Global Policy Forum

By Alan Friedman and Thomas Crampton

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.

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.