VZCZCXRO6192
RR RUEHDA
DE RUEHAK #1872/01 3020526
ZNR UUUUU ZZH
R 280526Z OCT 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 7814
INFO RUEHDA/AMCONSUL ADANA 3332
RUEHIT/AMCONSUL ISTANBUL 4899
RUEATRS/TREASURY DEPT WASHDC

UNCLAS SECTION 01 OF 02 ANKARA 001872 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN TU
SUBJECT: TURKEY: PRIME MINISTER REJECTS IMF AND BUSINESS 
DEMANDS 
 
REF: A. ANKARA 1864 
     ¶B. ANKARA 1855 
 
¶1. (U) Sensitive but unclassified.  Not for internet 
distribution. 
 
¶2. (SBU) Summary:  Prime Minister Erdogan lashed out October 
26 at the IMF and business groups pressuring the GOT to sign 
a new IMF agreement, saying "during a crisis, we will not 
bury the future in darkness by bowing to the demands of the 
IMF."  Central Bank Governor Yilmaz said October 27 that 
Turkey faces "a serious foreign exchange liquidity problem" 
but that "at this stage, we, the Turkish Republic, do not 
need money from the IMF."  Former Central Bank governor 
Surreya Serdengecti criticized the GOT stance as taking huge 
financial risks for political purposes.  Serdengecti said the 
Prime Minister dislikes the IMF, distrusts the banking and 
business communities and is getting bad advice from his small 
circle of advisors, such as Deputy Prime Minister Ekren. 
While the Prime Minister and his cabinet talk about how 
healthy Turkey's banks are, that is irrelevant in a global 
liquidity crisis in which every bank is at risk.  The GOT 
also believes that IMF fiscal austerity would cause an 
economic slowdown, but the GOT's profligate spending is doing 
that by crowding out private sector finance.  A further sharp 
depreciation of the lira (to 1.8 or 2 to the dollar) or a 
wave of corporate bankruptcies are the kinds of events that 
could force the GOT into a new IMF agreement "very late and 
at high cost."  End summary. 
 
¶3. (SBU) In widely covered public remarks to a party congress 
in Altindag on October 26, Prime Minister Erdogan rejected 
pressures from business groups to sign a new agreement with 
the IMF.  "We are not going to take instructions from anyone. 
.... During a crisis, we will not bury the future in darkness 
by bowing to the demands of the IMF."  Addressing the IMF 
team visiting Turkey (reftel), Erdogan was quoted in the 
press as saying "if you reach an agreement with us about the 
budget within a framework of flexibility, then you do. But if 
you adopt an approach of using the opportunity to squeeze our 
neck, we'll not say yes to that, no matter what the price." 
(Comment: The IMF team is conducting post program monitoring. 
 No discussions on a new IMF agreement are taking place 
because the GOT has not yet requested a new program.  See 
reftel B. End comment.) 
 
¶4. (SBU) Central Bank Governor Durmus Yilmaz, speaking 
October 27 in northern Cyprus, agreed to some extent with the 
Prime Minister that "at this stage, we, the Turkish Republic, 
do not need money from the IMF."  But Yilmaz went on to say 
that Turkey "faces a serious foreign exchange liquidity 
problem" and that "... there is uncertainty about what we 
will face in the coming term.  So we see it as useful to make 
some arrangements to give confidence to international 
markets.  .... But this is a political decision and up to the 
government."  Yilmaz's vague comments were interpreted by 
some journalists as supporting the Prime Minister, and by 
others as adding to pressure on the PM to sign a new IMF 
agreement. 
 
¶5. (SBU) Former Central Bank Governor Surreya Serdengecti 
told us October 27 that the Prime Minister personally 
dislikes the IMF and will not sign a new IMF agreement unless 
he is forced to by financial circumstances.  Serdengecti said 
Erdogan made clear his antipathy for the IMF when he tried to 
prevent the renewal of the IMF Standby Agreement in 2003. 
Erdogan also does not trust the banking or business 
communities, Serdengecti said, and he is getting bad advice 
on the financial crisis from a small group of advisors, 
particularly Deputy Prime Minister for Economic Coordination 
Nazim Ekren.  For example, Erdogan, Treasury Minister Simsek 
and Finance Minister Unakitan all have said that the 
financial health of the Turkish banking system will prevent 
the crisis from reaching Turkey.  But the health of the banks 
is irrelevant in a global liquidity crisis in which even the 
best-run bank is at financial risk.  Serdengecti said Ekren 
and others advising the Prime Minister also do not understand 
(or, in the case of Minister Simsek, are unwilling to tell 
the Prime Minister) that that the fiscal austerity proposed 
by the IMF is good for business because the private sector is 
being crowded out of financial markets by GOT borrowing to 
fund its increased spending. 
 
¶6. (SBU) While the GOT does nothing, Serdengecti said, "as 
usual, the Central Bank is left to face the crisis alone." 
Serdengecti, a longtime critic of Governor Yilmaz, offered 
grudging praise, saying Yilmaz had done a lot with few 
resources.  Serdengecti noted, however, that Yilmaz went into 
the crisis with a credibility problem, and he has only 
 
ANKARA 00001872  002 OF 002 
 
 
exacerbated that with a quiet, "don't rock the boat" 
communications policy that makes the Prime Minister happy but 
fails to give direction to the markets.  He expects the Bank 
will lower reserve requirements temporarily in the near 
future, and supported the Monetary Policy Committee's (MPC) 
decision not to raise interest rates (reftel A).  While he 
expects inflation from the lira's depreciation to be 
substantially higher than the MPC statement indicated, the 
Bank's policy interest rate is no longer effective as a tool 
of inflation control. If the GOT fails to take action and the 
crisis worsens, the Bank may be forced to raise rates 
sharply, as it did in 2006, raising rates by 4%.  A sharp 
lira devaluation (to 1.8 or 2 to the dollar), or a wave of 
corporate bankruptcies, would be the kind of events that 
could force the GOT into an IMF agreement "very late and at 
high cost." 
 
Visit Ankara's Classified Web Site at 
http://www.intelink.sgov.gov/wiki/Portal:Turk ey 
 
WILSON