Turkey - Economic development

A World Bank Country Economic Report PU B- 31 6 Turkey: Prospects and Problems of an Expanding Economy February 1975  Turkey: Prospects and Problems of an Expanding Economy This report was prepared by the economic mission which visited Turkey during April and May 1972 and consisted of Edmond Asfour, chief and coordinating author; general economists Christian Merat, Yves Franchet, Ram Chopra, Dharma Kumar, D.C. Rao and Hiwhoa Moon; agricultural economist Harry Walters; agricultural specialist Jose Dumoulin; industrial econo- mist and consultant James Theberge; transport economist Dieter Havlicek; loan officer Richard Gregory; and secretary Rosalie Clare. Support to the mission was also extended by Bertil Walstedt for the chapter on industry, by James Fish for energy and electric power, by Charles Blitzer in developing a program- ming model, and by J. Garcia dos Santos in developing a two- gap model. The mission chief and coordinating author is respon- sible for the scope and overall conclusions of the report. The mission date above should read: April and May 1973 WORLD BANK Washington, D.C. Copyright 0 1975 by the International Bank for Reconstruction and Development. All rights are reserved. The World Bank issues country economic reports in two series. This report is a working docu- ment and is, as such, part of an informal series wholly based on materials prepared for restricted use within the Bank. The text is not meant to be definitive, but is offered so as to make some results of internal research widely available to scholars and practitioners throughout the world. The Bank has a continuing program for expanding and strengthening the quality of all social and economic statistics used in its operations and research activities. Some of these data are published routinely in the World Bank Atlas, the World Bank Annual Report, and Trends in Developing Countries. Other statistical series maintained by the Bank and used almost ex- clusively by Bank staff are published only infrequently. The World Bank Catalog lists all of the Bank's free and sale publications; it is available to any individual or institution with a serious interest in economic and social development. To obtain more information about Bank publications and to request a copy of the Catalog, contact the Publications Unit, World Bank, 1818 H Street, N.W., Washington, D.C. 20433 U.S.A., or the World Bank, 66, avenue d'Iena, 75116 Paris, France. Other titles in this working document series of country reports may be ordered from either the Washington or Paris offices; currently available are: Employment in Trinidad and Tobago (March 1973) Current Economic Position and Prospects of Ecuador (October 1973) Current Economic Position and Prospects of Peru (December 1973) Chad: Development Potential and Constraints (July 1974) Senegal: Tradition, Diversification, and Economic Development (November 1974) Another series of country reports is published for the World Bank by the Johns Hopkins Uni- versity Press. Individual titles currently available may be obtained in clothbound and paperback editions from bookstores, The Johns Hopkins University Press, or its agents: Economic Growth of Colombia (1972-ISBN 0-8018-1389-1 /0-8018-1397-2) Nigeria: Options for Long-Term Development (1974-ISBN 0-8018-1602-5 / 0-8018-1603-3) CURRENCY EQUIVALENTS Prior to August 9, 1970 US$1.00 = TL9.00 TL1.00 = US$0.11 August 9, 1970, to December 22, 1971 US$1.00 = TL15.00 TL1.00 = US$0.067 December 22, 1971, to May 13, 1974 US$1.00 = TLl4.00 TL1.00 = US$0.071 May 13, 1974, to September 20, 1974 US$1.00 = TL13.50 TL1.00 = US$0.074 After September 20, 1974 US$1.00 = TL13.85 TL1.00 = US$0.072 Note: As this report was originally issued in April 1974, all exchange rates, unless otherwise specified, are prior to that date. - 1ii -  GLOSSARY ABT Agricultural Bank of Turkey c.i.f. cost, infurance and freight DHMI General Directorate of State Airports DSI General Directorate of State Hydraulic Works DWT deadweight ton(s) EEC European Economic Community EEK Meat and Fish Corporation EIB Export-Import Bank EMA European Monetary Agreement EPU European Payment Union FAO Food and Agriculture Organization f.o.b. free on board gal gallon (2.2 liters) GATT General Agreement of Tariffs and Trade gecekondu squatter settlement Gwh gigawatt (109) hours ICORs incremental capital output ratios IMF International Monetary Fund IPRAS Istanbul Petroleum and Refinery Corporation kcal kilogram calorie km kilometer(s) KOYD Department for the Development of Disfavored Regions kv kilovolt kwh kilowatt hour LDCs less-developed countries MKEK Machinery and Chemicals Industry Organization MTA State Minerals Survey Mw megawatt (106) OECD Organization for Economic Cooperation and Development OEEC Organization for European Economic Cooperation OLS ordinary least squares pass passenger(s) PETKIM Petrochemicals Corporation P.L.480 Public Law 480 PTT Post Telegraph and Telephone Corporation PVC polyvinyl chloride SDR Special Drawing Right(s) SEEs State Economic Enterprises SEKA State Pulp and Paper Corporation semis semimanufactures or semifinished metals SIB State Investment Bank SIS State Institute of Statistics SPO State Planning Organization SYKB Industrial Credit and Development Bank t ton(s) TCDD Turkish State Railways TEK Turkish Electricity Authority TFYP Third Five-Year Plan -V- THY Turkish Airlines TKI State Coal Mines Authority TL Turkish lira TMO Soil Products Office Topraksu General Directorate of Soils and Water TPAO Turkish Petroleum Corporation TSKB Industrial Development Bank of Turkey Twh terawatt (1012) hours UNDP United Nations Development Programs - vi - TABLE OF CONTENTS PART I: MAIN REPORT CURRENCY EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v LIST OF TEXT TABLES . . . . . . . . . . . . . . . . . . . . . . . . xix LIST OF CHARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . xxiii LIST OF MAPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxiii Chapter I. DEVELOPMENT STRATEGY AND GROWTH, 1950-72 . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Institutional Reforms . . . . . . . . . . . . . . . . . . . . . . 3 The Social Development of the Population . . . . . . . . . . . . 5 Pattern and Pace of Growth (1950-72) . . . . . . . . . . . . . . 7 Investment, Consumption and Savings . . . . . . . . . . . . . . . 12 Capital Intensity, Employment and Productivity . . . . . . . . . 15 Public Finance . . . . . . . . . . . . . . . . . . . . . . . . . 17 Price and Financial Developments . . . . . . . . . . . . . . . . 18 Price stability . . . . . . . . . . . . . . . . . . . . . . . 18 Interest rates . . . . . . . . . . . . . . . . . . . . . . . . 19 Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Security market . . . . . . . . . . . . . . . . . . . . . . . 20 Trade, External Payment and Debt . . . . . . . . . . . . . . . . 20 Chapter II. THIRD PLAN DEVELOPMENT STRATEGY......... . . . . 24 Third Plan Macroeconomic Targets and Policies...... . . . . . 25 Sectoral Development Policies and Targets..... . . . . . . . . 28 Planning Technique............ ...... . . . . . 31 Chapter III. MEDIUM- AND LONG-TERM PROSPECTS . . . . . . . . . . . 32 Competing Objectives of the Strategy . . . . . . . . . . . . . . 32 The growth pattern and social objectives . . . . . . . . . . . 32 Sectoral allocations and private demand . . . . . . . . . . . 33 Public investment and public resources . . . . . . . . . . . . 33 Protected industry and EEC membership . . . . . . . . . . . . 33 Import control and rapid growth . . . . . . . . . . . . . . . 34 Ambivalence on foreign aid . . . . . . . . . . . . . . . . . . 34 Medium-term Prospects: The Mission's Assessment . . . . . . . . 34 Growth prospects . . . . . . . . . . . . . . . . . . . . . . . 34 Investment and savings prospects . . . . . . . . . . . . . . . 36 Balance-of-payments prospects . . . . . . . . . . . . . . . . 38 Long-term Prospects . .o. . . . . . . . . . . . . . . . . . . . . 40 Pace and pattern of growth in the long term . . . . . . . . . 44 Long-term growth and employment . . . . . . . . . . . . . . . 44 Long-term growth and the savings effort . . . . . . . . . . . 45 Long-term growth and the EEC membership . . . . . . . . . . . 45 Chapter IV. POLICIES FOR GROWTH AND STABILITY.......... . 47 Price Stabilization Policies.................. 47 Monetary Policy . . . ...................... 49 Financial Policy ......................... 52 - vii - Fiscal and Borrowing Policies . . . .............. 54 Short-term budgetary policy................ 55 Public Investment and Incentives Policy . . . . ........ 56 SEEs' policies . . ..................... .57 Investment incentives................... 58 Export incentives . . . ..................60 Agricultural incentives.................. 61 Regional incentives....................61 Exchange and Trade Policy . . . . ............... 62 Social Policies...........................63 PART II. DOMESTIC AND EXTERNAL FINANCE Chapter V. PUBLIC FINANCE.......................67 Central Government.........................69 Local Governments..........................72 State Economic Enterprises....................73 Current Outlook...........................77 Third Plan Targets.........................78 Revenue Policy...........................80 SEEs' Policies...........................81 Current Spending Policy.......................82 Public Saving Prospects.......................83 Borrowing Policies.........................83 Short-term Budgetary Policy ....................84 Chapter VI. THE FINANCIAL SYSTEM, MONEY AND PRICES ..........86 The Financial System........................86 Interest Rate Policy........................88 Money and Credit..........................93 Credit Distribution and Policies..................95 Selective Credit Policies......................96 Medium-term Credit........................101 The Securities Market .......................102 Public debt..........................102 Corporate bonds........................105 Corporate equity ........................106 Policy Recommendations......................107 Prices and Price Policies.....................109 Causes of inflation......................110 Changes in Relative Prices....................112 Agriculture and industry....................112 Terms of foreign trade.....................114 Domestic and world prices...................115 Effects of Price Policies.....................117 Monetary Policy and Price Stability. ...............118 Chapter VIi. TRADE, EXTERNAL PAYMENTS AND DEBT...........120 Introduction............................120 Exchange and Trade Policies and Controls.............120 The Effects of the System of Controls. ..............123 Current Account...........................124 The Services Account.......................128 - viii - Capital Movements, Reserves, and External Debt..... . . . .128 Official Capital and External Debt....... . . . . . . . . 130 Balance-of-Payments Prospects....... ...... . . . 132 Exchange and Trade Policy Prospects....... . . . . . . .137 Annex 1 -- Relations with the European Economic Community (EEC)..... ..... . . . . . . . 138 Annex 2 -- Convertible Lira Accounts....... . . . . . . .140 Annex 3 -- Emigrant Workers' Remittances..... . . . . . . .142 Per capita remittances. . ........... . . . . . . 142 Projections of total remittances..... . . . . . . . . .144 PART III: MAJOR SOCIAL AND ECONOMIC SECTORS Chapter VIII. POPULATION, EMPLOYMENT AND EDUCATION . . . . . . . 145 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . 145 Population . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Labor Supply and Demand . . . . . . . . . . . . . . . . . . . 150 Emigration . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Education . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Chapter IX. REGIONAL DEVELOPMENT AND INCOME DISTRIBUTION . . . 162 Past Government Policies . . . . . . . . . . . . . . . . . ..163 Present Situation and Problems . . . . . . . . . . . . . . . . 165 Third Plan Proposals . . . . . . . . . . . . . . . . . . . . . 167 Urban Development . . . . . . . . . . . . . . . . . . . . . . 169 Land Policies, Controls and Housing . . . . . . . . . . . . . 170 Municipal Services and Financing . . . . . . . . . . . . . . . 171 Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . 172 Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . 173 The Distribution of Income . . . . *. * . . .. . .. .. .. 174 Annex 1 -- Main Institutions for Regional Development . . . . 176 The State Planning Organization (SPO) . . . . . . . . . . . 176 Ministry of Reconstruction and Resettlement . . . . . . . . 177 Banking system . . . . . . . . . . . . . . . . . . . . . . 177 Agricultural Bank of Turkey . . . . . . . . . . . . . . . . 178 State Investment Bank (SIB) . . . . . . . . . . . . . . . . 179 Bank of the Provinces (Iller Bank) . . . . . . . . . . . . 179 People's Bank (Halk Bank) . . . . . . . . . . . . . . . . . 179 Industrial Development Bank (TSKB) . . . . . . . . . . . . 180 Government . . . . . . . . . . . . . . .. . . . . . . . . . 180 Governor . . . . . . . . . . . . . . . . . . . . . . . . . 180 Municipalities . . . . . . . . . . . . . . . . . . . . . . 180 Chapter X. AGRICULTURE........... ....... . . . 181 Introduction............ ....... . . . . . .181 Changes in Agricultural Production....... . . . . . . . .181 Performance by Key Commodity Categories. ........ . . .184 Cereals............. ....... . . . . . .184 Industrial crops and oilseeds. ......... . . . . . .185 Fruit, nut and vegetable production......... . . . .188 Livestock............. ....... . . . . .188 Fish.......... ...... . . . . . . . . . . . 189 Forestry........... ...... . . . . . . . .189 - ix - The Use of Inputs, Services and Investment . . . . . . . . . . 190 Fertilizers . . . . . . . . . . . . . . . . . . . . . . . . 190 Farm machinery . . . . . . . . . . . . . . . . . . . . . . 191 Improved seeds . . . . . . . . . . . . . . . . . . . . . . 191 Plant protection . . . . . . . . . . . . . . . . . . . . . 191 Grain storage . . . . . . . . . . . . . . . . . . . . . . . 192 Extension services . . . . . . . . . . . . . . . . . . . . 192 Agricultural research . . . . . . . . . . . . . . . . . . . 192 Agricultural investments . . . . . . . . . . . . . . . . . 193 The Impact on Labor . . . . . . . . . . . . . . . . . . . . . 193 Trade and Export Projections . . . . . . . . . . . . . . . . . 195 Agricultural Policies . . . . . . . . . . . . . . . . . . . . 199 Irrigation . . . . . . . . . . . . . . . . . . . . . . . . . . 199 DSI and Topraksu -- the institutional structure . . . . . . 200 Price Policy . . . . . . . . . . . . . . . . . . . . . . . . . 201 The Soils Product Office . . . . . . . . . . . . . . . . . 202 The Sugar Factories Corporation . . . . . . . . . . . . . . 202 Turkish State Monopolies . . . . . . . . . . . . . . . . . 203 Meat and Fish Corporation (EEK) . . . . . . . . . . . . . . 203 Sales Cooperatives . . . . . . . . . . . . . . . . . . . . 203 Producer prices . . . . . . . . . . . . . . . . . . . . . . 204 Regional prices . . . . . . . . . . . . . . . . . . . . . . 208 Effects of the Price Policies and Their Implication . . . . . 208 Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 Agrarian Reform . . . . . . . . . . . . . . . . . . . . . . . 212 Current Land Reform Status . . . . . . . . . . . . . . . . . . 214 Chapter XI. INDUSTRY, MINING AND POWER . . . . . . . . . . . . . 216 Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 Industrial development policy . . . . . . . . . . . . . . . 218 Imports and exports . . . . . . . . . . . . . . . . . . . . 220 Protection and incentives framework . . . . . . . . . . . . 221 Role of State Economic Enterprises . . . . . . . . . . . . 223 Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . 226 Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 Energy and Electric Power . . . . . . . . . . . . . . . . . . 235 Sources of energy . . . . . . . . . . . . . . . . . . . . . 236 Coal . . . . . . . . . . . . . . . . . . . . . . . . . . 236 Lignite . . . . . . . . . . . . . . . . . . . . . . . . 236 Petroleum . . . . . . . . . . . . . . . . . . . . . . . 237 Hydropower . . . . . . . . . . . . . . . . . . . . . . . 237 Other sources . . . . . . . . . . . . . . . . . . . . . 237 Organization of the sector . . . . . . . . . . . . . . . . 238 Electric power . . . . . . . . . . . . . . . . . . . . . . 238 Village electrification . . . . . . . . . . . . . . . . . . 239 Pricing policies . . . . . . . . . . . . . . . . . . . . . 240 Annex 1 -- Industrial Protection and Industrial Export and Investment Incentives in Turkey . . . . . . . . . . . . 240 Industrial protection . . . . . . . . . . . . . . . . . . . 240 Tariffs . . . . . . . . . . . . . . . . . . . . . . . . 241 Non-tariff import levies . . . . . . . . . . . . . . . . 241 Effective protection . . . . . . . . . . . . . . . . . . 241 Export incentives . . . . . . . . . . . . . . . . . . . . . 246 - x - Rebate of taxes . . . . . . . . . . . . . . . . . . . . . 246 Export credit policy . . . . . . . . . . . . . . . . . . 248 Industrial investment incentives . . . . . . . . . . . . . . 249 Tax allowances for investments . . . . . . . . . . . . . 249 Customs duties and import tax exemptions . . . . . . . . 249 Deferred payment of customs duties and charges . . . . . 250 Building construction tax exemption . . . . . . . . . . . 250 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . 253 Annex 2 -- Manufacturing Section . . . . . . . . . . . . . . . 254 Iron and steel . . . . . . . . . . . . . . . . . . . . . . . 254 Chemicals, petrochemicals and fertilizers . . . . . . . . . 256 Textiles and clothing . . . . . . . . . . . . . . . . . . . 257 Forest industries . . . . . . . . . . . . . . . . . . . . . 259 Motor vehicles and tractors . . . . . . . . . . . . . . . . 260 Chapter XII. TRANSPORT...... .... . . . . . . . . . . . 263 The Transport System...... .... . . . . . . . . . . . 263 Assessment of the System.... .... . . . . . . . . . . . 265 Planned Targets and Performance...... . . . . . . . . . . . 266 Organization and Management....... . . . . . . . . . . . . 268 Policies and Implementation....... . . . . . . . . . . . . 270 The Third Five-Year Plan and Prospects . . . . . . . . . . . . 271 Road transport........ . . . . . . . . . . . . . . . . 273 Rail transport...... ..... . . . . . . . . . . . . 274 Air transport........ .... . . . . . . . . . . . 274 Sea transport........ .... . . . . . . . . . . . 275 Long-term prospects......... . . . . . . . . . . . . . . 276 Chapter XIII. TOURISM......... ..... . . . . . . . . 277 Development of Tourism, 1950-72......... . . . . . . . . 277 Incentive and Credit to the Tourism Sector....... . . . . 278 Third Plan Targets and Prospects.... .... . . . . . . . 279 PART IV: TECHNICAL ANNEX Chapter XIV. ANALYSIS OF MEDIUM- AND LONG-TERM GROWTH PERSPECTIVES . . . . . . . . . . . . . . . . . . . . . . 283 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . 283 Growth and Employment Perspectives of the Turkish Economy, 1972-87 -- An Exploration of Optimum Patterns . . . . . . . 283 A perspective planning model for Turkey . . . . . . . . . . 285 Labor balance constraints (Ait) . . . . . . . . . . . . . 285 Material balance constraints (Bit) . . . . . . . . . . . 285 Foreign exchange constraints (Ct) . . . . . . . . . . . . 285 Basic solution for 1987 . . . . . . . . . . . . . . . . . . 286 Macroeconomic results . . . . . . . . . . . . . . . . . . 286 Sectoral growth and investment allocation . . . . . . . . 286 Labor situation . . . . . . . . . . . . . . . . . . . . . 294 Balance of payments and foreign trade . . . . . . . . . . 297 Dual variables . . . . . . . . . . . . . . . . . . . . . 297 Alternative growth patterns . . . . . . . . . . . . . . . . 299 An employment-oriented economy . . . . . . . . . . . . . 299 An economy without labor constraints . . . . . . . . . . 304 Changes in the savings effort . . . . . . . . . . . . . . 304 A more-open economy . . . . . . . . . . . . . . . . . . . 305 - xi - Annex 1 -- Data Base for the Linear Programming Model . . . . . 305 Current account input-output coefficients . . . . . . . . . 305 Capital coefficients . . . . . . . . . . . . . . . . . . . . 306 Export coefficients . . . . . . . . . . . . . . . . . . . . 306 Incremental consumption coefficients . . . . . . . . . . . . 306 Urban transformation cost. . . . . . . . . . . . . . . . . . 306 Labor input and labor force projections . . . .. . . . . . 306 Material and foreign exchange balances . . . . . . . . . . . 307 Annex 2 -- Further Improvement of the Programming Model . . . . 307 A two-gap model for the Turkish economy . . . . . . . . . . 307 Objective of the model . . . . . . . . . . . . . . . . . 307 Description of the model . . . . . . . . . . . . . . . . 323 Case 1 -- basic case . . . . . . . . . . . . . . . . . . . . 324 Assumptions . . . . . . . . . . . . . . . . . . . . . . . 324 Results . . . . . . . . . . . . . . . . . . . . . . . . . 326 Case 2 -- lower expectations for workers' remittances . . . 327 Assumptions . . . . . . . . . . . . . . . . . . . . . . . 327 Results . . . . . . . . . . . . . . . . . . . . . . . . . 327 Case 3 -- better control of money supply growth . . . . . . 327 Assumption . . . . . . . . . . . . . . . . . . . . . . . 327 Results . . . . . . . . . . . . . . . . . . . . . . . . . 327 Case 4 -- devaluations . . . . . . . . . . . . . . . . . . . 327 Assumption . . . . . . . . . . . . . . . . . . . . . . . 327 Results . . . . . . . . . . . . . . . . . . . . . . . . . 328 Case 5 -- faster export growth . . . . . . . . . . . . . . . 328 Assumption . . . . . . . . . . . . . . . . . . . . . . . 328 Results . . . . . . . . . . . . . . . . . . . . . . . . . 328 Case 6 -- slower export growth . . . . . . . . . . . . . . . 328 Assumption . . . . . . . . . . . . . . . . . . . . . . . 328 Results . . . . . . . . . . . . . . . . . . . . . . . . . 328 Case 7 -- borrowing terms hardened . . . . . . . . . . . . . 328 Assumption . . . . . . . . . . . . . . . . . . . . . . . 328 Results . . . . . . . . . . . . . . . . . . . . . . . . . 329 PART V: STATISTICAL APPENDIX............. .... . . . 331 Population, Employment 1.1 . . . . . . Population Growth and Characteristics -- Urban and Rural . . . . . . *............ 333 1.2 . . . . . . Labor Supply and Demand 1962-72..... . . . . 334 1.3 . . . . . . Workers Employed Abroad...... . . . . . . . 334 1.4 . . . . . . Third Plan Investment in Education . . . . . . . 335 National Accounts 2.1 . . . . . . Gross Domestic Product at Current Factor Cost by Type of Economic Activity..... . . . . . . 336 2.2 . . . . . . Resources and Uses of Resources..... . . . . 337 2.3 . . . . . . Fixed Investment by Destination and Sector . . . 338 2.4 . . . . . . Structure and Growth Rate of GDP . . . . . . . . 339 2.5 . . . . . . Structure of Resources and Their Uses . . . . . 339 - xii - 2.6 . . . . . . Macroeconomic Targets and Achievements of the Development Plans...... .... . . . . . 340 2.7 . . . . . . Third Plan Sectoral Distribution of Investments . 341 2.8 . . . . . . Third Plan Projected Rate of Increase of Value Added by Sector, 1971 Factor Costs . . . . 342 2.9 . . . . . . Third Plan Prospects Investment-Savings Balance . . 342 2.10 . . . . . Third Plan Production Estimates for the Subsectors of the Manufacturing Industry...... . . . . 343 2.11 . . . . . Third Plan Percentage Distribution of the Value of Gross Output in the Manufacturing Industry, 1972-1977 . . . . . . . . . . . . . . . . . . . 344 Balance of Payments 3.1 . . . . . . Balance of Payments . . . . . . . . . . . . . . . . 345 3.2 . . . . . . Exports by Commodities . . . . . . . . . . . . . . 346 3.3 . . . . . . Geographical Distribution of Foreign Trade . . . . 347 3.4 . . . . . . Imports by Commodity Groups . . . . . . . . . . . . 348 3.5 . . . . . . Imports by Use . . . . . . . . . . . . . . . . . . 349 3.6 . . . . . . Imports by Types of Financing . . . . . . . . . . . 349 3.7 . . . . . . Receipts and Expenditures of Foreign Travel . . . . 350 3.8 . . . . . . Gold and Net Convertible Foreign Exchange Reserves 351 3.9 Page 1 . . Taxes/Premiums on Imports and Exports other than Tariffs . . . . . . . . . . . . . . . . . . . . 352 3.9 Page 2 . . Illustrative Calculations of Percentage Increase in Importers' Cost due to Various Charges on Imports 353 3.10 .*.*...*.Revenue Impact of Taxes/Duties on Imports . . . . . 354 3.11 . . . . . 1968 Domestic-C.I.F. Price Relationships . . . . . 355 3.12 . . . . . Export of Main Agricultural Products . . . . . . . 356 3.13 . . . . . Main Indicators of the Pattern of Trade . . . . . . 357 3.14 .. . * * Balance of Payments -- Third Plan Projections . . . 358 3.15 . . . . . Export and Import Projections . . . . . . . . . . . 359 External Debt 4.1 . . . . . . External Debt Outstanding Year-End Selected Years . 360 4.2 . . . . . . Gross Disbursements to Turkey, by Source of Credit, 1960-72 . . . . . . . . . . . . . . . . 361 4.3 . . . . . . Gross Disbursements and Net Transfer of Resources to Turkey through Medium- and Long-Term Loans, 1960-72 . . . . . . . . . . . . . . . . . . . . 362 4.4 . . . . . . Maturity Structure of Turkey's External Debt, 1948-72 . . . . . . . . . . . . . . . . . . . . 362 4.5 Page 1 . . Average Terms of Borrowing, 1948-72 . . . . . . . . 363 4.5 Page 2 . . Average Terms of Borrowing, 1948-72 . . . . . . . . 364 4.6 . . . . . . Gross and Net Debt Relief to Turkey . . . . . . . . 365 4.7 . . . . . . Debt-Service Payments 1971-72 and Estimated Debt Service on Total Debt Outstanding as of End-1972, 1973-82 . . . . . . . . . . . . . . . 366 - xiii - Public Finance 5.1 . . . . . . Central Government Tax Revenue . . . . . . . . . . 367 5.2 . . . . . . General Budget Expenditures by Ministries . . . . 368 5.3 . . . . . . Expenditures of Annexed Budget Organizations . . . 369 5.4 . . . . . . Central Government Expenditures . . . . . . . . . 369 5.4a . . . . . Central Government Transfers . . . . .. . . * * * 370 5.5 . . . . . . Central Government Expenditures: Functional and Economic Classification . . . . . . . . . . . . 371 5.6 . . . . . . Financing of Central Government Expenditures . . . 371 5.7 . . . . . . Treasury Accounts . . . . . . . . . . . . . . . . 372 5.8 . . . . . . Domestic Public Debt . . . . . . . . . . . . . . . 372 5.9 . . . . . . Public Enterprises, Value Added, Depreciation, Subsidies and Profits . . . . . . . . . . . . . 373 5.10 ..... Public Enterprises, Capital Stock and Employment . 374 5.11 . . . . . List of Public Enterprises . . . . . . . . . . . . 375 5.12 . . . . . Fixed Investment by State Economic Enterprises (SEEs) . . . . . . . . . . . . . . . . . . . . . 376 5.13 . . . . . Financing of Operational SEEs Investment . . . . . 377 5.14 Page 1 . . Central Government Contributions to SEEs . .. .. 378 5.14 Page 2 . . Central Government Contributions to SEEs . . . . . 379 5.15 . . . .. Net Profits After Direct Taxes of Operational SEEs 380 5.16 . . . . . Net Profits Before Direct Taxes of Operational SEEs . . . . . . . . . . . . . . . . . . . . . 381 5.17 . . . .. . State Investment Bank Accounts . . . . . . . . . . 382 5.18 . . . . . Social Security Fund Accounts . . . . . . . . . . 382 5.19 . . . . . Pension Fund Accounts . . . . . . . . . . . . . . 383 5.20 . . . . . Provincial Governments Accounts . . . . . . . . . 384 5.21 . . . . . Municipal Governments Accounts . . . . . . . . . . 385 5.22 . . . . . Village Governments Accounts . . . . . . . . . . . 386 5.23 . . . . . Financing of Public Expenditures, 1962-67 . . . . 386 5.24 . . . . . Financing of Public Expenditures, 1968-72 . . . . 387 5.25 . . . . . Financial Balance of Public Sector . . . . . . . . 388 5.26 . . . . . Financial Balance of Central Government . . . . . 389 5.27 . . . . . Financial Balance of Local Governments . . . . . . 389 5.28 . . . . . Financial Balance of Producing SEEs . . . . . . . . 390 5.29 . . . . . Financial Balance of Financial SEEs . . . . . . . . 390 Money and Banking 6.1 . . . . . . Maximum Lending Interest Rates . . . . . . . . . . 391 6.2 . . . . . . Maximum Interest Rates on Deposits . . . . . . . . 392 6.3 . . . . . . Monetary Survey, 1952-61 . . . . . . . . . . . . . 393 6.4 . . . . . . Monetary Survey, 1962-72 . . . . . . . . . . . . . 394 6.5 . . . . . . Consolidated Banking System Credits, 1952-60 . . . 395 6.6 . . . . . . Consolidated Banking System Credits, 1961-72 . . . 396 6.7 . . . . . . Composition of Deposits with Banking System, 1961-72 . . . . . . . . . . . . . . . . . . . . 397 6.8 . . . . . . Maturity Structure of Commercial and Savings Deposits, 1963-72 . . . . . . . . . . . . . . . 398 6.9 . . . . . . Internal Public Debt, 1963-72 . . . . . . . . . . . 398 6.10 . . . . . Long-Term Government Bonds, by Category of Purchaser......... .... . . . . . . 399 - xiv - 6.11 . . . . . CorporanL Bond MarkeL . . . . . 400 6.12 . . . . . Insuran,e Premiums, 1962-71..... .... . . . 400 6.13 . . . . . Life 1n,urance, 1967-71.... .... . . . . . . 401 6.14 . . . . . Insurance Companies. Distribution of Assets . . . . 402 6.15 Page 1 . . Sectoral Distribution of Credits, 1963-67 . . . . . 403 6.15 Page 2 . . Sectoral Distribution of Credits, 1968-71 . . . . . 404 6.16 . . . .. Total Ar.ets of Financial Institutions, 1962-71 . . 405 6.17 ..... The Cost of Bank Credit........ . . . . . . . 406 6.18 . . . . . Resources of State Investment Bank..... . . . . . 407 6.19 . . . . . Flows of Funds through Financial Institutions, 1963-68 . . . . . . . . . . . . . . . . . . . . . 408 6.20 . . . . . Components of Cost of Corporate Bond Borrowing . . . 409 Agriculture 7.1 . . . . . . Land Use, 1952-71 . . . . . . . . . . . . . . . . . 410 7.2 . . . . . . Major Field Crops: Area Sown, Production and Yield -- 1952-72 . . . . . . . . . . . . . . . . 411 7.3 . . . . . . Production of Major Nuts and Fruits, 1952-72 . . . . 412 7.4 . . . . . . Numbers of Livestock and Livestock Production, 1962-71 . . . . . . . . . . . . . . . . . . . . . 413 7.5 . . . . . . Public and Private Sector Works . . . . . . . . . . 414 7.6 . . . . . . Fertilizer Production, Imports and Consumption . . . 415 7.7 . . . . . . Number of Farm Machines . . . . . . . . . . . . . . 416 7.8 . . . . . . Credit Outstanding to Agriculture, Alternative Indicators, 1963-71 . . . . . . . . . . . . . . . 416 7.9 . . . . . . Agricultural Credit Provided by the Agricultural Bank, 1950-71 . . . . . . . . . . . . . . . . . . 417 7.10 . . . . . Agricultural Credit Provided by the Agricultural Bank, 1950-71 . . . . . . . . . . . . . . . . . . 418 7.11 . . . . . Agricultural Bank Credit Outstanding According to Function, 1963-71 . . . . . . . . . . . . . . 419 7.12 . . . . . Agricultural Bank Loans to Sales Cooperatives that are Involved in Intervention, 1954-72 . 420 7.13 . . . . . Labor and Power Requirement Coefficients per Ton and Hectare of Crops . . . . . . . . . . . . 421 7.14 . . . . . Prices Received by Farmers, Selected Years 1950-69 422 7.15 . . . . . Agricultural Product Prices 1962-70 (Census Data) 422 7.16 . . . . . Prices Received by Farmers for Major Types of Livestock, Selected Locations, 1969 and 1967-69 Average . . . . . . . . . . . . . . . . . 423 7.17 . . . . . Indexes of Wholesale and Export Prices . . . . . . . 424 7.18 . . . . . Major Agricultural Exports by Quantity, 1961-72 . 425 7.19 Page 1 . . Export, Wholesale, Retail Support and Farm Prices of Major Agricultural Commodities (1962-72) . . . 426 7.19 Page 2 . . Export, Wholesale, Retail Support and Farm Prices of Major Agricultural Commodities (1962-72) . . . 426 7.20 . . . . . Investments in the Agricultural Sector . . . . . . . 427 7.21 . . . . . Land Use Balance 1972 Estimated and 1977 Prospected 428 7.22 . . . . . Irrigation Balance . . . . . . . . . . . . . . . . . 429 7.23 . . . . . Domestic Demand Estimates of Animal Products . . . . 430 7.24 . . . . . Estimates of the Domestic Production of Animal Products . . . . . . . . . . . . . . . . . . . . 430 - XV - 7.25 . . . . . Land Distributed by Land Commission . . . . . . . . 431 7.26 . . . . . Number and Area of Land Holdings by Size of Unit, 1963 . . . . . . . . . . . . . . . . . . . . . . 432 7.27 ..... Number and Area of Land Holdings by Size of Unit, 1970 . . . . . . . . . . . . . . . . . . . . . . 433 Other Sectors 8.1 . . . . . . Industrial Production of Selected Commodities . . . 434 8.2 . . . . . . Value of Manufacturing Production . . . . . . . . . 435 8.3 . . . . . . Demand and Supply for Manufactured Products, 1963, 1969 and 1972 . . . . . . . . . . . . . . 435 8.4 Page 1 . . Fixed Capital Formation in Manufacturing . . . . . 436 8.4 Page 2 . . Fixed Capital Formation in Manufacturing . . . . . 437 8.5 . . . . . . Mineral Production . . . . . . . . . . . . . . . . 438 8.6 . . . . . . Production and Uses of Electricity . . . . . . . . 439 8.7 . . . . . . Tourism in Mediterranean Countries . . . . . . . . 440 8.8 . . . . . . Arrivals of Foreign Nationals by Country of Origin 441 8.9 . . . . . . Lodging Capacity of Turkey in 1971 . . . . . . . . 442 8.10 . . . . . Energy Consumption, Historical and Forecast . . . . 442 8.11 . . . . . Electricity Generating Capacity, 1973 . . . . . . . 443 8.12 . . . . . Electricity Generation and Consumption . . . . . . 443 Prices 9.1 . . . . . . Comparison of Price Changes......... . . . . 444 9.2 . . . . . . Retail Price Indexes in Various Cities, 1968-72 . . 444 9.3 . . . . . . Wholesale Food Prices (Istanbul) 1960-72 . . . . . 445 9.4 . . . . . . Wholesale Prices of Industrial Products (Istanbul) 1960-72 . . . . . . . . . . . . . . . . . . . . 445 9.5 Page 1 . . Indexes of Agricultural Market Prices -- 1964-72 446 9.5 Page 2 . . Indexes of Agricultural Market Prices -- 1964-72 447 9.6 . . . . . . Export Price Indexes . . . . . . . . . . . . . . . 448 9.7 . . . . . . Export Price Related to Domestic Wholesale Price for Selected Agricultural Commodities . . . . . 448 9.8 . . . . . . Relative Movement of Domestic and Import Prices 449 Transportation 10.1 . . . . . Traffic Data........... .... . . . . 450 10.2 . . . . . Transport Infrastructure...... .... . . . 451 10.3 . . . . . Total Lengths of National and Provincial Roads by Surface Types (km) 1950-72 and Third Five-Year Plan 1973-77....... ..... . . . . . . 452 10.4 . . . . . Number of Motor Vehicles by Type..... . . . . . 452 10.5 . . . . . Operating Results of State Transport Enterprises 453 Regional, Urban and Income Distribution 11.1 . . . . . Regional Shares in Area, Population and Value . . . 454 Added, 1965......... .... . . . . . 454 11.2 . . . . . Regional Shares in Organized Manufacturing, 1963 and 1967 . . . . . . . . . . . . . . . . . . . . 454 11.3 . . . . . Distribution and Growth of Urban Population by Region . . . . . . . . . . . . . . . . . . . . . 455 - xvi - 11.4 . . . . . Ratios of Urban to Total Population by Region . . . . 456 11.5 . . . . . Per Capita Value Added and Public Fixed Investment by Region . . . . . . . . . . . . . . . . . . . . . 456 11.6 . . . . . Relative Importance of Istanbul and the East Marmara Sub-Region . . . . . . . . . . . . . . . . 457 11.7 . . . . . Composite Index of Social and Economic Development by Province, 1970 . . . . . . . . . . . . . . . . . 458 11.8 Page 1 . . Fifty-Three Indicators of Social and Economic Development by Province . . . . . . . . . . . . . . 459 11.8 Page 2 . . Fifty-Three Indicators by Social and Economic Development by Province . . . . . . . . . . . . . . 460 11.9 Page 1 . . Income Distribution in Cities in Turkey . . . . . . . 461 11.9 Page 2 . . Income Distribution in Cities in Turkey . . . . . . . 462 11.10 . . . . . Agricultural Income by Farm Size . . . . . . . . . . . 463 11.11 . . . . . Central and Local Government Revenues, 1965-72 . . . . 464 11.12 . . . . . Growth in Urban Settlements: 1935-1970 . . . . . . . 465 11.13 . . . . . Regional Distribution of Urban Population by City Size, 1965, 1970 . . . . . . . . . . . . . . . 465 11.14 . . . . . Distribution and Annual Growth Rate of Urban Population and Urban Settlements . . . . . . . . . 466 11.15 . . . . . Projections of Distribution of Urban Population by City Size, Percentage of Urban to Total Population and Annual Growth Rates of Urban Population . . . . . . . . . . . . . . . . . . . 466 11.16 . . . . . Regional and Rural-Urban Differences in Turkey . . . . 467 MAPS ....... . . 469 - xvii -  LIST OF TEXT TABLES Table No. Page Part I - Main Report 1 Indexes of Growth and Structural Changes, 1950-72 . . . . . . . . . . . . . . . . . . . . . 8 2 Changes in the Consumption Pattern of the Country. . ........... . . . . . . .14 3 Incremental Capital-output and Capital-labor Ratios. 18 3a Medium- and Long-term Growth Strategy..... . . .25 4 Macroeconomic Targets and Achievements of the Development Plans. ......... . . . . . . .26 5 Growth Prospects 1973-1977. ......... . . . .37 6 Balance-of-payments Projections, 1972-77 . . . . . . 41 7 Sensitivity Analysis on Medium-term Balance-of- payments Prospects. ......... . . . . . .42 8 Long-term Macroeconomic Prospects.... . . . . . .43 9 Public Fixed Investment. ........ . . . . . .56 10 Fixed Investment by State Economic Enterprises . . . 58 Part II - Domestic and External Finance 11 Public Fixed Investment. ......... . . . . .67 12 Central Government Expenditures and Tax Revenue . . 69 13 Central Government Expenditures . . . . . . . . . . 70 14 Structure and Growth of Tax Revenue..... . . . .71 15 Growth of Nonfinancial SEEs. ....... . . . . .74 16 Composition and Importance of SEEs... . . . . . .75 17 Public Fixed Investment. . .......... . .78 18 Public Finances in the Third Plan...... . . . .79 19 Private Investment and Financing....... . . . .87 20 Additional Costs of Bank Credit....... . . . .92 21 Changes in Monetary Assets and Liabilities . . . . . 94 22 Allocation of Increase in Outstanding Credits, 1963 to 1971.......... .... . . . .95 23 Outstanding Credits to Public Sector... . . . . .96 24 Bank Loans and Deposits Average Outstanding at Year End 1963 to 1972. ........ . . . .98 25 Domestic Public Debt, 1973 to 1972...... . . . .103 26 Long-term Government Bond 'Sales ..........104 27 Export Price as Percent of Domestic Wholesale Price . . . . . . . . . . . . . . . . . . . ...115 28 Relative Movements of Domestic and Import Prices . . 115 29 Financing the Current Deficit and Debt Service . . . 129 30 Balance-of-payments Projections 1972-77 . . . . . . 136 Part III - Major Social and Economic Sectors 31 Distribution of the Economically Active Population 152 32 Growth of Employment 1962-72 Rates....... . . .152 33 Projections of Labor Supply and Demand Outside Agriculture . . .................154 - xix - 34 Labor Balances in Europe--1980.... . . . . . . . .156 35 Forecast of Foreign Workers in Germany..... . . .157 36 Literacy in Turkey........... .... . .159 37 Primary School Enrollment......... . . . . . .159 38 Supply of Technical Manpower, 1960, 1965 and 1970 . 159 39 Enrollment Ratios at Various Levels of Education: Third-Plan Targets...... ..... . . . . .160 40 Growth of Urban Areas and Urbanization Ratios . . . . 170 41 Ratio of Households with Piped Drinking Water . . . . 172 42 Bank Deposits and Credits by Region..... . . . . .177 43 Turkish Banking System: 1971 Per Capita Lending by Region............... ... . .178 44 Index of Value Added and Growth Rates in Agriculture by Major Sectors, 1962-72..... . .184 45 Relative Significance of Agricultural Subsectors . 184 46 Production of Major Industrial Crops . . . . . 188 47 SPO Estimates of the Growth Rates of Production of Animal Products During the Plan Periods . . 189 48 Land-use Changes, 1952-72. . .......... . . .190 49 Investment in Agriculture by Major Objectives During the First and Second Five-Year Plans (1971 Prices) 193 50 Peak Period (July-August) Surplus Labor in Agriculture, 1967-72 . ..................... . .. 194 51 Net Seasonally Removable Labor Surplus in Agriculture, 1967-72. ......... . . . . . .194 52 Export Estimates of the Agricultural Sector . . . . . 197 53 Projections of Exports 1972-77. ........ . . .198 54 Index of 1972 Prices of Major Supported and Nonsupported Agricultural Products Compared with 1963........ .... . . . . . . . .205 55 Production Costs, Gross Income and Net Return per Decare of Cotton, Seyhan Irrigation Project . . . . . . . . . . . . . . . . . . . . . 208 56 Indicator of Industrial Performance..... . . . . .217 57 Industrial Production Structure..... . . . . . . .218 58 Imports of Manufactured Products...... . . . . .220 59 Exports of Industrial Products by Categories . . . . 221 60 Indications of SEEs' Growth...... . . . . . . . . 224 61 Net Profits Before Tax of Industrial SEEs . . . . . . 224 62 Third Plan Targets for the Manufacturing Sector . . . 228 63 Industrial Investments in Three Plans and Investment/Output Ratios in the Third Plan . . . . 229 64 Imports of Manufactured Products. ........ . .230 65 Trade in Minerals. . ........... . . . .233 Annex 1, 1 Average Tariff Levels for Manufacturers: Selected Countries. . .......... . . .242 Annex 1, 2 Illustrative Tariff and Non-Tariff Levies on Imported Manufactures, 1973. ......... . .243 Annex 1, 3 Estimates of Economic and Financial Rates of Return and Effective Rates of Protection for Selected Industries/Products...... . . . . . . 245 Annex 1, 4 Export Tax Rebates Granted to Manufacturing Industry, 1964-72......... .... . . .247 - xx - Annex 1, 5 Turkey's Export Credit Interest Rates . . . , . . . . 249 Annex 1, 6 Value of Incentive Benefits Accruing to Investors in a Manufacturing Plant ..... . .. 251 Annex 1, 7 Approximate Fiscal Cost (Revenue Foregone) of Industrial Investment Incentives, 1972 . . . . . . 251 Annex 1, 8 Investment Incentive Licenses Approved for Private Manufacturing Industry; Investment Incentive Licenses Approved for All Economic Sectors, Public and Private........ ..... . . .252 Annex 2, 1 Consumption, Production and Imports of Finished Iron and Steel. . .......... . . . . . .254 Annex 2, 2 Investments in Steel Expansion. ........ . .255 Annex 2, 3 Imports of Chemicals and Fertilizers..... . . . .256 Annex 2, 4 Supply and Demand of the Textile and Clothing Industry............. .... . . . .258 66 Percent of Total Traffic... .... . ............264 67 Second Plan Transport Targets and Realizations 266 68 Resources and Expenditures of Transport Enter- prises, 1970 . . . . . . . . . . . . . . . . . . . 268 69 Plan Investments in Transport . . . . . . . . . . . . 272 70 Third Plan Traffic Forecasts . . . . . . . . . . . . 273 Part IV - Analysis of Medium- and Long-term Growth Perspectives 71 Summary of Constraint Rows . . . . . . . . . . . . . 284 72 Summary of Activity Columns . . . . . . . . . . . . . 287 73 (Ast) Constraints . . . . . . . . . . . . . . . . . . 288 74 (Bit) Constraints . . . . . . . . . . . . . . . . . . 289 75 (Ct) Constraints . . . . . . . . . . . . . . . . . . 290 76 Macroeconomic Projections (Basic Case) . . . . . . . 291 77 Gross Output Projections (Basic Case) . . . . . . . . 292 78 Percentage Composition of Investment by Sector of Destination (Basic Case) . . . . . . . . . . . 293 79 Manpower Requirements and Employment Projections (Basic Case) . . . . . . . . . . . . . . . . . . . 295 80 Labor Skills Supply Projections . . . . . . . . . . . 296 81 Composition of Urban Labor Force . . . . . . . . . . 297 82 Foreign Exchange Projections (Basic Case) . . . . . . 298 83 Dual Variables for Material Balances (Bit), Foreign Exchange Balances (Ct) and Consumption (ACt) . . . . . . . . . . . . . . . . . . . . . . 300 84 Dual Variables for Labor Balances (Ast) . . . . . . . 301 85 Alternative Solutions . . . . . . . . . . . . . . . . 302 86 Sensitivity Analysis . . . . . . . . . . . . . . . . 303 Annex Al, A.1 1972 Input-Output Coefficients (Matrix I-A) . . . . . 308 Annex Al, A.2 Marginal Inter-Industry Matrix (1972-1990) . . . . . 309 Annex Al, A.3 1972 Transaction Matrix . . . . . . . . . . . . . . . 310 Annex Al, A.4 Capital Coefficient Matrix . . . . . ..... .. .. 311 Annex Al, A.5 Export Delivery Coefficients (zi,j) . . . . . . . . . 312 Annex Al, A.6 Exports in 1972 . . . . . . .. . . . . . . . . . . . 313 Annex Al, A.7 Upper Limits on Export Growth Rates . . . . . . . . . 314 - xxi - Annex Al, A.8 Incremental Consumption Coefficients . . . . . . . . 314 Annex Al, A.9 Urban Transformation Costs (Fi) . . . . . . . . . . 315 Annex Al, A.10 Employment and Productivity Changes by Sectors . . . 316 Annex Al, A.11 Exogenous Projections of Labor Force . . . . . . . . 317 Annex Al, A.12 Sectoral Employment Coefficients . . . . . . . . . . 318 Annex Al, A.13 Labor Coefficients Matrices (s , j) 319 Annex Al, A.14 Right-Hand Constants for Material Balances: pt ci0- (net output) o. ... .........320 Annex Al, A.15 Right-Hand Side Constant for Foreign Exchange Constraints . . . . . . . . . . . . . . . . . . . 321 Annex Al, A.16 Skill Categories of Labor Force . . . . . . . . . . 322 - xxii - LIST OF CHARTS Chart No. Page Part I 1 Targets and Achievements of the First and Second Development Plan. . ............. . . . 4 2 GDP Growth and Structural Changes. ......... . . . 9 3 Consumption, Investment, Exports and Imports of Goods and Non-Factor Services. ......... . . .13 4 Changes in Output per Worker by Sector. ...... . . .16 Part II 5 Changes in Interest Rate on Savings Deposits..... . .90 6 Relative Movements of Domestic and Import Prices . . . . 113 7 Relative Movements of Agricultural and Industrial Prices........... .... . . .113 8 Terms of Foreign Trade....... .... . . . . . .116 9 Commodity Imports and Exports and Workers' Remittances 125 Part III 10 Crude Birth Rates........ ..... . . . . . . .147 11 Crude Death Rates.......... ..... . . . . .149 12 Population Growth Rates . . ...............151 13 Distribution of Hospital Beds by Province . . ......166 14 Agricultural Production Indices. ........ . . . . .183 15 Index of Wheat and other Cereals Yields..... . . . . .186 16 Yields of Industrial Crops, 1950-1971........ . . .187 17 Indexes of Selected Agricultural Prices 1955-1972 . . . . 206 18 Diagramatic Sketch on Funding Domestic Price Intervention Programs. ......... . . . . . . .207 LIST OF MAPS IBRD 10649 Provincial Ranking of Social and Economic Development . 469 IBRD 10672 Regions and Growth Centers...... .... . . . . .471 IBRD 10673 Concentration of State Enterprises. ....... . . . .473 IBRD 10722 Location of Major Public Irrigation Projects..... . .475 - Xxiii -  PART I: MAIN REP 0 RT I. DEVELOPMENT STRATEGY AND GROWTH, 1950-72 A. Introduction Since the establishment of the Republic in 1923, Turkey has pursued a remarkably consistent development strategy which has essentially followed the lines defined by Ataturk. This strategy has been aimed at modernizing the country in a system of mixed economy, the main emphasis being on industriali- zation and self-sufficiency with varying but consistent importance being placed on the integration and development of the outlying regions. The degree of Government encouragement to the private sector in a mixed economic system characterized by extensive Government ownership, control and regulation fluc- tuated in various periods, but changes were relatively small. Generally, the development of agriculture and mining received less attention than that of industry and power, but little attention was given throughout to employment. From 1923 to the first multiparty general elections in 1950, the economy underwent considerable change, brought about by the adoption of Western laws, the development of Ankara and promotion of provincial towns as growth centers, the construction of an extensive intercity railroad system, and a significant public investment program.1/ Per capita GNP increased from about $105 in 1927 to $165 in 1950, in current dollars; the adult literacy rate in- creased from 10 percent in 1923 to 34 percent in 1950. Modern industries, both public and private, were established; however, little resulted from efforts to develop agriculture. In this sector production increased slowly, due mostly to expansion of land under cultivation, although over 80 percent of the labor force was still engaged in this sector in 1950. However, the increase in cul- tivated land and the lack of easy communications between rural districts and cities limited rural-urban migration. In spite of these substantial changes, the economic situation left much to be desired. The pattern of growth increased the marked imbalance in the country, some parts of the country remaining undeveloped with most of the growth being concentrated in the regions of Istanbul, Izmir and Ankara. Only a small proportion of the total population benefited from the increases in pro- duction, and the standard of living of the rural population deteriorated in some periods. Growth of productivity and output was slow; per capita GNP in real terms stagnated from the late thirties at about $165 and even dropped to $115 in 1945. The inadequacy of financial resources, associated with a policy of independence from external sources, limited domestic resources; high mili- tary expenditure led to extensive recourse to borrowing from the Central Bank and to rapid inflation in the forties. During the fifties large public investments were made, especially in agricultural mechanization and irrigation (35 percent of public investment 1/ For a detailed survey and analysis of economic developments during this period, the reader is referred to the World Bank mission report by J. M. Barker et al., The Economy of Turkey: An Analysis and Recommendations for a Development Program (Baltimore: The Johns Hopkins University Press, 1951). - 1 - during 1950-60) and in the development of a large highway network undertaken to improve the distribution of agricultural products (about 35 percent of public investment). The share of industry was 18 percent of total public investment during the period. The role of the private sector in manufacturing increased, reflecting liberal policies towards the private sector. In 1958 the private sector accounted for 55 percent of manufacturing production, com- pared to about 40 percent in 1950. A big expansion of the road transport network brought the rural and urban areas closer together. Following the trade boom of the early fifties which stimulated pri- vate sector activities, exports and imports dropped; bottlenecks started to appear in the economy; a large inflation developed as an increasing share of public expenditure was met through deficit financing; and controls multiplied. The Government tried to control prices by maintaining the prices charged by the State Economic Enterprises (SEEs) at a low level, which increased the public deficit. It also tried to maintain the parity of the lira through extensive foreign exchange controls. Serious balance-of-payments difficulties led to the adoption of a stabilization program in August 1958. The lira was devalued (from TL2.80 to TL4.90-9.00 per US$ in 1958, and then TL9.00 in 1960), foreign trade difficulties were eased with the help of substantial foreign aid, and a credit squeeze was implemented. To pursue the development strategy of the country in a less dis- ruptive way than in the fifties, economic planning was made a requirement in the 1960 Constitution and was introduced in the form of a national development plan. During the First Plan (1963-67) and the Second Plan (1968-72), the traditional strategy of modernization and industrialization in a mixed economy was pursued more vigorously and systematically. More emphasis than in the past was put on achieving a higher rate of growth and investment in a balanced economy and on the composition of investments. A GDP growth rate of about 7 percent in real terms was to be reached in both Plans, compared with 5 per- cent in the fifties. Attention was also diverted to social aims; to more equitable income distribution and better regional balance; to land reform and problems of economic organization, especially the uncoordinated and widespread system of government regulations; and to the efficiency of the SEEs. The growth and pattern of output during the two Plan periods went a long way towards the achievement of the main objectives of the Plans. The Turkish economy became more modern and industrialized, and its dependence on foreign resources remained small. Except for the years 1952-55 and 1962-63, the current-account deficit of the balance of payments did not exceed 2 percent of GNP. The growth of the economy accelerated substantially; GDP growth rate was not far from the target, averaging 6.4 percent per year. The public sec- tor expanded its share in investment to about 53 percent, compared with about 47 percent during the fifties. Investment expenditure amounted to 16.2 percent of GDP in the First Plan (compared with an 18.3 percent target) and to 19.3 percent of GDP during the Second Plan (compared with 21.3 percent). Sectoral allocation of investment respected the Plan priorities with investment in industry representing 35 percent of total investment during the two Plans, in housing 21 percent, in transport 16 percent and investment in agriculture 14 percent. However, in both Plans the shares of investment in housing and in- dustry exceeded their targets, while the share of investment in the social sector fell short of its target. The pattern of growth was substantially - 2 - different from the expected one with significantly slower growth than expected in the sectors producing goods and faster growth in services and housing (Chart 1). B. Institutional Reforms Other objectives of the Plans besides growth and investment were not achieved in several fields, however, particularly in the implementation of structural reforms and in the social sector. The First and Second Plan had identified four major areas where reforms were urgently needed to promote a faster and more equitably-distributed growth: a land reform, a reform of the administration, a reorganization of the SEEs and a tax reform. Improvements of the agrarian structure were considered a necessity since the first days of the Republic. The principal defects of the structure were the maldistribution of land in the form of excessive fragmentation of the land, a large number of landless peasants, and large holdings and some ab- senteeism. Other classical problems of traditional agriculture were also present, including insecurity of tenure, inadequacy of credit and weak mar- keting structure. The first experiences to improve the land tenure consisted mostly of the distribution of public land to landless peasants; by 1960 1.8 million hectares had been distributed to 360,000 families. A radical reform proposal prepared in 1962 raised controversy and was not adopted. Although a small amount of land was distributed in 1967 and the need for an agricultural reform was referred to in the Second Plan Document, land reform was not revived as an important issue until March 1971. A new land reform bill was submitted to Parliament in April 1972 and adopted in early 1973 after sub- stantial modifications which restricted the scope of land redistribution and accelerated compensation (see Chapter 10). While public sector employment has grown steadily during the last twenty years, little has been done to improve the efficiency of the Adminis- tration. Coordination between ministries and agencies in undertaking common tasks is weak and considerably slows down project implementation. The passing of a "Personnel Reform Law" in 1970, while correcting for an overdue adjustment of the salary levels, did little to solve structural problems or to meet the difficulties of recruiting highly-skilled personnel in the public sector. The reorganization of the SEEs has been extensively discussed and studied for years, but no serious action has been undertaken during the Plans. Although controversies about the role and deficiencies of the SEEs have surrounded their growth during the past two decades, there has been a consensus under various governments about the desirability of a mixed economy in which the SEEs had to play a leading role. Growth of the SEEs has been accompanied by serious financial difficulties of several large units--particularly the Turkish Railways--due to management problems, inadequate investment resources and the price policies of the Government (see Chapter 5). The establishment of the State Investment Bank in 1964 to supply the SEEs with long-term invest- ment funds and the introduction of some control led to an improvement of the situation of most of them, except in the transport and coal industry. However, the financial profitability of most SEEs has remained low during the two Plans, and financing their investment needs and current deficits was one of the sources of inflation in recent years (see Chapter 5). - 3 - CHART 1 TARGETS AND ACHIEVEMENTS OF THE FIRST AND SECOND DEVELOPMENT PLAN FIRST PLAN SECOND PLAN (1963-1967) (1968-1972) A. SECTORAL GROWTH 15% I (AVERAGE YEARLY GROWTH RATES) 15% 10% - 10% ACTUAL 5% - 5% TARGET GDP AGRI- INDUSTRY SERVICES GDP AGRI- INDUSTRY SERVICES CULTURE CULTURE B. FIXED INVESTMENT STRUCTURE To%% % 100% - ---100% AGRICULTURE 17.7 14.9 AGRICULTURE 15.2 12.2 INDUSTRY 30.9 31 1 INDUSTRY 34.1 37 1 OTHER 1 31 7 OTHER 32 8 304 SERVICES 31 SERVICES HOUSING 203 223 HOUSING 17.9 20.3 TARGET ACTUAL TARGET ACTUAL TARGET ACTUAL TARGET ACTUAL C. CONSUMPTION - SAVINGS GROWTH 20% (AVERAGE YEARLY GROWTH RATES) - 20% 15% [ 15 ACTUAL 10%- 10% TARGET CONSUMPTION NATIONAL CONSUMPTION NATIONAL SAVINGS SAVINGS World Bank-8066(R During the two Plans the Government started a reform of the tax structure and of tax collection and administration, and it was quite successful in raising the tax effort of the country. The elasticity of the tax system to GDP increased from 1.1 during 1952-62 to 1.3 during 1962-72, and the gross tax ratio to GNP increased to 22.8 percent in 1972. Tax changes and new taxes were introduced to bring taxation to bear on the most dynamic elements of the poten- tial tax base. The only notable element which now escapes taxation is agri- cultural incomes. However, Feveral recommendations contained in the Plans to improve the tax system were not implemented, and there is scope for further improvement of tax collection and the tax structure (see Chapter 5). C. The Social Development of the Population In 1950 Turkey had a population of about 21 million, mostly rural (71 percent) and growing at about 2 percent per year. By 1972 its population had increased to 37 million at an average growth rate of 2.7 percent. This accelerated growth was due to an increase in birth rates (from 3.7 percent in 1950 to 4 percent in 1970) and to a decrease of death rates (from 1.6 percent in 1950 to 1.4 percent in 1970 as a consequence of improved nutrition and of the diffusion of health facilities and services). A very rapid rural-urban migration occurred in the fifties and sixties; urban population increased from 18.8 percent of the total in 1950 to 35.8 percent in 1970. In the sixties the emphasis put on industrialization, the mechanization and relatively slower growth of agricultural production and the scarcity of new lands to cultivate, and the construction of a large road network connecting cities and rural communities contributed to this movement. The labor force registered in the population census increased at about 1.2 percent per year during the period 1950-72. It remained approximately constant at slightly under 10 million in agriculture, increased in industry by 4.2 percent and 3.2 percent per year in the fifties and sixties respectively, and increased in services by 3.1 percent and 4.3 percent per year. The low growth of the labor force (1.2 percent per annum) compared with population (2.7 percent per annum) can be partly explained by the rising proportion of the young, the rapid increase in the school population and the emigration of workers abroad in the late sixties (which absorbed 14 percent of the incremen- tal labor supply between 1965 and 1970). The increases in income may also have led to lower participation rates among women, particularly in agriculture (see Chapter 8). With still about 65 percent of its labor force employed in agriculture where the trend growth rate has been low, it is likely that a substantial amount of underemployment exists in agriculture. Recent studies of the period 1965-70 estimate that underemployment in agriculture fluctuated between 0.7 and 1.3 million man-years, depending on weather conditions. However, the urban labor force has grown at a much faster rate than the growth of employment in industry and services. Recent studies of the SPO (State Planning Organization) estimate that labor supply exceeded demand by about one percent less per year during 1965-70 and that there were about 630,000 unemployed in 1970, the equivalent of 11 percent of the urban labor force. The First and Second Five-Year Plans were theoretically in favor of labor-intensive techniques, but the development poli- cies actually implemented resulted in the use of capital-intensive techniques and created much less employment than had been expected. - 5 - Social and health conditions improved substantially in this period although the distribution of income may have become more unequal, and urban unemployment and emigration of workers grew in the latter part of this period. Per capita private consumption increased by 2.8 percent per year in the fifties and 2.3 percent in the sixties. Per capita food consumption increased from about 2,200 calories in 1950 to about 2,800 in the late sixties. In 1971-72 per capita private consumption rose by 6.1 percent per year. In the area of health, malaria was eradicated, tuberculosis was controlled and trachoma vir- tually disappeared. The number of hospital beds per thousand persons increased from 0.9 in 1950 to 2.0 in 1970, and the number of midwives per thousand persons from 0.9 to 3.2. Social medicine was introduced during the two Plans, starting from the eastern part of the country. The number of provincial health units and houses increased from 56 in 1963 to 2,369 in 1970. In education large efforts resulted in an increase of the literacy rate of persons of 6 years and more from 33 percent in 1950 to 55 percent in 1970 and of the unadjusted pri- mary school enrollment ratio from 64 percent to about 94 percent; the number of primary schools increased from 17,000 to 38,229, or by 4 percent per year; and the number of primary school teachers rose from 36,000 to 133,000, or by 6.7 percent per year. The coverage of social insurance also increased from 380,000 workers in 1950 to 710,000 in 1963 and 1,314,000 in 1970. Social life improved in many villages with the introduction of modern amenities: the number of electrified villages increased from 10 in 1950 to 3,921 in 1972, still leaving 31,956 villages without electricity; but the number of village's or hamlets with water supply increased from 28,000 to 40,000 between 1960 and 1972. During the past two decades, the various governments have shown a substantial concern for regional development. Policies of allocating public investment to correct regional imbalances, which had been initiated in the early years of the Republic, were continued afterwards and were particularly significant in the construction of large factories, 40 having been built in almost as many locations during 1950-60. The construction of a large highway network facilitated the development of outlying regions. The Government set up village institutes, promoted self-help community development, and set up a Ministry of Village Affairs in the late sixties. Incentive policies were developed to attract private investors toward the less-developed regions, but so far without noticeable success. The First and Second Plans adopted the objective of balanced regional development for improved social justice; several attempts at regional planning were made by SPO and the Ministry of Reconstruc- tion and Resettlement, but these plans have moved little beyond the research stage. Market forces, in most cases, continued to favor the location of pri- vate investment in the most-developed areas in spite of the incentives system. Limited economic opportunities and poor administrative and institutional capabilities in the underdeveloped regions (partly a consequence of the strongly centralized Government system) have helped to perpetuate this situation. Little quantitative evidence is available to assess the extent and trends of regional disparities in economic development. However, various pieces of evidence seem to indicate that regional disparities are not very pronounced but have probably increased in the past two decades (see Chapter 9). In 1965 per capita value added in the Eastern provinces (33 percent of the population) was estimated at one-third the level in the East Marmara prov- inces (13 percent of population). An analysis of regional disparities based on data for 1970 shows that the ten most-developed provinces are located in the - 6 - western half of the country, whereas the twelve least-developed provinces lie east of a straight line drawn from Zonguldak to Gaziantep. However, provinces falling in the midrange of socioeconomic development may be found in both halves of the country, next to both the most-developed and the least-developed prov- inces. Evidence of increasing disparities includes the significant differ- ences in the rates at which the various regions have become urbanized from 1950 to 1970 (Table 11.4); the fact that public fixed investment has tended to be somewhat higher on a per capita basis in the most-developed regions than in the rest of the country during the First and Second Plan periods (Table 11.5); the increased weight of Istanbul and the neighboring privinces of East Marmara in the national economy between 1960 and 1965 (Table 11.6); and finally, the strong attraction of the western part of the country to private investors, in spite of special incentives. The distribution of income among persons is considerably more unequal than among regions and has also probably deteriorated during the past twenty years as a result of the pattern and distribution of growth. It is estimated that both urban and rural income distributions are skewed, with a close corre- lation in the rural areas between land holdings and income distribution. The social policies of the Government, particularly in health and education, and the emigration of Turkish workers in the latter years have been the more im- portant contributors to the improvement of relative incomes in the most back- ward regions. These factors and the fast income growth of the period have led to a decrease of the population under an absolute poverty line. D. Pattern and Pace of Growth (1950-72) 2/ Since 1950 the Turkish economy has grown at an accelerating pace and has undergone substantial transformations. GDP increased by a trend growth rate of 5.7 percent per year on average with agriculture growing at 3.3 percent, industry at 7.2 percent and services at 7.1 percent. This growth has resulted in a more sophisticated economic structure and in substantial increases in the standard of living in spite of a fast-growing population; per capita GNP rose from about $230 in 1950 to $420 in 1972 and an estimated $440 in 1973, in 1972 dollars. The pace of growth accelerated during the period of the First and Second Five-Year Development Plans (1963-67, 1968-72) with GDP at market prices growing at 6.6 percent per year and GNP at 6.9 percent per year (Tables 2.4 and 2.6). Rapid industrialization led to substantial structural changes in the economy: the share of agriculture in GDP (at current factor cost) declined from about 48 percent in 1950 to about 28 percent in 1972, the share of indus- try increased from 13 percent to 23 percent, and that of services from 39 percent to 49 percent (Chart 2). The public sector increased its share of production in industry and construction. The share of value added by public industry to total industry increased from about 37 percent in 1950 to 46 percent in 1963 and remained at about the same level thereafter; the share of public construction in total construction increased from about 46 percent in 1950 to 2/ See footnote to Table 1. - 7- Table 1 INDEXES OF GROWTH AND STRUCTURAL CHANGES, 1950-1972 (140 = 100 fnr indpvpq) 1950 1955 1960 1965 1970 1972 1. Population Million 20.9 24.1 27.8 31.4 35.7 37.2 Index 75 87 100 113 128 134 2. Labor Force In millions 10.6 11.5 12.3 13.1 14.1 1.9 As % of total: Agriculture 82.3 78.9 74.8 69.0 66.2 Industry and construction 8.8 10.3 12.1 12.9 13.0 Others 8.9 10.8 13.1 18.1 20.8 3. GDP Index 62 84 100 143 175 203 of which: agriculture (% of GDP) 49 40 41 33 29 28 industry (% of GDP 13 15 17 20 22 23 Per capita GDP index 82 96 100 127 137 151 h. Trade as % of GDP at current m.p. Export 8.2 5.2 3.0 6.5 6.7 5.h Imports 8.3 7.8 5.3 8.0 9.8 10.2 . Fixed Investment as % of GDP 10.4 11.3 15.4 15.8 20.8 19.6 at current m.p. of which: public (as % of total) 40.0 46.9 48.6 52.1 50.2 50.6 agriculture (as % of total) 10.0 9.4 11.1 17.1 8.7 11.1 Industry (as % of total) 10.0 25.0 27.8 30.4 37.7 41.4 6. Domestic Savings as 5 of GDP 9.2 13.8 13.0 15.9 19.1 15.5 7. National Savings as % of GNP 9.2 13.6 12.h 16.2 20.0 18.4 1/ After the completion of this report, revised and consolidated national account series for the period 1948-1972 (provisional figures for 1969-1972) were published by the Turkish State Institute of Statistics, under the title National Income and Expenditure of Turkey 1948-1972 (Ankara 1973). The same base data has been largely used by the mission in preparing this table and the differences between the two series are minor. In particular, the lack in the published series of 1972 estimates of expenditure on gross national product (and of public and private investment breakdowns) has made a complete revision of the report's figures impractical, especially since the analysis covers the whole Plan period 1967-72 and compares it with other Plan periods. -8- CHART 2 GDP GROWTH AND STRUCTURAL CHANGES (Value added at 1968 Factor cost" B(LLION 1968 i( 140 120 TREND GROWTH RATES__________ 1950 1972 GDP 5.6 Agriculture 3 3 Industrv 7.2 Constructioi 7.2 Services 7.4 100 - ---- - 80 - - - - - 60- SERVICES 40- - ----._- NDUSTRY 20-- - -- ----- AGRICULTURE uL -.IiI 1 1 C 5 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 WorId BanK- 8099R) 59 percent in 1971. On the other hand, the share of value added by general Government in GDP fluctuated around 10 percent. The performance of agriculture over the past two decades has been good by international standards, although it did not reach the First and Second Plan targets. The trend increase in value added was 3.4 percent during 1950-62 and 3.3 percent during the whole period with an improvement at the end of the Second Plan due to outstanding weather conditions in 1971. During the fifties increases in yield per hectare accounted for only 3 percent of the increase in output, which was due to large increases in land cultivation, and to the effects of the Korean war on export demand in the early fifties. By 1960 the area sown had increased from 9.8 to 15.3 million hectares, and the cultivated area from 14.5 to 23.3 million hectares (the rest being left fallow). Various Government programs were developed to increase farm income, including credit facilities, feeder roads, irrigation works and mechanization. The number of tractors in- creased from 2,000 in 1948 to 36,000 in 1953; as a result, marginal lands pre- viously reserved for pasture were put under cultivation. The area under mea- dows and pasture decreased from 38 million hectares in 1950 to 29 million in 1960. During the sixties and particularly in recent years, growth of out- put was favorably affected by use of fertilizer (from 107,000 tons in 1960 to 812,000 tons in 1965 and to 3.3 million tons in 1972), tractors (from 55,000 in 1965 