VZCZCXRO9715
OO RUEHDA
DE RUEHAK #1877/01 2041119
ZNR UUUUU ZZH
O 231119Z JUL 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3091
INFO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUEHIT/AMCONSUL ISTANBUL 3052
RUEHDA/AMCONSUL ADANA 2160
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 02 ANKARA 001877 
 
SIPDIS 
 
TREASURY FOR INTERNATIONAL AFFAIRS - JROSE 
 
SENSITIVE 
SIPDIS 
 
REF: ANKARA 1875; ANKARA 1864 
 
E.O. 12958: N/A 
TAGS: EFIN PGOV TU
SUBJECT: Turkish Markets Embrace AKP Victory 
 
 
¶1. (SBU) Summary: Turkish Financial Markets soared in reaction to 
the AKP's strong -- but not too strong -- performance in 
parliamentary elections.  The result, allowing AKP to form a 
single-party government with a comfortable majority sets the stage 
for continued orthodox, investor-friendly economic policies and 
structural reforms. Reactions from analysts and business leaders was 
uniformly positive.  End Summary. 
 
------------------------------------ 
Market-Friendly Election Result. . . 
------------------------------------ 
 
¶2. (SBU) Markets had been rallying in recent weeks (ref b) buoyed by 
both global market bullishness and increasing confidence about the 
election.  With pre-election polls showing AK at 35-40% of the vote 
markets were betting on a "goldilocks" scenario: AK getting enough 
votes to form a single-party government but not enough to get the 
367 votes required to choose the next president.  Markets feared the 
latter scenario raised the potential of a clash with the secularist 
establishment. 
 
¶3. (SBU) In the event, the results could hardly have been more 
market-friendly: AK's surprisingly large vote total and comfortable 
majority will be strong enough to allow them to confidently continue 
their pro-EU, pro-investor, mostly fiscally disciplined policies, 
but well below the magic 367-seat number.  A side benefit was the 
relative weakness of opposition parties with their more 
market-unfriendly economic platforms, particularly the shamelessly 
populist Youth Party's disastrous 3% vote total. 
 
------------------------------- 
... Prompts Strong Market Rally 
------------------------------- 
 
¶4. (SBU) Not surprisingly, the lira took off in night trading in 
Asia, moving up 1.7%.  At the Istanbul opening, markets shot up 
across the board: in the morning session the lira rallied from 
Friday's close of 1.2666 against the dollar and 1.7473 against the 
Euro to 1.2580 against the dollar and 1.7370     against the euro. 
The Istanbul stock exchange rallied 2.81% from Friday's near-record 
close of 52,935.75 to reach 54,424.65 and the benchmark Government 
bond yielded 17.24%, down from 17.42% Friday. 
 
----------------------------------------- 
As Analysts and Business Leaders Enthused 
----------------------------------------- 
 
¶5. (SBU) Though personally overwhelmingly secularist, both the 
analyst community and prominent business leaders enthused about the 
results.  One analyst referred to the result as a "best case." 
Another titled his electronic newsletter as "apple pie with whipped 
cream topping."  He said AKP's policies are well known to investors: 
after all, this is a Prime Minister who sold a state company to a 
Russian-Armenian investor ten days before the election.  Analysts 
flagged the continuing risks associated with the upcoming 
presidential election but were encouraged by the conciliatory tone 
of Prime Minister Erdogan's remarks.  Analysts said they expect the 
Government to get back to pursuing EU reforms, returning to its 
(pre-campaign) fiscal discipline, and even pushing for structural 
reforms like privatization, social security and labor market 
reforms. 
 
¶6. (SBU) Likewise, the reaction from business community leaders were 
uniformly positive. Guler Sabanci, the CEO of the giant Sabanci 
group, Dogus Group Chairman and U.S.-Turkish Business Council Chair 
Ferit Sahenk, Istanbul Chamber of Commerce Chair Yalcintas, and 
Exporters' Union President Satici all made public statements 
commenting favorably on the elections. 
 
------------------------- 
Too Much of a Good Thing? 
------------------------- 
 
¶7. (SBU) Aside from some the potential spillover from continued 
political risks (presidential election, cross-border operation, 
Armenian Genocide resolution, etc.), the market bullishness itself 
may be Turkey's biggest economic policy headache going forward.  The 
lira was already widely considered to be overvalued. A continued 
appreciation, while it will help the central bank's disinflation 
efforts, could aggravate Turkey's large current account deficit by 
sucking in relatively cheap imports and hurting export 
competitiveness. Central Bank officials have told us they would 
prefer this problem to its opposite (a weak and falling currency) 
but it is a problem nonetheless. 
 
 
ANKARA 00001877  002 OF 002 
 
 
Wilson