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DE RUEHIT #0269/01 1960809
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P 150809Z JUL 09
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC PRIORITY 9068
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEKJCS/DIA WASHDC PRIORITY
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UNCLAS SECTION 01 OF 02 ISTANBUL 000269 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR INTERNATIONAL AFFAIRS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV TU
SUBJECT: KOC EXECUTIVES ASSESS TURKEY'S ECONOMY 
 
REF: ANKARA 926 
 
¶1.  (SBU) SUMMARY: Koc executives expressed concern over the 
Turkish economy to Ambassador Jeffrey and CG Wiener in a July 
9 meeting.  While the situation has improved since earlier 
this year and Turkey is relatively better-positioned than its 
peers, consumer confidence remains low and must rebound for 
the economy to grow again.  Continued failure to sign an IMF 
agreement is a concern as it leaves Turkey vulnerable to a 
change in market conditions, according to Koc executives. 
The Koc representatives doubted that the AKP can hold its 
parliamentary majority in Turkey 2011's elections.  Comment: 
We believe recent economic data support the Koc executives' 
economic assessments.  End summary. 
 
¶2.  (SBU) Ambassador Jeffrey and Consul General Wiener 
attended a lunch at the Istanbul headquarters of Koc Holding, 
Turkey's largest industrial conglomerate, on July 9 with 
Honorary Chairman Rahmi Koc, Chairman Mustafa Koc, 
Vice-Chairman Temel Atay, CEO Bulent Bulgurlu, and Deputy 
(and incoming) CEO Osman Durak.  The Ambassador and CG were 
accompanied by FCS branch chief Greg Taevs and Treasury TDYer 
Jason Weiss. 
 
Too early for optimism 
---------------------- 
 
¶3.  (SBU) Koc CEO Bulent Bulgurlu noted that while the 
Turkish economy is performing relatively better than earlier 
this year, the recession has not yet reached its bottom and 
it is too early for optimism.  Mustafa Koc described Turkey's 
primary challenge as restoring consumer confidence.  People 
in Turkey have money, he suggested, noting that a recent tax 
cut on autos and consumer durables has spurred an uptick in 
consumption in these sectors.  He said he hopes Turks will 
now start spending more.  Bulgurlu noted that consumer 
confidence has improved in the past two months, although he 
agreed it remains low. 
 
But well-positioned for recovery 
-------------------------------- 
 
¶4.  (SBU) Bulgurlu does believe, however, that Turkey is 
better-positioned for 2010 than the rest of Europe.  The 
primary difference is Turkey's banking sector, which he 
described as very sound and strong.  Bulgurlu believes the 
banking sector will help Turkey to overcome potential further 
global stress, and leaves Turkey in a relatively better 
position than other economies whose banking sectors are not 
as healthy.  He added that Koc's exports are doing better 
than six months ago and that Koc is working to diversify its 
markets away from Europe and toward the Middle East and Asia, 
where there is still positive growth.  Bulgurlu and others 
approved of the Turkish government's March tax cuts, which 
they see as having helped the private sector and prevented 
further unemployment, but which came later than they should 
have. 
 
Turkey needs an IMF program 
---------------- 
 
¶5.  (SBU) Mustafa Koc expressed concern over Turkey's 
continuing lack of an IMF program.  He said that last year's 
budget, the first implemented without the IMF since the end 
of Turkey's 2002-08 program, was a "disaster," and that a new 
program would help Turkey a great deal with its current 
difficult fiscal situation.  He sees the government as 
"caught between the deep sea and the devil," as on one hand 
it needs an IMF program but, on the other, an IMF program 
would prevent it from implementing populist policies ahead of 
the 2011 parliamentary elections.  As such, he sees the main 
sticking points in negotiations as political, not technical. 
 
¶6.  (SBU) Bulgurlu noted that recent low oil prices and a 
stable exchange rate have helped Turkey navigate the crisis. 
As a result, the government believes that it can handle the 
downturn, but this will depend on continued friendly oil 
prices and exchange rates.  A downturn in either would pose 
further challenges for Turkey.  As such, now is the time to 
agree to an IMF program, he argues.  Bulgurlu hopes that the 
government realizes this and proceeds.  Without an IMF 
program, it will be very difficult for the Turkish private 
sector to roll over the $20 billion in loans it has coming 
due over the remainder of 2009.  Ambassador Jeffrey noted 
 
ISTANBUL 00000269  002 OF 002 
 
 
that Turkey has benefited from EU and IMF relations in the 
past (for instance, its customs union and bank restructuring) 
and that certain measures under these institutions, even if 
politically unpopular, are beneficial to Turkey. 
 
Electoral implications of economic crisis 
--------------------------------------- 
 
¶7.  (SBU) Mustafa Koc assessed that the AKP will fare worse 
in 2011 parliamentary elections than it did in 2009 local 
elections, and may even lose its majority, in part because of 
its mixed handling of the economic crisis.  He said he would 
not be surprised if a coalition government - either AKP-MHP 
or CHP-MHP - resulted.  While a coalition would not be the 
best outcome, he believes that it is necessary for the sake 
of democracy.  Comment:  Mustafa Koc is a vocal opponent of 
the current ruling party and he tends to be more negative 
than many observers regarding the AKP.  His comments on the 
AKP's political future should be taken in this context. End 
Comment. 
 
Comment 
------- 
 
¶8.  (SBU) Recent data on Turkey's May industrial production, 
capacity utilization, and exports support Bulgurlu's comments 
on the Turkish economy.  The pace of economic contraction is 
decelerating, but activity is still very low, unemployment 
remains high, and banks have only marginally resumed lending 
(and only to consumers, not to other firms), a sign of 
continued weak confidence.  Turkey's healthy banking sector 
positions it for a stronger recovery than its European peers. 
  However, failure to reach agreement on an IMF program would 
likely result in higher government borrowing and could crowd 
out the private sector, complicating recovery.  The 
uncertainty caused by the lack of an IMF agreement despite 
nine months of GOT suggestions of an imminent deal probably 
also is a significant drag on business, banking, and consumer 
confidence. 
WIENER