to 125,000 in 1972) as well as irrigation. The area equipped for irrigation expanded from about 0.4 million hectares in 1962 to 2.3 million in 1972, half of which through a Government-managed irrigation network and half through private effort. Turkey's agriculture made the transition from a pre- dominantly extensive to a significantly intensive production system with little impact on the overall growth rate of output; rapid productivity gains in indus- trial and export crops (cotton, sugar beet, some fruits, nuts and vegetables) were offset by little improvement in livestock, feeds, olives, figs and grapes, and a drop in tea and tobacco; cereals and oil seeds made little progress. Exceptional weather conditions in 1971, a major improvement in world prices, and growing export and domestic demand contributed to high levels of production in the last two years. In 1973 a severe drought led to a 14 percent drop in cereal production and an 8.3 percent drop in value added by agriculture. Growth in industry accelerated during the period of planned economy from 5.3 percent during 1950-62 to 11.3 percent during 1963-72. It was parti- cularly rapid in energy with electricity generation increasing twelvefold during 1950-72, or 12 percent per year. The public sector played an important role throughout the industrialization process; the share of value added by public enterprises in the manufacturing sector represented 46 percent in 1950 and remained at about 38 percent during 1962-71. Manufacturing production increased roughly in line with GDP during the fifties when emphasis was placed on the creation of new State Economic Enterprises and when the Turkish Industrial Development Bank (created in 1950) started to help finance private investment. The relatively slow growth of industrial output during this period can be attributed to the effects of import controls, inadequate preparation and delays in completion of projects, and the inefficiencies of State Economic Enterprises. The structure of industrial production changed substantially during the period as the share of value added in the production of consumer goods decreased from 68 percent in 1950 to 50 percent in 1963 and as the shares of value added in - 10 - the production of intermediate and investment goods increased from 21 percent to 32 percent and from 11 percent to 18 percent respectively. Growth of manufacturing accelerated sharply in the sixties, reflecting accelerated investment which was encouraged by generous incentives and by con- tinued import substitution under heavy protection. Manufacturing output in- creased at about 13.3 percent per year during 1960-70, and production become more diversified with a large development in consumer goods and assembling in- dustries. Growth has been accompanied by rising capital-output ratios and a slow growth of employment. The emphasis on import substitution under a high level of protection led to a manufacturing sector, which is unusually diversi- fied for a country of similar size and income yet allowed high production costs and delayed investment in export industries. In 1972 exports of manufactured goods represented less than 3 percent of the total manufacturing output. Pro- duction targets of the Plans were surpassed for light consumer industries such as food, drink, tobacco, paper, plastic, textile and leather. They were not reached in intermediate industries, reflected by the preference of private investors for the traditional industries and by delays in the implementation of public projects in the intermediate industries. In 1973 growth continued at an estimated rate of 13.5 percent but met supply shortages in power and some intermediate products. The mining sector has not played an important role in Turkish devel- opment despite the existence of extensive mineral resources (such as iron ore, copper, chrome ore, borates, bauxite, coal, lignite, magnesite and tungsten) and strong potential demand. Value added in mining increased at about 7 percent per year during 1950-72 and represented 1.8 percent of GDP and 8 percent of industrial value added in 1972. This slow growth is essentially due to an in- sufficient exploration of the resources' obsolete mining laws, high transport costs, and problems of personnel and management in the institutions dealing with the sector (see Chapter 11). The combination of rapid industrialization and urbanization of the country was responsible for the fast growth of energy consumption and produc- tion during the last twenty years. Energy consumption increased from 7.7 million tons of petroleum equivalent in 1950 to 21.3 million tons in 1972, or by 5.2 percent per year. Growth of electric energy consumption was particularly rapid (12 percent per year during 1950-72), leading to a per capita consumption of 300 kwh in 1972. This rapid increase was obtained through a large public investment program in the sector--the establishment of a national grid for power transmission under the responsibility of Etibank and TEK (Turkish Elec- tricity Authority), which provides 90 percent of electricity requirements, and the exploitation of the country's hydroelectrical resources. In 1973 a serious power shortage appeared as demand boomed, and the completion of major power- generating stations under construction was delayed. Growth in transport since 1950 came mostly from the construction of a large network of roads linking the rural districts to the cities--a contrast to the emphasis on railway construction in the previous period. Between 1950 and 1970 the volume of passenger/km increased sixteenfold (20.5 percent per annum) to 17 million ton per km, the fastest growth occurring in the sixties. The length of surfaced national and provincial roads doubled, and traffic density increased from 0.1 million unit-km per km of road to 1.2 million. The railway network remained substantially the same (about 8,000 km of track). - 11 - The situation of the railways deteriorated as a result of lack of funds for maintenance, low rates, and poor conformity to the new pattern of traffic flows resulting from the fast economic growth. As a consequence, road transport became the primary means of land transport, its share of freight transport increasing from 24 percent in 1950 to 72 percent in 1972; its share of passen- ger transport increased from 49 percent to 94 percent in the same period. Port traffic increased at about 6 percent per year in the sixties, the merchant fleet consisting mostly of small and old ships. The commercial air fleet expanded considerably, particularly during the Second Plan, responding to a fast-growing demand for this type of transport (15 percent per year in the Second Plan for freight per km and 22 percent for passenger per km). Housing increased fast, particularly in the fifties, with the floor area of the construction permits increasing at 8 percent per annum between 1956 and 1972 (from 7 to 20 million square meters). Urbanization and higher income growth contributed to this expansion despite discouragement by the Plan. Fast growth in the construction industry was the result of the large public investment program in transport as well as increased private house and building construction. Tourism did not play a significant role in the economic development of the last twenty years despite a remarkable potential. In the early seven- ties Turkey received only about one percent of the flow of tourists in the Mediterranean Basin. Tourism receipts represented less than one percent of foreign exchange earnings until 1970 and 5.2 percent between 1971 and 1972 ($104 million gross or $44 million net in 1972). Rising world demand, com- petitive prices after devaluation, and some efforts of the private sector to develop tourism facilities helped to stimulate tourism in Turkey in recent years. The number of tourists increased from about 100,000 in 1955 to 200,000 in 1962 and to nearly 1 million in 1972. The main problem of the sector is shortage of appropriate facilities, including infrastructure. E. Investment, Consumption and Savings (Chart 3) The relatively fast and sustained economic growth of the last twenty years can be explained in part by the large and growing investment effort both of the private and public sectors, particularly the latter. The share of fixed investment to GDP increased from 10.3 percent in 1950 to 15 percent in 1962, 17.5 percent in 1967, and 19.6 percent in 1972. The share of public investment, which accounted for about 40 percent of total fixed investment in 1950, in- creased to 49 percent in 1960 and remained above 50 percent during the two Plans. The share of public investment in GNP thus increased from less than 5 percent in the early fifties to 7.4 percent in 1962 and represented 12.1 percent during the First Plan and 12.9 percent during the Second Plan, despite a slowdown in 1970-71. Public investment was spread among all sectors in the early fifties when a very substantial effort was made to raise the share of public investment in manufacturing, power and transportation during the sixties. These three sectors, which accounted for 47 percent of total public investment in 1963, increased their share to nearly 66 percent in 1972. Correspondingly, the share of investment in agriculture, mining, education and health declined. Public investment in agriculture and education declined in absolute as well as real terms since 1968 (Chapter 5). Private investment remained mostly concen- trated in housing and manufacturing during the whole period (81 percent of total private investment in 1963 and 68 percent in 1972); but the share of - 12 - CHART 3 CONSUMPTION, INVESTMENT, EXPORTS AND IMPORTS OF GOODS AND NON-FACTOR SERVICES (in Billion 1968 TL) BILLION 1968TL 160 40 12013 100 BO 63-- - 1100* ''4000oCONSUMPTI ON 40 20 INVESTMENT 0 I___________EPRSMPCH<TS RESOURCE GAP -20 I 1950 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 1 7 - 13 - private investment in transport, tourism, and agriculture increased substantially during the sixties (from 13 percent of private investment in 1963 to 25 percent in 1972). Total consumption increased at 5.8 percent per year during 1950-72, or 3.2 percent per capita. It rose rapidly during 1967-72, averaging 6.9 per- cent per year and 4.3 percent per capita per annum. Government consumption as a share of GNP remained at about 12 percent during the whole of 1950-72. The stability of this ratio was achieved in spite of fast-rising expenditure on education, security, debt service and, to a lesser extent, on transport, com- munications and agriculture. It can be explained by the slow growth of salaries in the public sector in most of the period. In 1971 a large increase in public salaries raised the ratio to 13.7 percent, but a strong restraint in current expenditure has been exercised since then, resulting in a decrease of the ratio to 13.2 percent in 1972. Private consumption, on the other hand, grew at a substantially slower rate than GNP, its share of GNP declining from about 78 percent in the fifties to 68 percent in 1972. Private consumption estimates include stock changes until 1961, which may explain a small part of the difference, parti- cularly in the late fifties when stocks of agricultural products were high; nevertheless, the substantial drop in the ratio of private consumption to GNP up to 1970 reflects the significant savings effort of the country. Little information is available on changes in the overall consumption pattern. A rough indication of the historical change is given in the results of the input-output analyses of the economy, which have been carried out for 1963 and 1967, and of the updated versions of the latest analyses for 1969 and 1972 (Part IV). As could have been expected during a period of steadily rising real per capita income and of fast urbanization, the share of agriculture in consumption has decreased while the combined shares of manufacturing and services increased. Table 2 CHANGES IN THE CONSUMPTION PATTERN OF THE COUNTRY (In percent of total) Origin of Consumption 1963 1972 Agriculture 24.1 20.6 Manufacturing, mining 32.9 33.3 Services 43.0 46.1 Total 100.0 100.0 Sources: 1963: Structural interdependence of the Turkish economy--Chakravarty, Canalp, Cinar, SPO (1963). 1972: Technical Appendix (Part IV). Gross domestic savings increased in line with investment until the late sixties. The ratio of domestic savings to GNP increased from 9.2 percent in 1950 to 18.3 percent in 1968, while the ratio of fixed investment to GNP increased from 10.4 percent to 18.5 percent. From 1967 the domestic savings - 14 - ratio increased more slowly, then deteriorated to 15 percent in 1971 and 1972 because of the rapid growth of private consumption, particularly since 1970, and due to the deterioration of public savings which may have been negatively affected by inflation and public salary increases. As a result, the marginal rate of domestic savings dropped to 13 percent during the Second Plan period, compared to 26 percent during the First Plan period. Estimates of public savings for the period 1950-72 are not available on a consistent basis. Public savings were about 3.6 percent of GNP in 1950 and may have risen slightly during the fifties and more sharply in the sixties to a peak of about 7-9 percent of GNP, but they declined thereafter. Private savings, on the other hand, seem to have increased steadily from about 5.6 percent of GNP in 1950 to about 11-13 percent in 1969 and leveled off thereafter. Up to 1968 the growth of national savings followed closely that of domestic savings. Thereafter, the remarkable increase in workers' remittances raised the contribution of factor incomes from 0.5 percent of GNP in 1968 to 3 percent and 3.4 percent in 1971 and 1972. Thus, national savings rose from 18.6 percent of GNP in 1968 to 20.4 percent in 1970 but dropped only to 18.1 percent in 1971 and 18.4 percent in 1972. The marginal rate on national savings reached 18.3 percent during the Second Plan period, compared with 26 percent during the First Plan period. F. Capital Intensity, Employment and Productivity (Chart 4) An analysis of the incremental capital output and capital labor ratios in the various sectors of the economy indicates a substantial reduction in the employment and growth effects of a unit of investment in agriculture and in- dustry, though not in services (including housing)--(Table 3). The effect on employment of the heavy investment in agriculture and industry seems to have been particularly weak. The rapidly increasing capital intensity in agricul- ture reflects the expansion of mechanization and irrigation. In the industrial sector, the rise in the marginal investment per worker by three to four times in the late sixties compared with the earlier periods reflects a substantial change in the structure of industry and also reflects the effects of various factors favoring a capital-intensive development, such as low interest rate policies, overvalued exchange rates and fast-rising urban wages. The decreases observed in the services sector were partly due to a relative shift from capital- intensive investment in transport in the fifties to investments in more employ- ment and output-oriented parts of the service sector in the sixties. Part of the pressure on the labor market has been eased in recent years by the emigration of workers abroad, principally to Germany. This emigration started in the late fifties and built up fast in the late sixties. It is estimated that about 700,000 Turks are now employed abroad. A large fraction of migrant workers is made of skilled workers, who are a scarce resource for the fast-growing economy. Estimates of labor productivity have been obtained by dividing GDP at factor cost estimates, in 1968 TL, by labor force estimates obtained in the population census (Chart 4). As a consequence, changes in these estimates re- flect real changes in productivity per worker as well as changes in the employ- ment situation within each sector. Productivity in agriculture has remained low and has largely contributed to maintaining the overall productivity of the country at a low level. Given the high level of underemployment in agriculture, the changes in productivity from year to year in that sector reflect more the effects of weather conditions on employment than real changes in productivity. - 15 - CHART 4 CHANGES IN OUTPUT PER WORKER BY SECTOR (Averagel955=100) 600 1955 1960 1970 500 400 300 200 - 100 - 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 AVERAGE YEARLY GROWTH RATE (%) 1955-70 1960-70 1. AVERAGE WHOLE ECONOMY 4 6 4.6 2. AGRICULTURE 34 2.8 3 INDUSTRY 3.8 5.5 4. CONSTRUCTION 1.2 2.1 5. TRANSPORT 3.0 3.0 6. SERVICES 30) 7 World Bank-8065(R) SO ORC 1 zbIe o ill'i qCp'd'' -nSv . However, apart from annual fluctuations, growth of productivity in agriculture during the fifties was due mainly to the expansion of cultivated land and in the sixties to improved irrigation systems, mechanization and other inputs. Productivity in industry increased by 3.8 percent per year during 1955-70 after a stagnation during 1955-60, which was probably due to fast- growing employment in new production units. Its fast growth in the sixties (5.5 percent per year) reflects the increasing capital intensity of the fast- growing manufacturing production and has been much larger than expected during the Second Plan. Productivity in construction has shown an overall slow growth (1.2 percent per year), though none was expected by the Second Plan. G. Public Finance The large and rising investments undertaken by the public sector during the past two decades and the concomitant increase in current spending imposed a continuing strain on public financial resources despite the Central Government's success in raising tax revenue. This strain was aggravated by the results of the Government's pricing policies concerning agriculture and the State Economic Enterprises, which required substantial subsidies. In addition, little was done to raise the revenue-earning capacity of local government (although transfers from central to local budgets increased), despite rising needs for local investments and services, including those of the migrants to the cities. The tax ratio to GNP remained at about the same level of 13 percent during the fifties, while current expenditure as a percentage of GNP remained around 12 percent. The public sector experienced a shortage of financial resources to finance its increasing capital expenditure and covered its deficit partly with limited amounts of long-term external borrowing but mainly by re- course to short-term advances from the Central Bank. More than a dozen public bodies, including Central Government departments and State Economic Enterprises, were authorized to have recourse to Central Bank in case of need. Net Central Bank credit to the public sector rose from TL1.0 billion in 1952 to TL3.1 billion in 1960. During the sixties the country made a considerable tax effort, and the tax ratio to GNP increased from 12 percent in 1960 to 16.1 percent in 1967 and 17.9 percent in 1972. Adding local tax revenue and compulsory contribu- tions, the tax and quasi-tax ratio to GNP reached 22.8 percent in 1972. As part of an effort to improve Government control over the financial operations of public bodies, access to Central Bank credit was restricted, starting in 1960, to the Treasury, the Directorate General of Monopolies and three State Economic Enterprises (Sumerbank, the Soils Product Office and the Sugar Corporation). Other public bodies were required to obtain their financing from the Treasury. In addition, most short-term advances were consolidated into long-term debts. These were important steps taken to bring greater financial discipline to bear on public bodies. Central Bank credit to the public sector continued to rise under the new system until 1971 as the difference between tax revenues and total Government expenditure rose from 2.3 percent of GNP in 1958-62 to 6 percent in 1968-72. The net amount of such credit, outstanding, increased further to about TL19 billion at the end of 1971, most of it to the Treasury (Table 6.3). In 1972 and 1973, however, strict control reduced the - 17 - share of total public expenditure in GNP (22.6 percent in 1972 from the peak of 26.3 percent in 1971); net borrowing from the Central Bank has been very small. Table 3 INCREMENTAL CAPITAL-OUTPUT AND CAPITAL-LABOR RATIOS 1955-60 1960-65 1965-70 Incremental capital labor ratio 1/ (in TLOOO, 1968 prices) Agriculture 15.8 63.0 - 3/ Industry and construction 31.5 46.6 122.6 Services 105.7 83.2 60.4 Total 54.6 66.0 87.8 Incremental capital output ratio 2/ Agriculture 0.56 1.37 2.52 Industry and construction 1.86 2.48 2.59 Services 7.73 5.02 3.44 Total 2.86 3.12 2.97 1/ Fixed investment at 1968 prices using a one-year lag period over increase in labor force during the period. 2/ Fixed investment at 1968 prices during a one-year lag period over increase in value added at factor cost, 1968 prices during the period. 3/ Decrease in agricultural labor force during 1965-70. Source: Population censuses and Tables 3.1 and 3.2. The reliance on short-term advances from the Central Bank for public sector deficit financing until 1971 has been a major factor behind price in- flation in the past. Successive governments tried to control price inflation by restraining the prices of goods and services provided by the State Economic Enterprises, but these attempts were only partly successful since the Enter- prises turned to the Treasury and public agricultural agencies--and they ultimately turned to the Central Bank--for the additional resources which they could not raise through price increases. H. Price and Financial Developments Price stability Accelerated growth was achieved with a relative price stability until 1969, prices increasing by average of 5 percent per year during the 1963-69 period compared to about 10 percent during the 1950-60 period. Attempts through price controls to accommodate conflicting partial objective of price policy resulted, however, in price distortions: prices of transport, fuel, electricity and all basic foodstuffs were maintained low to protect urban consumers; prices - 18 - of major industrial and agricultural inputs and investment goods (domestic or imported) were kept low to protect producers and encourage investors; price support of various agricultural products was implemented to protect exporters and producers. In 1970 inflationary pressures also started to appear, and prices rose at 13.9 percent a year between 1970 and 1972 (for the GDP deflator) and accelerated to an annual rate of about 20 percent in 1973. Several factors contributed to this: increased deficit financing by the public sector in 1970 and 1971 (which, however, was strictly checked in 1972 and 1973); large inflows of workers' remittances leading to accumulation of reserves and rapid growth in money supply; buoyant private demand due to increasing money incomes (in- cluding remittances, higher civil service salaries and bumper agricultural crops); rising costs of imports due to world inflation and the devaluation of the lira; rising wage and interest costs as a result of competition for avail- able resources; and cost of exportable raw materials under the influence of world demand and the devaluation of the lira. The need to control inflation has become urgent in order to protect the benefits of rapid growth and the balance-of-payments improvement in recent years. An increasing share of GNP has been channeled through Turkey's fi- nancial institutions, and the share of monetary liabilities to GNP increased from 20 percent in 1952 to 32 percent in 1972. This process has been aided by a number of factors: traditional agriculture has been declining as a share of GDP; interest rates on deposits were increased in 1961 and 1970; and the flow of workers' remittances from abroad accelerated to 4.8 percent of GDP in 1972. Since 1963 about 73 percent of the growth of all financial assets (including direct debt) took place in the banking system, primarily as a result of expan- sionary monetary policies. Over the last two decades, the supply of currency grew at a compound rate of 14.1 percent per year. Other monetary liabilities, especially time deposits, grew faster. Time deposits grew from 5 percent of GNP to nearly 9 percent in 1972 and now amount to one-third of all monetary liabilities. There has been little development of financial assets outside the banking system. The growth of development bank assets has been the result of earmarking the surplus generated by the Government-managed, compulsory social insurance funds. Insurance companies have remained very small. "Direct" financial assets (defined as Government bonds, corporate bonds and corporate stock) fell from 38 percent to 29 percent of GNP from 1963 to 1971. Statutory conditions and the interbank transaction tax have discouraged movement of funds between banks. Interest rates Strict control over the entire structure of interest rates has been an important facet of Turkey's monetary policy for many years. In general, ceilings on interest rates have been set below market equilibrium rates in the belief that this helps to contain inflationary pressures. Ceilings on interest rates on loans made by banks are easily circumvented by additional charges and compensating deposits. Together with taxes on financial transactions, these charges raise the cost of credit from 12 percent to about 18-20 percent per annum. On the other hand, the interest ceilings on deposits are adhered to, and consequently the proliferation of bank branches has become a widespread and costly method of attracting deposits. - 19 - Credit Government policy influences the allocation of credit through a complex system of differential interest rates, subsidies and institutional barriers to movement of funds. The policy of specifying lower ceilings on interest rates for priority sectors discourages private commercial bank credit to these sectors. Consequently, they are primarily served by specialized in- stitutions which have privileged access to official sources of funds--such as Central Bank advances and rediscounts, Government subsidy, official deposits and social security premia. However, as the surpluses derived from compulsory social security diminish and as pressure continues on public sector resources, specialized institutions must increasingly look for other sources of funds. Commercial banks have been required since 1971 to allocate 10 percent of their deposits to medium-term credit. Security market The security market in Turkey is almost nonexistent, although the volume of outstanding securities is quite high. The bulk of nonmonetary fi- nancial liabilities is issued by the public sector and consists largely of bonds sold with the help of statutory provisions. Next in importance is the share capital of private corporations, which is not usually marketed either because most firms are closely held. Corporate bonds finance no more than 5 percent of private manufacturing investment. Most private investment, therefore, is financed out of the entrepreneur's own resources or by short- term borrowing from commercial banks, which is rolled over on maturity. Although there has been draft legislation for many years relating to encourage- ment of the capital market, there is yet no law; nor should immediate results be anticipated if the present bill is adopted. The main recommendation of the existing bill is the establishment of a Capital Market Control Commission, and it will inevitably be some years before these measures lead to greater confi- dence among the small investors or to greater supply of good equity securities. I. Trade, External Payments and Debt The Turkish economy has remained little trade oriented with exports remaining under 7 percent of GDP and imports under 10 percent during most of the period. The balance-of-payments situation has been characterized up to 1970 by a chronic foreign exchange shortage. The deficit on current account averaged about $120 million per year in the fifties, increasing to an average of $180 million in the sixties. Turkish foreign trade and exchange policies have been shaped by this chronic disequilibrium situation with complex and rigid controls throughout the period which varied in severity from time to time. The origin of the balance-of-payments disequilibrium lay essentially in the rapid rise of demand for imports of investment goods and raw materials resulting from growing investment requirements and combined with sluggish ex- ports brought about by the inelasticity of demand for Turkey's traditional agricultural exports and the lack of orientation of manufacturing towards ex- ports. Net income from services was small as was the net inflow from foreign investment. This structural problem was not recognized as such and was com- pounded by the effects of price inflation on the balance of payments throughout much of the period. The attempt to force a trade equilibrium through quantitative - 20 - restrictions rather than changing the exchange rate to offset price movements led to illegal capital movements, a rapid expansion of external debt, and to excessive recourse to commercial sources of financing. The process culminated in a liquidity crisis which led in 1958 to a debt consolidation and relief by Turkey's debtors (involving $223 million in loans), but which had to be pro- longed at intervals in the sixties. During the sixties official assistance came essentially from the OECD (Organization for Economic Cooperation and Development) consortium organized in 1962, which disbursed $2.5 billion during 1963-72. In addition, successive debt reliefs totaling $198 million were granted during 1965-67. At the end of 1972, Turkey's external medium- and long-term outstanding (and disbursed) was $2.5 billion, compared to $730 million at the end of 1960. Debt service reached $189 million in 1972, or 10 percent of exports of goods and services, compared with a peak of 24.5 percent in 1965. While import and exchange controls were successful in curbing total imports and also managed to allocate scarce foreign exchange resources in- creasingly to the needs of investment at the expense of consumption goods, they also led to the development of a high-cost import substitution industry and to occasional disruption of essential supplies. Heavy protection and overvaluation of the lira also created a wide gap between domestic and world prices, thus discouraging exports and investment in export industries. Exports and imports of goods and nonfactor services showed wide fluctuations during the period. Following a jump during 1950-53 due to ex- ceptional crops, favorable demand resulting from the Korean war and inflows of foreign capital, exports slipped back to the 1950 level; imports were re- stricted correspondingly (see Chapter 7). The devaluation of the lira from TL2.80 to TL4.90-9.00 per dollar in 1958 and TL9.00 in 1960, accompanied by a substantial increase in external assistance in support of a stabilization program, helped exports to increase by 5 percent per year during 1961-70 while imports increased at 7.7 percent per year during the same period. In the period 1968-70, the trade deficit began to widen again, despite the acceleration of exports and stringent controls in imports due mainly to the planned accelera- tion of investment and the increase in demand for industrial raw materials and parts. By end 1968 net foreign assets became negative, speculation on the possibility of devaluation increased, and the backlog of unsatisfied exchange applications amounted to about $300 million at the end of June 1970. In these conditions the par value of the Turkish lira was changed from TL9 to TL15 per US$, effective August 10, 1970; a prompt payments system was reestablished; various charges on imports were reduced; and export promo- tion measures were simplified. In support of a stabilization program, special financial assistance totalling about $250 million was made available by the IMF (International Monetary Fund), European Monetary Agency and bilateral sources. Commodity exports and imports increased sharply in the two following years with exports 50 percent and imports 65 percent above 1970, resulting in a much larger trade deficit of about $680 million in 1972. Imports increased initially to satisfy the pent-up demand and rebuild stocks and, in 1972, in- creased in response to accelerating private investment (stimulated by custom duty exemption in a large number of sectors from March 1972). Imports by the public sector also rose as larger project credits became available in both 1971 and 1972. Commodity exports also grew rapidly: agricultural exports responded to booming world demand and higher prices, helped by good harvests and the weakening of accumulated stocks; exports of manufactured goods became more - 21 - profitable as a result of the devaluation, rising world prices and export pro- motion measures. In the first eight months of 1973, export trends continued with a 54 percent jump (due to quantity and price increases, mainly in cotton, fruits and vegetables, pulses, and in textiles, processed goods, leather and hide products); imports also rose by 34 percent. As a consequence of the industrialization policy which was oriented towards import substitution more than exports, the structure of imports of goods changed substantially during the period. The share of agricultural ex- ports to total exports of goods decreased from 88.2 percent in 1950-55 to 84.7 percent in 1965-70 and 68.7 percent in 1972. While the share of imports of finished consumer goods to total imports of goods went steadily down (from 21 percent in 1950 to 5 percent in 1970 and 4.7 percent in 1972), the share of imports of raw materials increased (from 33 percent to 47 percent and 45 per- cent respectively); the share of capital goods remained at about the same level. Tourism did not play a significant role in the economic development of the last twenty years despite a remarkable potential, and low priority was accorded to the sector in the Plans. In the early seventies Turkey received only about one percent of the flow of tourists in the Mediterranean Basin. Tourism receipts represented less than one percent of foreign exchange earnings until 1970 and 5.2 percent in 1971-72 ($104 million gross or $44 million net in 1972). Tourism receipts exceeded the low Plan targets. Rising world demand, competitive prices after devaluation, and some efforts of the private sector to develop tourism facilities helped to stimulate tourism in Turkey in recent years. The number of tourists increased from about 100,000 in 1955 to 200,000 in 1962 and to nearly one million in 1972 (see Chapter 13). The balance on services has shown a substantial and rapidly growing surplus in the last three years which has been essentially due to a large increase in workers' remittances from $140 million in 1969 to $740 million in 1972 and about $1.2 billion in 1973. This spectacular growth has been due to various factors: the growth of Turkish workers employed abroad from 220,000 in 1968 to over 625,000 in 1972; the increase in the average annual earnings of workers abroad (about a 10 percent per annum increase in Germany, where about 70 percent of the emigrants are); and finally the exchange rate changes since 1970, including the devaluation of the Turkish lira and its depreciation with the U.S. dollar against the German mark since December 1971 (see Chapter 7). The chronic deficits on current account up to 1970 have implied a continuous need to borrow from abroad. The total financing requirements to meet the deficit and service external debt have increased from an annual aver- age of $185 million in the early fifties to over $300 million in the second half of the sixties. Increased borrowing has also implied a rise in the debt service, which thus rose as a proportion of gross capital inflow from about 25 percent during 1950-55 to 36 percent during 1966-70. In 1971 and 1972 the situation changed markedly with a reduced current-account deficit and con- sequently a sharp fall in financing requirements. The same trend continued in 1973. The sources of financing have also markedly changed. Private capital inflow has substantially decreased in importance: suppliers' credits, which represented about 30 percent of total inflows of external capital in the fifties, fell to about 4 percent in the early sixties and were negligible in the second - 22 - half of the sixties. The reliance on arrears on commercial credits has become a feature of the past while the net inflow of resources from private foreign investment remained negligible. Official reserves have also been drawn upon to meet shortfalls in financing in many years during the fifties and sixties. But after a period of low foreign exchange reserves, there has been a sharp increase in the last few years with gross reserves of gold and foreign exchange rising from $224 million in 1969 to $754 million in 1971 and further to $1,322 million at the end of 1972. By end December 1973 they reached $2.1 billion. - 23 - PART I : MAIN REPORT II. THIRD PLAN DEVELOPMENT STRATEGY The Third Plan development strategy constitutes the first stage of a long-term strategy for the period 1973-95 and a continuation of the strategy of the two previous Plans. The basic objective to be reached by 1995, when Turkey expects to become a full member of the European Common Market, is to raise the standard of living to the level prevailing in Italy in 1970 through accelerated industrialization in a mixed economic system while decreasing de- pendence on foreign capital. The achievement of the long-term targets is expected to resolve the major problems currently facing the economy. These problems are identified as the rapid population increase and its scattered settlement, the large volume of disguised unemployment, the unbalanced dis- tribution of income, the insufficiency of social security coverage, inadequate health and education facilities, deficiencies in domestic resource mobilization and the credit system, an inadequate production structure and technology, growing foreign trade deficits, a costly and slow-functioning public adminis- tration, and the obligations imposed by the future EEC (European Economic Community) membership. Financing the sustained growth of investment required by the strategy objectives will call for rapid increases of savings (private and public). Mobilization of private savings is expected to improve with the reorganization of the financial institutions and of the banking and insurance system as well as with the creation of a capital market. A better mobilization of public resources is expected from increased efficiency of the tax system and limitation of public current expenditure. The reduced dependence on foreign resources is to be reached by in- creased export growth, especially growth of industrial exports, combined with continued import substitution in industrial raw material and capital goods, to meet the rapidly increasing demand in these sectors. The central objective of rapid industrialization is expected to influence and guide major policies in other areas, such as fiscal, monetary, credit and foreign trade policies, incentive measures, education programs and infrastructural development policies. It would require substantial changes in the investment allocation pattern and would lead to a significantly different pattern of production with industrial share in GDP rising from 23 percent in 1972 to 37 percent by 1995 and agricul- ture dropping from 28 percent to 12 percent (Table 3a). In the social sector, the long-term objective is to provide every individual with a level of income and social security, enabling him at the least to meet minimum standards in nutrition, health, housing and clothing. Measures would be taken to multiply the number of health centers, raise the enrollment ratios in education to 100 percent in the primary level, 45 percent in the secondary level and 15 percent in the university level. Adequate housing facilities would be provided to the fast-growing urban population, which is expected to represent 70 percent of the total population by 1995. The Third Plan specifically includes land reform, the spread of basic education and health services and of village water supply. - 24 - Table 3a MEDIUM- AND LONG-TERM GROWTH STRATEGY (in %) 1972-77 1972-95 Sectoral Growth Agriculture 3.7 4.8 Industry 11.2 11.2 Services 7.7 9.0 GDP at market prices 8.0 9.0 Growth Structure (% of GDP at factor cost) Agriculture 23 12 Industry 27 37 Services 50 51 Investment Pattern (as % of total investment during the period) Agriculture 12 8 Industry 45 50 Services 43 42 Consumption and Savings Growth Rate Per capita consumption 3.9 5.6 Domestic savings 13.6 11.2 Source: Third Plan. A. Third Plan Macroeconomic Targets and Policies The macroeconomic targets of the Third Plan represent the first stage of the long-term objectives. The Third Plan target growth rate for GDP aver- ages 8 percent per year. The total volume of investment is projected at TL291 billion in 1971 prices, of which TL158 billion of public fixed investment, TL123 billion of private fixed investment and TL10 billion addition to stocks. National savings would finance all but 3.4 percent of investments or $150 million per year, which would come from net gross inflow of capital (of which only $3 million per year as average of net public capital inflow). The savings target implies a marginal savings ratio of 38 percent during the Plan period (Table 4). Domestic consumption is projected to rise at 6.3 percent per year (8.0 percent public and 5.9 percent private), corresponding to a 3.5 percent rise in per capita consumption per year. These targets represent a substantial acceleration of growth and effort with GNP rising from 7.1 percent per year in the Second Plan period to 7.9 percent in the Third Plan, the national savings rate to GNP increasing from 18.2 percent to 23.3 percent, and fixed investments increasing from 19.3 percent to 23.4 percent of GDP (Table 4). Value added at factor cost is targeted to grow at 3.7 percent per year in agriculture, 11.2 percent in industry (with major emphasis on the - 25 - Table 4 MACROECONOMIC TARGETS AND ACHIEVEMENTS OF THE DEVELOPMENT PLANS (In percent) 1st Plan 1963-1967 2nd Plan 1968-1972 3rd Plan 1973-1977 Target Actual Target Actual Target Sectoral growth rates Agriculture 4.2 3.7 4.1 3.6 3*7 Industry 12.3 10.6 12.0 9.9 11.2 Construction 10.7 8.0 7.2 5.0 11.9 Transport 10.5 7.8 7.2 8.8 8.2 Housing n.a. 3.5 5.9 6.8 5.0 Services 6.2 7.5 6.3 7*7 7.1 GDP factor cost 6.9 6.5 6.8 6.6 7.5 ON? market prices 7.0 6.7 7.0 7.1 7.9 Fixed Investment Structure Agriculture 17.7 14.9 15.2 12.2 11.7 Industry 30.9 31.1 34.1 37.1 45.4 Transport 13.7 15.7 16.1 16.7 14.5 Housing 20.3 22.3 17.9 20.3 15.7 Social sector 9.4 8.1 8.5 6.2 6.4 Other services 8.0 7.9 8.2 7.5 6.3 Total 100.0 100.0 100.0 100.0 100.0 Ownership, Public 59.9 52.0 52.7 52.4 56.3 Private 40.1 48.0 47.3 47.6 43.7 Total 100.0 100.0 100.0 100.0 100.0 As 1 of GDP (average in plan period) 18.3 16.2 21.3 19.3 23.4 Consumtion growth Public 8.7 7.7 8.8 12.3 8.0 Private 5.4 4.8 5.1 5.5 5.9 Total 5.7 5.2 5.8 6.6 6.3 National Savings Yarly growth rate 13.4 16.2 12.2 9.1 13.6 As % of GNP (average in plan period) 14.8 16.3 20.8 18.2 23.3 Marginal savings rate 26.0 18.3 38.0 (on national savings) Source: First, Second and Third Plan documents, and statistical appendix. - 26 - production of industrial raw material and capital goods) and 7.7 percent in services. The share of industry in GDP would then increase to 26.8 percent in 1977 (compared to 22.8 percent in 1972), and that of agriculture would drop to 23.4 percent (compared with 27.8 percent in 1972). To reach this sectoral pattern of growth, important changes are planned in the allocation of invest- ment with a large emphasis on industrial investment (45.4 percent of the total compared to 37.1 percent during the Second Plan), mostly at the expense of housing (15.7 percent compared to 20.3 percent during the'Second Plan). Public investment is expected to amount to 56 percent of the total (compared with 52 percent during the Second Plan). Two-thirds of the increase in national savings are expected to come from the public sector, essentially from a 33 percent annual increase in sur- pluses of the State Economic Enterprises, from a large increase in tax revenue (representing 31 percent of the increase in GNP during the Plan period, com- pared with 21 percent during the Second Plan), and by restraining growth in current expenditure. Current expenditures are assumed to grow at about 8 per- cent a year (or 10 percent in the social sectors and agricultural extension services and 6 percent elsewhere). Additional resources required to balance public sector finances during the Plan, estimated at about TL22 billion (or $314 million per year), are assumed to come from new domestic and foreign long- term borrowing. To decrease dependence on foreign resources, the Plan aims at reducing gross public capital inflow from $304 million in 1972 to $130 million in 1977 and, in fact, to achieve a negative net inflow in 1977. Commodity imports are expected to increase at 9.4 percent a year and commodity exports at 7.1 percent (compared to 13.4 percent and 6.4 percent respectively during the Second Plan in constant prices). The structure of exports is assumed to change considerably, the share of industrial exports rising from 26.8 percent in 1972 to 42.0 percent in 1977. Workers' remittances, estimated by the Plan at $600 million in 1977 (at 1971 prices), and higher net receipts from tourism would close the gap of the balance of payments. The Plan is rather conservative in its employment policies. Although the long-term goal is to reach full employment (net emigration during the Plan period would add 350,000 workers to the 625,000 already working abroad at the end of 1972), the pattern of development is expected to lead to a deterioration of the employment situation in the urban areas though underemployment may de- crease in the rural areas. The Third Plan continues to emphasize investment in high growth and relatively less labor-intensive industries; the consequent increase in the level of unemployment in the medium-term is seen and accepted as a price worth paying for immediate rapid growth with full employment ex- pected after 1995. Thus, the SPO expects the level of disguised and open un- employment outside agriculture to grow from 0.8 million in 1972 or 14.5 percent of the nonagricultural labor force to 1.1 million in 1977 (14.9 percent) and 2 million in 1987 (15.4 percent). It is only after 1987 that unemployment declines--to 0.8 million in 1995 or 4 percent of the labor force; by this date, too, disguised unemployment in agriculture is expected to disappear. The Third Plan includes economic policy proposals to reach these targets while maintaining price stability. To counteract short-term fluctuations in growth, it is proposed to maintain some flexibility in the level of public expenditure and in the determination of tax rates. Policies to promote resource - 27 - mobilization in the public sector include the reorganization of the SEEs, the improvement of the fiscal system with a better tax collection, a better taxation of agricultural incomes, and the introduction of the value added tax. Monetary and credit policies would aim at providing the required financing of the economy without upsetting price stability through improved mobilization of private resources and would aim at the allocation of resources in line with Plan priorities. Measures proposed to implement these policies include tax exemption for interbank transactions to facilitate the flows of funds within the banking system, increased medium- and long-term financial resources for the industrial investment of the private sector and the estab- lishment of a Development Bank for that purpose, the allocation of a large share of agricultural credit to export-oriented agricultural activities and animal husbandry projects, a reorganization of the credit to small industries through the Halk Bank, and the concentration of housing credit in a Real Estate Credit Bank. To accelerate the growth of industrial exports, policies would be adopted to simplify tax rebate procedures and to help widen the foreign markets for these products. Import requirements of the proposed development targets were found to exceed the independently projected foreign exchange receipts. Consequently, a large volume of import substitution is advocated in the Third Plan, supplemented by a policy of import restrictions and controls that aim at conserving foreign exchange while avoiding shortages by timely import of necessary raw material and capital goods. B. Sectoral Development Policies and Targets General principles of sectoral development and sectoral targets have been determined for each sector. Agricultural production targets essentially aim at self-sufficiency and are derived from forecasts of growing domestic demand that reflect improved nutritional balance; they allow for very small rise in exports. To achieve production targets, supply of production inputs is to be assured, improved technology in land use and cultivation methods encouraged, and the area under irrigation expanded. Agricultural investment is expected to increase by 77 percent in real terms, compared with the Second Plan (of which 53 percent in the public sector), and is to be oriented towards projects with a low gestation period and a low capital-output ratio (particu- larly the completion of irrigation projects, on-farm development and machinery and forestry). About 540,000 hectares of new irrigated land (of which 440,000 hectares is public) is expected to be added to the existing 1.9 million hectares, and fertilizer use will expand from 25 percent of the cultivated area to 43 percent. The development of extension services, marketing infrastructure and credit facilities to selected products and inputs is also given priority. Simultaneous investments in extension services are to be planned in regions lacking immediate growth potential. Price intervention will continue to be carried out with better timing when necessary to insure a reasonable income to farmers, low prices to consumers and competitiveness of exports. The agricultural education system will be reviewed and improved. Land redistribu- tion and consolidation is advocated in keeping with the principles of social justice and the requirements of productivity (see Chapter 10). Gross agricultural output is expected to increase at 4.5 percent per year, compared with 3.9 percent realized during the Second Plan. However, a - 28 - major shift is envisaged in the composition of output in favor of livestock, fish, forestry, industrial crops and pulses as against cereals, fruits, vege- tables and oilseeds. The growth rate of crop output as a group is assumed to decrease to 4.0 percent (4.2 percent realized during the Second Plan) while output is expected to increase faster in fish (8.4 percent compared to 5.2 percent realized during the Second Plan), and livestock (5.0 percent compared to 3.2 percent) and forestry (9.1 percent compared with 5.5 percent). Although the production and quality of fruits and vegetables for export will be improved, the overall growth rate of agricultural commodities remains low (2.8 percent compared to about 5 percent during the Second Plan). However, this rate does not apply to exports of tobacco, hazelnuts, dry figs, raisins, pistachios and meat, which are included in food industry exports in the Plan projections and are expected to grow at 6.5 percent per year (Chapter 10). The strategy of industrialization consists of an acceleration of growth, application of advanced technology, and a shift in emphasis from con- sumer goods to intermediate and investment goods (particularly "basic") in- dustries. These objectives are necessitated by the projected domestic demand, the level of import substitution reached, and the need to prepare for joining the EEC. Manufacturing output is expected to increase at 11.7 percent per year with 7.4 percent for consumer goods, 14.3 percent for intermediate goods and 16.8 percent for investment goods. The most dynamic production is expected in petrochemicals, fertilizer, nonferrous metal, plastic, pulped paper, iron and steel, and machinery. Investment (at TL88 billion or 120 percent above the Second Plan) would be distributed accordingly with 16.6 percent in consumer goods (particularly textiles and clothing), 61.4 percent in intermediate goods and 22 percent in investment goods. In investment goods industry, emphasis will be placed on the production of diesel engines, on a shipyard and other transportation requirements, and on heavy machinery and equipment and elec- tronics. In the metallurgical industry, expansion of iron and steel projects at Iskenderun as well as aluminum, zinc and lead projects will be given priori- ty; a substantial expansion of the chemical industry, cement and pulp and paper is also planned (Chapter 11). Growth of exports of manufactured goods is expected to accelerate to 21.5 percent per year and to reflect the shift in production with more emphasis on exports of intermediate and investment goods. The fastest growth is expected to be in textiles (22.5 percent per year), wood and printing products (29 percent), chemicals (33 percent), leather (18.5 percent) and nonferrous metals (47 percent). The industrial policy of the Plan advocates incentives and reasonable protection for intermediate and investment goods industries which require ad- vanced technology, control of monopolistic industries and integration of branches with high interindustry transactions. Research and training in tech- nology, productivity and standards will be promoted. Private investment is to be encouraged in the priority areas (except for strategic natural resources and monopolistic industries); joint foreign investment is accepted when it intro- duces new advanced technology, promotes export, and is internationally competi- tive. The public sector invests in large projects and in projects required by the Plan strategy but not taken up by the private sector due to size, low profit or risk. - 29 - The mining sector targets aim at meeting the requirements of the industrialization strategy in terms of inputs and energy with a more efficient exploration and use of domestic natural resources. Gross output is expected to increase at 15.3 percent per year, of which 26.8 percent for metallic min- erals (iron, chromite, bauxite, copper) and 16 percent for nonmetallic minerals (borate, asbestos, phosphate, pyrite). Reforms of the mining and petroleum laws and a reorganization in the structure of their operations are envisaged with the aim of meeting the requirements of basic industry and energy and in- creasing the sources of foreign exchange earnings through a more efficient and comprehensive exploitation of natural resources. About 40 percent of invest- ment in mining is to be allocated to prospecting and research. The primary objective of the energy policies is to meet demand as far as possible from domestic resources. For that purpose, energy production is expected to increase at an overall rate of 12.5 percent a year (of which 13.6 percent for coke, 14.1 percent for electricity). The connection of all the existing electric systems is to be completed by the end of the Plan period. The introduction of nuclear energy is to be explored, and the development of multipurpose hydroelectric plants is to be accelerated. About 60 percent (TL23 billion) of investment in energy has been set aside for electricity generation, transmission and distribution, the major investment in this sector being the Elbistan 1200 Mw project based on lignite (estimated cost TL9 billion). Other major investments include the development of the Keban complex, the ex- pansion of the Seyitomer facilities, and the initial phases of the Lower Firat development scheme (Karakaya, Karababa). The fast-growing economic activity will lead to a sharply increasing demand for transport services. The Third Plan strategy emphasizes the main- tenance and upgrading of the existing road network rather than its extension; the investment plan in railways is designed to improve the physical and fi- nancial situation of TCDD (Turkish State Railways) through track rehabilitation, improvement of the signaling and telecommunications system, dieselization and procurement of rolling stocks, and expansion of maintenance and repair facili- ties. In the field of air transport, the construction of a new airport is planned between Izmir and Antalya for the development of tourism, the fleet will be modernized, and all airports will be equipped with modern traffic con- trol equipment. A large program of modernization and expansion of the merchant marine will take place during the Plan, the handling equipment of ports will be modernized, and the length of wharves will be increased to accommodate larger ships. The Plan projection for number of visitors shows an annual growth of 13 percent to about 2 million visitors in 1977. The policy for the development of tourism allocates to the private sector the role of developing the super- structure. The public sector would carry out physical-planning studies and develop an adequate infrastructure in the priority areas. The Tourism Bank is to be expanded and strengthened to become the major credit institution in the sector. Policies related to the development of public and social services address themselves to the long-term strategy objective of improving the stand- ard of living, particularly of the less-developed regions and poorer groups, and correcting the inadequacy of health and education facilities. In the housing sector in particular, efforts will be directed towards the construction - 30 - of large-scale housing schemes and the acquisition of land by the public sector to avoid speculation. It is planned to increase the number of housing units by 1.2 million in the urban area and by 0.4 million in the rural area. The Plan has an ambitious scheme of educational reform. The structure of the educational system is to be altered, and its scope considerably extended. Primary school attendance is expected to be 100 percent of the relevant age group by 1977; and by 1995, 75 percent will be in the middle school, 45 percent will receive secondary education and 15 percent university education. This will require particularly concentrated efforts in the East and Southeast; the primary school attendance rate is as low as 40 percent in some parts of Southeast Anatolia. The Third Plan targets for health consist essentially of spreading the sociali- zation programs already started in the previous Plans to two-thirds of the country by 1977. A minimum standard of bed occupancy is to be reached in every province (26 beds per 1,000 inhabitants) with a special emphasis on the lowest- rating provinces. The goal of the Social Security System is to extend the coverage of social insurance to all wage earners and to 38 percent of the total working population by 1977 (compared to 16 percent in 1971). C. Planning Technique The analysis of the major problems faced by the Turkish economy in the development strategy and in the Third Plan constitutes a progress from the previous plans and strategies in the sense that it is more comprehensive and based on broader and more-consistent statistical information. The planning techniques used in the preparation of the Third Plan also constitute a notable technical improvement in terms of model building and data collection. Con- sistency models should not be expected, however, to offer policy guidance in the definition of the Plan strategy or to test the feasibility of the Plan, although they help in bringing out the constraints which are implicit in the independently determined policy aims. The Third Plan macroeconomic projections are based on a Harrod-Domar model incorporating an input-output matrix for thirty-seven sectors and sub- sectors, including twenty-four industrial subsectors. The matrix coefficients are derived from a detailed input-output analysis of the Turkish economy for 1967 and have been adjusted to account for technological changes between 1967 and 1972 and the 1970 devaluation. Starting from exogenous target values of GDP factor cost, level and distribution of exports, and amount of factor income and net foreign capital for the terminal year, the model determines sectoral levels of production, investment allocation, public and private savings re- quirements and import requirements. The target growth rates of the model are based on the solutions of a fifteen-year programming model used to bring out the implications of variations in strategy and to determine the long-term development strategy of the country. Import substitution is obtained as the difference between import requirements of the targeted growth and the exogenous capacity to import (net foreign capital plus net factor income plus exports). Public savings is obtained as the residual difference between total investment and private and foreign savings. All projections are made in 1971 prices. - 31 - PART I : MAIN REPORT III. MEDIUM- AND LONG-TERM PROSPECTS Turkey's medium- and long-term strategy, outlined in the previous chapter, aims at achieving a considerably higher growth rate than in the past and at rapidly changing the structure of output and raising the level of technology. These are to be achieved under conditions of rapid population growth and urbanization and with minimum assistance from abroad. In addition, the administrative machinery and institutional frameworks within which the objectives are to be achieved suffer from inherited rigidities and some weak- nesses that have to be overcome simultaneously. It is only to be expected, under these conditions, that the achievement of the objectives and targets, which are ambitious but feasible, will create tensions in the economic system and would highlight in the process the competition between the various economic and social objectives of the Plan. A. Competing Objectives of the Strategy The possible areas of conflict or causes of tension can be identified as those between the growth pattern and the social objectives, between the sectoral investment allocations and private demand, between the targeted public investment and the available resources (or between the claims of the public sector and those of the private sector on available resources), between pro- tected industrialization and EEC membership, and finally between foreign borrowing and trade policies and the rate of growth. The feasible policies required to meet such tensions or disequilibria in the economic system so as to achieve growth with stability are dealt with in the following chapter. The nature of these conflicts is briefly described below and is followed by the Mission's assessment under specified assumptions of the prospects of Turkish development in the medium and long term. The growth pattern and social objectives The heavy emphasis put in the strategy on the production of capital goods and industrial raw materials preempts financial and physical resources which could be used to increase production in more labor-intensive sectors and in sectors which aim at improving the social environment, such as urban housing and rural development. It is clearly stated in the Third Plan that the use of labor-intensive technologies will be limited to the construction and services sectors and that modern and capital-intensive technologies will be necessary in the industrial sector to make it competitive with the EEC industry in the long run. Since the services sector (including housing) is assumed to grow more slowly than GDP, this technological choice and growth pattern would lead to a deterioration of the employment situation during the Plan. Furthermore, incomes will probably rise relatively fast in the indus- trial sector where trade unions have a strong bargaining power, where pro- ductivity should increase rapidly and skilled labor scarcities are likely to increase, widening the absolute gap between urban and rural areas. The ex- pected growth rate of housing construction (6.3 percent), in spite of the fast urban population growth (6.4 percent) and of the size of shanty towns in the cities, would not lead to a substantial improvement of the standards of housing in the cities. - 32 - Sectoral allocations and private demand In a period of fast-rising nominal and real incomes and of rapid urbanization, the strong private demand for manufactured consumer goods, housing and services is likely to influence the pattern of production and investment in a different manner than that postulated by the Plan. During the Second Plan period, investment and production in the housing and services sectors exceeded considerably the modest targets; unless the Government imple- ments exceptionally strong policies to curb demand in these sectors, they are very likely to be also exceeded during the Third Plan. The more rapid growth of construction and services should, to some extent, relieve unemployment although it would create additional demand pressures. Similarly, production of consumer goods industries is projected to increase at 7.4 percent per year during the Plan period. However, the domestic and export potential demand for these goods might lead to higher growth rates, and the same prospects might be experienced in the production of intermediate goods and consumer durables. The demand and production growth pattern of industry could then differ sub- stantially from the planned one. Furthermore, any delay in project preparation or completion of capital and\intermediate goods industries or a shortfall in public investment in this field would accentuate the difference. Public investment and public resources The Third Plan assumes a marginal savings rate of 20 percent for the private sector, which appears realistic. But the marginal savings rate of 63 percent for the public sector appears overoptimistic. While tax revenues can be expected to come close to their target, current expenditure of the Govern- ment in the nonsocial and nonagricultural sectors, which are projected to in- crease at 6 percent per year in the Plan, are likely to increase faster; it would seem extremely difficult for the State Economic Enterprises to achieve their targeted surplus and profits without radical changes in management and pricing policies. Under these conditions, the Government would be constrained to change its financing plans, to borrow more domestically or abroad (see Chapter 8, Part III), to slow down its investment program (which would affect the pace and pattern of growth of the economy), or to resort to inflationary borrowing from the Central Bank. Protected industry and EEC membership The industrialization strategy should be expected to be consistent with Turkey's long-term objective to become a full member of the EEC by 1995, though it does not create strong conflic.ts in the medium term. Given this objective, the relation between domestic costs and European prices will play a major role in determining the potentially exportable products and those imports in which Turkey will remain noncompetitive in the long term. Consid- erations of comparative advantage should, therefore, strongly influence indus- trial and agricultural strategies. Serious studies are needed to determine clearly where Turkey's comparative advantage lies in the long run (i.e., after achieving higher technological levels), and to assess the economic cost of rapidly expanding the production of a widely diversified range of capital and intermediate goods behind protective walls. Investment in protected industries which have no chance of becoming competitive by 1995 would create pressure for a basic revision of the EEC membership objective or would involve risks of disruption in production and growth. On the other hand, it is not clear why - 33 - the Plan aims at slowing down agricultural exports (2.7 percent per year during the Third Plan compared to about 4 percent actually during the Second Plan period and about 40 percent in 1973). Recent experience and trade prospects indicate that agricultural exports could well grow at over 7 percent per year during the Third Plan period (Chapter 7). Import control and rapid growth Growth of commodity imports in the Third Plan seems to have been underestimated. Import elasticity to GDP is estimated at 0.89 during the Third Plan. It was 0.77 during 1950-69 period, which was characterized by frequent shortages of foreign exchange and strong import control policies, but increased to over 1.0 during 1972 when foreign exchange was no more a real constraint; it has continued to increase in 1973. Since the level of import substitution is a direct function of the foreign exchange availability in the Plan model, the considerably higher invisible exports would lead to the con- clusion that Turkey should either relax the Plan's strict import substitution policy and allow larger imports of consumer goods and competing products or accelerate imports of investment goods, thus creating additional demand for complementary domestic resources and fueling inflation (see Chapter 7). Ambivalence on foreign aid The Plan's strategy aims at reducing dependence on foreign capital and achieving a zero net inflow in 1977. This would have been difficult to achieve under the Plan's projections. Although the recent improvement in the balance of payments could have made it possible, the recent ban on emigration of workers to Germany and the steep rise in prices of imported fuel make it now an unrealistic aim unless investment is to be slowed down and the import liberalization trend is to be reversed (see Chapter 7). In addition, the reduction of capital inflow would make it difficult for the public sector to finance its full investment program without drawing too heavily on resources from the private sector. The optimum path to decrease inflow of foreign re- sources is also a function of the debt-servicing capacity, of the terms of borrowing, and of the technology transfers brought by foreign technical assistance or foreign investment. In the long term, the provisions of the EEC membership concerning free circulation of labor and capital will also have to be applied and might prove inconsistent with the targets of minimal capital inflows. B. Medium-term Prospects: the Mission's Assessment Growth prospects The growth potential of the main sectors and the domestic and external finance prospects indicate clearly that the overall growth target of 8 percent during the Third Plan is within the possibilities of the economy but would re- quire more external assistance and mobilization of resources by the private sector than envisaged in the Plan. In 1973 GDP increased by 6.4 percent in spite of the bad agricultural year. Nonagricultural GDP increased by 11.6 percent. In the agricultural sector growth will continue to be influenced by climatic conditions. The target of 3.7 percent for annual growth of agricultural - 34 - value added at factor cost during the Third Plan is in line with past trends and not overambitious. Cereal production estimates seem realistic; but, due to lower yield increases and higher land expansion than expected, the Plan projections underestimate the growth potential of industrial crops, oilseeds, fruits and vegetables while the livestock and forestry targets seem to be overoptimistic. Bank projections assume a 4 percent growth rate of value added at factor cost, provided adequate price and management policies are implemented early during the Plan period (Chapter 10). Fast growth is targeted to continue in the industrial sector with value added growing by 11.2 