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 001330 
 
SIPDIS 
 
SENSITIVE 
 
TREASURY FOR OASIA - CHRIS PLANTIER 
 
E.O. 12958: N/A 
TAGS: EFIN CVIS PGOV ECON TU
SUBJECT:  Visa Data Tracks Turkey's Economic Recovery 
 
Ref:  2004 Ankara 6213 
 
SENSITIVE BUT UNCLASSIFIED. 
 
¶1.  (SBU)  Summary.  Contrary to popular wisdom, non- 
immigrant visa data shows that the recovery from the 
2000-1 economic crisis is having a real impact on 
Turkey's middle and lower classes.  This is confirmed 
by other signs of growing household consumption, but 
income disparities, unemployment, and extreme poverty 
remain pervasive and deep-rooted.  The politics of 
poverty, middle class aspirations, and the unrecorded 
economy create pressures for populist policies that are 
only offset by the external discipline provided by the 
IMF and the EU accession process.  End Summary. 
 
------------------------------- 
Visa Refusals Down, Economy Up? 
------------------------------- 
 
¶2.  (SBU)  An analysis of visa interview data offers 
insight into one of the most vexing questions facing 
analysts of the Turkish economy:  have the benefits of 
the strong economic recovery that has seen average 
income increase by 70% in dollar terms since 2002 
(from $2,600 to $4,400 per capita) been "trickling 
down" to ordinary people?  The answer to this question 
has implications not only for economic policy, but 
sheds light on the political pressures on Prime 
Minister Erdogan's government as it moves forward (or 
not) in implementing politically controversial economic 
and political reforms.  Although our model may be 
simple and other factors are no doubt at play, 
declining visa refusal rates suggest that the benefits 
of growth are indeed increasingly being perceived on 
"Main Street." 
 
¶3.  (SBU)  Conventional wisdom holds that economic 
growth since 2002 has mostly benefited the wealthy 
business and financial class that is mainly located in 
Istanbul.  ConGen officers are indeed impressed by 
opulent displays of new wealth on display in Turkey's 
business capital.  Conversely, Consulate Adana observes 
little improvement in the southeast region's grueling 
poverty.  The city of Ankara, with its large share of 
bureaucrats and professionals, is not representative of 
the rest of the country.  However, cutbacks in 
government spending and investment that followed the 
financial crisis may have had a relatively greater 
impact in the capital than elsewhere, particularly on 
the middle classes. 
 
------------------------------------------ 
The Theory: Travel Correlates with Economy 
------------------------------------------ 
 
¶4.  (SBU)  Our visa analysis postulated that a desire 
to emigrate in search of a better life is one 
reflection of a household's economic health.  When 
incomes and living standards deteriorate, relatively 
more people decide to attempt to immigrate to countries 
- particularly the U.S. - with perceived greater 
economic opportunity.  As most such intending 
immigrants have no hope of obtaining immigrant visas, 
many seek NIVs:  most often, "B" tourist visas or "F" 
student visas (particularly for language study 
programs, acceptance to which is virtually automatic). 
At the same time, declining incomes make otherwise 
eligible individuals less likely to travel for business 
or tourism.  Both factors should lead to an increase in 
NIV rejection rates.  Similarly, as economic 
opportunities at home improve and incomes rise, 
relatively fewer non-qualified applicants seek NIVs, 
and rejection rates should decline.  Since most of the 
changes in rejection rates are due to changes in 
numbers of applicants from the middle and lower 
classes, an analysis of trends in rejection rates can 
supply clues as to how deeply an economic recession or 
recovery has penetrated the population. 
 
-------------------------------------- 
The Analysis: Issuances Track Recovery 
-------------------------------------- 
 
¶5.  (SBU)  An analysis of NIV rejection rates in Ankara 
and Istanbul clearly shows the impact of the financial 
crisis.  In the first quarter of 2000 -- before the 
crisis hit -- the overall rejection rate was 11.5%.  At 
the height of the crisis in the third quarter of 2001, 
the rejection rate peaked at 34.4%.  As the recovery 
kicked in, a downward trend became clear, so that by 
the fourth quarter of 2004 the rejection rate had 
fallen to 18.3%, much closer to but still in excess of 
the pre-crisis level.  (A more rigorous regression 
analysis of quarterly rejection rates bears out the 
presence of a trend:  second order polynomial analysis 
showed that the downward trend in rejection rates began 
sometime between the first quarter of 2003 (55% 
confidence level) and third quarter of 2003 (96% 
confidence level).  To control for changes in 
adjudicating officers and policies, an analysis of a 
single Ankara-based Consular Assistant who started work 
in 2002 quarter 2 produced similar results.) 
 
