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R 282130Z MAR 08
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INFO RUCNMUC/EU CANDIDATE STATES COLLECTIVE
RUEHSS/OECD POSTS COLLECTIVE
RUEHDA/AMCONSUL ADANA 2818
RUEHIT/AMCONSUL ISTANBUL 4059
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 ANKARA 000591 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EEB FOR A/S SULLIVAN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN TU
SUBJECT: TURKEY: GOVERNMENT PRESENTS REVISED SOCIAL 
SECURITY REFORM IN PARLIAMENT 
 
ANKARA 00000591  001.2 OF 002 
 
 
 ¶1.  (SBU) Summary:  After reaching an agreement with most 
unions on March 25, the GOT presented a revised Social 
Security Reform law directly to the parliament floor on March 
¶27.  The revised bill raises the number of "premium days" a 
worker would need to work before being eligible for a pension 
from the current 7,000 to 7,200, down substantially from the 
previous draft's 9,000 days. The new accrual formula for 
workers now in the system will be 3% for the first 10 years 
of work and 2% thereafter, and 2% per year for new entrants. 
Most importantly, the bill maintains the retirement age at 65 
for all workers, with a 20 year transition period. While 
passage is not guaranteed, bringing the amended bill directly 
to the floor indicates that the GOT will impose party 
discipline to finally pass this long-awaited reform. Local 
experts indicated that the GOT preserved the great majority 
of fiscal benefits by holding firm on the retirement age, and 
that the days worked is largely irrelevant so long as workers 
can't retire until age 65. Turkey has a demographic window 
until 2030 in which to reap substantial fiscal benefits from 
this reform.  The social security deficit in 2007 exceeded 
USD 20 billion, or 4% of GDP.  This year, it is expected to 
reach USD 28 billion and, without reform, to consume 17% of 
GDP in 2050.  If passed, this bill is projected to keep the 
deficit approximately the same in lira terms for the next ten 
years, and then reduce it steadily over the following 20 
years, a dramatic difference.  End summary. 
 
¶2. (SBU) Unions staged a successful a two-hour work slowdown 
on March 14 in protest of the draft Social Security Reform 
law, and threatened a general strike if the law was passed. 
In response, Labor Minister Celik negotiated with union 
leaders last week on revisions to the bill.  After reaching 
an agreement with most unions on March 25 (some continue to 
object to the bill), the GOT presented the revised Social 
Security Reform law to the parliament on March 27.  The bill 
will be debated in six parts, with the government making the 
amendments agreed with labor on the floor. 
 
¶3. (SBU) The revised bill raises the number of "premium days" 
a worker would need to work before being eligible for a 
pension from the current 7,000 to 7,200.  That is down 
considerably from the 9,000 days in the previous draft.  The 
bill also changes the accrual/replacement rate formula. 
Under current law, workers accrue 3.5% of salary towards a 
pension each year for the first 10 years, 2% per year for the 
second 10 years, and 1.5% per year thereafter.  The new 
formula for workers now in the system is 3% for the first 10 
years of work, and 2% thereafter, and 2% per year for new 
workers entering the labor force.  The previous draft had a 
flat 2% accrual rate for all workers.   The bill maintains 
the retirement age at 65 for all workers, with a 20 year 
transition period.  The current retirement age is 60 for men 
and 58 for women for new entrants, with a varying rate for 
current employees. 
 
¶4. (SBU) We spoke with former Social Security Administrator 
Tuncay Teksoz, who was pleased with the outcome.  He said 
that the fiscal benefits to the government are essentially 
unaffected by the lowering of the premium days, so long as 
the retirement age stays at 65.  He said the accrual rate 
would cause only a minor reduction in the fiscal benefits, 
since the reform is expected to provide its major benefits in 
2030-40, when all workers will be at 2%.  He emphasized that 
analysis of the fiscal benefits is being conducted using 2003 
data on the labor market. From 2003 to 2008, however, the 
number of formal sector workers increased by nearly 30%, from 
6.5 million to 8.5 million workers, as agricultural labor 
decreased and service and industrial employment increased. 
This means that the actual fiscal benefits will be greater 
than currently projected. Teksoz also noted that even with 
current Civil Service employees excluded from the revised 
social security system (a result of a 2007 constitutional 
court decision), over time, new Civil Service hires would be 
included, amplifying the fiscal benefits of the reform and 
consolidating all employees into a single, lower cost system. 
 
 
¶5. (SBU) IMF Deputy Resident Representative Davide Lombardo 
agreed that the reduction in premium days was not material, 
and that retaining the retirment age was essential.  He was 
less certain, however, about the benign fiscal effect of the 
change in the accrual rate formula, particularly in the 
 
ANKARA 00000591  002.2 OF 002 
 
 
short-medium term. The IMF is awaiting a World Bank 
re-evaluation of fiscal projections using the new formula. 
 
¶6. (SBU) Comment: While we cannot yet say that the GOT has 
finally passed a meaningful social security reform, the GOT 
has maneuvered very well in getting labor buy-in and getting 
this bill to the floor of the Parliament without giving up 
the great majority of fiscal benefits.  By sending it 
directly to the floor, the GOT is signaling it intends to 
invoke party discipline and finally pass this long-awaited, 
much-needed reform.  Turkey has a demographic window until 
2030 in which to reap substantial fiscal benefits from social 
security reform.  The social security deficit in 2007 
exceeded USD 20 billion, or 4% of GDP.  This year, it is 
expected to reach USD 28 billion and, without reform, to 
consume 17% of GDP in 2050.  Using the 2003 data that Teksoz 
said understates the fiscal effect, this bill is projected to 
keep the deficit approximately the same in lira terms for the 
next ten years, and then reduce it steadily over the 
following 20 years, a dramatic difference.  End comment. 
 
Visit Ankara's Classified Web Site at 
http://www.intelink.sgov.gov/wiki/Portal:Turk ey 
 
WILSON