Turkey - Second Privatization Social Support Project

Page 1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB1386 Project Name Privatization Social Support Project 2 Region EUROPE AND CENTRAL ASIA Sector Compulsory pension and unemployment insurance (70%);Vocational training (20%);Micro- and SME finance (10%) Project ID P094167 Borrower(s) TREASURY Implementing Agency Treasury Inonu Bulvari 36 Emek Turkey Tel: 90+312-212-8256 Fax: 90=312-212-8250 ozgur.pehlivan@hazine.gov.tr Privatization Administration Ziya Gokalp Caddesi 80 Kurtulus Turkey Tel: 90+312-432-4339 Fax: 90+312-433-2341 pcu@oib.gov.tr Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Date PID Prepared February 22, 2005 Estimated Date of Appraisal Authorization April 5, 2005 Estimated Date of Board Approval May 31, 2005 1. Key development issues and rationale for Bank involvement 1. Turkey is confronted by major issues in enhancing its competitiveness to benefit from globalization and prepare for the progressive economic integration with the European Union (EU). The State-Owned Enterprises (SOEs) have been a major drain on the budget, and drag on the Turkish economy for years. To address these persistent financial imbalances and erratic growth, the SOE sector is being privatized, but this runs against public perceptions in Turkey on privatization which are frequently negative. Addressing public perception and the real social costs of workers made redundant as a result of privatization are important elements in ensuring an effective and sustainable privatization program. The Government and the Bank are in broad agreement on the diagnosis and strategies for economic adjustment and structural reform with a focus that includes privatization and closure of state- owned enterprises 2. In addition to enhancing competitiveness, privatization of SOEs will make a sizeable contribution to both fiscal management and the reconfiguration of the public sector. On Page 2 fiscal management , loss-making enterprises will be closed or sold (the largest loss-making enterprise is Turkish Railways, currently losing some US$700 million a year, but as this can not be privatized it will be restructured under a separate Railways Restructuring Project). The sale proceeds of privatized enterprises will be used in the management of Turkey