US embassy cable - 03ANKARA4914

UNCLAS ANKARA 004914 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB/IFD AND EUR/SE 
TREASURY FOR OASIA 
NSC FOR BRYZA 
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO 
USDA FOR FAS FOR EC AND CCC/FSA 
 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PGOV, TU 
SUBJECT: MARKETS RALLY ON IMF/INFLATION NEWS 
 
 
1.  (SBU) Turkish markets rallied Monday and Tuesday on the 
back of good inflation news and the IMF Board's August 1 
decisions to approve the 5th Review and extend 2004-2005 
Turkish repurchases.  The lira strengthened to 1.406 
million/dollar, yields on the benchmark August 8, 2004 t-bill 
dropped to 43.64 percent, and the stock market rose eight 
percent to 11,499.89.  Amid much good news, the markets 
shrugged off Moody's August 5 announcement that it was not 
considering an upgrade of its currently negative outlook on 
Turkey. 
 
 
2.  (SBU) The State Statistical Institute announced over the 
weekend that that the Consumer Price Index (CPI) fell 0.4 
percent in July, while the Wholesale Price Index (WPI) 
dropped 0.5 percent.  Analysts had expected CPI to increase 
slightly and WPI to hold steady.  Declining food and clothing 
prices, which usually soften in the summer due to seasonal 
factors, were the driving force behind the drop in the 
indeces, along with the continuing strength of the lira.  The 
drop in prices has prompted several analysts to predict 
another Central Bank rate cut, adding to the positive 
momentum in the markets. 
 
 
3.  (SBU) Markets welcomed the Fund's decision to extend 
Turkey's 2004-2005 repurchases, which should reduce the 
country's debt service load by nearly $7 billion over the 
next two years.  Although most analysts had expected some 
kind of "roll over," few expected the Fund's decision to be 
made this soon and to include 2005 as well as 2004 payments. 
Today, State Minister Babacan told the press that the Fund's 
decision would ease Turkey's debt burden over the next two 
years, and also announced that Treasury officials would 
travel to Washington August 18 to discuss U.S. assistance. 
There were, he said, no impediments to the U.S. release of 
$8.5 billion in loans. 
 
 
4.  (SBU) Separately, Parliament passed late last week 
legislation that should strengthen BRSA's hand in dealing 
with Imar Bank and potentially other bank fraud cases.  The 
legislation includes provisions that: 
 
 
-- authorize the Council of Ministers to determine the 
principles and methods to be used by the Savings Deposit 
Insurance Fund (SDIF) to pay legitimate deposits of banks 
that are being liquidated; 
 
 
-- in cases where banking regulators determine that the 
amount of bank deposits exceed the amount of deposits the 
bank has officially declared (such as in the Imar Bank case), 
criminal courts -- upon the recommendation of SDIF -- are 
authorized immediately to freeze an equivalent amount of the 
assets of bank owners and managers, including branch 
managers, and their families.  Depending on the results of 
further investigation, SDIF could be authorized to seize 
assets sufficient to cover the difference between declared 
and actual deposits; 
 
 
-- makes anyone who uses false documents to file a fraudulent 
claim for deposits in a taken-over bank subject to 
imprisonment for 4-8 years. plus a fine equal to ten times 
the amount received from the bank. 
 
 
5.  (SBU) At first glance, this legislation appears to be 
very similar to that sought by BRSA President Akcakoca.  We 
will report further details after discussing this with BRSA. 
DEUTSCH