percent per annum. Value added in manufacturing is expected to increase by 10.8 percent (consumer goods 5.3 percent, inter- mediate goods 13.8 percent and investment goods 16.5 percent). The highest growth is assumed for petrochemicals, fertilizers and machinery. Mineral pro- duction is expected to double. The overall growth rate assumed seems realistic. The targets in chemicals and minerals production may be too ambitious, but any shortfalls could be offset by growth of textile production faster than assumed (8.5 percent per annum). The mission's projections assume an 11 percent growth rate for industry. The demand for electric power can be expected to increase at about 14 percent per year until 1978 and at a declining rate thereafter (11 percent in 1985). In 1972 and 1973 the installed capacity of public generating plant was insufficient to meet the demand and led to electricity shortages for most types of customers. Delays in project implementation will probably keep the system strained until the completion of the Elbistan scheme, scheduled to come into operation in successive stages in 1978-80. The recent steep rise in the cost of imported oil underlines the importance of giving priority to internal energy sources (mainly lignite and power) and the need to develop them as rapidly as possible. The investment program for the transport sector envisaged in the Third Plan will be, by and large, adequate to meet the requirements of future growth. However, growing urban congestion will probably necessitate the con- struction of throughways and bypasses, which has not been included in the Plan. The proposed investments in railways are the minimum needed to achieve the re- quired physical and financial rehabilitation of TCDD. The transport sector also faces some problems which are likely to extend well beyond the Third Five-Year Plan period, namely a shortage of high-level technical personnel (particularly engineers, due to a relatively low public salary scale), as well as national security; the difficulty of reducing direct and indirect subsidies to users of the transport infrastructure; and the lack of coordination between Government agencies in transport policy, infrastructure planning and implemen- tation (see Chapter 12). The services sector has been given relatively small consideration in the development strategy. Experience of past Turkish development and of the development of other countries in a similar stage of development indicates that a fast increase in per capita income is likely to be associated with a faster- than-average growth of services. In particular, the proposed growth of housing construction (6.3 percent per year), in spite of the fast urbanization growth and of the already large amount of shanty towns, seems unrealistic. The re- straint imposed on the growth of Government services other than for the social sector and agriculture also seems excessive and is likely to be overrun in order - 35 - to maintain the Government's capacity to undertake planned investments and support planned development in the sector concerned. In the mission's projections, the growth rate of GDP at factor cost is projected at 7.6 percent per year during the Plan period, similar to the 7.5 percent target in the Third Plan (but only 8.1 percent per year from 1977 to 1987, compared with 9 percent in the long-term Plan projection). Sector growth projections with 4 percent annual growth in agriculture, 11 percent in industry and 8 percent in construction and services also come close to the pattern described in the Third Plan with slightly more emphasis on services and agriculture and less on industry. Investment and savings prospects Growth of investment in the mission's projections is of the same magnitude as the Third Plan targets (12.3 percent per year compared with 12.7 percent in the Third Plan), but the investment pattern differs significantly; more weight is given to investment in services, mostly due to a faster growth than expected in the Plan in the services sector (particularly housing con- struction) and to a slightly less capital-intensive development in the indus- trial sector (Table 5). Consumption is expected to increase faster than in- dicated in the Plan (6.8 percent compared to 6.3 percent). Domestic savings are not expected to increase as fast as indicated in the Third Plan projections due to the performance of public savings and also possibly due to the effects of continued inflation.1/ The analysis of prospects for tax revenue, SEEs' saving and current spending during the Third Plan period indicates that the saving target for the public sector is probably too ambitious (Chapter 5). The discussion points to the likelihood of a small shortfall on tax revenue, an overrun on current spending and a sizeable shortfall on SEEs' saving. Of course, the possibility still exists of making up part of the short- falls on these accounts in such areas as non-tax revenue, receipts of social funds and pricing of SEEs' products and services (especially in transportation and power), assuming the necessary policy changes are adopted. This applies especially to the market pricing of SEEs' products and services. Unless such policies and measures as outlined above are undertaken, then it would seem likely that public savings will fall short of Plan targets. The implication would be that the overall deficit of the public sector would remain at around TL5 billion a year instead of declining and turning to a small surplus by 1977, as shown in Table 5.25. Price inflation has continued to be high in the first nine months of 1973 with wholesale prices increasing at an annual rate of 24 percent. The measures taken by the Government in late 1973 should have some effect in slowing price increases towards the end of the year, but it is unlikely that they will drastically reduce the pace of inflation. Unless stronger policies and measures are taken (see Chapter 6), price inflation will probably remain high during the Plan period. The distortions introduced by the present price system on resource 1/ On the basis of a regression analysis linking private consumption to real disposal income and price changes for the period 1963-1972, a slowing down of the price rise from 8 percent to 3 percent per year would lead to an increase of the marginal rate on domestic saving from 29 percent to 32 percent in the period 1972-1977. - 36 - Table 5 GROWTH PROSPECTS, 1973-1977 Third Plan Mission Projections (Basic Case) Average Yearl Projections Growth Rate (.) GDP factor cost 7.5 7.6 GDP market prices 8.0 8.1 Agriculture 3.7 4.0 Industry 11.2 11.0 Services 7.7 8.0 Consumption 6.3 6.8 Investm.ent 12.7 12.3 Gross National Savings 13.6 13.3 Prices n.a. 7.9 Distribution of Fixed Investnent (% of total) Agriculture 12 12 Industry 65 35 Services 4- 53 100 100 Harginal Savings Hates (in %) Domestic savings n.a. 29 N ational savings 38 31 Source: Part IV, Annex A. - 37 - allocation and income distribution might lead to a growth pattern different from the pattern envisaged in the Plan with a smaller share of public invest- ment in total investment; a fast growth of quick profit-yielding consumer industries attracted by fast-rising nominal demand; and fast growth of the services sector, especially housing construction. In the medium term, rising costs of exports would reduce the competitiveness of Turkish exports and might require a new devaluation of the lira or the adoption of h policy of more flexible exchange rates. Bank projections assume that, under the influence of Government policies, growth of money supply will be contained at 17 percent per year during the Third Plan period (compared to 15 percent per year during the First Plan and 26 percent during the Second Plan); this would lead to an infla- tion of 8 percent per year during the Plan period (see Part IV, Annex A). Given these assumptions, the marginal rate on domestic savings during the Third Plan would reach 29 percent and that on national savings 31 percent compared with 38 percent in both cases in the Third Plan projections (Table 5). Balance-of-payments prospects The Third Plan and long-term perspective lack an analysis of the export markets for the major commodities, of the competitiveness of Turkish exports in these markets, and of the implications of the EEC agreement on the structure and growth of future imports and exports. Moreover, the upswing in workers' remittances, exports and imports in the last three years and the im- pact of the oil crisis on future import prices and remittances make previous projections in the sector obsolete. In a situation where substantial foreign exchange reserves have been accumulated but where inflation and shortages have appeared and short-term prospects are uncertain, the balance-of-payments pros- pects are particularly difficult to estimate. The export potential of Turkish agriculture has probably been under- estimated. Agricultural exports are projected to reach $862 million in 1977 at constant prices (i.e., growing at 7.3 percent per annum), which is substan- tially higher than the Plan growth rate of 2.7 percent per annum (for details see Chapter 10). The main growth in agricultural exports is expected to be in cotton, hazelnuts, fruits and vegetables. Exports of fruits are expected to double and vegetable exports to treble; they have shown fast growth in the last two years, and their production potential in Turkey is good. Continued growth in Europe and improved EEC relations are expected to continue exerting additional demands on dried fruits and nuts. Exports of hazelnuts are projected to increase by 33 percent. Exports of tobacco may fall below the high of 1972 but will remain above earlier years. Maintenance of high tobacco exports depends largely on maintaining a competitive price structure. A higher growth rate for exports of livestock and fisheries has been assumed than the Plan indicates because world demand is expected to remain strong and because Turkey has a comparative advantage for such exports. The targets of the Third Plan for exports of industrial commodities and mining products (21.5 percent and 17 percent per annum respectively) are likely to be met, given the high growth in 1973. The mission's projections are, therefore, based on the Plan targets (adjusted upwards by 10 percent to allow for the change from 1971 to 1972 prices) with industrial exports reaching $540 million at constant (1972) prices in 1977--i.e., growing at 18 percent per annum. However, it is probable that exports of processed food, beverages, - 38 - textiles and clothing will be higher than assumed in the Plan, and other items (such as nonferrous metals) will be lower (Table 3.15). The exports of mining products are expected to reach Plan targets (for a discussion of prospects for individual commodities, see Chapter 11). The tourism sector has faced a fast-growing demand from Western Europe and the United States. The main problem of the sector is shortage of appropriate facilities, partly due to the lack of a clear Government investment policy and implementation for infrastructure. The recent reorganization of the Tourism Bank and the new incentives given to foreign investors have improved the prospects of superstructure financing, and growth in the sector is likely to exceed the expected target of 13 percent per year. Master plans for Antalya, Mugla and the south of Izmir have recently been completed. However, the rapid rise in domestic prices is reducing Turkey's price competitiveness and the effect of the energy shortage on developed economies might affect tourism demand in the medium term. It is estimated that gross foreign exchange receipts of tourism will reach about $200 million ($100 million net) in 1977 ($187 million and $85 million in the Third Plan). As a consequence of faster growth than expected in agricultural and tourism exports, exports of goods and nonfactor services have been assumed to increase 10.3 percent per year during the Plan period (compared to 9.4 percent in the Third Plan document) and 8 percent per year during the period 1973-87. The existing and expected levels of foreign capital flows lead to a new inflow of foreign capital of $506 million in 1977 ($341 million net). On the import side, import requirements in capital goods and raw material are estimated to be much higher than in the Plan's long-term projec- tions. During the Third Plan period, imports are estimated to increase at 13.1 percent per year at constant prices (7.1 percent in the Plan document). The 1973 import estimates and the recent import liberalization measures of the Government support these expectations. Import prices are also expected to increase fast during the Third Plan as a consequence of booming oil prices and of the energy crisis in developed countries. Due to the steep rise in oil prices in 1973 and early 1974, the oil import cost may rise from $210 million in 1973 up to about $500 million in 1974. It may reach about $775 million in 1977 or almost 20 percent of total imports of goods, assuming (apart from needs to replenish stocks) 10.5 million tons of imports at $10.45 per barrel in that year. It is estimated that growth in the prices of Turkey's major exports in 1973 have been sufficient to offset further rise in import prices during the rest of the Plan and, therefore, that the terms of trade of Turkey vis-a-vis the rest of the world will not be significantly affected during the Plan period as a whole. The level of workers' remittances is a crucial variable in the esti- mation of future foreign exchange earnings and most difficult to project. Estimates of remittances carried out by the mission in the summer of 1973 ranged between $4.8 billion and $7.9 billion during the Plan period. However, in November 1973 the German government announced an immediate and temporary ban on immigration of foreign workers from outside the EEC due to an expected stagnation of the economy in 1974. If the economic slowdown in Europe lasts, it could well lead to a decrease in the number of Turkish workers presently employed abroad. In the light of these recent events, the mission has calculated two series of estimates for workers' remittances, amounting to $3.9 billion and $5.6 billion - 39 - during the Plan period (compared to $2.9 billion in the Third Plan). The assumptions underlying these estimates are described in detail in Annex 3, Part II. The mission's projection (basic case) is based on the higher assump- tion of $5.6 billion of workers' remittances, corresponding to an increase from $900 million in 1973 to $1400 million in 1977. Gross external assistance would then amount to about $506 million in 1977 ($341 million net), and the debt- service ratio to foreign exchange earnings would remain under 10 percent during the whole Plan period (Table 6). Sensitivity analysis carried out on the balance-of-payments projec- tions indicates that given the prospects of growth, workers' remittances and capital flows assumed in the basic case of the mission's projections, the debt-servicing capacity of the country in the medium term will not be sub- stantially affected by variations that can be considered possible in export growth, the rate of inflation, the parity of the lira, or the terms of borrowing (Table 7). On the other hand, a continued stagnation of the West German economy, leading to a substantial return of Turkish workers and reduced flow of remittances, would reduce substantially the level of foreign exchange reserves unless this drop in foreign exchange is compensated by larger borrowing from abroad. It is estimated that supplementary borrowing of $200 million a year during the Plan period would be required if the flow of remittances was reduced to $3.9 billion during this period, which would bring up average annual capital flow to $580 million and reduce exchange reserves to about $400 million by end 1977, the equivalent of one month imports; debt service would then rise to 11 percent of foreign exchange earnings. If an economic slowdown is gener- alized to the other EEC countries, Turkish exports--particularly industrial exports--would then also be negatively affected. The growth of the economy may then slow down unless new export markets are found. C. Long-term Prospects The long-term growth prospects of the Turkish economy are closely dependent upon the priority which will be attributed to the competing objec- tives of the development strategy (pages 32 to 34). The effects of various development objectives on the pace and pattern of growth, the employment situation and the skilled labor requirements have been analyzed with a pro- gramming model of the Turkish economy. Detailed results are available in Part IV, Section A and are summarized in Table 8, where the effects of changes in various variables are compared to one standard (basic) case. The standard case assumes a growth rate of workers' remittances from $900 million in 1973 to $1.3 billion in 1977 (at 1972 prices) and 5 percent per year thereafter, a small decline in the net foreign capital flows from $275 million in 1972 to $247 million in 1987, and a marginal propensity to save 26 percent during 1972-87. - 40 - Table 6 BALANCE-OF-PAYMENTS PROJECTIONS, 1972-77 ($ Million and %) PLAN TARGETS MISSION PROJECTIONS (1971 prices) (1972 prices) Av. Ann. Projection 1977 Av. Annual Est. Proj. Growth Actual 1972 Current Growth 1972 1977 Rate (%) 1972 prices prices Rate (%) Exports 750 1175 9.4 885 1494 2019 11.0 Agriculture 525 600 2.7 607 862 7.3 Mining 37 81 16.9 35 89 20.0 Industry 188 494 21.5 237 543 18.0 Imports -1315 -1850 7.1 1563 2938 3985 13.4 Investment goods 450 680 8.7 783 1159 8.2 Intermediate goods 775 1040 6.1 707 1584 17.5 Consumption goods 90 120 7.6 73 195 22.0 Trade Balance -565 -675 -678 -1444 -1966 Workers' remittances 510 600 3.3 740 1269 1401 11.4 Tourism (net) 20 85 44 100 115 Others (net) -147 -140 -118 -254 -292 Current Account Balance -182 -130 - 8 -316 -774 Foreign private investment 40 55 43 55 Imports with waiver 30 45 39 54. Foreign credits 296 127 304 506 1/ TL food imports 18 28 16 28 Debt repayment -202 -125 -127 -165 Capital Account Balance 182 130 267 478 Change in Reserves (-increase) -- -- -566 296 Debt-service Ratio n.a. n.a. 10.0 7.3 1/ Of which suppliers' credits $96 million, representing the average amount of required suppliers' credit during the Plan period. Source: Part IV, Annex A. Table 7 SENSITIVITY ANALYSIS IN THE MEDIU71-TERM BALANCE-OF-PAYMENTS PROSPECTS (In million current dollars) 1977 1972 Third Basic Plan!' Case Case 2 Case 3 Case 4 Case 5 Case 6 Case 7 Exports of goods and nfs 1109 1362V 2484 2484 2484 2070 2673 2305 2484 Imports of goods and nfs -1790 -19471/ -4497 -4469 -4475 -3763 -4506 -4488 -4497 Workers' remittances 740 600 1400 667 1400 1400 1400 1400 1400 Current-account balance -8 -130 -349 -1530 -751 -453 -594 -954 -772 Foreign private investment 43 55 55 55 55 55 55 55 55 Foreign credits 304 127 506-/ 756A/ 4974/ 410.! 427!/ 584A/ 548-! Debt repayment -127 -125 -165 -245 -165 -165 -165 -165 -260 TL + waivers import 346 73 82 82 82 82 82 82 82 Capital-account balance 568 130 478 648 469 382 399 556 425 Changes in reserves (-increase) -566 -1 296 882 282 70 194 397 347 Debt-service ratio in 1977 (as % of total export earnings) 10.2 10.7 7.3 11.1 7.3 8.1 6.9 7.9 9.7 1/ At 1971 prices. 2/ Exports and tourism receipts. 3/ Imports of goods and other net services. Of which official credits $410 million. The balancing item is the average suppliers' credits requirements per year during the Plan period and varies from 0 (case 4) to $200 million (case 2). Note: Case 2: Lower workers' remittances due to lasting problems in the German economy. Case 3: Money supply growth curbed to 10 percent per annum until 1977 and 8 percent thereafter. Case 4: Devaluations by 20 percent have been assumed in 1977, 1982 and 1987. Case 5: Export grows faster -- 10 percent per annum until 1977 and 12 percent thereafter. Case 6: Export grows less -- 6 percent per annum until 1987. Case 7: Borrowing terms hardened -- maturity and grace period of foreign credits shortened by a half. Source: Part IV, Annex A. Table 8 LONG-TERM HACROECONOMIC PPOSPECTS (Average annual growth rates in %) 1963- 1972-1987 1972 Basic Max. Labor MPS = MPS = More EEC Turkish Dev. case employ. surplus .24 .30 borrowing entry Strategy Yearly Growth Rates (%) (1) (2) (3) (4) (5) (6) GDP (market prices) 6.6 7.2 7.0 7.5 7.0 7.6 7.5 7.2 8.7 Consumption 6.0 6.6 6.4 6.9 6.5 6.7 6.8 6.6 7.5 Domestic Savings 10.2 10.2 9.9 10.5 9.5 11.6 10.5 10.2 11.8 Investment 9.8 8.5 8.3 8.8 7.9 9.8 8.9 8.5 11.2 MPSl/ 0.22 0.26 0.26 0.26 0.24 0.30 0.26 0.26 0.35 Total imports 6.5 5.4 10.3 5.1 4.9 6.4 5.6 9.2 7.6 Noncompetitive imports n.a. 9.2 8.3 8.8 8.9 10.2 9.4 13.2 n.a. Total exports 7.0 7.7 14.0 7.3 7.1 9.1 7.9 12.6 10.1 Industrial exports 11.8 10.7 20.0 9.3 8.7 14.0 11.0 19.2 17.9 Total urban employment 5.&2 5.0 6.2 n.a. 4.7 5.6 5.3 5.0 5.8 Volume of migrationL/ in 1987 (millions) 2.9 4.7 n.a. 2.5 3.8 3.4 2.9 n.a. Agricultural labor force 3/ 0.9 -0.1 n.a. 1.2 0.5 0.7 0.9 -0.6 Growth of output Agriculture 3.64/ 5.6 2.4 5.8 5.5 5.8 5.6 5.4 5.1 Industry 10.24/ 8.6 9.1 8.8 8.3 9.1 8.9 8.4 11.3 Services 7.24/ 7.0 7.4 7.2 6.8 7.5 7.3 7.2 8.9 Total 6.6 7.3 7.3 7.6 7.1 7.9 7.6 7.3 9.3 Structure of investment (% of total during period) Agriculture 13 15 7 14 13 12 12 15 10 Industry 35 38 38 37 41 41 42 37 48 Services 32 47 55 49 46 47 46 48 42 GDP per capita in 1987 5/ (in 1972 US$) 799 776 831 776 848 828 794 996 -/ Marginal propensity to save during the 1972-81 period. 2/ Accumulated migrations during the 1972-87 period for urban employment creation. 3/ 1965-1970. Value added at factor cost. 1 Assuming a population of 52.8 million in 1987. Source: Part IV, Annex A, Table 11. Some of the insights suggested by this analysis are the following: Pace and pattern of growth in the long term The long-term growth prospects of the Turkish economy seem to be less than expected in the Government strategy due to savings and skilled labor constraints, but they are still quite high. In all the cases studied, GDP annual growth would range between 7 percent and 7.6 percent (compared to 8.7 percent in the Government strategy). The growth pattern for 1972-87, which would maximize GDP in the terminal years, would show rapid growth of industry and utilities while agriculture and services would grow slower. However, this growth pattern would be more balanced than in the past and more balanced than the growth pattern proposed in the new development strategy with a faster growth in agricultural output than in the long-term strategy (5.6 percent in- stead of 5.1 percent) and a slower growth in all the other sectors--particularly mining (6.9 percent instead of 12.9 percent), construction (7.2 percent instead of 10.7 percent) and utilities (8.6 percent instead of 11.9 percent). The in- vestment allocation which would lead to this growth pattern would continue the past emphasis on industrialization but with less acceleration than in the long- term strategy of the Government and with more concern for the agricultural sector and less investment in the transport sector. Compared to the past in- vestment structure, the share of agriculture would be higher (about 15 percent compared to 13 percent during 1963-72), the share of industry would also increase (about 40 percent compared to 35 percent), and the share of services would drop (45 percent compared to 52 percent). In the long-term strategy of the Government, the share of industry increases faster to 48 percent while both the shares of agriculture and services (10 percent and 42 percent respectively) decrease. Long-term growth and employment In the long-term development strategy of the Government, the employ- ment situation is expected to deteriorate until 1987 and improve thereafter. While urban employment is estimated to increase at 5.8 percent per year, unem- ployment is estimated to increase at 3 percent per year and to reach 2.5 million in 1987, of which 2 million in the urban sector (15 percent of the urban labor force). The analysis of the relation between growth and employment made with the programming model suggests that a strategy which gives priority to employ- ment creation (Table 8, Case 1) would lead to a faster increase in urban employment and, therefore, in rural-urban migration (6.2 percent per year and 4.7 million during the period, compared to 5 percent and 2.9 million in the basic case). This could be achieved at the cost of only a small loss in GDP growth (7.0 percent compared to 7.2 percent in the basic case). The rural labor force would decrease in this case although less than in the Turkish development strategy (9.8 million in 1987 compared to 8 million in the strate- gy). This strategy would correspond also to a more open economy with exports growing at 14 percent per year and imports at 10.3 percent.2/ It would lead 2/ The lower emphasis given to agriculture in the growth and investment pat- terns is a characteristic of the model structure and should not be taken as a policy to be advocated. The programming model emphasizes employment in urban areas and employment of skilled labor in the rural areas while unskilled rural labor force is assumed in surplus. As a consequence, maximizing employment leads to a shift of activity from the rural to the urban areas and to a faster growth of industry and services at the expense of agriculture, given a limited amount of financing. - 44 - to a substantial improvement of income distribution within the urban areas compared to Government strategy, but rural incomes would not increase as fast. Another important conclusion of this analysis is that future growth in some sectors could he affected by scarcities of skilled labor. The Third Plan and long-term strategy projections have assumed no constraints in the supply of skilled labor to reach a fast growth rate with a significantly dif- ferent growth pattern; while in the programming model, it is assumed that growth is limited by the availability of skilled labor. In the standard case of the analysis, the pattern and pace of growth would require training of about 3 million people in excess of what is provided by the existing education system during 1972-87, most of them coming from the unskilled agricultural labor force (2.4 million). Relaxing this constraint would seem to have a significant effect on growth (Table 8, Case 2). GDP would then grow at 7.5 percent per year in- stead of 7.2 percent in the standard case; the economy would be more closed with imports and exports growing more slowly, but the pattern of growth would not be much affected. Long-term growth and the savings effort The marginal ratio on domestic savings has been 26 percent during the First Plan and 13 percent during the Second Plan and is projected to in- crease to 38 percent during the Third Plan and to 35 percent during the next twenty-two years. Our analysis suggests that variations in the marginal savings rate would affect significantly the growth rate of output and the employment level and, to a lesser extent, the growth pat-tern. A variation of the marginal savings rate between 24 percent and 30 percent would increase the yearly GDP growth rate from 7 percent to 7.6 percent, of investment from 9.5 percent to 11.6 percent, of imports from 4.9 percent to 6.4 percent, and of exports from 7.1 percent to 9.1 percent with a particularly faster growth in industrial exports (14 percent instead of 8.7 percent). In the employment sector, urban employment would increase faster by nearly one percent per year, and more than one million more persons would migrate to work in the cities. Growth would increase in all sectors--but particularly in industry and services-- and the investment pattern would give slightly more emphasis to services at the expense of agriculture (Table 8, Cases 3 and 4). Relying more on foreign savings to sustain a faster pace of growth is equivalent to a stronger savings effort in many respects. Assuming that Turkey borrows net TL17.8 billion more than in the basic case (which is equi- valent to $250 million more per year), annual GDP growth would rise from 7.2 percent to 7.5 percent and would be faster only in the industry and service sectors. Urban employment growth would rise by 0.3 percent a year to 5.3 per- cent (Table 8, Case 5). Aiming at faster growth through more savings or more borrowing seems to have the same effect on the pattern of growth and on the level of employment. Long-term growth and the EEC membership In the standard case, imports of intermediate and final goods have been classified into competitive and noncompetitive--competitive imports being defined as imports of goods which could be produced at a competitive cost in the long term. The entry of Turkey into the EEC may create a situation in which Turkey will import more goods for which it will be compeuitive in the - 45 - long term but is not at present, or for which Turkey is competitive but for which consumers have a preference. The assumption that more imports than in the basic case are noncompetitive, mostly in the manufacturing sector (50 per- cent more in intermediate goods and 40 percent more in investment goods and consumer goods), has been made in Case 6. These modifications would leave the pace of growth and employment level unchanged but would modify the growth pat- tern and the external sector (Table 8, Case 6). The results obtained on these assumptions indicate that the pace of growth and employment level would remain unchanged from the basic case. They would imply slightly more emphasis on in- vestment in the services sector which grows faster (7.2 percent compared to 7 percent in the basic case) and slightly less emphasis on investment in indus- try. Industrial output would also grow more slowly (8.4 percent compared to 8.6 percent) (Table 4, Case 6). The external factor would, however, present a substantially different pattern. Imports would grow considerably faster (9.2 percent compared to 5.4 percent) since import substitution is limited to a narrower field. Exports would also increase much faster (12.6 percent compared to 7.7 percent), essentially due to a faster growth of manufacturing exports (19.2 percent per year instead of 10.7 percent). Although the disaggregation of the model does not throw light on the problem of comparative advantage, this alternative can be taken to typify a development strategy where Turkey would specialize in the production of manufactured products in which it has a com- parative advantage and where exports could increase fast. - 46 - PART I: MAIN REP 0 RT IV. POLICIES FOR GROWTH AND STABILITY Considering the development strategy and targetp that Turkey has opted for, the new favorable balance-of-payments situation and rapid growth rate which are likely to continue, and the institutional framework within which this strategy and targets are pursued, the previous chapter has indicated that strong tensions and disequilibrating forces are likely to appear and per- sist in several parts of the economy in the medium term. The symptoms of these tensions have already appeared in the last three years in the form of a rapid inflation and, more recently, in the form of shortages of power and several raw materials and in the running down of agricultural stocks. Great pressure has been put on the available supply of goods and services by the accelerating de- mand for resources for investment by both the public and private sectors, by the rapid increase in private consumption, and by the net surplus in the balance of payments (despite the rapid growth of imports). This has led to the over- heating of the economy and to physical shortages. In this situation, stabili- zation policies involving management of demand, adjustment in resource allocation and increasing supply to avoid foreseeable bottlenecks gain in importance both in the short and medium terms. While rapid economic growth is expected to continue in the medium term, various social problems may be accentuated. Rapid inflation, unless controlled, will also continue to erode the real incomes of fixed income groups and of producers of goods and services that have fixed or "sticky" prices. Urban unemployment will probably continue to rise, despite substantial emigration of workers, unless some shift in the allocation pattern is effected. Improvement of the lot of slum dwellers in the cities and of the traditional agricultural regions would also seem to continue to be accorded a low priority. In sum, the gap in the living standards of various groups in the cities as well as in agricultural areas will probably continue to widen. If this social aspect of growth is to be considered, various economic policies in addition to a shift in the investment allocation pattern will have to be oriented in that direction. Within this framework, several questions related to economic policies during the Third Plan period are discussed. These include: (i) demand management aiming at price stability and growth through monetary and financial policies, trade and exchange policies, and fiscal and external debt policies; (ii) the role of public investment policy and Government policy toward private investment; and (iii) social policies affecting employment and regional and urban development. A. Price Stabilization Policies The price policies actually followed in the last two decades reflected the attempt to accommodate conflicting partial objectives without any clear coordination, either as to priorities or means, and were often even incompatible. - 47 - As a result, they have been accompanied by large price distortions between the various sectors of the economy, affecting resource allocation and income dis- tribution and, in some respects, having contributed indirectly to inflationary pressure. The Government tried to control price movements in some fields while in others prices were allowed to fluctuate. The price of foreign exchange was kept constant in spite of fast domestic price increases in the mid-fifties and sixties, thus leading to delayed and drastic devaluations in 1958, 1960 and 1970. Interest rates ceilings and subsidies on interest are determined by the Ministry of Finance and the Central Bank. The Government attempted to protect consumers against inflation by maintaining at a low level prices of basic ser- vices, such as transport, fuel, electricity and the retail price of basic food- stuffs. It tried to protect the producers against inflation by controlling the price and subsidizing inputs into industry and agriculture as well as by sup- porting agricultural prices. These price policies have had several undesirable economic and social effects. With exchange rates fixed the international price competitiveness of Turkish industrial goods deteriorated during periods of rapid inflation although the 1958 and 1970 devaluations corrected this situation temporarily. (See Chapter 7.) Though the price policies in the agricultural sector contributed to rapid production increases in export crops and price and income stability, they resulted in serious allocative inefficiencies and equity disadvantages (Chapter 10). The Government policy of maintaining low and stable prices of SEEs' output contributed to large deficits and poor savings in this sector and consequently adversely affected public savings and investment. Price rises in SEEs' products early in 1974 have corrected the widening gap between sales and costs. The consumer price indexes for eleven cities seem to indicate that, while inflation spread quite uniformly in the various regions of the country during 1968-72 (Table 9.2), it spread unevenly in the various sectors of the economy through the price system. The changes in terms of trade between agri- cultural and industrial raw material prices and the fast growth of urban wages in the sixties indicate a deterioration of the relative income of the rural population during the whole period in spite of the agricultural support price policy. Future price stability in Turkey is thus highly desirable on both economic and social grounds. Its achievement, however, is difficult, given the strong demand pull and cost push forces that are fueling the current galloping inflation and the inherited rigidities in the extensive price control and trade and exchange systems. The immediate short-term aim of the Government has been and will continue to be to slow down price rises to a politically acceptable rate--e.g., that which is prevailing in the economies of Turkey's major trading partners. This can probably be achieved after an initial upward adjustment if an appropriate combination of policies is effectively implemented. A wide range of general policies and specific measures can be considered, which would include the following: (a) Increasing the supply of goods, particularly of key inputs. This may be furthered by encouraging the full utilization of existing production capacity; by giving high priority to productive projects which are close to completion; by relaxing import quotas considerably, even for competing - 48 - industrial and raw material products (with appropriate tariff protection at the start)--e.g., steel, fertilizer, tractors, and consumer goods generally; and by discouraging exports of goods needed in the domestic market--e.g., by reducing export incentives, allowing a rise of the domes- tic price to the f.o.b. level or by direct export quota or prohibition. Some measures along these lines were taken in 1973; for a broader application, a system for monitoring changes in supply and demand of key goods and services would be needed to anticipate impending shortages. (b) Reducing costs of production and increasing competition in the domestic market. Besides general efficiency-promoting methods, this can be furthered by exposing the strong and more profitable industries to greater competition from imports by tariff reduction and by shifting their products into the liberalized list, by establishing price ceilings which are related to costs of imports and world prices, and by restraining the rise in wages and salaries close to productivity increases. (c) Restraining the growth of demand for goods and services which are in short supply or which are underpriced. This applies particularly to fuels, power, domestic air trans- port and some minerals and metals, and such other inputs as demand and fertilizers. This can partially be achieved only by initially raising the price of the underpriced productl/ and by raising indirect taxes (or reducing sub- sidies) on others as well as by reducing demand for final goods and services in which they are inputs through tax and other more direct means. (d) Restraining the growth of general demand through appropriate monetary, credit, fiscal, public debt and investment policies. These are discussed below in some detail. Policies of such widespread scope and impact will clearly need con- tinuous review, and their formulation and implementation would require coordi- nation at various levels among various Government agencies. In response to this problem, an Interministerial Committee was established in the spring of 1973 to deal with the issue of price inflation. A permanent subcommittee of Undersecretaries and a Secretariat from the SPO was assigned to help in the coordination of price stabilization policies; its effectiveness will depend, among other things, on the technical support the committee gets and the flexibility of the Administration in responding quickly to changed circum- stances and changing needs. B. Monetary Policy Price movements have been very closely associated in the past with the rate of growth of the stock of money relative to real demand. The real l/ Compare measures taken in early 1974 and referred to on pages 48 and 78. - 49 - demand for money is linked to the level of real output, which has not kept pace with the fast growth of money supply. Equilibrium between the supply of and the demand for money has been brought about by an increase in prices. Re- straint in monetary policy will have a very important role in demand management to achieve price stabilization. The two most important determinants of money supply are Central Bank credit to the Treasury and that for agriculture, both of which are fixed by Government policy. Since 1970 the growth of net foreign assets has been very influential but has so far been less amenable to policy control. Central Bank credit to State Economic Enterprises was a major influence on the growth of money supply until 1960 when such credit also began to be severely restricted. Central Bank advances to the Treasury are influenced by the size of the budget deficit and the extent to which the Government is able to borrow from other sources. Short-term advances to the Treasury have increased rapidly in the last decade, primarily as a result of the expanded public investment program and shortfalls in public savings. They are legally limited, however, to 15 percent of the general budget expenditure. Central Bank credit to agricultural agencies is determined primarily by the needs created by price support policies and harvest surpluses. High purchase prices and inadequate margins to meet operating costs were responsible in the past for the borrowing needs of the Soil Products Office, the Agricultural Sales Cooperatives, and the Monopolies which administer the price support program. Net foreign assets of the banking system showed no growth from 1952 to 1970 but have grown very rapidly since, due mainly to the accelerated inflow of workers' remittances and improved exports. While these net inflows have very obvious economic benefits, it should also be recognized that they contribute significantly to inflationary pressures in the economy. The sudden expansion of convertible lira deposits from abroad in early 1972 exerted further expansionary influence on money supply. The recog- nition of Turkey's improved balance-of-payments position and prospects, the relatively low interest rates and excess liquidity in European money markets, and the exchange rate guarantee provided by the Turkish Government on conver- tibility of these deposits all combined to raise their volume from $135 million at the end of 1971 to $463 million at the end of 1972. Under the prevailing regulations, they were used as a cheap source of short- and medium-term credit by Turkish industrialists. They also provided a base for expansion of money supply, especially as they were classified as interbank deposits exempt from reserve requirements. Convertible lira deposits were partly responsible for the increase of 32 percent in bank credit to the private sector in 1972. Various measures taken in 1973 have already resulted in the reduction in con- vertible lira deposits and should gradually eliminate them over the next two years (Chapter 7, Annex 2). It is clear that monetary policy has to be closely coordinated with effective fiscal and public borrowing policies. Restraining the growth of money supply in the future would need action on four fronts: (a) containing budget deficits; (b) tapping private liquidity to finance budget needs and offset excessive growth of deposits; (c) applying more direct restrictions on the growth of deposits through the adjustment of the reserve ratio, reducing Central Bank rediscounts and advances; and (d) more selectively controlling credit and variation of the rates of interest. Otherwise, the result will be, as in the past, inflation and a slower growth of real public investment. - 50 - To finance budget deficits and agricultural-support programs, the Central Bank should very strictly limit finance for such purposes. The public sector should rather step up its sales of bonds to the nonbank public (or even to commercial banks other than special law banks) and reduce its borrowing from the Central Bank. The credit needs of agricultural price-support agencies should be met from the commercial banking system (including the Agricultural Bank) or through sale of short-term Treasury bills, and the Central Bank should no longer play such a major role in financing these credits. A measured increase in reserve requirements on deposits (with appro- priate differentiations) will directly and effectively restrain the rate of growth of stock of money and reduce the potential growth of credit. This is likely to be less resented by the banking system if part of the sterilized reserves earn a reasonable interest, which would bring them close to being an obligatory purchase of low-yield bonds. The reserve ratio was increased in fact from 25 percent to 30 percent late in 1973. However, this instrument has to be used discriminately, considering the reported recent drop in bank liquidity. In the short run it may also be necessary to consider ways in which the credit of the banking system can be more directly restrained. The imposi- tion of credit ceilings is probably undesirable. They are difficult to enforce and will add to the rigidities of the Turkish capital market. Reducing Central Bank rediscounts and advances to specific sectors will restrain the expansion of credit in those sectors. It may also be desirable to discourage some types of short-term commercial credits, which have grown very rapidly in recent years, in order to restrain the rapid growth of consumption and increase the incentive of the banks to finance production and investment. The role of interest rates in restraining the rapid growth in money supply is indirect, but its allocative role is important. The structure of interest rates should ensure that the restraint of aggregate credit expansion does not unduly interrupt the availability of credit for priority needs. The level of interest rate has a more fundamental role in influencing the volume of credit, in effecting the ability of governments and corporations to mobil- ize savings through sale of bonds to the public, and possibly in influencing the rate of private savings. Raising the interest rate level or removing most of the ceilings on interest rates should be seriously considered at the present stage in Turkey. This would bring the rate in the present inflationary situation closer to the real levels of interest prevailing in Europe and other countries. It would help mobilize savings through expansion of time deposits (as demonstrated in the past) and encourage growth of the bond market, both necessary for the achievement of the Plan's savings and investment targets in the framework of monetary stability. Conversely, it would help restrain the rapid expansion of credit, increase competition for available credit, and consequently divert it to the most remunerative activities. Freeing the interest level does, of course, involve a rise in the cost of borrowing by the Government. This, however, is an accounting (not a real cost) to the economy, which is a small price to pay for the expected advantages. Possibilities of controlling the effect of the rapid growth of workers' remittances on money supply is difficult because neither their rate of growth or the final use of their TL counterpart is under Government control. To mobilize a part of the growing remittances to finance investments, the - 51 - Government is trying to encourage workers abroad to form joint investment ventures and has recently allowed foreign currency deposits accounts to be opened in the Central Bank by emigrant workers if such deposits are earmarked for purchase of Turkish securities (in the meanwhile they earn 2.5 percent interest rate and can be withdrawn). Although the inflationary effects of growing remittances should be handled essentially through appropriate import and external debt policy (see below), monetary policy can insulate money supply from a continued rapid growth in foreign exchange reserves or offset their expansionary effects through other contractionary measures. The serious- ness of this issue has been reduced, however, due to the change in the prospects of continued rapid growth of remittances and the higher import prices of oil and other raw materials. One possible measure that could lead to the "sterilization" of some of the capital inflow is to expand the use of foreign exchange deposit accounts by residents and emigrant workers, such accounts to earn interest at comparable levels prevailing abroad. Such a measure would require that banks are at the same time allowed to invest freely abroad and repatriate investment yields freely--i.e., a departure from the existing strict exchange control system. Another measure that could keep reserves at a reasonable level is for the Central Bank to extend medium-term loans in foreign exchange to investment banks, such as TSKB (Industrial Development Bank of Turkey), SYKB (Industrial Credit and Investment Bank), SIB (State Investment Bank) and Iller Bank to finance imports by their clients and accept their bonds or bills (denominated in foreign exchange) in currency cover. Such a measure would require an amend- ment of the existing legislation and would raise questions as to who would carry the exchange risk and what would be the appropriate interest rate. To achieve their monetary goal, these loans should finance additional imports either to replace external borrowing or to finance public projects which otherwise would not have been financed due to foreign exchange shortage. These measures can be further extended if the commercial and investment banks themselves were allowed not only to receive foreign exchange deposits and to invest them abroad but also to make foreign exchange loans domestically. This, of course, would involve extreme liberalization of the exchange and import control system and needs to be considered only if the recent restrictions on workers' emigration proved to be temporary. C. Financial Policy The fast growth of money supply has been paralleled by the growth of financial institutions. Financial assets have grown at 7.6 percent per year from 1963 to 1971, whereas real GNP has grown at 6.8 percent. The ratio of monetary liabilities to GNP has grown from 0.20 in 1952 to 0.32 in 1972. This process of monetization has been aided by the declining importance of the non- monetized subsistence agriculture, by the rise in interest rates in 1961 and 1970, and by the accelerating flow of workers' remittances from abroad. The banking system has been responsible for most of the growth of financial assets. The increase in their assets represents 11 percent of the rise in GNP from 1963 to 1971, compared to one percent for the development banks and 3 percent for the issue of direct debt, including Government bonds and corporate stock. During 1952-71, while money supply increased at 14.1 percent year year, monetary liabilities (including quasi-money) increased at the rate of 17.6 percent per year, reflecting a rising propensity--particularly in recent years--to hold money in the form of deposits. Time deposits have grown from 0.5 percent of - 52 - GNP to nearly 9 percent in 1972 and now amount to one-third of all monetary liabilities. The growth of development banks has been aided by the expansion of compulsory social insurance to all wage earners. The surplus from the social insurance funds has been exclusively responsible for the rapid growth of the State Investment Bank, which finances State Economic Enterprises. However, insurance has played a small role in the mobilization of financial savings. Total assets of all insurance companies have remained at about one percent of GNP through the last decade. There has been very little growth in financial assets outside the financial institutions. Total "direct" financial assets (defined as Government bonds, corporate bonds, and corporate stock) have fallen from 38 percent to 29 percent of GNP from 1963 to 1971. Nearly half of this category of assets is Government debt, mainly long-term Government bonds sold primarily to financial institutions and compulsory savings bonds which have since been replaced by an equivalent tax on income. The sale of bonds to private, nonfinancial entities aggregated only TL1.9 billion, 21 percent of total Government bond sales. The nominal share capital of registered companies increased by TL15 billion during 1963 to 1971, about 2 percent of GNP during this period. This is not very significant since almost all the firms in Turkey are owned by small numbers of shareholders, and the increase in nominal capital simply reflects the intention of injecting more capital into the firm. At a rough estimate, a little over 60 percent of private investment in the last decade has been financed out of the entrepreneurs' own resources. About 36-38 percent has been financed by banks, and the use of direct debt (corporate bonds sold to the public) has been negligible until recently. This is the result of pervasive restrictions on the movement of funds between financial institutions, the existence of specialized financial institutions--such as the State Investment Bank--and the high priority accorded to agricultural financing by the Central Bank. The lack of development of the corporate equity market has been fre- quently noted in policy discussions in Turkey, but efforts to pass legislation aimed at widening shareholding have not been successful. If the pattern of investment financing were to remain the same as in the last decade, the total fixed investment targeted in the Third Plan (TL281 billion in constant prices) would require that the medium- and long-term assets of banks (including development banks) should expand at approximately 18 percent per year at constant prices, compared with 7.5 percent actually in the past decade. This seems extremely unlikely. The forecast deficits of the social funds make a major expansion in development bank assets dependent on external resources, and inflationary financing will erode the real value of nominal increases in assets. This highlights the major transformation in financing policies and practices required if the financial system is to contribute ef- fectively to mobilization of capital and to financing a larger share of invest- ment without excessive inflation. There are two principal and interrelated areas where action is nec- essary. The first is to step up the sale of fixed-interest, long-term secu- rities to the nonbank public. This has already begun but should be considerably increased. (In 1972 the Government sold TL641 million of long-term bonds to private persons, and private corporations issued TL196 million of bonds during - 53 - the first five months of 1973.) The other major area is the mobilization of workers' remittances into Turkey. Although there is little detailed knowledge regarding the ultimate use of these funds in Turkey, much of it is consumed while some part goes into scattered, small, ill-planned investments, including agricultural investments and land purchase. It is necessary, therefore, to obtain more data about the use and recipients of workers' remittances and to fashion financial instruments that will tap these resources. Reform of the interest-rate structure is an essential ingredient of both the successful sale of long-term bonds to the nonbank public and the direction of workers' remittances into financial assets. It is essential that financial assets should offer an attractive rate of return to savers, which is not the case with prevailing ceilings on interest rates. While the Third Plan does recognize the importance of reforming the interest rate structure, there is no evidence that it will be reflected in actual policy. Indeed, in early 1973 the nominal interest ceilings were reduced for time deposits between six months and two years, and the accelerated rate of inflation has seriously reduced the real return available on all financial assets. These developments reduce the incentive to hold financial assets and will make it more difficult to mobilize savings to finance fixed investments in both the public and private sectors. D. Fiscal and Borrowing Policies The large and rising investments undertaken by the public sector during the past two decades (see below) and the concomitant increase in current spending imposed a continuing strain on public financial resources despite the Central Government's success in raising tax revenue. This strain was aggravated by the results of the Government's pricing policies concerning agriculture and the State Economic Enterprises, which required substantial subsidies. Under these circumstances, the public sector has experienced a shortage of financial resources and has covered its deficit partly with limited amounts of long-term external borrowing but mainly by recourse to short-term advances from the Central Bank, which has been a major factor behind price inflation. Available evidence indicates that the public sector has probably improved its saving performance during 1962-72 period with the exception of 1971 when public salaries and wages were substantially raised. Evidence sup- porting this conclusion includes the good tax record of the Central Government and the incomplete series of saving figures for the SEEs. The small savings of local governments have probably declined. Tax receipts of the Central Govern- ment reached 18 percent of GNP in 1972, including quasi-taxes (23 percent of GNP). With such a ratio, it will probably become increasingly difficult to achieve further improvements in tax revenue as new revenue sources become limited and raising tax rates becomes more difficult. Nevertheless, several possibilities of increasing tax revenue exist, including further improvements in tax administration and collection of taxes, raising the coverage of agri- cultural income taxation (less than one percent of the farms now), introduction of a value-added tax which would eliminate the favorable tax treatment now received by small businessmen, gradual increase in the presently low rates of real property taxation, and liberalization of imports (which would make up for the losses of import tax collections). Nontax receipts could also be substan- tially raised above current levels in at least two areas: the area of user - 54- charges and profit transfers and of dividend payments by publicly owned enter- prises to the Government (Chapter 5). On the expenditure side, it is likely that a significant expenditure overrun will have to be incurred in order to maintain the Government's capacity to undertake planned investments and to support planned developments in the sectors concerned during the Plan period. The discussion of prospects for tax revenue--SEEs' saving and current spending during the Third Plan period (Chapter 5)--indicates that the saving target for the public sector is probably too ambitious since there is a likelihood of a small shortfall on tax revenue, an overrun on current spending, and a sizeable shortfall on SEEs' savings. The overall deficit of the public sector is likely to remain at around TL5 billion a year instead of declining and turning into a small surplus by 1977 as ex- pected by the Plan. Under these conditions, unless the Government is willing to reduce its investment expenditures or reverts to excessive borrowing from the Central Bank, more active borrowing policies would be needed domestically and abroad. The Treasury should substantially increase its long-term borrowing, which would reduce the Treasury's need for short-term borrowing from the Central Bank and create the possibility of using part of the bond proceeds to retire short-term debt with the Central Bank, thus leading to a multiple reduction in overall bank credit. The success of the Treasury's long-term bond issues in 1972 and 1973 (about TL4 billion) opens new possibilities to use the management of domestic debt as a means of influencing money supply. The better balance of payments and the concurrent increase in liquid- ity of the economy have created conditions favorable to placing more long-term Government bonds with the public. The special features of these bonds (tax- free, 9 percent annual interest and redemption on demand) make them an attrac- tive instrument for private investors, especially members of the professions. In addition, consideration could be given to enabling the strongest SEEs to issue their own long-term bonds without Government guarantee (but subject to Treasury approval), which would be made easier if the reform plan of the SEEs sector is carried out. Short-term budgetary policy In the past the Government has generally given less emphasis to short-term budgetary policy than to the achievement of public investment tar- gets. A more-active, short-term budgetary policy would seem desirable in the future. The Third Plan states that "the short-term aim of fiscal policy is to preserve the general stability of the economy" and calls for changes in the tax system which would give the Government powers to use taxation to counteract cyclical conditions in the economy. Few governments in the world have been successful in this field and, failing that, adjustments in the levels of public expenditures and domestic borrowing will remain the main budgetary instruments to influence domestic demand in the short run. There is a need to draw up annual borrowing plans which would be better related to its objectives for price inflation and exchange reserves than they were in the past and a need to keep these plans under review during the fiscal year with a view to adjusting them in case of unforeseen developments. - 55 - E. Public Investment and Incentives Policy Public investment in Turkey has played an important and growing part in economic development since the 1930s in the framework of a mixed economy system. Within the public sector the share of the SEEs in public investment has also risen from 45 percent in 1960 to 52 percent in 1972. The Third Plan devotes considerable space to the principles of the mixed economy. Starting from the premise that the country's long-term objectives for industry would be attained through reliance on private initiative only at the cost of excessive incentives, it argues that "it would be more rational for the Government directly to indulge in entrepreneurship than to bear most of the risk and financial bur- den while letting private hands do the managing." The Third Plan target is to increase the share of public investment in total investment to 56 percent (com- pared to 52 percent during 1963-72 and 40 percent in 1950). While the public sector initiative in prompting rapid industrialization and in achieving other Plan targets is both encouraging and justified, the growing initiative and expansion of the private sector in recent years has high- lighted the competition of the two sectors for available resources and the di- vergences in the priorities they attached to sectoral and subsectoral invest- ments. Such tensions are not avoidable and are, in fact, healthy. Government policy, however, has to take greater account of autonomous trends in the private sector under these conditions and to adjust its own claims in the interests of both stability and growth. A case can be made for reducing the traditional heavy interventions as far as possible and allowing a greater play of market forces in ensuring efficiency. Table 9 PUBLIC FIXED INVESTMENT 1963-67 1968-72 1973-77 Actual Estimate Plan Public fixed investment (TL billions, 1971 prices) 50.2 82.8 158.4 Annual rate of growth, % 11.7 9.0 12.0 Percentage of GNP, last year of period 9.2 10.9 13.4 Percent of Total Agriculture 18.4 13.3 11.0 Mining 7.8 5.0 8.5 Manufacturing 12.2 21.2 27.1 Energy 11.2 15.0 14.0 Transportation 22.6 22.0 20.1 Education 12.3 8.6 8.4 Health 3.1 2.6 2.4 Housing 3.5 3.6 1.4 Other 8.9 8.7 7.1 One aspect of public investment strategy has been the dispersion of investment activity over a wide range of projects which, given the financial and managerial constraints, has tended to lengthen the construction period of - 56 - projects and led to a large number of incomplete projects, thereby delaying the returns to investment. The Third Plan gives special emphasis to the completion of ongoing projects and, in the first three years of the Plan, the majority of public investment is planned for the completion of such projects. The high-investment targets have also been fixed without contingency plans with the result that cutbacks in public investment in periods of resource shortages were made ad hoc with some adverse effects on priority investments. Another aspect of public investment strategy has been the excessive reliance on public savings to meet the investment targets. The planning ex- perience shows that Plans have (a) overstated the savings potential of the public sector and had to face a continuous shortfall in public savings, and (b) neglected the potential for increasing private savings and mobilizing such savings through improvements in the capital market--i.e., improving availability and return on financial assets. With consistent shortfalls in public savings, attempts were made to maintain public investment targets through preempting already mobilized savings and inflationary recourse to Central Bank credit. The institutional framework (with the State Investment Bank, Social Insurance and Pension funds and compulsory savings bonds) is such that the Government had access to "captive funds" which public sector enterprises got at relatively low rates of interest with the result that large funds did not flow through the capital market and therefore did not benefit from its allocative function. Second, through Central Bank financing "forced private savings" resulted, which were appropriated by the Government (see above "Monetary Policy"). SEEs' policies Investment in State Economic Enterprises has grown at a fast rate with mining, power, coal, petroleum and steel growing above average (Table 10). Investment in manufacturing SEEs after rapid growth in 1969 has slackened off in the last few years. The growth of the SEEs sector has been accompanied by serious financial difficulties. While fixed investment amounted to 4.7 percent of GNP in 1972, SEEs' own resources were only 1.3 percent of GNP. The rate of return for SEEs (net profit before tax as a percentage of the book value of net fixed assets) was only 2.7 in 1969 and only 0.9 during 1969-71. The profit performance is even less satisfactory if one takes account of the cheap long- term financing available to them (e.g., in 1969 the interest payments on out- standing debt had an average of only 3.9 percent). These overall indicators hide sharp differences among SEEs. Three enterprises, State Railways, Maritime Bank and the Coal Corporation, accounted for 80 percent of the financial losses of the SEEs during 1962-72. Manufacturing SEEs have shown increasing profits and rates of saving. A number of common problems have affected adversely the performance of all SEEs in varying degree. These include excessive rigidity in management and pricing due to Government controls. Interference by Government and frequent changes in management have made it difficult for SEEs to introduce programs for improving productivity. Further, most of the SEEs have been bound by Government decisions to restrain prices despite cost increases, particularly since 1969, while a few have enjoyed monopoly rights over competing imports enabling them to charge high prices for costly local products. Political pressures have also constrained many Enterprises to keep redundant employees on their payrolls while, on the other hand, low pay scales of public employment made it easy for the private sector to attract away key managerial and technical staff. Some - 57 - of these problems arise from the Government's use of the SEEs sector to achieve various social and political purposes, such as the development of backward areas, the provision of maximum employment, and the sale of essential goods and serv- ices at low prices. An explicit statement of the social and general economic objectives of individual SEEs should be made and specific subsidies allocated to meet such objectives to enable a clear assessment and improvement of the operational efficiency of the SEEs. Table 10 FIXED INVESTMENT BY STATE ECONOMIC ENTERPRISES 1962 1967 1972 Total investment (TL billions, current prices) 1.5 3.1 11.1 Percent of Total Agriculture 3.7 5.0 2.1 Mining and Power 7.7 12.4 25.8 Coal, Petroleum and Steel 24.4 22.2 38.1 Manufacturing 18.8 24.2 6.3 Transport and Communication 23.5 17.8 21.3 Financial SEEs 11.8 18.4 6.4 Source: Table 5.12. The Third Plan finds faults with the existing SEEs system, its or- ganizational structure and its neglect of marketing, cost-accounting, purchasing, stock control, research and programming. These faults affect adversely the efficiency and productivity of the SEEs sector. It outlines a reform plan to improve the SEEs' efficiency and productivity. In two annexes, however, the Plan states principles for pricing and investment by SEEs, which are funda- mentally the same as those that have guided the SEEs sector in the past. The Government subsequently prepared a reform plan for the SEEs sector which sets efficiency targets and provides for an administrative reorganization, including particularly provisions enabling producing SEEs to compete in hiring managers, engineers and technicians under contracts and outside the civil service regu- lations. The plan also provides for a special body to coordinate SEEs' activ- ities with the policies of the ministries concerned and for an upper body headed by the Prime Minister to determine overall investment policies. Under the plan SEEs will be combined into holding companies for the various sectors. The bill for this reform plan is pending in Parliament. The application of its provisions concerning autonomy and hiring should be pursued, and the pricing policies should be revised with a view to increasing flexibility. Investment incentives Besides direct investment in production activities through the SEEs, consecutive governments have attempted to promote private investment in desired directions through a complex system of incentives. The favored areas have been industry, agriculture, export activities and underdeveloped regions. The in- centives served partly to offset high costs brought about by various controls, - 58 - e.g., an overvalued exchange rate or a high tariff. In recent years generous incentives have been credited with raising the volume of private investment as well as diverting it to priority sectors. The view is also held that their influence in private investment decisions is marginal and that they only tend to accentuate the profitability of limited investment. The extent of incentives provided has been very significant. However, a major problem with the incentive schemes has been that the Government has not analyzed the effectiveness of the schemes to achieve desired goals; the costs and distribution of incentives by sectors is only partially known, and the granting of incentives in the past has been on an ad hoc basis leading to charges of favoritism. Consequently, an overall evaluation of the costs and efforts of incentives is difficult. An incentives bill at present before Parliament is supposed to be a comprehensive one, clearly outlining available incentives and rates for different types of activity. If passed, it is expected to help maintain a better record of the cost and distribution of incentives and to make the granting of incentives more equitable. The declared aims of industrial incentives are to stimulate industrial development within the priorities set by the Five-Year Plans and, over the long run, to make Turkish industry more competitive in the framework of the EEC membership. As a result of high tariffs, the import control regime, and the high cost of domestic production of industrial inputs, costs of production in various branches of industry have been high. Over the years a system of tax and tariff exemptions, rebates and concessions have been adopted to offset these cost-raising