AMBASSADOR AND BABACAN DISCUSS FINANCIAL AGREEMENT

C O N F I D E N T I A L ANKARA 007784

SIPDIS


STATE FOR E, EB AND EUR/SE
TREASURY FOR OASIA -- LOEVINGER, MILLS AND LEICHTER
NSC FOR BRYZA AND MCKIBBER


E.O. 12958: DECL: 12/18/2013
TAGS: EFIN PREL TU
SUBJECT: AMBASSADOR AND BABACAN DISCUSS FINANCIAL AGREEMENT


REF: ANKARA 7096


(u) Classified by Ambassador Eric S. Edelman. Reasons: 1.5
(b,d)



1. (U) This is an action request -- see para 6.



2. (C) At the end of their December 17 discussion on
economic and investment issues (septel),Ambassador told
State Minister Babacan that, in response to the Prime
Minister's request, the U.S. was exploring ways -- within the
parameters of our legislation approving the funds -- to help
the GOT overcome its difficulties with the Financial
Agreement's political conditionality language. Ambassador
noted that he had recently passed to MFA U/S Ziyal draft
revised language that eliminated much of the conditionality
wording in the Agreement and instead simply referred to the
conditionality in the legislation. He stressed that the
amended language was, in essence, a "fig leaf"; the
conditionality would still be there, only less obvious in the
Agreement itself.



3. (C) Babacan said he understood what the U.S. was
proposing, but doubted it would solve the GOT's political
problem. He then recounted, with considerable frustration,
how this problem had come about. The political
conditionality was clear in the legislation, and was heavily
publicized in Turkey back in March-April. "We assumed
everyone knew." Then, before signing the agreement in
September, he discussed the conditionality with Foreign
Minister Gul, who checked with MFA experts and told Babacan
the political conditionality was okay. After the agreement
was signed, the press and military began to complain.
Babacan said he was "shocked" to hear TGS generals saying
they were unaware of the conditionality -- "how could
everyone else have known about this, but they didn't?"



4. (C) The biggest problem, Babacan continued, was that the
President did not like the conditionality. While he could
not block the Agreement if Parliament approved it, he likely
would refuse to sign a Council of Ministers decree ratifying
it. Thus, the GOT had been forced to hold off on Council of
Ministers ratification. Babacan complained that many who
were critical of the conditionality did not actually
understand it, probably including the President. Even U/S
Ziyal, he said, had not initially understood how the
conditionality worked, and Babacan had needed to explain it
to him.



5. (C) Babacan recounted that Treasury Secretary Snow had
told him in Mexico recently that the Agreement could be
changed to make it a 100 percent grant. Even in that case,
however, conditionality would still apply. The Minister
acknowledged that the domestic political problem surrounding
conditionality could become a less important factor after
March's local elections, but wondered if ratification in
April 2004 or later would create problems because it would
extend the 18-month disbursement period (which begins when
the Agreement becomes effective, i.e, is ratified) beyond
September 2005, the end of the period of availability for the
money, per the legislation. Ambassador promised to look into
this question.



6. (C) Action Request: Embassy's understanding is that the
funds in question only have to be obligated by September 2005
(and in fact already have been obligated),and that there
would be no problem, legally, if the disbursement schedule
extended beyond that date. We further understand that the
more relevant question, in terms of timing, is how long we
can keep this money on hold pending GOT ratification of the
agreement. We certainly do not want to encourage further GOT
delay on this. Embassy would appreciate Washington agencies'
confirmation of our understanding, and would welcome guidance
for use in responding to Babacan's query.
EDELMAN