TURKISH ECONOMY APRIL 4: GOOD NEWS ON U.S.

UNCLAS ANKARA 002197

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: TURKISH ECONOMY APRIL 4: GOOD NEWS ON U.S.
PACKAGE, EXPECTED GOOD NEWS ON IMF LETTER OF INTENT


Sensitive but unclassified, and not for internet
distribution.


Lira Appreciates on Good News From U.S.
--------------



1. (U) News that both houses of Congress passed the
supplemental appropriation of $1 billion for Turkey buoyed
the money markets in morning trading April 4. The lira
appreciated about one percent to TL 1,655,000. The Istanbul
Stock Exchange was up 2.3 percent in morning trading. The
benchmark T-bill was unchanged at 63 percent compounded.

2. (SBU) Markets are waiting for the GOT to sign the IMF
letter of intent. Local press carried good news on this
front from IMF spokesman Dawson, who predicted a mid-April
board date for the Fourth Review. IMF resrep told us he has
not heard back from the GOT about signing the LOI, that
MinState Babacan is in Istanbul for European Investment Bank
meetings, and that the LOI could be signed anytime,
preferably today (for preparing markets ahead of the April 8
debt auctions).


March Inflation Higher Than Expected
--------------



3. (U) On April 3, the State Statistics Institute released
March inflation data that were slightly higher than market
expectations of CPI increase in the 2.2 - 2.5 percent range.
The numbers were:


March 2003 March 2002
-------------- --------------


Consumer
Price Index 3.2 pct 1.9 pct


Wholesale
Price Index 3.1 pct 1.2 pct



4. (SBU) Comment: March's higher than expected CPI reflects
a jump in food prices, owing to cold weather, and thus should
not affect interest rates in the T-bill auctions April 8.
But the upward trend of CPI inflation is a concern, given
March is higher than February (2.3 pct). While it's still
too early to predict that the year-end CPI target of 20
percent is out of reach, the first quarter trend is not
promising for forward looking inflationary expectations. End
Comment.


Financial Community Views
--------------



5. During a round of meetings April 4, Istanbul
bankers/economists told EconCouns and Congen Pol-Econ chief
that, while market sentiment had improved enough in the past
two weeks to reduce fears of a financial crisis/debt default
in the very short-term, the best-case scenario is that the
government manages to muddle through for a few months, with
the hoped-for arrival of U.S. assistance perhaps extending
that muddle-through period into late summer or fall.
Investors expressed no confidence in this government's
ability to manage the economy successfully, and a few bankers
asserted that some kind of domestic debt restructuring was
inevitable.
PEARSON