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 000851 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB/IFD, AND EUR/SE 
TREASURY FOR OASIA - JLEICTHER AND MMILLS 
NSC FOR MBRYZA AND TMCKIBBEN 
 
 
E.O. 12958: N/A 
TAGS: EFIN EAID ENRG EINV PGOV TU
SUBJECT: GLIMMERS OF TURKISH RE-ENGAGEMENT WITH THE WORLD 
BANK 
 
REF: A. ANKARA 808 
     ¶B. ANKARA 763 
     ¶C. ANKARA 608 
 
 
¶1. (Sbu) Summary: Country Director Andrew Vorkink painted a 
mixed picture on Turkish re-engagement with the World Bank. 
In two sectors, energy and banking, the GOT has shifted to 
meaningful engagement in recent weeks, in both cases working 
with the Bank to develop a new interagency-coordinated 
strategy.  The Bank is also trying to get the GOT to work 
with it on anti-corruption issues.  According to Vorkink, the 
Prime Ministry Undersecretary has consciously avoided 
engaging with the Bank on the proposed Public Administration 
reform.  Vorkink said the Prime Minister said all the right 
things in his meeting with Wolfensohn, and Wolfensohn will 
attend the March 15 foreign investors' conference in 
Istanbul.  The GOT continues to press for CEO participation, 
and worries about lower-level attendance.  End Summary. 
 
 
¶2. (Sbu)  As reported earlier, following the September 
meeting in Dubai between World Bank President Wolfensohn and 
Economy Minister Babacan, the GOT committed to re-engage with 
the World Bank, and the Bank sent Europe Director Shigeo 
Katsu to Turkey for a high-profile visit in December.  In a 
meeting with Econoffs February 11, World Bank Country 
Director Andrew Vorkink and Economist Ismail Arslan said 
there have been some recent signs of GOT re-engagement with 
the World Bank, particularly on banking and energy issues. 
 
 
Energy Sector: 
------------- 
 
 
¶3. (Sbu) Vorkink said he was encouraged that in the past two 
weeks the Bank has had a constructive dialogue with the GOT 
on developing an energy sector strategy.  Over the past year, 
different parts of the government made public statements and 
did not coordinate.  As a result, there has been no action. 
Vorkink said the Bank took the initiative of proposing to 
help the GOT work out an interagency-agreed strategy, using 
input from international experts.  He said the GOT accepted 
the Bank's proposal and the Bank brought a team of experts in 
January.  Vorkink said Turkish Treasury has played a helpful 
role in bringing the GOT agencies together, in order to meet 
a condition of the World Bank's Economic Reform Loan (ERL). 
To meet the loan condition, either the Council of Ministers 
or the High Planning Council has to approve a strategy by 
March 31. Arslan was hopeful the relevant GOT officials would 
agree on a strategy by the end of the month, since there are 
signs that the Energy Ministry is now cooperating with the 
regulatory agency (EMRA).  On the overall concept of moving 
to market-based regional electricity pricing, Vorkink thought 
there might be a way to allay the Prime Minister's concerns 
about expensive pricing in relatively poor Eastern Turkey. 
 
 
¶4. (Sbu) Econcouns noted that the GOT seems to be pressuring 
U.S.-owned power companies to lower electricity prices, 
instead of entering into good faith discussions.  Vorkink 
said the Bank has to be careful not to get in the middle 
between a government and a private party but noted that 
international best practices can help evaluate the problems 
with the GOT's power contracts and that the problems with the 
BOT's were not all the same.  Vorkink said the Bank had 
offered to brief the U.S. Treasury on its analysis. 
 
