VZCZCXYZ0005
PP RUEHWEB

DE RUEHAK #0865 1701525
ZNR UUUUU ZZH
P 191525Z JUN 09
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 9975
INFO RUEATRS/TREASURY DEPT WASHDC PRIORITY

UNCLAS ANKARA 000865 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON TU
SUBJECT: GRAB BAG OF MEASURES TO STIMULATE THE ECONOMY 
 
¶1.  Summary and comment.  Prime Minister Erdogan announced a 
group of incentives designed to stimulate the economy and get 
Turks shopping.  The cost of the incentive measures is 
estimated to be 600-700 million TL (USD 400-467 million) and 
will be paid for by a 50 kurus (USD .33) tax increase on each 
pack of tobacco, cigarettes, and cigars.  The tax cuts are a 
continuation of Special Consumption Tax (OTV) cuts begun in 
March 2009, although they have been re-jiggered slightly to 
target different products.  While the results of the 
incentives will not be known for several months, using the 
tobacco tax increase to compensate for the OTV cuts is a 
welcome sign of fiscal prudence.  Separately, Deputy Prime 
Minister for the Economy Babacan announced a deal to 
encourage credit card holders to pay off their delinquent 
debts.  The credit card debt repayment program is aimed at 
reducing delinquencies that topped more than USD two billion 
as of April 2009.  The credit card repayment plan seems to be 
a manageable way out of a debt problem affecting 874,700 
Turks.  Banks will lose out on some interest and late fees, 
but they are more likely to be repaid for base debts under 
the compromise.  End summary. 
 
Incentives 
---------- 
 
¶2.  The incentives are all in the form of cuts in the Special 
Consumption Tax (OTV).  Through September 30, the OTV on 
medium to small cars (1600 cc and below) will be 27 percent. 
This is one category where the GOT seems to think the 
March-June tax cut has already had much of its intended 
effect.  Taxes were dropped significantly for light 
commercial vehicles, whose sales have dropped more than 50 
percent during the economic crisis.  The OTV on pick-up 
trucks is now two percent.  For trucks, mini buses, and 
special-purpose vehicles the OTV is now one percent.  For 
buses there is no OTV charge.  The GOT is continuing OTV cuts 
on computers and furniture at eight percent, while the OTV on 
white goods is cut to two percent.  The OTV on housing and 
construction equipment was reduced to eight percent between 
March and June, but those cuts will not be extended. 
 
FX Loans and Credit Card Debt Repayment 
--------------------------------------- 
 
¶3.  Deputy Prime Minister for the Economy Ali Babacan 
announced new measures to facilitate FX financing for private 
sector loans and to address the growing problem of delayed 
and delinquent credit card payments.  In the past, companies 
without foreign-earned income were prohibited from taking out 
foreign currency-denominated loans from Turkish banks.  Many 
company owners circumvented the prohibition by using their 
offshore FX deposits to guarantee their FX loans from foreign 
banks.  Babacan said the limiting policy had helped to 
insulate Turkish borrowers from negative effects of the 
global economic crisis, but now it will be modified to allow 
large companies to take out foreign currency-denominated 
loans if they are borrowing more than USD five million and if 
the term is longer than one year.  Babacan believes this 
change will help large domestic companies and also bring a 
net reduction in Turkey's foreign borrowings overall by 
allowing companies to borrow inside Turkey as they have 
offshore. 
 
¶4.  Unpaid debt from credit cards has been increasing faster 
than any other loan category.  Babacan announced that as of 
April, delinquent credit card balances totaled 3.1 billion TL 
(USD 2.06 billion) owed by 874,700 people.  More than half of 
these defaulted loans are below 1,000 TL (USD 667).  Banks 
have traditionally charged 5.5 percent monthly interest to 
delinquent borrowers and the credit card debt stock has 
skyrocketed.  To address the problem, the GOT made a deal 
with the Banks' Union to offer advantageous terms to people 
willing to pay off their delinquent debts.  The Turkish 
Parliament is working on fast-track approval of the bill, 
which would allow credit card debtors to sign a one-time 
agreement to pay off their existing debt immediately at no 
interest.  If the debtors need to pay over time, their 
monthly interest will drop to 1.04 percent over six months, 
with a sliding scale up to 1.26 percent per month over 36 
months.  All this is contingent on freezing the account and 
not incurring additional credit card debt.  The legislation 
is also slated to reduce annual fees for credit cards to 
approximately one percent of the credit limit. 
 
Visit Ankara's Classified Web Site at 
http://www.intelink.sgov.gov/wiki/Portal:Turk ey 
 
JEFFREY