This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ANKARA 007763 
 
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: CENTRAL BANK GOVERNOR ON POST-ELECTION TASKS, 
INCLUDING KEEPING THE CARETAKER GOT HONEST 
 
 
Sensitive but Unclassified.  Not for internet distribution. 
 
 
¶1.  (SBU) Summary: In a October 30 meeting, Central Bank 
Governor Serdengecti told us he and Treasury U/S Oztrak have 
prepared a document to give to the election winners which 
explains in non-technical terms the GOT's commitments to the 
IMF and why they should be honored.  The length of the 
education period with the new GOT depends on who is the new 
Economy Minister (and obviously Serdengecti hopes it's 
Dervis.)   He is also focused on working with the caretaker 
GOT during the transition period to make sure that it takes 
the necessary measures in November to keep the program on 
track.  He is concerned that the lame duck GOT will have 
little incentive in the post-election period to implement the 
fiscal measures it agreed to with the IMF, to the meet the 
6.5 percent of GNP primary surplus target for the year. End 
Summary. 
 
 
Post-Election Mission:  Educate the New GOT 
------------------------------------------- 
 
 
¶2.  (SBU) Serdengecti said he and Treasury Undersecretary 
Faik Oztrak have prepared a document to give to the winners 
of the election.  It  describes in non-technical terms the 
GOT commitments under the existing letter of intent to the 
IMF.  It stresses the need to continue with these 
commitments, and explains why this is both necessary and 
urgent.   He previewed the document to the Central Bank's 
newly formed Monetary Policy Council (includes Treasury and 
academics as well as CenBank officials). 
 
 
¶3.  (SBU) "Our job will be easier if CHP is in the government 
and Dervis gets the Economy Minister portfolio," Serdengecti 
continued.  "We can start working right away with Dervis on 
next year's program.  We won't have to wait for parliament to 
convene.  But the education period will be longer with 
others."  Serdengecti commented that other possible 
ministerial candidates in a AKP-CHP coalition are known not 
to be market friendly - he singled out AKP's Ali Coskun and 
CHP's Yakup Kepenek. "If they put forth names like this, the 
markets will react and will pay a higher price in terms of 
higher interest rates," Serdengecti opined.  Serdengecti said 
he understood that AK had some younger officials who were 
market-oriented and could be educated quickly.  He commented 
negatively about DYP's Ciller ("she doesn't know what she's 
talking about on the economy") and on the "deep-down 
isolationist" MHP. 
¶4.  (SBU) Asked whether senior USG visits in the 
post-election period would help him reinforce the reform 
points, Serdengecti demurred.  "Give us some time to educate 
them first."  Serdengecti surmised that this initial period 
could last until mid-December. 
 
 
Dealing With the Caretaker GOT 
------------------------------ 
 
 
¶5.  (SBU) In the meantime, Serdengecti is also concerned with 
the post-election policies of the existing GOT.   For 
instance, the GOT, which had fallen somewhat off track on its 
primary budget surplus target, must implement certain 
measures in November in order to meet the year-end fiscal 
targets.  Most important is raising the prices of goods 
controlled by public sector companies (tobacco, spirits, oil 
products among others).  Serdengecti is concerned that the 
lame duck GOT will have little incentive to take these 
unpopular measures. 
 
 
¶6.  (SBU) Serdengecti explained that delaying the fiscal 
measures will also affect inflation targets.  If the GOT 
delays public sector prices increases until 2003, then 
year-end 2002 inflation will be below target. However, this 
comes at a high cost in terms of reducing the primary surplus 
for 2002 and pushing inflationary pressures into 2003.  In 
that case, the GOT might have to revise the year-end 2003 
inflation target from 20 to 25 percent consumer price index 
increase.  This would in turn affect inflationary 
expectations.  A year-end 25 percent target may appear to the 
public as little to no decrease, making it more difficult to 
get the private sector to continue lowering expectations. 
¶7.  (SBU) On the 2003 inflation target, he said there are 
three unpredictable variables:  agricultural prices (which 
depend to some extent on weather and growing seasons); energy 
prices (even without an external regional shock); and "slow 
adaptation of the public sector." 
 
 
¶8.  (SBU) Comment:  Serdengecti appears committed to staying 
on and working with the new GOT.  His concerns with educating 
the new GOT are mirrored in what we are hearing from the 
private sector.  The elections will result in reduced 
political uncertainty, which should further encourage the 
local capital markets.  But, soon after the elections, the 
focus will be on how soon the new government gets formed and 
continues the hard work of economic reforms. 
PEARSON