VZCZCXRO1101
RR RUEHDA
DE RUEHAK #0539 0681344
ZNR UUUUU ZZH
R 091344Z MAR 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 1273
INFO RUEHIT/AMCONSUL ISTANBUL 2286
RUEHDA/AMCONSUL ADANA 1726
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS ANKARA 000539 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
Treasury for Interntional Affairs - JRose 
 
E.O. 12958: N/A 
TAGS: EFIN TU
SUBJECT: Central Bank Governor Firm on Independent Policies 
 
SIPDIS 
SENSITIVE BUT UNCLASSIFIED 
 
¶1.  (SBU)  Once again showing his readiness to speak out in implied 
criticism of government policies and to assert his independence in 
monetary policymaking -- including in an election year -- Central 
Bank Governor Durmus Yilmaz told a conference in Istanbul March 7 
that the inflation rate was not acceptable at its current level.  He 
said it was not yet time to relax monetary policy and that the 
government should continue to implement structural reforms and 
prudent fiscal policies. 
 
¶2.  (SBU)  In his speech to the "Risk Management Summit", organized 
by Active Academy and Zaman newspaper, Yilmaz maintained that 
structural, "microeconomic" reforms are required to ensure price, 
and thus macroeconomic, stability.  Yilmaz stressed that in an 
environment in which price stability is not maintained, social and 
economic distortions inevitably arise.  Yilmaz explained that 
Central Bank policy aim at maintaining price stability via inflation 
targeting and encouraging a healthy economic environment in which 
individuals and firms are confident to save and invest. "In other 
words, the struggle against inflation means the effort to strengthen 
the decision making process," he said. 
 
¶3.  (SBU)  Claiming that significant steps have been taken on the 
path to the price stability over the last five years, Yilmaz pointed 
to the 58.3 point fall in inflation since 2002 and noted that 
fluctuations in the price level have disappeared to a large extent. 
He said that the flexible exchange rate regime has made great 
contributions to the adoption of modern risk management principles 
in Turkey.  He added, "Exchange rate risk is beyond the control of 
economic institutions. And this fact, as the Central Bank states at 
every turn, makes the exchange rate a risk factor that should be 
managed." 
 
¶4.  (SBU)  Yilmaz went on, saying that reforms taken so far are not 
sufficient.  "First of all, price stability is not yet secured. 
Besides, the inflation rate is not yet low enough to be neglected in 
the decision making process of economic institutions. This is the 
issue I want you to pay attention to: the support of the business 
community and the public was very important in the effort through 
which the inflation rate was reduced from high figures to single 
digits.  The continuation of this support remains very important 
important as well...  Our target is at least as far away as the 
distance we have made so far." said Yilmaz. 
 
¶5.  (SBU)  Comment: This is not the first time that the Governor has 
spoken out against complacency or to affirm the independence of the 
Turkish Central Bank from political pressure.  Especially given the 
doubts in the marketplace that accompanied his appointment last 
year, his willingness to speak out in defense of sound policies is 
refreshing.  Government ministers including Prime Minister Erdogan, 
Finance Minister Unakitan and Economy Minister Babacan continue to 
make comments that arguably encroach on the Central Bank's turf, 
such as calling for lower interest rates or commenting on the 
inflation target.   There are persistent rumors, including in the 
press, that the AKP-led government is not happy with his 
outspokenness and is even looking for ways to entice him to leave 
office, such as by offering him an ambassadorship in a Turkish 
embassy abroad.  The Governor's five-year term expires in 2011. 
WILSON