GOVERNMENT ON THE DEFENSIVE ON LOAN AGREEMENT

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 006209

SIPDIS


STATE FOR E, P, EB AND EUR
TREASURY FOR OASIA - LOEVINGER, MILLS AND LEICHTER
NSC FOR BRYZA AND MCKIBBEN


E.O. 12958: DECL: 10/02/2013
TAGS: EFIN PREL TU
SUBJECT: GOVERNMENT ON THE DEFENSIVE ON LOAN AGREEMENT


(U) Classified by Ambassador Eric S. Edelman. Reason: 1.5
(b,d)



1. (C) Summary: Under fire for having agreed to political
conditions (i.e., not sending troops unilaterally into
northern Iraq) in the financial agreement with the United
States, the government is on the defensive. State Minister
Babacan told the press last night that the "loan will be used
if it suits us," and "there is no hurry to use it." PM
Erdogan was slightly firmer this afternoon, dismissing the
criticism as "misinformed" and saying Treasury would decide
when to request the first disbursement depending on its
financing needs. Treasury officials told us this morning
that they had not submitted the agreement to the Council of
Ministers for ratification, and could not say when they would
do so. They also indicated that they were comfortable on
financing for the near term. All this suggests the
possibilty of a delay in requesting the first disbursement
beyond October 7-8. End Summary.



2. (C) In the past several days, the opposition CHP and
elements of the press have suddenly discovered that the $8.5
billion U.S. financial assistance package includes the
condition that Turkey should not unilaterally intervene in
Northern Iraq. They have used this "fact" to launch a fierce
attack on the governmnent. Over the weekend, CHP Deputy Onur
Oymen and independent MP Emin Sirin accused the government of
giving up its responsibility for defending Turkish borders,
and called on it to resign. CHP leader Deniz Baykal claimed
the government had given the nod to the establishment of the
PKK/Kadek in northern Iraq. Establishment columnists Sedat
Ergin and Fikret Bila also criticized the deal.



3. (C) The criticism continues, and is being played up by
the press. At the reception marking Parliament's opening
last night, Chief of the General Staff Ozkok told the press
that he was "uneasy" with the agreement's conditionality, and
said economic and political issues should be separated.
Separately, Deniz Baykal called on the government to cancel
the agreement, while Milliyet columnist Fikret Bila (who
generally reflects TGS thinking) argued that the agreement --
which he termed an "indecent proposal" -- impinges on
Turkey's sovereignty. DCHOD Basbug told the Ambassador that
the original legislative condition, although based on
misinformation and incorrect interpretation at the time, was
understandable. However, its reproduction in the financial
agreement was inappropriate now and lent itself to
misinterpretation.



4. (C) This new burst of criticism, combined with continuing
charges that the U.S. assistance is linked to a Turkish
decision on contributing troops to the Iraq stabilization
force, has forced the government on the defensive. Over the
weekend, Foreign Minister Gul said Turkey might reject the
$8.5 billion loan if the U.S. tied it to pulling troops out
of Northern Iraq (which of course we are not doing). PM
Erdogan yesterday told Parliament that Turkey could opt not
to accept the loan (this was in the context of a discussion
on whether the money was linked to a contribution to the
stabilization force.) State Minister Babacan was quoted last
night as saying "the loan will be used if it suits us, and
not if it does not." He pointed out that the U.S.
legislation -- which includes the northern Iraq condition --
had been public since April 16 -- but then added that "This
loan is not a sine qua non. There is no hurry to use it."



5. (C) Prime Minister Erdogan was slightly firmer in a
televised interview this afternoon. He dismissed the
criticism of the loan as "misinformed," noted that positive
relations with the U.S. had contributed to the market's
current optimism, and said Treasury would determine the
timing of Turkey's disbursement request based on its
financing needs. The first disbursement, he added, could
come by the end of this month.



6. (C) Treasury U/S Canakci told us this morning (septel)
that Treasury had not submitted the agreement to the Council
of Ministers for ratification yet, and he could not say when
it would do so. Some people, he noted, are insisting that
Parliament must approve it. Canakci added that Treasury was
in a comfortable position on financing, implying it did not
need the money for its October 22 disbursement.



7. (C) Comment: As often happens in Turkey, a positive
gesture -- offering a large, generous loan -- has been
demonized. In our view, this is mostly about the opposition
and Establishment using the agreement's conditionality to
attack the ruling AK Party, though there is also an
anti-American element to this. The government, which has
been anxious about this loan package all along, now has
another reason to be nervous, which probably explains why it
has not yet pursued ratification. While ratification and a
disbursement request could still happen by early next week,
the growing controversy surrounding the loan, coupled with
Treasury's comfortable financing position and the Turkish
bureaucracy's penchant for delay, suggest a growing
possibility of delay. Whether that delay happens -- and how
long it lasts -- would seem to depend on the government's
willingness and ability to explain the agreement publicly,
and the extent to which uncertainty surrounding the agreement
makes the markets nervous.
EDELMAN