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 001305 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, P, EUR AND EB 
TREASURY FOR U/S TAYLOR 
 
 
E.O. 12958: N/A 
TAGS: ECON PREL TU
SUBJECT: TURKEY'S ECONOMY: BUDGET COULD BE PASSED "IN TWO 
WEEKS;" CONCERN WITH FOREIGN BANK LINES 
 
Sensitive but unclassified. Not for internet distribution. 
 
 
 
 
¶1.  (SBU) Summary: The Turkish Ministry of Finance's top 
budget expert told us the process of enacting the 2003 budget 
could take as little as two weeks.   But the Government is 
delaying submission of the budget to parliament, per this 
expert, because it has not agreed with the IMF over measures 
needed to reach the 6.5 percent of GNP primary budget 
surplus.  This expert confirmed that the IMF position still 
shows a 1.5 percent of GNP or $3 billion shortfall towards 
this primary surplus target.  By not moving quickly to pass a 
2003 budget which the IMF can support, the GOT risks putting 
itself in a vulnerable situation vis a vis the markets.  One 
foreign bank told us of indications that one of the major 
European bank lenders to Turkish banks is already limiting or 
pulling its lines.  End Summary. 
 
 
Budget Process "A Matter of Two Weeks" 
------------------------------------- 
 
 
¶2.  (SBU) Turkey's 2003 budget could be enacted into law in 
as little as two weeks, according to Turkish Finance Ministry 
Deputy DG for the budget Ahmet Kesik.  Kesik outlined the 
four-step process for us: 
 
 
--  The "Higher Planning Council" (a subset of Cabinet 
ministers and econ agency heads) must meet and approve the 
budget law (status: done); 
 
 
--  The full Cabinet must approve and submit the budget to 
parliament (status:  Cabinet has discussed but not yet 
submitted it to parliament.) 
 
 
--  The Parliament's Budget and Planning Commission approves 
the budget, and prepares a report recommending its passage by 
the full parliament (Kesik said this could take as little as 
two days); 
 
 
--  The full parliament votes on the budget 
article-by-article (the 2003 budget law has about 50 
articles, but the two political parties in parliament could 
agree to limit debate.) 
 
 
¶3.  (SBU) Kesik added that the reason the full Cabinet has 
not yet approved the budget was the impasse with the IMF.  He 
confirmed that the IMF sees the draft budgetary measures they 
would accept as yielding a 5.0 percent of GNP primary surplus 
(the IMF cannot accept the GOT's proposed delay of the 
"Direct Income Support" for farmers, worth about 0.5 percent 
of GNP), whereas the GOT sees a 6.5 percent primary surplus 
in its existing draft.  (The 1.5 percent of GNP gap is about 
$ 3 billion). 
 
 
¶4.  (SBU) Comment:  The current interim budget expires March 
¶31.   The GOT could in theory pass another interim, and 
continue negotiating with the IMF over the full year primary 
surplus measures, but then it risks the following dangerous 
scenario: a conflict with Iraq, no budget, no IMF agreement 
and an unhappy bond market.  On the IMF front, resrep told us 
there is still no progress on closing the 1.5 percent of GNP 
primary surplus gap.  In fact, MinFin Unakitan, in a meeting 
this week, raised with IMF staff the possibility of new VAT 
tax cuts for certain sectors (milk products and funeral 
services.)  IMF staff believes the GOT still hopes to move 
the USG off our conditionality language, and thus obviate the 
need to take difficult budget measures required by the IMF. 
End Comment. 
 
 
An Initial Sign of Trouble with Foreign Bank Confidence 
--------------------------------------------- ---------- 
 
 
¶5.  (SBU) Barclays Bank Turkey managers Matt Vogel and Burak 
Ince told us 2/27 that they see signs, and are hearing 
rumors, that one of the major European bank lenders to 
Turkish banks has pulled or at least limited credit lines to 
Turkish banks.  The sign is that over past two days several 
Turkish banks approached Barclays seeking short-term "repo" 
(i.e., Turkish T-bill-backed) loans.  Barclays is not a major 
lender to Turkish banks and the sudden, large-scale demand 
for these repo deals indicates that one of the three major 
European lenders (currently Dresdner, Credit Agricole and 
West LB) has stopped lending. 
¶6. (SBU) Comment:  Turkish banks may want to continue to 
roll-over their T-bill lending to the GOT, even in the 
absence of a U.S. package or an IMF agreement, but their 
ability to do so has funding constraints, and foreign bank 
credit lines are an important element in these constraints. 
PEARSON