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UNCLAS SECTION 01 OF 02 ISTANBUL 000273 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT PLEASE PASS TREASURY DEPT. FOR CPLANTIER, 
FPARODI AND JWEISS. 
 
E.O. 12958: N/A 
TAGS: ECON EFIN TU
SUBJECT: IMF REP ATKINSON BRIEFS AUDIENCE IN ISTANBUL 
 
ISTANBUL 00000273  001.2 OF 002 
 
 
 
¶1.     (SBU)  (Summary):  Fresh from the G-8 Conference in 
Italy, IMF External Relations Director Caroline Atkinson met 
with local business leaders and analysts in Istanbul at a 
conference sponsored by DEIK (Foreign Economic Relations 
Board) to discuss the Fund's view of the global financial 
crisis and the upcoming World Bank-IMF meetings.  During the 
presentation and a Q&A session that followed, Atkinson stated 
that the worst of the crisis was behind us, but that 
significant challenges remained, among them sluggish global 
growth, China's trade surplus and the need for a fiscal "exit 
strategy" for the G-8.  Atkinson stated that the U.S. dollar 
would remain the world's reserve currency, but declined to 
comment on an IMF standby arrangement with Turkey.  (End 
Summary). 
 
 
   THE GLOBAL ECONOMY 
 
 
¶2.    (SBU)    IMF External Relations Director Caroline 
Atkinson's July 11 presentation was the second in a series of 
Platform Levent Meetings held by DEIK.  Atkinson paraphrased 
IMF Managing Director Dominique Strauss-Kahn as saying that 
although the global recession is ending, "it won't feel 
better for a while" since unemployment is a lagging economic 
indicator which will not improve markedly in the near future. 
 Nevertheless, she explained a number of metrics used by the 
IMF indicate that global systemic risk has subsided 
significantly in recent months.  Growth in the next couple of 
years will be sluggish and choppy, but inflation will remain 
in check.  Citing the IMF's 2009 World Economic Outlook, 
Atkinson presented a global growth rate forecast of 1.4% in 
2009 and 2.5% in 2010, with China and India leading the 
world.  The IMF growth forecast for China is 7.5% in 2009 and 
8.5% in 2010, while for India the forecast is 5.5% in 2009 
and 6.5% in 2010. 
 
 
   THE POLICY RESPONSE 
 
¶3.    (SBU)  Atkinson stated that inter-governmental policies 
have helped prevent a worsening of the crisis.  The world's 
leading economies and financial institutions, led by the 
United States, have used massive fiscal stimulus, balance of 
payments loans and bank re-liquefaction to stabilize the 
global financial system.  The IMF presently has new loan 
commitments of USD 160 billion in its pipeline, though these 
loans have not yet been disbursed.  Director Atkinson stated 
that the United States, China, Russia and Japan are all "on 
board" in terms of their IMF lending commitments. 
 
¶4.    (SBU)  Atkinson argued that continued concerted 
policies will be necessary to increase financial credit 
availability, restore financial health and stabilize global 
commodity prices.  Commercial real estate lending to builders 
and developers must increase, as must cross border lending, 
which will require greater confidence among financial 
institutions.  The IMF Director also underlined the crucial 
need for governments to eschew trade protectionism. 
 
 
   CHINA, EUROPE AND EXIT STRATEGIES 
 
¶5.    (SBU)  Debt sustainability is a major concern of the 
IMF, and Atkinson raised whether there will be continued 
global appetite for debt, especially emerging market (EM) 
debt.  A Chinese domestic stimulus policy would be desirable 
as an anchor for world economic growth, yet the Chinese 
consumer is leery of spending, since he lacks a decent social 
safety net and therefore wants to save, she explained. 
China, therefore, continues to run huge external surpluses. 
 
¶6.    (SBU)  Atkinson went on to emphasize that European 
economic vitality must be restored, but the Fund is less 
confident about the recovery in Europe.  (Note:  Atkinson 
cited IMF expectations that Germany's economy is contracting 
at a 6% annual rate.  End note).  There is a need to restore 
bank health in Europe, since the banking sector affects both 
housing and corporate credit.  Structural reform of Europe's 
 
ISTANBUL 00000273  002 OF 002 
 
 
economies is required to make them more "dynamic." 
 
¶7.    (SBU)  The governments that have crafted huge fiscal 
stimulus programs in response to the Crisis need an "exit 
strategy" to rein in deficits and reduce overall debt loads, 
while avoiding a significant up-tick in inflation.  Debt will 
continue to grow in the developed countries until at least 
2014, Atkinson offered, and will equal or exceed 100% of 
aggregate GDP in those countries. 
 
 
                    TURKEY 
 
¶8.    (SBU)  During the Q&A a representative from an 
investment bank spoke of "de-coupling" in Turkey, i.e. the 
dichotomy between the relative health of the banking and 
financial sectors and the weakness of Turkey's real sector 
and labor market.  He noted that during the last crisis in 
Turkey in 2001, severe as it was, total electricity demand 
actually increased, while during the present crisis it has 
decreased.  Unemployment is high (16%) and sticky, and 
nominal salaries are down year over year.  Contraction in the 
trade sector has done great damage to the labor market, and 
the gloomy economic prospects for Europe, Turkey's largest 
export market, are not encouraging.  Geographical 
diversification of trade is a good strategy for Turkey, but 
Turkey will not achieve this overnight. 
 
¶9.    (SBU)  An interlocutor stressed the need for better 
infrastructure in Turkey.  He opined that the legal and 
regulatory climate must improve to make Turkey a better 
target for foreign investment, and to normalize domestic 
business activity.  Long-term international funding, both 
multinational and private, is needed in transportation, IT, 
telecomm, and energy.  Atkinson concurred and said that there 
is renewed interest in infrastructure reform at the Fund and 
the World Bank. 
 
 
THE DOLLAR WILL REMAIN THE WORLD RESERVE CURRENCY 
 
¶10.   (SBU)  Atkinson noted that people have been predicting 
the demise of the dollar for some time.  Despite some earlier 
predictions the Euro has not replaced the dollar as a reserve 
currency.  What other currency, she asked, would replace the 
dollar?  Atkinson cited the seemingly paradoxical strength of 
the dollar during the crisis, and attributes it to the depth 
and flexibility of U.S. capital markets.  The U.S. government 
debt market is huge and liquid, and the United States remains 
an attractive target for foreign investment.  Atkinson 
believes that the dollar will remain the world's reserve 
currency "for a very long time."  However, she noted that 
there is less reason for nations to hold huge dollar 
reserves, since the IMF can provide "cushioning" for nations 
that require hard currency reserves.   Rather than run huge 
trade surpluses, Atkinson offered, it would be more 
beneficial for countries such as China to stimulate domestic 
demand and thus serve as an anchor of global economic growth. 
 
 
  THE UPCOMING WORLD BANK-IMF MEETINGS 
 
 
¶11.   (SBU)  Atkinson previewed preparations for the Annual 
World Bank-IMF Meetings, which will take place in Istanbul on 
October 6 and 7.   Several days prior to the meetings there 
will be workshops and seminars that address various topics. 
Sub-groups such as the G-20, G-24, and G-8 will convene 
separately, as will NGO,s and private sector groups.  Former 
UNDP (United Nations Development Programme) Director Kemal 
Dervis of Turkey will give the annual Per Jacobsen Lecture. 
Information about the October meetings and related events, as 
well as recent IMF publications, can be found at 
http://imf.org.external.   The Fund,s Global Financial 
Stability Report (GFSR) will be released on September 30. 
WIENER