TURKISH MARKET RALLIES HALT, AWAIT GOT ACTION; NEW

UNCLAS ANKARA 008454

SIPDIS


SENSITIVE


STATE FOR EUR/SE, EB/IFD/OMA AND E
TREASURY FOR OASIA - MILLS AND GUNARATNE
STATE PASS USTR - NOVELLI AND BIRDSEY


E.O. 12958: N/A
TAGS: ECON EFIN PREL TU
SUBJECT: TURKISH MARKET RALLIES HALT, AWAIT GOT ACTION; NEW
TREASURY MINISTER'S FIRST STATEMENT


REF: ANKARA 8381


Sensitive but Unclassified. Not for internet distribution.


Markets Await GOT Next Steps
--------------



1. (U) In morning trading November 20, yields on the
benchmark lira Treasury bill rose to the 52 percent
compounded level, having dropped earlier in the week of 49
percent. The lira depreciated slightly to TL 1,590,000 from
yesterday's low of TL 1,580,000. Two days of profit taking
in the Istanbul Stock Exchange has brought the index down to
13,276, from Monday's height of over 14,000.



2. (SBU) Comment: The market rallies have halted for three
reasons. First, T-bill rates rose largely for a technical
reason - an inverted yield curve. At 49 percent in
compounded terms, the eight month maturity T-bills were
offering a lower rate (about 40 percent in simple terms) than
overnight money market investments (a simple rate of 44
percent.) Unless one was willing to bet that the Central
Bank would soon cut its overnight borrowing rate, the 49
percent compounded level was not sustainable. Second, some
investors, including a large U.S. investor, took advantage of
the greater liquidity in the stock market to sell. Third,
many investors and analysts now say they want to see actions
by the new GOT before buying more. Credit Suisse's local
trader, reflecting a widely held sentiment, told us, "we need
to be assured that this is not another temporary volatile
swing, that the new GOT will take steps to keep it going."


Babacan's First Statement as
State Minister in Charge of Treasury
--------------



3. (U) New State Minister in charge of the Treasury Ali
Babacan gave brief press remarks on November 19 evening,
following a hand-over with outgoing Minister Turker. Babacan
said the new GOT program would aim to decrease inflation, and
strengthen debt dynamics in a permanent way by decreasing the
public sector debt to GNP ratio (Note: Babacan appears to be
taking the advise of Treasury U/S Oztrak, who stressed these
points in a meeting with us November 19, septel.)



4. (SBU) On IMF relations, Babacan said "there is a great
possibility the IMF will visit Turkey within several weeks."
(Comment: IMF resrep told us IMF Europe Director Deppler and
Turkey Mission Chief Kahkonen are now planning a trip to meet
with new GOT ministers on or about December 1-3, before the
end Ramadan holiday that starts mid-day December 4.)



5. (U) Asked about the 2003 budget, Babacan said:
"Everything will be fully announced by the end of December,
after holding talks with the IMF." Babacan didn't directly
address the primary budget surplus issue, but he did add that
a major part of the GOT program would include "social
measures" to alleviate unemployment, measures for the real
sector and agricultural support projects. "we will do what
we promised, " Babacan concluded.



6. (SBU) Comment: The extent of Babacan's portfolio has not
yet been spelled out - in addition to the Treasury
Undersecretariat, he may also supervise privatization, and
have oversight responsibility for the banking and capital
market boards (Dervis and Turker also had the later two
agencies.) Reftel has Babacan's bio.
PEARSON