 
Banking Sector: 
-------------- 
 
 
¶5. (Sbu) Vorkink was similarly optimistic on banking sector 
issues, despite the absence of progress on state-owned bank 
privatization and pessimism expressed by IMF officials (ref 
b).  Rather than simply insisting on privatization, Vorkink 
said the Bank had replicated the approach it took on energy 
reforms: it offered to facilitate an interagency 
process--with Bank-provided expert international input--to 
come up with a new, GOT-wide strategy.  The Bank has found 
the GOT receptive to this approach and a high-level 
interagency team is being established to come up with a 
strategy. Vorkink noted that there are multiple options 
besides trying to privatize the state banks outright, such as 
setting some kind of asset management company to hold the 
state banks' huge government securities portfolios, or 
unbundling the functions of the state banks.  Comment: Given 
that many local observers wonder who would buy the State 
banks in their current, overstaffed, overbranched and 
government securities-laden situation, and the obvious 
reticence of the GOT to tackle the issue, the Bank approach 
may hold the potential for progress on this issue.  End 
Comment. 
Other, less Engaged Sectors: 
--------------------------- 
 
 
¶6. (Sbu) Vorkink said he was trying to elicit GOT interest in 
working with the Bank on anti-corruption and good governance 
issues.  Though the AK Party Government has emphasized 
anti-corruption and good governance in its public statements, 
Vorkink noted there has been little tangible action.  In this 
field, he praised the work of a Turkish NGO in Istanbul, 
Tedmer, which is working on corporate governance, training 
corporate ethics officers who are then placed in Turkish 
companies.  Tedmer works with a Washington-based NGO, the 
Ethics Resource Center (ERC).  Vorkink and Arslan said the 
GOT created a high-level committee on anti-corruption, but it 
has not yet met. The Bank is willing to help and, if the GOT 
cooperates, adjustment operation money would be disbursed. 
 
 
¶7. (Sbu) On public administration reforms, Vorkink 
differentiated between the close cooperation over the Public 
Financial Management and Control Law and the complete absence 
of engagement over the GOT's current effort to conduct a 
far-reaching reform of the Public Administration, including a 
big decentralization of power to municipalities.  Vorkink 
said that Undersecretary to the Prime Minister Dincer has 
made a conscious decision to keep clear of international 
organizations in spearheading this reform, so as to avoid 
potential criticism that the GOT is doing this reform under 
IFI conditionality.  Vorkink is trying to convince other GOT 
officials (he mentioned Deputy Prime Minister Sahin) that 
Dincer would be better off with legislation bearing the 
imprimatur of international agencies. 
 
 
Prime Minister's Meeting with Erdogan: 
------------------------------------- 
 
 
¶8. (Sbu) Vorkink had attended Prime Minister Erdogan's 
Washington meeting with Wolfensohn and said it went well. 
Erdogan was well-briefed and charismatic, and expressed 
appreciation for the Bank's activities in Turkey.  It was 
Wolfensohn's first meeting with Erdogan, but they will be 
meeting again March 15 when Wolfensohn comes to Istanbul for 
the Foregin Investor's Council meeting. 
 
 
Attracting CEO's to the Foreign Investors' Council: 
--------------------------------------------- ----- 
 
 
¶9. (Sbu) The World Bank, the IMF and the Government of Turkey 
are co-sponsoring this oft-postponed event, in which CEO's 
from multinationals will meet in a closed-door session with 
the Prime Minister and his economic ministers.  Vorkink 
rattled off an impressive list of major multinationals who 
have agreed to attend and said the Bank has been telling the 
GOT that this is not a roadshow presentation on Turkey. 
Instead, it's a chance for senior executives to speak frankly 
with the GOT about investment issues and for the GOT to 
explain what it is doing.  Econcouns told Vorkink that 
Turkish Treasury Director General for Investment Melek Us had 
called him to complain about the absence of senior U.S. 
executives attending, to which Econcouns responded that it 
was probably related to the absence of progress on all the 
American companies' investment disputes.  Us complained that 
in some cases, companies such as Citigroup, had agreed to 
send executives, but they were not CEO's.  Vorkink said 
Wolfensohn had told Erdogan that household name CEO's 
sometimes cannot attend such events but that the next level 
executive is often the one making investment decisions, and 
should be welcomed.  But Vorkink said Minister Babacan is 
worried that if the executives are too low-ranking, it sends 
a bad signal and will discourage the few senior executives 
who show up not to come in the future. 
EDELMAN