DPM SENER ENGAGED ON ECONOMIC, INVESTMENT, AND EU

1. (SBU) Summary. Deputy Prime Minister Sener, who has
coordinating responsibility for economic issues, told the
Ambassador that despite Turkey's successful economic
recovery, more work needs to be done: interest rates are too
high, the current account deficit is large, and obstacles to
foreign and domestic investment need to be reduced. Sener
said Turkey is taking on the challenges of developing its
poorest regions, especially the Southeast, and of adapting
its legislation to EU norms, but that it needs and
appreciates the help of the United States. Sener seemed
engaged on his portfolio and ready to work with the U.S.,
including on investment climate issues. End Summary.



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Economy and Investment Climate


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2. (SBU) Sener, who is responsible for coordinating
economic policy at the cabinet level, told the Ambassador on
December 21 that the economy had stabilized since the 2001
crisis and is growing strongly with relatively low inflation.
He particularly noted the GOT's success in reducing its
fiscal deficit, noting that in 2006 there will be an overall
public sector surplus for the first time in decades. He was
also pleased by increases in both exports and foreign and
domestic investment. Nonetheless, interest rates of 8% per
year for government borrowing remain too high. This has led
to an "overvaluation" of the exchange rate and consequent
large trade and current account deficits. Sener compared the
current account deficit to those of other EU candidate
countries that also ran large current account deficits during
their accession periods.



3. (SBU) Sener said that a new law allowing foreign
individuals to purchase real estate will be passed by
Parliament in the near future, the previous law having been
invalidated by the Constitutional Court. He noted that
companies continue to be able to buy property in Turkey.
Responding to the Ambassador's observation that U.S. and
Turkish companies continue to complain about an unpredictable
judicial system, unfairly applied and excessive regulation,
and lack of adequate IPR protection as required by its TRIPS
and other international commitments, Sener said that the
government is aware of these problems and is addressing them
through the Investment Climate Coordinating Board that is
chaired by State Minister Babacan. He said the Board
prioritized IPR and agreed with the Ambassador that Turkey's
competitive position in the world will increasingly depend on
its success in protecting intellectual property. Sener said
Turkey was ready to "jump into the sea" and compete in the
global economy in the context of rule of law. Any temporary
losses would, he said, be offset by the long-term gains.



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Southeast Development


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4. (SBU) Sener noted that underdevelopment is not only a
feature of Southeastern Turkey, but of the entire eastern
region. The Southeast Anatolia Project (GAP) concentrates on
irrigation projects. Sener said that the IMF's unwillingness
to exclude from its calculation of the primary budget balance
spending on projects financed by foreign concessional loans
limits the government's ability to take advantage of such
lending. The biggest problem in the Southeast, Sener said,
comes from instability in neighboring countries, notably
Iraq, that limits Turkish exports to the region.



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EU Accession


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5. (SBU) Reaching to his desk for a calendar of the
screening process, Sener said that the process of checking
Turkish laws and regulation against the EU acquis was moving
along well. Initial screening of 7 chapters and detailed
screening of 4 chapters had been completed. By June, initial
screening of 23 chapters and detailed screening of 19
chapters would be complete. While Turkey would have the
advantage in the accession process of already having a
customs union with the EU, Sener said that the agriculture
chapter will be the most hardest, given the 30% share of the
population involved in agriculture and their low level of
education, which makes their transition to other sectors
difficult. The Ambassador also noted that agriculture will
also be difficult because of European sensitivities on the
subject.

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6. (SBU) Jokingly, Sener observed that in every country
that had joined the EU, the party that had guided it through
the accession process had been subsequently voted out of
office. The accession process will undoubtedly be long and
difficult, with many chances for things to go wrong. In the
short-term the Cyprus issue is the biggest risk, but in the
medium-short term the domestic politics of economic
transformation will also create risks. The Ambassador noted
the United States' strong commitment to Turkey's accession
and readiness to do whatever it could to help, although it
was not a direct party. Sener took the opportunity to say
that PKK terrorism is a major concern of the Turkish public
and that U.S. support on this issue will be very helpful.
WILSON