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Viewing cable 03ANKARA1003, DRAFT TERM SHEET FOR TURKEY GRANT/LOAN FACILITY

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Reference ID Created Released Classification Origin
03ANKARA1003 2003-02-08 15:18 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 001003 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB AND EUR/SE 
TREASURY FOR UNDER SECRETARY TAYLOR 
DEPT PASS USTR - NOVELLI AND MOWERY 
 
 
E.O. 12958: N/A 
TAGS: ECON PREL EAID TU
SUBJECT: DRAFT TERM SHEET FOR TURKEY GRANT/LOAN FACILITY 
 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION. 
 
 
1.  (SBU) A USG DELEGATION, LED BY TREASURY UNDER SECRETARY 
TAYLOR, AND A GOT DELEGATION, LED BY STATE MINISTER BABACAN, 
REACHED INFORMAL AGREEMENT ON NEARLY ALL ARTICLES IN OUR DRAFT 
TERM SHEET, AFTER INTENSE TALKS FEBRUARY 6 AND 7.  (SEPTEL WILL 
SUMMARIZE CONCERNS RAISED IN THOSE TALKS.) 
 
 
2.  (SBU) SIX BRACKETS REMAIN IN THE TEXT BELOW.  TWO REVOLVE 
AROUND THE ISSUE OF ECONOMIC REFORM CONDITIONALITY (ARTICLE 4 AND 
ARTICLE 7, THIRD TICK).  TWO BRACKETS (THE PREAMBULAR CONDITION 
AND ARTICLE 7, SECOND TICK) NOTE THAT THE TERM "FULL MILITARY 
COOPERATION" NEEDS TO BE DEFINED.  THE LAST TWO BRACKETS (ON THE 
DEFAULT AND PENALTY ARTICLES) WERE REQUESTED BY THE TURKS TO ALLOW 
THEM TO CHECK IF THESE TERMS WERE FULLY CONSISTENT WITH THEIR 
WORLD BANK LOAN DOCUMENTS.  UNDER SECRETARY TAYLOR MADE CLEAR THAT 
THIS WAS AN INFORMAL DOCUMENT FOR DISCUSSION PURPOSES, SUBJECT TO 
FURTHER REVISION, AND THAT FINAL TERMS WOULD BE NEGOTIATED FOR THE 
FORMAL LOAN/GRANT AGREEMENTS. 
 
 
3.  (SBU) BEGIN TEXT OF DRAFT TERM SHEET: 
 
 
TERM SHEET FOR U.S.- TURKEY GRANT/LOAN FACILITY 
 
 
This term sheet outlines the basic structural elements and legal 
and administrative requirements for a grant/loan facility from the 
United States to Turkey. 
 
 
Any economic assistance is predicated upon Turkey's completion of 
its fourth review under the IMF Stand By Arrangement, and upon 
Turkey's full cooperation [to be defined] with the USG military 
operation in Iraq. 
 
 
GENERAL TERMS 
 
 
1.  Form of Assistance 
 
 
A. What will be the form of U.S. assistance? 
 
 
--  U.S. assistance includes military assistance from the Foreign 
Military Financing ("FMF") account and economic assistance 
("Economic Assistance") from the Economic Support Fund ("ESF"). 
This term sheet only addresses the Economic Assistance. 
 
 
--  The funds for Economic Assistance will come from a 2003 
Congressional supplemental appropriation for the Economic Support 
Fund.  The supplemental appropriation will enter into force when 
the Congress passes it and the President signs it. 
 
 
B.  How will the Economic Assistance be divided between loans, 
loan guarantees, and/or grants? 
 
 
--  Economic Assistance will be provided through a flexible 
package (the "Facility") that can be split between grant(s) and 
funding the USG budget/subsidy cost of a loan(s) and/or loan 
guarantee(s), within the parameters of the Credit Reform Act of 
1990  - the amount of any loan(s) or loan guarantee(s) would 
depend on, for example, the exact terms (e.g., interest rates, 
grace periods, disbursement schedule) of the loan(s) and the 
allocated amount from the Facility. 
 
 
--  Turkey would have the right to use part of the appropriations 
to fund the subsidy costs of a loan and/or guarantee, as defined 
in the Credit Reform Act of 1990, and then retain the flexibility, 
at a later date, to use the balance of the appropriations, as long 
as the appropriated funds have not expired under the supplemental 
appropriations law, to fund a grant or, possibly, a loan and/or 
guarantee under different terms.  The total ceiling on loans 
and/or guarantees that would  be made available would be specified 
in the grant/loan agreement. 
 
 
--  To ensure maximum flexibility, the loan/grant agreement would 
have to allow Turkey to adjust the amount and the terms to permit 
the reallocation of unused appropriations for grant(s), loan(s), 
or guarantee(s), as long as the appropriations have not expired 
under the supplemental appropriations law, which would include the 
expiration date, and the loan/guarantee ceiling has not been 
reached. The expiration date will be later than the end of the 
time period for availability of disbursements under the Facility 
as described in Article 7. 
 