factors rather than directly tackle the reform of the import and fiscal control mechanisms. The main incentives as they stood in late 1973 are discussed below. The investment allowance sharply reduces the corporate tax liability in the initial years of the investment. Investments in eligible sectors of TL300 thousand or over are allowed to deduct 30 percent of the value of invest- ment financed out of equity from taxable corporate income (50 percent in under- developed regions). The 100 percent exemption from customs duty and other taxes on imports are authorized mainly for investment goods in sectors defined in the Annual Program, although some basic raw materials may be granted full exemption. Deferment of import duties and taxes ranging from two to five years has the effect of reducing the cost of imports and the demand on a firm's liquidity in the early stages of investment. Finally, interest rate subsidies are supposed to be paid for credit to priority areas but, due to shortage of budgetary re- sources, these subsidies have not in fact been paid. Although this complex system of incentives has been built up, the costs in terms of revenue loss are not fully known; the Government has not analyzed their effectiveness or the cost of alternative subsidy schemes. In the absence of such information, an indicative exercise was done for one firm that is eligible for maximum available incentive benefits. All incentive bene- fits amounted to about 54 percent of total investment of which customs exemption was the most important, accounting for 54 percent of total benefits; the invest- ment tax allowance and tax rebates accounted for about 20 percent each. In 1972 the estimated cost of total incentives was of the order of $400-500 mil- lion--i.e., 14-18 percent of 1972 budget revenues. With these orders of mag- nitude and the growing importance of industrial investment, it is essential to maintain a better record of the costs of the incentive schemes by type of - 59 - incentive and industrial branches. Without such data the definition of a more rational incentive policy would be impossible. The incentives granted have undoubtedly spurred industrial investment in the private sector. This is evident from the fact that the suspension of incentives during 1971 with the aim of rationalizing the structure had an ad- verse effect on private investment, and their re-introduction in 1972 led to a spurt in investment activity. However, the sectoral allocation of incentives seems to be unbalanced--e.g., in 1972 the textile sector accounted for nearly half of the investments approved for incentives, and chemicals and foodstuffs accounted for another one-fourth. Export incentives Though export incentives for nontraditional goods were introduced in the sixties, they had little impact on exports because the combined adverse effects of the overvalued exchange rate, import controls, high import duties and other taxes more than offset the export incentives, thus making production for the home market more profitable. Since the 1970 devaluation, however, the export incentives have played an important part in promoting exports. The system of tax rebates for manufactured exports, started in 1963, had an elaborate system of determining these rebates by commodities but was simplified in 1970 to a number of commodity lists which provided for a certain percentage of the export value for each list. The 1973 system had six lists with rebates of 5-25 percent of export value (10 percent more for exporters whose total exports in the previous 12 months exceeded $1.2 million). The value of tax rebates paid as a share of eligible exports has substantially increased from 12 percent in 1964 to 22 percent in 1972 due to expanding in- dustrial exports and expanding coverage of the rebate scheme: the ratio of eligible exports to total exports has risen from 2 percent in 1964 to 26 percent in 1972. Sectors receiving the highest rebates in value terms have been food products, textiles, chemicals and nonferrous metals, followed by cement, leather and wood products (together accounting for nearly two-thirds of tax rebates in 1972). Maximum lending rates for export credits have been lower than the general lending rates for both short- and medium-term credits (e.g., the present rate for short-term export credits is 9 percent compared to the general rate of 10.5 percent--Table 6.1). The Central Bank rediscount rates are also lower in the case of export credits. In addition, there are supposed to be interest subsidies for export credits. Net of this subsidy, export credits in 1973 would cost only 6 percent per annum. However, due to a shortage of budgetary resources, these subsidies have not been paid in the last two years; but the Government intends to adequately fund the interest subsidy schemes. In addition, the retention of foreign exchange by exporters from the proceeds of nontraditional exports has been an important incentive in the past. Prior to August 1970 up to 50 percent of export earnings could be allocated for use by the exporter for import of needed raw materials and components (typical allocations were 20-35 percent), but after that the rate was reduced to 25 percent. - 60 - Agricultural incentives The main incentives in agriculture are through minimum price support for various crops and, to some extent, through subsidized supply of inputs like water for irrigation and credit. The price-support policies have contributed to stability in agricultural prices and incomes. They have permitted, if not actually encouraged, rapid output increases in the export crop sector--e.g., cotton and hazelnuts and in fruits and some vegetables. However, the benefits gained from stable and regionally uniform prices are offset by serious dis- advantages. The absence of regional price differences has prevented regional specialization of crops and investment in storage facilities by the private sector. A uniform price for wheat has penalized the producers of high-quality hard wheat on the plateau while giving an unfair advantage to lower-quality producers in the coastal region. The price support seems, in some cases, to be higher than it need be, particularly in tea, tobacco and hazelnuts; this has led to costly surpluses and, in some instances, encouraged low quality and discouraged productivity gains. The practice of announcing the support prices near harvest time has meant that they do not influence resource allocation. Another effect of the support programs has been the retarded growth of non- intervention products because the supported crops preempt land and other input use, particularly when they are associated with powerful institutions like the Sugar Corporation and the Soil Products Office, which can get the needed resources. About half of the investment in agriculture in the last ten years went to irrigation, and only a small proportion of irrigation and land im- provement costs of public sector projects are recovered by water charges. Since irrigation is a major factor permitting increased use of fertilizer and ma- chinery, both of which are subsidized, this has meant a substantial incentive for crops grown in irrigated areas. It has been particularly important in the case of cotton where, despite slow growth in cotton prices, net returns from cotton growing are substantial. Lower interest rates and interest subsidies have also been used as agricultural incentives. The maximum lending rates for agriculture in 1973 are 1.5-3 percent lower than the general rate; in addition, a one percent subsidy is supposed to be paid by the Government to the borrower (Table 6.1). However, although public credit to agriculture has increased substantially, a large proportion of the credit has been to the price-support agencies; the provision of credit to the farmers for productive purposes has been inadequate. Regional incentives In incentives provided for various purposes, a higher rate is appli- cable when it benefits regions that are classified as underdeveloped (Part III, Map 1064a). For example, the investment allowance for underdeveloped regions is 50 percent compared to 30 percent for other regions, and the interest sub- sidies announced for 1973 are increased by one percent for investment credits for underdeveloped regions. Although these incentives for promoting regional development increase the profitability for investors in outlying regions, they seem to have been insufficient to offset the disadvantages of relatively poorer availability of infrastructure, supporting services, and so on, compared to the more advanced regions. Direct action in terms of location of public enterprises has had a greater impact on regional development than these incentives. Vigorous - 61 - promotion measures would be needed to attract more private enterprise to the underdeveloped regions. F. Exchange and Trade Policy Turkish foreign trade and exchange policies have been shaped by chronic foreign exchange shortages through the fifties and sixties with com- plex and extensive controls throughout the period which varied in severity, depending on foreign exchange availability. The control system has been successful in curbing the total flow of imports and in favoring imports of raw materials and investment goods at the expense of finished consumer goods, which fell from about 20 percent of total imports in 1950 to 5 percent in 1972. However, it has implied high costs to the importer and to the economy. Tariffs and other charges have had a strong, direct effect on the prices of imported goods--e.g., with a tariff rate of 20 percent, the cost to the importer as a result of these charges could be as much as 110 percent higher than the c.i.f. price in the late sixties. The system of import allocations led to higher inventory requirements and underutilization of capacity in many cases. Limited data available show that the ratio of domestic wholesale prices to the landed cost of imported commodities varied substantially (1 to 4 in the sample covered), which indicates that a higher rent accrued to import license holders as a result of stringent controls. The effect of the strict exchange control and overvalued currency in discouraging the growth of exports, especially manufactured goods, was partic- ularly serious. The strong export response in the years immediately after the devaluations in 1958 and 1970 is a striking indication of this. Another impor- tant effect of high protection has been the encouragement of investment in high-cost import substitution industries. Protection, which was absolute in some cases, reduced or obviated the check on cost effectiveness. For the future with the markedly improved foreign exchange availa- bility, Turkey currently has policy options in the external sector. The first option, outlined in the Third Plan, is to aim at a declining dependence on foreign aid with a relatively low growth of imports. With the planned fast growth of output and investment, to maintain a low import elasticity would imply a continuation of the import control mechanism and the resultant costs to the economy discussed above. A second and feasible option is to use this period of better foreign exchange availability to liberalize imports by con- tinued inflows of external assistance and some drawing down of reserves. This would have the advantages of gradual reduction of import controls, fuller utili- zation of capacity, improvement of the cost competitiveness of domestic industry, and help in controlling inflationary pressures. In August 1973 various trade policy changes were announced: the addition of $250 million to the Regulatory, Reserve and Price Stability quota to increase imports of goods in short supply in Turkey; reduction of the custom duty rates to a nominal one percent on various items; and abolition of the preprice control system for imports. In addition, exports of some goods were banned, others were made subject to license, and a list of goods was announced on which restrictions could be announced if domestic demand warranted. The export tax rebate was also reduced on some goods. - 62 - These measures should help to check current inflationary pressures in the short run. In addition, serious consideration should be given to re- orienting exchange and trade policy for the long term. The continued liberali- zation of imports is needed both in the short run to counter inflation and in the long run to align domestic costs with the EEC during the transitional phase of the agreement. Liberalization would imply not only a higher volume of im- ports but also (i) gradual replacement of quantitative restrictions by tariffs, (ii) simplication of the various charges on imports for administrative ease and speeding up the processing of imports, and (iii) the gradual reduction of taxes and other charges on imports to reduce domestic costs of production and improve competitiveness. These measures would imply major changes in the con- trol mechanism and, therefore, would be feasible only gradually. However, such an opening up would be essential, given the need. The revenue losses resulting from unit reduced charges on imports should be partly offset by higher imports. Substantial exchange rate changes at long intervals have been under- taken in the past with resultant high costs. Given the long history of controls, the system of taxes/subsidies on trade which lead in effect to multiple exchange rates, and the development of industry in a protected atmosphere, the adoption of a single flexible exchange rate would be disruptive in the short run. More- over, the present level of exchange reserves and good prospects for foreign exchange earnings, particularly workers' remittances, should make the present exchange rate viable for the medium-term future, assuming price inflation is reduced to a moderate rate. However, should the relatively high inflation of the last three years continue, then it will be important to continue the flexi- ble exchange rate policy followed since 1970 and to make the necessary adjust- ments that would maintain a realistic exchange rate; otherwise, there is a risk that the export momentum now developed may be lost, and the confidence in the value of the lira ended. This latter factor may discourage the flow of workers' remittances as well as revive the distortions of the past. External debt policy and management should also be considered as a means of improving the external debt structure and, overall, should be oriented towards maintaining a prudent level of foreign exchange reserves. The expected pressure on the balance of payments resulting from the higher import price of petroleum and a slowdown of emigrants' remittances is likely to result in a gradual drop in reserves that may accelerate after 1975. In these circumstances, more-active, long-term borrowing and acceleration of disbursements on contracted loans would seem advisable. G. Social Policies Economic development in Turkey has been accompanied by considerable concern for social problems. In some areas, however, progress has been slow and concerted efforts would be required in the future--e.g., in employment and income distribution. A sizeable though decreasing proportion of total invest- ments in the Five-Year Plans have been allocated to education, health and housing (29 percent in the First, 26 percent in the Second and 22 percent in the Third). Social objectives have been infused in economic management--e.g., in price policy in agriculture and the SEEs, encouraging employment in SEEs, and differential incentives for regional development. Public expenditure on education and health has been substantial, the coverage of social insurance schemes has increased, and the number of electrified villages has also increased - 63 - considerably. Despite this progress, problems requiring attention remain in each of these fields. The demand for education and skilled manpower is greater than the existing system can meet, and there are serious imbalances. The universities produce too many art graduates and too few of the technical manpower needed, and there is a need to expand vocational and technical institutes at the ex- pense of general courses in lycees. The ratio of technicians to professionals is less than two to one (compared to about four to one in advanced countries). The Third Plan has an ambitious scheme of educational reform and expansion-- e.g., 100 percent primary school attendance, changing the pattern of secondary education from the present 60 percent in lycees and 40 percent in vocational and technical institutes to 35 percent and 65 percent respectively, and a greater emphasis on technical and scientific training in the universities. The Plan's targets for increasing university students by about 43 percent by 1977 may be a misallocation of resources, and some diversion of this expenditure to middle level technical and vocational training may give higher returns. In health and in social welfare schemes, apart from the need to expand these services to provide easier access by the whole population, there is a recog- nized need to coordinate the activities of various organizations involved. In housing, a main problem arising out of rapid urbanization has been the growth of squatter settlements in main cities. The Third Plan targets show a decline in the share of investment in housing to 16 percent from 21 percent and 18 percent in the First and Second Plans respectively. With buoyant conditions in the private sector and the expanding workers' remittances, housing should not be prevented to get a larger share than targeted. The slow growth of employment should become a major concern of policy. The development strategy has emphasized a high rate of growth of output and labor productivity rather than employment. Though the rate of growth of employment in industry, commerce and transport accelerated during the Second Plan, compared to the First Plan, it failed to absorb the increments in the labor force. Consequently, and despite the fact that since 1965 about a third of the increments in labor supply has been absorbed by emigration, the labor surplus rose from about one million in 1962 to 1.6 million in 1972. The Third Plan continues to emphasize investment in high growth, relatively less labor-intensive industries; the increasing unemployment is accepted as a price worth paying for rapid growth. Unemployment of the magnitude projected in the Plan (15 percent of labor force outside agriculture in 1977) is likely to cause serious social problems. The continuation of the recent ban on workers' immi- gration in Germany would accentuate the problem. The implications of alternative development strategies for employment have not been considered in the Plan. The mission's work on alternative strategies shows that substantial increases in employment growth are feasible at a small loss in terms of overall growth (e.g., a 1.2 percent per annum increase in employment growth at a loss of 0.2 percent GDP growth) (Chapter 3). The distribution of income appears to be highly unequal in Turkey; and, though adequate data are not available, it appears likely that the dis- tribution of income has worsened during the last two decades. Both rural and urban incomes are unequally distributed (see Chapter 9). The estimates available necessarily ignore the distribution of public goods--e.g., education and health, which raise the standard of living of the poorest sections of society and are therefore equalizing to some extent. Other policies of the Government which - 64 - affect income distribution are price-support policies in agriculture, provision of irrigation facilities at low cost, and regional dispersion of public invest- ment. One of the most equalizing influences of the last decade has been the emigration of workers, which not only raised the standards of those emigrating but through repatriation of remittances has provided support to relatives re- maining in Turkey and also led to the ownership of assets among the poorer sections. Consequently, though the inequality of income distribution has worsened, absolute poverty has probably declined as a result of rapid growth, emigration and the Government's social policies. The Third Plan has adopted income distribution as one of the main five tasks in the long-term perspective Plan and suggests policies, for example, of taxation, land reforms, extension of health, education and social insurance. Previous attempts at land reform and at making the tax system more progressive have not been very successful. There is significant scope for redistributive taxation and for affecting income distribution through increasing employment. The recently passed land reform bill will be a beginning; but its limits for land excluded from expropriation are generous, and its successful implementation has still to be seen. Although title to much of the land is not clear and the cadastral survey is proceeding slowly, the 1970 census, covering about 60 percent of cultivated area, showed that 48 percent of the farmers had less than 2 hectares each and only 11 percent of the land and that there were 4,000 farm units with holdings of 1,000 hectares or more. The land not covered (40 percent of total) is believed to be in large holdings of over 100 hectares and concentrated geographically in the southeast. With the existing disparities between rural and urban incomes, land redistribution as well as consolidation of fragmented holdings and the provision of complementary supporting and extension services should be a major concern of Government policy. - 65 -  PART II: DOMESTIC AND EXTERNAL FINANCE V. PUBLIC FINANCE The public sector, which comprises the Central Government, several levels of local governments and a large sector of State Economic Enterprises, increased its relative importance during the past two decades, particularly in the 1960s. This increase was accompanied by remarkable continuity in the main directions of Government policies despite changes in the political leadership of the country. Successive Turkish Governments expanded considerably the physical infrastructure which the growth of all economic activities, particu- larly industry and mining, required. The Government itself invested growing amounts in State Economic Enterprises mainly to pursue the objective of rapid industrialization. It also made special efforts to raise the standards of social services, particularly education and health. Consequently, Government administration expanded to execute its programs and implement its economic policies and controls. These Government programs and policies resulted in an increase in the shares of public fixed investment in GDP and in total invest- ment (Table 11). Table 11 PUBLIC FIXED INVESTMENT (Annual averages) Item 1953-62 1963-67 1967-72 Annual average (TL millions; 1968 prices) 4,330 7,200 11,960 Annual growth rate (percent; 1968 prices) 3.9 11.9 9.1 Percent of total investment 1/ 47.1 52.3 51.8 Percent of GDP 1/ 7.2 10.3 10.0 1/ At current prices. Source: State Institute of Statistics, State Planning Organization. Public fixed investment has risen from less than 5 percent of GNP in 1952 to 7.4 percent in 1962 and 9.6 percent in 1972. A very substantial effort was made to raise the level of public investment in manufacturing, power and transportation during the past ten years. These three sectors, which accounted for 47 percent of total public investment in 1963, increased their relative importance to nearly 66 percent in 1972. By comparison, the share of investment in agriculture, mining, housing, education and health declined. Public investment in agriculture and education has declined in abso- lute real terms as well since 1968 (Table 2.3). Available evidence indicates that the public sector has probably improved its saving performance during the 1962-72 period with the exception of 1971 when public salaries and wages were raised abruptly. Evidence supporting this conclusion includes the good tax record of the Central Government and the incomplete series of saving figures for the SEEs. Savings of local governments have probably declined in - 67 - relation to GDP, but this probably did not influence the trend in total public savings since local governments savings are small. The large and rising investments undertaken by the public sector during the past two decades and the concomitant increase in current spending imposed a continuing strain on public financial resources despite the Central Government's success in raising tax revenue. This strain was aggravated by the results of the Government's pricing policies concerning agriculture and the State Economic Enterprises, which required substantial subsidies. Most of the time during the past two decades the Government's tendency has been, mainly for political and social reasons, to maintain relatively high prices for agricultural products and to restrain the rise in prices of goods and services provided by the State Economic Enterprises so that losses were in- curred on public transports, commercial and some industrial activities. In addition, little was done to raise the revenue-earning capacity of local gov- ernments despite rising needs for local investments and services. In particu- lar, the municipalities had to provide for the needs of rising numbers of migrants from rural areas as a result of rapid industrialization. Transfers from central to local budgets have increased but not enough to provide ade- quate local services. The proportion of city dwellers who are squatters with- out such essential services as water supply and sewerage disposal has risen, and this situation is now a matter of some serious concern for the Government and the large municipalities. Under these circumstances, the public sector has experienced a shortage of financial resources and has covered its deficit partly with limited amounts of long-term external borrowing but mainly by recourse to short-term advances from the Central Bank. During the 1950s more than a dozen public bodies, including Central Government departments and State Economic Enterprises, were authorized to have recourse to the Central Bank in case of need. Net Central Bank credit to the public sector rose from TL1.0 billion in 1952 to TL3.1 billion in 1960. This system was changed in 1960 as part of an effort to improve Government control over the financial operations of public bodies. Thereafter, access to Central Bank credit was restricted to the Treasury, the Directorate General of Monopolies and three State Economic Enterprises (Sumerbank, the Soils Product Office and the Sugar Corporation). Other public bodies were required to obtain their financing from the Treasury. Most short-term advances were consolidated into long-term debts. These were important steps to bring greater financial discipline to bear on public bodies. Nevertheless, Central Bank credit to the public sector continued to rise under the new system. The net amount of such credit outstanding in- creased further to about TL19.0 billion at the end of 1972, most of it to the Treasury (Table 6.4). The increase reached a record of TL4.9 billion (12 percent of GNP increment) in 1971, which was an exceptionally good crop year, but was strongly moderated in 1972 (5 percent of GNP increment) and in 1973. The reliance on short-term advances from the Central Bank for public sector deficit financing has been a major factor behind price inflation in the past. Successive governments tried to control price inflation by restraining the rise in prices of goods and services provided by the State Economic Enter- prises, but these attempts were only partly successful since the Enterprises turned to the Treasury--and the Treasury ultimately turned to the Central Bank--for the additional resources which they could not raise through price increases. - 68 - A. Central Government The importance of the Central Government in allocating and mobiliz- ing national resources has increased substantially during the past two decades. Table 12 provides a direct measure of this growing importance. In addition, the Central Government exercised controls and provided incentives which greatly influenced the mobilization and allocation of resources by the rest of the public sector and the private sector. Table 12 CENTRAL GOVERNMENT EXPENDITURES AND TAX REVENUE (Percent of GNP at market prices) Item 1953-57 1958-62 1963-67 1968-72 Total expenditure 15.9 16.6 20.2 23.2 Tax Revenue 12.8 14.3 14.9 17.2 Difference 3.1 2.3 5.3 6.0 Source: Statistical Appendix, Table 5.6. The growth of Central Government expenditures in relation to GNP has clearly accelerated since 1962--that is, during the First and Second Plan periods when the public sector was assigned the main role in promoting econom- ic and social development. Central Government expenditures--which had in- creased from 16.4 percent of GNP in the 1952-54 period to only 17.2 percent in the 1960-62 period with several annual setbacks reflecting temporary expendi- ture restraint--reached 24.1 percent of GNP in the years 1970 to 1972. Expenditures on social services (particularly on education), security, debt service, transport, communications and, to a lesser extent, agriculture were the main sources of expenditure growth throughout the past two decades. Transfers to the State Economic Enterprises also became a large expenditure item towards the end of the period. Detailed time series of expenditure data are not available up to 1964. From 1965 to 1972 (Table 13), Central Government expenditures rose by TL35.4 billion, which is equivalent to nearly 24 percent of the GNP increment during this period. Current expend- itures accounted for about 46 percent of this increase and transfers for about 41 percent. A sizeable part of the rise in current spending was due to salary increases granted in 1971 under a new Personnel law. Current expenditures rose by 51 percent in 1971 but were restrained in 1972 when they increased by 8 percent only (a decline in real terms) and also in 1973. The rise in transfers was due mainly to capital transfers to the State Economic Enterprises, which went up from TLO.5 billion in 1969 to TL5.0 billion in 1972 1/, and to debt-service payments, which now represent more than 10 percent of total expenditures. Investment expenditures accounted for only about 12 percent of total expenditure growth during 1965-72 since they had to be restrained in view of the large increases in current spending and transfers. The l/ Mostly to the State Railways, Etibank, Iran and Steel Mill, Sumerbank, mechanical and chemical industry, and petroleum. - 69 - Government functions which have contributed most to expenditure growth since 1965 were education and health (23 percent), security (15 percent), agricul- ture (9 percent), and transport and communications (8 percent). In 1972 education represented 4.2 percent of GNP and security 4.0 percent. Table 13 CENTRAL GOVERNMENT EXPENDITURES (Billions of Turkish Liras) 1965 1970 1971 1972 Expenditures by Category 15.0 32.8 1/ 48.0 1/ 50.4 I/ Current 7.6 14.7 22.2 24.0 Capital 3.6 7.0 7.9 7.7 Transfers 3.8 10.5 17.3 18.5 Expenditures by Function 15.0 30.0 2/ 38.5 2/ 52.0 2/ Security 3.4 5.1 7.1 9.0 Agriculture 1.3 2.5 3.0 4.5 Education 2.6 4.4 6.4 9.4 Health 0.6 1.0 1.4 2.3 Transportation and communications 1.4 3.4 4.0 4.4 Industry and power 0.7 1.4 1.5 1.6 Housing 0.1 0.2 0.3 0.3 Interest payments 0.5 1.0 1.7 1.8 Debt repayments 0.8 1.9 2.4 3.7 Other 3.6 8.9 10.6 14.7 1/ Breakdowns on preliminary estimates, do not add up to totals. 2/ Budget estimates. Source: Tables 5.4 and 5.5. The Central Government has been successful in raising the nation's tax effort and in making tax revenue more responsive to economic growth, particularly since 1962. Tax revenue increased from 12.0 percent of GNP in 1962 to 16.1 percent in 1967 and 17.9 percent in 1972. Adding local tax revenue and the compulsory contributions to employees' benefit funds to central tax revenue, the relation of tax and quasi-tax revenues to GNP became 22.8 percent in 1972. More importantly perhaps, Turkey has introduced tax changes and new taxes to bring taxation to bear on the most rapidly growing elements of the country's potential tax base. Few of these elements, of which agri- cultural incomes is the most important one, now escape taxation. As a result, the tax structure has changed markedly (Table 14), and the ratio of tax revenue growth to GNP growth has risen from 1.1 during the 1952-62 period to 1.3 during the following ten years from 1962 to 1972. - 70 - Table 14 STRUCTURE AND GROWTH OF TAX REVENUE 1/ Taxation on: Percentage Shares Percent Annual Growth 1952 1962 1967 1972 1953-62 1963-72 Income 22.0 35.6 36.2 39.0 22.5 19.3 Wealth 2.0 1.8 3.1 4.6 15.8 29.7 Production 27.4 21.5 21.5 18.9 14.1 16.6 Expenditures 8.7 4.4 3.7 3.8 9.2 16.6 Services 8.4 10.0 10.0 11.3 18.9 19.7 Imports 31.5 26.7 25.5 22.4 15.0 16.1 Total 100.0 100.0 100.0 100.0 16.9 18.2 1/ At current prices; the annual rate of price inflation as measured by the GDP deflator was 10.3 percent in 1953-62 and 7.5 percent in 1963-72. Source: Table 5.1. Turkey's creditable tax performance since 1962 has been a result of the Government's will to reach Plan targets, but significant shortfalls were experienced. First, tax revenue failed to reach the Second Plan target of 19.5 percent of GNP by 1972. Second, several tax recommendations contained in the Plans were not implemented due to strong political opposition. Nonethe- less, progress has been made since the income responsiveness of tax revenue has risen, and the structural shift towards taxes on income and wealth may be interpreted as a move--albeit still limited--towards greater equity. Turkey's tax effort, however, has not been commensurate with the country's rising expenditure commitments since 1962. As shown in Table 12, the difference between expenditures and tax revenue rose to 6.0 percent of GNP on average during the Second Plan period (1968-72). However, this average covers a sharp increase in this difference from 5.3 percent of GNP in 1968 to 8.4 percent in 1971, which was followed by a drop to 4.6 percent in 1972. Expenditures ran increasingly ahead of tax revenue during the first four years of the Plan mainly because of the Government's desire to reach the Plan tar- gets for public investment and of the salary increases of 1971. In 1972 the Central Government exercised strong expenditure restraint; expenditures growth was only 5.0 percent, which in real terms was a significant decline (by perhaps more than 10 percent). Expenditures fell from 26.3 percent of GNP in 1971 to 22.6 percent in 1972 while tax revenue remained at 17.9 percent in both years. There was an absolute decline in investment expenditures. In 1972 and 1973 the Central Government began to use long-term borrowing on a large scale as a means of reducing the inflationary impact of deficit financing. Gross sales of development bonds, which had been small in previous years, amounted to TL4 billion in 1972. However, almost half of this amount was sold to banks. Borrowings from the Central Bank were small, and the net cash position of the Treasury improved significantly (Table 5.7). - 71 - B. Local Governments Local governments include 67 provinces, 1,571 municipalities and about 36,000 villages. Provincial governments received their current organi- zations, functions and revenue powers in 1913, municipalities in 1930 and villages in 1924. Few changes have been made to the original organic laws establishing local governments. The main problem facing local governments arose from the fact that legislation assigned costly functions to them but did not provide them with enough revenue-earning powers. As a result, local re- sources were not enough to provide local services and infrastructure in accordance with needs. Central agencies have helped both technically and financially in providing the most essential services and infrastructure, but cooperation and coordination among these agencies and with the local govern- ments concerned were often lacking. This insufficiency of funds has affected municipalities more particularly since they have had to meet the needs of a large and rising number of rural migrants as well as to respond to demands for better standards of services. These needs have been met only partly so far for lack of resources. A 1965 survey found that a very large part of urban dwellers were illegal squatters without most municipal services (59 percent of population in Ankara, 45 percent in Istanbul and Adana, one-third in Bursa, Ismir, Erzurum, Samsun and Iskenderun, and so on). The First and Second Plans did not propose specific solutions to the problem of matching local needs and resources, and not enough has been done so far to improve the situation. The Central Government approves local budgets which must be balanced and makes provisions for the compulsory functions enumerated in organic laws. Local governments have, therefore, little freedom in the allocation of their expenditures. These represented only about 13 percent of Central Government expenditures in the late sixties, and this proportion may have declined since then. The most evident, unsatisfied needs include municipal streets, water supply, sewerage disposal and power distribution. Local taxes and other revenues are also specified in detail in organic laws. Tax revenues represented 9.4 percent of Central Government tax revenues in 1968, and this proportion has probably declined since then. A part of local governments revenue come from tax receipts shared with the Central Government, and local governments normally receive less than their statutory shares. 2/ Another part comes from local taxes which have fixed rates and are not buoyant. User charges for local services are also deter- mined by law and often do not recover the full costs of services, such as street cleaning and waste water disposal. A new tax on real property was in- troduced in 1970 and began to be implemented in 1972. Since 45 percent of the proceeds are for the municipalities and 35 percent for other local govern- ments, the new tax may help relieve the difficult financial position of local governments. However, the new tax rates are low, so that the relief will probably be limited. (Taxes on real property and real property purchases were 2/ For instance, municipal shares are 8 percent of the petroleum tax, 2 per- cent of the monopoly tax, 11 percent of the motor vehicle tax, 11 percent of traffic fines, 45 percent of the property tax, 5 percent of income taxes and a 15 percent surcharge on customs duties. Only the latter two are paid to municipalities (through Iller Bank) on the basis of actual receipts. The others are paid from budget allocations (transfers), which are usually much lower than municipal statutory shares. - 72 - estimated to yield TL1,425 million in 1973, or 2.9 percent of Central Govern- ment tax revenue.) The revenue potential of taxation on real property has only begun to be tapped in Turkey. The Government has felt the need to im- prove the financial situation of municipalities for some time, and draft laws to reform municipal revenues and fines have been in Parliament for several years. Legislation to reform the organization and functions of local govern- ments has also been prepared. Local governments are not allowed to borrow directly from the market. Their deficits are covered by grants and loans from the Central Government, most of which are for investment and made through Iller Bank (the Bank of Provinces). Iller Bank acts as a disbursing and debt-collecting agent for the Central Government. It also helps local governments prepare and implement projects. Most of its financing is for power distribution, water supply and waste disposal in municipalities with population between 3,000 and 100,000. In the twenty-two larger municipalities, the State Waterworks Department (DSI) is responsible for water supply and waste disposal and the Turkish Electricity Authority (TEK) for power. Municipal debts to the Central Government have reached a high level as a result of borrowing for investment. In 1971 debt- service payments were estimated at 13 percent of municipal tax revenue despite relief from debt consolidations. The municipalities, therefore, also need a better resource base to increase their debt-carrying capacity. C. State Economic Enterprises The Government established and developed State Economic Enterprises (SEEs) more on the basis of pragmatism and expediency than on the basis of any doctrine, although it was influenced in the 1930s by the Russian, German and Italian experiences with state capitalism. Their origin may be found in the inability of indigenous private entrepreneurs during the early years of the Republic (1923-31) to rise to the expectations of Turkey's political leaders that they become the main agents of modernization and development. Indigenous private enterprise lacked at that time the entrepreneurial and managerial talents to assume this responsibility, although generous Government incentives were available. The Government, therefore, began to invest heavily in indus- try, transportation and, to a lesser extent, in agriculture, trade and services. This investment was carried out for the most part through state-owned enter- prises. Sumerbank and Etibank, which have created numerous subsidiaries in manufacturing and mining respectively, were established in 1933 and 1935 respectively. The Agricultural Bank acquired SEE status in 1937. The SEEs sector was organized in 1938 by Law 3460, which vested the control of SEEs in two administrative bodies (the Administrative Board and the General Director- ate) and two political bodies (the Parliamentary General Assembly and the High Control Board). Acquiring a political and economic momentum of its own, the SEEs sector has expanded ever since. Table 14 presents three indexes describing the real growth of nonfinancial SEEs; in addition, there are several specialized public financial institutions (see Table 5.11 under - 73 - "Financial SEEs") and a number of commercial banks in which the Government is a shareholder. 3/ Table 15 GROWTH OF NONFINANCIAL SEEs Item Indexes (1952=100) Percent of National Totals 1939 1952 1960 1968 in 1968 Real value added 31.3 100.0 174.1 292.7 10.2 Deflated capital stock 49.5 100.0 147.0 210.4 - Employment 32.1 100.0 146.3 181.5 2.8 Source: State Institute of Statistics and Tables 5.9 and 5.10. Controversies about the role and deficiencies of the SEEs sector have surrounded its growth during the past two decades mainly because of dis- appointing financial results and the concomitant need for Government sub- sidies. In regard to the role of the SEEs sector, a wide range of views has been expressed reflecting the spectrum of economic doctrines represented in Turkey. A consensus has, however, emerged about the desirability of a mixed economy in which the SEEs sector played a leading role in pursuing the country's overriding objective of modernization through rapid industrialization, although differences persisted as to the desirable scope and extent of the sector's activities. In fact, the SEEs sector has invested heavily in industry, transportation, communication and power; but its relative importance in the economy has increased little since the private sector was also encouraged to expand rapidly (Table 16). The shares of SEEs in national value added for industry (i.e., manufacturing, mining, power and water) and transportation have declined continuously from 1952 to 1968. 3/ The State Institute of Statistics has compiled the economic accounts of nonfinancial public enterprises from 1939 to 1968. Since 1969 the Ministry of Finance has compiled the financial accounts of financial and operational SEEs. These financial accounts are unfortunately difficult to compare with the Institute's economic accounts due to differences in coverage and methodology. Hence, the analysis here is based on the economic accounts till 1968 and the financial accounts since 1969. - 74 - Table 16 COMPOSITION AND IMPORTANCE OF SEEs Value added in: Percentage Shares Percent of National Totals 1952 1962 1968 1952 1962 1968 Manufacturing 32.7 30.2 31.8 State monopolies 1/ 24.9 24.9 24.7 Mining 11.7 11.2 10.9 ... ... ... Electricity - 2.1 4.2 ... ... ... Subtotal, Industry 69.3 68.4 71.6 46.2 35.4 33.0 Transport and communication 23.1 23.0 21.8 40.9 36.2 35.0 Other sectors 7.6 8.6 6.6 Total SEEs 100.0 100.0 100.0 9.4 9.6 10.0 1/ Mostly processing of agricultural products such as tobacco. Source: Table 5.9. The growth of the SEEs sector was accompanied by serious financial difficulties for some SEEs, particularly in transportation and coal mining, and to a lesser extent manufacturing up to the mid-1960s. The resulting need for annual Government subsidies (Tables 5.9 and 5.14) has kept the issue of deficiencies in SEEs' performance alive in Turkey's political circles. The Government ordered an investigation of this issue after the 1960 change in Government. About a quarter of the outstanding debts of SEEs (mainly to the Central Bank) were consolidated in 1961, and their freedom to borrow was re- stricted. A review commission was organized. The commission, the Ministry of Finance, and the State Planning Organization (SPO) helped prepare Law 440, which was passed in March 1964 replacing in part Law 3460. This was followed by the establishment of the State Investment Bank (SIB) under Law 441 to supply the SEEs with long-term investment funds. Under this new legal frame- work, the investment programs of SEEs came under the scrutiny of SPO and SIB while their finances were controlled by the Treasury. The main purpose of these measures was to raise productivity and to generate more savings in the SEEs sector. It was partly achieved. SEEs' savings, net of subsidies, rose from 13.8 percent of SEEs' value added in 1962 to 16.7 percent in 1968 but were still below the 1952 level of 19.2 percent. SEEs' profits, excluding subsidies, rose from about 1.5 percent of nominal capital stock in 1962 to more than 4.0 percent in 1968; but again this was still less than the 1952 level of nearly 7.0 percent. The need for subsidies was, however, virtually eliminated in sectors other than transportation and industry but showed a strong tendency to rise in transportation (see below and Table 5.9). Since 1969 the financial accounts of producing SEEs indicate that previous trends have continued (Table 5.13): - 75 - (1) SEEs' fixed investment has continued to rise markedly from TL4.2 billion (3.5 percent of GNP) in 1969 to TL10.4 billion (4.7 percent of GNP) in 1972 with 75 percent of the increase in industry and 24 percent in transportation and communica- tion; (2) SEEs' own resources have risen much less rapidly from 1.1 percent of GNP in 1969 to 1.3 percent in 1972 mainly because of the Government decision to restrain SEEs' prices in the face of large cost increases (particularly wages) and also because of delays in bringing a few large SEEs' projects into operations, such as a thermal station, a coal project and an iron and steel project; (3) The net financing provided to SEEs by SIB has declined from TL1.3 billion in 1969 to a negligible amount in 1972 because SIB's main sources of long-term funds (the pension and social security funds) have been drying up; (4) As a result and despite a sizeable increase in net financing from external loans, budgetary transfers rose from TL1.5 billion in 1969 to TL6.7 billion in 1972. Their overall indicators hide sharp differences among SEEs. The economic and financial amounts of SEEs reveal that poor results have been con- centrated in transportation and the coal industry. The economic accounts indicate that the saving rate (depreciation and profits net of subsidies over value added) declined in transportation (from 17.6 percent in 1952 4/ to 1.5 percent in 1972), became negative in the coal industry in 1966 and 1968, but increased in the rest of the SEEs sector (from 20.2 percent in 1952 to 23.6 percent in 1968). In particular, the saving rate rose sharply in manufactur- ing from 14.5 percent in 1962 to 27.9 percent in 1968. Similarly, profits (net of subsidies) in manufacturing increased from 0.5 percent of nominal capital stock in the sector in 1962 to 7.7 percent in 1968, compared to 14.2 percent in 1952. The financial accounts confirm these findings (Table 5.16). Three Enterprises accounted for 80 percent of total losses during the 1962-72 period; these were the State Railways, 64 percent; the Maritime Bank, 8 per- cent; and the Turkish Coal Corporation, 8 percent. The Nitrogen Industry Company also sustained large losses until 1970 but has been in the black since then. Finally, there were sizeable losses by the Soils Product Office (Cereals Office), the Meat and Fish Organization and the Milk Industry; but part of these losses were temporary and attributable mainly to the Government's agri- cultural price policy which affected products handled by these Enterprises (see Chapter 10). The fact that poor performance is attributable to a few enterprises while most show relatively good results provides a partial refutation of the view that producing SEEs suffer from congenital deficiencies due to their status. It suggests that a sensible approach to eliminating "the deficiencies of the SEEs sector" should perhaps begin by tackling the problems of the three 4/ First year for which this information is available. See Appendix Table 5.10. - 76 - big losers (State Railways, Maritime Bank and Coal Corporation). Regarding the State Railways, an investment program is being carried out together with other improvements to raise the operating efficiency of the network, but the Government is still reluctant to raise passenger tariffs. Regarding the Maritime Bank and the Coal Corporation, improvement programs are still to be designed. Although important, the differences among producing SEEs should not detract attention from a number of common problems which have affected ad- versely the performance of all of them in varying degree. First among those has been excessive rigidity in management and pricing due to Government con- trols. Despite the provisions of Act No. 440, SEEs' managers have been sub- jected to considerable outside interference in the conduct of SEEs' affairs. This interference has made it difficult for them to introduce programs for improving productivity. Frequent changes in management decided by the Govern- ment have also been an impediment to the implementation of such programs. Further, the SEEs have been bound by Government decisions regarding their prices. Most of them have had to restrain prices despite cost increases, particularly since 1969, while a few have enjoyed monopoly rights over competing imports enabling them to charge high prices for costly locally manufactured products (for instance, the Enterprise manufacturing PVC--polyvinyl chloride). The common problems facing producing SEEs have also included relatively high labor costs because political pressures have been exercised on many Enterprises to keep superflous employees on their payrolls. On the other hand, bound by the rules and low pay scales of public employment, the producing SEEs have often found it difficult to retain their key managerial and technical staff who wanted to leave for better-paid jobs in the private sector. Finally, there have been isolated cases of Enterprises with insufficient size, poor location and other technical deficiencies. All these problems have appeared mainly because the Government has used the SEEs sector as an instrument for achieving various social and political purposes, such as the development of backward areas, the provision of maximum employment and the sale of essential goods and services at low prices. The pursuit of these purposes has in some cases been in contradiction with the principles of sound financial management and perhaps also of economic efficiency. D. Current Outlook A shift in emphasis is noticeable in the 1973 public investment pro- gram. Investment growth in two of the previously leading sectors--manufacturing and transportation--is planned to slow down, whereas large increases are pro- vided for agriculture, mining and education where there has been lagging in the past. The 1973 program provides for a continuation of past trends in power (rising sharply) and housing (declining). Overall, the growth of public investment at constant prices is expected to reach 24 percent in 1973 compared to 19 percent in 1972 according to the 1973 Program. However, most of the growth in 1973 will come from the Central Government rather than from State Enterprises as was the case in the last decade. The rapid growth of investment by the Central Government is reflected in total expenditures, which the 1973 budget put 25 percent above 1972 actuals (Table 5.5). A 24 percent rise in tax revenue, which seems feasible, and a TL4 billion bond issue will help finance rising expenditures. Taking other budgetary receipts into account and considering results in the first nine - 77 - months of the year, the financing of the 1973 budget required only a small in- crease in Central Bank (net) advances to the Treasury. In the first nine months of the fiscal year, tax revenues rose by 35 percent, total revenues by 23 percent and total expenditures by 12 percent only. However, public invest- ment expenditures fell short of the target in real terms. The financial position of SEEs was also projected to improve in 1973. Factors contributing to this improvement included a reduced increase in financial requirement due to the slower pace of SEEs' investment growth; a better self-financing capacity mainly due to the coming into operation of large projects in power, coal and steel; and the resumption of large net financing from the State Investment Bank. Nevertheless, budget transfers to the SEEs will remain at a high level (TL6 billion in 1973 compared to TL6.7 billion in 1972). However, the freezing of prices of SEEs' products, when prices and costs were rising rapidly, has probably resulted in larger current transfers than expected. In February 1974 prices of many Enterprises (sugar, cement, paper, iron, oil products) were increased by 40 to 80 percent. This measure should considerably ease the financial pressure on the budget of transfers to SEEs. E. Third Plan Targets The Third Plan calls for an acceleration of public fixed investment (Table 17). Public fixed investment in the Plan is estimated at TL158.4 billion, an increase at constant prices of 91 percent over investment during the Second Plan, which in turn was 65 percent larger than during the First Plan. This amount covers total expenditures of the Central Government (45 percent), local governments (3 percent), operational SEEs (51 percent) and financial SEEs (one percent). It implies that public fixed investment would increase by 12 percent a year, from 10.9 percent of GNP in 1972 to 13.4 percent in 1977. Table 17 PUBLIC FIXED INVESTMENT 1963-67 1968-72 1973-77 Item Actual Estimate Plan Public fixed investment (TL billions; 1971 prices) 50.2 82.8 158.4 Annual rate of growth (percent) 11.7 9.0 12.0 Percent of total: Agriculture 18.4 13.3 11.0 Mining 7.8 5.0 8.5 Manufacturing 12.2 21.2 27.1 Energy 11.2 15.0 14.0 Transportation 22.6 22.0 20.1 Education 12.3 8.6 8.4 Health 3.1 2.6 2.4 Housing 3.5 3.6 1.4 Other 8.9 8.7 7.1 Percent of GNP (last year of period) 9.2 10.9 13.4 Source: Table 2.2, and Third Plan. - 78 - The Third Plan gives priority to public investment in manufacturing, mining, energy and transportation, which together account for 70 percent of planned public investment. Among other sectors, education and health would barely keep their shares; and the share of agriculture would continue to de- cline, although the level in real terms is substantially higher than in the Second Plan. Public investment in housing would show an absolute decline of 27 percent. These shifts in the sectoral balance of public investment clearly reflect the Plan's strong emphasis on industrialization as the means of attaining a high rate of economic growth and of modernizing the country. Re- garding agriculture, education and health, the Plan argues that the most urgent need is to make full use of existing physical facilities; consequently, it provides for a relatively high growth of the Government's current spending in these sectors (see below) while slowing down somewhat the pace at which new investments will be undertaken. With respect to housing in which the share of the public sector was small (10 percent) in 1968-72, the Plan finds the re- sults of past public investments disappointing and therefore calls for in- creased reliance on private initiative with the provision of incentives to low- cost housing (the overall investment strategy is discussed in Chapter 2). The Plan expects that public saving will rise faster than public in- vestment. It sets the target of growth for public saving at nearly 15 percent a year, thus raising its share in GNP from 10.1 percent in 1972 to 13.7 per- cent in 1977. Public saving would begin to exceed public fixed investment in 1977. This would enable the public sector to show a small overall surplus in that year, and the Plan foresees a diminishing need to borrow domestically and externally for the financing of planned investment and debt amortization. The financing plan given in the Third Plan document is summarized in Table 18. Its feasibility and the policy implications are discussed below. Table 18 PUBLIC FINANCES IN THE THIRD PLAN 1, (TL billions; 1971 prices) Percent Annual 1973-77 1972 2/ 1977 Increase Disposable income 3/ 334.2 49.2 82.2 10.8 Current expenditures -183.5 -29.4 -42.7 7.8 Public saving 150.7 19.8 39.5 14.8 Fixed investment 158.4 -21.4 -38.5 12.5 Stock increases -3.8 - 0.4 - 1.1 22.8 Capital transfers -0.8 - 1.9 0.2 - Overall deficit -12.4 - 3.9 0.1 - 1/ Consolidated accounts of the Central Government, local governments, SEEs and social funds. 2/ 1973 Program estimates at 1971 prices which are more recent than Third Plan estimates. 3/ Includes tax revenue, non-tax revenue, factor income of SEEs and receipts from social funds less current transfers and interest payments. Source: Table 5.25. - 79 - Before turning to this discussion, however, it is worth noting several difficulties in assessing the technical aspects of the financial part of the Plan. First, it is difficult to assess the proposed financing plan in the light of past experience since the plan is not presented on the same basis as past financial results. This difficulty is compounded by the fact that there are no reasonably accurate estimates of public saving in the past with which the Plan projections could be compared. Second, in order to estimate precisely future current expenditure commitments, the commitments arising from the program of public investments should be explicitly calculated. On the revenue side, the analysis of sources of finance other than taxation is far from being explicit; this applies to nontax revenue, domestic borrowing and external finance. F. Revenue Policy The Plan targets for tax revenue are somewhat high but can be realized. The Government intends to increase the income elasticity of the tax system and to improve it without resort to new taxes. Tax revenue of the Central Government, including taxes on wealth, is expected to rise by 11.4 percent a year in real terms from 1972 to 1977. The absolute increase would represent 31 percent of the projected GNP increment during this period, com- pared to an actual 19 percent in the Second Plan period. The local govern- ments are expected to increase their tax receipts by 10.6 percent a year. On the basis of estimates at 1971 prices, the combined tax receipts of the Central Government and local governments would rise from 20.9 percent of GNP in 1972 to 24.2 percent in 1977. Since these receipts represent more than 80 percent of projected disposable income for the public sector, they are the crucial element of its financing plan. The Ministry of Finance is confident that these ambitious targets can be reached. As noted earlier, it has demonstrated its ability to improve the country's tax system and raise the responsiveness of tax revenue to in- come changes. The Government's intention is, therefore, to continue improving past tax policies and administration. However, it will be increasingly diffi- cult to achieve these improvements since, inasmuch as past success is mainly explained by rate increases and use of new revenue sources, 5/ there is correspondingly less room left for future rate increases and correspondingly less revenue sources left 'to be opened up in the period ahead. Nonetheless, there are several possibilities of increasing tax revenue substantially, among which the following may be the most important ones: 6/ (a) Further improvements in tax administration and effective collection of taxes, which are now under way; 5/ An IBRD staff study of April 1973 found that three-fourths of the tax revenue increase from 1963 to 1971 were due to rate increases and use of new revenue sources. / An IMF staff study of November 20, 1972, has reviewed in detail the various possibilities envisaged by the Government; the mission agrees with most of its conclusions. Here, the main possibilities are indicated solely from the revenue standpoint. - 80 - (b) Adjustments in the rules governing the taxation of agricultural incomes, which would raise the coverage of agricultural income taxation from less than one percent now to about 3 percent of farms covering approximately 20 percent of the cultivated area before the end of the Third Plan; (c) Introduction of a value-added tax which would help decrease tax evasion; (d) Gradual increase in the presently low rates of real property taxation, which would raise the buoyancy of local tax revenue; and (e) Liberalization of imports which do not result in decreasing domestic production and taxes thereon. This would make up for the losses of import tax collections due to further import substitution, to the agreed gradual reductions of custom duties on imports from the European Economic Community over the next 20 years, and to the agreed elimination of the stamp duty on imports from GATT (General Agreement on Tariffs and Trade) countries over the next 10 years. The Plan does not pay sufficient attention to nontax revenue. The 1977 target (TL3.5 billion) is below the level reached in 1972 (an estimated TL5.3 billion in 1973). Although the question has still to be examined, it would seem probable that the Central Government and the local governments could raise nontax receipts substantially above current levels in at least two areas. One is the area of user charges (see page 72 in the case of municipal services) for which a systematic study appears needed. The other concerns profit transfers and dividend payments to the Government by publicly owned enterprises. In this case, the problem is not only to raise the profit- ability of SEEs owned by the Central Government, which is discussed below, but also to induce local governments to make their own commercial and indus- trial undertakings improve their financial results. G. SEEs' Policies The saving targets which the Third Plan sets for producing SEEs are very ambitious. Producing SEEs are expected to increase their combined savings by almost 33 percent a year in real terms from 1972 (1973 Program estimate) to 1977. This target will be out of reach unless the Government radically changes its policies which affect the pricing of goods and services produced by SEEs and which affect the management of SEEs as well as accelerat- ing the implementation of SEEs' projects. The Third Plan devotes considerable space to the principles of the mixed economy, the problems of SEEs sector and the outline of a reform plan. Starting from the premise that the country's long-term objectives for industry would be attained through reliance on private initiative only at the cost of excessive incentives, it argues that "it would be more rational for the Govern- ment directly to indulge in entrepreneurship than to bear most of the risk and financial burden while letting private hands do the managing." However, it finds faults with the existing SEEs system, its organizational structure and - 81 - its neglect of marketing, cost-accounting, purchasing, stock control, re- search and programming. These faults affect adversely the efficiency and pro- ductivity of the SEEs sector. The Plan, therefore, outlines a reform plan which is expected to enable SEEs to improve the efficiency and productivity of their operations. In two annexes, however, the Plan states principles for pricing and investment by SEEs which are fundamentally the same as those that have guided the SEEs sector in the past. Following the proposal made in the Third Plan, the Government is preparing a reform plan for the SEEs sector which sets efficiency targets and provides for an administrative reorganization. Perhaps the most important provisions of the reform plan are those which would enable producing SEEs to hire managers, engineers and technicians under con- tracts outside the regulations governing public employment and thus compete for good staff with the private sector. The Plan also provides for a special body to coordinate SEEs' activities with the policies of the ministries con- cerned and for an upper body headed by the Prime Minister to determine overall investment policies. Under the plan SEEs will be combined into holding com- panies for the various sectors. The bill for this reform plan may be presented to Parliament after the elections due in October 1973 where it may undergo substantial changes. Many studies have already been undertaken previously on this matter, but little action has been taken because of lack of political decision. On balance, the uncertainties still surrounding the fate and the content of the new reform and the hesitations in tackling the problems of Enterprises making the largest losses indicate that a substantial shortfall may be expected on the saving target for producing SEEs in the Third Plan. The saving target for financial SEEs seems conservative, but there is a question concerning the expected performance of social funds (mainly the Social Security Fund and the State Pension Fund). The social funds have been a major means of tapping private savings for the financing of investment by producing SEEs through the SIB. However, benefit payments by the funds are catching up with employees' contributions, and this important source of long- term finance is drying up. The Third Plan estimates that the funds will begin to show large deficits from 1976 onward. This prospect is alarming because of the additional burden that social funds would be putting on public financial resources. An early consideration of the measures that would be needed to reverse current trends in the social funds' financial position would be highly desirable. H. Current Spending Policy The Plan targets for current expenditures of the Central Government and of the local governments raise serious questions. The growth of current spending by the Central Government is expected to be kept at 7.8 percent a year from 1972 (1973 Program estimate) to 1977. Priority would be given to current spending on education, health and agricultural extension, which would increase by 10 percent a year, while the growth of other current expenditures would be kept at 6 percent a year. The priority given to social and agricul- tural services is consistent with the Plan's targets for investment in these sectors and with the Plan's emphasis on improving these services and the use of related physical facilities. The restraint on other current spending expected by the Plan seems difficult to achieve. There is reportedly consider- able scope for raising staff productivity in the departments and agencies con- cerned, and in 1973 the Government introduced a system of program budgeting with the aim of reducing staff underutilization. However, it is unlikely that - 82 - program budgeting alone will suffice to root out the deep-seated problems aris- ing from lack of incentives and consequent shortages of crucial skills in these departments and agencies. More fundamental changes in staff policies and service regulations would be needed to solve these perennial problems of pub- lic administration. No such changes are prescribed specifically in the Plan. It is likely that a significant expenditure overrun will have to be incurred in order to maintain the Government's capacity to undertake planned invest- ments and to support planned developments in the sectors concerned. Even greater restraint in current spending is expected of local governments (7.2 percent a year), which at the same time are projected to in- crease their fixed investments by less than 9 percent a year. The pressure to exceed both investment and current expenditure targets will probably also be great, given in particular the fast expected rate of urbanization. Munici- palities, in particular, have accumulated a backlog of unsatisfied needs for basic services and facilities (see pages 72 to 73) and will be asking for higher expenditures. The Third Plan could have been the occasion for making a start at clearing this backlog and thus for making urban development more consonant with the Plan objective of rapid industrialization. I. Public Saving Prospects The discussion of prospects for tax revenue and for SEEs' saving and current spending during the Third Plan period indicates that the saving target for the public sector is probably too ambitious. The discussion points to the likelihood of a small shortfall on tax revenue, an overrun on current spending and a sizeable shortfall on SEEs' saving. Of course, the possibility still exists of making up part of the shortfalls on these accounts in such areas as non-tax revenue, receipts of social funds and pricing of SEEs' products and services (especially in transportation and power), assuming the necessary policy changes are adopted. Unless such policies and measures as outlined above are undertaken, then it would seem likely that public savings will fall short of Plan targets. The implication would be that the overall deficit of the public sector would remain at around TL5 billion a year instead of declin- ing and turning into a small surplus by 1977 as shown in Table 5.25. J. Borrowing Policies In view of this possibility, there is a ned for the Government to adopt more-active borrowing policies than those stipulated in the Plan if projected investments are to be financed without excessive recourse to expan- sionary deficit financing (i.e., borrowing from the Central Bank). At the time the Plan was prepared, Turkey's external position was improving, but it was difficult to foresee how large and permanent the improvement would be. Hence, the Plan cast the Government's borrowing policies against conservative assumptions regarding the prospective position of the balance of payments. Now, however, external circumstances seem to be considerably better; this enhances the prospects for active borrowing policies, both domestically and externally. Domestically, the better balance of payments and the concurrent in- crease in liquidity of the economy have created conditions favorable to placing more long-term Government bonds with the public. The special features of these bonds (tax-free, 9 percent annual interest and redemption on demand) - 83 - make them an attractive instrument for private investors. The Government has begun to avail itself of this opportunity (see page 71). Larger issues could be envisaged in the future with more aggressive marketing if necessary. Part of the proceeds could be used to retire the debt of the Treasury with the Central Bank as a powerful means of countering inflationary pressures. In addition, consideration could be given to enabling the strongest SEEs to issue their own long-term bonds without Government guarantee (but subject to Treasury approval), which would be made easier if the reform plan of the SEEs sector is carried out. Externally, Turkey's international creditworthiness has been in- creased by the expansion of its exports and by the strengthening of its exter- nal position. The scope for external borrowing has correspondingly been enlarged. The Government is, therefore, in a position to borrow at a higher level from abroad to supplement national saving in financing planned public investments. Reviewing the public investment program to prepare a list of projects suitable for external financing would be the first requirement of a more-active external borrowing policy. It would be necessary for the Govern- ment to make sure that external borrowing would not accentuate inflationary pressures, assuming the rapid rise of foreign exchange reserves continues to fuel inflation. External borrowing in these circumstances should be accom- panied by the appropriate monetary, credit and trade policies. In summary, while the 1973-77 financing plan sets ambitious targets for public saving, it underrates substantially the growing potential which is already apparent for borrowing from domestic and external sources. Given the likelihood that public savings will fall short of targets, the forecast of net proceeds from borrowing, especially from external sources, is thus likely to exceed the Plan expectation to make up for a large part of the possible saving shortfall. K. Short-term Budgetary Policy Large public borrowing from the Central Bank has been in the past an important element in putting pressure on the level of prices and the balance of payments. In some years, however, the Government had to restrain public investment for lack of financial resources or to take account of the implementation capacity in the public sector. From 1969 to 1971 public in- vestment hardly increased in real terms, staying at around TLl6 billion (at 1971 prices). In 1973 fixed investment by producing SEEs was set at TL12.4 billion (at 1972 prices) in the 1973 Program, whereas the Third Plan called for an amount of TL13.2 billion (at 1971 prices). A more-active, short-term budgetary policy would seem desirable in the future. The Third Plan states that "the short-term aim of fiscal policy is to preserve the general stability of the economy" and calls for changes in the tax system which would give the Government powers to use taxation to counteract cyclical conditions in the economy. Few governments in the world have been successful in applying this textbook prescription, and it is unlike- ly that in Turkey Parliament will give the necessary powers over taxation to the Government. It might be well to recognize that adjustments in the levels of public expenditures and domestic borrowing will remain the main budgetary instruments left at the disposal of the Central Government to influence the - 84 - short-run course of domestic demand. Fortunately, as indicated earlier, re- cent trends in the balance of payments and private deposits have created con- ditions favorable to an active borrowing policy on the part of the Government. Full use should be made of this opportunity for purposes of demand management, too. There is a need for the Government to draw up annual borrowing plans which would be better related to its objectives for price inflation and ex- change reserves than they were in the past and to keep these plans under re- view during the fiscal year with a view to adjusting them in case of unfore- seen developments. - 85 - PART II: DOMESTIC AND EXTERNAL FINANCE VI. THE FINANCIAL SYSTEM, MONEY AND PRICES A. The Financial System By conventional measures, Turkey's financial sector is well developed in relation to the level of aggregate economic activity. Assets of financial institutions have grown at 7.6 percent per year from 1963 to 1971 at constant prices, whereas real GNP has grown at 6.8 percent and real investment at 8.6 percent. An increasing proportion of the nation's expenditures has, therefore, been channeled through financial institutions. The financial system of Turkey consists almost exclusively of deposit banks and specialized development banks whose combined assets amount to 73 percent of all financial assets in the economy. The only other financial in- stitutions are insurance companies whose total assets are less than one percent of GNP. Direct financial debt of the nonfinancial sectors is rather small and not rising as fast as GNP; it consists of long-term government bonds, which are sold primarily to financial institutions, and corporate stock, which is closely held. Private corporations have issued bonds publicly since 1967, but the total volume is still very small. There is a considerable amount of specialization among the principal financial institutions in the scope of their lending and sometimes also in their sources of funds. The SIB (State Investment Bank) lends exclusively to State Economic Enterprises and draws its resources almost exclusively from compulsory social insurance funds. Two other development banks, TSKB (Turkiye Sinai Kalkinma Bankasi) and SYKB (Sinai Yatirim Kredi Bankasi), provide medium- and long-term credit to private industry. Deposit banks started to provide medium- and long-term credit to private industry under special arrange- ments in 1972. Among the deposit banks there is a group of Government-owned "special law" banks which specialize in lending to agriculture, real estate, local administrations, small artisans, religious foundations, and the like. The physical facilities of the banking system have grown rapidly. The number of bank branches has increased from 1,916 in 1961 to 3,524 in 1972 (an average of one branch for every 10,300 people). The number of deposit accounts has grown from 5 million in 1963 to 13 million in 1971. As pointed out later, there is probably some waste in such development. Money and quasi-money (i.e., currency in circulation and total depos- its) has grown from 20 percent of GNP in 1952 to 32.6 percent in 1972 (Tables 6.3 and 6.4). The process of monetization has undoubtedly been helped by the rapid decrease in the share of agriculture in GNP (from 43 percent in 1952 to 25 percent in 1972) as well as the spread of modern agriculture. Another major influence has been the increase in interest rates paid to depositors, especially on longer maturities, 1/ and the scarcity of alternative financial l/ Developments in 1973 may affect the future growth of deposits adversely. Deposit interest rates have been reduced in the 6 to 24 month maturity range by one percentage point, and the rate of inflation has been high. - 86 - assets (which can serve as stores of value and still retain some liquidity) in an inflationary situation. The slow growth of the securities markets is reflected in the pattern of financing of private investment. Of private sector investment averaging TL11.3 billion per year from 1965 to 1971 (including changes in stocks), about 38 percent has been financed by the banking system and only one percent by the sale of bonds (Table 19). The balance of 61 percent has been financed by the resources of the investors, including the issue of shares. Table 19 PRIVATE INVESTMENT AND FINANCING (TL million; annual average for period 1965-1971) TL % Fixed investment 9,855 87.2 Increase in stocks 1,442 12.8 Total 11,297 100.0 Banking system 4,321 38.2 Bonds 114 1.0 Self-finance 6,862 60.8 The sources of finance for various sectors differ greatly from the average. Bank credit financed 34 percent of total investment in industry and mining, as much as 63 percent of investment in agriculture, but only 9 percent of investment in housing and construction. This wide variation reflects the institutional and legal situation regarding the supply of credit to different sectors rather than the profitability of such credits to banks (see below). Thus, agricultural credit is given very high priority in the use of Central Bank resources and is the exclusive concern of the largest commercial bank in Turkey (Agricultural Bank). On the other hand, one bank alone is legally authorized to lend against immovable property. Housing construction is financed only by this one bank (Real Estate Bank) and by loans made by the social security institutions to their members (subject to many conditions). The above specialization illustrates a general practice of forcing credit flows through rigid channels, discouraging movement between the chan- nels. The extent of this "compartmentalization" is difficult to quantify but is strikingly high. Transactions between financial organizations are relative- ly small.2/ Most of these flows represent statutory purchases of SIB bonds 2/ A study of the flow of funds through financial institutions during 1963-68 by Professor Ertuna indicates that four classes of institutions (Central Bank, banks, social insurance agencies and SIB) received and distributed a total of TL56 billion, of which TL43 billion went to nonfinancial sectors. Thus, flows between these classes of financial institutions were only TL13 billion or only 31 percent of flows out of the financial sector (Table 6.19). - 87 - by social insurance agencies and flows between the Central Bank and the com- mercial banks reflecting legal reserve requirements and Central Bank advances. In their dealings with nonfinancial sectors, the financial institutions are highly specialized. The Central Bank finances the Government and a few SEEs, social insurance insititutions collect premiums from households and firms to finance the SIB and make some investments of their own, the SIB receives funds from the Government and social insurance to finance SEEs, and the "special law" banks have limited sources of funds and lend to specified categories of borrowers. Only the other commercial banks appear to deal with a wide range of nonfinancial sectors. Their lending, too, is subject to Government in- fluence through differential interest rate ceilings and selective credit policies. B. Interest Rate Policy Strict control over the structure of interest rates in Turkey dates back to 1938 and has been one of the most important instruments of monetary policy in the last decade together with reserve requirements. Official pro- nouncements regarding the desirable structure and the degree of control to be exercised have varied greatly, and the Third Development Plan would like to see interest rates that reflect the scarcity of capital. But in practice the policy has been to keep interest rates below the market equilibrium rate; there was, in fact, a reduction in interest rates in early 1973. 