TURKEY'S ECONOMY MARCH 14: MARKET WORRIES MOUNT IN

UNCLAS ANKARA 001630

SIPDIS


SENSITIVE


STATE FOR E, P, EUR/SE AND EB
TREASURY FOR U/S TAYLOR AND OASIA - MILLS
NSC FOR QUANRUD AND BRYZA


E.O. 12958: N/A
TAGS: ECON PREL TU
SUBJECT: TURKEY'S ECONOMY MARCH 14: MARKET WORRIES MOUNT IN
ADVANCE OF MARCH 18 AUCTION


Sensitive but unclassified, and not for internet
distribution.



1. (U) Turkish financial markets in morning trading March 14
are beginning to reflect the concern that the U.S. financial
package is off the table. The benchmark lira T-bill rose two
percentage points to close at 60 percent compounded. The
lira depreciated one percent, now trading at TL 1,650,000 to
the dollar (yesterday's close was TL 1,633,000). The
Istanbul Stock Exchange closed down 1 percent in the morning
session.



2. (SBU) Turkish market contacts tell us the market
downturn is in the beginning phase. As JP Morgan/Chase
trader Gumisdis said, "The ranks of the believers (in the
U.S. package) are thinning, but no package is not priced in."
He sees interest rates in the March 18 debt auctions (before
the $3.2 billion redemption on March 19) in the 63-65 percent
range.



3. (SBU) Also on March 14, General Manager of Akbank (the
largest holder of Turkish debt) Zaafer Kurtul told us the
March 18 auction rates will easily reach 65 percent, given
the current uncertainties about the U.S. package. He added
that there is still some expectation about the U.S. package,
and as it becomes clearer to everyone that the package is
off, then interest rates would continue to climb from the 65
percent level. Kurtul was uncertain himself on the status of
the U.S. package, but worried with reports that U.S military
ships were leaving Turkish waters and headed to the Suez
Canal.



4. (U) At noon March 14, Turkish media published two reports
that will affect afternoon trading:


-- AKP Chairman Erdogan told the press that "it is possible
that the new government list (of Cabinet members) will be
presented to the President today." (Comment: this may give
markets hope that the new GOT will move to pass a second U.S.
troop deployment quickly.)


-- Turkish TV news channel NTV reported that in Secretary
Powell's Congressional testimony March 13 the Secretary said,
"In this context, the package (of financial aid for Turkey)
is now not on the table."
PEARSON