Identifier
Created
Classification
Origin
03ANKARA7417
2003-12-03 15:24:00
CONFIDENTIAL
Embassy Ankara
Cable title:  

MEETING WITH WORLD BANK ECONOMIST

Tags:  EFIN ECON EAGR ENRG ECPS TU 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 007417 

SIPDIS


STATE FOR E, EB/IFD, AND EUR/SE
TREASURY FOR OASIA - MMILLS AND JLEICHTER
NSC FOR MBRYZA AND TMCKIBBEN


E.O. 12958: DECL: 12/02/2008
TAGS: EFIN ECON EAGR ENRG ECPS TU
SUBJECT: MEETING WITH WORLD BANK ECONOMIST

Classified for reasons 1.5 (b) and (d) by Economic Counselor
Scot Marciel.


C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 007417

SIPDIS


STATE FOR E, EB/IFD, AND EUR/SE
TREASURY FOR OASIA - MMILLS AND JLEICHTER
NSC FOR MBRYZA AND TMCKIBBEN


E.O. 12958: DECL: 12/02/2008
TAGS: EFIN ECON EAGR ENRG ECPS TU
SUBJECT: MEETING WITH WORLD BANK ECONOMIST

Classified for reasons 1.5 (b) and (d) by Economic Counselor
Scot Marciel.



1. (C) Summary: Resident World Bank economist James Parks
told econoffs that the GOT has yet to meaningfully re-engage
with the Bank in several sectors, though in others there is a
continuing dialogue. Parks raised the question of how to
avoid a sharp fall in the lira, given the likely size of next
year's current account deficit, particularly if neither the
U.S. nor World Bank facilities disburse. Parks noted that
the GOT's tendency to muddle through on reforms often results
in Turkey getting neither populist political benefits nor
the economic benefits of decisive reforms. End Summary.


2004 Current Account Deficit:
--------------



2. (C) Econoffs met November 21 with World Bank economist
James Parks, who has been covering Turkey for 5 years at the
Bank mission here. Parks expressed concern that the large
2004 current account deficit could lead to a sharp fall in
the lira, particularly if Turkey neither avails itself of the
U.S. Financial Assistance (FA) nor implements the reforms
needed to obtain additional World Bank disbursements. Parks
does not believe the markets have priced in such a scenario.
Parks sees market participants as still viewing the holding
of dollars as a losing bet, and are therefore perpetually in
search of high-yielding TL assets. In this situation, there
is a danger of a sharp reversal in the markets next year.
Note: Parks question has been raised by some private
analysts, but Parks comments contrasts with IMF and Central
Bank officials who have downplayed such concerns to econoffs.
End Note.



3. (C) Parks does not believe that Economy Minister Babacan
and other senior GOT officials see the connection between
re-engagement with the World Bank to get disbursements and
the need for external funding to finance the CA deficit.
Parks is of the opinion that Babacan is too focused on

short-term tactics in the domestic debt market, and not
enough on inspiring international confidence that attracts
long-term funding such as World Bank credits.


Bank Waiting on Promised GOT Re-engagement:
--------------



4. (C) Though Minister Babacan promised World Bank President
Wolfensohn in Dubai that the GOT would re-engage with the
World Bank on a series of stalled programs, the Bank is
waiting to see signs of such re-engagement. Parks described
varied degrees of engagement with the Bank, ranging from
close consultation in sectors like agriculture, to zero a
near-total absence of dialogue on a decentralization
proposal.




Agriculture:
--------------



5. (SBU) The Bank has been quite active in the agriculture
sector and believes it has broadly succeeded in moving the
GOT from inefficient and expensive forms of ag subsidies to
direct income support payments to farmers. The Bank had been
proposing direct income support legislation, but the GOT
recently decided it wanted to fold this into a broader
agriculture law. In the process, the GOT proposed what the
Bank considered a step backwards: a deficiency payment to
cotton farmers. Rather than try to kill the subsidy
altogether, the Bank is trying to convince the GOT to put its
money into less distortionary and more effective uses, such
as investing in additional irrigation. Likewise, the Bank
has been trying to encourage hazelnut farmers to get into
other crops. Though the Bank and Turkish officials do not
always agree on ag issues, at least the GOT engages with Bank
experts and is willing to listen.


