United States | Wire to Turkey

[Odinson]

---

OFFICE OF THE UNDER SECRETARY OF THE TREASURY FOR INTERNATIONAL AFFAIRS​

---

ENCRYPTED MESSAGE​

TO: Azmi Ekinci, Minister of Finance of The Republic of Türkiye ( Jay )

CC: Hafize Gate Erkan, Governor of The Central Bank of The Republic of Türkiye

FROM: Bob Pinkman, Under Secretary of The Treasury For International Affairs of the United States of America

Minister Ekinci,

The Treasury Secretary and Secretary of State are both aware that we are engaged in this communication.

In October of 2006, representatives from the United States, Poland, and Sweden met in New York City for a closed-door meeting - this meeting taking place was not, and still is not, public knowledge. In the meeting, the United States departments of State and the Treasury composed a presentation to Swedish and Polish representatives which outlined the concerning state of the Turkish economy. I was one of the two primary American representatives at the meeting.

In truth, your economic situation was dire. We were all deeply concerned that the Turkish state would be crippled beyond the point of recovery. However, through what I understand to be strict austerity measures, your government has managed to climb out from having over $100-billion in debt to $66.5-billion in debt. While Türkiye still has a very high debt to GDP ratio, I can tell you directly that this is shows Treasury and the Federal Reserve System that your government is willing to make tough decisions to turn things around. As I am sure you know, most countries in history have not been able to do what you are doing, which is remarkable. I can only imagine that one day someone is going to write a great book about those of you who have managed to turn the ship from hitting the iceberg.

With that being said, I understand that while the right course is being taken, this is still exceptionally straining on the Turkish people, economy, and government, and that continued pains can put a government back on an ill-fated trajectory. At the meeting in New York that I mentioned previously, a loan of $30-billion to Turkey was discussed. This would be a true loan split between the United States (likely via the Federal Reserve System), Poland, and Sweden, with each contributing $10-billion. The United States is still committed to going through with this and I believe that Poland and Sweden will as well, but I know that they need certain assurances.

First, we will need to know how much can be paid back to each country per (tax period). Is there a solid number which you can give to me that I can present to them?

Secondly, the Polish and Swedish representatives mentioned the possibility of collateral in the event that Turkey fails to make good on payments. Is there any kind of significant collateral that your government can offer?

I know that the White House, Treasury, and the Federal Reserve have had many meetings about how this would exactly work from our side. I am confident that we will be able to pull this off. If Poland and Sweden are willing to move forward with a $10-billion commitment, there is a possibility that the United States may be able to increase its loan offer. However, I cannot make any guarantees on that at the moment.

If your government and central bank want to move forward with this option, I ask that you get back to me at your earliest convenience. In the meantime, Treasury will begin drafting a binding financial agreement for the four of us.​

Best regards,

Bob Pinkman
Under Secretary of The Treasury For International Affairs
​

​

​

 

[Jay]

Dışişleri Bakanlığı Ministry of Foreign Affairs​

AUTHENTIC COMMUNIQUE OF THE OFFICE OF FOREIGN AFFAIRS Security Clearance: Secure and Encrypted ŞİFRELEME KORUMASI: KAPLUĞA​

[Recipient]: Under Secretary Treasury < Odinson > [Sender]: Minister of Finance, Türkiye < AEkinciHMB@tr.gov > [Subject]: Confidential // Loan Collateral

