US embassy cable - 03ANKARA2524

UNCLAS ANKARA 002524 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EUR/SE AND EB 
TREASURY FOR OASIA - MILLS AND LEICHTER 
NSC FOR QUANRUD AND BRYZA 
 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PREL, TU 
SUBJECT: TURKEY MARKETS ENJOY A QUIET BUT POSITIVE WEEK 
 
1.  (U)  Turkish markets rose steadily, if not spectacularly, 
this week.  The lira strengthened from TL 1.65 million/dollar 
at the end of last week to TL 1.60 at the close of this 
morning's trading session.  Meanwhile, yields on the 
benchmark 4/28/04 t-bill fell from 64.39 to 57.72 percent, 
and the stock market rose about 6.5 percent to 11,229. 
 
 
2.  (SBU) Analysts attributed this week's improvement to a 
reduction in anxiety over Iraq -- and reports that Turkey's 
crucial tourism industry may therefore rebound quickly -- 
combined with investors more fully pricing in IMF and U.S. 
assistance.  Investors remain concerned about the 
government's commitment to the reform program, along with its 
replacement of key economic technocrats with party loyalists, 
but are now less concerned about the government's ability to 
roll over its domestic debt in the short-term than they were 
3-4 weeks ago. 
 
 
3.  (SBU) Senior government officials are continuing their 
positive spin campaign, with Prime Minister Erdogan 
announcing today that Turkey's exports rose 34.5 percent 
(through April 15) compared to the same period last year, and 
might reach as high as $50 billion for the year.  Separately, 
Finance Minister Unakitan said econoimc indicators suggested 
the economy had begun to improve, though he provided no 
details.  (Note:  Treasury U/S Oztrak, who will leave office 
today, told us earlier in the week that the economy appeared 
to have weakened significantly in the second half of March, 
perhaps because of the Iraq war, but that Treasury hoped it 
would quickly rebound.) 
 
 
4.  (SBU) Comment:  Markets have improved considerably since 
their lows on March 24-25 (just before the announcement of 
the $1 billion in potential U.S. assistance), when t-bill 
rates hit 73.5 percent and the lira was trading at TL 1.75 
million/dollar.  On the other hand, t-bill rates remain 
several percentage points higher than they were during the 
post-election rally in November, and in fact are higher than 
they were during the April 2002 market rally.  The question 
remains whether the government can instill enough market 
confidence to bring interest rates down further and -- most 
importantly -- avoid the mini-shocks that keep sending rates 
back up. 
PEARSON