GRAB BAG OF MEASURES TO STIMULATE THE ECONOMY

UNCLAS ANKARA 000865

SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON TU
SUBJECT: GRAB BAG OF MEASURES TO STIMULATE THE ECONOMY


1. Summary and comment. Prime Minister Erdogan announced a
group of incentives designed to stimulate the economy and get
Turks shopping. The cost of the incentive measures is
estimated to be 600-700 million TL (USD 400-467 million) and
will be paid for by a 50 kurus (USD .33) tax increase on each
pack of tobacco, cigarettes, and cigars. The tax cuts are a
continuation of Special Consumption Tax (OTV) cuts begun in
March 2009, although they have been re-jiggered slightly to
target different products. While the results of the
incentives will not be known for several months, using the
tobacco tax increase to compensate for the OTV cuts is a
welcome sign of fiscal prudence. Separately, Deputy Prime
Minister for the Economy Babacan announced a deal to
encourage credit card holders to pay off their delinquent
debts. The credit card debt repayment program is aimed at
reducing delinquencies that topped more than USD two billion
as of April 2009. The credit card repayment plan seems to be
a manageable way out of a debt problem affecting 874,700
Turks. Banks will lose out on some interest and late fees,
but they are more likely to be repaid for base debts under
the compromise. End summary.

Incentives
--------------


2. The incentives are all in the form of cuts in the Special
Consumption Tax (OTV). Through September 30, the OTV on
medium to small cars (1600 cc and below) will be 27 percent.
This is one category where the GOT seems to think the
March-June tax cut has already had much of its intended
effect. Taxes were dropped significantly for light
commercial vehicles, whose sales have dropped more than 50
percent during the economic crisis. The OTV on pick-up
trucks is now two percent. For trucks, mini buses, and
special-purpose vehicles the OTV is now one percent. For
buses there is no OTV charge. The GOT is continuing OTV cuts
on computers and furniture at eight percent, while the OTV on
white goods is cut to two percent. The OTV on housing and
construction equipment was reduced to eight percent between
March and June, but those cuts will not be extended.

FX Loans and Credit Card Debt Repayment
--------------


3. Deputy Prime Minister for the Economy Ali Babacan
announced new measures to facilitate FX financing for private
sector loans and to address the growing problem of delayed
and delinquent credit card payments. In the past, companies
without foreign-earned income were prohibited from taking out
foreign currency-denominated loans from Turkish banks. Many
company owners circumvented the prohibition by using their
offshore FX deposits to guarantee their FX loans from foreign
banks. Babacan said the limiting policy had helped to
insulate Turkish borrowers from negative effects of the
global economic crisis, but now it will be modified to allow
large companies to take out foreign currency-denominated
loans if they are borrowing more than USD five million and if
the term is longer than one year. Babacan believes this
change will help large domestic companies and also bring a
net reduction in Turkey's foreign borrowings overall by
allowing companies to borrow inside Turkey as they have
offshore.


4. Unpaid debt from credit cards has been increasing faster
than any other loan category. Babacan announced that as of
April, delinquent credit card balances totaled 3.1 billion TL
(USD 2.06 billion) owed by 874,700 people. More than half of
these defaulted loans are below 1,000 TL (USD 667). Banks
have traditionally charged 5.5 percent monthly interest to
delinquent borrowers and the credit card debt stock has
skyrocketed. To address the problem, the GOT made a deal
with the Banks' Union to offer advantageous terms to people
willing to pay off their delinquent debts. The Turkish
Parliament is working on fast-track approval of the bill,
which would allow credit card debtors to sign a one-time
agreement to pay off their existing debt immediately at no
interest. If the debtors need to pay over time, their
monthly interest will drop to 1.04 percent over six months,
with a sliding scale up to 1.26 percent per month over 36
months. All this is contingent on freezing the account and
not incurring additional credit card debt. The legislation
is also slated to reduce annual fees for credit cards to
approximately one percent of the credit limit.

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JEFFREY