3/ A variety of motivations can be adduced to explain the policy of low interest ates in Turkey. The dominant motivation appears to be the desire to reduce the cost of production in industry, thereby increasing international competitiveness and combating domestic inflationary pressure. It is highly unlikely that the policy has these intended effects. First, with the possible exception of the construction industry, interest costs are only a small part of the cost of production and probably make no significant difference to export potential. 4/ Second, reducing interest rates once for all as in 1972 cannot have much effect on inflationary pressure, which is a continuing proc- ess. Finally, it is generally agreed that banks are able to evade the interest ceilings by charging a variety of commissions (which are nominally regulated as well) and by requiring compensating deposits (which is not legally permitted); consequently, ceilings on interest rates probably do not reduce the actual cost of credit to borrowers. Conversely, interest ceilings have some undesirable consequences on the mode of allocation of credit and on equity between savers and investors, which will be discussed further below. / In addition to keeping the general level of interest rates low, the structure of interest rates is also changed to favor borrowers in priority sectors. Only the former will be discussed here. The latter will be discussed in the following sections along with other selective credit policies. 4/ A study of 245 firms in modern, industrial sectors financed by TSKB shows that in 1971 interest payments inclusive of taxes and commissions average 7 percent of the cost of production. However, the burden of interest on profits may be more significant, thus affecting investment decisions in the less-profitable industries. - 88 - The ceilings on interest rates extend over all categories of credits, rediscounts and deposits. In practice, actual interest rates are set at the prescribed ceilings. There have been only two revisions in the structure of legal interest rate ceilings since 1961 (Tables 6.1 and 6.2). In 1961 the ceilings on lending rates ranged from 7.0 to 10.5 percent and on deposit rates from 2.0 to 6.5 percent. In 1970 there was an upward adjustment of 1.0 to 1.5 percent in most rates, and the maximum time deposit rate was increased by 3 percent. In 1973 there was a partial return to the 1961 structure of interest rates. Short-term lending rates were reduced by 1.0 to 1.5 percent. Medium- term lending rates remained at the 1970 ceiling of 12 percent. Interest rates on demand deposits were reduced by 0.5 to 1.0 percent; the maturity structure of time deposit rates was altered, making them less attractive to depositors (Chart 5 and Appendix Table 6.2). Since 1970 a ceiling of 15 percent has been decreed for private corporate bonds, and in 1973 interest rates on interbank deposits were allowed to find their own level. The ceilings on deposit interest rates are a consequence of the ceilings placed on lending rates on the one hand and the desire of banks to protect their profitability on the other. Interest on deposits and other banking questions are examined by a trade association which in endorsed by the Government (The Bank's Association of Turkey). Its membership is compulsory for all banks, and its board meetings are presided over by the Governor of the Central Bank. 5/ While the payments on deposits have been strictly limited, bank charges and commissions (see details below) increase earnings from loans. From 1963 to 1971 the average payments on outstanding deposits (inclusive of interest, commissions and "premiums") were slightly below 4 percent for the small depositors in national commercial banks other than special law banks, whereas income from lending operations (inclusive of interest, commissions and charges for banking services) was about 10 percent of outstanding deposits and about 15 percent of outstanding loans. 6/ Income from investments was an additional 0.5 percent of deposit volume. The spread available for expenses and profits of banks is, therefore, about 7 percent on the volume of deposits (except in 1971 when the ratio of credits to deposits was exceptionally low). This high spread has made it possible for the banks to compete strongly for deposits by excessive advertising and expansion in the number of branches. The number of branches increased by 67 percent over the five years from 1966 to 1971. The private, national banks expanded by 94 percent, while branches of special law banks--mostly by the Agriculture Bank and the People's Bank--grew 43 percent during this period. Judgments on the net economic bene- fits of branch expansion (authorized by the Ministry of Finance) must obviously be preceded by careful, detailed study. However, the available evidence 5/ The Association also regulates the use of lotteries and other means to attract deposits. Prices offered are now limited to a maximum of 0.5 per- cent of outstanding deposits plus a fixed sum determined by the Central Bank. 6/ The calculations are based on balance sheets and profit and loss state- ments published by the Banks' Association in Turkey. Outstanding depos- its are defined as the sum of official, commercial, bank and savings deposits. Special law banks are excluded because they rely on non- deposit sources for a significant part of their funds. - 89 - Chart 5; Changes in Interest Rate on Savings Deposits (1960 - 1970 - 1973) Interest r 1973 1961 6 Un"Bosm a...K.NIiLmmmmj 0 3 6 12 18 24 Maturity (months) Source: Table 6.2 - 90 - suggests that the branch expansion by private banks has been wasteful. With price competition between banks (through interest and premiums) being severely circumscribed by regulation, the justification for branch expansion has to be a significant improvement of public access to banks and better mobilization of savings. In fact, the 1,369 new branches opened between 1966 and 1971 brought banks to only twenty-three new towns. In nineteen of these twenty-three towns, the pioneers were special law banks rather than private banks. The proportion of bank branches in the three main metropolitan provinces (Istanbul, Ankara and Izmir) increased from 33 percent to 35 percent. Thus, the 874 new branches of private national banks were established almost exclusively in towns which already had banks and mostly in medium and large cities. 7/ Because of the ceilings on interest rates and the price inflation, depositors have earned a negative real rate of return on both sight and time deposits throughout the last decade; in this situation the convenience yield of branch expansion has probably been small. It is difficult to quantify the effect of the low rate of return or of the expansion of bank branches on deposit accumulation because there are many other factors influencing it at the same time. In particular, Government monetary policy has allowed a rapid increase in the supply of currency and hence in deposits. Interest ceilings and other factors have discouraged the development of a capital market that could have provided other investment opportunities to private savers. Improve- ment in the balance of payments has resulted in a reduction of blocked import deposits with the Central Bank, part of which must have been transferred to commercial banks. Part of workers' remittances that surged after devaluation has been saved in the form of deposits. The ratio of time deposits to total monetary liabilities of the banking system was less than 27 percent for a number of years but increased sharply to 30 percent at the end of 1970 and 33 percent at the end of 1971. The various factors mentioned in the previous paragraph would also affect this ratio, but the increase in the interest rate from 6.5 to 9 percent probably had a significant effect as well, indicating that deposits would respond to the stimulus of higher interest rates. The reasons advanced in favor of deposit rate ceilings are the need to avoid "excessive" competition among banks, reduce bankruptcies and retain public faith in the banking system. However, these objectives can be achieved more effectively by supervision of bank liquidity (which is already being done by the Central Bank) and by the introduction of a deposit insurance scheme. Such measures would permit a general increase in interest rates paid to depos- itors, would probably result in greater deposit mobilization, and would raise the capacity of banks to extend medium-term credit. / Branch expansion has been accompanied by expansion of the number of deposit accounts but this is a misleading indicator of the number of depositors. Up to TL500 of interest income from each deposit account is exempt from income tax, provided the accounts are in different branches. This encourages the multiplication of accounts. There were 12.6 million savings accounts at the end of 1971 when the total population in the 15-64 age group was only 20 million. - 91 - A serious objection to a policy of low deposit interest rates can be advanced on grounds of equity. Two-thirds of the deposits outstanding at the end of 1971 were held by individuals, and two-thirds of the individual accounts had outstanding balances of less than TL1,000 at the end of 1971. Even allow- ing for a substantial duplication of accounts, at least half of the depositors can be classified as small savers to whom bank deposits are the only available financial asset (other than currency). A policy of low deposit interest rates discriminates unfairly against this class of saver. With excess demand for credit, the cost of credit is substantially above bank lending rate ceilings due to the existence of various taxes, fees and commissions the borrower is required to pay. There are detailed regula- tions regarding the taxes and commissions that a bank can (or ought to) charge on each type of transaction (Table 6.17). In addition, the bank can also charge communication costs for intertown transactions and fees for insurance. (Some banks in Turkey also have associated insurance companies.) Further, some borrowers may be asked to maintain compensating deposits, thereby in- creasing the cost of net bank credit to them. Banks tend to negotiate a package of financing with their customers that would assure them a satisfactory composite yield. Regulations on specific transactions, therefore, are easily avoided. The broad categories of the additional costs of bank credit are shown in Table 20 below. The net effect of these charges is to increase the cost of credit by 7 to 8 percentage points above the nominal interest rates. Table 20 ADDITIONAL COSTS OF BANK CREDIT 1, Commission: 1.5 to 3.0 percent of value of credit. Stamp tax: 0.5 percent, incurred twice if a letter of credit is used. Communication costs: 0.5 percent. Insurance: 1.0 percent, if credit is against merchandise. Transaction tax: 25 percent of interest and all other charges except stamp tax and insurance. 1/ Costs other than interest charges which are paid by the borrower. On the basis of official charges alone, the cost of short-term credit to prime borrowers is increased from 10.5 percent to a maximum of 17.7 percent and medium-term credit from 12 percent to a maximum of 19.9 percent. In practice, the cost of short-term credit can vary from 16 percent to 22 percent, and there is wide variation in the cost of medium-tern credit as well. Corporate bonds, which are subject to an interest ceiling of 15 percent, usually cost about 20 percent because of the need for bank guarantees of most - 92 - issues. Consumer credit is not offered in large volume by banks, and its interest rate is not regulated. Its cost is estimated to be over 36 percent.§ On this evidence, it appears that ceilings on interest rates have not achieved their major purpose: to reduce the cost of credit to investors and other borrowers. Interest ceilings, by leading commercial banks to rely on commissions and fees for a major part of their income, have at the same time introduced serious distortions in the supply of credit for fixed invest- ment. With interest and commissions fixed, banks have no incentive in finan- cing new investments which are good but involve risk, leading them to prefer established borrowers to new entrepreneurs and to prefer credit against dis- counts and short-term credits rather than medium-term investment credits. C. Money and Credit Monetary liabilities of the banking system have grown at an average annual rate of 18 percent over the past two decades and at 26 percent in the last two years (1970-72). The very rapid growth of deposits--especially time deposits--since 1970 is the result of several factors, including the transfers of emigrant workers, the higher interest rates on deposits and the inflation of money incomes. The liabilities of the public sector have grown at a much lower rate, and their share in the expansion of banking system liabilities fell from 61 percent in 1952-62 to 41 percent in 1962-67 and 21 percent in the 1967-72 period 9/ (Table 21). Since 1970 liabilities of the rest of the world have shot up dramatically. The rapid increase in the liabilities of the banking system reflects the rise in deposits (including foreign exchange de- posits in 1970-72), the inability of the public sector to mobilize adequate savings for growing public investments up to 1972, and the policy of price support for major agricultural commodities. The proximate determinants of the supply of money during most of the past two decades have been for Central Bank credit to the Treasury and for agriculture, both of which are determined by Government policy (see pages 108 to 109). Central Bank credit to State Economic Enterprises was a major 8/ Of course, the actual prevailing cost varies in time and according to purpose, client and general supply-demand conditions. Only fragmentary evidence is available on what the equilibrium rate really is. When the corporate bond market flourished briefly in early 1970 in Istanbul, in- terest rates around 15 percent per annum were prevalent; compulsory savings bonds were traded in a secondary market until 1967 at a discount which implied interest rates around 30 percent. The interest rate im- plied by transactions in the secondary bond market in Istanbul in mid- 1972 was about 16.5 percent, and the coupons of compulsory savings bonds are also traded at similar discounts. But these markets are so thin that one hesitates to draw firm conclusions on this basis. 9/ Excluded from these claims on the public sector are large SIB credits to public enterprises which are financed from the expansion of compulsory social insurance funds. Both SIB and social insurance funds are not part of the banking system. - 93 - influence on the growth of money supply until 1960 but has been severely re- stricted since then. Since 1970 the growth of net foreign assets has also been a major factor behind the growth of money supply but has so far been less amenable to policy control. Central Bank advances to the Treasury are influenced by the size of the budget deficit and the extent to which the Government is able to borrow from other sources. Short-term advances to the Treasury have ibcreased rapidly in the last decade primarily as a result of the expanded public investment program. They are legally limited, however, to 15 percent of the general budget expendi- ture. Central Bank credit to agricultural agencies is determined primarily by the needs created by price-support policies and harvest surpluses. In essence, high purchase prices and inadequate margins to meet operating costs were re- sponsible for additional borrowing needs of the Soil Products Office and the Agricultural Sales Cooperatives, which administer the price-support program. Net foreign assets of the banking system showed no growth from 1952 to 1970 but have grown very rapidly since (from $11 million at end 1970 to $556 million at end 1972) due mainly to the accelerated inflow of workers' remittances and improved exports. While these inflows have very obvious economic benefits, it should also be recognized that they contribute significantly to inflationary pressures in the economy. The growth of net foreign assets accrued despite ex- change liabilities which took the form of convertible lira deposits in Turkish banks in early 1972. The recognition of Turkey's improved balance-of-payments position and prospects, the relatively low interest rates and excess liquidity in European money markets, and the exchange rate guarantee provided by the Turkish Government on convertibility of these deposits all combined to raise their volume from $135 million at the end of 1971 to $463 million at the end of 1972. Under the prevailing regulations, these deposits were used as a cheap source of short- and medium-term credit by Turkish industrialists. They also provided a base for expansion of money supply, especially as they were classi- fied as interbank deposits, exempt from reserve requirements. Convertible lira deposits were partly responsible for the increase by 32 percent in bank credit to the private sector in 1972. Various measures taken in 1973 have already re- sulted in the reduction in convertible lira deposits and should gradually elimi- nate them over the next two years (see Chapter 7, Annex 2). Table 21 CHANGES IN MONETARY ASSETS AND LIABILITIES (TL billion and percent) 1952 - 1962 1962 - 1967 1967 - 1972 TL % TL % TL % Money 8.55 81 11.71 81 30.39 67 (of which demand deposits) (5.17) (49) (7.53) (52) (23.31) (52) Quasi-money 2.02 19 2.74 19 14.83 33 Total 10.57 100 14.45 100 45.22 100 Net claims on public sector 6.45 61 5.97 41 9.64 21 Claims on private sector 7.23 68 11.69 81 30.90 68 Net foreign assets 0.38 4 -0.36 -2 7.81 17 Other -3.49 -33 -2.85 -20 -3.13 -6 Source: Tables 6.3 and 6.4. - 94 - D. Credit Distribution and Policies The trend in the allocation of credits to both private and public sector reflects the emphasis on industrialization in the planned development strategy of the country and the major role of the public sector in fixed in- vestment. Table 22 presents the sectoral allocation of the increase in out- standing credits from 1963 to 1971. Industry and mining have taken 34 per- cent of the expansion in credits to the private sector, raising their share of outstanding credits from 17 percent in 1963 to 29 percent in 1971. This increase has been achieved primarily by restraining the growth of credits for housing and construction. Credits to industry and mining have taken the lion's share of the increase in credits to the public sector. Table 22 ALLOCATION OF INCREASE IN OUTSTANDING CREDITS, 1963 TO 1971 (TL million and % shares) Private Public Total Sector TL % TL TL % Industry, mining 9,696 34 15,274 57 24,970 45 Agriculture 6,954 24 2,732 10 9,686 18 Small artisans, etc. 1,065 3 - - 1,065 2 Housing, construction 2,818 10 - - 2,818 5 External trade, tourism 2,531 9 433 2 2,964 5 Financial 176 1 7,023/* 26 7,199/* 13 Distribution, services 55,41 19 1,476 5 6,894 12 Total 28,658 100 26,938 100 55,596 100 /* Including credit to State Economic Enterprises, primarily for invest- ment in industry and mining. Source: Table 6-15. A comparison of the distribution of the increase in credit with the distribution of fixed investment expenditures among the principal investment sectors during the 1963-71 period shows that agricultural credit to the private sector (24 percent of total credit to the private sector) and indus- trial credits to the public sector (57 percent of public) absorbed a consider- ably higher proportion of the expansion of credit than their shares in total fixed investment (11 percent and 32 percent respectively), perhaps due to their heavier demand for working capital. The sector in which credit lagged was the private housing and construction sector (10 percent versus 41 percent). In aggregate, the public sector received 48 percent of the increase in outstanding credits from 1963 to 1971, its share of these credits in- creasing from 26 percent to 44 percent. During this period the public sector undertook 56 percent of total fixed investments. The most striking increase in public sector credit between 1963 and 1971 was in industry and mining (from 19 percent to 59 percent of the total) as a result of SIB credits which accounted for 48 percent of total credits to the public sector in 1971 (SIB - 95 - was created in 1964). The only sector in which the public share has declined is distribution and services; but even in this sector, credit to the public sector has been growing at 2.8 percent per year at constant prices from 1963 to 1971 (Table 23). Table 23 OUTSTANDING CREDITS TO PUBLIC SECTOR */ (TL million and % share) 1963 1971 % share % share Sector of credits of credits TL to sector TL to sector Industry, mining 400 18.7 15,674 57.8 Agriculture 977 28.3 3,709 28.3 External trade, tourism 104 6.2 537 11.6 Financial 815 87.2 7,838 96.4 Distribution services 1,221 43.5 2,697 27.8 Total 3,517 25.6 30,455 43.9 */ Credits made by the banking system and SIB. Source: Table 6.15. E. Selective Credit Policies The monetary authorities in Turkey have taken a wide variety of measures that discriminate in favor of one or another sector in the allocation of credit. The objective of these measures is to improve the role of the financial sector in economic and social development by increasing the availa- bility or by reducing the cost of credit to specified priority sectors. Broadly, the selective credit policies that have been adopted have favored the financing of public investment, agriculture and medium-term lending to industry with some emphasis on export-oriented activities. It can be assumed that, by and large, credit was used for the acknowledged purpose with no more than small leakages to other activities. A wide range of instruments has been used in pursuit of these policy goals: specialized institutions with privileged access to specific sources of funds, differential interest rate ceilings, tax exemptions and sub- sidies, access to the Central Bank, quotas and prohibitions on commercial bank lending and differential reserve requirements. Specialized financial institutions (see page 86) have been established as a result of Government policy and tend to be heavily dependent on financial support from the Government. They are subject to interest rate ceilings which inhibit these institutions from raising resources by issuing nondeposit obligations. Further, the banking transaction tax is applied to transactions between various financial institutions, thereby discouraging such flows of funds. - 96 - The private development banks (TSKB and SYKB), lend at 12 percent,10/ whereas they would have to pay at least 15 percent to raise long-term resources from the public or from other financial institutions. Consequently, they have to rely on the supply of funds as a result of negotiated arrange- ments rather than commercial borrowing. The only private source of funds that TSKB has is its equity (11 percent of its capital in 1971). Domestic debt, 21 percent of its capital, is entirely supplied by the Government, and the rest is foreign exchange borrowing from official lending agencies, guaranteed by the Turkish Government. SYKB is entirely independent of Government finances and gets its funds primarily from six large commercial banks which have agreed to transfer to SYKB 5 percent of the increase in their deposits each year. But, as a result of interest ceilings and a tax on financial transactions, SYKB can pay no more than 9 percent interest on this debt--far less than the banks can earn on other lending. Therefore, the arrangement between SYKB and the banks is a rather precarious one. Furthermore, SYKB has had only limited access to foreign exchange resources and consequently has a rather high ratio of working capital credits in its lending portfolio. The State Investment Bank lends to SEEs at 9.5 percent to 10.5 percent, which is even cheaper than the cheap credits offered by private development banks and is correspondingly more reliant on tied sources of finance. The State Investment Bank gets all its resources either by direct Government subsidy or by the sale of bonds to the Government-managed social security institutions and uses them to finance the investments of State Economic Enterprises. The surplus of social security institutions is rapidly vanishing and will soon turn to a deficit. 11/ Unless it is able to sell its bonds to private institutions and individuals or borrow from abroad, the viability of the SIB will depend on the resources generated by the expansion of the coverage of social insurance to self-employed persons or on direct subsidization by the Treasury or on both. The Agricultural Bank has the largest deposits of any bank in Turkey. Official deposits accounted for 39 percent of one bank's total de- posits at the end of 1971. It also has privileged access to the Central Bank, which finances a large part of its credit to agricultural sales cooperatives and agricultural credit cooperatives. The latter is another form of special- ized institution making credits to agriculture but in fact is almost wholly dependent on the Agricultural Bank. The proportion of credit cooperative loans not financed from the Agricultural Bank has dwindled from 26 percent to 11 percent in recent years. The special law banks depend primarily on Government rather than on deposit mobilization for their financing. The very striking difference in this regard between special law and other national banks is shown in Table 24. 10/ The actual cost to the borrower is about 16 percent. 11/ This is the result of a number of influences, the most important of which are the maturing of their obligations (especially a retirement "bulge" expected from 1975), the additional burden placed on them by the 1970 Personnel Law, the low rate of return on their investments, and the Parliament's unwillingness to raise the insurance premiums. - 97 - Non-official deposits,the only significant private source of funds to special law banks, accounted for only 53 percent of loans made by special law banks and 143 percent of loans made by other national banks. Iller Bank (which specializes in financing local administrations) obtained only one percent of its loan volume as nonofficial deposits at the end of 1972. With the excep- tion of the Agricultural Bank, banking operations are a minor part of the activities of special law banks. Table 24 BANK LOANS AND DEPOSITS AVERAGE OUTSTANDING AT YEAR END 1963 TO 1972 Special Law Banks Other National Banks ---------------(TL millions)--------------- Loans 1/ 17,732 11,170 Deposits 12,260 16,552 Official (2,897) (579) Other (9,362) (15,973) ----------------(Percent)------------------ Deposits as percent of loans 69.1 148.2 Non-official deposits as percent of loans 52.8 143.0 / Defined as credits, advances, bills portfolio, and debit current accounts. Source: Banks Association of Turkey, "Balance Sheets...," 1963 to 1972. The heavy reliance of specialized institutions on Government financ- ing ties the level of lending of these institutions closely to the budgetary situation of the Government. Pressures on Government resources in recent years, for example, were associated with a drop in the share of public commer- cial banks and the SIB in total assets of financial institutions, which fell to 46 percent in 1971 from a level of 53 percent in 1968. (The share of the Central Bank, however, rose rapidly, reflecting the issue of currency.) The pressure on Government resources is likely to intensify over the Third Plan period, and the relative importance of these specialized institutions may con- sequently continue to decline. Thus, unless the rather rigid compartmentali- zation of the financial system is relaxed or unless the Government succeeds in expanding its borrowing, credit to the priority sectors would continue to be constrained. The creation of additional institutions, such as the special banks to finance mining and private investment in underdeveloped regions proposed by the Third Plan, will not solve the financial constraint. An essential element of a solution is to make these sectors attractive to private commercial banks (as is being attempted for medium-term credit, discussed below) and to improve - 98 - the ability of specialized institutions to raise resources from nongovernmental sources. A particular measure which would promote the latter objective is exempting transactions between financial institutions from the transactions tax. 12/ Another measure to be considered is removing or raising the ceilings on interest rates so that institutions can afford to raise their borrowing rates and thus expand their borrowing. This argument applies to all institu- tions that have to rely on nondeposit sources of funds and is particularly relevant to TSKB and SYKB (which finance private industry) and to the special 1w banks other than the Agricultural Bank. Another selective credit policy that has been used, especially in recent years, is a set of measures that reduces the cost of credit to selected borrowers. The decrease in cost is achieved by setting lower ceilings on interest rates, by exempting them from taxes, and by paying direct subsidies. The success of these policies should be assessed in terms of three basic cri- teria: their implementation (i.e., whether the cost of credit is in fact reduced), their effect on the availability of credit, and the equitable dis- tribution of credit. Unless the availability of credit is increased, the effect of reducing its price will be to maintain the stringency of rationing, to allow further play to nonprice influences (such as "creditworthiness") on the allocation of credit, and to increase the monopoly rent of those few who are privileged in having access to the scarce supply. Credits for export-oriented projects are exempted from the banking transactions tax (Table 6.1, footnote 3). 13/ Since banks pass the burden of the transactions tax to the borrower, this exemption may be expected to be effective in reducing the cost of credit to the borrower. The measure is, however, neutral in relation to the availability criterion. Credit for exports to agriculture and to small artisans (by the People's Bank) have interest rate ceilings that are 3 percent lower than for other short-term credits; the last two also enjoy a 3 percent preference on medium-term credits. At least some of these differential interest rate measures will satisfy the implementation criterion. Since People's Bank credits and agricultural credits are made exclusively by specialized institu- tions which are publicly owned, these ceilings should be easy to enforce. The lower ceiling on short-term export credits is more difficult to enforce since such credits are made by private banks who, as noted above, have a variety of ways in which the effective cost of credit can be increased well above any given nominal rate of interest. Strict enforcement would probably tend to reduce the volume of such credit which earns 9 percent compared with "general" credits to the same borrower which earn 10.5 percent. The 12/ The revenue impact of this exemption is not precisely known, but is estimated to be very small (certainly less than one-half of one percent of consolidated budget revenues). The deleterious effect on the financial system, however, is rather significant. 13/ The tax is levied at 25 percent of the interest rate plus commissions. The effect of the exemption on the cost of credit is about 3 percentage points for short-term export credits (with a nominal interest rate of 9 percent) and 4 percentage points for medium-term export credit (with a nominal interest rate of 12 percent). - 99 - differential interest rate ceiling on short-term export credits, therefore, probably will not achieve its objective. The lower ceiling on agricultural and People's Bank credit, though enforceable, fails the availability criterion since these specialized institutions cannot raise more resources commercially when their maximum rate of earnings is only 9 percent while the low interest rate raises demand for their funds. This situation enforces their dependence on Government financing with a consequent restriction on their expansion, as noted above. Direct subsidies to lenders or borrowers have been in force since 1970, but their implementation record has, so far, been very poor. Credit to specified sectors was to benefit from a subsidy of one percent to 2 percent paid to commercial banks and another one percent to 4 percent paid to the borrowers. The scheme would simultaneously have increased the demand for priority credits (by making them cheaper) and increased the supply of priority credits (by increasing the return to banks), thus satisfying the availability criterion. But the scheme was never fully implemented because sufficient budgetary transfers were never made to the "Selective Credit Fund" from which the sub- sidies were to have been paid. In 1973 the above scheme was replaced by another which abolished the subsidy to banks and kept most of the subsidies to borrowers at approximately the previous level; approved medium-term credits, however, were given a higher subsidy of 6 percent (see Table 6.1 for details). The Selective Credit Fund is to be financed from the budget and from the Interest Equalization Fund, which receives the difference between domestic and foreign interest rates on foreign borrowing by Turkish entrepreneurs. It is not clear yet whether the scheme is fully operative, although the intentions are more serious. Judgment must, therefore, be reserved on the implementation criterion. It is also not clear why banks would increase the supply of such credits, particularly since they involve additional administrative complica- tions, unless they receive some compensation. In summary, selective credit policies that seek to influence the cost of credit are unlikely to achieve their basic objective of encouraging the expansion of activities for which the specified credits are intended. With the exception of tax exemptions, the other measures are either unlikely to reduce the cost of credit or may actually reduce the availability of credit to priority sectors. The Central Bank has made systematic use of its advances and redis- count facilities to direct the flow of credit from the banking system to priority areas, specifying rediscount limits for each bank, each sector and even each borrower. On average between 1961 and 1971, banks' liabilities to the Central Bank were 14 percent of their credits. The special law banks, however, had privileged access to the Central Bank, and the corresponding ratio was 31 percent for the Agricultural Bank and 42 percent for the People's Bank. While the Central Bank is authorized by law to accept a wide variety of bills for rediscount, it has shown a preference for credits related to prior- ity areas. This policy has been used to encourage private banks to make credit more easily available for exports (e.g., tobacco sales credits) and for preferred industries specified in the annual programs. In addition, the rate of interest charged by the Central Bank on its advances has also been lower for priority sectors. Until 1973 rediscounts of - 100 - short-term credits for exports, agriculture, small businesses, and priority industries cost 1.5 percent below that applicable for general rediscounts (see Table 6.1). In 1973 the lower interest rates were applicable only to medium- term credits for agriculture and exports. The reduced cost of these redis- counts are intended to make commercial banks more willing to extend priority credits. In 1970 the maximum maturity the Central Bank could accept for re- discount was raised from nine months to five years, though the volume allowed was small. This amendment has been quoted as an important reason for the recent willingness of commercial banks to make medium-term credits. F. Medium-term Credit The growth and maturing of Turkish industry has created the need for rapid expansion of longer-term financing, which has been particularly scarce. In its efforts to meet this scarcity, the Government used a wide range of policy instruments that are available to influence credit allocation in Turkey. The first major step was the establishment of TSKB in 1950, followed by SYKB in 1963 and SIB in 1964. 14/ We have noted that, as a result of the structure of interest rates (which does not provide a sufficient margin for long-term lending), TSKB and SYKB have remained rather small, financing no more than 10 percent of private manufacturing investment in the country. The resources of SIB have grown rapidly but not half as fast as public fixed in- vestment. For reasons noted earlier, the role of SIB as net financier of public investment has dwindled to very small proportions in recent years. Basically, all three institutions have been constrained by the low ceiling on their lend- ing rates which prevents them from raising enough resources. Their share in the total assets of financial institutions has fallen from 21 percent in 1962 to 11 percent in 1971. Another measure tried during the sixties was the improvement of the securities market with little or no success, as discussed later in this chapter. Since 1970 the emphasis has been on increasing the flow of medium- term credit (having maturities of one to five years) from the commercial banks. Prior to this, only small amounts of long-term and medium-term credit were extended by banks, mostly by special law banks. As noted earlier, medium-term bills became eligible for rediscount by the Central Bank in 1970. In 1972 the Central Bank required the twenty largest banks (excluding the special law banks) to provide at least 10 percent of their commercial credits in medium-term maturities by the end of the year. Most of the banks are said to have satis- fied this requirement, and medium-term credit to the private sector increased from TL2.2 billion in 1970 to TL4.0 billion in 1972. It is not clear, however, to what extent the increase is real or represents a reclassification of previous short-term credits, especially to the bank's more-favored customers. The quota requirement appears to have been extremely successful, however, in forcing the larger private banks to think seriously about improving their long-term credit operations, establishing project appraisal units, etc. 14/ Sumerbank and Etibank, established in 1933 and 1935 may be considered precursors of these institutions, but their role was conceived of pri- marily as holding companies for State Economic Enterprises. - 101 - In 1972 the banks were operating under a disadvantage imposed by the structure of interest rates. The maximum interest rate permitted for medium- term credits was 12 percent, only 0.5 percent higher than the maximum for short-term credits. There was little incentive to banks to incur the addition- al costs and risks involved in medium-term credit, especially as this was a relatively new type of business. In 1973 the maximum interest rate for short- term credit was reduced to 10.5 percent and that for medium-term credit unchanged; the spread, therefore, is now increased to 1.5 percent making medium- term credit relatively more profitable to banks. The profitability of medium- term credits has been increased further in 1973 by reducing the cash reserve requirement from 25 percent to 20 percent for a portion of demand deposits corresponding to the amount of medium-term credits extended by the bank to priority sectors as defined in the annual programs. The effect of this pro- vision is to raise the rate of earnings on medium-term credit by about 0.3 percentage points. The net effect of these measures will be to increase the supply of medium-term credit; but the demand will also be increased considerably as a result of the decree providing a 6 percent subsidy and some tax exemptions for medium-term credit for investments in approved sectors. This would reduce the cost of medium-term credit from about 20 percent to about 13 percent for many sectors and to 8 percent for export-oriented investments. It is likely that demand for medium-term credits would greatly exceed the supply, and there is a need for bolder policy measures to make medium-term lending more attractive to commercial banks. One measure which has been recommended above is the exemption of transactions between financial institutions from the banking and transactions tax, though this may mean a small loss to the budget. This would encourage commercial banks who alone are able to mobilize deposits to lend to development banks who are well equipped for this type of lending. An increase in the minimum quota of medium-term credits above the present level of 10 percent could be effective as window dressing by the banks becomes more difficult. Greater use of the differential reserve requirement ratios can also help by making medium-term credits definitely more profitable to banks. In summary, the various measures should aim at widening the spread in the interest rates for different maturities. G. The Securities Market Public debt The bulk of nonmonetary financial liabilities is issued by the public sector. While public domestic debt increased by TL23.4 billion in the last decade, private corporate bonds increased by about TLO.6 billion and the nominal share capital of corporations by about TL14.8 billion. The greater part of the domestic debt of the public sector is not part of a securities "market." A substantial amount of Government debt is the result of "consolidation" of the debts of other public sector agencies, primarily the liabilities of State Economic Enterprises and municipalities to banks. Con- solidated debts amounted to 71 percent of the outstanding debt in 1963 and 31 percent in 1972. Second, very little of the increase in Government debts from 1963 to 1972 can be said to represent a "voluntary" increase resulting from the willingness of lenders to hold larger amounts of the financial liabilities of the Government. As shown in Table 25, a third of the increase was SIB - 102 - bonds, which are taken up almost exclusively by the public social insurance agencies. Another 27 percent was the increase in compulsory savings bonds, which absorbed 3 percent of all income and profits liable to Income or Corpo- rate Tax. 15/ In 1972 this scheme was replaced by an equivalent rate of tax. The issue of long-term and short-term Government bonds contributed 27 percent of the increase in public debt; this was made possible partly by statutory requirement and moral suasion and, in recent years, by attractive return and high liquidity. Table 25 DOMESTIC PUBLIC DEBT, 1963 TO 1972 (TL million as of end December) Outstanding Debt Increase 1963 1972 TL % Short-term Government debt 1/ 531 1,326 795 3 Long-term Government bonds 737 6,286 5,549 24 Compulsory savings bonds 1,232 7,592 6,360 27 State investment bank bonds 2/ 669 8,590 7,921 34 Consolidated municipalities debts - 2,488 2,488 11 Other debts 3/ 7,861 8,137 276 1 Total 11,030 34,419 23,389 100 % of GNP 17 15 1/ Treasury bills and placement bonds. 2/ Including Amortization and Credit Fund bonds. 3/ Including debts consolidated under laws 154 and 250 which amounted to TL7,036 million in 1963 and TL7,380 million in 1972. Source: Table 6.9. Short-term Government bonds (known as Treasury bills or Teasury placement bonds) have maturities of less than one year and offer an interest rate of 10.5 percent per annum (which amounts to about 7.9 percent after tax). The banks found them a remunerative way to hold seasonal surplus cash. The long-term bonds are issued with twenty-year maturities and, since 1970, offer an interest rate of 9 percent free of all tax. There has been a very signifi- cant increase in this form of Government borrowing in the last decade, but more than half of the increase was achieved in 1972 (Table 6.9). In part, Government bonds enjoy a captive market: commercial banks are required by law to invest 5 percent of their earnings each year in 15/ From 1967, incomes below TL14,400 per year are exempt, - 103 - Government bonds; banks have to maintain a liquidity reserve requirement of 10 percent of all sight liabilities for which Government bonds are an eligible asset; corporations are legally required to maintain a contingency reserve for which Government bonds and other public sector bonds are the only eligible assets; and Government bonds are accepted as security in bids for public works contracts. The purchase of long-term Government bonds, however, also enjoys significant advantages (which are qualified below): the interest receipts are tax free, and the buyer does not have to disclose the size of his holdings; they are almost perfectly liquid, despite a maturity of 20 years at issue. The tax-free feature and greater security makes the Government bond yield of 9 percent more attractive than the corporate bond yield of 15 percent to individuals who pay a marginal tax rate exceeding 40 percent and to all taxable corporations. However, the tax-free provision is useful only to those individuals who actually pay their taxes at a rate exceeding 40 percent. Most individuals do not declare their interest earnings on corporate bonds but pay only the withholding tax of 20 percent, a rate which leaves corporate bonds yielding more than Government bonds. There is now a proposal to raise the rate of withholding on bearer securities to 35 percent, which would practically eliminate this advantage enjoyed by corporate bonds. Government bonds are almost perfectly liquid: they can be cashed in at any time, the only penalty being the loss of accrued interest since the last coupon payment (even this penalty was absent before 1971). However, since the transactions are routed (on a bookkeeping basis) through the Istanbul Stock Exchange, they incur a fee of 0.70 percent on each transaction. The Government may also put pressure on institutions (such as banks) when they wish to cash sizeable amounts of Government bonds at an inopportune time. Despite all their advantages, Government bond sales have been made mostly to financial institutions (Table 26). Of the total amount of TL8.9 billion of long-term Government bonds issued from 1953 to 1972, 29 percent was sold to public institutions (mostly social insurance agencies) and, therefore, does not represent addition to the public sector's resources; nearly 50 percent was sold to banks and, therefore, does not represent additional mobilization of financial resources for the economy. About 4 percent was bought by private companies, primarily to fulfill statutory liquid reserve requirements. Only 17 percent was sold to private persons. Table 26 LONG-TERM GOVERNMENT BOND SALES 1953 - 1971 1972 Purchased by TL million % TL million % Banks 2,490 51 1,905 48 Private companies 222 5 156 4 Public institutions 1,280 26 1,298 32 Others 866 18 641 16 Total 4,858 100 4,000 100 Source: Table 6.10. - 104 - As shown in Table 8, the issues in 1972 amount to nearly as much as the total issues in the preceding nineteen years, but the pattern of purchasers has changed little. The sale of Government bonds worth TL641 million to the public is, nevertheless, a notable achievement partly a result of extensive advertising. It is nearly three times the volume of (private) corporate bond sales in the year and nearly as much as the total sales of Government bonds in most previous years. Corporate bonds Corporate bonds in Turkey consist of 5- to 10-year bonds issued by about seventy large industrial corporations, usually guaranteed and under- written by prominent banks and holding companies. The practice of issuing bonds by corporations started only in 1967, and the volume of outstanding issues has grown to an estimated TL760 million at the end of 1972. The market appears to have been expanding significantly, although the issues in 1971 were low because of an uncertain investment climate (Table 6.11). The bond market recovered in 1972, and the first five months of 1973 saw an issue of TL196 million with 13 new firms making their first bond issues between October 1972 and May 1973. However, corporate bond issues still finance only 3 percent to 5 percent of private investment in manufacturing. Other than some general restrictions placed by the Commercial Code, the corporate bond market was entirely free of official regulation until June 1970 when a number of restrictions were imposed and the Central Bank undertook the task of supervision. The most important regulations now in force are: a ceiling of 15 percent on the interest coupon with a stipulation that bonds cannot be issued at a price below par; a ban on lotteries; a requirement that bonds outstanding should not exceed the firm's paid-in capital; a minimum maturity requirement of five years; and a requirement that all bond issues should be sold through banks (including the development banks), though not necessarily guaranteed by them. Issuing bonds through banks serves to inform the Central Bank about the terms of the issue, but there is no attempt to reg- ulate the issues in any other way. Corporate bonds may still be sold entirely through private placement, sometimes with the firm's own shareholders. Important effects of the regulations, however, have been to make access to the market more favorable to the more-established firms and to greatly increase the importance of having an issue underwritten by a bank. The latter, however, considerably increases the cost of bond issues to the corporate borrower and tends to reduce the supply of bonds. With the commis- sion paid by the borrower to the bank that guarantees and underwrites the bond issue, the transactions tax on these commissions and various other charges, the effective cost of a corporate bond to the issues rises to 20 percent per annum. (The details are given in Table 6.17.) However, the cost is sub- stantially less if the bond issue directly finances fixed investment for which the Government has awarded an "encouragement certificate." This would entitle an exemption from corporate tax of part of future net profit equal to a certain percentage of the investment financed by equity or corporate bonds. The percentages allowed depend on the economic sector, region, and size of the investment and generally range from 30 percent to 50 percent. With a 50 percent tax allowance, the cost of a corporate bond issue falls from about 20 percent to about 15 percent for a new company and half a percentage point less for a - 105 - project undertaken by an established company which earns profits from its other operations. This compares with about 20 percent effective cost of borrowing from commercial banks. The major reason for the slow growth of the corporate bond market, particularly in the current inflationary situation, is the ceiling of 15 percent placed on interest rates offered. Interest payments to individuals are subject to a 20 percent withholding tax, reducing their earnings to 12 percent. Interest earnings of banks and insurance companies are subject to the 25 percent transactions tax, reducing their earnings to 11.25 percent. Only tax- free financial institutions (such as pension funds) can actually receive a full return of 15 percent on their bond holdings. In comparison, individuals can earn 9 percent on their time deposits at banks, 16/ and banks earn about 15 percent on their credits. Thus, the demand for corporate bonds is reduced. Furthermore, the liquidity of corporate bonds is rather poor because the secondary market essentially consists of a few brokers in Istanbul. The larger institutions (such as banks and TSKB) are required to pass all their secondary transactions through the Istanbul Stock Exchange, thereby incurring a charge of 0.65 percent to each party in each transaction. Consequently, although the interest ceiling is not applied to secondary market transactions, most corporate bonds are held until maturity. With demand continuing to be strong, the scope for the further development of the corporate bond market, though difficult to assess, will largely depend on removing the ceiling on their interest earning, reducing the costs of issue and transactions and the growth of funds seeking term invest- ment--e.g., from tax-exempt private pension funds, insurance companies and commercial banks. Allowing institutions to channel their secondary market activities through banks and other channels than the Istanbul Stock Exchange (or reducing the heavy commission expenses of the stock exchange) would also expand the market and encourage demand. Corporate equity The information on the equity market in Turkey (derived primarily from the legally recorded changes in the nominal capital of firms and a partial record of transactions at the Istanbul Stock Exchange) shows that although the volume of corporate stock is large, the market in such stock is extremely weak. Most firms in Turkey are closely held corporations and finance their new in- vestment primarily out of retained earnings and depreciation reserves. When additional capital becomes necessary, it is raised from existing owners rather than by increasing the number of shareholders and dissipating control. There are very few offers of stock to the public. Commercial banks and TSKB are significant institutional investors in corporate stock, but only TSKB has deliberately acquired an equity portfolio with the intention of trading in it. The size of TSKB's portfolio had grown to TL126.2 million in thirty companies at the end of 1971, and the proportion of 16/ Interest payments on deposits are subject to income tax only if interest payments exceed TL500. In practice, the tax can be evaded to some extent by maintaining multiple accounts in different branches. - 106 - its portfolio that has been traded each year has varied from 9 to 25 percent in recent years. This has been the main supply of private corporate stock for the individual savers and has totaled only TL130 million from 1963 to 1971. The commercial banks' portfolio of corporate stock is much bigger, TL2.6 billion at the end of 1971. More than half of this represents participations in public enterprises (by special law banks). But private commercial banks also regard their investment in private corporate stock as long-term invest- ment. They have tended to acquire large (often controlling) interests in corporations, and there is practically no turnover in their portfolio. Since 1962 there have been many studies and draft bills aimed at widening shareholding and providing safeguards to small investors but with little result. The principal recommendation is the establishment of an autonomous Capital Market Control Commission, whose main task would be to assure true and adequate disclosure of all relevant facts regarding securities at the time of public offering and on a continuing basis. The recent bill dropped previously recommended strict criteria for defining "Joint Stock Companies open to the Public" and the various tax advantages and preferred access to credit that they would have been accorded. In the new bill the advantages of being "open to the public" would consist only of access to the capital market, simplified procedures for capital increases, more liberal issue of bonds and, indirectly, greater attraction for investment bankers. More important, however, proposed revisions in the corporation tax law would provide tax concessions to firms which have more than 100 shareholders, each of which holds less than 5 percent of the share capital. Other provisions of note are the insistence on a qualified, independent audit of the financial accounts of firms (the Capital Market Control Commission would have the power to appoint an additional auditor), special provision for the encouragement of underwriters and investment companies, and the wide supervisory role of the Capital Market Control Commission. It would be unrealistic to expect any immediate benefits from the passage of the Capital Market Bill although it is of great importance in the long run. Developing an active securities market will inevitably be a slow process, and the provision regarding independent audit of financial accounts will not mean much until there is a system of certifying accountants. As yet, buyers of corporate stock do not appear even to distinguish between dividend yield and the rate of return, including capital gains. The liquidity of corporate stock is undoubtedly very low, and the risks appear to be quite high. An analysis of forty-eight investments made by TSKB from 1952 to 1971 showed that thirteen yielded no positive return at all, twelve yielded only a modest return (between one and 9 percent per year), and twenty-three yielded returns of at least 10 percent. Even within the last category there was considerable dispersion with three investments yielding above 50 percent per year. The rate of return to TSKB on all its equity investments (including dividends and capital gains) averaged 12.6 percent, compared with 8 percent to 9 percent on its loans over the same period. Given the risks, the difference would seem inadequate to encourage much widening of the equity market. H. Policy Recommendations The principal objectives of policies relating to Turkey's financial system should be to increase the proportion of savings that are held in the form of financial assets and to improve the mechanism for the allocation of - 107 - credit to priority investment sectors. For both these objectives, an effec- tive set of policies must recognize the dominant role of banks with measures to improve the securities market playing a secondary (though not unimportant) role. There is need for more-enlightened Government policy in relation to the bond market. The interest ceiling of 15 percent imposed on private corporate bonds has been unrealistically low and has impeded the growth of a promising instru- ment of long-term corporate finance. Regulations requiring transactions to be recorded at the official stock exchange (thereby incurring high commission expenses) has prevented the growth of a secondary market in bonds among financial institutions. A healthy secondary market is essential for promoting demand for financial instruments, and this has been lacking for corporate bonds. An upward revision of the interest rate on Government bonds and a re- moval of the ceiling on corporate bond interest rates would significantly help the financing of long-term investment in both the public and private industrial sectors. An improved mechanism for allocating credits will involve a number of measures. First, remove interest ceilings on priority credits. Banks will then have a profit incentive to make loans to these sectors, and specialized institutions will improve their ability to raise more resources from the public and expand the operations. No doubt there will be an increase in the cost of credit to present priority borrowers. But alternative incentive schemes (such as tax rebates) are probably more effective in encouraging priority investments and less disruptive than artificially low ceilings on interest rates. If it is considered essential that the cost of credit be kept low, this should be achieved by explicit Government subsidies to the borrower or exemptions from the transactions tax and stamp duties. Second, banks could be provided additional incentives on a selective basis, if necessary, to increase their lending to priority sectors. These should be designed to alter the relative profitability of different types of lending (without necessarily affecting the level of overall bank profits), using differential reserve requirements and subsidy schemes. The essential point is to increase the supply of priority credits and not only the demand, as present measures tend to do. Recent measures regarding medium-term credits by commercial banks illustrate how these policies can be effective in the Turkish context. Third, abolish the tax on financial transactions between financial institutions so that funds circulate more freely. The revenue impact of this exemption will be rather small, but the impact on the financial system is likely to be significant. Specialized institutions would then be able to supplement their resources from other financial institutions--either by borrow- ing (e.g., from commercial banks) or by the sale of bonds (e.g., to insurance companies and private pension funds). In the short run it may also be necessary to consider ways in which the credit of the banking system can be more directly restrained. The imposi- tion of credit ceilings is probably undesirable. They are difficult to en- force and will add to the rigidities of the Turkish capital market. Reducing Central Bank rediscounts and advances to specific sectors will restrain the expansion of credit in those sectors. It may also be desirable to discourage some types of short-term commercial credits which have grown very rapidly in recent years in order to restrain the rapid growth of consumption and increase - 108 - the incentive of the banks to finance production and investment. The role of interest rates in restraining the rapid growth in money supply is indirect, but its allocative role is important. The structure of interest rates should ensure that the restraint on aggregate credit expansion does not unduly interrupt the availability of credit for priority needs. The level of interest rate has a more fundamental role in influencing the volume of credit, the ability of Government and corporations to mobilize savings through sale of bonds to the public, and possibly the rate of private savings. Raising the interest rate level or removing most of the ceilings on interest should be seriously considered at the present stage in Turkey. This would bring the rate in the present inflationary situation closer to the real levels of interest prevailing in Europe and other countries. It would help mobilize savings through expansion of time deposits (as demonstrated in the past) and encourage growth of the bond market, both necessary for the achievement of the Plan's savings and investment targets in the framework of monetary stability. Conversely, it would help restrain the rapid expansion of credit, increase competition for available credit and, consequently, divert it to the most re- munerative activities. Freeing the interest level does, of course, involve a rise in the cost of borrowing by the Government. This, however, is an accounting (not a real cost) to the economy, which is a small price to pay for the expected advantages. I. Prices and Price Policies During the last two decades,the declared objectives of the price policy of the Government have been to maintain price stability and to support farm prices. When price increases occurred, measures were to be taken to im- prove competitiveness and at the same time regulate the market; price control was to be applied when price increases did not reflect economic costs or were undesirable on social grounds. Price ceilings for products of State Economic Enterprises were to be determined on the basis of production costs. The policies actually followed in this period reflected the attempt to accommodate conflicting partial objectives without any clear coordination either as to priorities or means, and even these were often incompatible. As a result, they have been accompanied by large price distortions between the various sectors of the economy, affecting resource allocation and income distribution and, in some respects, contributed indirectly to inflationary pressure. The government tried to control price movements in some fields, while in others prices were allowed to fluctuate. The price of foreign ex- change was kept constant in spite of fast domestic price increases in the mid- fifties and sixties, thus leading to delayed and drastic devaluations in 1958 (310 percent) and 1970 (67 percent). The Government attempted to protect con- sumers against inflation by maintaining at a low level prices of basic serv- ices, such as transport, fuel, electricity and the retail price of basic foodstuffs. It tried to protect the producers against inflation by controlling the price and subsidizing inputs into industry and agriculture and by support- ing agricultural prices. The price system which resulted from these uncoordinated policies is very complex and includes various types of controls and regulations of prices of consumer products and some services, intermediate products and services, and factors of production. These include: annually determined support prices - 109 - for major cereals and industrial crops; fixed prices for the basic products of State Economic Enterprises (such as cement, fuel, power, steel, rail transport) which are changed occasionally; annually determined minimum prices for the major agricultural inputs; controlled retail prices for basic foodstuffs,-such as meat, fish, bread, sugar, butter; and controlled prices for coal, home fuels and burning wood. Price control is enforced by the ministries or public agencies which set up the controls and also by the municipalities for retail food prices. Rent increases have to be agreed upon by the occupants, and cases of disagreement are settled in court. Wages in the private sector and the public enterprises are subject to negotiated contracts between trade unions and employers in major plants. Interest rates ceilings and subsidies are determined by the Ministry of Finance and the Central Bank. Given the shortcomings in the weights or coverage of the existing price indexes, 17/ the best available indicator of overall price changes in Turkey is probably the implicit GNP deflator, which encompasses the relative price changes of many elements in the various sectors of the economy. During the 1950-72 period the aggregate implicit GNP deflator increased by 8.6 per- cent per year on the average with the fastest increases in the period between 1955 and 1959 (15.4 percent per year) and that between 1970 and 1972 (13.8 percent per year) (Table 9.1). Causes of inflation Numerous factors have contributed to this rapid rate of inflation. The expansion of money supply at a higher rate than real income has had a very 17/ The quality of the existing price indexes is uneven. The two wholesale price indexes do not well reflect changes in wholesale prices: that prepared by the Ministry of Trade because it is based on a list of com- modities and weights established in 1938 and that of the Istanbul Chamber of Commerce because it is an unweighted geometric mean. They only in- dicate general trends and offer some comparison of relative changes between the wholesale prices of agricultural goods and industrial raw material. A consumer price index is available for Istanbul and two indexes for Ankara, which are prepared by the Istanbul Chamber of Com- merce and by the Ministry of Trade and the State Institute of Statistics (SIS) respectively, the more reliable being that prepared by SIS. The SIS also prepares consumer price indexes for nine other cities, based on the results of household consumer expenditure surveys carried out between 1964 and 1970, which are reliable (Table 9.2). Other price indexes available are: the deflators used in the national accounts aggregates, an export price index calculated by the Ministry of Com- merce starting in 1963, an import price index calculated by the SIS since 1968, and an index of wages paid to workers covered by the Social Insurance Institution. Indexes of prices of imports and exports of goods, in dollar terms, have been estimated in the World Bank for the period 1950-72; the export price index has been obtained by dividing the value of major commodity exports by a weighted quantity index of the same commodities, and the import price index as a weighted index of the export price indexes of the major countries exporting to Turkey. - 110 - significant influence on price movements. 