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Viewing cable 02ANKARA8356, AK PARTY BEGINS TO ENGAGE ON THE ECONOMY

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Reference ID Created Released Classification Origin
02ANKARA8356 2002-11-15 14:36 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Ankara
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 03 ANKARA 008356 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR EUR/SE, EB/IFD/OMA AND E 
TREASURY FOR OASIA - MILLS AND GUNARATNE 
STATE PASS USTR - NOVELLI AND BIRDSEY 
 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL TU
SUBJECT: AK PARTY BEGINS TO ENGAGE ON THE ECONOMY 
 
 
REF: A. ANKARA 7549 
     B. ANKARA 6259 
 
 
Sensitive but Unclassified.  Not for internet distribution. 
 
 
1.  (SBU) SUMMARY:  In the past week, AK Party moved to 
inject discipline into its public statements on the economy, 
initiated contacts with the economic bureaucracy, and 
reiterated its intention to work with the IMF.  AK Economic 
Coordinator Ali Babacan sought to reassure us that, despite 
some unfortunate public statements, AK had no intention of 
pursuing populist policies or weakening independent 
regulatory boards.  Vice Chairman Ali Coskun said the new 
government would annul the financial amnesty law (scheduled 
to take effect January 2003), move quickly to pass a budget 
and a tax reform law, and accelerate privatization.  Anxious 
to avoid the perception that they are accepting IMF dictates, 
the incoming government hopes to quietly negotiate an IMF 
agreement and present it as the national program. There are 
differences among the AK officials with whom we met on policy 
details - announcing the ministerial appointments, which 
could begin next week, will lead to greater clarity on the 
economic policy direction of the new government.  END SUMMARY. 
 
 
2.  (SBU)  In a series of meetings November 11 - 13, we met 
with several AK candidates for ECON-related ministerial jobs: 
 AK Vice Chairman Ali Coskun; head of AK's Econ coordinating 
committee Ali Babacan; head of AK party operations Abdullatif 
Sener.  All three stressed AK's interest in engaging the 
international financial community, both the markets and the 
IFIs, and all spoke about an AK government program under 
development.  It was clear that ministerial appointment 
decisions had not yet been made. 
 
 
First Steps:  Greater Discipline with Press; 
Meeting with Bureaucrats 
-------------------------------------------- 
 
 
3.  (SBU) Ali Babacan is the most "market friendly" AK 
figure, per banking and market contacts.  He told us several 
post-election statements of AK figures had been 
"unfortunate," referring to statements on the banking board, 
tax cuts and agricultural subsidies.  These statements 
reflect people jockeying for ministerial jobs, he continued, 
not AK policy.  At November 8 and 9 AK meetings of the 
governing board and senior advisors, Erdogan had reined in 
such statements, saying that only Abdullah Gul was authorized 
to talk about the economy.  "You won't see much in the media 
from now on," Babacan said, stressing the need for perception 
management. 
 
 
4.  (U) On November 14, Gul gave a short statement to the 
press, following AK's first meeting on the economy.  AK 
Chairman Tayyip Erdogan and 25 AK deputies attended the 
meeting including Gul.  They were briefed by Central Bank 
Governor Serdengecti and Treasury U/S Oztrak.  In a brief 
statement, Gul told the press that one-party rule provides 
Turkey a good chance, that the new government would continue 
structural reforms, and that he expected the IMF Fourth 
Review to take place in January.  (Note:  IMF resrep told us 
that Babacan later clarified that Gul meant that the IMF 
board meeting for the Fourth Review should take place in 
January.)  In response to a press question on whether AK 
would replace senior bureaucrats, Gul said: "We will take  an 
objective view of the public sector.  We will work with 
bureaucrats who are hard-working, know their jobs well, and 
share our enthusiasm. 
 
 
5.  (SBU)  After the AK briefing, Central Bank Governor 
Serdengecti told us he was impressed with the level of 
preparation of the AK deputies.  They listened carefully, 
took notes, and asked "intelligent" questions.  While 
Serdengecti has the impression that some in the AK leadership 
"don't get it," many others do.  Serdengecti was particularly 
supportive of AK's plan to come up with its own reform plan, 
i.e., take full ownership of a plan. 
 
