Identifier
Created
Classification
Origin
06ISTANBUL476
2006-03-30 13:32:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Istanbul
Cable title:  

BUSINESS CRITICISM OF GOVERNMENT INTENSIFIES

Tags:  EFIN ECON EINV TU 
pdf how-to read a cable
VZCZCXRO7146
RR RUEHDA
DE RUEHIT #0476/01 0891332
ZNR UUUUU ZZH
R 301332Z MAR 06
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC 4549
INFO RUEHAK/AMEMBASSY ANKARA 4920
RUEHDA/AMCONSUL ADANA 2210
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
UNCLAS SECTION 01 OF 02 ISTANBUL 000476 

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR INTERNATIONAL AFFAIRS - CPLANTIER

E.O. 12958: N/A
TAGS: EFIN ECON EINV TU
SUBJECT: BUSINESS CRITICISM OF GOVERNMENT INTENSIFIES

REF: A. ANKARA 1629


B. ANKARA 1528

Sensitive but Unclassified. Not for internet distribution.
This message was coordinated with Embassy Ankara.

UNCLAS SECTION 01 OF 02 ISTANBUL 000476

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR INTERNATIONAL AFFAIRS - CPLANTIER

E.O. 12958: N/A
TAGS: EFIN ECON EINV TU
SUBJECT: BUSINESS CRITICISM OF GOVERNMENT INTENSIFIES

REF: A. ANKARA 1629


B. ANKARA 1528

Sensitive but Unclassified. Not for internet distribution.
This message was coordinated with Embassy Ankara.


1. (U) Summary: Business criticism of recent Turkish
Government missteps on the economy has intensified in recent
days, as business leaders have grown increasingly concerned
about the potential impact of protracted uncertainty
surrounding the leadership of the Turkish Central Bank.
Former Chairman Sureyya Serdengecti's five-year stewardship
of the institution through the aftermath of the 2001 crisis
is almost universally credited with having provided the
monetary anchor that enabled Turkey to achieve single digit
inflation. Concern is widespread that his successor will not
have the same credentials or independence from the
government. Ironically, the debate comes at a time when
Serdengecti's critics, mainly textile exporters who have
suffered from a perceived "overvaluation" of the Turkish
lira, have also been extremely critical of the government,
arguing that its promised assistance to the their industry is
too little, too late. End Summary.


2. (SBU) Istanbul-based business organizations have been
increasingly critical of the Central Bank appointment process
in recent days as it (in the words of newspapers here) has
degenerated from "comedy to farce." Turkish Industrialists
and Businessmens' Association President Omer Sabanci
forthrightly told the daily "Sabah" here that the appointment
process has been mishandled, and that the government needs to
come up with a name that will "give confidence both to
domestic and foreign markets." Echoing something we have
heard frequently in private from many contacts, Sabanci also
questioned why a change needed to be made at the bank. It
had a "very successful governor and management and this was
accepted by everybody," Sabanci told Sabah, and "we wonder
why Sureyya Serdengecti was not appointed again." Sabanci
added a warning that the Central Bank cannot join the ranks
of the numerous government institutions that are headed by
Acting Chiefs, when President Sezer rejects a government
appointment. "The Central Bank cannot afford such interim

management," he said. Privately, a senior banker here told
us that many perceive that the government believes that it
has achieved an economic plateau that allows it to dabble in
politics and to fiddle with institutions like the bank.
"They are too unsophisticated to recognize that fine-tuning
the economy requires daily effort," he said.


3. (SBU) The criticism from the Istanbul establishment comes
at a time when the GOT has been facing separate attacks from
textile manufacturers-- who disliked Serdengecti and would be
happy to see a loosening of the bank's monetary policy-- but
who remain disappointed that the sole measure of support they
have gained from the government to date is a VAT tax cut that
marginally benefits domestic yarn producers, but provides no
assistance to beleaguered exporters. One Central
Anatolian-based textile manufacturer who produces higher-end
denim products for export told us recently that the
criticisms have some merit. While not among those who have
spoken out publicly, since his high-end strategy has
insulated him from the effects of the lira's high value, he
noted that the VAT cut is of little help to anyone but
consumers, since it applies equally to domestic and imported
products. Given that exporters already receive a rebate of
whatever VAT they pay, whether it is 18 or 8 percent is of
little consequence.


4. (U) Disappointment with the measure led to a tense
showdown between Prime Minister Erdogan and the head of the
Istanbul Textile Makers Export Association (IKTIB),Suleyman
Orakcioglu, at a meeting at the Istanbul Chamber of Industry
last week. Orakcioglu claimed that the GOT had been duped by
a few yarn producers and that the VAT cut would have little
impact on the sector. He warned of dire consequences for the
overall economy, given that the sector, though declining,
accounts for 19 billion USD in exports and employees
millions. "Those who tell us to give up on this sector
cannot replace it with anything else," he argued, and he
pressed for an "equal environment with our competitors."
Ironically, the textile industry has been among Serdengecti's
strongest critics, pressing for speedier rate cuts and
believing that his exchange rate policies allowed the lira's
overvaluation.


5. (U) In his remarks at the Chamber, Prime Minister Erdogan,
criticized Orakcioglu for fear-mongering, arguing that it is

ISTANBUL 00000476 002 OF 002


not fair to argue that the Turkish economy is on the brink of
a crisis. He defended the government's policy on textiles,
noting that the VAT cut was among the priorities the sector
identified, together with input and labor costs and the size
of the unregistered economy. We are doing what we can with
limited resources, he said, including a reduced corporate tax
rate, a VAT reduction, and investment incentives for 49
provinces. "Nobody has thanked us," Erdogan concluded, "and
if you are still suffering, it is your fault." The
government also secured support from two major yarn
producers, Ahmet Zorlu of Zorlu Holdings and Abdulkadir
Konukoglu of Sanko, who confirmed the Prime Minister's point
regarding the importance of the VAT cut, and noted the
government's commitment to address other issues over time.
"We have obtained positive relations with the government, and
should not spoil it," they said.


6. (SBU) Comment: The government's mishandling of the Central
Bank appointment, and concern that a similar problem will
arise this week surrounding the Banking Supervision and
Regulatory Agency (Chief Tevfik Bilgin's term expires on
April 6) has unsettled both Istanbul business circles and
markets, with the Turkish lira dropping to its lowest level
of the year. As Ankara has reported (reftels),market and
business unease with the Central Bank situation has been
compounded by concern with the "populist" VAT rate cuts the
government has announced, which most believe augur an
unsettled period in IMF-GOT relations. TUSIAD's warning is a
reminder that while big business here has tolerated the AKP
government, that tolerance has been conditioned on the
government's delivery of strong economic results. If the
government falls short on that front, those business circles,
which have never shared AKP's ideology, could turn on the
government and make problems for it. The irony is that the
putative beneficiaries of the largesse that has created some
of these problems are themselves not satisfied, and continue
to agitate against the government. The resulting uncertainty
is a reminder that weather can change very rapidly on the
Bosphorus, and a protracted sunny period is not a foregone
conclusion, whether in the Turkish economy or in the skies
above Istanbul. End Comment.
JONES