18/ There has been in fact a very close relation in Turkey between changes in the stock of money on the one hand and changes in real income and in prices on the other. The following equation specifies the demand for money balances as a function of contemporaneous real income and price level during the 1963-72 period. 19/ It shows that the rate of growth of the demand for real money balances has been very closely related to the rate of growth of real income. MR = -34.83 + .254 YR + .264 P (s.e.) (1.73) (0.05) (0.03) (1963-72) Where 2 0.998; DW = 1.14; N = 10; R Mr = Money supply, current in billion TL YR GNP at market prices, real terms (deflated by P) in billion TL P = GNP deflator Various policy and institutional factors have contributed in Turkey to a fast growth of money supply during the last two decades (16 percent per year during the 1950-72 period). The desire of the Government to sustain a high level of public investment in excess of its capacity to mobilize the required domestic and foreign savings led to a rapid increase in net public borrowing from the Central Bank (15.6 percent per year between 1950 and 1972). In the agricultural sector credit increased rapidly to meet the demand of the Agricultural Bank for its short-term credit to farmers, credit cooperatives and sales cooperatives (60 percent of the increase in agricultural credit), and the demand of the agricultural products organizations (Cereals Office, Monopolies Administration, Sugar Corporation, Tobacco Monopoly). This large increase in agricultural credit (13.2 percent per year during 1950-72) re- flected the attempt to accommodate the conflicting demands of farmers for high producer prices and of urban consumers for low food prices as well as the support of transport, marketing and storage costs by the public agricultural organization. In the early seventies fast-growing workers' remittances became the main factor of money supply growth. Net foreign assets increased thirty- nine times between 1970 and 1972.- 18/ Monetary explanations of inflation are essentially based on the corre- lation between money supply and nominal income and have to make the crucial assumption that causality runs from money to prices rather than vice versa. This assumption has been widely attacked in economic liter- ature on the grounds that income could be one of the major determinants of the supply of money. Monetary expansion could be said to explain inflation insofar as the supply of money is exogenously determined. 19/ The interest rate is an obvious omission in this specification. In an economy where the structure of interest rates is rigidly controlled and unrepresentative of economic relationships, the inclusion of an interest rate would be inappropriate. - 111 - The high correlation and Durbin-Watson coefficients of the following equation based on observations during the 1963-72 period supports the hypothesis that changes in money supply in Turkey can be very largely ex- plained by changes in certain policy variables under the control of the Govern- ment and by variables exogenous to the economy. The policy variables are those governing Central Bank credit to the Treasury or to the Agricultural Bank and marketing agencies. The exogenous factor is the change in net foreign assets. log money = 2.805 + .456 log TRE + .172 log AGCRS + 0.111 log AR (.034) (.038) (.062) (.015) R2 = .99 DW = 1.81 (1963-72) Where: MONEY Money Supply TRE = Net Central Bank credit to the Treasury, consisting of short-term advances, bonds, advances against gold and Bank liquidation fund. AGCRS Net Central Bank credit to the Soil Products Office and Agricultural Sales Cooperatives R = Changes in net foreign assets of the Central Bank J. Changes in Relative Prices (Charts 6 and 7) Because of the extent and variety of price controls and of the Government policy of fixed exchange rates interrupted only by two drastic de- valuations in 1958 (310 percent) and 1970 (67 percent), the extent of infla- tion varied in the different sectors of the economy, leading to substantial changes in the relative prices (terms of trade) between the agricultural and industrial products; between exports and imports, domestic and international products; and between wages and capital goods. Agriculture and industry The terms of trade of the agricultural sector vis-a-vis the indus- trial sector deteriorated during the early fifties and seem to have fluctuated afterwards without a clear indication of a trend. This fact and the slower production growth in the agricultural sector than in the industrial sector contributed to the relative deterioration of agricultural incomes. A measure of the changes in the terms of trade between the two sectors can be attempted (a) by comparing the wholesale prices of agricultural goods and of industrial raw material, as measured in the index prepared by the Ministry of Commerce; and (b) by comparing the price deflators of value added in the agricultural and the industrial sector. The results of the comparison using value added deflators are indicated in Chart 7. The analysis of the terms of trade obtained through wholesale prices shows wider variations which are probably due to limited coverage of the index since it does not take into account the prices of manufactured goods or untraded agricultural products. However, both measures indicate a strong deterioration of the terms of trade of agriculture versus industry during the fifties, followed by a period of - 112 - CHART 6 200 80 - 7 0r **o 60 - so - RELATIVE MOVEMENTS OF DOMESTIC AND IMPORT PRICES (1968=100) / -..-.. LANDED COST OF IMPORT (INT'L INCLUDING TAXES) * GNP DEFLATOR ** IMPORT PRICES IN $ 20mon DEFLATOR OF VALUE ADDED IN INDUSTRY 1950 1955 1960 1965 1970 1972 CHART 7 200 - 100 - 90 so- 70 60 - RELATIVE MOVEMENTS OF AGRICULTURAL AND INDUSTRIAL PRICES so -(196 100) 40 - DEFLATOR OF VALUE ADDED IN AGRICULTURE DEFLATOR OF VALUE ADDED 30 - /IN INDUSTRY 20 1950 1955 1960 1965 1970 1972 World Bank-8064(R) - 113 - relative stability in the sixties and by another deterioration in the early seventies. On the basis of 100 in 1968, the terms of trade, as indicated by the national account deflators, deteriorated from about 130 in the early fifties to about 85 in 1972, remaining around 100 during the 1960-69 decade. Between 1950 and 1961 the terms of trade between agriculture and in- dustry deteriorated due to the lower increase of agricultural prices (270 percent),compared to industrial prices (389 percent) or even the GNP deflator (278 percent). The effect of the end of the Korean boom on world agricultural prices, of the 1958 devaluation, and of the fast-increasing prices of a highly protected industrial sector boosted by fast-rising nominal incomes contributed to this deterioration. During the 1970-72 period agricultural prices in- creased substantially more slowly than the GNP deflator (25 percent and 34 percent respectively), while industrial prices continued to soar (39 percent). The increased demand for manufactured goods in a period of fast-growing nomi- nal incomes and of large flows of workers' remittances, the lag in adjusting the agricultural support prices to the level of inflation, and the effect of the 1970 devaluation on the prices of imported inputs explain the deteriora- tion of the domestic terms of trade. In May 1973 agricultural support prices were increased by 15 percent to 30 percent (for a detailed discussion of agri- cultural prices, see Chapter 10 on agriculture). Terms of foreign trade The terms of foreign trade deteriorated during most of the period, particularly between 1956 and 1962, when the terms of trade index decreased by 52 percent. A one-year increase in 1963 is mostly due to a fluctuation of the export price of tobacco. The terms of foreign trade remained approxi- mately steady afterwards until 1970 when they started to improve again (Chart 8). Import prices in U.S. dollarsincreased at an average rate of 2.8 percent per year during the 1950-72 period with a faster-than-average rise in the early fifties and early seventies. Export prices in U.S. dollars increased more slowly at an average rate of 1.6 percent per year. They rose rapidly during the 1950-56 period but then decreased until 1962 with the drop in world prices of cotton. Export prices improved slightly after 1962 with an excep- tional increase in 1963 due to a 42 percent increase in the export price of tobacco. Their increase accelerated after 1970 when the export prices of most agricultural commodities started to go up. The 1958 and 1970 devalua- tions did not significantly affect the export price index in dollars. In 1958 export prices were much below prices paid to producers for these exports, and the devaluation only brought the two price series in line. The effect of the 1970 devaluation on exports was smaller than might have been expected because most exports were already changed at TL12 per dollar instead of the official exchange rate of TL9 per dollar. However, export prices in Turkish liras became higher than domestic prices, leading to substantial profits to the exporters or the export organizations (Table 27). - 114 - Table 27 EXPORT PRICE AS PERCENT OF DOMESTIC WHOLESALE PRICE 1955 1958 1959 1960 1969 1970 1971 Beans (fazulye) 102 26 26 62 89 133 132 Hazelnuts (shelled) 90 59 35 65 97 105 104 Figs (dried) 145 62 40 138 177 180 159 Raisins (seedless) 77 61 45 79 121 128 117 Cotton, lint 77 39 31 61 94 93 90 Mohair 62 56 33 56 125 128 123 Source: Table 9.7 of the Statistical Appendix. Domestic and world prices During the 1950-72 period domestic prices increased much faster than world prices; devaluations and changes in import duties were not sufficient to bring the two price series in line. Domestic prices increased by 8.6 per- cent per year while import prices in dollars increased at 3.1 percent per year on the average. Changes in the tax burden on imports and the substantial de- valuations of 1958 and 1970 were not sufficient to keep the changes in the cost of landed imports (in Turkish liras, including taxes), in line with domestic inflation (Table 28 and Chart 8). The 1958 devaluation increased the cost of landed imports vis-A-vis domestic prices, but between 1958 and 1970 the direction was reversed. The 1970 devaluation led to a relative rise in landed import prices, but the gap was narrowed quickly by 1972. The distor- tions between domestic and world prices increased considerably in periods preceding the devaluations, which can then be seen as attempts to correct the relation between domestic and world prices. Table 28 RELATIVE MOVEMENTS OF DOMESTIC AND IMPORT PRICES (1968 100) Index of effective Import price cost of imports in in $ TL GNP deflator 1952 73.9 18.4 28.2 1957 96.4 31.3 48.4 1958 93.5 70.1 54.6 1959 90.9 124.1 65.9 1960 92.4 94.4 67.8 1968 100.0 100.0 100.0 1969 103.6 101.3 105.2 1970 110.0 129.2 115.2 1971 116.7 163.1 136.6 1972 123.7 161.4 155.3 Source: Table 9.8 of Statistical Appendix. - 115 - CHART 8 TERMS OF FOREIGN TRADE 150 EXPORT PRICE INDEX IMPORT PRICE INDEX (IN US $) 140 (1968 = 100) 130 120 110 100 - 90 - 1950 1955 1960 1965 1970 1971 World Bank-8063(R) - 116 - K. Effects of Price Policies The analysis of relative changes between domestic industrial prices and the landed cost of imports (in TL, including taxes) indicates how the price competitiveness of Turkey has changed over time, since the bulk of im- port consists of industrial goods.- The price competitiveness of industrial goods on the world market has deteriorated during periods of fixed exchange rates, reflecting the rapid inflation in the country. The 1958 devaluation and, to a lesser extent, the 1970 devaluation corrected this situation. Price information is not available in enough detail to measure the current cost com- petitiveness of Turkish industry. A study carried out in 1972 on a sample of twenty-three manufacturing firms shows a degree of effective protection vary- ing from 11 percent to 1060 percent with half of the products protected by effective rates of 100 percent or more. High final product prices character- ize most of the highly protected industries, suggesting considerable scope for lowering protection and increasing local competition to bring down high prices (for detailed discussion see the chapter on industry). The price policies in the agricultural sector contributed to rapid production increases in the export crop sector and in the sector of fruits and vegetables and assisted in low maintenance of the consumer prices of basic agricultural food products. However, this advantage seems to be offset by serious allocative inefficiencies and equity disadvantages. Stable and uniform farm prices led to highly unstable incomes due to yield variations which privileged the farmers located in irrigated areas or in areas of more-stable rainfall. The absence of price differentials between regions forestalled in- vestment in storage and transport facilities and penalized the producers of high-quality hard wheat on the plateau vis-1-vis the producers of lower quality wheat of the coast, probably slowing down a production shift in this latter area. The support policies also resulted in a slow growth of the food production and livestock sectors (see chapter on agriculture). The Government policy of trying to keep stable the prices of goods and services sold by the SEEs without improving their productivity and curbing unnecessary increases in employment contributed to large deficit and poor savings in this sector. It affected negatively the level of public investment, which fell short of the targets in the First and Second Plan. It contributed also to feed the inflation because the Government borrowed increasing amounts of short-term credits from the Central Bank to finance these deficits. Fast-increasing urban wages mixed with decreasing cost of imports relative to domestic prices would be expected to lead to a capital intensive pattern of industrialization. There is some evidence that this was the case in Turkey as indicated by the fast growth of productivity in the industrial sector (5.5 percent per year during 1960-70) and the slow growth of employment during the same period in spite of the import licensing system which restricted access to imports. The consumer price indexes for eleven cities seem to indicate that inflation spread quite uniformly in the various regions of the country during 1968-1972 (Table 9.2). However, it spread unevenly into the various sectors of the economy through the price system as indicated by the changes in terms of trade between agriculture and industry. Although detailed studies on the changes in income distribution over time are not available, an analysis of the - 117 - existing price series gives some indication of the direction of the changes in income distribution and of the transfers implied. The changes in terms of trade between agricultural and industrial raw material prices, the fast growth of urban wages in the sixties, and a growth of production in agriculture much slower than in the rest of the economy indicate a deterioration of the rela- tive income of the rural population during the whole period in spite of the agricultural price-support policy. L. Monetary Policy and Price Stability Price inflation continued to be high in 1973 with retail prices in- creasing by about 17 percent in Ankara during the year. The measures taken by the Government in late 1973 concerning import liberalization, a cut on some import taxes, and export restrictions did not substantially reduce the pace of inflation at the end of the year. However, in February 1974 prices declined for the first time since March 1973. Unless stronger measures to control credit to the private sector, to keep the Government deficit to a minimum, and to accelerate import liberalization are taken, price increase will remain high during the plan period. The distortions introduced by the present price system on resource allocation and income distribution might lead to a growth pattern different from the pattern envisaged in the Plan with a smaller share of public investment in total investment, a fast growth of quick profit- yielding consumer industries attracted by fast-rising nominal demand, and a. fast growth of the services sector--especially construction. In the medium- term, rising cost of exports would reduce the competitiveness of Turkish exports and might require a new devaluation of the lira or the adoption of a policy of more-flexible exchange rates. Future price stability within the limits of price rises in the economies of Turkey's major trade partners is desirable on both economic and social grounds. Its achievement is difficult and will depend to an important extent on the Government's ability to control inflationary pressures through a combination of policies that would restrain the growth of demand for avail- able resources and align it with the growth of supply of resources. This covers a wide range of investment, trade, fiscal and incentive policies, which are discussed in Chapter 4. However, monetary and credit policies also have a prominent role to play both in overall demand management policies as well as in supporting selective policies in the other policy areas. Controlling the major factors affecting growth of money supply, namely workers' remittances and short-term borrowing by the Treasury and credit agricultural organizations, deserve continued attention. Workers' re- mittances have reached $1.1 billion during 1973 or about 40 percent higher than in 1972 and may retain a high level in the next two years. Estimates of workers' remittances at the end of the Third Plan vary between $1.4 billion and $0.7 billion, depending on the evolution of the economic situation in Germany (Chapter 7, Annex 3). Even in the more optimistic case, increases in workers' remittances will be absorbed by the increased cost of imports due to the oil price increases. To mobilize a part of these remittances to finance investments, the Government is trying to encourage workers abroad to form joint investment ventures and has recently allowed foreign currency deposits accounts to be opened in the Central Bank by emigrant workers if such deposits are earmarked for purchase of Turkish securities (in the meanwhile they earn 2.5 percent interest rate and can be withdrawn). Controlling the - 118 - effect of the rapid growth of workers' remittances on money supply was diffi- cult because neither their rate of growth or the final use of their TL counter- part is under Government control. The expansionary effects of large workers' remittances should be handled essentially through appropriate fiscal, import and external debt policy. Nevertheless, monetary policy can partly insulate any excessive effect on money supply by allowing banks, for example, to accept foreign exchange deposit accounts by residents and emigrant workers at competitive interest and to invest such deposits freely abroad and repatriate investment yields freely--i.e., a departure from the existing strict exchange control system. Similarly, the Central Bank could be enabled to extend medium- term loans in foreign exchange to investment banks to finance additional im- ports by their clients and to accept their bonds or bills (denominated in foreign exchange) in its assets. Other classical monetary policy instruments are available to offset the expansionary effects of the increase in exchange reserves and can be used discriminately. These include all the measures aiming at contracting bank credit, ranging from reducing Central Bank rediscounts and lending to the public sector to raising or relaxing the ceiling on interest rates, to raising the deposit reserve ratio with the Central Bank, or to imposing ceil- ings on volume credits. The previous discussions in this chapter bring out the importance of continuing to restrain Treasury's and agricultural agencies' borrowing from the Central Bank and the raising or relaxation of interest rate ceilings. Raising the reserve ratio has to be used very discriminately, con- sidering the reported recent drop of bank excess liquidity. Finally, the Treasury can restrain the growth of money supply sub- stantially through varying the volume of its short-term borrowing from the Central Bank. The success of the Treasury's long-term bond issues in 1972 and 1973 opens new possibilities to use the management of domestic debt as a means of influencing money supply. Not only does long-term borrowing reduce the Treasury's need for short-term borrowing from the Central Bank, but it also creates the possibility of using part of the bond proceeds to retire short-term debt with the Central Bank, thus leading to a multiple reduction in overall bank credit. Such measures may become all the more valuable as a means of raising public investment expenditures in line with the Plan's objec- tive and correspondingly restraining the private sector's claim on resources. - 119 - PART II: D 0 MESTIC AND EXTERNAL FINANCE VII. TRADE, EXTERNAL PAYMENTS AND DEBT A. Introduction Turkey had an export surplus during the Second World War which re- sulted in accumulation of gold and foreign exchange reserves. Since then and until 1970, the balance-of-payments situation has been characterized by a chronic foreign exchange shortage. The deficit on current account averaged about $120 million per year in the fifties, increasing to an average of $180 million in the sixties. Turkish foreign trade and exchange policies were shaped by this chronic disequilibrium situation with complex and rigid con- trols throughout the period which varied in severity: relative liberalization in the period between 1950 and 1953 after Turkey joined the European Payments Union (EPU) in September 1950, followed by severe and effective controls during the 1954-58 period. Import controls were relaxed during the 1959-62 period after the devaluation and stabilization program of 1958 but were tightened again in the remainder of the sixties. The system is again being liberalized since the devaluation of August 1970 and the accompanying stabilization pro- gram combined with record foreign exchange earnings from workers' remittances -and exports in subsequent years as well as implementation of the agreement with EEC. The origin of the balance-of-payments disequilibrium in the late fifties and sixties lies essentially in the rapid rise of demand for imports (resulting from growing investment requirements and rising imports of raw materials and maintenance equipment), combined with sluggish exports (result- ing from the inelasticity of demand for Turkey's traditional exports and the inability to develop and expand other exports). The balance-of-payments prob- lems were aggravated by inflation, poor management of trade and exchange con- trols, and flight of capital. The attempt to suppress the effects of infla- tion and demand pressure on the balance of payments through quantitative re- strictions rather than exchange rate adjustment and the excessive borrowing from commercial sources in the fifties led to a liquidity crisis and an un- manageable debt structure in 1958, which required remedial debt relief in the late fifties and sixties. Import controls employed in Turkey have been successful in curbing total imports and have also managed to allocate scarce foreign exchange re- sources increasingly to the needs of investment at the expense of finished consumption goods. However, the control policies have led to high-cost import substitution and other social costs, which are discussed below. B. Exchange and Trade Policies and Controls Turkey has followed a policy of pegged exchange rates with revisions at long intervals, and the excess demand for foreign exchange has been curbed by stringent controls on trade and exchange flows. But along with the official exchange rates, Turkey has had a multiple exchange rate system with different rates for specific transactions and a variety of taxes/subsidies which have effectively implied multiple exchange rates. The value of the Turkish lira, - 120 - set at TL2.80 = US$1 in 1947, continued till August 1, 1958, when export rates were changed for all goods (except opium) ranging from TL4.90 to TL9.00 per US$ 1/ All imports were at TL9.00 = US$1. In August 1960 multiple rates were abolished, and the official rate for all trade became TL9.00 = US$1. Special rates were subsequently applied to tourist expenditures and workers' remit- tances._2/ In August 1970 the official rate was changed to TL15 = US$1 on all trade and services except for a group of eight agricultural commodities, 3/ to which a rate of TL12 = US$1 applied. After the currency realignments of December 1971, the central rate was fixed at TL14 = US$1 and has remained at that level despite the dollar depreciation in 1973. The continuing balance-of-payments problems have been met by a com- bination of exchange controls, high tariffs and direct quantitative trade re- strictions. Permits are required for foreign exchange payments; foreign exchange earnings with few exceptions have to be sold to the Central Bank; prices are checked to prevent under- or over-invoicing; and capital movements are controlled. All commercial imports require import licenses; private individuals and corporate bodies with some exceptions are required to secure an "importer's certificate" before applying for a license to import goods for commercial purposes. Most goods are imported under annual programs which since 1962 have been prepared by the SPO. The annual import programs classify imports into two lists: a list of liberalized goods (consisting mainly of new materials, semi-finished goods, spare parts and some investment goods), for which import licenses are issued freely; and a list of goods subject to global quotas, specifying quantitative ceilings (expressed in dollars) for each commodity or commodity group. Imports of goods that do not appear on any of these lists are prohibited unless specifically authorized by the Government. 4/ In times of foreign exchange shortage, the Government moved goods from the liberalized list to the quota list and delayed approval of import applications. The 1/ Those in Category A (tobacco, chromium and copper) received TL4.90 per $; Category B (raisins, hazelnuts and figs) received TL5.60, while all other exports, invisible receipts and capital inflows were exchanged at TL9.00. 2/ In 1961 a 50 percent tax was charged on exchange for tourist expenditures, and in 1967 tourist receipts were exchanged at TL12 = US$1. Starting July 1964, a 27 percent premium over the official rate was paid for workers' remittances (i.e., a rate of TL11.4 = US$1), and in 1967 the rate was changed to TL12 = US$1. 3/ These commodities are major agricultural exports: tobacco, cotton, hazel- nuts, raisins, dried figs, olive oil, oil cake and molasses. The rate was raised to TL13 = US$1 for tobacco early in 1971 and for the other seven products in September 1971. The rate of tobacco was further raised to TL14 = US$1 in January, 1973, and for the others in August, 1973. 4/ In addition to these lists, ceilings are placed on trade with bilateral agreement countries; goods not included on the two lists may not be imported under bilateral quotas. - 121 - overall quota list is subdivided into several major quota groups. The major quota groups cover: the regular commodities (specific commodities imports), assembling industry, manufacturing industry, investment goods, and the assort- ed quotas (value quotas for particular industries or purposes). Each of the quota groups has separate dollar amounts shown for "industrialists" importing for their own use and for "commercial importers" who import for resale domesti- cally. Imports also carry relatively heavy tariff duties and various other charges. It is difficult to give an exact measure of the protective effect of these charges without a detailed study, but it can be presumed to be high on manufactured consumer goods and on competing raw materials and semi- finished goods. The rates of tariffs have varied over time (there were re- visions of rates in 1964 and 1971). Tariffs on noncompeting raw materials are typically low, somewhat higher for semifinished goods and high for finished goods. Although import duties on investment goods are high, they are generally waived or reduced, or their payment can be deferred as an incentive to investment. In addition to tariffs, imports are subject to a variety of other charges and costs, which were generally greater and often double the customs duty._5/ Import duties and charges have served as a tax revenue device, as a means to offset the undervaluation of foreign exchange, and as an instrument of protection. The average incidence of tariffs and charges has ranged from 32 percent to 127 percent of the c.i.f. value of imports in the last two decades (Table 3.10). Foreign trade taxes represented 27 percent of Government revenues in 1960 and 22 percent in 1971. Various export incentives have been used in Turkey to encourage non- traditional exports. The most important measure has been the allocation of foreign exchange to exporters from the proceeds of nontraditional exports. Before the 1970 devaluation SPO could provide up to 50 percent of the value of export earnings for use by the exporter for imports of materials and compo- nents required in the same type of production as the exported commodities. The typical allocations were 20-35 percent. After August 1970 the rate was reduced to 25 percent. In addition, direct and indirect taxes paid on the exported commodity or on its inputs were refunded under a tax rebate scheme started in 1963. Before the 1970 devaluation there was an elaborate system of determining these tax rebates by commodities; but it was simplified to four commodity lists after the devaluation, providing for a tax refund of 5, 15, 25 and 30 percent of the export price. Exporters whose total exports in the previous 12 months exceeded $1 million (raised to $1.2 million in January 1972) 5/ The import charges and costs include the following: (a) prepayment in local currency of part or full of the equivalent of the foreign exchange applied for; (b) guarantee deposits for imports at various rates, depend- ing on which import list the commodity comes under; (c) a municipal tax at a percentage of the applicable customs duty; (d) a stamp duty, as a percentage of declared value; (e) a quay duty of 5 percent of the sum of c.i.f. value, customs duty, municipal tax, stamp duty and customs clear- ance expenses; and (f) a production tax as a percentage of c.i.f. value, customs duty, municipal tax stamp duty, customs clearance expenses and quay charges. For a list of the major changes in charges and a calcula- tion of illustrative costs in different years, see Table 3.9. - 122 - would be entitled to 10 percent more. In early 1973 six lists were estab- lished, and the rate of tax rebates was reduced by 5 percentage points for each commodity list. In addition to these incentives, export credits benefit from an interest subsidy (Table 6.1), 6/ and the export rates for specific commodi- ties have benefited from export premiums paid by the Government (Table 3.9). 7/ C. The Effects of the System of Controls The control system was undoubtedly successful in curbing the total flow of imports and in favoring imports of raw materials and investment goods at the expense of finished consumer goods (Table 3.5). However, it has implied high costs, both to the importer and to the economy. Tariff and other charges have raised considerably the domestic prices of imports. The illustrative calculations in Table 3.9 show that with a tariff rate of 20 percent the cost to the importer as a result of these charges was as much as 100 percent higher than the c.i.f. import price. How- ever, it must be emphasized that these higher costs offset only part of the undervaluation of exchange at the official rate (except perhaps in the years immediately following devaluation). The system has also implied higher costs to the economy. The system of semiannual import allocations (changed to annual allocations in 1972) leads to higher inventory requirements to prevent costly production stoppages. 8/ More important, there has been underutiliza- tion of capacity which has varied over time and by industry, depending on foreign exchange availabilities and allocations. The complex system of con- trols also demanded substantial time from both importers and controllers and created conditions for possible abuse. Limited data available (for 1968) show that the ratio of domestic prices to import prices varied widely for different commodities (Table 3.11). The ratio of domestic wholesale price to the landed cost of imported commodi- ties (including tariffs and other taxes/duties on imports) varied from 1.09 to 4.40 in the commodities covered. While the limited data cannot be used as representative of all imports, the frequency of high ratios reflects the large rent accruing to individual license holders as a result of scarcity of imports resulting from import stringency and controls. The effect of the price-distortion on the allocation of resources among sectors and industries has been of particular importance. The differ- ences between domestic and export prices tended to discourage exports in general and investment in export industries. Exports suffered severely in the 6/ Due to shortage of budgetary resources, these interest subsidies have been inoperative for the last two years. 7/ For a fuller discussion of export incentives and protection, see Annex 1 of Chapter 11. 8/ According to a study conducted by USAID in 1968, some manufacturers had to maintain inventories as high as 2-3 times a "normal level"--e.g., 12 months requirements (kraft paper for bagging cement) and, in some cases, as much as two years (spare parts in some manufacturing industries). - 123 - fifties, but in the sixties the export incentives and export promotion efforts offset these price disadvantages to some extent. After the export boom in the early fifties related to bumper crops and the Korean situation--exports reached $396 million in 1953--volume declined and exports did not surpass their 1953 level till 1964. With little growth in industrial exports, agricultural exports still accounted for nearly 70 percent of total exports in 1972 with cotton, hazelnuts and tobacco alone representing 50 percent of total exports. High protection and trade controls encouraged investment in import substitution industries, which tended to have high cost of production in many cases. High protection, which has been absolute in some cases, reduced or obviated the check on cost efficiency that competitive imports would have afforded. The large differences between domestic and import prices of similar products as well as the small volume of imports of consumer goods allowed are indications of the weakness of competition from imports. The system has par- ticularly encouraged investment in the assembly and packaging type of industry where value added is small and where imported input prices were kept low by an undervalued exchange while the finished products were highly protected. D. Current Account The current account balance has been characterized up to 1969 by exports growing on the average more slowly than imports, by a small invisible balance (negative till 1964 and only a small surplus till 1969), and by a fluctuating but sizeable current-account deficit. However, since the devalua- tion of August 1970 and the associated stablization program, there has been a dramatic growth of imports, exports and workers' remittances resulting in the redisappearance of the current deficit (Table 3.1). The average annual growth rates of commodity imports and exports (see Chart 9) hide striking fluctuations in commodity trade. In the early fifties despite the fast growth of exports due mainly to a good agricultural harvest and strong external markets during the Korean war, the trade deficit increased sharply with imports growing faster as a result of a relatively liberal trade regime, fast growth of output and related investment require- ments, and inflationary financing of the public sector expenditures. Till 1953 the fast monetary expansion did not lead to any substantial price in- crease partly because of a growing trade deficit and partly because of rapid growth in real incomes. Exports declined rapidly between 1953 and 1958 (from $396 million in 1953 to a low of $247 million in 1958) partly as a result of the fall in export prices but also as a result of the influence of high domestic inflation with pegged exchange rates. Severe import controls were instituted, and recorded imports fell from $533 million in 1953 to $315 million in 1958. With the devaluation and stabilization program of 1958, the receipt of substantial external assistance in support of the program and the relaxa- tion of import controls, imports rose by 50 percent in 1959 and were about the same level in 1960. The response of export to devaluation was favorable. The effect of devaluation was to raise export prices in domestic currency to about the domestic price level (Table 9.7). Export of agricultural goods jumped by about 60 percent in 1959 with the sale of Government-held inventories of hazelnuts, tobacco and cotton and was about 20 percent lower in 1960. (Before devaluation, domestic prices of cotton and hazelnuts, for example, were two to - 124 - CHART 9 COMMODITY IMPORTS AND EXPORTS AND WORKERS' REMITTANCES (millions US $) 1600 1400- ANNUAL GROWTH RATES 1950-196019017 17017 EXPORTS 2.0 IMPORTS 5.0 7.3 28.0 WORKERS' - - 65.0 REMITTANCES 1200- 1000 - 800 - 600- IMPORTS 400 -EXPORTS 200 - WORKERS' REMITTANCES 1950 1955 1960 1965 1970 1972 World Bark -8067(R) - 125 - three times higher than export prices; the difference was met by Central Bank financing of the losses of the Government-exporting agencies. Devaluation sharply reduced the need for inflationary financing, and the prices paid to producers of exportables were affected little). Exports of industrial prod- ucts increased from $50 million in 1959 to $59 million in 1960 and $81 million in 1961. The increases were most pronounced in processed food, beverages and textiles, which became competitive with devaluation. During the sixties (1960-69) commodity exports grew at 5.9 percent per annum (Table 3.2) largely due to the growth in agricultural exports, which were helped by some exceptionally good harvests, and higher world prices. Mineral products, though a small part of total exports, also showed fast growth. Exports of manufactured goods fluctuated but grew slowly during this period. Total imports rose rapidly in the early and late sixties and averaged 6.2 percent growth per annum over the period with the fastest growth in raw materials (9.2 percent per annum) and investment goods (4.1 percent per annum). Consumer goods imports stagnated at their low level (and actually fell to a low of $33 million in 1967). With strict import control during the First Plan Period (1963-67), the trade deficit was contained but with the planned attempt to achieve faster economic growth under the 1968-72 Plan; poor harvests in 1969 and 1970, imports and the trade deficit grew rapidly. Shortages also affected the importer's behavior. Everybody applied more than their need, and final allocation of foreign exchange was not always according to the need of the country. The shortage of exchange, nourished by speculation and capi- tal flight, was associated with rising stringency of control. Industrialists faced growing shortages of imported raw materials and spare parts, which in turn resulted in underutilization of capacity. (The backlog of approved but unsatisfied exchange applications amounted to about $300 million or four months' imports at the end of June 1970.) In these conditions effective August 10, 1970, the par value of the Turkish lira was changed from TL9 to TL15 per US$ (except for some agricultural products). The import regime was liberalized by more prompt issuance of exchange, by reduction of the stamp duty on imports from 25 to 10 percent, and by reduction of guarantee deposit rate by 50 percent. To promote exports, the system of export tax rebates was simplified; special funds were set up for that purpose; and subsidized rates of interest were announced for export credits which would also be exempt from tax and stamp duties. In support of the stabilization program, special external financial assistance totaling about $250 million was committed to Turkey (IMF standby credit of $90 million, European Monetary Agreement assistance of $115 million, $25 million by the United States, and the rest from other bilateral sources). These measures, supported by a dramatic increase in receipts from workers' remittances and improved world commodity prices, have resulted in a rapid expansion of trade in the last three years. Exports in 1972 were 50 percent higher than 1970 and imports 65 percent higher, resulting in a much larger trade deficit of about $680 million in 1972; these trends continued in 1973. With liberalization, imports increased initially to satisfy the pent- up demand and to rebuild stocks. The rise in the domestic prices of imports as a result of the 66 percent devaluation was partly offset by the reduction of taxes and charges on imports. The fast growth of private investment in 1972 and the full exemption from custom duty of investment imports in a large number of sectors from March 1972 onwards led to a higher demand for imports. - 126 - The rise in imports was also furthered by large project credits in 1971 and 1972 (Table 3.6). The extent of import growth is even more striking, consider- ing the sharp fall of imports of food and beverages (from $88 million in 1970 to $25 million in 1972) due to good agricultural production. Import growth was most rapid in machinery and equipment, chemicals, plastics, steel and other metals, petroleum and fertilizer (Table 3.4). The large extent of import liberalization that has taken place is evident from the near doubling of imports under the liberalized lists from 1970 to 1972 (Table 3.6). Commodity exports, both agricultural and industrial, also showed fast growth in the last three years. Increased export receipts from agricul- tural commodities were mainly due to the rising prices of cotton; the rising volume but stagnant prices of hazelnuts, raisins and tobacco; and to the ris- ing volume and prices of fruits and vegetables (Table 3.12). The sharp in- crease in export of tobacco resulted in the running down of large stocks that had existed. Exports of fruits and vegetables, which are relatively new, rose from $27 million in 1970 to about $50 million in 1972. Exports of manufactured goods increased more rapidly, stimulated by higher prices in terms of local currency (as a result of the 66 percent devalu- ation), rising world prices and export promotion measures. The fastest growth (from 1970 to 1972) was in food and beverages (112 percent)--particular- ly sugar and oil cake--and textiles (116 percent), and among the newer exports, petroleum products, hides and leather products, cement and chemicals (Table 3.2). The continued rapid growth of industrial exports is remarkable consider- ing that domestic wholesale prices have increased by approximately 70 percent between the August 1970 devaluation and October 1973. The high inflation rates in Europe since 1970 and the continuing depreciation of the lira (along with the dollar) vis-a-vis the currencies of the main European trading part- ners in this period seem to have offset the effect of domestic inflation on the price competitiveness of Turkish exports. With the fast growth of ex- ports of manufactured goods, their share rose from 17 percent in 1970 to about 27 percent in the first six months of 1973. The geographical distribution of exports shows a shift towards European countries in the sixties (Table 3.13), particularly to the EEC countries and away from the United States and Canada. This is partly attribut- able to the agreement of association signed between Turkey and the EEC in 1963. The share of exports to EEC countries in total exports rose from about 34 percent in 1964 to 41 percent in 1970, the rise being led by tobacco, raisins, and hazelnuts, which have benefited from special quotas granted to Turkey. The share of exports to bilateral agreement countries has fluctuated around 20 percent of total exports over time, tending to rise in periods when domestic/export price ratios increased, thus limiting exports to convertible currency areas. Much of the increase in exports to bilateral agreement countries has taken place in hazelnuts, tobacco and raisins, in which Turkey has had surplus stocks. In imports the share of the EEC has risen at the expense of the United States and Canada since the mid-sixties, and the trend has become more pronounced since 1970. Imports from bilateral agreement countries move roughly in line with exports to them as a result of a deliber- ate policy to prevent the accumulation of any sizeable balance with them. - 127 - E. The Services Account The balance on services was negative till 1964, and the emergence of a positive balance has been primarily due to the growth of emigrant workers' remittances. Net receipts from tourism were negative until 1969 but have shown consistent improvement since then and amounted to $44 million in 1972 (see section on tourism). Freight and insurance on merchandise have consist- ently shown a high net outflow, averaging about $75 million in the period 1967-72. Interest payments have also steadily increased with the rise in the external debt and amounted to about $60 million in 1972 (compared to $15 mil- lion in 1950). Despite these factors, the balance on services was in sub- stantial surplus in the last few years with workers' remittances increasing from $140 million in 1969 to $740 million in 1972 and probably $1 billion in 1973. This spectacular growth has been due to various factors: the growth of Turkish workers employed abroad from 220,000 in 1968 to over 625,000 in 1972; the increase in the average annual earnings of workers abroad (about a 10 percent per annum increase in Germany, where about 70 percent of the emi- grants are); and finally the exchange rate changes since 1970, including the devaluation of the Turkish lira and its depreciations along with the US dollar against the German mark since December 1971 (see Chapter 8, and Annex 3, for a fuller discussion). F. Capital Movements, Reserves, and External Debt The chronic deficits on current accounts up to 1970 have implied a continuous need to borrow from abroad. The total financing requirements to meet the deficit and to service external debt have increased from an annual average of $185 million in the early fifties to over $300 million in the second half of the sixties. Increased borrowing has also implied a rise in debt service, which thus rose as a proportion of gross capital inflow from about 25 percent during the 1950-55 period to 36 percent between 1966 and 1970. In 1971 and 1972 the situation changed markedly with a reduced current- account deficit and consequently a sharp fall in financing requirements. - 128 - Table 29 FINANCING THE CURRENT DEFICIT AND DEBT SERVICE (Annual Averages, $ Million) 1950-55 1956-60 1961-65 1966-70 1971-72 Financing Requirements Current account deficit 143.3 96.4 179.8 180.2 65.0 Amortization of public debt 42.2 73.2 113.2 127.2 126.0 Total 185.5 169.6 293.0 307.4 191.0 Sources of Financing Gross capital inflow 166.3 220.6 305.0 351.2 436.0 Official 82.7 114.0 205.0 247.8 323.5 TL grain imports and grants - 27.4 56.8 28.2 35.5 Private 83.7 79.2 43.2 48.2 77.0 (Suppliers' credits) (53.3) (53.4) (12.2) ( - ) ( - ) (Commercial arrears) (24.0) (13.2) ( - ) ( - ) ( - ) (Private investment) ( 6.3) (10.6) (27.6) (28.4) (44.0) Change in reserves (increase) (19.3) (-26.4) ( 7.2) (-58.0) (-456.0) Other (net) ( - ) (-24.6) (-19.2) ( 14.2) ( 211.0) Source: Appendix Table 3.1. The sources of financing have also markedly changed (Table 29). Private capital inflow (including suppliers' credits, arrears on commercial credits, private foreign investments and imports with waiver--i.e., brought in by nationals), has substantially decreased in importance. Suppliers' credits, which represented about 30 percent of total inflows of external capital in the fifties, fell to about 4 percent in the early sixties and were negligible in the second half of the sixties. 9/ Similarly, arrears on commercial credits have become a feature of the past. Private foreign investment has played a small role in Turkey with inflows averaging less than $10 million annually in the fifties and about $28 million in the sixties. With profit transfers averaging about $16 million a year in the sixties (negligible in the early sixties and rising to over $30 million in the late sixties), the net inflow of resources as a result of private foreign investment has been negligible. Official external assistance, on the other hand, has grown in importance and has become more varied in source. / Although no suppliers' credits have been reported in the balance of pay- ments (Table 3.1), approvals for suppliers' credits have amounted to $8 million in 1971 and $35 million in 1972. - 129 - Official reserves have also been drawn upon to meet shortfalls in financing in many years during the fifties and sixties. But after a period of low foreign exchange reserves, there has been a sharp increase in the last few years with gross reserves of gold and foreign exchange rising from $224 million in 1969 to $754 million in 1971 and further to $1,322 million at the end of 1972. Net foreign assets after adjustment is made for short-term liabilities, including convertible lira deposits (see Annex 2), increased from $169 million in 1969 to $849 million at the end of 1972 according to Central Bank reports. Including SDRs (Special Drawing Rights) and reserve positions in the IMF, net reserves were $556 million at the end of 1972 and $914 million at the end of July 1973. G. Official Capital and External Debt In the fifties the major source of official external assistance was the United States with grants and loans averaging about $90 million a year. Additional foreign resources were obtained in critical periods from supplier credits, commercial bank loans to the Central Bank and withdrawals from the IMF. Nevertheless, in 1958 Turkey's liquidity position became precarious with accumulated commercial arrears reaching $280 million. In support of the de- valuation and stabilization program of 1958, a package of external assistance was arranged under a multilateral debt conference convened by the OEEC (Organization for European Economic Cooperation). Loans totaling $223 million (U.S. Government $100 million, IMF $25 million, European Payment Union $25 million and various other OECD member countries $73 million) were made available in equal parts in 1958 and 1959. These loans were repayable in five years with payments beginning in 1959 or 1965 and carried an interest rate of 5.75 percent. The liquidity crisis was solved by consolidating the commercial arrears and debts and converting them into long-term loans. The consolidated amount was $443 million which included the outstanding arrears and amortiza- tion and interest payments due till January 1964. The repayments were to be made between 1959-71 with a moratorium interest of 3 percent. This debt re- scheduling resulted in reducing debt payments which would have been otherwise due by $280 million in 1959, 1 / $43 million in 1959 and $18 million in 1960. Conversely, debt payments due were larger during the sixties than they would have been otherwise (Table 4.6). Although the 1958 debt rescheduling solved the immediate liquidity problems, Turkey still needed long-term development financing. In July 1962 the OECD Consortium, consisting of fourteen members, was formed and was the major source of official external assistance during the sixties. But with the substantial lags between aid pledges, commitments and finally disburse- ments, inflows were not realized soon enough to offset the repayments falling due from the special assistance and commercial debt consolidation in 1958-59. Despite the rescheduling of another $23 million in 1963-64 by Germany, the need for multilateral debt relief arose again in 1965. The result was a net debt relief of $92 million in 1965, $66 million in 1966, and $40 million in 1967; thereafter, repayments on rescheduled or refinanced debts led to net 10/ The figure for 1958 includes $97.4 million which was paid in Turkish lira for reinvestment in Turkey by the creditors; excluding this, the net debt relief in 1958 was $182.2 million. - 130 - repayments. Guidelines were also established for minimum concessional terms of future lending through the Consortium. Further debt relief was made during the 1968-71 period to prolong the effect of the 1965 exercise and resulted in reducing debt payments due in 1970 by $62 million and in 1971 by $42 million (Table 4.6). At the end of 1972, Turkey's external medium- and long-term debt outstanding (and disbursed) was $2.5 billion, compared to $732 million at the end of 1960. As a proportion of GNP, it represents 16 percent in 1972, com- pared with 14 percent in 1960. Debt outstanding, including undisbursed, at the end of 1972 reached $3.4 billion (Table 4.1). Nearly all of Turkey's medium- and long-term debt is owed or guaranteed by the public sector; private nonguaranteed debt amounted to less than 3 percent of total debt at the end of 1972. Over three-fourths of Turkey's total debts consist of loans from Governments and about 15 percent from international organizations. The proportion of suppliers' credits has continued to shrink from about 50 percent of debt outstanding and disbursed at the end of 1960 to 3 percent at the end of 1972. The commercial credits which had been consolidated during the earlier debt relief exercises were fully repaid in 1971. Gross disbursements to Turkey have expanded considerably, increasing about fourfold during the sixties and reaching $380 million in 1972. Loans from governments and international organizations have grown fastest, their share in total gross disbursements rising from 65 percent in 1960 to 88 per- cent in 1972 (Table 4.2). 11/ Over 75 percent of total disbursements came from members of the Consortium. Disbursements under the OECD Consortium, including the World Bank Group and EMA, have amounted to about $2.5 billion in the period 1963-72, of which $1.1 billion was in the form of project credits, nearly $1 billion in program credits and about $450 million in debt relief. The share of program assistance has been declining since the early years of the Consortium from 56 percent in 1963 to about 30 percent in 1972. The United States continued to be the major bilateral donor, followed by Germany and the United Kingdom. Assistance from Consortium members has been provided by annual pledging sessions in response to estimates of financing requirements presented by the Turkish Government. Aid by Consortium members has been supplemented with commitments by the European Fund under the European Monetary Agreement and by drawings on the IMF. Since the EMA drawings were only for a few years, they were frequently rolled over when due. With the termination of the European Monetary Agreement, Turkey's debts to EMA of 105 million units of account have been transferred to the United States to be re- paid over a period of twenty-five years. The IMF has played a major role in Turkey by providing financial assistance in periods of acute foreign exchange difficulties, particularly in the years of devaluations ($25 million in 1958 and $90 million in 1970). IMF drawings outstanding amounted to $109 million at the end of 1971. But with the recently improved foreign exchange earnings, Turkey has repaid the IMF, and drawings outstanding at the end of June 1973 ll/ All data on external debt have been derived from external debt reports from Turkey, which differ from the balance of payments due to differences in classification and lags in reporting--e.g., the debt data are net of debt rescheduling and include only the dollar repayable part of the TL480 grain imports, whereas the balance-of-payments data are gross of debt relief and include the grant and TL repayable portion of TL480 grain imports as inflows. - 131 - were $12 million. Among the non-Consortium donors, the Soviet Union has been the most important with a frame agreement of $200 million in 1967 and another one of $114 million in 1970. Net transfers (gross disbursements minus amortization and interest) were small in the period 1960-64 because of high repayments falling due on the 1958-59 debt-relief exercise, representing on average only 15 percent of gross disbursements over the period. But with improving debt management and the subsequent debt-relief exercises, net transfer represented 44 percent of gross disbursements in 1972. As a result of these factors and the substan- tially increased foreign exchange earnings, the debt-service ratio (including workers' remittances) fell from 24 percent in 1964 to 13 percent in 1971 and about 10 percent in 1972. With the successive debt rescheduling and refinancing and restric- tions on suppliers' credits and the increasing official external assistance at concessional terms, the debt structure has improved considerably. Average maturity of debts lengthened; the proportion of external public debt repay- able in the following five years fell from about 70 percent in 1958 to 22 percent in 1972. The proportion of debt repayable within the next ten years was 45 percent at the end of 1971, which is well below the average for all developing countries (Table 4.4). The changes in lending terms are reflected in the grant element for all loans which rose from 34 percent in 1958-59 to 57 percent in the 1963-67 period and decreased to 41 percent in 1972 as terms of lending hardened somewhat (Table 4.5). H. Balance-of-Payments Prospects With the remarkable growth of foreign exchange earnings since the 1970 devaluation, Turkey has recently faced a new situation of rapidly accumu- lating foreign exchange reserves to which the policy planners are only be- ginning to adjust. The growth continued into 1973 with exports reaching $791 million in the first eight months, a 54 percent increase over the corresponding period of 1972. Imports in the same period were $1,243 million, a 34 percent increase over 1972. Workers' remittances also continued to grow, amounting to almost $800 million in the first eight months of 1973. Gross foreign exchange reserves had reached $2.1 billion by August 1973, and net foreign assets (which were negative in 1968) exceeded $900 million by end of July 1973. On the other hand, the recent oil price increases will raise sub- stantially import costs, and the temporary ban of workers' immigration by Germany may have adverse effects on future foreign exchange earnings (see pages 135 and 137). Under these circumstances, balance-of-payments prospects are particularly difficult to estimate. The Third Plan projects a continuing improvement in the balance of payments and a declining dependence on foreign aid. Disbursements of official external assistance are projected to fall to $127 million in 1977, compared to about $300 million in 1972 (in 1971 prices). With debt repayment at $125 million in 1972, this would imply no net capital inflow by the end of the Third Plan period. Commodity exports are projected to grow at 9.4 percent per annum at constant prices and imports at 7.1 percent. Consistent with the Plan's relative emphasis on industry, industrial exports are expected to grow at 21.5 percent per annum, mining at 16.9 percent and agricultural exports at a modest 2.7 percent. As a consequence of the relative growth rates, the - 132 - share of exports of manufactured exports in the total is expected to rise to 42 percent in 1977 compared with 27 percent in 1972. Workers' remittances are conservatively estimated to reach $600 million in 1977 and net tourism receipts at $85 million (all at 1971 prices). The Plan projections (based on 1971 estimates) have already been overtaken by events, however, and surpassed by a wide margin both in the 1972 base year and in 1973. The fast growth of exports and foreign exchange earn- ings in 1972 and 1973 have been due, apart from the favorable effects of the 1970 devaluation on exports, to several exceptional factors. These include: (i) booming world demand for commodities and consequent rise in export prices; (ii) the international currency adjustments and the maintenance of parity with the U.S. dollar, which led to a continued depreciation of the Turkish lira vis-a-vis major European trading partners, largely offsetting the effects of inflation on the competitiveness of Turkish exports and encouraged the in- flow of short-term capital (convertible lira accounts); and (iii) the rapid rise in emigrant workers' incomes and remittances in dollar terms, which almost tripled between 1970 and 1972 (see Annex 3). On the import side, the recent oil and other raw material price increases are expected to raise the current cost of imports considerably. Taking these developments into account and assessing the prospects of the various elements of the balance of payments within the framework of a macroeconomic model (Part IV), the mission projections for the Third Plan period are substantially different from the Plan, as shown in Table 30. Com- modity imports at constant prices are projected to grow at 13.4 percent per annum from a higher base, compared with a Plan projection of 7.1 percent per annum from a lower base. The Plan projections tied the level of imports to exogenously determined foreign exchange earnings (which as discussed below are seriously underestimated), while the residual demand is supposed to be met through import substitution. With the higher foreign exchange availabil- ity, the actual growth of imports in 1972-73 and the need to counter inflation and meet supply bottlenecks through further liberalization, the mission projects a considerably faster growth than the Plan. For the purpose of pro- jection, imports have been disaggregated into investment, intermediate and consumer goods; each subcategory has been endogenously projected in the two- gap model (Part IV). Imports of nonfactor services are projected as a function of time. On this basis, imports of goods and nonfactor services would grow at 13.1 percent per annum during 1973-77. In current prices the rise will be more substantial due to the recent rises in prices of oil and other raw material and due to general worldwide inflation. For example, because of the recent steep rise in oil prices, the oil-import cost (including oil products) may rise from $210 million in 1973 to about $500 million in 1974 (apart from needs to rebuild stocks). It could reach about $775 million in 1977, or almost 20 percent of imports of goods, assuming 10.5 million tons of imports at $10.45 per barrel in that year. For exports, projections for major commodities have been made in- dividually and then aggregated, resulting in a growth rate of 11.4 percent per annum at constant prices. The rate will be considerably higher in current prices due to the rise in prices of raw materials, particularly cotton, and of the general worldwide inflation. Agricultural exports are projected to reach $862 million in 1977 at constant prices--i.e., growing at 7.3 percent per annum, substantially higher than the Plan growth rate of 2.7 percent per - 133 - annum (for details see Chapter 10). About a quarter of the projected real in- crease for 1977 occurred in 1973, 12/ and a growth rate of about 3.5 percent per annum is projected in the following four years. The main growth in agri- cultural exports is expected to be in cotton, hazelnuts, fruits and vegetables. Exports of fruits are expected to double and vegetable exports to treble. They have shown fast growth in the last two years, and their production potential in Turkey is good. Continued growth in Europe and improved EEC re- lations are expected to continue to exert additional demands on dried fruits and nuts (see Annex 1). Exports of hazelnuts are projected to increase by 33 perceat. Exports of tobacco may fall below the high of 1972 but will re- main above earlier years. Maintenance of high tobacco exports depends largely on maintaining a competitive price structure. A higher growth rate for ex- ports of livestock and fisheries has been assumed than that of the Plan be- cause world demand is expected to remain strong and Turkey has a comparative advantage for such exports. For exports of industrial commodities and mining products, given the high growth in 1972 and 1973, the targets of the Third Plan are likely to be met. Our projections are, therefore, based on the Plan targets (adjusted upwards by 10 percent to allow for the change from 1971 to 1972 prices) with industrial exports reaching $540 million at constant (1972) prices in 1977-- i.e., growing at 18 percent per annum. 