Dear Under Secretary Pinkman, Thank you for the letter, Under Secretary Pinkman. I have been informed of the proposed bailout and its skeletal outline from a readout provided by the Ministry of Foreign Affairs. We welcome the news that the U.S. is moving ahead with the proposed bailout, and I look forward to working with you on this. Since our government assumed office, the Turkish economy has experienced considerable stabilization and renewed growth momentum. We expect our July report to show remaining debt obligations of approximately $55.035 billion, marking a significant improvement following a highly volatile start to the year. It is a fair achievement that in half a year of governance, we've managed to halve the debt obligations of the country. We hope this success will continue into quarter four of this year. We are focused on achieving a stable economic outlook for 2008. The fight is just beginning and we hope to deliver on the expectations of the Turkish people. Regarding the proposed $30 billion bailout facility, which we recognize as a substantial commitment, the Turkish Government is in conversations with the Polish Government on the matter of appropriate collateral for their prospective participation. At this stage, we have not received any engagement from Sweden, and we would value your guidance on whether the U.S. envisions these discussions developing in a multilateral or bilateral framework. This information is highly confidential and should be treated as such, including with respect to the other prospective consortium partners. Under the current proposed budget, Türkiye projects a government surplus of approximately $27 billion for fiscal year 2007–2008. While a portion of this surplus must necessarily be reserved for emergency and discretionary expenditures, our parliamentary budget proposal anticipates the capacity to allocate $2.25 billion per month toward repayment to the loan consortium. However, the proposed budget must pass parliament before we can make any hard commitments on our expected surplus. In realistic terms, this would translate to a repayment schedule of roughly $1.25 billion per month over a two-year horizon. With respect to collateral, the scope of fungible assets available for security interests is limited. While we would consider collateralizing $1 billion in an interest-bearing account with the Federal Reserve, we are mindful that such an arrangement could unduly constrain fiscal space for essential growth-oriented investments. Regarding appropriate collateral, there are clear limits on the fungible assets that the consortium could reasonably secure. We would be prepared to collateralize $1 billion of the monthly surplus, allowing the parties to take a security interest in this uncommitted portion, which could be deposited into an interest-bearing account maintained with the Federal Reserve Bank. Compounded monthly, this mechanism would ensure approximately $24 billion in accessible funds over the repayment period. However, we view such an arrangement as overly restrictive. It would significantly constrain the Turkish Government’s ability to allocate resources toward essential economic priorities. Türkiye must continue to invest in its economy, restore employment, and provide critical public services, as these measures are important for boosting productivity and ensuring long-term growth. As part of our budget framework, we have proposed a portfolio of infrastructure projects valued at approximately $30 billion, spanning carbon and nuclear energy, public works, major transit systems, Olympic Games preparation, and other strategic initiatives. We would be prepared to allow the consortium to take a security interest in these underlying projects, thereby granting access to the future revenue streams of these assets, which we expect to generate strong and stable returns. Lastly, we look forward to reviewing the financial agreement and would appreciate a courtesy draft before submitting one to the consortium to allow us to exchange views and provide a working draft. Sincerely, Azmi Ekinci Minister of Finance Republic of Türkiye

 

[Odinson]

Private​

The White House​

President Sinclair mashed his finger onto the leather desk pad that sat on top of the Resolute Desk as he raised his voice, "This is not what I was told," he said, on the verge of raising his voice.

Dr. Ben Bernanke, Chairman of The Federal Reserve System, was sitting at one of the chairs beside the Resolute Desk. It was certainly a physically weaker position for him to be sitting in, but he had a fiduciary responsibility to the Federal Reserve and the American People.

"Mister President, to be frank, the Board of Governors is not interested in bankrolling a fledgling Islamic country that has a European identity crisis - more specifically, the American People don't want that, and we will suffer an exceptional identity crisis if we agree to this," Bernanke said bluntly.

"At ten-percent, this deal would put you two-billion ahead," Sinclair exclaimed. "The Fed has been struggling to find credible countries to lend to, and here we have one practically begging you for a loan. What's the problem?"

"Beggars are rarely good borrowers, Mister President," Bernanke said calmly, but firmly.

"Ben, they are a recovering democracy. Turkey has the potential to be a beacon of hope for the Middle East, for Islamic countries - if they become a beacon, maybe they can show the rest of the subcontinent that you don't have to be fundamentalist to matter. American support for the Turkish government can't be any more clear."

"Mister President, my job does not have anything to do with American foreign policy. Also, we would want more than ten-percent interest on the loan," Bernanke retorted.

"Twelve percent?"

"Twenty-percent, sir."

Sinclair stood up from his seat behind the Resolute Desk, which caused Bernanke to stand too. "You are insane to even say that."

"Mister President, the Board of Governors does not have enough faith that Turkey will repay the debt."

"Enough faith?"

"Yes sir."

"How much faith does the board have?"

"Not enough."

"Ben, how much? Quantify it. You're a math guy."

