VZCZCXRO4965
RR RUEHDA
DE RUEHAK #0336/01 0531545
ZNR UUUUU ZZH
R 221545Z FEB 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 5317
INFO RUEHIT/AMCONSUL ISTANBUL 3912
RUEHDA/AMCONSUL ADANA 2717

UNCLAS SECTION 01 OF 02 ANKARA 000336 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD TU
SUBJECT: BUSINESS GROUPS WARN GOT ON UNEMPLOYMENT AND INDUSTRIAL 
SECTOR 
 
REF: ANKARA 198 
 
¶1.  (SBU) Summary:  Three major business organizations warned the 
government on February 21 about rising unemployment and slowing 
industrial activity.  The Turkish Union of Chambers and Commodity 
Exchanges (TOBB), Turkish Industrialists' and Businessmen's 
Association (TUSIAD) and Turkish Clothing Manufacturers' Association 
(TGSD) all issued statements saying the government needs to move 
quickly to avoid further job loss and cuts in manufacturing.  Deputy 
Prime Minister Ekren and Foreign Trade Minister Tuzmen will meet 
with business leaders in response to these apparently-coordinated 
business warnings.  Some of their proposals would be welcome, 
particularly action to free up Turkey's rigid labor markets. 
Others, however, will be costly sectoral incentives that will test 
the government's commitment to fiscal discipline.  These warnings 
came the same day that the IMF announced it would again delay 
closing the seventh review, adding to nervousness about the lack of 
GOT attention to economic policy.  End summary. 
 
¶2. (U) TUSIAD's statement drew attention to unemployment figures, in 
particular the loss of 52,000 industrial sector jobs in the last 
quarter of 2007, a 40% increase in job loss from the 35,000 
industrial jobs lost in the third quarter.  TUSIAD noted that the 
job loss was occurring in sectors that had consistently created jobs 
since 2004.  "The increase in productivity of the manufacturing 
industry sub-sectors slowed down in 2007, which reduced the need for 
the producing sector to increase employment."   The increase in per 
capita productivity dropped to 2.6% in 2007, from 6.3% in 2006. 
With the slowdown in domestic demand, job creation in the services 
sector also slowed.  New service jobs created in 2007 fell to 
77,000, compared to 344,000 in 2006 and 776,000 in 2005. 
 
¶3. (U) TUSIAD's statement added: "The current trends in the Turkish 
economy do not enable increases in employment.  We do not expect 
private consumption and investment to be strong enough to support 
high growth and employment rates, as they did in the 2002-2006 
period.  Considering the slowdown in the world economy, external 
demand conditions will not be strong either.  The possibility of 
further deterioration of international liquidity conditions, more 
increases in oil prices, and dollar appreciation against the Euro, 
may have a worsening impact on external demand." 
 
¶4. (U) Speaking at a conference on February 21, TUSIAD Business 
Affairs Commission Head Ali Kibar said fluctuations in global 
financial markets had reached a point where they threaten the 
producing sector in Turkey, and urged the GOT to initiate a new 
reform effort.  TUSIAD Risk Management Working Group Head Tamer Saka 
called on the GOT to come up with new economic methods to address 
the recent developments in the economy: "At a time when the economy 
is slowing down, the current account deficit is growing, and 
inflation is accelerating, Turkey would be one of the first 
countries to experience the negative impacts, once the disturbances 
in financial markets are reflected in the producing sector and 
investment funds." 
 
¶5. (U) The TOBB Industrial Chambers Council issued its declaration 
after a four-hour long meeting with Industry Minister Zafer 
Caglayan.  TOBB warned that industry was in a "bottleneck," and 
needed "very urgent" measures to increase its competitiveness. 
Rising imports resulting from the Central Bank's foreign exchange 
and interest rate policies have hurt domestic production, and the 
GOT should take "the necessary measures" to address this problem 
while watching growth rates and industrial capacity utilization 
(which we note also has begun to drop, to 80.5% in January, down 
from 81.2% in December, and 83.5% in June 2007).  TOBB also noted 
recent employment data and market developments, and said these 
signaled a further drop in employment.  "The GOT should not forget 
the importance of creating production and employment for the Turkish 
economy, and should express strong will to put these issues at the 
top of the agenda," said TOBB.  The declaration also highlighted the 
importance of implementing a correct incentives policy, to prevent 
"unfair competition."  Sector and project-based incentives, 
implemented in the right regions, would prevent Turkish investors 
from going abroad, according to TOBB.  TOBB also urged the GOT to 
lift measures hindering production and trading in free trade zones. 
 
