ISTANBUL BUSINESS LEADERS VOICE CONCERNS RE IMF

UNCLAS SECTION 01 OF 02 ISTANBUL 000049

SENSITIVE
SIPDIS

TREASURY FOR INTERNATIONAL AFFAIRS - JROSE/KMATHIESEN
USDOC FOR 4200/ITA/MAC/EUR/CRUSNAK

E.O. 12958: N/A
TAGS: ECON EFIN EINV TU
SUBJECT: ISTANBUL BUSINESS LEADERS VOICE CONCERNS RE IMF
AGREEMENT, LOCAL ELECTIONS


1. (SBU) Summary. On January 23, Ambassador Jeffrey
accompanied by Consul General met with members of the board
of directors of the Turkish Industrialists and Businessmen's
Association (TUSIAD). The discussion focused on concerns
related to the global economic slowdown and its effects on
the Turkish economy. Discussion at separate luncheon
meetings with members of the American Business Forum Turkey
(ABFT),an American Chamber of Commerce affiliate, and with
the Turkish American Business Association (TAIK) echoed
concerns raised by the TUSIAD board and underscored the
significant effect the global economic crisis has had on both
foreign investors and Turkish companies. End Summary.


2. (SBU) Ambassador Jeffrey, Consul General and Principal
Commercial Officer met on January 23 with Arzuhan Yalcindag,
Chairman of the Board of the Turkish Industrialists and
Businessmen's Association (TUSIAD) and TUSIAD board members
Ferit Sahenk and Ali Kibar. TUSIAD external relations
officer Zafer Gazi and TUSIAD representative in Brussels
Badadir Kaleagasi also sat in on the meeting. Founded in
1973, TUSIAD is a voluntary association of Turkey's largest
manufacturing, financial and construction sector businesses.
TUSIAD is one of the most influential Turkish NGOs, focusing
not only on economic issues but also on political and social
issues. Its "fundamental aim" is to institutionalize a
market economy and consolidate a democratic order in Turkey.
Yalcindag, like her predecessors, is an active commentator on
economic, political and social issues facing Turkey. In her
opening remarks to Ambassador she noted that TUSIAD is
acknowledged as an objective observer and has credibility
with the Turkish government (GOT).


3. (SBU) Ambassador also met on January 22 with the American
Business Forum in Turkey (ABFT),one of two American Chamber
of Commerce affiliates in Istanbul, to discuss concerns
particular to U.S. companies in Turkey, and with the Turkish
American Business Association (TAIK) to review events of
interest to Turkish companies who do business with the United
States. Both events were luncheon meetings with
on-the-record remarks by the Ambassador. The Ambassador's
remarks highlighted the growing bilateral commercial
relationship, but cautioned that Turkey must still address
investor concerns regarding the investment climate and
commercial environment. He cited inefficiencies and
inequities in the judicial system, improving but still
insufficient IPR protection, and an enormous informal sector
as areas that where reform is badly needed. He described
U.S. support for Turkey's EU accession and underscored the
importance of working together to facilitate the large-scale
investments in Caspian energy and infrastructure that will
bolster Turkey's role as an energy hub for Europe.


4. (SBU) During the TUSIAD meetings, Ferit Sahenk, Chairman
of Dogus Holding, one of Turkey's four largest industrial
conglomerates, gave an overview of recent economic
developments, explaining that at first the GOT ignored the
global credit crisis but that significant reductions in
export figures finally forced the GOT to acknowledge the
crisis. He noted that this is the first experience Turkey
has had with a crisis that is global in nature, rather than
caused by policy failures on the part of the GOT. In this
case, Turkey and Turkish policy makers are not to blame for
the crisis and in many ways Turkey is in better shape to
withstand the crisis than other emerging markets, he argued.
Turkey and, in particular, Turkish firms have a greater
exposure to international credit markets than in past years -
corporations, particularly in the real sector are
significantly exposed. Bank exposure on the other hand is
relatively healthy, he explained. There are few toxic assets
and weak banks have either merged or been submerged over the
past ten years.


5. (SBU) According to Sahenk, Turkey exists in a risk-adverse
environment and a new IMF agreement is key to restoring
confidence in the economy. However, upcoming municipal
elections have affected GOT thinking with regard to a new IMF
program, he noted. Ali Kibar, Chairman of Kibar Holding,
explained that February would be a difficult month for the
GOT budget, with a minimum of USD 12 billion in payments for
election-related spending coming due, but no clear indication
when or from where the funds to pay for those expenditures
would materialize. Sahenk agreed, noting that the GOT has
clear financial liabilities and that pre-election spending
was affecting government accounts. Kibar claimed the GOT

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planned to delay physical payment as a direct result of the
need to keep funds liquid in advance of the local elections.
Yalcindag believes the GOT will seek to stall the IMF
agreement until after the March 29 municipal elections in
part to avoid scrutiny of government accounts. Nonetheless,
Sahenk stressed the need
for an IMF agreement as soon as possible, noting that market
expectations are for an IMF program in the region of USD
20-25 billion. Domestic confidence is low despite abundant
lira liquidity and basically healthy economic fundamentals.
He argued that an IMF agreement would restore confidence and
help provide a 'level of comfort' that would ensure the
rollover of foreign currency denominated syndicated loans.


6. (SBU) Kibar noted that the GOT needs to exercise more
fiscal and regulatory discipline to ensure a level playing
field for foreign companies. If not, Turkey risks a
credibility loss in the future with potential investors.
Kibar, who is a joint venture partner with Hyundai in an auto
assembly plant, expressed sentiments shared by U.S. company
representatives at a January 22 luncheon with ABFT members.
ABFT members cited a range of issues affecting foreign
investors in Turkey including the difficulty of obtaining
work permits for expatriate managerial staff as well as a
general lack of transparency on the part of GOT officials and
the strain Turkey's large informal sector places upon
licensed businesses.


7. (SBU) ABFT members called on the Ambassador to manage and
improve the perception of the U.S. in Turkey, which is not as
favorable as it could be. They noted that ABFT had worked
hard with parent companies in the United States to advocate
against the Armenia resolution in previous years. Yalcindag
explained that the Armenia resolution was also a very
important one for TUSIAD and that she and members of the
board of directors planned to visit Washington soon to
discuss the issue on the Hill. Kibar also addressed the
issue of anti-Americanism in Turkey noting that anti-Western
feelings have risen at least in part because Turks blame the
United States for the current economic difficulties. Energy
is also a very important issue for Turkey and the U.S. is
viewed as less helpful than the EU on this topic, Kibar
explained. Kaleagasi expressed his happiness with the
elevation of MP Egemen Bagis to State Minister for EU affairs
noting that this was a very good sign. ABFT members
expressed concern that the GOT had lost interest in the EU
process, but welcomed the selection of Bagis as EU negotiator.
Wiener