was 
inevitable. 
PEARSON