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 004455 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR E, EUR/SE, AND EB/IFD 
TREASURY FOR INTL AFFAIRS - MMILLS ANS MSCHWARZMAN 
NSC FOR MBRYZA AND TMCKIBBEN 
 
E.O. 12958: N/A 
TAGS: EFIN ECIN TU
SUBJECT: GOT PREPARING THREE-YEAR ECONOMIC PROGRAM 
 
REF: ANKARA 3688 
 
¶1. (Sbu) Summary:  Earlier this summer, the Turkish 
Government began work on a 3-year economic program.  An 
outgrowth of previous and existing policy planning vehicles, 
the 3-year program is a GOT economic policy program being 
developed with input from--but independently of --the IMF. 
According to post contacts, it is fairly broad in scope, 
encompassing the macro economic framework, budget planning 
and structural reforms but with particular focus on fiscal 
issues such as the debt stock and composition of expenditure. 
 Its formulation is a coordinated interagency effort 
involving consultations with other non-governmental 
stakeholders.  The GOT has not yet released its specific 
content or explained the modalities of its implementation. 
By working on its own program, prior to beginning 
negotiations with the Fund, the GOT may be attempting to 
demonstrate ownership of its medium-term framework.  End 
Summary. 
 
Antecedents 
--------------- 
 
¶2. (U) Turkey,s State Planning Organization (SPO) has been 
crafting 5-year economic development plans since the 1960,s. 
 The 8th such plan, running from 2001-2005, is currently in 
implementation.  Since 2001 the EU has required Turkey to 
develop and update a Pre-accession economic program (PEP) 
that lays out the policy program that will be implemented to 
bring Turkey in compliance with both the Maastricht and 
Copenhagen economic criteria for EU membership.  On August 
4th,  State Minister for Economy Ali Babacan made a statement 
reiterating the three-year program goal of meeting EU 
criteria.  Finally, in December 2003 the Turkish parliament 
passed the Public Financial Management and Control (PFMC) 
law.  This law requires that the GOT adopt a three-year 
planning framework in budget formulation beginning in 2006. 
The GOT,s new 3-year program is an outgrowth of all these 
elements. 
 
Focus of the program 
-------------------------- 
 
¶3. (Sbu) Turkish U/S of Treasury Ibrahim Canackci told 
visiting US Treasury officials that the program would be a 
&full program8, covering the macro framework, domestic and 
external financing, and structural issues.  Others inside the 
GOT, however, have noted that the program will be focused on 
fiscal issues and the debt-to-GNP ratio in particular. 
Memduh Akcay, Treasury Director General for International 
Economic Relations revealed that under the program the 
government would target a specific ratio to be achieved and 
then implement policies to reach the target.  The end goal is 
to bring debt-to-GNP in line with EU standards (60% of GNP). 
Officials at the Ministry of Finance and SPO focus more on 
the fiscal aspects, highlighting the three-year planning 
framework for the budget required by the PFMC law, and/or the 
potential for increasing investment expenditure in light of 
high unemployment. 
 
¶4. (Sbu) In describing the three-year program as a &full 
program8, Canakci remarked that the &PEP to the EU must be 
a part of the three-year framework8.  The PEP does have a 
heavy structural reform component covering issues such as 
privatization, the financial sector and rural development, 
among others.  The structural reform agenda of the World 
Bank,s new Country Assistance Strategy (CAS) will also be 
coordinated with the program. 
 
Process 
---------- 
 
¶5. (Sbu) The formulation of the three-year program is an 
interagency process coordinated and led by State Minister for 
Economy Ali Babacan.  Treasury, Ministry of Finance, SPO and 
the Central Bank have worked together at a technical level to 
develop it. Canakci and SPO Deputy Under Secretary, Birol 
Aydemir, both noted the high quality of intergovernmental 
cooperation (a frequent theme of GOT economic technocrats). 
Aydemir even claimed that it was the best instance of 
interagency cooperation he,d seen in his 17 years of working 
for the Turkish government.  In addition to the interagency 
process Canakci explained that Babacan had consulted with 
outside labor and business groups, stating that, &Minister 
Babacan is consulting with all stakeholders8.  He also 
outlined two other processes involved in the development of 
the program, the Council of Ministers process and the IMF 
process.  At the ministerial level, Babacan is in an ongoing 
dialogue with other ministers, including Prime Minister 
Erdogan.  On the IMF, Canakci said that completion of the 8th 
review of the Stand-By arrangement would &accelerate8 the 
three-year program. 
 
Timing 
--------- 
 
¶6. (Sbu) It is unclear precisely when the GOT plans to 
present the new program.  Turkish Treasury states that 
refinements are still ongoing in the context of the 2005 
budget formulation process.  The PFMC law calls for three 
year budgeting beginning in 2006 but Canakci explained that 
with the expiration of the IMF program in early 2005, this 
was moved up a year.  The PEP is to be submitted to Brussels 
in November and will be attached as an addendum to the 2005 
budget. (Note: technically the 2005 budget must be finalized 
by October 17th, 2004, but this does not preclude changes 
occurring after that date.) 
 
IMF involvement 
--------------------- 
 
¶7. (Sbu) The Fund has had some, but not major, involvement 
the three-year program process.  In fact IMF staff expressed 
concern that the program may be announced without them first 
being consulted.  SPO Deputy U/S Aydemir told econoffs that 
the GOT presented a general view of a medium term 
macroeconomic framework to the IMF during the 8th review 
mission in June.  He said the Fund was surprised and pleased 
with the work the GOT had done and that negotiations on the 
program would continue in September.  This is in contrast to 
the GOT's initial approach.  At an earlier stage, (reftel) 
GOT officials had started by asking the IMF how much 
financing might be available rather than first coming up with 
a program. The change in the GOT approach may be an attempt 
to demonstrate ownership of their medium-term framework prior 
to entering into negotiations with the Fund.  In a recent 
meeting with US Treasury officials and econoff, World Bank 
Country Director Andrew Vorkink praised the GOT's development 
of its own program, precisely because it showed ownership. 
IMF Turkey mission chief Reza Moghadam led an IMF delegation 
visit to  Ankara the first week of August, ostensibly to 
assist the GOT in preparing the PEP.  In fact, the 
discussions were probably centered on a on a possible 
follow-on IMF Standby program..  Statements to the press in 
the past few days by Prime Minister Erdogan and Minister 
Babacan suggest that the GOT has decided to pursue a new IMF 
program.  Post will report on the IMF program septel. 
 
. 
EDELMAN