VZCZCXYZ0000
RR RUEHWEB

DE RUEHAK #6227 3051508
ZNR UUUUU ZZH
R 011508Z NOV 06
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 9765
INFO RUEHIT/AMCONSUL ISTANBUL 1564
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS ANKARA 006227 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR AHMED SAEED AND JONATHAN ROSE 
USDOC FOR ITA/MAC - CHERIE RUSNAK 
 
E.O. 12958: N/A 
TAGS: EFIN ECON TU
SUBJECT: Turkish Central Bank Governor Steps Out 
 
 
SENSITIVE BUT UNCLASSIFIED 
 
This message was coordinated with ConGen Istanbul. 
 
¶1.  (SBU)  In an hour-plus press conference aired live on Turkey's 
cable news channels, Turkish viewers were treated to the sight of a 
firm, self-confident, independent new Central Bank governor.  Durmus 
Yilmaz, who took office in May, had initially been criticized by 
local and international investors for having poor communication 
skills and questionable independence as a central banker from 
political pressure.  Sensitive to the criticisms, he has so far 
shied away from the limelight that his predecessor, Sureyya 
Serdengecti basked in.  But no such uncertainty was visible in his 
October 31 TV performance. 
 
¶2.  (SBU)  Releasing the Bank's annual inflation report, Yilmaz was 
clear and definitive in warning about the importance of continued 
fiscal discipline in the pre-election period.  He publicly took on 
the government, specifically criticizing the size of the recent 
civil service wage increase as inconsistent with a declining path 
for inflation, and generally expressing unhappiness with the 2007 
budget package before parliament (both also IMF concerns).  He said 
that if the Monetary Policy Committee saw inflationary pressures 
building, it would not hesitate to tighten monetary policy, even at 
the cost of a slowdown in growth. 
 
¶3.  (SBU)  Also releasing a letter to the IMF and government as 
required by the new inflation-targeting regime to explain the Bank's 
success -- or lack of it -- in meeting inflation targets, the 
Governor described monetary policy targets for 2006 and 2007.  He 
said that end-year 2006 inflation would be in a range of 9.2-10.6%, 
versus the 5% target.  He expected the rising inflation trend to 
reverse by the end of 2006.  For 2007, he said the MPC would retain 
its 4% target for the sake of its credibility.  He said the outcome 
would likely be in the 3.5-6.8% range.  The Governor blamed higher 
energy costs as well as stickiness in services prices for the lapse 
in 2006, the effects of which will continue to be felt next year. 
 
¶4.  (SBU)  Governor Yilmaz, flanked by vice governor Erdem Basci and 
his other deputies in a show of CBT unity, also called for continued 
structural and microeconomic reforms and noted the risks posed by a 
large current account deficit.  He said the IMF program, along with 
the prospect of EU accession, were the two main anchors of economic 
stability.  His remarks provoked a reaction from Finance Minister 
Unakitan, who said the Governor's remarks would not affect the 
Government's budget proposal. 
 
¶5.  (SBU)  Comment:  It is not clear how Yilmaz's confidence in 
front of a Turkish audience will translate to foreign investors, who 
have been the most skeptical about his abilities.  His disastrous 
performances in June in London and New York are well-remembered.  We 
understand, however, that the Governor did a better job during 
investor meetings at the IMF/World Bank annual meetings in Singapore 
in September.  Local financial analysts and press commentators 
respect the Governor's technical skills, and found the clarity and 
transparency in the press conference refreshing and reassuring.  The 
Governor's English, while serviceable in one-on-one conversations, 
seems less effective in front of groups, and he will have to 
continue to look for ways to improve and compensate, perhaps in 
tag-team sessions with Economy Minister Babacan. 
 
¶6.  (SBU)  Resources:  The reports and letters described above are 
available in Turkish and soon in English on the CBT's website. 
Visit the "Turkish Economy" website for daily coverage of Turkey's 
economy: http://www.osis.gov/state/posts/turkecon. 
 
WILSON