VZCZCXRO5621
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHIT #0053/01 0310532
ZNR UUUUU ZZH
P 310532Z JAN 08
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC PRIORITY 7830
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHDA/AMCONSUL ADANA PRIORITY 2333
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 ISTANBUL 000053 
 
SIPDIS 
 
SIPDIS 
 
TREASURY FOR J.ROSE 
USDOC FOR 4200/ITA/MAC/EUR/PDYCK/CRUSNAK 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN TU
SUBJECT: CAUTIOUS OPTIMISM ON ECONOMIC REFORM 
 
ISTANBUL 00000053  001.2 OF 002 
 
 
¶1.  Summary.  Consul General met leaders of three key 
Istanbul-based business groups to discuss the prospects for 
renewed economic reform in 2008.  MUSIAD Secretary General 
Omer Bolat describes his organization's membership as 
medium/large-sized, religiously conservative family-owned 
firms.  Istanbul Chamber of Commerce (ITO) President Murat 
Yalcintas is fond of noting that his organization's 350,000 
members represent 50% of Turkey's economy.  YASED represents 
foreign investors and is chaired by BP country manger Tahir 
Uysal.  All three agreed that the government  lost focus on 
economic reforms during 2007, a double election year, but 
were cautiously optimistic that senior political leaders were 
returning attention to the economic reform agenda.  End 
Summary. 
 
¶2.  Independent Businessmen's Association (MUSIAD) Secretary 
General Omer Bolat described the last 6 years as a stable and 
rising economic and political trend for Turkey and opined 
that although the external environment was becoming more 
difficult at least the political uncertainty that had plagued 
earlier governments was unlikely to repeat itself during the 
next three years.  Tahir Uysal, chairman of the board of the 
association representing foreign investors (YASED) agreed, 
noting the investment climate and economic environment had 
both improved greatly since the 2001 financial crisis. 
 
¶3.  Istanbul Chamber of Commerce President Murat Yalcintas 
underscored the importance of an external justification for 
political and economic reforms.  Over the past five years the 
government achieved unprecedented reform, he argued.  However 
political reform was anchored by the EU accession process, 
especially the Copenhagen Criteria, while economic reform was 
motivated by the need to recover from the 2001 financial 
crisis and to comply with IMF guidelines.  The EU and the IMF 
drove political and economic reforms in a way that drew broad 
popular support.  Now, the public has been disappointed by 
the EU's stance on Cyprus and by new personalities in Europe 
(Sarkozy and Merkel), he argued.  Popular support for the EU 
process is declining, taking away the external justification 
for further reform.  Yalcintas underscored the close links 
between political and economic reforms - Turkey needs to 
retain the EU anchor on the political side to drive reform in 
both areas. 
 
¶4.  All three business leaders agreed that political 
stability was crucial to economic reform and indicated the 
business community generally supports the Justice and 
Development (AKP) party-led government because it is 
reform-oriented while the center-left opposition opposes 
reforms on principle.  Yalcintas, who is closely linked to 
the AKP, argued that government officials are sincerely 
committed to both political and economic reforms.  A more 
skeptical Uysal argued the government has "taken its eye off 
the ball" as far as economic reform is concerned, noting 2007 
was a disastrous year for spending as the government loosened 
fiscal reins in advance of elections.   Yalcintas conceded 
the two elections in 2007 (parliamentary and presidential) 
produced an "election economy" not focused on reform, but 
believes things will get back on track now that elections are 
over. 
 
¶5.  The government is responsive to business community 
concerns and has worked to create formal and informal avenues 
for constructive dialogue.  Yalcintas noted recent tax 
reforms were vetted by private sector and expects that 
forthcoming policies will also be the subject of dialog with 
the private sector.  Uysal emphasized the importance of the 
Investment Advisory Council, through which YASED (and other 
economy-focused civil society groups) pushed for the creation 
of an Investment Support and Promotion Agency (ISPA). 
Turkey's ISPA is now up and running with a dynamic chief, 
Alparslan Korkmaz, and about 30 staff in various locations 
around the world.  In an example of less formal channels 
through which the private sector affects government policy, 
MUSIAD's grass roots membership is very influential in the AK 
Party and former MUSIAD Secretary General Zafer Caglayan is 
now Minster for Trade and Industry.  The association has 
"open access to ministers" and expects the government to 
respond on issues of importance to them, Bolat explained. 
 
¶6.  Yalcintas described an early January meeting he attended 
in Ankara.  The group of 15-20 people was chaired by the 
Prime Minister and attended by economic ministers as well as 
economy-focused civil society organizations (TOBB, ITO, labor 
unions.)  Government officials previewed planned reform 
policies.  Business was generally in favor of the reforms 
while labor groups were less positive.  Yalcintas believes 
 
ISTANBUL 00000053  002.2 OF 002 
 
 
the government will implement these reforms, but cautioned 
the government must get buy-in from civil society and the 
unions in the run-up to municipal elections.  Bolat also 
referred to this meeting, but was more optimistic that the 
government would be able to resolve labor concerns and move 
forward quickly with social security reform. 
 
¶7.  Reform fatigue is a concern for all three business 
leaders. Uysal noted Investment Advisory Council meetings 
were on hold from May - December 2007 due to the elections. 
Political leadership is necessary to activate bureaucrats he 
argued; there is just no impetus without pressure from the 
political side.  Bolat applauded the Prime Minister's recent 
press conference outlining the targets of an economic plan. 
He believes this signals a move away from politics and a 
return to the economic reform agenda.  Uysal agreed, noting 
YASED is now getting signals that the government is 
re-focusing on the economy.  However, he noted there is no 
overarching policy, a lack of coordination among ministers 
and Nazim Ekren (Deputy Prime Minister and Minister in charge 
of the economy) doesn't really drive the agenda.  All three 
business leaders expect announcements in February on labor 
market reforms and other key aspects of the policy agenda. 
 
¶8.  Municipal elections are slightly more than a year away 
(March 2009) and could be an excuse to defer some painful 
reforms, Uysal cautioned.  Yalcintas agreed noting local 
elections show the real pulse of the population because local 
officials are in touch with the people the way national 
officials (who are not required to live in the constituency 
they represent) are not.  The government is therefore 
unlikely to take painful measures now, he argued noting 
administered price increases were made as soon after the 
national elections as possible in part to distance them from 
local elections.  Some commentators have suggested the 
government may be tempted to move municipal elections up to 
fall 2008 to pre-empt paying at the polls for negative fall 
out from the worsening global economy.  This move would 
likely be supported by the business community who suspect 
looming elections could preclude much needed reforms. 
 
¶9.  Comment. The AK Party did an extraordinary job with 
economic reform during its first term in office, but 
benefited from a very positive international environment and 
a populace that would accept virtually any reform that held 
out the hope of digging out from the disastrous 2001 
financial crisis.  Our business interlocutors in recent 
discussions described a government that in essence put the 
economic reform agenda in neutral in the months immediately 
following the 2007 elections.  The media frenzy surrounding 
fall 2007 PKK attacks distracted the general public, but not 
business leaders, from this lack of activity on economic 
reform.  Now the global credit crunch seems to have prompted 
a renewed focus on economic reform.  However, more demanding 
voters will test the GOT's commitment to reform, particularly 
labor market reforms that are likely to bring short-term pain 
with promises of long-term gain.  End Comment. 
WIENER