 
¶6. (U) While warning the GOT to maintain fiscal discipline, which it 
said was "vital to economic stability," TOBB said that "the GOT 
should come up with a roadmap on future efforts to reduce the cost 
of employment-- starting with the 5% reduction in the social 
security premium."  According to TOBB, the GOT also should work on 
measures to increase the competitiveness of sectors with high 
employment levels. 
 
¶7. (U) TGSD Chairman Ahmet Nakkas also issued a written statement, 
warning the GOT that hundreds of thousands of Turks could be left 
unemployed in the clothing manufacturing sector.  Nakkas noted that 
the textile sector provides 20% of employment in Turkey, close to 
three million people.  Nakkas said he was disappointed to see that 
dire predictions his organization made last year were coming true. 
 
ANKARA 00000336  002 OF 002 
 
 
"There are several companies who are at a point of shutting down 
their facilities, despite the fact that they have customers, due to 
the GOT's delayed measures to support the sector."  Nakkas said the 
GOT should support establishment of specialized industrial zones, 
and implement the incentives currently available in 49 provinces for 
all textile exporters, at least for the next couple of years. 
Nakkas called on the GOT to implement an Emergency Action Plan for 
the textile sector.  Nakkas also warned the GOT to start focusing on 
the economy" or else sectoral losses will be "too heavy to bear." 
 
 
¶8. (U) These business group warnings followed other business 
criticisms of GOT policy, the most notable from the retired Chairman 
of Koc Holding, Rahmi Koc, on February 20.  Koc said: "the GOT 
should get ahead of events, instead of following them from behind," 
and urged the GOT to support employment-creating foreign 
investments.  Finance Minister Unakitan responded to Koc's 
statement, saying that the Turkish economy was resilient to shocks 
and had never defaulted on its debts.  The GOT was taking all the 
measures needed to minimize the impact of global fluctuations on 
Turkey, and Turkey would attract at least $22 billion in FDI in 
¶2008. 
 
¶9. (SBU) In response to this unified criticism, Deputy Prime 
Minister for Economic Coordination Ekren announced he would meet 
with representatives of TUSIAD and TOBB's Apparel and Ready-Wear 
Industry Council next week.  Minister Ekren and State Minister for 
Foreign Trade Tuzmen will separately meet with exporters on Feb 24 
and discuss a roadmap for Turkish exports for the coming year. 
(Comment: Minister Ekren also is expected to meet separately with 
TOBB Apparel and Ready-Wear Industry Council Chairman and Southeast 
Anatolia Project Development Platform member Umut Oran on Feb 27, to 
discuss issues relating to the GOT's Southeast Anatolia economic 
package. Details of this package have not been released yet, but 
investment incentives are expected to be among its proposals. End 
comment.) 
 
¶10. (SBU) These business warnings, apparently coordinated between 
groups that do not often work together, increases pressure on the 
government to act on labor market and industrial sector incentive 
proposals.  Action to liberalize Turkey's rigid and high-cost labor 
markets would be welcome.  Some of the proposed industrial 
incentives, however, will be very costly and test the government's 
commitment to fiscal discipline, or will be protectionist trade 
measures.  We note that the business warnings came the same day that 
the IMF announced yet another delay in closing the seventh review 
under the current IMF program, due to yet the GOT's continuing delay 
in acting on the social security reform package.  This only adds to 
nervousness (reftel) about the lack of GOT attention to economic 
policy, which the business sector is saying, loudly, that it shares. 
 End comment. 
 
WILSON#