VZCZCXYZ0000
PP RUEHWEB

DE RUEHIT #0132/01 0901406
ZNR UUUUU ZZH
P 311406Z MAR 09
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC PRIORITY 8896
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASH DC PRIORITY

UNCLAS ISTANBUL 000132 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ENRG PGOV PHUM TU
SUBJECT: TREASURY OFFICIALS VISIT ISTANBUL 
 
¶1. SUMMARY:  (SBU) US Treasury Department officials Joanna 
Veltri and Jason Weiss had a series of meetings in Istanbul 
on March 19th & March 20th with financial analysts and 
private sector representatives.  They discussed Turkey's 
worrisome financing needs, prospects for an IMF agreement and 
the overall impact of the ongoing economic crisis on the 
private sector.  All interlocutors voiced their concern about 
the widening central government budget deficit, the foreign 
borrowing needs of the Turkish private sector, and the fate 
of the IMF deal.  All are still banking on an IMF deal after 
local elections, and don't even want to think about the 
consequences if it does not occur.  Almost all the analysts 
with whom we spoke expect nearly a double digit contraction 
in GNP for 4Q '08 and 1Q '09.  Positive growth before the 
last quarter of 2009 is out of the question.  Their annual 
GNP estimates for 2009 suggest a contraction of between 4 
percent and 7 percent.  If all goes well, 1.5 percent to 2.5 
percent growth for 2010 is attainable  END SUMMARY. 
 
 
 
TURKISH BANKS ARE SOUND, BUT THE REAL SECTOR IS VULNERABLE 
--------------------------------------------- ------------- 
 
 
¶2. (SBU) The CEO of Sabanci Holding, Ahmet Dorduncu, and his 
Chief Economist Barbaros Ineci said they saw the first signs 
of the crisis in 2006, and since then have prepared the 
holding's annual budgets very conservatively, with the 
possibility of a global crisis in mind:  as a result they 
have been very successful.  The holding is financially very 
liquid, and well positioned to buy attractively priced 
assets, particularly in the energy sector.  Dorduncu said 
people are queuing up at their door to sell their energy 
licenses. 
 
¶3. (SBU) Dorduncu and Ineci said that in Turkey, unlike many 
other countries, the heaviest impact of the global financial 
crisis was felt in the real sector, rather than in banking, 
The Turkish banking sector is in very sound shape and current 
non performing loan (NPL) ratios are manageable at 4.2 
percent; they believe that even a 9-10 percent rate would not 
cause serious trouble.  However, they expect the rollover 
rate for bank foreign debt to be around 60-70 percent in 
2009, and to be financed at higher interest rates: Libor 
500-600 basis points, versus Libor   100 before the crisis. 
As for the real sector, they said a shortage of funding for 
small and medium enterprises (SMEs) is a big problem.  Giants 
like Koc and Sabanci can find funding whenever they need it, 
whereas SMEs are struggling to obtain financing, both locally 
and from overseas.  The officials said special attention must 
be paid to efforts to reform Turkey's SMEs.  Economist Ineci 
said it would be a waste of time and money to re-shape the 
global economy to its pre-crisis contours, since those very 
contours led to the current collapse.  Ineci believes that 
much of the "wealth" creation in recent years was artificial, 
and therefore the recent cratering of the finance sector was 
inevitable. 
 
 
FINANCIAL ANALYSTS AWAIT AN IMF DEAL 
------------------------------------ 
 
¶4. (SBU) Almost all the financial analysts with whom Veltri 
and Weiss spoke were very disappointed by the GOT's 
performance in handling the crisis.  Cem Akyurek of Citibank 
said that Turkey, because of its relatively healthy banking 
sector, had a comparative advantage over many of its emerging 
market peers at the start of the crisis.  An orthodox, and 
early IMF program that met the country's external financing 
needs would have done wonders, he commented, but the GOT did 
just the opposite.  Confidence now is very low, and the job 
at hand has become a lot more difficult.  The only good thing 
to come from this mismanagement is falling inflation. All 
analysts still expect an IMF deal after the March 29 
elections, and before this summer.  They believe that the 
failure to lock in an IMF deal will certainly lead to 
disaster.  Baturlap Candemir of EFG Securities bluntly said 
the only thing that keeps the dollar at 1.7TL and interest 
rates at 14% is the conviction by market players that a deal 
will be reached with the IMF.  If the players change their 
minds, Candemir thinks the dollar will reach 2TL and interest 
rates will rise to 18-20%. 
 
¶5. (SBU) Gulden Atabay at Express Invest said that some 
things need to be re-negotiated with the IMF, since the 
Turkish economy has changed greatly since January.  Central 
budget figures for the first two months of 2009 are terrible, 
and the deficit over the period has already reached the 
year-end target level.  GOT needs to severely cut 
expenditures after the elections, and even if they do, the 
deficit estimate for year-end will be 5 percent of GNP: 
absent an IMF deal, Atabay warned, the budget deficit will be 
7 percent of GNP. 
 
 
COMMENT 
------- 
 
¶6. (SBU)  Analysts also complained about the mismanagement of 
economic policies by certain ministers in the cabinet, 
particularly Ministers Simsek and Ekren.  Murat Ucer of 
Global Source said the problem is not that these ministers do 
not comprehend the gravity of GOT's deteriorating budget 
numbers: the problem is that they are not strong enough to 
tell the Prime Minister to back off from his program of 
rampant pre-election spending. 
 
 
Wiener