--------------------------------------- 
Other Data Confirm Improving Lifestyles 
--------------------------------------- 
 
¶6.  (SBU)  The recovery in living standards suggested 
by the visa analysis is supported by other signs that 
life is improving, at least for the middle class. 
Household consumption is growing strongly.  New car 
sales increased from 175,000 in 2002 to 754,000 in 
¶2004.  Sales of consumer durables, like refrigerators 
and washing machines, increased by 83% in the year 
ending in November 2004.  Sales of consumer 
electronics, such as televisions, grew by 29% in 2004, 
versus only 0.1% the previous year.  There are also 
indications of more equality in income distribution, at 
least as measured by the Gini coefficient, which 
declined by 14.3% from 0.49 in 1994 to 0.42 in 2003 
according to the State Institute of Statistics.  This 
continues a longer term declining trend in the Gini 
coefficient, which peaked at 0.56 in 1968. 
 
------------------------------------ 
But Poverty Remains Deep, Widespread 
------------------------------------ 
 
¶7.  (SBU)  Nevertheless, the depth of the recovery and 
its geographical coverage remain difficult to 
determine.  The unemployment rate remained stuck at 
10.3% in 2004, just below its 10.6% 2002 post-crisis 
high.  Since the crisis, new jobs have not been created 
fast enough to keep up with growth in the population 
and expanding labor force participation.  In addition, 
there is widespread under-employment of individuals 
working in jobs for which they are over-qualified. 
Extreme poverty appears deep-rooted and pervasive in 
rural areas and in large parts of urban centers (see 
reftel for a view of urban poverty in Ankara).  For the 
first time ever, the Turkish government published 
official poverty data in April 2004.  Using a 2002 
household survey, the report found that 1.4% of the 
population does not have enough to eat, while 27% (18.4 
million people) lives below a poverty line equivalent 
to household income of $206 per month for a family of 
four.  The numbers of the poor are evenly split between 
urban and rural areas, although a higher share of the 
rural population (35%) falls below the poverty line. 
The State Statistical Institute has promised to update 
its study using 2003 data, from which it should be 
possible to make a preliminary estimate of post-crisis 
trends. 
 
------- 
Comment 
------- 
 
¶8.  (SBU)  As our analysis of visa data suggests, there 
have been clear improvements in the living conditions 
of average people since the financial crisis; not only 
the rich have benefited from low inflation and strong 
growth.  In fact, perhaps the most important 
contribution to the well-being of lower and middle 
income groups has been success in eliminating run-away 
inflation, which in Turkey, like everywhere else, hurts 
poor more than the rich or middle classes.  At the same 
time, the unregistered "informal economy" (which some 
say includes 60% of actual GDP) stunts growth, inhibits 
job-creating entrepreneurship, and denies the 
government financing needed for social programs. 
Indeed poorly funded, ad hoc social programs often have 
unintended negative social and environmental 
consequences -- such as the free distribution of dirty 
soft coal that clouds the skies of Ankara, Istanbul, 
Gaziantep and other large cities. 
 
¶9.  (SBU)  Regional and other gaps seem slow in closing 
-- perhaps too slow for the political traffic to bear. 
There is strong pressure on politicians to embrace 
populist measures (such as the currently debated 
regional investment incentive scheme) that perversely 
threaten to undermine the sound economic policies that 
under gird the recovery.  Persistent poverty and 
unemployment are also making it more difficult for the 
government to move forward on privatization and other 
structural reforms (such as in the agricultural sector) 
that will have large short-term employment and social 
costs.  To overcome such reform weariness -- which only 
grows as the overall situation improves and disparities 
become more evident -- the external discipline provided 
by the IMF and EU "policy anchors" is critical to 
ensure continued reforms and good economic policies. 
The government will also have to be more creative in 
addressing impediments to job growth and in finding 
resources to effective social support programs. 
-------------------------------- 
Table: NIV Overall Refusal Rates 
-------------------------------- 
 
     2000 Q1         11.5% 
     2000 Q2         13.4% 
     2000 Q3         15.8% 
     2000 Q4         15.7% 
     2001 Q1         18.4% 
     2001 Q2         25.5% 
     2001 Q3         34.4% 
     2001 Q4         24.8% 
     2002 Q1         20.3% 
     2002 Q2         20.8% 
     2002 Q3         25.9% 
     2002 Q4         29.0% 
     2003 Q1         21.1% 
     2003 Q2         22.6% 
     2003 Q3         29.1% 
     2003 Q4         25.9% 
     2004 Q1         22.0% 
     2004 Q2         22.2% 
     2004 Q3         20.3% 
     2004 Q4         18.3% 
 
EDELMAN