Privatization:
--------------



6. (C) To the extent the privatization process ever moves
forward in Turkey, it moves in fits and starts, according to
Parks. Things moved forward in the first half of 2000, then
nothing until this year. Parks thinks the current
government, particularly Finance Minister Unakitan, believes
in privatization, and the GOT did privatize some small
companies earlier in the year. Parks viewed the tobacco law,
passed to facilitate the privatization of the tobacco
operations of Tekel, as a step forward in that it eliminated
tobacco farmer support purchases. Despite this reform in the
law, the GOT pressured Tekel to buy tobacco in Eastern
Turkey. Potential buyers in the privatization process were
not clear as whether they would be pressured as well,
consequently they had to discount their bids accordingly.
Parks cited this as an example of how the GOT's
muddle-through approach results in the worst of both worlds:
the GOT neither gets the populist political benefit of
support to the farmers, not the economic benefits of
privatization at a good price.


Energy:
--------------



7. (C) Parks made a parallel with the energy sector, in which
he saw the GOT as continuing to muddle through without a
clear announcement of a policy framework. Instead, the GOT
is trying to sell assets one by one. The Bank has been
urging the GOT not to sell generation assets until a sectoral
framework exists.


Telecoms:
--------------



8. (C) Though much work remains to be done, Parks views
telecoms as one of the better sectors in terms of GOT
commitment to reform. An earlier telecom law established a
regulatory body and set a January 1, 2004 date for
liberalization of the sector. The liberalization will not
actually happen by that date, however, because the regulatory
framework is not fully in place, according to Parks.
Although the cabinet recently approved a privatization plan
for Turk Telekom as a condition of the IMF's Sixth Review,
new legislation is needed to allow the privatization to go
forward. This will take time, effectively delaying
liberatization of the sector. Parks cited this as an example
of the GOT's difficulty in tackling multiple issues
simultaneously.


BRSA and SDIF:
--------------



9. (C) Parks saw little progress on banking sector reforms.
The bank regulatory body (BRSA) has been badly shaken by the
removal of its senior management. Parks believes the GOT has
figured out that the SDIF (the deposit insurance fund) is
more important to control than the BRSA itself, and is
therefore proposing to have the Council of Ministers approve
all asset sales. Comment: The SDIF's asset sales program has
been painfully slow. If the GOT Council of Ministers has to
approve these sales, it is likely to be even slower.
Moreover, GOT control of the SDIF could lead to a return to
political influence in decisions of bank seizures and asset
sales. End Comment. Parks' analysis is that the GOT has a
political problem with the clean-up of the banking sector.
Whereas the USD 30 billion that the Turkish state has put
into recapitalizing the banking sector was injected under the
previous government, the GOT now is confronted with the
politically unattractive necessity of injecting new money to
cover Imar Bank and Pamuk Bank losses. Hence the "political
show" of blaming former BRSA Chairman Akcakoca, and the
slowness in passing the legislation authorizing the financing
plan for the Imar Bank payout to depositors. Parks does not
believe the IMF is engaging forcefully enough with the GOT on
these issues.


Public Administration:
--------------



10. (C) Parks noted favorably Minister Unakitan's commitment
to pass legislation in December closing extra-budgetary
accounts. Though Parks is quite bullish on the Public
Financial Management and Control law, in other areas of
Public Administration reform, he said the GOT has not engaged
with the World Bank. For example, the Prime Ministry is
working on legislation governing independent bodies and has
claimed it would be in conformity with the BRSA law.
However, according to Parks, it is not and the Bank is
objecting. Worse still, the GOT is working on legislation
that would greatly decentralize control over many state
functions, devolving power to municipalities. Parks said
there would be a five-fold increase in funding to
municipalities, yet the GOT is not working with the IFI's on
this, except to say they will discuss it when it gets to the
implementation stage. Given the Bank's desire to encourage
the GOT to re-engage, and the narrower goal of seeing the
Public Financial Management and Control law passed, the Bank
has not yet pressed the GOT on the decentralization
legislation.


EDELMAN