 
2.  Purposes 
 
 
--  This Facility will help the Republic of Turkey maintain 
confidence, support the Turkish economy, and contain and offset 
the economic impact of a conflict in Iraq. The Facility should not 
lead to an increase in the overall amount of Turkish debt. 
 
 
--  Any agreement under the Facility will indicate how Turkey will 
use loan and grant funds. 
 
 
 
 
3.  Form and Timing of Disbursements 
 
 
--  Funds would be disbursed over time rather than in one lump- 
sum. 
 
 
--  Grant funds would be available over a [X-month] period.  An 
amount up to [X%] of the grant would be available in the first 
disbursement, with the remaining disbursements to be specified. 
 
 
--  Credit (whether by direct lending or guarantees of private 
lending) would be available over a [X-month] period.  An amount up 
to [X%] of the nominal ceiling on credit exposure would be 
available in the first disbursement, with the remaining 
disbursements to be specified. 
 
 
4.   Economic Conditions Precedent for Disbursement 
 
 
--  Turkey has committed to strong economic policies.  [Any 
disbursement of funds to Turkey would depend on Turkey's 
implementation of these strong economic policies.] 
 
 
--  [In making decisions about disbursements, Turkey's performance 
under programs supported by the international financial 
institutions would be of paramount importance.] 
 
 
5.     Monitoring and Evaluation 
 
 
--  The USG will monitor whether Turkey is meeting the conditions 
set forth in the agreement. 
 
 
--  Turkey and USG officials will have consultation meetings, as 
needed, on Turkey's use of resources under the Facility. 
 
 
--  Turkey will provide, at the request of the USG, all 
information provided to the IMF, including information needed to 
track the use of funds under the Facility. 
 
 
 
 
6.  Disbursement Requests/Reports 
 
 
Turkey will submit a report before it requests each disbursement, 
which will include information such as debt service payments to 
the international financial institutions. 
 
 
7.  Termination of Disbursements to Turkey 
 
 
--  The time period for availability of disbursements under the 
Facility is [X] months.  If Turkey has not drawn the full amount 
available, whether in loans or grants, after [X] months, it would 
not have access to the remaining funds under the Facility. 
 
 
--  If the USG determines that Turkey is not "fully cooperating" 
[to be defined] with the USG on military matters, the USG would 
inform Turkey that it was suspending Turkey's right to obtain 
disbursements.  The agreement could allow for a consultation 
period to resolve differences, and if such differences had not 
been resolved in [X] days, Turkey no longer would be able to draw 
funds from the Facility, and the Facility would terminate. 
 
 
--  Similarly, if Turkey were to fall off track in its economic 
performance [, as discussed in Article 4 above,] the USG would 
inform Turkey that it was suspending Turkey's right to obtain 
disbursements.   The agreement could allow for a consultation 
period to resolve differences, and if such differences had not 
been resolved in [X] days, Turkey no longer would be able to draw 
funds from the Facility, and the Facility would terminate. 
 
 
LOAN TERMS 
 
 
In addition, the following terms will need to be finalized for any 
loan agreement: 
 
 
8.  Maturity Date 
 
 
For each disbursement, [X] years from the date of disbursement 
with a [X year] grace period on repayments of principal. 
 
 
9.  Interest Rate 
 
 
The interest rate for all disbursements within a loan would be 
fixed at the time of the first disbursement of that loan. 
 
 
10.  Repayments 
Repayments of principal (after the grace period ends) and payments 
of interest (beginning 6 months after the first disbursement is 
made) would be made semiannually. 
 
 
11.  Prepayment of Principal 
Turkey could prepay principal without penalty. 
 
 
12.  [Default/Acceleration of Repayments 
 
 
--  The USG, in its sole discretion, could declare (some or) all 
outstanding loan disbursements, together with accrued and unpaid 
interest, to be due and payable if Turkey (a) provides materially 
incorrect representations or warranties, (b) takes actions to 
undermine the objectives of the loan agreement (as determined by 
the USG), (c) fails to comply with covenants such as information- 
sharing (see article 6 above), or (d) is in payment default under 
its IMF or World Bank obligations.] 
 
 
13.  [PENALTIES 
 
 
--  In the event that Turkey fails to meet repayment terms, it 
would lose access to all future USG assistance (e.g. EXIM Bank 
loans, Foreign Assistance Act grants).  To the extent that 
undisbursed funds remain in the Facility, Turkey's access to these 
funds would also end. 
 
 
--  In addition, penalty interest at [x] rate would also be 
assessed on overdue and unpaid principal/interest payments.] 
 
 
14.  Dispute Settlement 
 
 
The GOT and the USG will agree to submit to the jurisdiction of 
the federal courts in the Southern District of New York. The 
agreement will specify that it should be construed in accordance 
with New York law. 
 
 
15.  Other Legal Provisions 
 
 
--  The USG will require that the agreement contain negative 
pledge and pari passu clauses to ensure that Turkey does not grant 
any other creditor preferential treatment. 
 
 
--  The USG will require legal opinions from Turkish private and 
government counsel that the GOT's obligations under the agreement 
are in full accord with Turkish law. 
 
 
4.  (SUB) End Text of Draft Term Sheet. 
 
 
PEARSON