VZCZCXRO3187
RR RUEHDA
DE RUEHAK #2583 2911508
ZNR UUUUU ZZH
R 181508Z OCT 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 4068
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUEHIT/AMCONSUL ISTANBUL 3435
RUEHDA/AMCONSUL ADANA 2388
RUEHBS/USEU BRUSSELS

UNCLAS ANKARA 002583 
 
SIPDIS 
 
TREASURY FOR INTERNATIONAL AFFAIRS - JROSE 
 
SENSITIVE 
SIPDIS 
 
REF: ANKARA 2052 
 
E.O. 12958: N/A 
TAGS: EFIN TU
SUBJECT: GOT LOWERS PRIMARY SURPLUS TARGET FOR 2008 
¶1. (SBU) Summary: The GOT submitted the 2008 budget on October 17, 
the statutory deadline.  At an October 18 press conference, Finance 
Minister Kemal Unakitan announced the GOT expects a budget deficit 
 
of YTL 17.8 billion ($14.8 billion).  The Minister also announced a 
program-defined primary surplus target of 5.5 percent, which is 
lower than the 2007 stand-by target of 6.5 percent.  (Note: an IMF 
Review Team is in Turkey now for its semi-annual review.  End note.) 
 The Minister indicated that the GOT and Fund have not yet reached a 
consensus on the primary surplus target during review discussions, 
which are slated to continue next week. 
¶2. (SBU) The Minister announced a GNP target of YTL 716.6 billion 
($520.2 billion), and a growth rate of 5.5 percent, with a 4 percent 
end-of-year inflation (CPI) target.  Unakitan announced with pride 
that the Turkish economy had grown for 22 consecutive quarters. 
Analyst reactions to the 2008 budget have been calm, however the 
2008 budget's optimistic assumption of crude oil at $71.2 per 
barrel, detracts from what otherwise indicates fiscal tightening 
over 2007 performance, where Turkey will miss its primary fiscal 
target by two percent of GNP.   End Summary. 
¶3. (U) The GOT presented the 2008 budget to the Parliament as 
scheduled on October 17, and Unakitan held a press conference 
October 18 to disclose the details.  As hinted at by Prime Minister 
Erdogan last week, for 2008 the GOT cut the primary surplus target 
to 5.5 percent of GNP.  A 6.5 percent primary surplus target has 
been the anchor of Turkey's reform program since the collapse of the 
crawling peg exchange rate regime in 2001. 
 
¶4. (U) The 2008 budget assumes spending of YTL 221.3 billion ($184.4 
billion), up 9.6 percent from 2007.  Expenditures in 2008 will 
increase 8.1 percent, and the GOT expects to collect YTL 204.6 
billion ($170.5 billion) in revenues, up 8.8 percent from 2007, 
leaving a deficit of YTL 17.8 billion ($14.8 billion).  This would 
be 2.5 percent of GNP and 19.3 percent higher than the deficit for 
¶2007.  The plan is to run a nominal primary surplus of YTL 38.2 
billion ($31.8 billion) up 12.1 percent from 2007. 
 
¶5. (U) The GOT forecasts 2008 GNP at YTL 716.6 billion ($597.2 
billion) with a 5.5 percent growth rate target for 2008, and 
end-of-year inflation at 4 percent.  Per-capita income for 2008 is 
estimated at $7,000.  (Note: The GOT estimated end-of-year CPI at 
6.5 percent in 2007 with per-capita income at $5,741.  GNP for 2007 
was estimated at YTL 646.9 billion ($489 billion).  End note.)  The 
GOT foresees 2008 exports of $117 billion and imports of $182 
billion.  The GOT assumes an average USD/YTL exchange rate of 1.37 
in 2008.  The GOT also expects a 13.3 percent increase in 2008 tax 
revenues overall.  Corporate income tax will rise 10.9 percent and 
personal income tax will rise 10 percent.  The Minister announced an 
average inflation-adjusted 7.6 percent hike in civil servant wages 
for 2008. 
 
¶6. (SBU) Comment:  While a drop in the primary surplus-to-GNP ratio 
target for 2008 may look disappointing, the Finance Minister noted 
that fiscal discipline and structural reforms remain the main 
anchors of the AKP's economic policy.  Some leading economic 
analysts stated that as long as fiscal discipline is preserved, the 
one percentage point drop is not that important for the market. 
Erdal Saglam, a prominent economic columnist, said the GOT's 2008 
budget undermines the anti-inflation program and places more 
emphasis on growth.  However, given a relatively "loose" fiscal 
stance in 2007 with a 4.5 percent primary surplus foreseen, a 5.5 
percent primary surplus for 2008 would imply a plan for fiscal 
tightening in 2008. 
 
¶7. (SBU) One cautionary note: the GOT assumed a price of $71.2 per 
barrel of crude oil in the budget calculations.  Given Turkey's 
heavily hydrocarbon-dependent economy and the current market 
circumstances, it looks like the GOT may have under calculated its 
expenditures and cost of imports on energy to present what otherwise 
looks like an improvement of its 2007 budget performance, where the 
GOT is likely to miss its primary surplus target by at least two 
percentage points of GNP.  End Comment. 
 
 
WILSON