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PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHAK #2139/01 2320456
ZNR UUUUU ZZH
P 200456Z AUG 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 3464
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHIT/AMCONSUL ISTANBUL PRIORITY 3204
RUEHDA/AMCONSUL ADANA PRIORITY 2235
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEAIIA/CIA
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 ANKARA 002139 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN TU
SUBJECT: TURKISH BUSINESS COMMUNITY LOOKING BEYOND GUL PRESIDENCY TO 
REFORM AGENDA 
 
REF: A) Ankara 2112 and previous 
 
ANKARA 00002139  001.2 OF 002 
 
 
¶1. Both Embassy Ankara and ConGen Istanbul contributed to this 
report. 
 
¶2. (SBU) Summary:  The Turkish business community's reaction to 
FonMin Abdullah Gul's presidential candidacy has been positive but 
muted.  In public statements, most business groups expressed support 
for Gul's presidency while cautioning the ruling Justice and 
Development Party (AKP) government to keep politics out of the 
process and maintain Turkey's current stable economic environment. 
For the most part, business viewed his candidacy as a foregone 
conclusion following AKP's greater than expected win in the July 22 
general election.  Turkey's financial markets, however, experienced 
sharp drops after Gul's candidacy was announced, particularly the 
lira, which had been stable during the July and early August global 
market turmoil.  Since August 14, the morning after Gul's candidacy 
was announced, the dollar has gained 6.77% and the ISEM index has 
fallen 10.15%.  Merrill Lynch cited increased political risk from 
Gul's candidacy as one reason it was downgrading Turkey's Eurobonds. 
 End summary. 
 
¶3. (SBU) The Turkish business community's reaction to news that 
Abdullah Gul would seek the presidency was positive but muted.  Most 
business leaders expected this announcement, given AKP's strong 
showing at the July 22 elections.  One senior banker described Gul's 
quest for the presidency as "merely a scheduling matter" given 
AKP's numerical majority in parliament and Nationalist Action 
Party's (MHP) announced decision to attend the first two rounds of 
voting, thus guaranteeing a quorum.  The business and banking 
community expect a second AKP term in office will see a renewed 
focus on microeconomic reforms aimed at making the economy more 
competitive. 
 
¶4. (SBU) In the media, most Turkish business groups made statements 
supporting Gul's presidency but cautioning  AKP to keep the position 
politically neutral and representative of the views of all Turks. 
For example, Turkish Exporters' Assembly (TIM) Chairman Oguz Satici 
said, "We are fully content that Abdullah Gul will continue his 
statesmanship in Cankaya."  Satici said they did not doubt Gul's 
ability to guard the basic principles of the Constitution, to become 
a consensus-building President who has a coordinating role beyond 
his political identity.  Confederation of Turkish Businessmen and 
Industrialists (TUSKON) Chairman Rizanur Meral said it would not be 
appropriate to look for any qualification other than competence for 
being President.  Meral stated that TUSKON hopes that the 
presidential elections will not damage the stable economic 
environment in Turkey.  The Turkish Young Businessmen's 
Confederation (TUGIK) Chairman stated that the Presidential 
elections should not turn chaotic this time around.  He added, "We 
receive the AKP's decision to present Gul as a candidate with 
respect.  We hope when he comes to power, he is able to stay away 
from politics, he can be the President of all different sections of 
population, and he acts in line with the basic principles of the 
Constitution." 
 
