US embassy cable - 03ANKARA3693

UNCLAS ANKARA 003693 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EUR/SE AND EB/IFD 
TREASURY FOR OASIA - MILLS AND LEICHTER 
NSC FOR QUANRUD AND BRYZA 
 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PREL, TU 
SUBJECT: UPDATE ON PROGRESS ON IMF REVIEW 
 
 
REF: ANKARA 3536 
 
 
1.  (SBU) IMF ResRep (strictly protect) told us late today 
that he was not thrilled with the GOT's rate of progress 
toward meeting the conditions for the upcoming Fifth Review 
of the program.  He expressed doubt that the government would 
be able to complete all of the outstanding work in time for 
the Fund Board to meet this month. 
 
 
2.  (SBU)  On the fiscal side, Treasury U/S Ibrahim Canakci 
told us June 5 that the bureaucracy had identified measures 
to close most of this year's projected gap, but still had to 
present those measures to the Prime Minister for "reaction." 
Meanwhile, he and his staff continue to work with other 
Ministries, including the Energy Ministry, to identify 
additional measures.  IMF ResRep was slightly more negative. 
He said the May figures (which came in June 5) for the 
Central Government budget were "pretty bad," confirming a 
problematic fiscal trend.  His understanding is that the 
measures the government has identified so far would close 
only one-half of the fiscal gap.  However, the government 
also has announced cutting taxes on cars (to spur domestic 
demand) and reducing electricity prices for exporters. All in 
all, ResRep believes the Fund and GOT are still some distance 
away from completing the fiscal side of the LOI. 
 
 
3.  (SBU) On the structural side, Canakci said the government 
had decided to put some priority legislation on Turkey's 
version of the "fast track" (by making them "fundamental 
laws").  As of June 5, Parliament was discussing this 
approach for the critical legislation affecting Turkey's 
three social security funds.  He predicted (correctly) that 
Parliament would pass the Foreign Investment Law that 
evening, and noted that it was moving ahead on bankruptcy and 
other legislation.  IMF ResRep noted that the Fund and GOT 
had not yet agreed on the "arrears rescheduling" language in 
the social security legislation.  Here, the Fund is insisting 
that the legislation make clear that any rescheduling of 
arrears would not be generalized.  ResRep confirmed that the 
GOT was making good progress on the eight structural 
benchmarks. 
 
 
4.  (SBU) Canakci (privately) and State Minister Babacan 
(publicly) both continue to express hope that the review can 
be completed this month, although both acknowledged the 
possibility of a delay.  As noted above, ResRep thinks a 
Board meeting by end-June is increasingly unlikely. 
 
 
4.  (SBU) 
 
 
3.  (SBU) 
PEARSON