Cablegate: Turkish Business Community Looking Beyond Gul Presidency To

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P 200456Z AUG 07
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SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EFIN TU
SUBJECT: TURKISH BUSINESS COMMUNITY LOOKING BEYOND GUL PRESIDENCY TO
REFORM AGENDA

REF: A) Ankara 2112 and previous

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1. Both Embassy Ankara and ConGen Istanbul contributed to this
report.

2. (SBU) Summary: The Turkish business community's reaction to
FonMin Abdullah Gul's presidential candidacy has been positive but
muted. In public statements, most business groups expressed support
for Gul's presidency while cautioning the ruling Justice and
Development Party (AKP) government to keep politics out of the
process and maintain Turkey's current stable economic environment.
For the most part, business viewed his candidacy as a foregone
conclusion following AKP's greater than expected win in the July 22
general election. Turkey's financial markets, however, experienced
sharp drops after Gul's candidacy was announced, particularly the
lira, which had been stable during the July and early August global
market turmoil. Since August 14, the morning after Gul's candidacy
was announced, the dollar has gained 6.77% and the ISEM index has
fallen 10.15%. Merrill Lynch cited increased political risk from
Gul's candidacy as one reason it was downgrading Turkey's Eurobonds.
End summary.

3. (SBU) The Turkish business community's reaction to news that
Abdullah Gul would seek the presidency was positive but muted. Most
business leaders expected this announcement, given AKP's strong
showing at the July 22 elections. One senior banker described Gul's
quest for the presidency as "merely a scheduling matter" given
AKP's numerical majority in parliament and Nationalist Action
Party's (MHP) announced decision to attend the first two rounds of
voting, thus guaranteeing a quorum. The business and banking
community expect a second AKP term in office will see a renewed
focus on microeconomic reforms aimed at making the economy more
competitive.

4. (SBU) In the media, most Turkish business groups made statements
supporting Gul's presidency but cautioning AKP to keep the position
politically neutral and representative of the views of all Turks.
For example, Turkish Exporters' Assembly (TIM) Chairman Oguz Satici
said, "We are fully content that Abdullah Gul will continue his
statesmanship in Cankaya." Satici said they did not doubt Gul's
ability to guard the basic principles of the Constitution, to become
a consensus-building President who has a coordinating role beyond
his political identity. Confederation of Turkish Businessmen and
Industrialists (TUSKON) Chairman Rizanur Meral said it would not be
appropriate to look for any qualification other than competence for
being President. Meral stated that TUSKON hopes that the
presidential elections will not damage the stable economic
environment in Turkey. The Turkish Young Businessmen's
Confederation (TUGIK) Chairman stated that the Presidential
elections should not turn chaotic this time around. He added, "We
receive the AKP's decision to present Gul as a candidate with
respect. We hope when he comes to power, he is able to stay away
from politics, he can be the President of all different sections of
population, and he acts in line with the basic principles of the
Constitution."

5. (SBU) Other public comments were equally positive. Independent
Industrialists and Businessmen's Association (MUSIAD) Chairman Omer
Bolat said Gul deserved this position, and the business world would
support him as the President. Bolat also called on "certain
circles" to respect the public will. MUSIAD board members told us
that they are actively lobbying for labor market reforms and, given
that nine MUSIAD members had been elected to parliament (all as AKP
candidates), they are confident that their appeals are falling on
receptive ears. Turkish Industrialists and Businessmen's
Association (TUSIAD) Chairperson Arzuhan Dogan Yalcindag said Gul
gave very positive messages in his speech announcing his candidacy,
and TUSIAD would closely follow his steps to realize these
commitments. "Our democratic ethic tells us to accept his
candidacy," said Yalcindag, "we will respect the Parliament's choice
and as an NGO, we will do our job to watch, warn and criticize when
needed." Istanbul Chamber of Commerce (ITO) Chairman Murat
Yalcintas said Gul's Presidency would strengthen the businessmen
doing business abroad. Yalcintas commented that Gul's experience as
Foreign Minister and his very good relations with foreign entities
would work to the advantage of the Turkish business world. Finally,
Turkish Union of Chambers and Commodity Exchanges (TOBB) Chairman
Hisarciklioglu said TOBB believes that Gul is capable of performing
up to the duties and impartial stance the presidency requires, and
of representing Turkish society as a whole. Hisarciklioglu also
invited every democratic citizen to respect the decision made by the
Parliament.

6. (SBU) By and large, Istanbul's business community views the Gul

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candidacy as a foregone conclusion. Many prominent industrialists
were criticized for appearing too positive in reaction to the Gul
candidacy in April. This, combined with August vacations that take
many business leaders out of town for most of the month, may
partially explain the subdued response to Gul's candidacy. Board
members of an Istanbul AmCham affiliate told visiting Senate
staffers that from an economic policy perspective the AKP government
"was a good thing." Foreign investors with on the ground operations
tend to discount warnings of increased political tension, with one
general manager of a major U.S. company noting that "society will
have to get used to seeing (wealthy) covered ladies living in our
neighborhoods and driving the same cars we drive."

7. (SBU) The business community is united regarding the need for
microeconomic reform, particularly improving labor market
flexibility, during the first six months of the AKP's second term
in office. An Istanbul-based Merrill Lynch vice president noted
that if, as many newspapers are predicting, former senior ML banker
Mehmet Simsek is named economy minister, micro reforms would be at
the top of his to-do list. A key financial sector observer noted
that social security (SSK) reform will be an indication of how
seriously the new government views its reform agenda. She noted SSK
reform is a "will" issue. Given AKP's parliamentary majority, once
President Sezer leaves office, nothing should stand in the way of
passage of a reform bill. A much more skeptical financial sector
observer noted that AKP's stance on senior government appointments
will demonstrate whether they are truly looking beyond their
political base. The party must demonstrate a willingness to promote
talent regardless of political affiliation or "social background" in
order to demonstrate credibility.

8. (SBU) Turkey's financial markets were hit this week by the global
fallout from the U.S. sub-prime mortgage market. Earlier
market-friendly announcements that the Central Bank was keeping
interest rates at 17.5% and the GOT would keep spending within
budget were overtaken by the worldwide revaluation of risk. Gul's
re-nomination also gave already nervous investors an additional
reason to sell Turkish assets. The fall was particularly noticeable
for the lira, which had been stable during the July and early August
market turmoil. Since August 14, the morning after Gul's candidacy
was announced, the dollar has gained 6.77% against the lira and the
ISEM has fallen 10.15%. Merrill Lynch cited increased political
risk from Gul's candidacy as one reason it was downgrading Turkey's
Eurobonds from "overweight" to "market weight." External risks
remain high because Turkey is still very dependent on foreign
investment flows.

9. (SBU) Comment: Our business contacts are focused on what the new
government is likely to do as far as economic reforms are concerned
and appear much less interested in the political machinations
surrounding the presidential elections. Whether it is because the
business community is resigned to a Gul presidency or welcomes one
depends on which group is speaking. However, it appears that as one
banker told us almost six months ago "markets have priced in
Hayrunissa Gul (Gul's headscarf-wearing wife) in Cankaya." End
Comment.

MCELDOWNEY

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