Identifier
Created
Classification
Origin
05ANKARA4214
2005-07-20 16:08:00
CONFIDENTIAL//NOFORN
Embassy Ankara
Cable title:  

DEMARCHE ON IRAQ DEBT AND ASSISTANCE

Tags:  EFIN EAID PREL IZ TU 
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This record is a partial extract of the original cable. The full text of the original cable is not available.

201608Z Jul 05
C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 004214 

SIPDIS

SENSITIVE

TREASURY FOR INTERNATIONAL AFFAIRS - SDONOVAN, AMARCUS,
MMILLS AND CPLANTIER
N

E.O. 12958: DECL: 07/19/2010
TAGS: EFIN EAID PREL IZ TU
SUBJECT: DEMARCHE ON IRAQ DEBT AND ASSISTANCE

REF: A. STATE 127710


B. STATE 125850

C. ANKARA

Classified By: Charge d'Affaires Nancy McEldowney, for reasons 1.4(b) a
nd (d).

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 004214

SIPDIS

SENSITIVE

TREASURY FOR INTERNATIONAL AFFAIRS - SDONOVAN, AMARCUS,
MMILLS AND CPLANTIER
N

E.O. 12958: DECL: 07/19/2010
TAGS: EFIN EAID PREL IZ TU
SUBJECT: DEMARCHE ON IRAQ DEBT AND ASSISTANCE

REF: A. STATE 127710


B. STATE 125850

C. ANKARA

Classified By: Charge d'Affaires Nancy McEldowney, for reasons 1.4(b) a
nd (d).


1. (C) Summary: On Iraq debt, Turkish MFA officials again
confirmed they have not been pressed on the debt issue by the
ITG. The MFA officicals made very clear that they want to
negotiate this issue directly with ITG officials, not outside
advisors, although they agreed to meet with the advisors. On
the substance of the issue, Turkish officials, unaccustomed
to participating in international debt forgiveness, do not
seem to understand that they are out of line with
international precedent of comparative treatment with Paris
Club terms. Though it is a separate issue, they point to
Turkish firms willingness to finance oil shipments to SOMO
despite payment arrears. In order to make progress on this
issue, post recommends greater ITG engagement with the GOT.
On assistance, the GOT says it has disbursed $7.5 million of
its $50 million pledge. End Summary.

Debt Demarche:
--------------


2. (C) Charge delivered ref b demarche to MFA Deputy U/S for
Economic Affairs Ender Arat on July 12 and urged that the GOT
enter into a dialogue with the ITG on this issue. In reply,
Arat emphasized that Turkey can wait to resolve this issue,
and has no intention of pressing for any payments.
Emphasizing that Turkey wants to resolve the debt issue
bilaterally with Iraq, Arat said Turkey is open to working
with the Iraqis on a long repayment period, i.e.
rescheduling. Note: This tracks with other GOT official
comments that they would consider rescheduling, but not
forgiveness. End Note. Arat pointed out Turkish support in
the form of supplying food and basic supplies to Iraq.
Despite the SOMO arrears problem, Arat said both Turkish
state companies and private companies had shipped fuel to
Iraq, in effect providing financing (ref c).


3. (C) Arat confirmed what other GOT officials had told us:
the ITG has only raised the debt issue once, when PM Jafari
and Finance Minister Allawi were here in May. According to

Arat, Finance Minister Unakitan replied that the GOT
preferred to settle the issue bilaterally after the
restoration of stability in Iraq. Arat said Unakitan went on
to float the possibility of linking a debt settlement to
other issues, such as the Turkish state oil company (TPAO)
exploring or running a production facility in Iraq. Arat
threw out other potential linkages, such as using the debt in
return for other projects such as construction of a second
border gate: "We must be creative." Arat said that among
Iraq's creditors Turkey's situation was most akin to that of
Brazil, in that Turkey was not in the Paris Club. Note:
Though Arat did not say it, the GOT may be drawing a parallel
to Brazil because it, like Turkey, is a middle-income country
with its own debt problems. End Note. Arat also said Turkey
wants to show that it can manage its finances in the run-up
to the October 3 start of its EU accession negotiations.


4. (SBU) The Charge responded that, while recognizing
Turkey's economic challenges, all the creditors need to work
together to do what we can to help Iraq. Adding that there
is a widespread perception that Turkey plays a special role
as Iraq's biggest neighbor, and its only NATO neighbor, she
pointed out that the Turkish private sector stands to gain
form Iraq's stabilization: Saying that a democratic Iraq
would have no better friend than Turkey, she said everyone
would look to Turkey to do its part.