 
Next Steps - National Economic Reform Program 
--------------------------------------------- 
 
 
6. (SBU) Babacan told us Abdullah Gul was heading AK's 
efforts to develop a detailed action plan for the new 
government on the full range of issues.  This action plan 
would detail steps in the first month, first two months, 
first three months, etc..  As part of this project, AK would 
meet with other bureaucrats, in the Finance Ministry and 
independent boards.  In the meantime, Babacan cautioned, the 
only definitive AK policy statement is contained in its 
election platform, which Babacan had helped draft. 
7.  (SBU)  In separate meetings, our AK interlocutors 
stressed the need for the new government to present its own 
"national economic program," in which AK would be fully 
vested.  They added that this would be done in consultation 
with the IMF.  Sener noted that "90 percent of AK voters" 
don't like the IMF, but AK intentionally didn't feed this 
sentiment, and was clear during the election campaign that 
the new government needed to work with the IMF and other 
international financial institutions.  Babacan envisioned a 
process whereby AK starts informal talks with the IMF 
immediately, and not include the bureaucrats, who might leak 
things to the press before they are agreed.  The goal would 
be to have IMF agreement on the broad outlines of a program, 
then invite the IMF mission for official talks. 
 
 
Policies Still Unclear 
---------------------- 
 
 
8.  (SBU) We heard a variety of somewhat differing ideas in 
separate meetings with Coskun, Babacan and Sener on the 
substance of economic policies. 
 
 
--  On fiscal policy, all noted that AK was careful during 
elections not to promise government hand-outs, and that the 
new GOT would focus on expenditure cuts.  Erdogan proposed to 
the AK parliamentary deputies that they forego their GOT 
housing as a symbolic gesture, and the proposal had been 
adopted by acclamation.  Babacan said Erdogan had been 
pressed hard on hazel nut support prices, and now regretted 
saying anything about it (note: Erdogan had told the press 
November 8 that hazelnut support prices for some Black Sea 
provinces would continue).  Babacan said the new GOT would 
avoid populist measures.  On the other hand, Coskun said one 
of the priorities of the new GOT would be a package of 
measures to stimulate the real sector, without specifying 
these measures. 
 
 
--  Both Coskun and Babacan confirmed an intention to offer a 
limited tax amnesty, which they clarified would be intended 
to reschedule debts for back taxes.  Coskun estimates that 
back taxes amount to TL 9.5 quadrillion, and the new law is 
intended to collect some of it.  (Comment:  Finance Ministry 
experts tell us that the main problem at present in meeting 
this year's primary surplus target is a slowing of tax 
collection efforts, based on a perception that an amnesty is 
around the corner.) 
 
 
--  Coskun also spoke of annulling or delaying enforcement of 
a "financial year zero" law, enacted in 1998 and scheduled to 
come into effect on January 1, 2003.  This law requires 
Turkish residents to declare the sources of their financial 
holdings starting in 2003.  Coskun said the law when enacted 
had resulted in capital outflows; annulling it now would 
bolster market morale. 
 
 
--  On the BRSA and other independent agencies, they said AK 
would make  changes, but per Babacan "whatever we do will 
ensure greater independence, more transparency, more timely 
reporting."  Coskun and others criticized the excessive 
spending of the independent boards.  (Comment:  BRSA 
officials tell us that Yapi Kredi Bank owner Mehmet Emin 
Karamehment has broken off talks with BRSA about his 
estimated $2 billion in unpaid loans to the bank. 
Karamehment is instead lobbying AK members, and holding out 
for a better deal.  Yapi Kredi applied to the Capital Markets 
Board for a 15 day delay in releasing its third quarter 
financials, and the application was accepted November 15. 
End Comment.) 
 
 
--  Other priorities mentioned by AK interlocutors include 
passing a tax reform law (note: submitting such a law to 
parliament is a Fourth Review condition); accelerating 
privatization (Coskun was critical of the government's 
performance on privatization); and removing obstacles to 
foreign investment. 
 
 
Comment 
------- 
 
 
9.  (SBU) AK's greater discipline on press statements 
demonstrates a sharp learning curve, and the normally 
critical Central Bank Governor is impressed with the 
seriousness of AK's leadership.  The markets remain buoyed by 
the prospects of a strong government implementing a reform 
program in harmony with the IMF.  But without an econ team in 
place, and with the policies of the new government still 
unclear, the market's two-week rally remains fragile.  Our 
discussions this week reveal differences among the AK 
economic team; appointments expected next week should clarify 
at least the personalities who will be involved. 
PEARSON