US embassy cable - 03ANKARA2315

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 002315 
 
SIPDIS 
 
 
STATE FOR E, P, EUR/SE AND EB 
TREASURY FOR OASIA - MILLS AND LEICHTER 
NSC FOR QUANRUD AND BRYZA 
 
 
E.O. 12958: DECL: 04/08/2008 
TAGS: ECON, EFIN, PGOV, TU 
SUBJECT: ECONOMIC MINISTERS BATTLE FOR INFLUENCE AS ERDOGAN 
APPOINTS LOYALISTS TO SENIOR POSITIONS IN BUREAUCRACY 
 
 
(U) Classified by DCM Robert Deutsch.  Reason: 1.5(b,d) 
 
 
1.  (C) Summary:  Infighting among economic ministers is 
hindering the Government's efforts to coordinate policy 
around an economic "super-minister."  Deputy PM Sener, who 
was supposed to lead the economic team, appears to be losing 
influence to Finance Minister Unakitan, while State Minister 
Babacan's clout remains limited.  Meanwhile, PM Erdogan is 
replacing a number of key technocrats with people loyal to 
him, in many cases from Istanbul municipality and/ or Islamic 
financial institutions.  The lack of a clear policy 
coordination mechanism, combined with the latest personnel 
reshufflings, is adding to investor concerns about this 
government's willingness and ability to implement its 
economic program effectively.  End Summary. 
 
 
2.  (C) The AK Party took the reins of government late last 
year intending to coordinate economic policy through an 
economic "super minister" who would oversee Treasury, 
Finance, and other key agencies.  Initial power struggles 
resulted in half a loaf:  Abdullatif Sener was named Deputy 
Prime Minister responsible for overall economic coordination, 
with direct responsibility for the Privatization 
Administration, Banking Regulatory and Supervision Agency 
(BRSA), and State Planning Organization, but without direct 
control over the Treasury or Finance Ministry. 
 
 
3.  (C) The months since then have witnessed constant 
infighting among the ministers that has hindered policy 
coordination and coherence.  According to senior Treasury 
officials, Sener has been battling, unsuccessfully, to assert 
greater control over economic policy.  He refused for two 
months to sign a cabinet circular naming State Minister for 
the Treasury Ali Babacan to chair the interagency committee 
on improving the foreign investment environment.  He finally 
was instructed to sign the circular, but the delay meant that 
the committee did not even meet until February.  Sener 
continues to wage the battle for management of foreign 
investment policy through the State Planning Organization, 
which is trying to wrest control of the issue from Treasury. 
 
 
4.  (C) Other senior officials have told us that both Babacan 
and Finance Minister Kemal Unakitan have largely ignored 
Sener, reporting directly to the Prime Minister.  In recent 
weeks, according to government officials and some Istanbul 
analysts, Unakitan appears to have gained greater influence 
at Sener's expense, as evidenced by the government's recent 
decision to shift control of the Privatization Administration 
from Sener to the Finance Ministry; Sener also lost his role 
as government spokesman.  There have been unsubstantiated 
press reports that Sener is frustrated and may be considering 
resigning.  Analysts speculate that Unakitan's rise is due to 
(a) his closer personal relationship to PM Erdogan (since 
they worked together in Istanbul), and (b) his talent as a 
pragmatic problem solver.  The consensus is that Babacan's 
clout remains limited. 
 
 
5.  (C) Erdogan's assumption of the Prime Ministry also has 
led to the long-expected replacement of a number of senior 
economic bureaucrats.  In the past two weeks, the government 
has replaced the entire board of the two state banks, along 
with two senior Privatization Administration officials. It 
has also fired the head of the State Gas Pipeline Company 
(BOTAS) and the State Electricity Trading Company TETTAS, 
both of whom had reputations for competence.  This week, 
markets are awash with rumors that Treasury U/S Faik Oztrak 
will be replaced in the very near future, perhaps by Istanbul 
Deputy Secretary General for Finance Mesut Pektas.  (Note: 
Oztrak told us late April 8 that he had told Minister Babacan 
that he could not continue as a "lame duck"; the government 
needed either to replace him or back him fully.) 
 
 
6.  (C) European diplomats argued to us April 7 that Erdogan 
appears to be appointing new people to these key bureaucratic 
positions based more on their loyalty to him than on their 
competence or credibility with the markets.  For example, the 
new Chairman of the State Bank Board, replacing respected 
banker Safa Ocak, is Zeki Sayin, who managed the Istanbul 
municipality-owned supermarket and then served on the board 
of Islamic bank Family Finans.  Can Caglar, the new general 
manager of state-owned Zirat bank, also was an executive at 
Family Finans.  Istanbul investment bankers and analysts with 
whom we met on April 3 were harshly critical of these 
appointments, saying the new board members lacked experience 
and credibility.  They and others in the financial markets 
with whom we have spoken say they know little about Mesut 
Pektas, Faik Oztrak's rumored replacement, who worked for the 
Islamic finance house Al-Baraka Turk (as did Kemal Unakitan) 
before working with Erdogan in the Istanbul municipality. 
Faruk Demir, a leading national security analyst and 
Executive Director of the Advanced Strategy Center, argues 
that Pektas has a reputation for probity, credibility with 
the capital markets, and is one of the few men close to 
Erdogan who can give him the unvarnished truth. 
 
 
7.  (C) Comment:  To regain market confidence, this 
government needs not only to implement its economic reform 
program, but to avoid mistakes and unhelpful signals. 
Unfortunately, the lack of policy coordination and discipline 
within the government means populists such as Energy Minister 
Hilmi Guler and Industry Minister Ali Coskun can continue to 
make unhelpful public statements that rattle the markets.  It 
also means that the business community -- as well as the IFIs 
and foreign diplomats -- does not know where to turn for 
support of sound economic policy.  (Note:  When we made this 
complaint to Faik Oztrak April 8, he said "now you know my 
problem.")  The government's replacement of competent 
technocrats with people who are either unknown or do not 
inspire confidence compounds the problem. 
PEARSON