Bernanke looked at the President for a few moments in silence, "On $10-billion? We put the odds at sixty-five percent," he said.

Sinclair turned his back to Bernanke and looked out of one of the windows in the Oval Office. Silence prevailed for a minute while Sinclair thought. He kept his back to Bernanke when he spoke next:

"You'd get a bigger reward if it was $20-billion," Sinclair said with almost no inflection in his voice.

"....Mister President, that would be almost the entire capitalization of the Federal Reserve System. I don't even know what to say to that."

"Make a counter."

"....."

"Ben, make a damn counter." Sinclair turned around and looked at the Fed Chairman.

Bernanke looked slightly annoyed, but he reminded himself that he was standing in the Oval Office, looking at the President of the United States.

"For $20-billion? Okay, sir, we can float that, on the condition that the United States guarantees the entire loan, as well as the interest owed."

Bernanke's counter was obviously a ridiculous counter to a ridiculous proposal by Sinclair, but Sinclair took it seriously.

"No, we can't do that..." Sinclair said. One of his hands latched onto his face, covering his mouth as he looked at Bernanke and thought for a few moments.

"For $20-billion, the United States will guarantee 75-percent of the loan, as well as the interest owed."

Bernanke crossed his arms and inhaled, followed by a few moments of silence, and then exhaled. "No sir, that is not good enough."

"Counter."

"Mister President, for $20-billion, the United would need to guarantee the entire loan, as well as the interest owed. I can't go down from that."

"Ben, you're ripping my eyes out," Sinclair said, and sighed. "The United States will guarantee 80-percent, as well as the interest owed."

"Mister President, I cannot do that."

"God damn it, I'll remind you that you're the central bank of the United States!" Sinclair said and then pointed his finger at Bernanke, who clearly wasn't moved, but was perhaps only slightly intimidated by the normally-stoic President losing his cool.

"Mister President, I need the loan to be absolutely guaranteed."

"Congress will never pass that, I can't guarantee $20-billion," Sinclair said.

Sinclair walked out from behind the Resolute Desk and over to a drink cart that was in the room.

"Do you drink scotch?" Sinclair asked.

"I'm more a bourbon man, sir," Bernanke said.

"I don't like bourbon, this is good scotch, trust me," Sinclair said as he poured both men a glass, over a single large rock of ice - it was Johnnie Walker Blue. Sinclair handed a glass to Bernanke. The two men clanked glasses and both took a sip. Bernanke hesitated and then thought for a few seconds as he processed the taste.

"It honestly isn't that bad," Bernanke said.

"Well, it's not Cutty Sark, you should try new things," Sinclair said to Bernanke.

"Mister President, I think that we are at an impasse."

Sinclair downed nine dollars of scotch, with still nine more dollars to go in his glass.

"Alright, I will increase my offer. For a $20-billion loan, the United States will guarantee 85-percent of it, and the United States will pay all of the interest owed on the loan to the Federal Reserve once the loan is issued."

Bernanke raised his eyebrows at Sinclair and blinked a few times. He wasn't expecting that.

"What if Turkey misses a payment?" Bernanke asked.

"Rip their eyes out, tell them that you want the Hagia Sophia back," Sinclair responded.

"I'm Jewish, Mister President."

"Well, to be honest, I think they'd rather it go back to the Orthodox than become a synagogue."

"I think they'd rather anything than the Hagia Sophia become a synagogue," Bernanke said, with a chuckle.

"So we have a deal?" Sinclair asked, and then offered more of the Johnnie Walker Blue.

"Almost," Bernanke said, and then took another sip of his new favorite scotch.

"For a $20-billion loan," Bernanke said, "the United States will guarantee 85-percent of it, pay all of the interest owed on the loan as soon as the loan is issued to Turkey, and the interest rate will be 20-percent."

Sinclair had killed less audacious men with his own hands decades ago, it was difficult to stand with one in a room like this. "12-percent."

"Alright, in the middle, 15-percent, Mister President."

Bernanke offered his hand to the President. Sinclair looked at Bernanke for a second, hesitating for only a few seconds more, and then shook it.