5. (C) When pressed on the ITG's request that the GOT receive
the outside advisors, Arat said the GOT wanted to deal
directly with Iraqi officials. Arat later emphasized this
point to econoff at a reception, as did Deputy Director
General Mehmet Gucuk. Nevertheless, when pressed as to
whether MFA officials would at least receive the advisors,
Arat grudgingly agreed to have either Gucuk or Ambassador
Koray Targay receive them, but not to negotiate with them.


6. (C) Econoff also followed up with Turkish Treasury's
Director General for International Affairs, Memduh Akcay.
Akcay confirmed that Turkish Treasury has not been brought
into GOT deliberations on the Iraq Debt issue, although
Treasury has participated in Paris Club negotiations in the
past, and despite Econ Counselor having raised the issue with
the Treasury Under Secretary. Econoff asked Akcay if he
would receive the Iraqi advisors but Akcay was not receptive,
not having been given any responsibility for the issue yet.
Akcay also confirmed that Turkish law and budgetary rules do
not allow marking to market of the budgetary cost of
forgiving debt, such that every dollar of debt forgiven would
be a dollar of budgetary appropriation. Akcay noted that the
$1.6 billion dollars of Iraqi debt was probably much greater
in relation to Turkey's GNP (0.5%) than other creditors'
claims against Iraq.

Assistance:
--------------


7. (SBU) The Charge also raised the assistance demarche (ref
a) and Arat said the Turkish delegation at the meeting in
Jordan would be led by MFA Coordinator for Iraqi
Reconstruction, Ambassador Targay. In the subseqent,
lower-level meeting, Gucuk and his subordinate Sedef Yavuzalp
went into more detail. Regarding Turkey,s pledge to the
IRFFI, Gucuk reported that Turkey on July 1 had deposited its
$200,000 pledge for the UNDP Iraq Trust Fund. He added that
the GOT was moving forward with its other pledge of $1
million of the World Bank Trust Fund and hopes to complete
all its internal approvals in the coming weeks. Yavuzalp
confirmed that Turkey has disbursed $7.5 million of its total
pledge of $50 million.
Comment:
--------------


8. (C) In many ways, the GOT's approach to the Iraq debt
issue is a "perfect storm." While we believe the MFA
sincerely wants to help stabilize Iraq, the MFA officials do
not realize that they are badly out of step with
international practice by only being willing to consider a
rescheduling rather than treatment comparable to the Paris
Club's, i.e. 80% forgiveness. Although Turkey has
participated in Paris Club negotiations as a creditor, it has
not--to post's knowledge--participated in any that required
forgiveness rather than rescheduling. Moreover, Turkish
officials across the board think of Turkey as a
highly-indebted country with its own economic problems.
There is also an organizational problem: MFA, which can see
Turkey's interest in Iraq's stabilization, has negligible
clout on--or understanding of--financial issues. Finance
Minister Unakitan, who is keen to be the counterpart of other
finance ministers, such as Allawi, is really responsible for
budget and tax issues, and has no experience with
international debt policy. Minister of Economy Babacan, and
Turkish Treasury, which reports to him, is best placed to
handle the financial issues. Babacan and Treasury are more
likely to understand--and care about--international practice,
since Treasury has participated in Paris Club negotiations
and is the counterpart of the U.S. Treasury and IMF on macro
policy and debt.


9. (C) Finally, and most critically, the ITG has yet to press
the GOT, other than Allawi briefly raising it in May and
Deputy Finance Minister Azez Hassan's April 19 letter to
Foreign Minister Gul. The Iraqi Ambassador in Ankara told
the Charge he has not raised--and will not raise--the issue
with the GOT, leaving it to his commercial counselor. The
Iraqi Ambassador and commercial counselor subsequently told
PolMilOff that Baghdad has provided them no/no information or
instructions with which to approach the Turks; they professed
not even to know the amount of debt Turkey holds. The GOT,
whether or not it understands international debt treatments,
is unlikely to do anything on this issue absent high-level
ITG engagement.


10. (C) On the U.S. side, Washington addressees may wish to
consider a call or letter from a senior U.S. Treasury
official to Minister Babacan in order to get Babacan and
Turkish Treasury engaged on the issue. The
Treasury-to-Babacan or Treasuy-to-Treasury channel will be
more effective once the ITG has exerted more pressure.

Baghdad Minimize Considered.
MCELDOWNEY