INDEPENDENT NEWS

Cablegate: Glimmers of Turkish Re-Engagement with the World

Published: Thu 12 Feb 2004 03:04 PM
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 ANKARA 000851
SIPDIS
SENSITIVE
STATE FOR E, EB/IFD, AND EUR/SE
TREASURY FOR OASIA - JLEICTHER AND MMILLS
NSC FOR MBRYZA AND TMCKIBBEN
E.O. 12958: N/A
TAGS: EFIN EAID ENRG EINV PGOV TU
SUBJECT: GLIMMERS OF TURKISH RE-ENGAGEMENT WITH THE WORLD
BANK
REF: A. ANKARA 808
B. ANKARA 763
C. ANKARA 608
1. (Sbu) Summary: Country Director Andrew Vorkink painted a
mixed picture on Turkish re-engagement with the World Bank.
In two sectors, energy and banking, the GOT has shifted to
meaningful engagement in recent weeks, in both cases working
with the Bank to develop a new interagency-coordinated
strategy. The Bank is also trying to get the GOT to work
with it on anti-corruption issues. According to Vorkink, the
Prime Ministry Undersecretary has consciously avoided
engaging with the Bank on the proposed Public Administration
reform. Vorkink said the Prime Minister said all the right
things in his meeting with Wolfensohn, and Wolfensohn will
attend the March 15 foreign investors' conference in
Istanbul. The GOT continues to press for CEO participation,
and worries about lower-level attendance. End Summary.
2. (Sbu) As reported earlier, following the September
meeting in Dubai between World Bank President Wolfensohn and
Economy Minister Babacan, the GOT committed to re-engage with
the World Bank, and the Bank sent Europe Director Shigeo
Katsu to Turkey for a high-profile visit in December. In a
meeting with Econoffs February 11, World Bank Country
Director Andrew Vorkink and Economist Ismail Arslan said
there have been some recent signs of GOT re-engagement with
the World Bank, particularly on banking and energy issues.
Energy Sector:
-------------
3. (Sbu) Vorkink said he was encouraged that in the past two
weeks the Bank has had a constructive dialogue with the GOT
on developing an energy sector strategy. Over the past year,
different parts of the government made public statements and
did not coordinate. As a result, there has been no action.
Vorkink said the Bank took the initiative of proposing to
help the GOT work out an interagency-agreed strategy, using
input from international experts. He said the GOT accepted
the Bank's proposal and the Bank brought a team of experts in
January. Vorkink said Turkish Treasury has played a helpful
role in bringing the GOT agencies together, in order to meet
a condition of the World Bank's Economic Reform Loan (ERL).
To meet the loan condition, either the Council of Ministers
or the High Planning Council has to approve a strategy by
March 31. Arslan was hopeful the relevant GOT officials would
agree on a strategy by the end of the month, since there are
signs that the Energy Ministry is now cooperating with the
regulatory agency (EMRA). On the overall concept of moving
to market-based regional electricity pricing, Vorkink thought
there might be a way to allay the Prime Minister's concerns
about expensive pricing in relatively poor Eastern Turkey.
4. (Sbu) Econcouns noted that the GOT seems to be pressuring
U.S.-owned power companies to lower electricity prices,
instead of entering into good faith discussions. Vorkink
said the Bank has to be careful not to get in the middle
between a government and a private party but noted that
international best practices can help evaluate the problems
with the GOT's power contracts and that the problems with the
BOT's were not all the same. Vorkink said the Bank had
offered to brief the U.S. Treasury on its analysis.
Banking Sector:
--------------
5. (Sbu) Vorkink was similarly optimistic on banking sector
issues, despite the absence of progress on state-owned bank
privatization and pessimism expressed by IMF officials (ref
b). Rather than simply insisting on privatization, Vorkink
said the Bank had replicated the approach it took on energy
reforms: it offered to facilitate an interagency
process--with Bank-provided expert international input--to
come up with a new, GOT-wide strategy. The Bank has found
the GOT receptive to this approach and a high-level
interagency team is being established to come up with a
strategy. Vorkink noted that there are multiple options
besides trying to privatize the state banks outright, such as
setting some kind of asset management company to hold the
state banks' huge government securities portfolios, or
unbundling the functions of the state banks. Comment: Given
that many local observers wonder who would buy the State
banks in their current, overstaffed, overbranched and
government securities-laden situation, and the obvious
reticence of the GOT to tackle the issue, the Bank approach
may hold the potential for progress on this issue. End
Comment.
Other, less Engaged Sectors:
---------------------------
6. (Sbu) Vorkink said he was trying to elicit GOT interest in
working with the Bank on anti-corruption and good governance
issues. Though the AK Party Government has emphasized
anti-corruption and good governance in its public statements,
Vorkink noted there has been little tangible action. In this
field, he praised the work of a Turkish NGO in Istanbul,
Tedmer, which is working on corporate governance, training
corporate ethics officers who are then placed in Turkish
companies. Tedmer works with a Washington-based NGO, the
Ethics Resource Center (ERC). Vorkink and Arslan said the
GOT created a high-level committee on anti-corruption, but it
has not yet met. The Bank is willing to help and, if the GOT
cooperates, adjustment operation money would be disbursed.
7. (Sbu) On public administration reforms, Vorkink
differentiated between the close cooperation over the Public
Financial Management and Control Law and the complete absence
of engagement over the GOT's current effort to conduct a
far-reaching reform of the Public Administration, including a
big decentralization of power to municipalities. Vorkink
said that Undersecretary to the Prime Minister Dincer has
made a conscious decision to keep clear of international
organizations in spearheading this reform, so as to avoid
potential criticism that the GOT is doing this reform under
IFI conditionality. Vorkink is trying to convince other GOT
officials (he mentioned Deputy Prime Minister Sahin) that
Dincer would be better off with legislation bearing the
imprimatur of international agencies.
Prime Minister's Meeting with Erdogan:
-------------------------------------
8. (Sbu) Vorkink had attended Prime Minister Erdogan's
Washington meeting with Wolfensohn and said it went well.
Erdogan was well-briefed and charismatic, and expressed
appreciation for the Bank's activities in Turkey. It was
Wolfensohn's first meeting with Erdogan, but they will be
meeting again March 15 when Wolfensohn comes to Istanbul for
the Foregin Investor's Council meeting.
Attracting CEO's to the Foreign Investors' Council:
--------------------------------------------- -----
9. (Sbu) The World Bank, the IMF and the Government of Turkey
are co-sponsoring this oft-postponed event, in which CEO's
from multinationals will meet in a closed-door session with
the Prime Minister and his economic ministers. Vorkink
rattled off an impressive list of major multinationals who
have agreed to attend and said the Bank has been telling the
GOT that this is not a roadshow presentation on Turkey.
Instead, it's a chance for senior executives to speak frankly
with the GOT about investment issues and for the GOT to
explain what it is doing. Econcouns told Vorkink that
Turkish Treasury Director General for Investment Melek Us had
called him to complain about the absence of senior U.S.
executives attending, to which Econcouns responded that it
was probably related to the absence of progress on all the
American companies' investment disputes. Us complained that
in some cases, companies such as Citigroup, had agreed to
send executives, but they were not CEO's. Vorkink said
Wolfensohn had told Erdogan that household name CEO's
sometimes cannot attend such events but that the next level
executive is often the one making investment decisions, and
should be welcomed. But Vorkink said Minister Babacan is
worried that if the executives are too low-ranking, it sends
a bad signal and will discourage the few senior executives
who show up not to come in the future.
EDELMAN
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