If Congress approved, and if the Turks agreed to it, the deal would end up being: The Federal Reserve System would offer a $20-billion loan to Turkey at a 15-percent interest rate. 85-percent of the loan would be guaranteed by the United States. Also, the interest owed on the loan would be immediately paid by the United States - this means that Turkey would directly owe the United States Government, not the Federal Reserve, the interest on the loan, which would be: $3-billion.

Sinclair needed to present this to Congress, so it was not public knowledge yet, and the Turks would not be aware of it yet.

Jay

 

[Odinson]

---

OFFICE OF THE CHAIR​

---

SECURE​

TO: Azmi Ekinci, Minister of Finance of the Republic of Türkiye ( Jay )
FROM: Dr. Ben Bernanke, Chair of The Board of Governors of The Federal Reserve System

Minister Ekinci,

The Board of Governors of the Federal Reserve System have voted to offer the Republic of Türkiye a loan. In short this loan, if agreed to by your government, will be partially guaranteed and partially forgiven by the United States government. There are a number of stipulations that apply. In short, this would be a $20-billion loan from the Federal Reserve System to Türkiye at a flat interest rate of 15-percent. Türkiye would be required to make a payment of $900-million per month (tax period) until the loan is paid off. Below are the finer details of the agreement, which I ask that you review and present to the respective leadership in your government for review.

​

Special Loan Offer to The Republic of Türkiye June 2007​

​

---

CONTEXT​

The Board of Governors of the Federal Reserve System has voted to approve a loan offer of $20,000,000,000.00 to the Republic of Türkiye. The United States government has endorsed this offer with the passage of The Turkish Assistance Act, provided that certain conditions are met and certain stipulations are made. Below are the details of the loan offer:

ARTICLE 1
RESPONSIBILITY​

1.1 Responsible Party - The Federal Reserve System (also referred to as Federal Reserve) offers a loan to the Republic of Türkiye (also referred to as Türkiye) of $20-billion.

a. Türkiye agrees that this loan is tied to and is the responsibility of the sovereign state of Türkiye to repay, and not to any individual Turkish citizen or entity.​

b. Türkiye agrees that even with a democratic change of government, or even a change in the system of government of Türkiye, this loan will remain the responsibility of Türkiye to repay - even if the name of the nation is changed.​

1.2 Responsible Use - Türkiye agrees that the it will use the majority of the money from this loan to either: pay off its national debt or invest into the Turkish nation so that more taxes can be collected by the state.

a. Türkiye agrees that the money from this loan will not be used to purchase, lease, or produce military equipment, arms, weapons, vessels, warships, or vehicles.​

1.2 Responsible Use - Türkiye agrees that it will abide by all of the terms of this agreement and that it will act in good faith to repay the loan, the owed interest, and all penalties if imposed.

a. The legislature of Türkiye must approve of this loan in written law - in accordance with all constitutional and legal provisions of Turkish law - in order for the loan to be issued.​

ARTICLE 2
TERMS OF LOAN​

2.1 Amount - The Federal Reserve will issue a loan of $20-billion to Türkiye in one lump payment.
2.2 Interest - This loan will have a flat interest rate of 15%, which will result in $3-billlion in interest.

a. The United States government has agreed, upon issuance of this loan, to pay off the $3-billion in interest to the Federal Reserve and has chosen to forgive half ($1.5-billion) of said interest; as a condition of this loan, Türkiye will be responsible for paying off the remaining $1.5-billion in interest to the United States directly after the principal ($20-billion) has been repaid to the Federal Reserve.​

2.3 Repayment - Türkiye will repay $900-million per tax period to the Federal Reserve; the payment will be made on the first day of the tax period; a three day grace period will be given by the Federal Reserve.

a. Türkiye will not be penalized for making payments of more than $900-million per payment.​

b. Regardless if Türkiye pays back more than $900-million in one payment, it will still pay $900-million for the next payment unless the remaining principal on the loan, and any owed penalties, is less than $900-million, in which case the final payment would be the remaining balance of the loan.​

c. Türkiye may make as many ($900-million) payments early as it likes; in this case, Türkiye may choose a future payment that will be marked as "PAID" upon the clearance of the early payment to the Federal Reserve.​

d. Türkiye will begin making required repayments of $900-million to the Federal Reserve starting the first month of 2008.​