¶5.  (SBU) Other public comments were equally positive.  Independent 
Industrialists and Businessmen's Association (MUSIAD) Chairman Omer 
Bolat said Gul deserved this position, and the business world would 
support him as the President.  Bolat also called on "certain 
circles" to respect the public will.  MUSIAD board members told us 
that they are actively lobbying for labor market reforms and, given 
that nine MUSIAD members had been elected to parliament (all as AKP 
candidates), they are confident that their appeals are falling on 
receptive ears.  Turkish Industrialists and Businessmen's 
Association (TUSIAD) Chairperson Arzuhan Dogan Yalcindag said Gul 
gave very positive messages in his speech announcing his candidacy, 
and TUSIAD would closely follow his steps to realize these 
commitments. "Our democratic ethic tells us to accept his 
candidacy," said Yalcindag, "we will respect the Parliament's choice 
and as an NGO, we will do our job to watch, warn and criticize when 
needed."  Istanbul Chamber of Commerce (ITO) Chairman Murat 
Yalcintas said Gul's Presidency would strengthen the businessmen 
doing business abroad.  Yalcintas commented that Gul's experience as 
Foreign Minister and his very good relations with foreign entities 
would work to the advantage of the Turkish business world.  Finally, 
Turkish Union of Chambers and Commodity Exchanges (TOBB) Chairman 
Hisarciklioglu said TOBB believes that Gul is capable of performing 
up to the duties and impartial stance the presidency requires, and 
of representing Turkish society as a whole.  Hisarciklioglu also 
invited every democratic citizen to respect the decision made by the 
Parliament. 
 
¶6. (SBU) By and large, Istanbul's business community views the Gul 
 
ANKARA 00002139  002.2 OF 002 
 
 
candidacy as a foregone conclusion.  Many prominent industrialists 
were criticized for appearing too positive in reaction to the Gul 
candidacy in April.  This, combined with August vacations that take 
many business leaders out of town for most of the month, may 
partially explain the subdued response to Gul's candidacy.  Board 
members of an Istanbul AmCham affiliate told visiting Senate 
staffers that from an economic policy perspective the AKP government 
"was a good thing."  Foreign investors with on the ground operations 
tend to discount warnings of increased political tension, with one 
general manager of a major U.S. company noting that "society will 
have to get used to seeing (wealthy) covered ladies living in our 
neighborhoods and driving the same cars we drive." 
 
¶7. (SBU) The business community is united regarding the need for 
microeconomic reform, particularly improving labor market 
flexibility,  during the first six months of the AKP's second term 
in office.  An Istanbul-based Merrill Lynch vice president noted 
that if, as many newspapers are predicting, former senior ML banker 
Mehmet Simsek is named economy minister, micro reforms would be at 
the top of his to-do list.  A key financial sector observer noted 
that social security (SSK) reform will be an indication of how 
seriously the new government views its reform agenda.  She noted SSK 
reform is a "will" issue.  Given AKP's parliamentary majority, once 
President Sezer leaves office, nothing should stand in the way of 
passage of a reform bill.  A much more skeptical financial sector 
observer noted that AKP's stance on senior government appointments 
will demonstrate whether they are truly looking beyond their 
political base.  The party must demonstrate a willingness to promote 
talent regardless of political affiliation or "social background" in 
order to demonstrate credibility. 
 
¶8. (SBU) Turkey's financial markets were hit this week by the global 
fallout from the U.S. sub-prime mortgage market.  Earlier 
market-friendly announcements that the Central Bank was keeping 
interest rates at 17.5% and the GOT would keep spending within 
budget were overtaken by the worldwide revaluation of risk.  Gul's 
re-nomination also gave already nervous investors an additional 
reason to sell Turkish assets.  The fall was particularly noticeable 
for the lira, which had been stable during the July and early August 
market turmoil.  Since August 14, the morning after Gul's candidacy 
was announced, the dollar has gained 6.77% against the lira and the 
ISEM has fallen 10.15%.  Merrill Lynch cited increased political 
risk from Gul's candidacy as one reason it was downgrading Turkey's 
Eurobonds from "overweight" to "market weight."  External risks 
remain high because Turkey is still very dependent on foreign 
investment flows. 
 
¶9. (SBU) Comment:  Our business contacts are focused on what the new 
government is likely to do as far as economic reforms are concerned 
and appear much less interested in the political machinations 
surrounding the presidential elections.  Whether it is because the 
business community is resigned to a Gul presidency or welcomes one 
depends on which group is speaking.  However, it appears that as one 
banker told us almost six months ago "markets have priced in 
Hayrunissa Gul (Gul's headscarf-wearing wife) in Cankaya."  End 
Comment. 
 
MCELDOWNEY