TURKISH TOURISM DOWN ONLY SLIGHTLY

UNCLAS SECTION 01 OF 02 ANKARA 004493 SIPDIS STATE FOR EUR/SE AND EB/IFD TREASURY FOR INTERNATIONAL AFFAIRS - CPLANTIER SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN ECON TU SUBJECT: TURKISH TOURISM DOWN ONLY SLIGHTLY REF: (A) Ankara 2673 (B) Ankara 1460 (C) ISTANBUL 527 ANKARA 00004493 001.2 OF 002 1.(SBU) SUMMARY: Despite a drop in arrivals in May, second quarter tourism revenues came in only 1.8% below the same period in 2005. In the usual winter booking season, far fewer than the normal number of tourists booked summer vacations at Turkey's Mediterranean beach resorts, but Istanbul tourism continues to do well and the May-June correction in the exchange rate, by moderating current account deficit concerns, may make it less important that tourism is financing a smaller share of the external deficit. End Summary. -------------- -------------- AFTER MAY DROP, TOTAL SECOND QUARTER REVENUE NOT BAD -------------- -------------- ¶2. (SBU) According to Turkey Statistical Institute (TUIK) data, although the number of foreign tourists visiting Turkey in May fell 16.7 percent year-on-year, tourist arrivals rebounded in June such that the tourism revenues for the second quarter came in only 1.8% lower than in the second quarter of 2005, a record year. TUIK reported that total revenues in the second quarter were $3.692 billion. According to Turkish Tourism Investors Association Chairman Oktay Variler, during the first quarter of 2006 there was a 30 percent drop in the number of tourists making summer reservations in Antalya, Fethiye, Bodrum, and Marmaris. Despite this decrease, the ever-optimistic Tourism and Culture Minister Atilla Koc said on July 5 that the GOT expects the number of tourists to Turkey to exceed 21 million in 2006. Koc's optimistic prediction may not be as unrealistic as the 30% drop in Mediteranean resort bookings might suggest. As reported earlier, tourism has remained strong in Istanbul, and there have been some later bookings that would explain second quarter revenues only being slightly down. The owner of a hotel in the Mediterranean resort of Gocek echoed other anecdotal reports that bookings are only down around 10% at beach hotels. -------------- RUMORS OF A VAT REDUCTION FOR TOURISM SECTOR -------------- ¶3. (SBU) In a July 5 press interview, Koc said that the value-added tax (VAT) in the tourism sector would be reduced from 18 percent to 8 percent in 2007. In a press conference on July 6, however, Deputy Prime Minister Abdullatif Sener denied Koc's claim, saying the GOT was not conducting studies on a tax cut in any particular sector. Sener said that ministers made requests during every new budget period, but that the GOT decides whether or not to meet these demands based on budgetary conditions. The confusing Koc-Sener comments reflect the continuing tension between pressures from the tourism sector for tax relief and the GOT's need to stick to its IMF program and avoid sectoral tax breaks. -------------- PLANS TO BOOST SECTOR -------------- ¶4. (SBU) In his interview, Koc also reiterated plans in the works to support the tourism sector (ref A). He emphasized the Ministry's plans to increase thermal tourism facilities, noting that while Turkey ranks seventh in the world in terms of thermal resources, they constitute only 1 percent of Turkish tourism revenue. -------------- -------------- TOURISM FINANCING A SMALLER SHARE OF CURRENT ACCOUNT -------------- -------------- ¶5. (SBU) Even if total revenues have only dropped slightly from 2005, Turkey's current account deficit has tended to grow at least as rapidly as inflation-adjusted GDP. This means that even flat nominal tourism revenues finance a smaller share of the current account deficit. Concerns about Turkey's current account deficit have eased a bit in recent months, both because the exchange rate adjustment should moderate import growth and stimulate exports over time and because the composition of financing has shifted sharply towards a larger share of longer-term investments like FDI. Consequently, the lesser contribution of the tourism sector may be less of a concern than it would have been a year ago. -------------- Outlook: lower than 2005 but not a Disaster -------------- ¶6. (SBU) With the world cup keeping some European tourists away in early July and now Lebanese tourists unable to come, the critical third quarter is likely to be down from 2005. Tourism sector executives are not expecting a disastrous year, however. ANKARA 00004493 002.2 OF 002 WILSON