13/ However, it is probable that food and beverage exports will be higher than assumed in the Plan, and other items--e.g., nonferrous metals--will be lower (Table 3.15). The exports of mining products are expected to reach Plan targets (for a discussion of pros- pects for individual commodities see Chapter 11). With good prospects for tourism receipts reaching about $200 million in 1977 ($100 million net), compared to $171 million in 1973 ($77 million net) (see Chapter 13), and assuming that other services can be expected to grow at about 8 percent per annum, exports of goods and nonfactor services can be expected to grow at about 10 percent per annum during the Plan period. On the above assumptions, the resource gap would amount to $1,453 million in 1977 at constant 1972 prices. It is estimated that growth in the prices of Turkey's major exports in 1973 has been sufficient to offset further rise in import prices during the rest of the Plan and, therefore, that the terms of trade of Turkey vis-a-vis the rest of the world will not be signifi- cantly affected during the Plan period as a whole. At current prices the re- source gap would amount to $1,628 million in 1977. It has been further assumed that foreign private investment will grow at 3 percent per annum, and TL food imports and imports with waiver about 9 and 5 percent respectively. 12/ In 1973 agricultural exports in current prices were 44 percent higher than the same period in 1972. If 20 percent is attributed to price increases and dollar depreciation, that still leaves a 24 percent increase in constant prices. 13/ Given the high growth of industrial exports in constant prices of over 40 percent in 1973 (61 percent at current prices), this would imply a growth of about 13 percent per annum during 1974-77. - 134 - Disbursements of official external assistance have been exogenously projected on the basis of the undisbursed pipeline at the end of December 1972 and as likely commitments in the future. Program assistance is expected to be gradually phased out and replaced by project assistance, and the terms of official external assistance are expected to gradually harden. On these assumptions, gross official disbursements are projected to rise to $410 mil- lion in 1977 at current prices ($370 million at constant prices). It is assumed that a minimum gross foreign exchange reserve level equal to three months of imports will be maintained. Residual requirements of foreign ex- change, if any, are then assumed to come at first from the accumulated foreign exchange reserves and next by resort to suppliers' credits. According to these assumptions, suppliers' credits averaged $96 million a year dur- ing the Plan period. Consistent with the Government policies aimed at reduc- ing convertible lira accounts (see Annex 2), it has been assumed that they would fall to a level of $100 million in 1975. The level of workers' remittances is a crucial variable in the esti- mation of future foreign exchange earnings and most difficult to project. Estimates of remittances carried out by the mission in the summer of 1973 ranged between $4.8 billion and $7.9 billion during the Plan period. However, in November 1973 the German Government announced an immediate and temporary ban on immigration of foreign workers from outside the EEC due to an expected stagnation of the economy in 1974. If the economic slowdown in Europe lasts, it could well lead to a decrease in the number of Turkish workers presently employed. In the light of these recent events, the mission has calculated two series of estimates for workers' remittances, amounting to $3.9 billion and $4.8 billion during the Plan period (compared to $2.9 billion in the Third Plan). The assumption underlying these estimates are described in detail in Annex 3, Part II. The mission's projection (basic case) is based on the higher assump- tion of $4.8 billion of workers' remittances, corresponding to an increase from $900 million in 1973 to $1,400 million in 1977. Gross external assis- tance amounts to about $506 million in 1977 ($245 million net), and the debt- service ratio to foreign exchange earnings would remain under 10 percent dur- ing the whole Plan period (Table 30). Sensitivity analysis carried out on the balance-of-payments projec- tions indicates that given the prospects of growth, workers' remittances and capital flows assumed in the basic case of the mission's projections, the debt-servicing capacity of the country in the medium term will not be sub- stantially affected by variations that can be considered possible in export growth, the rate of inflation, the parity of the lira, or the terms of borrow- ing (Table 7, Part I). On the other hand, a continued stagnation of the German economy, leading to a substantial return of Turkish workers and a reduced flow of remittances, would reduce substantially the level of foreign exchange re- serves unless this drop in foreign exchange is compensated by larger borrow- ing from abroad. It is estimated that supplementary borrowing of $125 million a year during the Plan period would be required if the flow of re- mittances was reduced to $3.9 billion during this period, which would bring up the average annual capital flow to about $600 million and reduce exchange reserves to about $400 million by the end of 1977, the equivalent of one - 135 - Table 30 BALANCE-OF-PAYMENTS PROJECTIONS, 1972-77 ($ Million and %) PLAN TARGETS MISSION PROJECTIONS (1971 prices) (1972 prices) Av. Ann. Projection 1977 Av. Annual Est. Proj. Growth Actual 1972 Current Growth 1972 1977 Rate (%) 1972 prices prices Rate (%) Exports 750 1175 9.4 885 1494 2019 11.0 Agriculture 525 600 2.7 607 862 7.3 Mining 37 81 16.9 35 89 20.0 Industry 188 494 21.5 237 543 18.0 Imports -1315 -1850 7.1 1563 2938 3985 13.4 Investment goods 450 680 8.7 783 1159 8.2 Intermediate goods 775 1040 6.1 707 1584 17.5 Consumption goods 90 120 7.6 73 195 22.0 Trade Balance -565 -675 -678 -1444 -1966 Workers' remittances 510 600 3.3 740 1269 1401 11.4 Tourism (net) 20 85 44 100 115 Others (net) -147 -140 -118 -254 -292 Current Account Balance -182 -130 - 8 -316 -774 Foreign private investment 40 55 43 55 Imports with waiver 30 45 39 54 Foreign credits 296 127 304 506 l/ TL food imports 18 28 16 28 Debt repayment -202 -125 -127 -165 Capital Account Aalance 182 130 267 478 Change in Reserves (-increase) -- -- -566 296 Debt-service Ratio n.a. n.a. 10.0 7.3 1/ Of which suppliers' credits $96 million, representing the average amount of required suppliers' credit during the Plan period. Source: Part IV, Annex A. month's imports; debt service would then rise to 17 percent of foreign exchange earnings. If an economic slowdown is generalized to the other EEC member countries, Turkish exports, particularly industrial exports, would then also be negatively affected. The growth of the economy may then slow down unless new export markets are found. I. Exchange and Trade Policy Prospects The adverse effects in the past of a policy of fixed exchange rates and import controls in the face of deteriorating competitiveness of domestic production with inflationary pressures have been discussed earlier. In view of the association with the EEC and the markedly improved foreign exchange availability, reform of the control system is desirable and feasible. In August 1973 various trade policy changes were announced, intended to check rising prices and to use the increasing foreign exchange reserves to improve import availability. The Government announced the addition of $250 million to the Regulatory, Reserve and Price Stability quota to increase im- ports of goods in short supply in Turkey, reduced the custom duty rates to a nominal one percent on various items, permitted some importers to enter into long-term import deals, and abolished the pre-price control system for im- ports. In addition, exports of some goods were banned; others were made sub- ject to license; and a list of goods was announced on which restrictions could be announced if domestic demand warranted. The export tax rebate was also reduced on some goods. These measures should help to check current inflationary pressures in the short run. In addition, serious consideration should be given to re- orienting exchange and trade policy for the long term. The continued liber- alization of imports is needed both in the short run to counter inflation and in the long run to align domestic costs with the EEC during the transi- tional phase of the agreement. Liberalization would imply not only higher volume of imports but also (i) gradual replacement of quantitative restric- tions by tariffs, (ii) simplification of the various charges on imports for administrative ease and speeding up the processing of imports, and (iii) the gradual reduction of taxes and other charges on imports to reduce domestic costs of production and improve competitiveness. These measures would imply major changes in the control mechanism and, therefore, would be feasible only gradually. However, such an opening up would be essential, given the need. The revenue losses resulting from reduced charges on imports should be partly offset by higher imports. Substantial exchange rate changes at long intervals have been under- taken in the past with resultant high costs. Given the long history of con- trols and the system of taxes/subsidies on trade, leading in effect to multiple exchange rates and the development of industry in a protected atmosphere, the adoption of a single flexible exchange rate would be disruptive in the short run. The present level of exchange reserves and good prospects for foreign exchange earnings in the short run, particularly workers' remittances, should make the present exchange rate viable for the medium-term future, assuming price inflation is reduced to a moderate rate. However, should the relatively high inflation of the last three years continue, then it will be important to continue the flexible exchange-rate policy followed since 1970 and to make the necessary adjustments that would maintain a realistic exchange rate; - 137 - otherwise, there is a risk that the export momentum now developed may be lost and that the confidence in the value of the lira ended. This latter factor may discourage the flow of workers' remittances as well as revive the distortions of the past. J. Annex 1: Relations with the European Economic Community (EEC) The 1963 Agreement of Association between Turkey and the EEC fore- saw a preliminary period of at least five years in which Turkey would strengthen its economy with EEC assistance, followed by a transitional phase during which steps would be taken to progressively achieve a customs union and economic in- tegration. An Additional Protocol was signed between the EEC and Turkey in November 1970 on the conditions of entry into a twenty-two-year period of transition to a full customs union. 14/ Pending parliamentary ratification of the Protocol by the member states and Turkey, an interim agreement was signed which put the commercial provisions of the Additional Protocol into effect on September 1, 1971. The financial provisions of the Protocol and articles relating to free movement of labor had to await ratification. The Annex Protocol became effective on January 1, 1973. Since the interim agreement came into effect, all industrial exports to the EEC from Turkey with a few exceptions are admitted free of restrictions and customs duties. One exception concerns exports of petroleum products for which imports by the EEC, though exempt from customs duty, are subject to a quota of 200,000 tons per year. The other exception, a major one, is for specified cotton yarns and fabrics and for carpets. Their customs duties have been reduced by 25 percent and will be abolished over twelve years. However, within specified annual quotas (which are very low--300 tons for cotton yarn and 1,000 tons for cotton fabrics), the duty was reduced by 75 percent. In the case of agriculture, the duty reductions granted by the EEC were varied. In 1965 the EEC granted Turkey tariff-free quotas on tobacco and raisins and reduced tariffs on quotas of dried figs and hazelnuts. Im- ports in excess of these quotas were subject to the normal tariffs. The EEC also reduced import tariffs on citrus fruit from Turkey by 40 percent. These measures contributed to the growth of EEC imports of tobacco, raisins, dried figs, hazelnuts and citrus during 1965 to 1971. Beginning September 1, 1971, additional trade preferences granted to Turkey by the EEC became effective. These include: (a) removal of the quotas on tobacco and raisins so that all imports of these products are tariff free, (b) reduction of the duty and removal of the quota on dried figs, (c) reduction of import duties on tanger- ines and lemons from 40 percent to 50 percent, (d) reductions of 50 percent on import duties on many fruits and vegetables (dried apricots and pears, fresh figs, fig paste, broad beans, artichokes, parsley, and so on). No change was made in the quota or duty on hazelnuts. Turkey on its part agreed to eliminate customs duties over twelve years for a list of goods amounting to about 55 percent of total imports from 14/ For a detailed discussion of the conditions specified in the Additional Protocol, see "Development Prospects of Turkey" (EMA-30a, dated February 1, 1971), Appendix II. - 138 - EEC and consisting largely of raw and intermediate materials. For this list duties were reduced by 10 percent in September 1971. For the remaining list of goods, which includes most industrial products, tariffs are to be elimi- nated over a period of twenty-two years. This slower pace was established to take account of Turkish industrial development needs. For this list customs duties were reduced by 5 percent in September 1971. The second reductions of 10 percent and 5 percent respectively for the two lists will be made in the third year after effectiveness of the Additional Protocol--i.e., in 1976. Turkey did not provide any preferential treatment to EEC on agricultural im- ports. However, such imports are small, and prices in EEC countries for most agricultural products are much higher than in Turkey. In addition, in September 1971 Turkey freed from quantitative re- strictions a list of goods covering 35 percent of imports from EEC countries in 1967 by establishing a consolidated list of "Liberalized Imports to the EEC." Elimination of quotas on imports from EEC will be achieved over eighteen years by gradually extending this liberalized list according to a set timetable which can, however, be amended by the Association Council in the light of Turkish economic development needs. Turkey may also reintroduce quota limitations on goods in the liberalized list provided that it opens quotas to the EEC equivalent to at least 75 percent of the average imports of such goods from the EEC in the three years preceding the reintroduction. One year after the entry into force of the Protocol, Turkey will open quotas for im- ports not on the liberalized list equivalent to average imports from EEC of the three most recent years. These quotas will be increased over time accord- ing to a set timetable. The effect of the EEC import liberalization on Turkish industrial exports will be small in the immediate future, mainly because Turkey has few industrial commodities which can at present be exported. For textiles where Turkey has the best potential, exports may be stimulated, although the tariff rates applied by EEC to the third countries were already low (around 15 per- cent) but will be restricted by the quota system. In the longer run, however, exports of a variety of Turkish industrial products to the EEC should develop. On the import side, the effect on Turkish industry will be small in the medium term. The twenty-two-year list includes most of the commodities manufactured in Turkey: many chemicals, pharmaceuticals, synthetic fibers, wood products, paper, machinery and appliances, all railway and road vehicles, and so forth. The reduction in customs duties will be very small during the early years--only 20 percent after ten years for imports from EEC and no re- duction for imports from third countries. Furthermore, to protect a limited number of commodities, Turkey may fix import quotas based on their previous level of imports from EEC, these quotas being increased by only 5 percent every other year until the thirteenth year. Commodities belonging to a second list should be fully exempt from import duties in twelve years. Early re- duction will be faster, but they will generally apply to lower initial customs duties. As far as industry is concerned, most of those commodities are raw or intermediate materials; their customs duty reduction will reduce production costs of downstream industries. However, preferential duties and the larger list of liberalized imports would lead to trade diversion from other countries in favor of EEC. - 139 - In view of the new conditions which will gradually prevail in the application of the association agreement with the EEC, the aim of reducing costs and raising the efficiency of industry in order to improve its compet- itiveness gains in importance. A smooth transition would also require greater responsivef.ess to market forces and flexibility of price policy. Development of new competitive industries should be concentrated in fields in which Turkey has or is reasonably expected to have comparative economic advantages. In addition to existing incentives, the development of export-oriented industries in particular would also require a better knowledge of the European markets, a strict specialization in the lines of production, a search for subcontract- ing activities, and a flexible policy on associations with foreign partners (see section on competitiveness of Turkish industry). The measures affecting tobacco, raisins and dried figs should help make Turkey's exports more competitive with those from other countries and stimulate exports, but the additional preferences given to citrus fruit are too small to have much effect. External tariff reducts on citrus fruit imported from some Mediterranean countries are larger for Greece (100 percent), Morocco and Tunisia (80 percent), and are equal for Spain and Israel (40 percent). The tariff reductions on fresh grapes are applicable only for out-of-season prod- ucts, but tariff reductions on many other fruits and vegetables in which Turkey has large potentials for expanding output should help expand exports. However, quality, packaging and transportation must be improved; and products should be delivered to European markets during periods of the year when fresh fruit and vegetables are in short supply. The expansion of the EEC to include the United Kingdom, Ireland, Denmark and Norway would mean additional preferential treat- ment for Turkey's agricultural exports and should help increase exports of tobacco, fruits and vegetables. The United Kingdom has imported very little oriental tobacco in the past, but it may import more as its trade with other countries in the Community expands. In the context of the expansion of the EEC, Turkey has been negotiating with the EEC to amend the Annex Protocol to allow greater flexibility to Turkey in case of economic difficulties faced by Turkish industry. An agreement was reached at the end of June 1973; but the details of the agreement are not yet known, and the agreement will have to await ratifi- cation by the member countries before effectiveness. An important effect of the EEC agreement will be the loss of budge- tary revenues due to lowering of customs duties on imports from EEC countries and lower stamp duties. The SPO estimates that the loss of customs revenue would amount to about TL4 billion during the Third Plan period and TL282 billion between 1972 and 1994. K. Annex 2: Convertible Lira Accounts The facility, started in June 1967, enabled residents and non- residents to make demand and time deposits in convertible currencies at autho- rized commercial banks in Turkey with interest paid in foreign exchange at the rate of 3 percent for maturity up to three months, 5 percent up to twelve months and 7 percent over one year. The depositor could lend his de- posit through the handling bank to a firm or individual at mutually agreed terms. The facility was little used but became active in 1970 with deposits increasing from $72 million at the end of 1970 to $135 million in 1971 and $463 million in 1972. The deposits amounted to $483 million in mid-April 1973. - 140 - Though it was intended to encourage emigrant workers to hold part of their savings in Turkey, a negligible portion of the deposits are held by Turkish nationals ($10 million in April 1973), and they mostly represented borrowing in Euromarkets by Turkish enterprises (about 46 percent for capital invest- ment and 48 percent for working capital). About 90 percent of the deposits were in maturities of over one year. The sharp increase in deposits in the last two years, particularly in 1972, was due to the improvement in the balance-of-payments and reserves position of Turkey, the excess supply of Eurodollars, and the security afforded by the exchange risk being borne by the Turkish Central Bank. On the demand side, the sharp growth in private invest- ment activity, the large differences in interest rates (European rates com- pared to domestic cost of capital), and the shortage of medium-term credit were contributing factors to the growth of borrowing. Though the growth of convertible deposits increased the foreign exchange reserves, the increased use of this facility was a matter of concern to the authorities, since they increased Turkey's short-term liabilities sub- stantially and were considered volatile. With the improvement of Turkey's reserve position, the need for additional exchange was less; and the counter- part TL funds created by these accounts increased the money supply and further fueled inflationary pressures. Finally, they were considered discriminatory in providing cheap credit to some borrowers, and there was no mechanism to direct these funds to priority sectors. To control the inflow of such deposits, the regulations were changed in July 1972, and stricter controls were intro- duced in early 1973. The main changes in 1972 were control on nonresident deposits of more than one year's maturity, limiting domestic loans based on convertible accounts to 80 percent of the deposit and reduction of the interest rate on residents' deposits with maturity from six to twelve months from 5 percent to 4.5 percent. In early 1973 nonresidents were prohibited from opening new convertible accounts butwere allowed to open noninterest- bearing foreign exchange accounts, whereas Turkish residents were still al- lowed to open new accounts. Deadlines for liquidating existing deposits de- pending on end use of credit were fixed, extending from July 1973 to April 1976. Finally, the exchange guarantee given by the Central Bank was withdrawn from demand deposits effective April 1973 and from time deposits on the ex- piry of their existing term. With these measures a substantial reduction in deposits occurred in the first few months after the changed policy, and the Government should be able to exercise selective control on the end use, phase out the exchange guarantee, and gradually reduce the amount of convertible lira deposits. Simultaneously with the regulations on convertible accounts, meas- ures were taken in January 1973 to regulate all borrowing from private sources abroad. The total amount of borrowing and the eligible sectors would be specified in the Annual Programs, and all credits would have to be approved by the Ministry of Finance. The commission charged on such credits was not to exceed one percent per year, but the interest rate paid by the borrower would be the same as on domestic credit. The difference between the interest paid by the borrower and that payable to the foreign creditor plus the com- mission would be credited to an "Interest Equalization Fund" to be used to extend low interest credit to priority sectors. - 141 - L. Annex 3: Emigrant Workers' Remittances Per capita remittances In our present state of knowledge, predictions of the average remit- tance per worker can only be extremely rough. Remittances are for two pur- poses: to finance the consumption of the migrant's family in Turkey and to transfer assets to Turkey. Since the bulk of emigrant workers are at present in Germany, their behavior can be taken as representative of the total for the purpose of discussing remittances. The wage rate in Germany--which is rela- tively easy to predict--is therefore very important but not the only determi- nant of remittances. The amount of transfers for consumption in Turkey will also depend on whether the migrant is single or married, whether his family is with him or in Turkey, and on the length of his stay abroad. Capital transfers will depend not only on the current rate of savings but also on the accumulation of past savings in Germany, the exchange rates, investment opportunities in certain fields in Turkey, and on expectations of the relative rates of interest in the two countries. Past remittances are a poor guide to the future because the deval- uations of the Turkish lira and the U.S. dollar vis-a-vis the German Mark since August 1970 are very likely to have caused speculative movements as well as inflated the dollar value of remittances. This may be one explanation of the sharp changes in the rate of remittance per head since 1969. Migrants' Remittances to Turkey, 1967-1972 (US$ per capita) 1967 1968 1969 1970 1971 1972 516 488 440 616 894 1221 l/ 1/ On the assumption that 5,000 workers returned to Turkey so that the total employed abroad was 606,163. It should be noted that while these figures almost certainly overestimate money transfers per head since illegal emigrants are not included in the total employed abroad, they do not take account of unrecorded transfers or trans- fers in the form of imported consumer goods. The drop in per capita remit- tances since the 1967-1969 period, when the Turkish lira became progressively overvalued, and the sudden jump after the 1970 devaluation suggest a causal relation between recorded remittances and the realism of the exchange rates. Consequently, one could assume that remittances in 1969 represent a conservative rate in relation to the foreign wage level in that year. Then one could estimate future remittances from that base, taking into account only the expected rise in wages in Germany (and allowing for a 40 percent devalua- tion of the dollar vis-a-vis the DM between 1969 and 1973). Between 1960 and 1972 the growth rate of average wages in Germany (DM per hour) was 10 percent per annum and of average worker's yearly income 8.9 percent; in 1973 and 1974 average hourly wages are expected to rise by 12 percent and 13 percent - 142 - respectively. We have, therefore, assumed that average workers' incomes will (in current terms) increase by 10 percent per annum over the Plan period. If the percentage of income remitted remains constant, remittances should slacken off with length of residence abroad as ties with the extended family slacked. However, there is no evidence that this does in fact occur in Turkey where family ties and even ties with the village are very strong. These ties are strengthened by mayors of small towns who visit workers in Germany and, by stimulating their local patriotism, mobilize money for investment in Turkey. One could argue on the contrary that workers go abroad for limited periods and bring back all their residual accumulated savings so that transfers increase with length of stay abroad. Since so little is known about the actual re- lationship between length of stay abroad and remittances and since two-thirds of those employed abroad by the end of 1972 had migrated after 1968, it is not unreasonable to assume that the share of income remitted will change little. Consequently, the basis of projection of remittances in 1973 would be $900 ($440 x 1.14 x 1.4). Remittances per head in 1977 would then be conservatively estimated at $1,318 (in current dollars, assuming 1973 DM/$ exchange rates). Alternatively, one can start with the findings of a sample survey of migrant workers in Germany made in April 1971-March 1972 by the Federal Insti- tution for Labor (Bundesanstalt fUr Arbeit). According to this survey, the average annual remittance by the Turkish workers who specified the amount was $1,602. Of the surveyed workers, 15 percent said they made no transfer and 2 percent did not reply. On the assumption that 83 percent did make transfers, the average remittance for all workers was $1,330 per annum per worker. One should note, however, that the German survey states that some transfers were unrecorded. As against this, workers in Germany earned higher wages than else- where. To allow for this, we have taken $1,200 in 1972 (which is approxi- mately the figure of actual transfers per capita in the Turkish statistics) as the remittance in 1972 and then allowed for approximately 23 percent devalua- tion of the dollar in 1973 and for an annual increase in income of 10 percent. On this basis, per capita remittances in 1973 would be $1,624 and in 1977 would be $2,377 (in 1973 dollars). It is useful to compare these estimates with annual earnings of migrant workers. The "low" estimate implies a rate of remittance of 19 percent of earnings in Germany and the "high" estimate at a rate of 31 percent. 15/ Concerning savings retained in Germany, the above sample survey re- sults showed that in March 1972 52 percent of Turkish workers had savings in Germany and that the average amount for those who specified what their savings were was DM4,131 per capita. It is significant that these balances remained following two years of exceptionally high transfers. 15/ The "high" rate may be considered too high as a basis for projecting future remittances because of the unknown effects of the 1970 devalua- tion and the revaluation of the Mark since April 1971. In addition, a continuation of the rapid rate of inflation in Turkey may render the cur- rent exchange rate unrealistic and consequently discourage remittances. However, the subsequent appreciation of the Mark and expansion of in- vestment opportunities to workers in Turkey work in the opposite direction. - 143 - Projections of total remittances Three estimates of total remittances are set out below. The assump- tions common to the two first ones are that in 1972 the number of workers was 600,000 and the per capita remittance $1,220, that foreign wages will rise by 10 percent per annum, that per capita remittances will form a constant propor- tion of wages so that they too will rise at 10 percent per annum, and that the value of the dollar will not change (i.e., projections are at the 1973 exchange rate). The first "low" estimate is based on a net migration of 70,000 workers in 1973, no further migration in 1974 and 1975, and a resumption of migrations to 20,000 per year afterwards; the "high" estimate is a net migration of 70,000 workers per year except for 1974 (no migration). Alternative Projections of Per Capita and Total Remittances 1973 1974 1975 1976 1977 TOTAL Per Capita ($) 1342 1476 1624 1786 1965 Total ($ Billion) Low 0.9 1.0 1.1 1.2- 1.4 5.6 High 0.9 1.0 1.2 1.5 1.7 6.3 These figures are not maximum and minimum estimates. The "high" estimate could be easily reached if a boom resulted in a greater volume of migration or a high increase in wages and hence remittances higher than the assumed rates. In November 1973 Germany announced that effective immediately no further immigrant workers will be allowed into Germany from outside the EEC member countries. The recession Germany is expecting in 1974 will also prob- ably lead to some decrease in the number of workers presently employed. To take account of this situation, a third, more conservative variant of workers' remittances has been projected. The number of workers abroad is assumed to decrease to 500,000 in 1974 and 350,000 in 1975, stabilizing at this level thereafter. Per capita remittances are assumed to increase by 5 percent per year in 1974 and 1975 and 10 percent per year thereafter at current prices. It is estimated that some repatriation of savings available in German banks will compensate to a certain extent for the lower remittances, amounting to $283 million in 1974 and $198 million in 1975. 16/ As a consequence, total trans- fers of the workers reach $1,013 million in 1974, $749 million in 1975, and $606 million in 1976. They increase by 10 percent per year thereafter and amount to about $3.9 billion during the Plan period. 16/ From results of sample surveys carried out in Germany, total savings of Turkish workers held abroad may be estimated conservatively at about $920 million in 1973 (or about $1,320 per capita). This estimate is based on the assumption that half of the workers save or remit half of their earnings, the other half remitting 20 percent of their earnings and not holding savings abroad. - 144 - PART III : MA J 0 R SOCIAL AND EC 0 N 0 MIC SECT 0 RS VIII. POPULATION, EMPLOYMENT AND EDUCATION A. Introduction In the postwar period Turkey has had a very high natural rate of growth of population which has nearly doubled in the last twenty-five years. It was 18.8 million in 1945 and 35.7 million in 1970, and the 1970 figure excludes the 440,000 or more Turks working abroad. The population was largely rural: less than 15 percent lived in cities of over 20,000 in 1950, but the ratio rose to 28 percent by 1970. The first two Turkish Plans failed to increase productive employment fast enough to absorb the additions to the rapidly growing labor force or to reduce appreciably underemployment in agriculture. The rate of population growth is likely to taper off in the future partly in association with rapid industrialization and urbaniza- tion, but the labor force will increase at rates of around 2.5 percent or so in the next fifteen years as a result of rapid population growth in the past. In recent years the demand for labor in Western Europe has siphoned off a considerable part of the increase in the Turkish labor force; emigration is likely to continue, though perhaps at a lower rate. However, unemployment will probably become a growing problem in the next ten or fifteen years, especially since the Third Plan continues to emphasize industrialization and growth rather than employment. While unskilled labor will be in surplus, shortages of certain modern industrial skills have emerged so that educational reform has high economic as well as social priority. B. Population Turkey's population has been increasing rapidly since 1950; the average annual rate of increase reached a peak of 2.9 percent in the inter- censal period 1955-60 but fell to 2.5 percent in 1960-65 and 2.6 percent in 1965-70 (Table 1.1). Since Turkish censuses exclude Turks living abroad, the heavy emigration during this decade results in understating the rate of growth. The crude birth rate has been declining from 1955, but the death rate has declined faster. Thus, Turkey still exhibits the typical demo- graphic features of developing countries: a high birth rate (39.6 per 1000 in 1966-67), a reduced but still relatively high death rate (14.6 per 1000 in 1966-67 as compared to a little over 10 per 1000 in Western Europe), and a high infant mortality rate (153 per 1000). The expectation of life has risen from 48 years in 1960 to 56 in 1970. Typically again, the 0-14 age group formed 41.6 percent of the total population in 1970 and the working age group (15-65) 54.2 percent, signifying a high dependency ratio. - 145 - The SPO expects the rate of growth of population to rise to 2.72 percent per annum by 1980-85 and to decline gradually thereafter to 2.01 percent in 1990-95.1/ At these rates Turkey's population will be nearly 66 million in 1995. Projections of population growth must take into account projected fertility and death rates, the age and sex compositions of the population and the interrelations between these factors. -In Turkey's case the most controversial projection relates to the crude birth rate. For the Plan projection to be fulfilled, the crude birth rate must decline from its 1970 level of 39.6 per 1000, to 37.5 per 1000 during 1970-75. A particularly sharp fall is projected after 1985 (see Chart 10), and by 1995 the birth rate is expected to fall to 26.7 per 1000. The basic assumption underlying this projection is that Turkey has entered the phase of demographic transition through which nearly all industrialization will lead to a fall in the fertility rate from the present level characteristic of an underdeveloped country to rates approaching those of industrialized nations. This declining fertility rate will be brought about in part by greater female force participation and a higher literacy rate. There are, in fact, very sharp differences at present in fertility rates between the urban and rural areas (43.9 per 1000 in rural areas as against 31.4 per 1000 in the urban areas) and between the western and the less-developed eastern regions. With the development of the latter and with increasing urbanization, fertility rates can be expected to fall. Also, fertility is inversely correlated with literacy: since the education of female children has been increasing, the cohort of females of reproductive age will be progressively more educated. However, the rate of decline will also depend on the type of urbanization and the kinds of employment oppor- tunities offered to new migrants: studies of differential fertility in Turkey have shown that the fertility of village-born women hardly changes when they move to the cities unless they also experience a change in their socioeconomic status.2/ The distribution, import and manufacture of contraceptives became legal in 1965; although both the First and Second Plans incorporated family planning programs, their implementation has moved slowly so far. The Second 1/ The SPO makes several alternative projections, ranging from a population of 76.4 million in 1995 with a high birth rate to 62.8 million with a low birth rate; but it adopts the intermediate figure of 65.9 million as a reasonable projection. It is on this "Alternative C" that projections of labor supply and demand have been made. 2/ See Serim Timur, "Socio-Economic Determinants of Differential Fertility in Turkey," Institute of Population Studies, Haceteppe University, Ankara 1971, mimeographed; Table 3, p. 9. Professor Kiray has also argued that there is a good economic reason for this fact: children of the urban poor can work as shoeshine boys, peddlers, etc. and are therefore of as much economic value to their parents as farm children. - 146 - CHART 10 CRUDE BIRTH RATES 50 - A) 8) IBRO Projections C) AC: Plan Projections -C" 45 40 - (Constant (Fertility Rates 4S 0 3 ir 1-b 35 ~0 L) B (Moderate Fertility 30 AC TFYP) (Decline 30 A(Fast Fertility S(Decline 25 1965 1970 1975 1980 1985 1990 1995 YEAR World Bank-8082(R) Five-Year Plan, for example, targeted for a coverage of 2 million women by 1972, which has not been reached. In the Third Plan the family planning services will be integrated with maternal and child health care services; if the planned extension of these services to the rural areas materializes, a decline in the fertility rate in these areas may well occur. Public acceptance of the need for family planning is growing among the uneducated, but knowledge of efficient techniques is sometimes lacking. On balance, taking into account the effects of increasing education and urbanization, the SPO projection "C" would seem somewhat optimistic although quite possible regarding the fall in fertility rates, assuming that Government family planning programs are carried out. A more conservative projection is shown in Chart 13. The costs of failure to reduce the fer- tility rates are high: increased expenditures on health, housing, and education; a reduction in the rate of savings; and higher unemployment. The Plan "C" projection forecasts a fall in the death rate per 1000 from its estimated level of 12.8 in 1970 to 6.6 by 1990-95; this rate of decline again may be a little optimistic though possible, especially if the planned reorganization and extension of the health services is brought about. A more conservative forecast would be a crude death rate of between 7.3 and 7.4 per 1000 in 1995 (see Chart 11). Turkey has suffered from a shortage of health personnel. While in 1970 there were 4.9 doctors (including dentists) for every 10,000 people, there were only 2.5 nurses and 3.2 midwives. The problem was compounded by the uneven distribution of health personnel. In 1960, 18 percent of the doctors worked in-areas with a population of less than 25,000, though 80 percent of the population lived in such communities. The Third Plan aims at increasing the number of health personnel rapidly and also at extending the health services in the rural areas; socialized medicine will be extended to twenty-two new provinces. Two-thirds of the population are to be covered by the nationalized health services by 1977. The growth of population has been accompanied by speedy urbanization with urban population increasing from 18.5 percent of total population in 1950 to 35.9 percent in 1970. Cities with a population of 100,000 or more have grown the fastest, Ankara taking the lead. The rate of urbanization has slowed down a little (with the slowdown in population growth and faster emigration) from 6.6 percent per annum in the 1960s to 5.8 percent per annum in the last three years. The Third Plan foresees a rate of urbanization of 6.6 percent during 1972-77 and a declining rate thereafter; but there is little discussion of the social and economic forces behind urbanization, and no deliberate measures are envisaged to slow it down. It is taken for granted that the demand for labor in agriculture will fall and that the rural population will move to the cities despite the increasing unemployment there. Rapid urbanization is considered an acceptable or even desirable aspect of modernization and industrialization. The SPO expects that by 1995 the urban population will have increased to 75 percent of the total population so that Turkey will have been transformed from a predominantly rural country to a mainly urban country in less than half a century, a rapid transformation by historical standards. The largest cities are expected to grow much faster than the medium-sized and smaller urban centers. - 148 - CHART 11 CRUDE DEATH RATES 16 A) B) IBRD Projections 14 C) AC: Plan Projection "C" 12 0 0 0 41 10 C (Constant Fertility 8- * ., (Rates .... '-A (Fast Fertility (Decline B (Moderate (Fertility (Decline 6 AC (TFYP) 4 I I I I 1965 1970 1975 1980 1985 1990 1995 Year World Bank-8083(R) The urbanization process may well present major social problems. It has already strained the infrastructural resources of the big cities, and slums have sprung up in all of them. The environs of Ankara are covered with small houses built by the dwellers themselves with no legal claim to the land; 70 percent of the population is estimated to live in residences legally defined as substandard. Continued migration to the cities will strain their infrastructure further, particularly if the rate of urban unemployment in- creases as the Plan expects. In this context it is particularly unfortunate that the share of housing in planned investment has been progressively falling from 20.6 percent in the First Plan to 15.7 percent in the Third. C. Labor Supply and Demand The growth of the labor force depends on the changing age structure of the population as well as its rate of growth and on changes in the participation rate. The proportion of the population in the age group 15-64 fell from 58.3 percent in 1950 to 54.1 percent in 1965 and remained at 54.5 percent in 1970. The SPO expects this proportion to fluctuate between 55 to 56 percent until 1985 and then rise more steeply to 58.8 percent in 1995. However,-in recent years a decreasing proportion of this age group has joined the labor force whether because of increasing education, urbanization (and the consequent decline in female participation), or simply the lack of employment opportunities. Thus, the participants of the 15-64 age group in the labor force fell from 44.3 percent of the total population in 1960 to 38.5 percent in 1970 (see Table 1.2).3/ The Plan expects this participation rate to remain at around 38 percent in 1972-77 and to rise to 39 percent in 1987 and 41 percent in 1995, presumably as a result in part of the increase in the relative strength of the working age group. The participation rate will more likely fall as the rural exodus accelerates since the female participation rate is very much higher in agriculture than in other activities and since the overall participation rate is also somewhat higher. The pressure of unemployment and expanding education should also reinforce this tendency for the participation rate to fall as people prolong their education so as to increase their chances of employment and earning power, especially since the cost of higher education in Turkey is very low. While two-thirds of the economically active population are still engaged in agriculture and related activities, there has been a perceptible decline in the last ten years from over 77 percent in 1962. This fall of 12 percentage points was accounted for partly by an increase of 3 percentage points in manufacturing, the most rapid growth occurring in employment in the basic materials industries--iron and steel, chemicals and cement. However, the most rapid increase has occurred in services, particularly in civil service and commerce, which includes retail trade. Many of these "jobs" are probably of very low productivity. 3/ The Plan defines the participation rate as the percentage of the economically active in the 15-64 age group to the total population. - 150 - CHART 12 POPULATION GROWTH RATES 4.0 A) B ) IBRD Projections C, AC: Plan Projection "C" 3.5 (Constant C lFertility Rates 3.0 ftftt ................................ (Moderate Fertility 10 S2.5 (Decline 0 00 ..**** .. .... . .. AC (TFYP) 2.0 A (Fast Fertility (Decline 1.5 1.0 I I I 1965 1970 1975 1980 1985 1990 1995 Year 1iahlial qowth rate World Bank - 8084(R) Table 31 DISTRIBUTION OF THE ECONOMICALLY ACTIVE POPULATION1/ (15-64 years) 1962 1967 1972 Agriculture 77.1 71.3 65.0 Manufacturing 8.3 9.2 11.3 Construction 2.6 2.9 3.2 Commerce 2.7 3.1 4.5 Transportation 2.2 2.5 3.3 Services 6.4 8.3 11.7 Unknown 0.7 2.7 1.0 Total 100.0 100.0 100.0 1/ Excluding the armed forces. Source: Third Five-Year Plan, p. 658. Table 32 GROWTH OF EMPLOYMENT 1962-72 RATES (Percent per year) First Plan Second Plan Average 1962-72 Agriculture -0.4 -0.7 -0.5 Industry 3.3 5.4 4.3 Construction 3.8 3.2 3.6 Commerce 2.3 8.0 6.3 Transport 4.6 6.8 5.7 Services 10.5 4.1 7.5 Source: Calculated from the Third Five-Year Plan, Table 511, p. 658. The development strategy of the Plans has emphasized a high rate of growth of output and labor productivity rather than employment. The rate of growth of employment in industry, commerce and transport has in fact acceler- ated during the Second Plan but, even so, failed to absorb the increments to the labor force. Thus, it is estimated that by 1972 the labor surplus had risen to 1.6 million, divided more or less equally between agriculture and the rest of the economy. The estimates of unemployment include a large number of partly employed people and is for that reason imprecise. The extent of seasonal unemployment in agriculture in any year is heavily influenced by the weather; it has been estimated that underemployment in agriculture during 1965-70 fluctuated between 0.7 and 1.3 million according to weather. These estimates are predicated on the SPO's calculation that there was an underlying trend for labor productivity in agriculture to increase by about 3 percent per annum between 1962 and 1972 as a result of mechanization and other technological changes. If a lower rate of productivity increase is predicated, which is a reasonable hypothesis, then the estimate of disguised unemployment in agriculture in 1972 would be lower. - 152 - The dividing line between open and disguised unemployment is almost as blurred outside agriculture as within it. The SPO estimates disguised and open unemployment outside agriculture at 0.8 million or 14.5 percent of the nonagricultural labor force. However, only around 4.9 percent of the urban labor force was recorded as unemployed in 1969, the latest year for which the sample household labor force survey figures have been published. Nearly 42 percent of the unemployed were between the ages of 15 and 24, and over half belonged to two occupational groups--"craftsmen, production process workers and repairmen" and "unclassified." Agricultural workers also formed a sizeable part of the unemployed (Table 1.2). However, many of those recorded as employed were probably working at marginal jobs with very low productivity or for short working hours. The possibility of earning a living by shoe shining, peddling or supplying traditional goods and services to city dwellers (including migrants living in slums) provides a safety valve, but their incomes are very low.4! Emigration has greatly eased the pressure on employment in the last decade, but this again may slow down in the future (see below). Between 1965 and 1970, net emigration amounted to 300,000 or one-third the addition to the labor supply during this period. In the Third Plan net emigration is expected to run at an annual rate of 70,000 or 17 percent of the addition to the labor supply. The Third Plan continues to emphasize investment in high growth, relatively less labor-intensive industries; the consequent increase in the level of unemployment in the medium term is seen and accepted as a price worth paying for immediate rapid growth with full employment expected after 1995. Thus, the SPO expects the level of disguised and open unemployment outside agriculture to grow from 0.8 million in 1972 (14.5 percent of the nonagricultural labor force) to 1.1 million in 1977 (14.9 percent) and 2 million in 1987 (15.4 percent). It is only after 1987 that unemployment declines to 0.8 million in 1995 or 4 percent of the labor force; by this date, too, disguised unemployment in agriculture is expected to disappear. Planned unemployment of this magnitude raises two questions: first, are the forecasts correct; and second, would alternative strategies not be preferable? There are several reasons for believing that the Plan's implicit estimate of the magnitude of the rural exodus may be too high. On the one hand, it is based on a rising rate of participation in agriculture (as else- where); but as education spreads and incomes rise, the employment of children and women is likely to fall rather than rise (children and old people formed 17 percent of the agricultural labor force in 1970). On the other hand, the estimate is predicated on very high growth rates of productivity in agriculture: 5.1 percent per annum in 1972-77, 9 percent in 1977-87, and 6.4 percent in 1987-95. These are unlikely to materialize; productivity 4/ "Urbanization & Modernization in Turkey," AID Discussion Paper No. 10, Ankara, July 1972, p. 26. A peddler in Ankara, for instance, may earn TL200 a month or less than a fifth of the average wage of a factory worker, and peddlers in Ankara are very likely better off than in smaller cities. - 153 - increases of around 2.5 percent seem more likely in the medium term (see Chapter 10). Thus, the actual extent of disguised and open unemployment in agriculture or the rate of annual exodus may well be less than estimated in the Plan. This conclusion is supported by projections carried out with a programming model (Annex II). All the projections but one reach the conclusion that agricultural labor force will increase slightly (by less than one percent per year) during 1972-87; the exception, ,which corresponds to a strategy of maximum employment, leads to a decrease of only 0.1 percent of the agricultural labor force during 1972-87, compared with 0.6 percent in the long-term strategy of the Government. This result is reached although all solutions assume that a large volume of rural-urban migration will take place during the period (between 2.5 and 4.7 million). Table 33 PROJECTIONS OF LABOR SUPPLY AND DEMAND OUTSIDE AGRICULTURE (Millions of laborers) Actual Turkish development strategy 1965-70 1972-77 1977-86 1987-95 Supply of nonagricultural labor: Growth of civilian labor force 2.0 2.1 5.0 5.0 Decrease in agricultural labor forcel/ - 0.2 0.6 1.8 Total additional supply 2.0 2.3 5.6 6.8 New demand for nonagricultural labor: Industry 0.3 0.6 1.3 2.2 Services 0.8 1.0 3.4 5.8 Emigration 0.3 0.4 0.0 0.0 Total additional demand 1.4 2.0 4.7 8.0 Change in unemployment 0.6 0.3 0.9 -1.2 l/ Excluding changes in agricultural underemployment. Source: Third Five-Year Plan, Table 96, p. 147 and Table 1.2. Similarly, the Plan estimates of productivity growth in the other sectors seem also a little on the high side so that, assuming output targets are met, the increase in urban employment would be a little greater than foreseen. In addition, labor-intensive sectors, such as construction and services, may expand faster than foreseen in the Plan. Nevertheless, un- employment will still present potentially grave social and political problems, and there is not sufficient discussion in the Plan of an investment plan which entails such large-scale unemployment nor of the employment possibilities of alternative patterns of investment. The effects of various alternative development strategies on employment and growth have been analyzed in the framework of a programming model of the Turkish economy (see details in Part IV). In the model, growth is constrained by the availability of domestic savings and skilled labor and by migration costs and education costs for unskilled labor. The "basic case," - 154 - which translates a strategy of growth maximization, results in a 5 percent rate of increase of urban employment and a 7.2 percent rate of increase of GDP, both of which are lower than the 5.8 percent and 8.7 percent respectively aimed at in the Turkish Development Strategy. Most of the differences between the two sets of projections can be explained by the skilled labor constraint and the difference in marginal domestic savings rate (26 percent in the basic case and 38 percent in the Turkish strategy). Relaxing the labor constraints increases GDP growth to 7.5 percent a year, and increasing the marginal savings rate to 30 percent increases growth of GDP to 7.6 percent and of urban employment to 5.6 percent (sensitivity analysis (2) and (4), Part IV). A strategy of maximizing employment (sensitivity (1), Annex II A) rather than growth translates into a substantially faster growth of urban employment (6.2 percent per year) at the expense of a small loss in growth of 0.2 percent per year. It is worth noting that the variant which maximizes employment implies annual rates of growth of 14 percent for total exports and 20 percent for industrial exports. It is argued in Chapter 7 that these rates are achievable (also see sensitivity analysis (7): "EEC Entry," Part IV). If this judgment regarding foreign trade is accepted and if the assumptions underlying the basic case are realistic, then this would suggest that a development strategy which maximized employment would imply a small loss in growth of GDP. It would also have the advantage through increasing employment of directly making the distribution of income more equal. D. Emigration Massive emigration has been a striking and, on balance, a beneficial feature of Turkey's recent economic development. By the end of 1972, there were over 625,000 Turks legally working abroad and several thousand illegal migrants. Between 1965 and 1972 migrants' remittances of foreign exchange to Turkey exceeded $2 billion of which nearly 40 percent accrued in 1972 alone. Turkey was late in sharing in the mass migration of labor from the Mediterranean countries to the more-industrialized Western European nations that characterized the postwar era. Emigration from Turkey was relatively insignificant till the middle of the 1960s but rose very rapidly thereafter (Table 1.3). By 1966 there were over 189,000 Turkish workers employed abroad; but, even by the end of 1969, Turkish migrants were around 7 percent of the foreign workers in the European countries importing labor. Again, emigration absorbed a much smaller percentage of the potential growth in Turkish labor force than in the other labor-exporting countries, such as Portugal, Spain, Italy, Yugoslavia and Greece. However, the share of Turkey has increased rapidly as the flows from the other countries, except Yugoslavia, slackened; Turkey is now the second most-important supplier of labor to Western Europe. Germany has been by far the largest market for Turkish labor, though it is interesting that Germany's share in the flow of migrants diminished from 95 percent in 1966 to 77 percent in 1972. In recent years Turkish labor has moved to several other countries in Europe, particularly to France and Austria (Table 34). The Third Plan estimates that net emigration during 1973-77 will amount to a further 350,000 so that there will be around one million Turkish workers abroad in 1977 and that their remittances will rise from $510 million - 155 - in 1972 to $600 million or to about $600 per head in 1977 (in constant dollars). These estimates may turn out to be far too conservative with im- port implications for the future course of development in Turkey. It would be useful, therefore, to reexamine the two components of the estimate of total remittances: numbers of migrants and rate of remittance per migrant. Given Turkey's surplus labor situation, the relatively higher level of wages in Western Europe, and Turkey's association with the EEC, the volume of emigration will be determined largely by conditions in Europe. Already well over a million Turks are on the waiting lists of the Turkish Employment Office, and the existing level and likely change in the absolute level of unemployment projected to 1987 will ensure an elastic supply of Turkish migrants. The foreign demand for Turkish workers will, therefore, depend on the balance between domestic labor supply and demand in Europe, on the balance in the other traditional suppliers of migrant labor (particularly in Europe), and finally on immigration policies adopted by the various countries concerned. The total demand for imported labor in Western Europe (where nearly all Turkish emigrants are likely to go) depends technically on past demographic trends (whose effects can be predicted with a fair degree of certainty) and on changes in participation rates, levels of economic activity, technical change, and the rate of migration from agriculture to industry (all of which are much more difficult to predict). Forecasts made before oil price changes indicated that substantial domestic shortages of manpower would continue at least in the next decade in most European countries. However, recent decisions taken by Germany indicate that-these prospects might be upset at least for a short period. In 1971 one forecast put the probable labor shortage in the ten Western European countries of immigration at 11 million for 1980; by 1969 there were already 5.5 to 6 million foreign workers in these countries, so that between 1969 and 1980 net migration should be between 5 and 5.5 million workers. The "high"-"low" estimates on which the "central" forecast was based are as follows: Table 34 LABOR BALANCES IN EUROPE - 1980 (In thousands) Countries of Immigration Countries of Emigration High Low High Low 1. Austria -344 -165 1. Finland +27 -221 2. Belgium -403 -74 2. Greece +667 +273 3. Denmark -333 -152 3. Ireland +162 +39 4. France -1691 -38 4. Italy +228 +18 5. Germany -4916 -2691 5. Portugal +454 +300 6. Netherlands -421 +11 6. Spain +578 +144 7. Norway -29 +99 7. Turkey +5315 +4336 8. Sweden -579 -273 8. Yugoslavia +3028 +2675 9. Switzerland -487 -139 10. U.K. -3603 -1320 Total: -12806 -4742 Total: +10459 +7564 - 156 - Source: Luisa Danieli, The Demographic and Social Pattern of Emigration from the Southern European Countries, Florence, 1971, pp. 28 and 35. These estimates are based on various assumptions regarding the growth of output in agriculture and in the other sectors and of the growth of labor productivity in agriculture. If these assumptions turn out to be unrealistic or if Government immigration policies are changed, the demand for migrant labor and actual emigration may differ widely from these projections. Nevertheless, the estimates serve to show the large potential for Turkish emigration. On these estimates between 4.3 and 5.3 million Turks could work abroad by 1980, implying a volume of net emigration of between 3.3 and 4.3 million over the next seven years as compared with the Plan estimate of only 350,000 migrants during the five years 1973-1977. Another forecast for Germany, which is by far the largest recipient of Turkish workers, suggested much lower figures of emigration5/ than the above projection. This forecast gives the following numbers of foreign workers in Germany: Table 35 FORECAST OF FOREIGN WORKERS IN GERMANY Number Change Year (In thousands) (In thousands) 1973 2455 - 1975 2656 +201 1976 2709 +53 1977 2703 -6 1978 2672 -31 1980 2704 +32 1985 2163 -541 These estimates are considerably lower than the previous "central" ones and are very close to the "low" estimates. According to this German estimate, the total immigration into Germany between end-1973 and end-1977 will amount to 248,000. Adding an estimated 100,000 during 1973, total immigration during the Third Plan period (1973-77) would be approximately 350,000. If one assumes that 40-50 percent will be from Turkey (which is in line with past trends) and that this would represent 75 percent of total Turkish immigration (as in the last three years), then the total migration from Turkey to Germany would be about 190,000-230,000.during 1973-77. In the early seventies the German Government has taken measures to restrict the foreign population in certain areas and to make it more costly for employers to employ foreign labor. In November 1973 it announced that effective immediately there would be a temporary ban on immigration of workers from outside the EEC member countries due to an expected stagnation of the economy in 1974. If this situation were to last, the Plan expectations of a 350,000 net emigration during 1973-1977 would not be achieved. But there are factors in favor of a more-optimistic perspective in the longer term. 5/ The Institute for Employment Research, Erlangen. - 157 - It is likely that there will be increasing migration to other countries, such as France, the Netherlands and Austria. In the long run, Turkish workers will be allowed to circulate freely in the EEC under the Additional Protocol between Turkey and the EEC. This provision will come into effect between' 1976 and 1986, and the exact time will be influenced strongly by the develop- ment of the demand for labor in the EEC member countries. E. Education The extension and improvement of the educational system has long been one of Turkey's main social needs. Although rapid progress has been made in various fields from the reduction of illiteracy to an increase in the number of technical personnel, the demand for education and for skilled manpower is greater than the existing system can meet. This shortfall is manifested particularly at the secondary school level, and schools are often overcrowded. The system is also wasteful since classes are often repeated and dropouts are common. The dropout rate was 19-30 percent in the secondary schools and 18-35 percent at the lycee level in 1970-71. Furthermore, the universities produce too many arts graduates and too few of the kinds of technical manpower the economy requires. In particular, there continues to be a great shortage of technicians in Turkey. The ratio of technicians to professionals is less than two to one in Turkey as against a ratio of around four to one in industrialized countries. This imbalance is particularly serious in the field of health, though it is improving. The ratio of nurses and midwives to doctors has moved up from 0.41 in 1962 to 0.71 in 1971, com- pared with at least 3 to 4 per doctor in developed countries. The formal educational system consists of three levels: basic, secondary and higher education. Basic education is divided into two cycles: the first cycle consists of five years primary school for children from 7 to 12 years of age. The second cycle consists of an additional three years of middle school. In the following three years of secondary education, students either attend a general lyce'e or go to vocational and technical lycees. Higher education is provided by eight public universities and various other academies, and it is generally much easier to obtain admission to them after a general lycee education than from technical schools. Considerable progress has been made in the last fifteen years in extending primary education. However, the general illiteracy rate of the population over 6 years of age was still 54.6 percent in 1970. Illiteracy is particularly widespread among women, the elderly and the inhabitants of the poorer regions. Although special steps have been taken to increase female literacy, it is still increasing at a slower rate than male literacy. - 153 - Table 36 LITERACY IN TURKEY (In percent of population over 6 years) Literacy level 1945 1950 1955 1960 1965 1970 Males 34.97 38.52 44.79 46.87 52.34 69.0 Females 13.70 16.55 20.59 22.56 26.85 40.0 Total 24.39 27.59 32.89 34.93 39.84 54.5 Universal primary education is a constitutional requirement. The Second Plan had aimed at increasing primary school attendance to 100 percent, but by 1970-71 it had risen only to 83.6 percent from 61 percent in 1955-56. Table 37 PRIMARY SCHOOL ENROLLMENT (In thousands and percent) Age Group Total Enrollment (7-12) Students Rate % 1955-1956 3,252 1,984 61.0 1960-1961 4,245 2,867 67.5 1965-1966 5,061 3,932 77.7 1970-1971 5,292 4,992 83.6 The main reason for this failure is that the remaining villages without schools are those in remote parts of the country. Many of these villages are extremely small and do not have even the elementary facilities needed to set up a school. The generally high illiteracy rate is also a reflection of the fact that so many of the older age groups, particularly in the rural areas and among women, are still illiterate. There is a need not only to expand the programs for adult education and training but also to give them greater vocational content. The Plan aims at an extensive reorganization of these facilities. In the last decade there have been striking increases in the numbers of technical personnel. Between 1960 and 1970 the number of engineers, tech- nicians and skilled craftsmen doubled while there was a threefold expansion of agronomists. Table 38 SUPPLY OF TECHNICAL MANPOWER: 1960, 1965 AND 1970 1960 1965 1970 1. Engineers 15,461 17,692 31,401 2. Technicians 27,056 37,417 54,753 3. Agronomists 5,555 8,957 17,923 4. Skilled craftsmen 998,902 1,235,391 1,831,110 - 159 - But there is still an overall shortage of scientific and technical manpower and particularly marked imbalances in certain lines. Thus, in 1972 there were excess supplies of certain kinds of engineers, such as construction, chemical, and agricultural engineers, but severe shortages of other types, such as electrical engineers. There were shortages of all types of tech- nicians and particularly of skilled building workers. The Plan aims not only at increasing the numbers of trained personnel sharply but also at correcting these imbalances, though shortages of various types of skilled manpower and particularly of technicians are foreseen even in 1992. The Third Five-Year Plan has an ambitious scheme of educational reform. The structure of the educational system is to be altered and its scope considerably extended. By 1977, for example, primary school attendance will be 100 percent of the relevant age group; and by 1995 75 percent will be in the middle school, 45 percent will receive secondary education and 15 percent university education. The 100 percent target for primary school attendance has now been shifted to the end of the Third Plan; by 1977-78 all the 6.2 million children between 7 and 12 years of age should be in school. In four years facilities for an addition of over a million students will have to be created. The Plan estimates that this task will require an expenditure of TL3,780 million. It will also require particularly concentrated efforts in the east and southeast. The primary school attendance rate is as low as 40 percent in some parts of Southeast Anatolia. Given the difficulties of increasing facilities in the remote areas, the Plan allocation may be too low. The Plan aims also at changing the pattern of secondary education substantially. At present, about 60 percent of the students in this level take general courses in lycees, and 40 percent are in vocational and tech- nical institutes. The Plan aims at switching these proportions to 35 percent in the lycees and 65 percent in the vocational and technical insti- tutes by 1995-96. The attendance at the vocational and technical institutes is to expand most rapidly (by nearly 0.4 million students) in the Third Plan, followed by the institutes of higher education. Table 39 ENROLLMENT RATIOS AT VARIOUS LEVELS OF EDUCATION: THIRD-PLAN TARGETS (Percent of relevant age group) Actual Target 1973-74 1977-78 Basic education: 1st stage (7-12) 90.0 100.0 Basic education: 2nd stage (13-15) 44.3 50.7 General lycee (16-18) 13.2 13.4 Technical vocational schools (16-18) 6.5 11.5 Higher education 7.1 9.0 The structure of the universities is not to be changed greatly, though there will be greater emphasis on the training of technical and scientific manpower. However, a basic issue is whether the total number of university students should be expanded so fast--i.e., by 43.3 percent between the first and last years of the Third Plan, whereas the population in that age - 160 - group will only increase by 12.6 percent. Over 15 percent of the total investments6/ on education is to be spent on universities and higher academies, and some diversion of this expenditure to middle-level technical and vocational training may well show greater returns to the economy. There is, of course, considerable political pressure to expand universities since the private returns on university education, which is practically free, is so high; but this return is probably also much higher than the social return.7/ An attempt to determine the requirements of the educational system in the next twenty years has been carried out with a programming model of the Turkish economy (Annex II A). Skilled labor is divided into four classes according to the length of training required.8! The calculations confirm that the Turkish labor force has at present an excess capacity of professionals and a shortage of skilled urban labor force and middle-school level adminis- trators. Growth requirements during the 1972-1987 period would require the training of 3 million persons in excess of what can be provided by the present educational system. A large proportion of the additional training needs consists of skilled workers of the middle-school level (Class 4) and of managerial and clerical workers (Class 3). During the whole period, the present educational system would continue to provide an excess of technical and professional workers (Class 2) who will have to be employed at a lower grade (Class 3) in their professions. 6/ Estimates of current expenditure are not available; in the Second Plan current expenditures on education were about three times the capital expenditures. 7/ Anne Kreuger estimates at 25-27 percent the private rate of return and 8-9 percent the social return on university training. See Duncan R. Miller, ed., "Essays on Labor Force and Employment in Turkey." 