[PEN-L:34148] Turkey, again.......

["Ian Murray" <seamus2001@xxxxxxxxx>]

The International Herald Tribune | www.iht.com

$4 billion offer to Turkey
Alan Friedman and Thomas Crampton/IHT International Herald Tribune
Monday, January 27, 2003

U.S. dangles compensation for a role in war

DAVOS, Switzerland The United States, seeking to ensure Turkey's
military cooperation in an eventual war against Iraq, is offering at
least $4 billion to compensate Ankara for economic damage it might
suffer as a result of playing an active role in the U.S.-led
coalition.

"If Turkey helps us in the war, we want to help Turkey with the
economic consequences of its role in that war," a senior U.S.
official said Sunday, speaking on the condition of anonymity.

Separately, a well-placed international financial official said
Sunday that Washington was offering "at least $4 billion, and
possibly a great deal more over a period of three years."

The $4 billion figure has already been rejected as inadequate by
Recip Tayyip Erdogan, chairman of the governing Justice and
Development Party and putative future prime minister. "Some words
are going around about 2 billion plus 2 billion," Erdogan said in an
interview Sunday. "These types of amounts with this type of crisis
will not solve Turkey's problems."

The U.S. offer of aid, which was repeated in recent days during
meetings between officials from the United States and Turkey, is
part of a behind-the-scenes carrot-and-stick approach by Washington
to guarantee Turkish participation.

Washington has been seeking the use of military bases and other
facilities that would allow the United States to use Turkey as a
staging post for a so-called "northern front" against the regime of
Saddam Hussein of Iraq. Secretary of State Colin Powell discussed
that with Prime Minister Abdullah Gul of Turkey here Saturday.
Diplomats have also indicated that Washington is thinking of placing
15,000 American troops in Turkey as part of its military strategy
against Iraq.

The Turkish leadership is worried about the domestic political
fallout that could result from being seen as too pro-American by a
largely anti-war Muslim population.

Ankara, already grappling with a deeply troubled economy, is also
worried about billions of dollars of damage to its economy,
especially in the tourism sector, that could result from its
involvement in a possible U.S.-led war.

Washington is also telling Gul that Turkey must push through -
within the next few days - critical economic reforms, including
radical cuts in public spending, if Turkey is to convince the
International Monetary Fund to disburse $1.7 billion.

According to the U.S. official, President George W. Bush wrote a
private letter to Gul, delivered on Jan. 24, in which Bush described
Washington's need for Turkish cooperation in the war against Iraq.

In that letter, Bush also underscored the importance of Ankara's
first satisfying IMF conditions before a bilateral U.S. compensation
package could be agreed to.

"Without your commitment to the IMF program," Bush wrote in the
letter, according to the U.S. official, "the benefit of any
assistance package" from the United States "would be lost."

Bush was seeking to drive home to the Turkish leader the same
message that was delivered recently by Anne Krueger, first deputy
managing director of the IMF, that Turkey should not expect special
favors or U.S. largesse unless it sticks to the IMF plan.

According to a copy of talking points prepared by U.S. Treasury
officials, both the IMF and the Bush administration have concluded
that Turkey is in violation of its IMF commitments at present and
needs to take emergency action to get back on course.

"Turkey," the document states, "is now seriously off-track with
respect to its IMF and World Bank programs."

The document, classified "for official use only - market sensitive,"
was authenticated as genuine by a senior U.S. official attending the
annual meetings of the World Economic Forum here in Davos.

The U.S. official stressed that American financial compensation for
potential damage to the Turkish economy was separate from IMF aid
and would come only after IMF conditions were met by Ankara.
Nonetheless, he admitted that the aid was linked to Turkish military
cooperation in a war against Iraq.

"The discussion of supplemental assistance has always been in the
context of military cooperation against Iraq," the U.S. official
said. "That's the purpose of the assistance."

The behind-the-scenes diplomatic pressure from the Bush
administration comes as Turkey faces financing the rollover of a
hefty $3 billion in short-term debt on Feb. 5.

A key to gaining investor support for this refinancing at affordable
interest rates will be the completion this week of a letter of
intent with the International Monetary Fund that would unlock the
disbursement of $1.7 billion.

Key issues highlighted by the confidential U.S. document included
meeting a primary budget surplus target of 6.5 percent of gross
national product.

Ankara's proposal to deal with the situation as expressed in a draft
letter of intent submitted to the International Monetary Fund on
Jan. 22 was "not sufficient" the document states.

"The U.S., the IMF and its other major shareholders - as well as the
markets - need to see convincing evidence of the government's
willingness and ability to implement strong economic policies," the
document states. "The time to do so is limited."

Raising more detailed concerns about Ankara's draft letter of
intent, the U.S. government document warns that the plan to raise a
6.5 percent primary surplus "falls seriously short."

"The cumulative effect of revenue and spending measures are not
enough to meet the target," the document states. "Many are ad hoc
and temporary."

As for longer-term structural measures, the U.S. government document
warns that the letter of intent contains almost no commitments to
conditions on structural measures.