VZCZCXRO4174
RR RUEHDA
DE RUEHAK #0313/01 0580542
ZNR UUUUU ZZH
R 270542Z FEB 09
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 8922
INFO RUEHDA/AMCONSUL ADANA 3641
RUEHIT/AMCONSUL ISTANBUL 5441
RUEATRS/TREASURY DEPT WASHDC

UNCLAS SECTION 01 OF 02 ANKARA 000313 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR JASON WEISS 
EEB FOR ANDREW SNOW 
 
E.O. 12958: N/A 
TAGS: ECON EFIN TU
SUBJECT: TURKEY: PARLIAMENT PASSES CRISIS RESPONSE PACKAGE 
 
REF: ANKARA 297 
 
¶1. (SBU) Summary. Parliament approved a 111-page crisis 
response package on February 18 that amends existing tax, 
social security and incentive laws.  The focus of the package 
is on preventing further increases in unemployment and 
extending existing tax incentives.  Among its features, the 
law increases the GOT-funded "shortened employment" payments 
by 50% and extends the payment period from three months to 
six.  The goal is to use Unemployment Fund money to 
supplement the wages of workers at companies that have 
reduced their operating hours.  The estimated cost of this 
arrangement is TL 2.4 billion (USD 1.5 billion, or 0.24% of 
GDP).  The law needs to be signed by the President to enter 
into force, and several portions will require additional 
implementing regulations or Council of Ministers decisions. 
Local analysts were unimpressed, saying this package has been 
under discussion for months and falls short of the needs of 
the private sector, which is suffering from lack of demand. 
The measures also are likely to widen the gap between the 
negotiating positions of the GOT and the IMF over fiscal 
issues.  End summary. 
 
¶2. (U) The Turkish Parliament approved a 111-page economic 
stimulus law on February 18, amending several existing tax, 
social security, and incentive laws.  The law is intended to: 
 
-- accelerate economic development and decrease regional 
developmental disparities by supporting targeted, 
sector-based incentives; 
 
-- register economic activities and facilitate tax and social 
security amnesties for those moving into the formal sector; 
 
-- facilitate taxation of trade; 
 
-- expand the use of e-government and e-trade programs; and 
 
-- encourage investment. 
 
¶3. (U) Specific tax measures include: 
 
-- decreasing the value-added tax (VAT) on Internet 
communications from 15% to 5%; 
 
-- authorizing the Council of Ministers to reduce corporate 
taxes by 90% and to reduce the participation rate by up to 
45% for large-scale investment projects (exceeding TL 50 
million); 
 
-- authorizing the GOT to reduce some corporate taxes on 
investment and to cut taxes on textile and clothing 
manufacturers if they move their operations to certain cities; 
 
-- tax and fine amnesties for drivers of older vehicles (see 
reftel); and 
 
-- extending the duration of the "shortened employment 
payment" to 6 months from 3 months and increasing the benefit 
by 50%.  This program uses the Unemployment Fund to pay a 
portion of the wages of workers at companies that have had to 
reduce operating hours because of the crisis.  This 
encourages the companies to retain employees but reduces the 
associated labor cost.  The hope is that it will limit the 
rise in unemployment.  The estimated cost of this measure is 
TL 2.4 billion. 
 
¶4. (SBU) The package also extends existing investment 
incentives through the end of 2009 and reduces corporate 
taxes, labor costs, and energy costs for companies investing 
in less-developed parts of Turkey, such as the East and 
Southeast. Tax and labor reductions for R&D companies were 
also extended.  Finally, the law created a new investment 
incentive system through which the Council of Ministers will 
be able to support specific investments based on the needs 
and capacities of certain regions and provinces.  The Council 
will group provinces based on their socio-economic 
development and per capita income, then determine the sectors 
in need of investment and set targets for investment and 
employment aggregates in this area.  (Comment: This strategy 
is a part of a large economic survey recently conducted by 
the Ministry of Industry and Commerce, which aimed to draw an 
"economic map" of the country.  Although it is being packaged 
as a stimulus measure, the GOT had already planned to 
implement the system before the crisis began.  End comment.) 
 
¶5. (SBU) Murat Ucer from Global Source and Baturalp Candemir 
 
ANKARA 00000313  002 OF 002 
 
 
from EFG Securities in Istanbul dismissed the measures as 
oriented toward the March local elections rather than the 
crisis, with the focus on avoiding unemployment and targeting 
the Southeast.  Vural Kural, a former Treasury official and 
now senior economic advisor to the Union of Chambers and 
Commodity Exchanges of Turkey (TOBB) told Econoffs that this 
law has been under consideration since the beginning of 2008, 
well before the crisis hit Turkey.  He noted that another set 
of bills targeting the automotive, textile, contracting, iron 
and steel, maritime, and tourism sectors are still being 
designed. He was skeptical, however, that these bills would 
do much to meet the needs of the real economy, as the GOT is 
focusing on cushioning the shock of the crisis rather than 
stimulating new demand.  Further widening the deficit through 
higher spending and reduced revenues is also unhelpful in the 
context of the expected IMF deal, as it will further widen 
the gap between the negotiating positions of the IMF and GOT. 
 
 
Visit Ankara's Classified Web Site at 
http://www.intelink.sgov.gov/wiki/Portal:Turk ey 
 
Jeffrey