VZCZCXRO7454
RR RUEHDA
DE RUEHAK #0036 0090558
ZNR UUUUU ZZH
R 090558Z JAN 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 4868
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUEHIT/AMCONSUL ISTANBUL 3719
RUEHDA/AMCONSUL ADANA 2587
RUEHBS/USEU BRUSSELS

UNCLAS ANKARA 000036 
 
SIPDIS 
 
TREASURY FOR INTERNATIONAL AFFAIRS - JROSE 
 
SENSITIVE 
SIPDIS 
 
REF: A) ANKARA 35  B) 2007 ANKARA 2052 
 
E.O. 12958: N/A 
TAGS: EFIN TU
SUBJECT: Turkish Parliament Ratifies 2008 Budget 
 
 
¶1. (U) Summary:  The most significant aspect of Turkey's 2008 budget 
is the decrease in the primary surplus target to 5.5 percent of 
Gross Domestic Product (GDP).  For five years, the Government of 
Turkey (GOT) has used a primary surplus target of 6.5 percent of 
GDP.  In working to achieve the ambitious 6.5 percent target, the 
GOT was able to cut expenses, save more, and pay its debts ahead of 
schedule, thereby easing the debt-to-GDP ratio from more than 90 
percent to slightly below 60 percent.  For 2008, interest payments 
and social security transfers will continue to be the primary 
expenses.  Indirect taxes, including value-added taxes and special 
consumption taxes on cigarettes and alcohol, will be the main 
sources of government revenue.  Personal income tax receipts (5.3 
percent of GDP) will significantly exceed corporate taxes (2 percent 
of GDP).  End Summary. 
 
¶2. (U) The GOT proposes a budget deficit of YTL 17.9 billion ($15.2 
billion; $1 = YTL 1.17); 2.5 percent of GDP and 19.3 percent higher 
than the 2007 target.  In 2008, the GOT plans to spend YTL 222.6 
billion ($186.6 billion) and expects to collect YTL 204.6 billion 
($172.3 billion).  The 2008 budget indicates a primary surplus of 
YTL 38.0 billion ($31.9 billion) before debt service. 
 
¶3. (U) The GOT has set a 2008 GDP target of YTL 716.6 billion 
($602.2 billion).  The budget also targets 2008 inflation at 4 
percent and per capita income at $7,000.  (The GOT was unsuccessful 
in reaching its 2007 inflation target of 4 percent; instead, it 
ended the year with 8.4 percent inflation.)  The GOT estimates 2008 
exports valued at $117 billion and imports valued at $182 billion. 
The 2008 budget assumes an average USD/YTL exchange rate of 1.37; 
with a 15 percent appreciation from the current level of 1.17.  The 
GOT expects a 10.9 percent increase in corporate income tax 
collection and 10.0 percent in personal income tax collection.  The 
2008 budget includes a 7.6 percent hike in civil servant wages--well 
above the 4 percent inflation estimate. 
 
¶4. (SBU) Reftel A describes anticipated energy shortfalls and the 
need to fill the gap in the short term with alternative, and more 
expensive, sources.  Gas price increases will hit consumers but also 
hit the GOT, since it uses liquid natural gas to fire many of its 
electricity plants.  These energy price hikes will make budget 
targets harder to achieve. 
 
¶5. (U) The 2008 budget anticipates delaying enforcement of the 
social security law to June 2008 despite industry calls for more 
rapid implementation.  The social security reform is significant for 
the long-term structural health of the Turkish economy and is a 
requirement under Turkey's IMF program. 
 
¶6. (SBU) Comment:  Turkey's IMF program will expire in May 2008 and 
the GOT and IMF are now considering what type of agreement might 
follow.  Without an IMF anchor, the GOT might feel more comfortable 
in cutting fiscal discipline and increasing spending.  The lower 
primary surplus target of 5.5 percent could be a signal of negative 
change in the future.  In the past five years, with a 6.5 percent 
target, the GOT has been successful in cutting inflation from 70 
percent to 8.4 percent, lowering debt-to-GDP ratios, and maintaining 
stability.  These impressive results were not obtained easily, and 
the GOT will have to maintain strict fiscal discipline to cut 
inflation further.  Industry and trade officials are impatiently 
pushing for faster growth and more job creation, which would likely 
result in inflation increases.  Unfortunately, Turkish business 
leaders are experts at operating under high-inflation conditions. 
End Comment. 
 
McEldowney