NEW TURKISH STATE MINISTER FOR TREASURY MEHMET

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 002402

SIPDIS

TREASURY FOR INTERNATIONAL AFFAIRS - JROSE

E.O. 12958: DECL: 09/23/2017
TAGS: ECON EFIN TU
SUBJECT: NEW TURKISH STATE MINISTER FOR TREASURY MEHMET
SIMSEK


Classified By: Ambassador Ross Wilson for reasons 1.4 (b) and (d)


1. (C) Summary. Newly-appointed State Minister for Treasury
Mehmet Simsek said the reelected AKP has a comprehensive
reform roadmap to create a modern, competitive,
performance-based Turkish economy. The highest priorities
are proceeding with a revised version of the Social Security
reform package, finishing the year within budget, increasing
research and development spending to two percent of GDP, and
reducing the burden of unemployment. Simsek noted the need
to create "fiscal space", or budget surpluses, to pay for
longer-term expensive reforms such as tax cuts to bring more
companies from the informal economy into the mainstream, and
energy reforms. The AKP's constitutional reform package is a
priority, although side issues may delay its implementation.
Simsek understands the need to attract foreign investors and
is committed to a level playing field for foreign investors
in Turkey. End Summary.


2. (U) Ambassador paid a courtesy call on new State Minister
for Treasury Mehmet Simsek on September 18. Simsek was
accompanied by Treasury Undersecretary Ibrahim Canakci.


3. (C) Simsek said the newly-reelected AKP government has a
comprehensive reform roadmap, with a long-term goal of
creating a modern, competitive, performance-based Turkish
economy. The GOT will go forward as soon as possible with a
revised version of the Social Security reform. While they
did not agree with the constitutional court's decision
striking down part of the last version "all citizens are
equal under the constitution, but civil servants are more
equal than others", he said the reform is too important to be
delayed and the revised text is essentially complete.


4. (C) Simsek emphasized the importance of maintaining fiscal
discipline over the next three months and finishing the year
within budget, which would lay the groundwork for a strong
fiscal package in 2008. The government is sticking to the
budget because it believes it is the right thing to do, not
just because the IMF wants it. He emphasized the need to
create "fiscal space", or budget surpluses, to fund other
needed reforms. The AKP made only two economic promises in
the campaign: to increase research and development spending
to two percent of GDP, and to reduce the burden of
unemployment. It will meet both of those commitments, Simsek
said, but both will be expensive.


5. (C) The next reform Simsek mentioned was energy. He noted
the need to give price incentives (i.e., raise electricity
rates, which have been frozen for five years),but also said
that Turkey needed diversification and security of supply.
"We have to make sure there are no supply bottlenecks down
the road that could slow growth." Next, he highlighted
labor market reforms as critical for competitiveness.
Turkish labor markets are rigid and burdensome, he said, and
the education system needs to adapt to meet the needs of the
business sector. Judicial reform also is high on the list,
including greater efficiency and transparency, as well as
introducing a commercial code. The informal sector is the
biggest barrier to increasing productivity, but reducing the
informal economy is impossible with the high tax burden.
Reducing the tax burden, however, requires even greater
"fiscal space" for reform.


6. (C) Simsek said the government would like to get
constitutional reform out of the way quickly, but expressed
frustration that the AKP's constitutional reform package has
become bogged down by two side issues, religious education
and students wearing headscarves. In his view,
constitutional reforms are essential to the government's
economic reform agenda because "it is impossible to make the
administrative reforms we need to create a first-world
administrative infrastructure without constitutional reform".
(Note: In a conversation last month, before being named
minister, Simsek told us that constitutional reform was the
government's highest priority and that they would proceed
with constitutional reform first and the economic package
second. While he still believes the constitutional reforms
are critical, he now sees at least some major economic
reforms going forward with or without the constitutional
package. End note.)


7. (C) Ambassador noted the Innovation Conference held in May
2007, which focused on ways to build higher technology
industry in Turkey, and suggested that a second innovation
conference focused on pharmaceuticals and the development of
intellectual property rights would seem to fit well with the
government's strategy. Simsek said he liked the idea and
agreed on the need to improve Turkey's IPR regime if it wants
to "move up the productivity food chain".


8. (SBU) Ambassador raised the tax problems of U.S. financial
company Raymond James and expressed the hope that solutions
can be developed that will resolve the company's legal issues
while ensuring it remains in business. It would not be a
positive signal to foreign investors if a U.S. financial
services company was forced out of business by the tax
authorities. Simsek was unaware of the case, but expressed a
firm commitment to a level playing field for foreign
investors. He said he would make inquiries at the Revenue
Administration and advise us on the situation from their
perspective.


9. (C) Ambassador also outlined for Simsek and Canakci the
event proposed by EEB Assistant Secretary Dan Sullivan on the
margins of the October IMF/World Bank conference to showcase
Turkey,s reforms and trade and investment opportunities.
Simsek said he liked the idea and very much wanted to
participate, but could not commit to the October 19 proposed
date yet. He noted he would have to present the GOT's 2008
budget on October 17, and that an IMF team was scheduled to
be in Ankara that week. Simsek said he unfortunately would
miss A/S Sullivan's Ankara visit due to his travel to the
U.S. with the Foreign Minister. We suggested Sullivan could
meet with U/S Canakci and brief him on the proposal.

Visit Ankara's Classified Web Site at
http://www.state.sgov.gov/p/eur/ankara/

WILSON