ARTICLE 3
PENALTIES AND TRANSFER OF LOAN​

3.1 Penalties - Türkiye agrees to pay all penalties imposed in accordance with ARTICLE 3 of this agreement.

a. If Türkiye makes a payment that is more than three days late, the Federal Reserve is authorized to charge a $125-million penalty which must be paid on the following payment.​

b. If Türkiye makes a partial payment less than $900-million (unless it meets the conditions of ARTICLE 2, Section 2.3.b), then the Federal Reserve is authorized to charge a penalty of up to $10-million for every $10-million Türkiye is short; if the partial payment is more than $890-million, than the Federal Reserve may still issue a penalty of $10-million; the penalties mentioned in this subsection must be paid in the next payment.​

c. If the penalties referenced in ARTICLE 3, Sections 3.1.a and 3.1.b are not paid in the next payment, then they are doubled and must be paid on the following payment; penalties will continue double for each time they are not paid on a required payment date.​

d. In order for a penalty to be imposed on Türkiye by the Federal Reserve, the Chair of the Board of Governors, or his designee, must inform the Minister of Finance of Türkiye (or the Ministry of Finance if the Minister is not available) that: a penalty is being imposed, as well as why the penalty is being imposed.​

e. In the event that the conditions of ARTICLE 3, Section 3.2 are met, the United States is authorized to charge a $250-million penalty for each late payment made by Türkiye to the United States, which must be paid on the next required payment date.​

f. In the event that the conditions of ARTICLE 3, Section 3.2 are met, the United States may impose a penalty or penalties on Türkiye; in order for a penalty to be imposed on Türkiye by the United States, the Secretary of The Treasury, or his designee, must inform the Minister of Finance of Türkiye (or the Ministry of Finance if the Minister is not available) that: a penalty is being imposed, as well as why the penalty is being imposed.​

g. If Türkiye enters into hostilities against the United States, or declares war against the United States, then it must pay back the entire sum of the loan to either the Federal Reserve System or the United States directly on the next payment date in full and in one lump sum.​

3.2 Transfer of Loan - If Türkiye fails to make more than three full payments in a row to the Federal Reserve System, then the remaining debt will be assumed by the United States of America - up to and not to exceed $17-billion.

a. If the conditions of ARTICLE 3, Section 3.2 are met, then all remaining repayments must be made to the United States directly.​

b. If the conditions of ARTICLE 3, Section 3.2 are met, then the $1.5-billion in interest that was paid for by the United States on behalf of Türkiye will be retroactively added back to the Turkish debt, meaning that Türkiye will be responsible for paying the full $3-billion in interest to the United States after the principal has been paid off.​

c. If the conditions of ARTICLE 3, Section 3.2 are met, then the United States shall have the right to impose the same penalties listed under ARTICLE 3 of this agreement.​

c. If the penalties referenced in ARTICLE 3, Sections 3.1.a and 3.1.b are not paid in the next payment, then they are doubled and must be paid on the following payment; penalties will continue double for each time they are not paid on a required payment date.​

d. In order for a penalty to be imposed on Türkiye, the Chair of the Board of Governors, or his designee, must inform the Minister of Finance of Türkiye that: a penalty is being imposed, why the penalty is being imposed.​

ARTICLE 4
RESTRUCTURING AND TERMINATION​

4.1 Restructure - This agreement, and by extension the loan within it, may be restructured provided that the assent of the Federal Reserve and Türkiye is given.

a. If the conditions of ARTICLE 3, Section 3.2 are met, then the parties that must provide assent to restructuring are the United States and Türkiye.​

4.2 Termination - This loan will be considered to be paid off once the following conditions are met: Türkiye has paid off the principal ($20-billion), Türkiye has paid off the interest owed to the United States (either just $1.5-billion or $3-billion, depending on the conditions of this agreement), and Türkiye has paid off all penalties imposed by the Federal Reserve and the United States that are in accordance with this agreement.


Signed for the Federal Reserve System,

Ben Bernanke
Chair of The Board of Governors


Signed for the Republic of Türkiye,​