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DE RUEHNC #0929/01 3301534
ZNY CCCCC ZZH
R 251534Z NOV 08
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC 9363
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEAIIA/CIA WASHDC
RUCNDT/USMISSION USUN NEW YORK 1266
RUEHBS/USEU BRUSSELS
RHEFNSC/NSC WASHDC

C O N F I D E N T I A L NICOSIA 000929 
 
SIPDIS 
 
DEPT FOR EUR/SE 
 
E.O. 12958: DECL: 11/24/2018 
TAGS: PREL PGOV TR CY
SUBJECT: CYPRUS: "TRNC PM" WARNS OF MID-2009 EARLY ELECTIONS 
 
REF: A. NICOSIA 558 
     ¶B. NICOSIA 650 
     ¶C. NICOSIA 621 
     ¶D. NICOSIA 675 
 
Classified By: Ambassador Franck C. Urbancic for reasons 1.4(b) and (d) 
 
1.(C) SUMMARY:  "TRNC PM" and "governing" Turkish Republican 
Party (CTP) leader Ferdi Soyer on November 21 informed the 
Ambassador he might be forced to call early elections in 
mid-2009 absent extraordinary budget support from Turkey. 
The "PM" was awaiting the return of Turkish Cypriot leader 
Mehmet Ali Talat from Ankara, who had traveled there in 
search of a bailout, but hinted an early vote was the only 
realistic option for his cash-strapped and unpopular 
administration.  Erdogan supported the CTP-led "government," 
Soyer claimed, but others in AKP argued that another party 
might better reform the bloated T/C "state" sector.  Soyer 
feared that early elections would destabilize the present 
UN-brokered process and energize anti-solution, rightist 
parties.  Turning to the settlement talks, Soyer assured that 
Ankara had given Talat a green light to negotiate freely, but 
admitted that Turkish Cypriots had to respect mainland 
redlines such as continuation of security guarantees.  The 
Turkish military also backed the settlement process, he 
asserted.  END SUMMARY. 
 
"We cannot get that much money" 
 
¶2. (C) "TRNC PM" Ferdi Soyer told the Ambassador on November 
21 that his nearly bankrupt administration, which already 
consumed 400 million USD in Turkish assistance annually (Refs 
C, D), faced grave financial shortfalls.  It could not 
generate sufficient tax revenues in 2009 to meet budgetary 
needs, he warned, since domestic economic conditions would 
continue to deteriorate.  Were Turkey not to cough up extra 
cash, he saw no alternative for his unpopular government but 
to call for elections by mid-2009 (elections are currently 
scheduled for February 2010).  He was awaiting Talat's return 
from Ankara, but doubted the "President" would return flush 
with funds.  Soyer himself had failed to secure a 
low-interest, long-term 100 million-dollar loan from the 
Turkish parastatal Ziraat Bank during a November 4-6 trip to 
Ankara (Note: Turkish "credits" to the "TRNC" are almost 
never repaid.) 
 
Paying Paul to make it to early elections 
 
¶3. (C) Preserving "public sector" employment and avoiding 
clashes with the north's powerful unions was politically 
vital to Soyer.  He had told Ankara (which consistently has 
pressed the Turkish Cypriots to reform the bloated state 
sector) that he would cease any fiscal and structural reforms 
in 2009.  Absent an infusion of Turkish cash, the ideal 
scenario was to go early elections, "without cutting 
personnel," in hopes of limiting electoral losses for the 
CTP.  Soyer sketched out a Ponzi scheme under which he hoped 
to obtain all Turkish 2009-10 aid in January, then 
immediately pay state employees and retirees the COLA 
differential for the next six months. (Note: By doing this, 
he would agree to Ankara's demand to make COLA payments twice 
a year vice the present once every two months, while also 
flooding the economy with needed cash.  He also might avoid a 
clash with powerful public sector unions, which had stymied a 
July 2009 effort to reform COLA payments with a general 
strike (Reftels).)  Soyer also hoped to pay the bonus "13th 
salary" for 2009 -- which Ankara also wants to ax -- out of 
the 2010 budget. 
 
"Erdogan understands, others don't" 
 
¶4. (C) Soyer said that Turkish PM Erdogan understood the 
importance of a pro-solution CTP "government" to the 
negotiations.  Others in the AKP did not argued that "another 
government" (presumably led by the nationalist, right-wing 
National Unity Party-UBP) might do a better at "running 
things" and tackling urgent structural reforms in the "state" 
sector, the biggest employer in the north.  Soyer voiced 
worry that UBP, which does not support the present 
UN-brokered process and is running neck-to-neck in polls with 
CTP, would sabotage Talat's effort at the negotiating table 
in an ugly example of "government" cohabitation. 
 
"We must support things Turkey wants" 
 
¶5. (C) In response to a question from the Ambassador, Soyer 
said that Ankara had given the lead in the negotiations to 
Talat, but that Turkish Cypriots also had "to support things 
Turkey wants."  On major issues, such as the continuation of 
guarantees, Turkish and T/C opinion coincided.  On other less 
existential issues, Soyer argued, the Turkish Cypriots often 
were able to prevail.  For example, he said that Ankara was 
against the start of the 2006 UN-brokered "Gambari/July 8 
Process," but Talat was able to exert his will.  Soyer also 
said that at November 15 "TRNC Independence" celebrations, 
Turkish Naval Commander Metin Atac voiced support for the 
present process, provided Turkish guarantees continued. 
 
Comment 
 
¶6. (C) Since PM Erdogan's visit to the island in July, we've 
heard talk of early elections in the north owing to Turkey's 
refusal to bail out the spendthrift "TRNC government." 
Erdogan's then-refusal to offer additional aid, at least not 
without painful reforms, unsettled our "pro-solution" 
contacts, but most believed Turkey would bail them out in the 
end.  If the AKP-led government did not, they argued, Turkey 
clearly was not interested in a solution.  From our perch, it 
seems that Turkey, in drawing a tighter financial line, truly 
wants to improve the functioning of the bloated, inefficient 
"state apparatus" in the north, not to scuttle the settlement 
talks.  Some in Ankara may also believe a harder-line T/C 
"government" can wring more concessions out of the Greek 
Cypriots.  Nevertheless, the possible fall of Soyer's 
pro-solution "government" due to a lack of Turkish aid -- 
after decades of open spigots -- makes rapid progress on the 
settlement track in early 2009 even more important. 
Urbancic