GOT STRUGGLING TO PUSH THROUGH IMF-REQUIRED

UNCLAS SECTION 01 OF 02 ANKARA 003824

SIPDIS

SENSITIVE

TREASURY FOR INTERNATIONAL AFFAIRS - MMILLS AND CPLANTIER

E.O. 12958: N/A
TAGS: EFIN PGOV TU IMF
SUBJECT: GOT STRUGGLING TO PUSH THROUGH IMF-REQUIRED
LEGISLATION BEFORE PARLIAMENTARY RECESS

REF: ANKARA 3354


1. (SBU) Summary: Parliament, which normally goes on summer
recess July 1, is working long hours to complete its work on
two legal reforms needed for a successful IMF review in July,
and is being held over at least through July 3, and perhaps
longer, to pass these laws. The problem seems to be
political, rather than substantive, with opposition deputies
using delaying tactics to undermine and embarrass the AK
Party. The IMF seems firm in sticking to its June draft
letter of intent with the GOT: unless the legislation is
passed before the recess, the IMF review will have to wait
until autumn. The GOT seems to be making a major effort to
get the legislation passed and secure the first review in
July in order to shore up the IMF anchor to balance ongoing
concerns about EU accession. End Summary.

Cliffhanger in the Turkish Parliament
--------------


2. (SBU) Since the IMF mission reached agreement with the GOT
on a Letter of Intent in June, the Fund's understanding with
the GOT is that both the banking reform law and the social
security reform law would be passed before parliament's
summer recess, which normally begins July 1. (Passage of the
two laws is one of the structural performance criteria in the
program, so that only if these laws are passed would the Fund
staff be in a position to bring the first review under the
program to the IMF board in July.) After Deputy Prime
Minister Sener floated the idea that passing only the banking
law would be sufficient, the IMF Resrep publicly pointed out
that both laws need to be passed for a board vote in July.
Treasury Department Head Ozgur Demirkol, responsible for GOT
coordination on the IMF program told Econoff July 1 that
Sener does not have the lead responsibility for the IMF
program and was poorly informed. Note: This is not the first
time Sener has made statements out of sync with broader GOT
economic policy, even though he heads a committee of economic
ministers that is supposed to coordinate economic policies.
End Note.


3. (SBU) The GOT has been trying to work both pieces of
legislation through the multiple required stages of
sub-commission, commission and general assembly
consideration. Parliamentarians tell us they are working
until late at night every night (and on weekends) to pass all
the urgent legislation (not just banking and social security)
but that passage of these two laws in time is still not
assured. On June 30, the banking law was sent from the
commission to the general assembly and the social security
legislation was reported out of the sub-commission for
consideration by the full commission. Demirkol, who attended
the Plan and Budget Commission's consideration of the Banking
Law, said there had only been minor changes which should not
be of concern to the IMF. Also on June 30, parliament
decided to stay in session through Sunday night, July 3.


4. (SBU) In a controversial move designed to expedite the
proceedings, the AK Party parliamentary leadership changed
internal procedural rules, so as to allow the articles to be
considered in bunches of 15. This is critical to faster
consideration of the bills because otherwise, each
parliamentarian is allowed to comment on each article -- the
banking law, for example has 190 articles. On July 1, Turkish
media speculated the opposition CHP would apply to the
Constituional Court, which has blocked such rule changes in
the past, to again annul it, but predicted that the ruling
would not come before the legislation passes. If the GOT
succeeds in passing the IMF-required legislation, the Court
could later invalidate the law. Press reports also said the
GOT may hold the parliament over further, as it has done in
the past two years, to get the job done. An AK Party
parliamentarian told the press that Parliament would be held
over to pass these two bills but Demirkol wondered whether
the parliamentarians would rebel at a further extension as
they are keen to return to their constituencies.

Opposition Party Obstructionism
--------------


5. (SBU) Over the past few weeks, the opposition CHP party
has ratcheted up its criticism of GOT cooperation with the
IMF, directing its harshest criticism at the controversial
privatization program. Now the CHP is reportedly doing
everything it can to slow down passage of the banking and
social security law. According to Demirkol, CHP deputies at
the Plan and Budget Commission, are using every speaking
opportunity permitted under the rules to slow down the
proceedings. He said their comments were not directed at the
substance of the legislation but were purely designed to take
up time.

PM Intervenes to Squelch (Yet Another) Rearguard Action
by BRSA Chairman Bilgin
-------------- ---


6. (SBU) At an earlier stage of consideration of the Banking
Law, the IMF Resrep told us that BRSA (Bank Regulatory and
Supervisory Agency) Chairman Bilgin, apparently determined to
fight the IMF to the bitter end on the sworn bank auditor
issue, succeeded in convincing the parliamentary
sub-commission to partially restore one of the provisions in
the banking law that was deemed inimical to the sworn bank
auditors' interests. Whereas the IMF-approved text would
have reorganized the BRSA in such a way as to break down the
separation of on-site (sworn auditor) and off-site
inspectors, the Bilgin version retained the Board of Sworn
Auditors as a separate unit in the BRSA. The Resrep said
"messages were passed" (presumably by the IMF) and the Prime
Minister himself intervened and ensured the original version
of the law was restored. The Resrep wonders, however, how
Bilgin's agency will cooperate with the Fund staff on the
necessary regulations to implement the new Banking Law after
its passage.

Can the GOT Pull it Off?
--------------


7. (SBU) If the GOT fails to pass the required legislation
before the recess it will not be for lack of trying. Earlier
this week, the Resrep told us he believes the GOT sincerely
wants to pass the two laws before the recess, particularly
given potential questions about EU accession. He drew a
parallel with the GOT's efforts to announce agreement with
the IMF in the run-up to the December 17 EU summit: when the
EU anchor looks wobbly, the GOT seems to care more about
shoring up the IMF anchor. GOT actions such as extending the
session for three days and changing parliamentary procedure
lend credence to the Resrep's analysis. But it's still hard
to say whether the GOT will succeed. Demirkol was optimistic
that the banking law, at least would be passed by Sunday
evening, but he was less confident about the social security
law which still has to go through commission consideration.
Since the decision will be taken at the highest levels of the
GOT, Demirkol could not say whether the GOT will keep
parliament in session beyond July 3.
MCELDOWNEY