GOVERNMENT RELEASES SOME 2003 BUDGET

UNCLAS SECTION 01 OF 02 ANKARA 000752 SIPDIS SENSITIVE STATE FOR E, EB/IFD/OMA, AND EUR/SE TREAUSRY FOR OASIA - MILLS AND LEICHTER STATE PASS USTR - NOVELLI AND BIRDSEY E.O. 12958: N/A TAGS: ECON EFIN PGOV TU SUBJECT: GOVERNMENT RELEASES SOME 2003 BUDGET NUMBERS; SKEPTICISM ON PRIMARY SURPLUS CLAIMS REF: ANKARA 193 SENSITIVE BUT UNCLASSIFIED, AND NOT FOR INTERNET DISTRIBUTION. ¶1. (SBU) SUMMARY: DEPUTY PM ABDULLATIF SENER ANNOUNCED JANUARY 28 THE MACRO-ECONOMIC ASSUMPTIONS UNDERLYING THE 2003 BUDGET, AND SOME OF THE BUDGET AGGREGATES, BUT NOT THE FISCAL SAVING MEASURES THAT RESULT IN THE HEADLINE 6.5 PERCENT OF GNP PRIMARY SURPLUS. THOSE MEASURES ARE BEING DEBATED ON THE EVENING OF JANUARY 29 IN THE CABINET-LEVEL HIGHER PLANNING COUNCIL. PRIVATELY, FINANCE MINISTRY BUDGET DEPARTMENT HEAD KESIK TOLD US THE MEASURES HE'S SEEN ADD UP TO AROUND 5 PERCENT OF GNP (IMF RESREP SAYS LESS THAN 5 PERCENT). PUBLICLY, DEPUTY PM SENER CLAIMS THE GOT WILL EXCEED THE 6.5 PERCENT TARGET, BUT THAT CLAIM NEEDS TO BE BACKED BY CREDIBLE MEASURES, MANY OF WHICH WILL BE POLITICALLY DIFFICULT. END SUMMARY. ¶2. (U) ON JANUARY 28, DEPUTY PRIME MINISTER ABDULLATIF SENER (IN CHARGE OF ECONOMIC POLICY COORDINATION) GAVE PRESS REMARKS FOLLOWING A MEETING OF THE HIGHER PLANNING COUNCIL (CHAIRED BY PM GUL, IT INCLUDES THE ECONOMIC MINISTERS AND KEY ECONOMIC AGENCY HEADS). SENER REITERATED THE TURKISH GOVERNMENT'S INTENTION TO MEET AND EVEN EXCEED THE PRIMARY SURPLUS TARGET OF 6.5 PERCENT OF THE GNP. HE SAID THE 2003 BUDGET WOULD ACTUALLY RESULT IN A HIGHER, 6.8 PERCENT PRIMARY SURPLUS, BUT HE DIDN'T UNVEIL THE FISCAL SAVING MEASURES THAT WOULD LEAD TO THIS TARGET. HE DID NOTE THAT THE 2003 BUDGET WOULD ELMINATE SOME 600 PROJECTS FROM THE PUBLIC INVESTMENT PROGRAM (THESE ARE LARGELY PROJECTS THAT HAD RECEIVED SOME PRELIMINARY APPROVALS BUT HAD NOT BEEN FUNDED AT ANY LEVEL IN PRIOR BUDGETS, I.E., HAD NO FEASIBILITY STUDIES.) ¶3. (U) ON JANUARY 29, THE HIGH PLANNING COUNCIL BEGAN MEETING AT 4:00 P.M. LOCAL TIME, WITH THE AGENDA OF ADOPTING THE FISCAL SAVING MEASURES REQUIRED TO REACH THE PRIMARY SURPLUS TARGET. ¶4. (U) FOLLOWING DEPUTY PRIME MINISTER SENER'S ANNOUNCEMENT, HIS OFFICE RELEASED THE 2003 MACRO- ECONOMIC TARGETS, AND THE FINANCE MINISTRY SEPARATELY RELEASED OT THE PRESS THE 2003 BUDGET AGGREGATES. WE CONFIRMED THE FIGURES WITH FINANCE MINISTRY'S BUDGET DEPARTMENT HEAD AHMET KESIK. MACRO-ECONOMIC ASSUMPTIONS IN THE 2003 BUDGET -------------- 2003 GNP: TL 354,575 TRILLION ($202.4 BILLION) GROWTH RATE: 5 PERCENT POPULATION: 70 MILLION PER CAPITA INCOME: $2,856 WPI: 17.4 PERCENT (YEAR-END) CPI: 20.0 PERCENT (YEAR-END) GNP DEFLATOR: 24.4 PERCENT AVERAGE ANNUAL USD EXCHANGE RATE: TL 