US embassy cable - 03ANKARA2258

UNCLAS SECTION 01 OF 02 ANKARA 002258 
 
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 APRIL 8: SUCCESSFUL T-BILL 
AUCTIONS RAISE NEARLY $2 BILLION 
 
 
Sensitive but unclassified.  Not for internet distribution. 
 
 
Treasury Auctions Raise Nearly $2 billion; 
Yields in Line with Market Expectations 
-------------------------------------- 
 
 
1.  (U) Treasury raised a total of TL 3.26 quadrillion ($1.97 
billion) in two debt auctions on the morning of April 8. 
Results were: 
 
 
Maturity      Net Amt     Compounded 
of Paper      Sold (quad) Interest Rate 
---------     ----------- ------------- 
 
 
Oct. 8 Bill   TL 0.801     57 pct 
Apr 24 Bond   TL 2.456     62.8 pct 
 
 
 
 
2.  (SBU) Comment: The lira appreciated nearly one percent 
this morning to TL 1,632,000, and Central Bank reports some 
foreign exchange inflows, but the great majority of bids in 
these auctions were from local banks.  The GOT has now bought 
itself a little breathing room, given that the next big debt 
payments are April 24 (about $1 billion) and May 7 (about 
$2.5 billion).  It needs to use this time to reduce T-bill 
yields through strong IMF program implementation.  End 
Comment. 
 
 
French Delay G-7 Statement of Support 
------------------------------------- 
 
 
3.  (SBU) G-7 finance ministers issued a statement of support 
for Turkey late on April 7, stating the G-7 strongly welcomes 
the signing of the IMF letter of intent and the renewed and 
strengthened commmitment of the GOT to advance financial 
stability and economic reform.  IMF resrep (protect) told us 
April 8 am that IMF staff had hoped to have the statement 
released earlier, well in advance of today's large T-bill 
auctions, but that France had delayed approval of the 
statement, for technical rather than policy reasons. 
 
 
GOT Appoints Two Central Bank Board Members; 
Hints at Replacing Treasury Undersecretary 
-------------------------------------------- 
 
 
4.  (SBU) On April 7, the Government replaced two Central 
Bank Board members at the Central Bank's regularly scheduled 
annual meeting.  The two new Board members are:  Durmus 
Yilmaz, a Deputy DG of the Central Bank's markets department 
and Embassy contact; and Dr. Mustafa Ilker, an economics 
professor from Uludag University.   Central Bank official 
Ikler Domac told us Yilmaz is a religious Muslim, but not 
known to be close to AKP and is well respected at the CBT. 
The second appointee, Mustafa Ilker is an AKP cadre and close 
to MP Nazim Ekren. There are six GOT-appointed Central Bank 
board members, each has a three-year term. 
 
 
5.  (SBU)  Also on April 7, MinState Babacan commented to 
Reuters about the rumors that Treasury U/S Faik Oztrak will 
soon be replaced. Babacan said, "There is no definite 
decision but that doesn't mean there will not be a change. 
There could be a change over the coming weeks."  Bloomberg 
News Service on April 6, and Sabah newspaper April 8, both 
report rumors that the GOT will replace Oztrak shortly. 
Oztrak's likely replacement (according to press and our AKP 
sources) is Mesut Pektas, PM Erdogan's deputy at the Istanbul 
municipality in charge of city finances.  He also worked at 
al-Baraka Turk Islamic finance house and as a Finance 
Ministry inspector. 
 
 
6.  (SBU) Comment:  The new government should be expected to 
put its own people in key positions, but the timing of the 
Oztrak rumors - right before this week's T-bill auctions - is 
bad.  JP Morgan/Chase Treasurer Gumisdis told us April 7 that 
Oztrak is trusted, and getting rid of him at this sensitive 
time would not help rebuild market morale.  The Central Bank 
board replacements should be non-controversial.  Market 
rumors say AK might use the new Board members to put pressure 
on Central Bank governor Serdengecti.  However, we will hear 
directly from the Governor, if such pressures materialize. 
PEARSON