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

C O N F I D E N T I A L SECTION 01 OF 02 ISTANBUL 002195 
 
SIPDIS 
 
 
STATE FOR E, EB/IFD/OMA AND EUR/SE 
TREASURY FOR OASIA - MILLS AND LEICHTER 
STATE PASS USTR - NOVELLI AND BIRDSEY 
 
 
E.O. 12958: DECL: 12/16/2012 
TAGS: PGOV ECON EFIN TU
SUBJECT: LIMITED COPENHAGEN FALLOUT FAILS TO PROVIDE RELIEF 
TO TURKISH MARKETS 
 
 
REF: ANKARA 9075 
 
 
Classified By: Consul General David Arnett. 
 Reasons: 1.5 (b) and (d). 
 
 
¶1. (SBU) Summary: The week after Copenhagen has been a tough 
one on Turkey's financial markets.  The Istanbul Stock 
Exchange (ISE) has slumped dramatically, losing over 14 
percent of its value, the Turkish lira has depreciated 7 
percent, and interest rates on lira-denominated Treasury 
bills have spiked up to over 55 percent (a rise of 5 
percent).  Istanbul market analysts ascribe the declines, 
however, not to disappointment with the summit's outcome, but 
to a return to the country's "real" agenda.  That agenda, 
they suggest, was largely drowned out in the media build-up 
to Copenhagen.  But now, attention is again returning to the 
other issues and risks before Turkey, including notably the 
prospect of an imminent military operation against Iraq and 
political uncertainty surrounding a new and largely untested 
majority government.  As for Copenhagen itself, analysts 
ascribed its lack of resonance not just to the decision's 
openness to interpretation, but to a concerted effort by 
Turkish government, business, and media to spin it 
positively.  End  Summary. 
 
 
¶2.  (U) Unsettled Markets: Markets have been active and 
unsettled over the last week.  In the first two days after 
the summit, the ISE slumped nearly 12 percent.  After 
stabilizing briefly, it resumed its downward trend on 
Thursday, December 19.  The lira and interest rates, Turkey's 
other two key economic indicators, responded similarly, with 
interest rates spiking back up to the mid-50s, and the lira 
again depreciating to a rate above 1.6 million to the dollar. 
 
 
¶3.  (C) EU Blues: Though increasing optimism in the run-up to 
Copenhagen about the prospects for a firm starting date for 
negotiations sparked fears that the markets would react 
negatively to the eventual outcome, in fact comment and 
reaction has been muted.  Cem Akyurek, research director at 
Global, Turkey's largest brokerage, attributed the reaction 
to a concerted effort by government, business, and media to 
put the best face on what he characterized as a "strikingly 
negative" decision.  Easing the task were the conflicting 
opinions about the outcome not just in the Turkish and 
international press, but from European and other leaders. 
Akyurek, who has been sceptical about AK's economic policies 
and leadership, also gave the government grudging credit for 
its "mature" response.  He pointed to the government's 
message that it remains committed to pressing forward on 
reform as an essential balm for the market, a view echoed by 
other analysts.  Bender Securities, for instance, 
characterized the "EU anchor" as a key positive over the long 
term in its daily market report. 
 
 
¶4.  (C) The "Real" Agenda: The market's ability to come to 
terms relatively quickly with the Copenhagen outcome has not 
provided overall relief, however.  Most analysts ascribe the 
negative trend to concern about Iraq and the prospects for 
imminent military action.  Others point also to initial 
missteps by the new government, particularly in the economic 
field, where lack of coordination has brought conflicting 
messages on issues ranging from Turkey's new public tender 
law (and whether the government plans to delay its 
implementation or not) to return of a portion of the 
compulsory savings accounts collected by the government in 
past decades.  On these issues, analysts remain divided. 
Akyurek remains strikingly pessimistic about AK and its 
plans, noting that the mixed messages he and visiting 
investors have heard in Ankara also extend to such key issues 
as maintenance of primary surplus and inflation targets. 
Others, however, are more sanguine: HC Istanbul Director Elif 
Zapparoli told us that she would be "shocked" if AK actually 
made good on those suggestions.  "These guys are in this for 
the long haul," she suggested, and "will not jeopardize their 
position by picking a fight with the IMF."  (Note: Akyurek's 
boss, Global Chairman Mehmet Kutman, also falls in this 
"optimist" camp.  In a recent mailing, he effusively 
characterized the AK government as "young, hardworking, and 
highly disciplined," suggesting that for the first time in 
"recent memory" it offered Turkey "the possibility of 
government in the spirit of public service.") 
 
 
¶5. (C) Iraq: For Istanbul's market analysts, Iraq remains the 
new key wildcard.  Most ascribe recent market dynamics to 
increasing concern about the prospects for imminent military 
action, and the potential costs Turkey will face.  Drawing on 
the experience of the Gulf War, some studies estimate the 
potential impact on Turkey in the tens of billions of 
dollars.  (A recent-- albeit seriously flawed-- study by the 
Foreign Economic Relations Board estimated Turkey's losses at 
15-20 billion dollars).  Analysts admit that the issue cuts 
both ways, however.  In his recent letter, Kutman conceded 
that the costs of an operation "will be very much outweighed 
by the benefit...of having a stable and democratic government 
in Iraq."  Zapparoli echoed these sentiments, while Akyurek 
also saw a safety net in the market's belief that given 
Turkey's strategic importance, neither the U.S. nor the IMF 
would permit it to fail. 
 
 
¶6. (C) Comment: Despite their disappointment, Turkey's 
markets have reacted calmly to the Copenhagen decision.  But 
at the same time, they have taken off the rose-colored 
glasses through which they filtered all other developments. 
With increasing uncertainty surrounding Iraq, and growing 
concerns about government policy, markets are likely in for a 
bumpy ride until the former situation is resolved, one way or 
another, and until the government imposes more discipline in 
conveying its economic message.  End Comment. 
 
 
ARNETT