1,752,000 AVERAGE ANNUAL INTEREST RATE ON LIRA-DENOMINATED FIXED RATE GOVERNMENT SECURITIES: 43 PERCENT 2003 BUDGET AGGREGATES -------------- TOTAL EXPENDITURES: TL 148.3 QUADRILLION ($84.7 BILLION) PERSONNEL EXPENDITURES: TL 29.6 QUADRILLION ($16.9 BILLION) PUBLIC INVESTMENT EXPENDITURES: TL 9.1 QUAD ($5.2 BILLION) TRANSFER EXPENDITURES (INCLUDES INTEREST PAYMENTS ON GOT DEBT): TL 100.2 QUAD ($57.2 BILLION) BROKEN DOWN INTO: -- INTEREST EXPENDITURES: TL 65 QUADRILLION ($37.1 BILLION) -- SOCIAL SECURITY EXPENDITURES: TL 15 QUAD ($8.6 BILLION) -- AGRICULTURE AND STOCKBREEDING SUPPORT PAYMENTS: TL 3.7 QUAD ($2.1 BILLION) -- V.A.T. REFUND PAYMENTS: TL 6.6 QUAD ($3.8 BILLION) -- SEE TRANSFERS: TL 2 QUAD ($1.1 BILLION) OTHER CURRENT EXPENDITURES: TL 9.4 QUADRILLION ($5.4) (NOTE: SEES ARE STATE ECONOMIC ENTERPRISES. IN ADDITION TO THIS $1.1 BILLION BUDGET ALLOCATION TO THEM, SOME SEES MAKE GOOD PROFITS BASED ON STATE-CONTROLLED MONOPOLY POSITIONS OVER KEY BUSINESSES SUCH AS ALCOHOL IMPORTATION (TEKEL), OIL REFINING (TUPRAS),NATURAL GAS DISTRIBUTION (BOTAS).) TOTAL REVENUES: TL 98.6 QUADRILLION ($56.3 BILLION) TAX REVENUES: TL 82.7 QUADRILLION ($47.2 BILLION) BUDGET DEFICIT: TL 49.8 QUADRILLION ($28.4 BILLION) CONSOLIDATED CENTRAL GOVERNMENT PRIMARY SURPLUS: TL 19.7 QUADRILLION ($11.2 BILLION) OR 5.6 PERCENT OF GNP. (NOTE: THIS IS A NARROWER DEFINITION OF PRIMARY SURPLUS WHICH INCLUDES ONLY THE CENTRAL GOVERNMENT. THE IMF DEFINITION INCLUDES THE ENTIRE PUBLIC SECTOR, INCLUDING SEES, SOCIAL SECURITY AND OFF-BUDGET FUNDS, AND MUNICIPALITIES. FOR MONITORING PURPOSES, THE IMF "PRIMARY SURPLUS" INCLUDES ONLY EIGHT SELECTED SEES AND CERTAIN OF THE FUNDS, BUT NOT ALL OF THEM, BECAUSE IT TAKES MONTHS TO GET THE ENTIRE PUBLIC SECTOR DATA. WE STILL DON'T HAVE THE FINAL 2002 IMF ENTIRE PUBLIC SECTOR PRIMARY SURPLUS, THOUGH THE IMF ESTIMATES IT AT 4.4 PERCENT OF GNP.) COMMENT: HEALTHY SKEPTICISM -------------- ¶5. (SBU) MARKETS ARE NOW WAITING FOR NEWS OF THE FISCAL MEASURES NEEDED TO MEET THE 6.5 PERCENT OF GNP PRIMARY SURPLUS. TREASURY DEPUTY U/S KARAOZ TOLD US HE'S NOT SURE THAT TODAY'S HIGHER PLANNING COUNCIL WILL REACH CONSENSUS ON THE MEASURES (WHICH INVOLVE CUTS IN REAL TERMS TO CIVIL SERVANT WAGES, CUTTING BACK THE PHARMACEUTICAL BENEFIT TO SOCIAL SECURITY, AND OTHER POLITICALLY DIFFICULT ITEMS). ¶6. (SBU) FINANCE MINISTRY BUDGET DEPARTMENT HEAD AHMET KESIK TOLD US IN PRIVATE HE'S SKEPTICAL THAT THE NEW SET OF MEASURES WILL ADD TO 6.5 PERCENT. KESIK SAYS THE MEASURES HE'S SEEN ADD UP TO ABOUT 5 PERCENT (AND IMF RESREP TOLD US THE IMF ESTIMATE IS LOWER THAN 5 PERCENT. AS FOR THE 6.8 PERCENT TARGET ANNOUNCED BY SENER, KESIK SAID IT'S A PUBLIC RELATIONS PLOY - HE SEEMS TO HAVE PULLED IT OUT OF THE AIR. PEARSON