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Viewing cable 03ISTANBUL671, ISTANBUL IN THE SPRINGTIME: RESURGENT OPTIMISM

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Reference ID Created Released Classification Origin
03ISTANBUL671 2003-05-09 13:55 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Consulate Istanbul
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 ISTANBUL 000671 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EUR AND EB 
TREASURY FOR U/S TAYLOR AND OASIA - MILLS 
NSC FOR QUANRUD AND BRYZA 
 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL TU
SUBJECT: ISTANBUL IN THE SPRINGTIME: RESURGENT OPTIMISM 
 
 
Sensitive but Unclassified - not for internet distribution. 
 
 
1. (SBU)  Summary: As a belated spring bursts forth on the 
Bosphorus following an unusually cold and protracted winter, 
"spring is also in the air" in Istanbul business circles. 
The resurgent optimism stems from speedy conclusion to the 
war in Iraq and belief that its short-term cost for Turkey 
was limited, and will easily be surpassed by the long-term 
benefits access to the Iraqi market can provide.  With 
declining interest rates, a strengthening lira, and improving 
inflation performance, Istanbul business leaders believe that 
four-five percent GDP growth is no longer out of the 
question.  Some tourism industry leaders now indicate that in 
place of the 50-60 percent dropoff they earlier predicted, 
Turkey's tourism loss can be held to 15 percent, leaving the 
country ahead of last year's levels.  With strong export 
growth, the key issue remains domestic demand, which has 
rebounded in some sectors, but not across the board. 
Istanbul's business elite expects the turn around to deepen 
in the second half of 2003, however, as the uncertainty 
caused by the war recedes.  End Summary. 
 
 
2. (SBU) Gloom Recedes: In place of the extreme pessimism 
that characterized the run-up to the Iraq war and 
accompanying concern about U.S.-Turkish relations and the 
depth of the government's commitment to the IMF program, 
optimism is now in the air in Istanbul.  Whereas analysts two 
months ago saw no engine for growth in the economy other than 
exports, and saw serious impacts from the war on domestic 
demand, tourism, and public investment, there is now 
widespread expectation that only the latter will act as a 
brake on growth.  The improvement in sentiment is evident in 
the latest Central Bank Survey, which reports improving 
expectations on growth (up to 3.7 percent), inflation (down 
to 26.6 percent) and interest rates. 
 
 
3. (SBU) Tourism: While tourism leaders we canvassed in March 
gloomily predicted a 50-60 percent drop to 5.5 billion as a 
result of the war, they are now relatively more sanguine. 
The sector did experience a 25 percent drop in March, 
following a 15 percent gain in the first two months of the 
year, but some industry leaders believe recovery to near 2002 
levels is not out of the question.  Turkish Tourist Agency 
Union (TURSAB) head Basaran Ulusoy told us on May 7 that he 
believes the loss can be held to 10-15 percent from the 
year-end target of 15 million tourists, leaving Turkey ahead 
of last year's level.  Tourism Investors' Association 
Secretary General Nedret Koruyan is more circumspect, 
 
SIPDIS 
suggesting that while tourist numbers may recover to last 
year's level, overall revenues will decline, as foreign 
travel agencies are agressively pressing for discounts for 
last minute bookings.  She noted, though, that the decline 
will not approach the magnitudes the industry earlier feared. 
 
 
 
 
4.  (SBU) Exports:  One of the driving forces behind last 
year's growth seems only to have picked up pace in the first 
four months of 2003, with an impressive 36 percent increase 
in exports.  Total volume is close to USD 14 billion, and 
analysts predict that exports will reach USD 40 billion for 
the year, exceeding even the ambitious year-end target of 39 
billion.  Analysts see the possibility of an annual export 
volume of up to USD 6 billion with Iraq, once trade is 
normalized, arguing that Turkey is ideally positioned to 
supply that country's consumer needs.  Meanwhile, in the last 
quarter, the leading export items readywear and automotive 
products recorded 28 and 66 percent increases respectively. 
Suleyman Orakcioglu, head of the Istanbul Readywear 
Exporters' Union and creator of the successful "Damat" brand, 
told us on May 6 that Turkish exporters gained valuable 
experience after the 2001 crisis when domestic demand 
plummeted and companies were forced to exploit international 
markets.  Aggressive marketing is supported by the benefit 
provided by the strong Euro in European markets, which 
account for more than 50 percent of Turkey's exports. 
Orakcioglu predicted that Turkish textile makers will also 
benefit from the SARS epidemic in Asia, noting that they are 
already seeing new orders from companies that are not 
interested in travelling to the Far East.  He expressed 
concern, however, that existing quota limits will prevent 
Turkey from filling the expected additional demand from U.S. 
customers. 
 
 
5. (SBU) Domestic Demand: The wild card in the deck remains 
the ability of domestic demand to rebound and take the place 
of stock accumulation, which accounted for the bulk of GDP 
growth last year.  Initial indications are promising. 
Industrial production grew 7.5 percent in the first quarter 
on y-o-y terms, including a surprisingly strong 5.6 percent 
in March, far exceeding analysts' expectations of 1.3 
percent.  Earlier predictions of 0-2 percent growth for 2003 
have been revised to 4-5 percent by some analysts (in line 
with the Central Bank survey's 3.7 percent).  Selected 
retailers report up to a 30 percent increase in sales during 
the past few weeks, and expect demand to increase further as 
the uncertainty caused by the war recedes.  Domestic sales of 
passenger cars and light commercial vehicles also rose 271 
percent in the first quarter (from an admittedly weak 2002 
figure-- the lowest in the last decade), while consumer 
durables recorded a 20 percent increase.  These trends are 
expected to continue as improving inflation performance and 
declining interest rates spur the release of pent-up demand. 
 
 
6. (SBU) Comment: The mood on the Bosphorus is definitely 
more hopeful than it was six weeks ago, but significant risk 
factors remain.  Chief among them are continued government 
implementation of the reform program and the strengthening 
lira, which could begin to hurt Turkey's international 
competitiveness.  Contrarians also note that while Turkish 
markets always expect an easy summer, something usually 
happens to change the picture-- from the Russia crisis in 
1998 to early elections in 2002.  While no such event is on 
the horizon, any such external or internal shock could easily 
change the current picture, given the economy's underlying 
fragility.  End Comment. 
ARNETT