DEMARCHES ON WAR SUPPLEMENTAL AND BOLSTERING

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 002052 SIPDIS STATE FOR E, P, EUR/SE AND EB TREASURY FOR OASIA - MILLS AND LEICHTER NSC FOR QUANRUD AND BRYZA E.O. 12958: DECL: 03/27/2008 TAGS: ECON EFIN PREL TU SUBJECT: DEMARCHES ON WAR SUPPLEMENTAL AND BOLSTERING MARKET CONFIDENCE REF: A. (A) STATE 77719 ¶B. (B) STATE 74060 (U) Classified by Ambassador W. Robert Pearson. Reasons: 1.5 (b,d) ¶1. (U) This is an action request -- see para 9. ¶2. (C) Summary: DCM delivered ref A and B points to Treasury U/S Oztrak and MFA Deputy U/S Kilic March 26-27, and EconCouns separately presented them to State Planning U/S Tiktik and AK Deputy Reha Denemec. DCM stressed that USG was very concerned about the lack of market confidence in GOT economic policies, and strongly urged the government to take tangible steps quickly to restore confidence. He noted that USG assistance could be helpful in that context, but that Congress' willingness to approve that assistance would depend greatly on Turkish cooperation in the days and weeks ahead, particularly on Northern Iraq. GOT officials welcomed the U.S. move as a sign the Administration wants to maintain the relationship, but stressed that they would not rely on possible assistance in their economic planning. While our economic interlocutors did not delve into the forward military cooperation that could help garner Congressional support for the Administration's request, we would welcome guidance in the expectation that such questions will be forthcoming. End Summary. ¶3. (C) In meetings March 26 and 27, DCM delivered reftel points to Treasury U/S Faik Oztrak and MFA Deputy U/S Kilic, while EconCouns presented them to State Planning U/S Tiktik and AK Deputy Reha Denemec, who is close to PM Erdogan. We stressed USG concern about the fragility of Turkey's public finances, as market players tell us their confidence in the government is extremely low, and urged the government to move rapidly to conclude its LOI with the IMF and to take additional steps to bolster market confidence. DCM stressed that the President's decision to include the assistance request in the War Supplemental reflected U.S. recognition of Turkey's importance and economic problems, but warned that improved cooperation on Iraq, particularly Northern Iraq, would be critical in overcoming Congressional skepticism about the aid in light of recent unfavorable developments. ¶4. (C) Treasury U/S Oztrak and SPO U/S Tiktik welcomed the U.S. move and noted that it had already bolstered the markets, but said the government would not count on the money in formulating its economic plans. They, along with MP Denemec, acknowledged Turkey's financial fragility and the lack of market confidence. They argued that the government was fully committed to implementing the reform program, including reaching final agreement with the IMF, and noted recent comments to that effect by PM Erdogan and Deputy PM Sener. DCM/EconCouns responded that investors wanted more than rhetoric; they were insisting on concrete steps, including rapid completion of the 4th review, accelerated privatization, and steps to improve the investment environment. Oztrak pointed out that the government had taken many tangible steps, including approval of new taxes, and would shortly approve a very tight budget and long-delayed direct tax reform. He conceded, however, that the government, like its predecessor, tended to emphasize in public those policies that played to its constituents (i.e. populist policies),while staying mum on its more "responsible" policies. ¶5. (C) Deputy U/S Kilic also welcomed the proposed U.S. assistance, saying it not only bolstered market confidence but also indicated that the bilateral relationship was back on track. He understood it involved double conditionality: approval by the Congress, and -- even assuming that approval -- continuing Turkish cooperation on Iraq. He noted that Turkey was well aware of Congressional sensitivities -- they had experience with the Congress on such matters in the past -- and thus saw this as a good test case. DCM responded that the decision clearly reflected the Administration's desire to assist Turkey, but that we were also looking to Turkey to find ways to help us on Iraq. He noted that the Embassy was keeping track of Turkish cooperation, such as recent permissions to allow U.S. aircraft to make emergency landings, but believed more could be done. ¶6. (C) Kilic said Turkey had plenty of goodwill and was anxious to restore the "long-cherished" bilateral relationship. It wanted to do that, irrespective of the fate of the proposed assistance package. He acknowleged that recent developments had harmed the relationship, and noted that the GOT had made several forthcoming moves in recent days to help repair the damage. Kilic also noted Turkey's interest in participating in Iraq reconstruction, and asked that the Embassy provide whatever information it could. ¶7. (C) Comment: While we received some questions about financial conditions of the supplemental request, none of our interlocutors posed questions about military cooperation requirements. They chose to view the request as a sign that there is a U.S. commitment to a strong relationship with mutual support, but like most of Turkey, they did not look proactively on how they could act to demonstrate Turkey's support for the U.S. While they obviously recognize the possibility that Congress will not support the Administration's request, they seem unwilling to look for areas where they might be helpful. We recognize that reftel makes no direct linkage between assistance and support for U.S. military operations in Iraq. Nonetheless, it could be helpful to offer the Turks some ideas of support that would strengthen the Administration's arguments in seeking Congressional approval of the assistance request. Such support might include: -- Stronger political support of the coalition in international fora; -- Facilitating humanitarian relief across the border; -- Support for commerical logistical resupply of non-military items for U.S. forces in Northern Iraq; -- Continuing support for emergency landings at Turkish airbases for refueling or other "humanitarian" reasons; -- An established, flexible approach to medical evacuation and SAR needs coming out of Iraq for assistance at medical facilities in Turkey, such as Incirlik; ¶8. (C) Any additional military requests, such as basing CSAR assets or tankers from Turkey, that would require further Parliamentary approval, must be treated in a different category. PM Erdogan has been quoted repeatedly as saying another motion is not under consideration. Many speculate such an idea has become increasingly problematic as coverage of the ongoing war has turned Turkish attitudes even more negative. ¶9. (C) Mission would appreciate any further guidance available on how the assistance request would relate to further support elements we seek. PEARSON