8/ A detailed definition of the skill classes is given in Annex II A, Table A 16. - 161 - PART III : MA J 0 R S 0 CIAL AND ECONOMIC SECT 0 RS IX. REGIONAL DEVELOPMENT AND INCOME DISTRIBUTION Development and incomes in and around Turkey's three main cities, Istanbul, Ankara and Izmir, are ahead of those in other parts of the country, particularly in the eastern provinces. Though regional economic accounts are not kept, it is estimated that in 1965 the East Marmara subregion, which in- cludes Istanbul and four neighboring provinces with 12.5 percent of the population, contributed about 22 percent of the nation's GDP. By comparison, the twenty-four provinces in the Eastern Black Sea and Eastern Anatolia regions with 33 percent of the population contributed only 22 percent of GDP. Per capita value added in the Eastern provinces was, therefore, about one- third the level in the East Marmara provinces.1/ The Government made a study of social and economic development by province as of 1970, using fifty-three economic and social indicators (Tables 11.7 and 11.8) to build a composite index of provincial development. Using this index, the ten most-developed provinces are located in the western half of the country, and the twelve least-developed provinces lie east of a straight line drawn from Zonguldak to Gaziantep (see map section). However, provinces falling in the mid-range of socioeconomic development may be found in both halves of the country next to the most- and the least-developed provinces. This composite index shows differences in development between the top and bottom provinces, which are less marked than those derived from the 1965 estimates of value added. This may be due to the fact that the composite index, which reflects the numerous facets of social and economic development, gives equal weight to the fifty-three indicators, many of which are not indicators of production or welfare. Table 11.16 gives the summary of results of a 1968 survey of 4,500 households in Turkey, classified by size of settlement and by rural regional differences.2/ When viewed together with the aggregate index of development, several conclusions can be drawn: (a) The most pronounced differences in modernization and development are found between the rural population and the urban population--not between regions. (b) Although the main differences are between the rural and urban sectors, there are also considerable regional differences between the rural populations of different regions. In particular, the Black Sea, Aegean and Mediterranean areas have a more-modern and economically superior rural sector reflecting their historical experience, geography and higher level of agricultural development. The survey also found that significant differences in modernization existed between the middle-sized cities, depending on whether they were old Ottoman cities with limited recent growth or post-Ottoman cities whose growth was recent and connected with industrialization. While some measure of the extent of regional disparities can be provided, data are lacking to describe the trends in these disparities over 1/ For data on regional differences see Tables 11.1 to 11.8. 2/ K. Srikantan, "Regional and Rural-Urban Socio-Demographic Differences in Turkey," Middle East Journal, Summer 1973. - 162 - the past two decades. However, if Turkey conformed to the patterns observed in other countries at early stages of development, regional income disparities probably increased.3/ Considering various pieces of evidence, this seems to have been the case (see also section on income distribution). There have been significant differences in the rates of urbanization between various regions (Table 11.4); per capita fixed investment has been higher in the most developed regions (Table 11.5); and private investment has been concentrated in Istanbul and Izmir. Istanbul and the neighboring provinces of East Marmara clearly increased their relative weight in the national economy between 1960 and 1965 (Table 11.6). However, this increase came from con- struction, trade, banking, insurance and other services rather than manu- facturing (Table 11.2). A. Past Government Policies Turkey was a land of sharp contrast in climate, topography and development when the Republic was established in 1923. Thrace was gentle, rolling country with Istanbul as the main center. Bordering the vast and semiarid Anatolian Plateau were high mountain ranges to the east and coastal plains on the other three sides. Due to an inadequate transportation system, the Anatolian Plateau had few economic relations with the outside world. The Aegean was Turkey's most-developed agricultural region, and Izmir derived its importance from exporting and processing the region's crops. The Republic initiated systematic efforts to integrate the Anatolian Plateau into the life of modern Turkey. The main measures, which were im- plemented during the Ataturk and Inonu periods, were the creation of a new administrative and cultural capital at Ankara, the transformation of many provincial towns into modern cities by making them governmental and cultural centers with extensive municipal construction projects, the extension of railroad lines to these provincial cities, and the establishment of many state industries in many interior centers (see map section). These measures were effective in spreading industrialization throughout Turkey. Compared to a virtual monopoly on economic activity in the early twenties, Istanbul and Izmir by 1950 had respectively only 25 percent and 7 percent of the total industrial value added; State Enterprises had been located in some thirty-five cities throughout the country. However, agricultural development had been neglected, and there were still large disparities among regions. During the 1950s the policy of dispersing public investment was continued. Between 1950 and 1960, over forty state factories were built in almost as many locations. Only one was in Istanbul, three in Ankara, and all but twelve were located outside the Marmara and Aegean regions. This policy provided some employment in these regions but not enough to reduce significantly the flow of migrants to large urban centers. Dispersal of SEEs had significant secondary growth effects. For example, the Sugar Corporation has encouraged farm and livestock development and stimulated growth in smaller specialized industries to serve their needs. Besides their economic importance, the SEEs are often an important social and modernizing 3/ See J.G. Williamson, "Regional Inequality and the Process of Natural Development: A Description of the Patterns," Economic Development and Cultural Change, Volume 13, 1965. - 163 - influence in small cities. Private investment, aided by incentives, also increased rapidly but was concentrated around Istanbul, Ankara and Izmir. The Industrial Development Bank (TSKB) was established in the early fifties to channel long-term loans from external sources to private enterprises. Of the 401 projects it helped finance, 63 percent were in the Marmara region (205 in Istanbul alone) and another 12 percent in the Aegean (39 in Izmir). The 1950s also saw a considerable Government effort in favor of agriculture. Government investment in agriculture came second only to in- vestment in communications. The main policies affecting regional development concern irrigation, support prices and farm mechanization. The number of tractors and the amount of land cultivated by tractors tripled during the decade. The total area commanded by Government-constructed irrigation systems increased from 42,000 hectares in 1950 to 176,700 hectares in 1960 and over 800,000 hectares in 1970. The areas which benefited most from irrigation and mechanization were the most fertile areas in the Marmara, Mediterranean and Aegean regions, many of which had large farms. These developments enabled farmers to raise yields but probably displaced some farm workers and increased the concentration of ownership.4/ The effect of the Government agriculture price policies has been to maintain a high degree of national and annual price uniformity and of parity among crops. This has helped to maintain average farm incomes but has penalized producers of crops with sharply fluctuating yields and farmers in nonirrigated regions; and it has limited productivity gains and shifts in production, especially toward livestock and livestock feeds (Chapter 10). The Government also undertook a large highway program with U.S. assistance during the 1950s which facilitated the development of outlying regions. All-weather roads doubled in length. The main increase in length occurred in the provincial farm-to-market network, although these remain far from adequate. The share of road transport in total freight increased from 43 percent in 1960 to 74 percent in 1970. However, road traffic is very unevenly distributed regionally with about 70 percent concentrated in the major centers of economic activity. The 1950s saw an acceleration of population growth to about 3 percent a year, compared to about 2 percent during the previous two decades. This acceleration was accompanied by a sharp increase in internal migrations due to rapid economic expansion in the main urban centers and limited economic possibilities in rural areas. Migrations were facilitated by the improved road network and the low rates charged by passenger transport companies. Population in cities over 50,000 increased by 111 percent during the decade, compared to 23 percent in rural areas. Population rose by 123 percent in Ankara, 65 percent in Izmir and 48 percent in Istanbul. During the 1960s the same policies remained in effect but with some marked shifts in emphasis due to a growing concern over regional development lags and the need for regional planning. In agriculture the same policies regarding mechanization, irrigation and support prices were continued. More concern was expressed for development at the village level, but essentially little change occurred in development trends. The concentration 4/ Studies of these effects have been made in Cukurova. - 164 - of public investment remained on irrigation and mechanization with no significant effort to recover the costs of the large irrigation investments. This, in effect, proved to be a major subsidy to producers of industrial export crops, especially cotton and sugar beets, where large yield and production gains have taken place. The food crops and livestock subsectors lagged. Price policies continue to favor producers with higher and more stable yields and to impede regional specializations and shifts among crops. During the latter part of the 1950s and until 1967, public sector credit to agriculture declined in real terms and became more heavily concentrated in price intervention programs. In industry market forces continued to favor location in the most- developed areas, but the incentive system was changed in 1963 to induce location in the less-developed areas. The rate of the investment allowance against taxable profit, which was 30 percent of investment for industrial projects and 40 percent for agricultural projects, was set at 50 percent for projects in less-developed areas. From August 1967 to October 1969, the State Planning Organization was empowered temporarily to grant allowances up to 80 percent. The same principle of regional differentiation was applied to the cases of the construction tax, real property tax and interest rates. Dispersion of State Economic Enterprises continued, but the need to apply economic and financial viability criteria more strictly than in the past was stressed in choosing location. Finally, the 1960s saw increased Government efforts towards a better regional balance of education, health and other social services (see Table 11.8 and Chart 13). A start was made in 1964 to bring electric power to villages, and by 1971 2,040 villages were electrified. By mid-1973 a total of 4,800 villages was expected to have been electrified, raising the ,percentage of population having access to electricity from 28 percent in 1953 to 39 percent in 1973. Despite these measures, internal migrations increased as reflected in the rising proportion of squatters in large urban centers; and immigration to European countries began to reach large proportions towards the end of the 1960s. B. Present Situation and Problems The First and Second Plans adopted the objective of balanced re- gional development for improved social justice, but progress towards this objective has been limited. Several attempts were made in the preparation of regional development studies and a strategy of regional development around growth centers. Detailed inventories of resources and growth potentials were conducted for some areas. For various reasons, including the difficulty of defining regional objectives and measures in the context of a strongly centralized system of government, these studies of mostly resources inventory type or of compilation review by and large remained at the stage of research projects. Development lags persist in certain areas for three main reasons: limited economic opportunities due to resource and location disadvantages, poor administrative and institutional capabilities for development, and lack of an aggressive policy in support of balanced development. Resource and location disadvantages include mountainous relief, unfavorable climate, low soil fertility and distance from markets which re- duce the returns to factors of production in the less-developed provinces. The scope for overcoming these disadvantages through incentive policies and public investments is strictly limited by budgetary constraints and the overriding objective of rapid economic growth. However, these disadvantages - 165 - -99T - 'I.,I I I I | | | BINGOL 0 m ADIYAMAN GUMUSHANE HAKKARI MARDIN MARAS BILECIK BITLIS CANKIRI MUS ORDU SIIRT SINOP URFA ARTVIN BURDUR MUGLA TUNCELI KIRSEHIR EDIRNE > GIRESUN 0 I) KARS m Im NIGDE YOZGAT RIZE HATAY AFYON O ANTALYA 2 BOLU 0 KIRKLARELI - KONYA USAK MALATYA m O AGRI AYDIN SAKARYA SAMSUN ) C VAN m m ADANA Q > mi KUTAHYA r CORUMIT m DENIZLI 0 ICEL MANISA KAYSERI GAZIANTEP AMASYA 0 KASTAMONU SIVAS TRABZON BALIKESIR ZONGULDAK . TEKIRDAG BURSA CANAKKALE ERZINCAN KOCAELI ESKISEHIR ELAZIG DIYABAKIR IZMIR ERZURUM ANKARA ISPARTA ISTANBUL l i i l I I I I I I I are compounded by administrative and institutional deficiencies in the less- developed areas which could be remedied by appropriate Government measures. Perhaps the most serious ones among these deficiencies are a lack of resource surveys, long-term credits for the private sector, infrastructure, telecommunications, trained entrepreneurial talent, appropriate land tenure policies and poor public and private services. Government in Turkey is highly centralized with 90 percent of all Government resources passing through the Central Government budget. Moreover, there are no formal regional planning authorities largely because the 1961 Constitution prohibits an intermediate administrative organization between the Central Government and local authorities. The law does allow regional departments of the sectoral agencies, and about twenty-one of the forty-five major Government agencies do have regional organizations. But each agency has a different interpreta- tion of the number of regions and of their boundaries which reflects the technical requirements of the agency's function. Thus, regional planning and administration, in the sense of a systematic, integrated, cross-sectoral approach to a geographical area, either gets done at the provincial level (called Iller, they are sixty-seven in number) or at the center. The Iller are poor, understaffed and geographically too small for sensible planning of some functions, while the Central Government is distant and remote from the problems (for details on institutional structure, see Annex 1). In the private sector, industrial development outside the major centers has been small scale, bedeviled by lack of knowledge, insufficient long-term funds and a crushing bureaucracy. However, some recent developments indicate the possibility of substantial private initiative in the regions in the future. Private holding companies, long a major factor in the existing centers, have been encouraged by tax and other incentives to begin making investments in other regions. In addition, there are increasing indications of the development in remote areas of projects utilizing the substantial savings and talents of returning migrant workers, many of whom prefer to return to the area where they have cultural ties. C. Third Plan Proposals The Third Plan proposals for regional development are scattered under various headings, such as industrial investment policy, agricultural and land reform, education reform, health, and fiscal and credit policies. The Plan proposes that the less-developed areas identified by the socio- economic study described previously be designated as priority areas for incentive policies and public investment. These comprise thirty-six provinces (Iller) and fifty districts (Ilceler). The list will be kept under continuous review in future. The general objective of the Plan is "to close the development gaps among the regions." However, the Plan recognizes that this is a long-term objective which can be achieved only over a considerable period of time. The main elements of the Plan strategy towards the achievement of regional objectives are to raise agricultural productivity and diversify agricultural production while modernizing rural living conditions; to expand public investment and promote private investment in industry; and to raise the standards of administrative and social services, particularly health and education, to national levels. The Plan does not give specific guidelines for the area allocation of public investment and other developmental expenditures. - 167 - In agriculture the main programs which could affect regional balance include land and agricultural reform, crop and animal husbandry improvement, small-scale irrigation and village development (see Chapter 10). Here we may indicate that the targets of village development include the supply of drinking water in all villages in five years and the provision of electricity and the construction of access roads for all villages in ten years. Considering the current situation (35,000 villages without electricity and 22,000 without running water) and prospective financial resource con- straints, it might take longer than specified to reach these targets. There is also a need to review carefully the effects of major agricultural policies (i.e., those concerning large-scale irrigation, mechanization and support prices) from the viewpoint of improving the regional balance of agricultural output growth, employment and incomes. In manufacturing, the public sector plans to establish new industrial plans in thirty-three provinces. To stimulate private investment, the Plan proposes to continue the current system of extra incentives for industries in priority areas. In addition to existing incentives, there is a need perhaps for more Government assistance in identifying and preparing projects to be located in priority areas (resource surveys, marketing and feasibility studies, training, etc.). The Government should study the desirability of establishing regional offices as TSKB has done in Elazig with some success. Further measures would include increasing the reliability and availability of electric power supply and improving the telecommunication network linking provincial towns to Ankara and Istanbul. The establishment of regional development corporations, as suggested in the Third Plan, may also be desirable, although the alternative of decentralizing the operations of existing institutions is probably less costly. The Third Plan envisages continuation of the program to establish estates for small industries in outlying regions based on a UNDP pilot program. This program seems well prepared but suffers from a lack of trained staff for the crucial technical assistance element. In education and health the aim of the Plan is to equalize the provision of these services on a population basis throughout the country. The education system will be reformed to reach the most disfavored classes of the population. At the primary level regional boarding schools will be established (starting first in priority areas) with an eight-year cycle and new curricula, which are expected to provide better education at a lower cost per pupil and help reduce the dropout rate between 5th and 6th grades. Reforms are also proposed in secondary and higher education in favor of priority areas. The health program, which is called "socialization program" and covered twenty-five provinces during the first two Plan periods, will be extended to twenty-one new provinces during the Third Plan, providing one health center for every 10,000 and a health station for every 3,000 people. The targets for hospital beds are depicted in Chart 13 starting with priority provinces; the target is to provide one hospital bed for every 10,000 in- habitants. Thus, the Plan contains ambitious and innovative proposals to raise the standards of the two main social services in priority areas. Unfortunately, implementation in the past has suffered by the lack of trained medical personnel willing to shift to remoter facilities and by the migration of a large number of Turkish doctors. The Plan pays insufficient attention to family planning and labor migrations despite the need to reduce population - 168 - pressure and the importance of labor migration in reducing regional income disparities. Finally, the Plan proposes to remedy the adverse effects of administrative centralization through provincial planning. Five provincial plans were prepared on a pilot basis in 1972. In view of the apparent good results, the system is being expanded to all provinces and will be improved as experience is accumulated. This should help improve the coordination of central services at the local level and increase the feedback of needs and information from local beneficiaries of development projects to Central agencies. D. Urban Development5! Like most developing countries, Turkey experienced rapid urban growth over the last twenty years as the population shifted away from the rural sector. The proportion of population in urban units over 10,000 rose from 18 percent in 1950 to 35 percent in 1970. Urban annual growth rate over this period was 4.6 percent, compared with a rural growth rate of 1.6 percent and an overall rate of 2.4 percent. In recent years the urbanization rate has stabilized around 6 percent; it was 5.2 percent for 1960-65 and 6.2 percent for 1965-70. In the early part of the period, the focus of urban migration was on the three largest cities, Ankara, Istanbul and Izmir; but in the last decade the secondary cities, nineteen cities with populations above 100,000, have grown faster (see Table 11.13) and an aggregate absorbed more population. In recent years a large number of workers have gone overseas relieving what would have been even greater urban pressures. Nevertheless, rapid urbanization has led to largest cities, and this is compounded by the financial weakness of the municipalities. It is also creating profound changes in the traditional social, cultural and economic relations of the Turkish people. Regionally, there are quite wide differences in urban ratios which correlate closely to regional income differences. This is not surpris- ing. Per capita agricultural income is about one-half of average per capita income and one-fourth of industrial per capita income. The regional differences in the urbanization ratios range from 17 percent in the Eastern Black Sea region in 1970 to 60 percent in the Marmara region (see below). An interesting feature of the recent pattern is that in most regions there has been growth in the medium-sized cities (Table 11.13). Also, the more rapid urban growth over the five-year period of 1965-70 has been in the regions with the lowest urbanization ratios. 5/ This section has in part drawn on Rusen Keles's Urbanization in Turkey, International Urbanization Service, Ford Foundation, published in 1972, and a draft note on urban growth prepared by I. Ozusta, SPO, Ankara, Turkey, March 1973. - 160 - Table 40 GROWTH OF URBAN AREAS AND URBANIZATION RATIOS Urban Growth Rate Urbanization Ratio Region 1965-1970 (%) 1965 1970 Eastern Anatolia 9.1 19.0 26.0 Antalya 8.3 20.0 18.2 Eastern Black Sea 7.2 14.6 17.8 Middle Anatolia 6.6 28.8 34.9 Western Black Sea 5.6 13.3 18.7 Marmara 5.5 53.4 60.3 Cukurova 4.8 42.1 45.5 Aegean 4.1 31.4 33.3 Turkey 6.2 29.6 35.0 Turkey's approach to planning and investment decision making has been largely sectoral, and systematic economic planning for urban areas or regions is a relatively new concept. Although physical "plans" were prepared in the early 1960s (particularly for the Istanbul area), few attempts were made to implement the recommended strategy or projects. In the Second Plan it was recognized that policies linking urbanization, industrialization and the modernization of agriculture were required, but little was done. Among the major failures were: investment decisions were made without regard to external economies; speculation in urban areas led to high costs, insufficient housing and gecekondu (squatter settlement) construction; inadequate urban infrastructure; and insufficient employment and inadequate physical planning and implementation in large cities. Moreover, plans for reorganization of the Ministry of Reconstruction and Resettlement, increasing municipal incomes and public acquisition of land in urban areas were not implemented. At the present time Turkish law and administrative practice make it extremely difficult to create effective metropolitan institutions, such as a regional water authority. The fact that most resource allocation decisions are made by the centralized agencies and coordinated only at the macro level by the State Planning Organization makes it very difficult to ensure a coordinated implementation of the plans as developed. Attempts are now being made to provide some regional structure in the Istanbul area. A large project in metropolitan regional planning and implementation is under way in Istanbul, and this may provide the basis for a broader metro- politan perspective. E. Land Policies, Controls and Housing The policy of expropriation and State control of large land areas as a means of directing urban growth in Turkey has been largely limited to the Ankara experience in the 1920s, when approximately 4 million square meters were bought as a site for the new Administrative capital. Both the national and municipal authorities have extensive rights to expropriate land for public purposes, but the constitutional protection of landowners' rights and the limited funds and staff available made implementation difficult. Municipalities are required to prepare physical plans for urban development with assistance from the Ministry of Reconstruction and Resettlement or Iller - 170 - Bank. Land policies and related laws and regulations have been under review for some time. Several important changes have been made in recent times, such as extensions in the Ministry's authority over the formulation and execution of physical plans, as well as changed zoning regulations affecting Ankara, Izmir and Istanbul which close loopholes. Other legislation is under consideration or in preparation, but its successful implementation remains to be seen. A major land control problem is the rapid growth of illegal settle- ments (gecekondu). Under the Turkish law gecekondu are defined as any construction which has been made without the express authorization of the municipal authorities. About one-third of the gecekondu are located on private land, some obtained through squatting, but a large proportion through illegal sales of shares in a larger private parcel. Gecekondu are never- theless the main source of low-cost housing (their average cost is estimated at about TL8,000) and are the homes of most of the recent migrants to the large cities. Most gecekondu are substandard in terms of space, construction and services; but many are substantial and even include apartment buildings and factories. About 60 percent are owned by the families who live in them. The Government adopted a policy with the passage of the gecekondu law of 1966 of prevention, improvement and clearance. These measures have been unsuccessful due to lack of enforcement and the failure to provide a viable alternative to gecekondu settlement through fundamental changes in policies for land use regulation and investment in urban services. Despite their obvious poverty when compared with the wealthier urban dweller, surveys show the income, health and general education level of the gecekondu in- habitant to be substantially higher than those of his village counterpart. The gecekondu problem mentioned above is prima facie evidence of the difficulties that the Government has met in regulating the form and character of privately built housing settlements. The private sector con- structs the majority of housing; direct Government investment is less than 5 percent of the total investment in housing, although the Government provides assistance indirectly through the Real Estate Bank and the Social Insurance Agency. Most of these funds have gone to middle-income families. During the Second Plan it was estimated that 900,000 dwelling units would be needed, but only about 650,000 were in fact constructed according to building permits. The number of gecekondu constructed during the period is unknown. F. Municipal Services and Financing Inadequate water, sewage disposal and power are serious problems in all the major cities of Turkey. Accurate statistics are difficult to locate, but the indication of the problem's magnitude can be gained from the following old survey results: - 171 - Table 41 RATIO OF HOUSEHOLDS WITH PIPED DRINKING WATER Percent of Households Size of City with Drinking Water 5,000 - 10,000 17.7 10,000 - 25,000 29.9 25,000 - 50,000 41.6 50,000 - 100,000 37.1 100,000 or more 40.2 Source: SPO (Report of the Working Group on Municipal Services), Ankara, 1966. The municipalities, which are responsible for providing these services, have very inadequate financial resources to do the job and may be inefficient in using these. As their taxing powers and thus income are in- sufficient, they have to rely on limited Central grants and expenditures by Central agencies. Only about 9 percent of all Government resources are channeled through local budgets, although the Central Government provides some additional assistance in the form of grants (16 percent of total local government revenue). For the last decade the local government and municipalities' revenues have been declining as a proportion of Central Government revenues. By 1972 average per capita municipal revenues were only TL149 or 3 percent of national average per capita income. For many years the Government has been considering tax and legislative reforms to improve the financial situation of the municipalities, but mistrust in the abilities of the municipal authorities has prevented major changes. A new property tax law was imple- mented in November 1972. It was primarily intended to increase ratable values and property tax rates. And a new municipal revenues law is being considered which is intended to increase the share of municipalities in the property tax from 25 percent to 50 percent. In addition to cities there are 35,000 conglomerations that satisfy the minimum legal requirement and are considered villages. Like municipalities, villages have locally elected officials but extremely limited fiscal authority and responsibility. In 1972, 60 percent of the villages had an adequate water supply, 11 percent had power and 15 percent had telephones. G. Pollution Both air and water pollution are of increasing concern in Turkey. In Ankara, where the problem is one of the worst in the world, air pollution exceeds U.S. standards for a safe concentration 75 percent of the time, although measures being considered include the substitution of briquettes for the lignite fuel presently used in most homes for heating and the re- duction of the sulphur content in fuels. Istanbul's air quality problems are less severe. The coastal waters around Izmir and Istanbul are heavily polluted from industrial effluents, shipping and inadequate treatment of sewage. There is increasing concern about the effects of pollution on the beaches and on tourism and fishing, all important economic activities in these areas. - 172 - Both of these cities have major sewage projects under preparation--Istanbul with Bank assistance. The industrial and shipping pollution problem will require a new framework of enforcement powers which can only result from in- creasing awareness of the problems. H. Prospects The pattern of rapid urban growth is expected to continue at an annual rate of 6 to 7 percent. By 1985 54 percent of the total population is expected to be urban. Agricultural policies are not likely to slow this migration. Projections by the Ministry of Reconstruction and Resettlement indicate that 75 percent of the urban population will be living in cities of more than 100,000 in 1985 compared to 56 percent in 1970. For the near future the direction of urban growth in Turkey would seem to be towards dispersal among several major centers rather than concentration on one or two. The State Planning Organization and the Ministry of Reconstruction and Resettlement have identified these potential growth centers, and they are indicated on Map 10672. The Third Plan continues the strategy of the Second Plan to in- crease employment opportunities and improve urban conditions by gathering together light industries in organized industrial districts (site and services projects). Infrastructure investments are to be made in the cities to alleviate urban problems, and urban expansion projects are to be prepared (such as in the Istanbul Urban Credit). The Land Office's financial resources are to be increased, and the local government system is to be reformed to increase its effectiveness in urban improvements. The implementation of these measures will be difficult because regulation of urban development, particularly the housing and construction industry, would confront some of the most powerful interests in Turkey. The Government agencies involved are severely understaffed and under-financed. Projections of local government and municipal revenues in the Third Five-Year Plan do not show any significant change in the level of local government revenues. In fact, local government revenues are projected to grow at a slower rate than during previous plan periods (10.1 percent com- pared with 11.6 percent) and more slowly than Central Government revenues (11.8 percent). All local governments in Turkey are projected to have only an average of TL1 billion per year available for investment of which the municipalities' share would be about 72 percent. The Plan assumes that local government current expenditures will rise only at about 7.3 percent per annum. In view of the inadequacy of local government staff and the responsi- bilities foreseen for them, these allocations appear too low. In view of these difficulties, urban problems are likely to worsen for some time. Improved organization of Govefnment efforts in the large metropolitan areas through the creation of regional or metropolitan authori- ties or better coordination of existing organizations and greater authority in local agencies could lessen the harmful effects. Methods of raising local finance can be improved, particularly by having the consumer pay more of the cost of urban services and by improved taxation to recover a larger proportion of the value created by public investment. But new land policies will be required if control over urbanization is to be achieved. - 173 - I. The Distribution of Income Turkey shares with many other developing countries the experience of large income differences. The overall income distribution is highly un- equal; the Gini coefficient of net household incomes was estimated at above 0.56 in 1969.6/ Comparable data for earlier years are not available,7/ and the lack of firm data makes it difficult to judge whether income differences have widened or have been narrowed down over the past two decades. The substantial difference in the rate of growth or real per capita output in the various sectors suggests that differences in income of various groups may have widened. On the other hand, the substantial and rapid growth of emigrant workers' remittances in recent years, much of which goes to the poorest groups, has been working in the opposite direction. In Turkey both rural and urban incomes are unequally distributed. The Gini coefficients of household income after tax have been calculated for some Turkish cities for the 1960s: they range from 0.46 in Ankara, Antalya and Ordu to below 0.3 in Adana.8/ Rural income distribution is also skewed, since the ownership of land is extremely unequally distributed. According to the Census of Agricultural Holdings of 1970 covering about 60 percent of the total land area, 60 percent of the land holdings was less than 3 hectares and covered only 18 percent of the land area (Table 11.10). A study of farm incomes made in 1951-53 showed that there was a close correla- tion between the distribution of land holdings and the distribution of incomes. While the larger farmers owning better-quality land and more tractors got more net output per hectare, the smaller farmers had more non- agricultural sources of income.9! 6/ M. Krzyzaniak and S. Ozmucur, "The Distribution of Income and the Short- Run Burden of Taxes in Turkey, 1968," mimeo, 1968. These estimates are based on a survey of income distribution in 1968 conducted by T. Bulutay, Serim Timur and Hasan Ersel. This is roughly comparable to such countries as Colombia, Ecuador, Peru, Brazil, Lebanon, Madagascar, Mexico, Iran, Philippines; is somewhat higher than most Western Europe and other Latin American and Asian countries; and is considerably higher than East Euro- pean countries, the U.S., Canada and such European countries as the U.K., Greece, Spain and the Scandinavian countries. 7, A study of income distribution was made in 1963, using a variety of sources of very varied degrees of reliability. The Second Plan quotes the results of this study. "20% of the families which made up the lowest income group had a share of 4.5% of the national income while the highest 20% had a share of 57%, thus, in 1963, annual income per family was approximately TL 2,500 for the former and TL 31,900 for the latter group." 8/ T. Bulutay and H. Ersel, "The Distribution of Income in Certain Turkish Cities"; the Turkish Yearbook of International Relations, 1967. These studies are based on consumer expenditure surveys conducted in various cities by the State Institute of Statistics; some surveys were published after 1967. 9/ Eva Hirsch, Poverty and Plenty on the Turkish Farm. - 174 - In a study dividing the population into six socioeconomic groups (low-, middle- and high-income agriculturalists, wage and salary earners, civil servants and entrepreneurs),10/ the per capita income of the poorest agriculturalists, who formed around 70 percent of the population, was far below the average income of the other groups so the average rural income is much lower than the average urban income. Furthermore, there was a sharp deterioration in the terms of trade between 1959 and 1960 and a decline again after 1966. During these periods the relative position of the agri- cultural groups is therefore likely to have deteriorated. Wages in the nonagricultural sector have increased well above the rural wages and in line with productivity in the industrial sector during the sixties as a result of Government minimum wage policies and of the increased bargaining power of trade unions. Real wages of workers covered by social insurance increased by about 5.5 percent per year during 1964-1970 or at about the same pace as productivity in manufacturing. In absolute terms, real wages began to decline from 1971. However, unionized workers received a part of their incomes in various prerequisites,11! ranging from free meals to clothing which would not be influenced by rising prices; hence, the decline in real wages may be overestimated in the period of inflation after 1970. These estimates of income distribution ignore the distribution of public goods--e.g., education and health. The increase in literacy and in facilities for vocational training, the extension of health services, and various other steps that have been taken to improve the conditions in the more backward regions have raised the level of living of the poorest in Turkey. Furthermore, emigration of Turkish workers has been a strong equal- izing influence because it helps to maintain the level of wages within Turkey. Through workers' remittances the consumption of dependents is raised, and the ownership of assets becomes more equal. Taking into account all these various indicators, it may be that inequality has, in fact, increased over the last few years as a result of rapid industrialization, urbanization and inflation, though no definite statements can be made regarding trends. But it is also likely that the pro- portion of the population below an absolute poverty line has, in fact, decreased as a result of economic growth, emigration and the Government's social policies. The first two development plans adopted the objective of reducing income disparities and proposed measures to achieve this objective. As noted in the public finance section, there was some progress in making Turkey's tax system more equitable, although there remain significant 10/ Keith L. Griffith and John L. Enos, Planning Development, pp. 207-8. The figures were calculated on the basis of Census and GNP figures, tax data and employment records. It is not clear to what extent the groups are mutually exclusive; large landowners, for example, may also be entrepreneurs. 11/ According to one survey, benefits in kind amounted to an average of 13.5 percent of cash wages in 1971. - 175 - 1loopholes for farmers, entrepreneurs and independent professionals in the income tax. A policy was followed of keeping the prices of basic commodities in line with the purchasing power of lower-income groups in cities; there was also an increase in education, health and other social services. However, the large number of rural emigrants received little attention. The Third Plan has adopted the improvement in the distribution of income as one of the five main tasks for the next twenty-three years and suggests policies of taxation and land reform and the expansion of the level of the public systems of education and health, the extension of social insurance, and so forth. In 1973 Parliament enacted a controversial but toothless agrarian reform bill (see Chapter 10). A recent study estimated the proportion of income paid in taxes at 13-14 percent for the poor and 20-34 percent for the rich so that there is significant scope for redistributive taxation. The Plan neglects in the short run one very important means of improving the distribu- tion of income--namely, increasing opportunities for gainful employment. J. Annex 1: Main Institutions for Regional Development In the centralized system of Government in Turkey, a first principle is that the provinces, sixty-seven in number, are the main subcountry units dealing in an integrated way with the problems of a geographical area. Twenty-one of the forty-five or so major Central Government agencies do have regional organizations responsible for several provinces. As each agency has defined its regions in a manner consistent with its own technical re- quirements, their boundaries are not necessarily the same. Pilot efforts to generate a regional approach through regional plans have been tried several times in the past, but these have lacked the political force to surmount the difficulties presented by the existing Administrative structure. A second principle is that decisions concerning the allocations of public resources are made almost exclusively in Ankara. The provinces and the field representatives of the agencies have more of an advisory role and limited resources at their disposal (see section on public finance). Thus, there is in Turkey no single agency or collection of agencies charged with the task of regional development. In order to understand Turkey's past performance and the possibilities for the future, the full range of public and private bodies should be reviewed. However, to keep the problem manage- able, a selection has been made of those institutions which appear to have played an important role in either planning or implementing regional investments in the past or could in future play such a role. The State Planning Organization (SPO) The State Planning Organization (SPO) is responsible for all economic planning and occasionally views problems from a regional perspective. As part of the Prime Minister's office, SPO must approve all projects in the plan and the annual programs and, as such, has large residual if negative powers. In the past these powers were exercised more actively. For the regional allocation of public resources and the guidance of the Government's incentive policy, SPO tried several approaches in the past. These included the comprehensive regional development studies carried out in collaboration with the Ministry of Reconstruction and Development. Recently, it has established a Department for the Development of Disfavored Regions (KOYD), which has terms of reference including research into the problems of regional - 176 - development. The Department of Coordination has responsibility for coordinating investment implementation at the local level, in particular for supervising a program of provincial plans (see below). Ministry of Reconstruction and Resettlement The Ministry of Reconstruction and Resettlement, a small ministry with responsibility in reconstruction following disasters, urban planning and housing, has prepared regional studies with SPO in the past. The Ministry's identification of growth centers may have had some intangible effect on other ministries' choice of investments, but there was no formal compulsion. It is now concentrating with KOYD on the study of specific projects of physical planning. Several ministries administer the incentives being given to pri- vate investors, most notably the Ministry of Industry. Although the Ministry of Agriculture is large and reasonably well represented throughout the country, its effectiveness is limited by the strength of other organizations operating in agriculture--DSI, Topraksu (General Directorage of Soils and Water), TPAO (Turkish Petroleum Corporation), the Sugar Corporation and so forth. Diffusion of effort is widespread, and conflicts are often resolved in favor of the more powerful organizations. The Ministry of Interior, which is responsible for law, order, and development in the provinces, has a very important coordination role at the local level through the Governors. The Ministry of Village Affairs is responsible for all services provided to the villages and thus retains a cross-sectoral perspective. Banking system In Turkey the banking system is separated into the private system, which with two exceptions deals almost exclusively with short-term financing, and the public system. The public banks are perhaps more accurately described as the financing arm of their respective ministries. However, they do have banking features, and they are the major source of development financing. The flow of funds through the banking system has been generally away from the poorer regions of the east as shown below for 1971: Table 42 BANK DEPOSITS AND CREDITS BY REGION Deposits Credits Credits as percent of Regions (TL million) Deposits Marmara 19,734 18,053 91 Middle North 11,672 20,724 178 Aegean 6,932 6,793- 98 Mediterranean 3,610 4,582 126 Black Sea 3,803 4,665 123 Middle South 2,320 1,475 64 Middle East 1,728 746 43 Southeast 723 1,022 141 Northeast 936 574 61 Total 51,462 58,638 141 - 177 - The deviation of the southeast from the pattern is explained by a large development investment program by the State Investment Bank. The per capita distribution of credits is given in the table below: Table 43 TURKISH BANKING SYSTEM 1971 Per Capita Lending by Regionl/ Population Region (thousands) Development and Agricultural Total (No. of Provinces) 1970 Investment Credits Credits Credits Middle North (10) 5,185 1,7372/ 264 3,996 Aegean (9) 5,298 197 364 1,282 Marmara (7) 5,555 5772/ 116 3,250 Mediterranean (6) 3,932 55 331 1,165 Northeast (5) 2,145 0 156 267 Southeast (9) 2,931 152 115 349 Black Sea (9) 4,592 260 542 1,016 Middle East (7) 2,941 1 128 252 Middle South (5) 3,084 5 201 478 Total/Mean 35,663 424 263 1,664 l/ Long- and short-term credits. 2/ These are artificially large, as credits for countrywide investments (railways, power) are shown in the region where their management is located, most usually Ankara (Middle North) or Istanbul (Marmara). Source: Publication of the Banks Association of Turkey, 1972. The distortions in the data make generalization difficult; but, not surpris- ingly, bank credits are seen to follow economic activity with the Marmara (Istanbul) and the Middle North (Ankara) regions receiving a lion's share of overall credits--the former because of its economic importance, the latter because it has the headquarters of the major state enterprises receiving development credits. Similarly, the major agricultural areas have the largest portion of agricultural credit. Agricultural Bank of Turkey The largest banking institution is the Agricultural Bank of Turkey (ABT). In 1971 it had assets of TL21.6 billion, 793 branches and 19,000 employees. The bias in its credits has been towards the three regions with well-developed agriculture: the Aegean, the Mediterranean and the Black Sea. The poorest regions received less. The narrowness of the distribution of the Bank's assets is partly due to the concentration of credit on price intervention programs which favor specific crops that are concentrated in a few regions. Over half of the Agricultural Bank's credits go for price intervention programs, and this proportion is increasing. A generalized credit program for on-farm development would more effectively even out the benefits derived from the Bank's credit operations, especially if an effort were made to provide such credit to smaller farmers. - 178 - State Investment Bank (SIB) The State Investment Bank (SIB) is the second-largest financial institution. It has only one office and 116 employees, but its assets exceed TL13 billion. Together with the Ministry of Finance, SIB finances the ex- ternal needs of the State Economic Enterprises (SEEs). Projects submitted to SIB must be in the annual programs prepared by SPO. However, SIB can and does refuse projects following appraisal, although the sponsoring SEE has the right to seek other financing, including direct budgetary support. Since its foundation in 1964, SIB has become an increasingly important source of long-term financing for the SEEs; in 1972 its loan disbursements represented 20 percent of SEEs'fixed investment. SIB accounts for 85 percent of the investments in the Development and Investment Credit column above; the remainder is TSKB (see below). SIB's main role is to ensure the financial and technical soundness of projects and, as such, has little overt regional impact.12/ Bank of the Provinces (Iller Bank) The Bank of the Provinces (Iller Bank) is another Central Government institution with assets of TL4.2 billion and 2,400 employees. It specializes in infrastructure planning and financing for 1,500 medium-size cities, is responsible to the Ministry of Reconstruction and Resettlement, and has a number of regional offices. In 1972 Iller Bank expected to lend about TL1 billion. Terms are five to twenty-five years on own funds and interest free on budgetary funds administered for the municipalities. An important part of Iller Bank's efforts is technical assistance in preparing the super- vising projects. Actual construction is usually contracted. Theoretically, the twenty-two largest cities (those with populations above 100,000) are the responsibility of other agencies--the Turkish Electricity Authority for power and DSI for water and sewerage. The most-likely regional growth poles are among this group of cities; if investment is to be focused on a few targets for maximum impact, these cities would be the logical choice. In practice, the responsibility for the large cities is less clear; and Iller Bank is presently preparing, for example, the Istanbul Wastewater Project. Iller Bank could assume in future a more-active role in developing and coordinating infrastructure investments in the larger cities, but this would require a major augmentation of staff and resources for it to do so. People's Bank (Halk Bank) The People's Bank (Halk Bank) is to small industry what the Agri- cultural Bank is to agriculture. Associated with the Ministry of Industry, Halk Bank has 3,900 employees located in 220 offices and assets of TL3 billion, of which about half is in medium-term investments. The offices are well distributed around the country with at least one office in each province. Halk Bank reportedly needs to upgrade its appraisal standards and to increase its trained personnel. Nonetheless, Halk Bank is stimulating small and 12/ However, as the projects of the SEEs are one of the main instruments available to Government to regionalize investment, the Bank has an important role in seeing the projects so selected by SPO are technically sound. - 179 - medium industry across a wide geographical area. With stronger management and staff, Halk Bank could also serve to provide badly needed technical as- sistance to small and medium industry, especially in project identification and feasibility work. Industrial Development Bank (TSKB) The Industrial Development Bank (TSKB) is the major source of long- term finance to private industry. TSKB assets total TL2.3 billion and it has 220 employees. It recently opened three regional offices and reorganized itself regionally. An increasing proportion of its investments are made outside the Marmara region. Its strong staff makes it potentially a powerful instrument for stimulating sound industrial development in the provinces. To do this will require an ongoing assessment of policies, especially the minimum size of its investments; it will have to avoid the risks of spreading its resources too thinly and of reducing the quality of its operations. Gov2rnment Government in Turkey has essentially three levels: the Central Government and its agencies, which raise and distribute 90 percent of Govern- mental resources; the locally elected city and village governments, which have some revenue sources and responsibilities; and the provincial govern- ments, which have limited own resources but occupy a strategic position as the linchpin between the local and Central authorities. Governor The Governor is the representative of the Central Government, usually a career employee of the Ministry of Interior. He works in conjunction with two decision-making and policy-making bodies: the provincial council, which is elected by the people of the province on a population basis; and the standing committee with members elected by the council with the Governor as chairman. The provincial representatives of a majority of the national agencies report to their head offices through the Governor. However, those agencies with regional offices with responsibilities for more than one province, while required to coordinate with the Governor, do not have to report to him. Moreover, the Governor does not have any direct control over the budgets of the agencies, although his views are supposed to be taken into account in the preparation of agency plans and budgets. The successful Governor thus persuades and inspires, his force to command being as much a result of personality as circumstance. Provincial plans should enable him to assume a greater role in future if sufficient staff are provided. Municipalities The municipalities and villages also have financial and planning authority and responsibility. Their functions and problems are more fully covered in the section on urbanization. From a regional planning point of view, they are of importance mainly for the services they provide, which may stimulate or retard regional growth. In general, their financial resources have not been enough to provide sufficient basic services, and the Central Government institutions have not compensated for this insufficiency. Despite problems, several of the medium-sized cities (population 100,000-500,000) have grown fast and have potential for a leading role in the development of their hinterlands. - 180 - PART III : MA J 0 R SOCIAL AND ECONOMIC SECT 0 RS X. AGRICULTURE A. Introduction The importance of the agricultural sector derives from its substan- tial and varied contribution to the population and the economy--over two- thirds of the total employment--the bulk of the foreign exchange earnings, much of industry's raw materials, and between one-quarter and one-third of the net domestic product. Although structural and other sources of change can be expected, the perspective which these characteristics reveal is unlikely to change in any substantial way over the medium term. The total land area of Turkey is currently estimated at 78.1 million hectares of which nearly 54 million hectares is devoted to agricul- tural activities (excluding forestry). Cereal culture absorbs more than half the area used for field crops but contributes only about one-fourth of the value added by agriculture. By contrast, fruit and vegetable production contributes almost as much on a fraction of the agricultural land. Industrial crops provide another important element, one which has benefited significantly from irrigation. The area under meadows and pastures for livestock is about the same order of magnitude as that for crops of all kinds, but the trend in such use has been steadily downward in recent years as cultivated lands have encroached on traditional livestock areas. Forestry resources have not been used productively on a scale commensurate with their large size (estimated at 18 million hectares). The production patterns reflect significant regional differences within the country. The coastal regions tend to be the most productive agriculturally where rainfall is generally adequate but the distribution throughout the growing season can be unreliable. The central Anatolian plateau covers about one-third of the total area, and it is there that dry-land cereal cultivation predominates under rainfall conditions, which are both low in average quantity and unreliable. The isolated eastern highlands contain much of the livestock production. Against this general background one can consider details of recent performance. B. Changes in Agricultural Production Agricultural growth in Turkey over the past two decades can be characterized as good. Of sixty-five countries for which FAO has computed growth rates from 1959 to 1969, only eight did considerably better than Turkey and twelve did about as well.1/ Value added in Turkish agriculture grew at an annual trend rate of 3.3 percent between 1950 and 1972 and an annual compound rate of 3.5 percent2/ which compares with a world agricultural 1/ FAO Production Yearbook, 1971, Vol. 2. 2/ In 1968 prices the compound growth rate is based on averaged production in 1971-72 compared with averaged production in 1950-52. - 181 - production annual compound growth rate of 2.7 percent.3/ Turkish agricultural growth has been essentially stable--growth during the Second Plan (3.6 percent) was about the same as the First (3.7 percent).4/ The Third Plan (1973-77) anticipates much the same pattern (3.7 percent), but the prospective plan (1977-1987) anticipates some acceleration in growth. Without the sharp increase in production in 1971--12 percent above 1970 and 17 percent above 1969 (in constant prices)--which was again sustained in 1972, Turkey's agricultural progress during the Second Five- Year Plan would actually have been quite poor. Indeed, prospects for agriculture in 1969 and 1970 did not look promising. Part of the record output in 1971 resulted from very favorable weather, and both 1971 and 1972 benefited from strong domestic and export demand. But high production during these two years also reflected sizeable increases in the use of fertilizer, mechanization and irrigation during the Second Plan. Rapid growth has been largely confined to the export crop sector and has not been matched by comparable increases in per capita food production (Chart 14). In the early period of the 1950s, agricultural growth was almost exclusively due to extensive factors, the result of expansion in the crop area, and increased livestock numbers.5/ Productivity--e.g., the value of production per unit of land--increased by only 3 percent during the 1950s.6/ By 1960 this picture had begun to change; and expansion of the cultivated area and livestock numbers slowed down appreciably or, in some cases, even declined. Growth since 1960 for a number of commodities, notably cotton and sugarbeets, has been almost exclusively due to productivity increases. While both intensive and extensive factors have been at work with respect to all commodities, food crops and livestock have registered the lowest productivity increases. Compared with agricultural production proper, the value of forestry and fisheries is insignificant, although both did increase their relative position in the past decade. Value added by forestry was 2.3 percent and by fisheries 0.7 percent, of agricultural production in 1972. 3/ Agricultural Commodity Projections 1970-80, Vol. I, FAO, Rome, 1971, p. 13. 4/ Annual value added growth rates. Long-term growth rates (1950-72) are lower than short period annual averages, and growth rates of value added are lower than growth rates at total production. 5/ The cultivated area increased by 58 percent between 1950 and 1961, in- fluenced by the expanded use of the tractor, while output increased by about the same amount. 6/ It actually fell from 1950 to 1955 and only regained the 1951 level in 1958. James E. Blalock, Capital and Finance in Turkish Agriculture, 1971, p. 7. - 182 - CHART 14 AGRICULTURAL PRODUCTION INDICIES 1961-65=100 Indlicies 170 160 Export Crops 1600 150 140- Total Agriculture / 130 120 Per Capita Food 110 **., .* 100 "*a 90 1 1 I l i j | 1963 64 65 66 67 68 69 70 71 72 73 Years World Bank-8057(R) - 183 - Table 44 INDEX OF VALUE ADDED AND GROWTH RATES IN AGRICULTURE BY MAJOR SECTORS, 1962-72 (1968 prices) 1962/1972 Compound Annual Growth Rate Total 143 3.3 Agriculture 141 3.2 Forestry 284 10.0 Fisheries 220 7.5 Within agriculture the dominance of crops over livestock increased, but the relative place of cereals in the value of production fell substan- tially. Since cereals and livestock account for half the value of output and therefore half the farm income, this has meant slow income growth for a large segment of the farm population, especially in regions where these are the main activities--the Anatolian plateau and the Eastern region. The growth which did take place has tended to be concentrated in the coastal areas, especially the broad valleys opening onto the Mediterranean and Aegean Seas. Table 45 RELATIVE SIGNIFICANCE OF AGRICULTURAL SUBSECTORS Share in Production 1962 1972 (% of total agricultural Index of Output production) 1972/62 Total agriculture 100 100 141 Livestock 31 30 132 Crops 65 68 147 (% of total crop pro- duction) Cereals 47 41 129 Industrial crops 22 26 174 Vegetables 4 5 170 Fruits and nuts 18 20 162 Grasses and hay 5 5 156 Source: Derived by SPO Production Value Statistics. C. Performance by Key Commodity Categories Cereals The area under cereals expanded rapidly from 8.2 to 12.1 million hectares between 1950 and 1955, rose gradually to almost 13 million hectares by 1960, and stabilized at around 13.3 million hectares during the 1969-72 - 184 - period. The importance of crops has increased relative to livestock;7! wheat increased its relative significance among cereals (Appendix Table 7.2), rising to 65 percent of the cereals sown area in 1971. The area devoted to other cereals, primarily barley but also including rye, maize and oats, declined from a peak of 5.2 million hectares in 1960 to a current level of 4.8 million hectares. This expansion was the dominant reason why cereal production nearly doubled from 9 million tons in 1950 to 17.5 million tons in 1970.8/ Yields in 1970 were only 28 percent higher for wheat and 21 percent higher for other cereals than they were in 1950, which meant that over two decades about 80 percent of increased grain production was due to increases in area and only 20 percent to increases in yields. Moreover, cereal yields fluctuate sharply in Turkey (Chart 14) because most of the grain is grown in marginal rainfall areas and because the timing and amount of rainfall are major factors affecting annual yields. Their irregularity lends a strong element of instability to total agricultural production and to the income of farmers in the nonirrigated, low-rainfall areas. Industrial crops and oilseeds Industrial crops and oilseeds have dissimilar area, yield and pro- duction trends (Appendix Table 7.2). With the exception of tobacco and very recently oilseeds, there has been no significant change in the area under these crops since the mid to late 1950s; but sharply differing yield trends (Chart 16) have produced different production patterns (Table 46). The tobacco area grew from 130,000 hectares in 1952 to 336,000 hectares in 1971, but yields declined by one-third to less than 500 kg. per hectare. The sugarbeet area rose sharply from 48,000 to over 200,000 hectares during the 1950s but fell back to 103,000 hectares in 1969. Yields have risen rapidly in recent years to nearly 40 tons per hectare. The area devoted to cotton has stayed around 650,000 hectares throughout the 1952-72 period (Appendix Table 7.2), but yields have been rising since 1960. Irrigation and fertilizer have been the dominant factors accounting for growth of both cotton and sugarbeet yields, as production of these crops has shifted to irrigated land during the past two decades. 7/ When output is measured in 1971 prices, the value of livestock production and its relative share in total production is considerably larger than when 1968 prices are used because of the sharp rise in livestock prices relative to other farm prices. 8/ Wherever possible, yield and production comparisons are based on five- year averages to reduce the impact of large, annual yield fluctuations. Thus, 1950 is the average of 1948-52, 1960 the average of 1958-62 and 1970 the average of 1968-72 or 1967-71. - 185 - CHART 15 INDEX OF WHEAT AND OTHER CEREALS YIELD 1948-52 100 INDEX 1 40 WHEAT -OTHER CEREALS --- - - WHEAT TREND 1948-52-1968-70 WHEAT TREND 1948-52-1958-62 and 1958-62-1966-71 - - - - -WHEAT TREND 1948-52-1967-71 1950 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 1971 Growth res are based on terminal year five year averages 1970 is the average of 1966-70 and 1971 the average of 1967-71. 1950 is the average of 1948-52 and 1960 is the average of 1958M62. Accurate 1972 yield and area data are not available. World Bank-8058(R) - 186 - CHART 16 YIELDS OF INDUSTRIAL CROPS, 1950-1971 Kilograms Per Hecture Tons/Hecture "O 100 TOBACCO *5 Left Scale/ * SUGAR BEETS 25 Right Scale OF* 5*. . . COTTON LINT Left Scale 2001 1950 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 1971 World Banik-8059(R) - 187 - Table 46 PRODUCTION OF MAJOR INDUSTRIAL CROPS 1957-1972 (Thousand tons) 1957 1960 1965 1970 1972 Cotton lint 135 175 325 400 544 Cotton seed 270 305 527 640 870 Sunflower seed 95 123 160 375 560 Total oilseeds 471 552 792 1,120 1,535 Sugarbeets 2,206 4,385 3,421 4,254 5,896 Tobacco 123 139 132 149 173 The area under oilseeds remained nearly constant between 1952 and 1965 (Appendix Table 7.2) but expanded to over 1.2 million hectares by 1972, primarily reflecting an increase in the area producing sunflower from 94,000 to 393,000 hectares. Oilseeds yields rose only moderately, however. Fruit, nut and vegetable production The combined value of fruit, nut and vegetable production in 1972 (at 1971 prices) was almost half the value of livestock production and one- fourth the value of total crop production. The output of fruits and nuts fluctuates annually, however, because of the nature of the crop. The annual production values of grapes, hazelnuts and olives each exceed those of tobacco or sugarbeets, while crops with lesser but still substantial annual value include tea, apples and melons, followed by other fruits and nuts, including citrus. The combined area of vineyards, fruit trees, olive groves and vegetable increased from 1.7 to 3 million hectares between 1952 and 1972.9/ Except for olives and figs, the yields of most fruit, nut and vegetable crops increased from 30 to 60 percent over that period, which was substantially greater than the case with cereals. Livestock Analysis of what has been happening in the livestock subsector is hampered by data which are weak and conflicting. For example, the State Planning Office (SPO) has developed estimates for the 1962-72 period but not for earlier years--estimates which show much more rapid output increases during 1968-72 than do those of the State Institute of Statistics (SIS). Between 1952 and 1959 livestock numbers increased rapidly in sheep more than cattle, but growth during the 1960s has been extremely slow (Appendix Table 7.4). Total milk production from all animals increased from 3.5 to 4.3 million tons between 1952 and 1971 or just over one percent an- nually, but yields increased by only about 0.5 percent annually (Appendix Table 7.4). Municipal meat slaughter increased 3.6 percent annually from 1952 to 1971 but with higher rates in the 1950s than for later years. / The Turkish statistics there are not included in the cultivated area. - 188 - This general picture closely parallels the slow increase which has typified feed supplies. During the 1950s livestock expanded on the basis of open range grazing; but this area has been declining steadily since then, and feed grain output has remained at about 6.5 million tons since 1958. SPO estimates of the rates of growth of livestock production show substantial growth of 74 percent during the 1968-72 period. Nevertheless, faster demand resulted in shortages of livestock products and rapid increase in prices of livestock and livestock products in the past five years. Table 47 SPO ESTIMATES OF THE GROWTH RATES OF PRODUCTION OF ANIMAL PRODUCTS DURING THE PLAN PERIOD First Plan, 1963-67 Second Plan, 1968-72 Estimated Plan Targets Realizations Plan Targets Realizations Average Annual Average Annual Average Annual Average Annual Items Rate of Dev. Rate of Dev. Rate of Dev. Rate of Dev. Beef, mutton 7.6 2.0 5.3 4.1 Chicken - 3.5 6.1 10.3 Milk 4.8 2.8 4.6 4.0 Eggs 11.1 1.9 6.9 7.2 Mohair 4.5 2.3 4.2 3.6 Wool 2.3 2.3 2.1 0.9 Total products 5.6 2.6 4.8 3.2 Fish Although fish products contribute less than one percent of total value added in agriculture, the industry is a growing one. Fish production is presently twice the 1960 level of 80,000 tons, nearly 70 percent of which comes from the Black Sea, 23 percent from the Marmara Sea, and the balance from freshwater fisheries. Exports have fluctuated greatly from a peak of 24,000 tons in 1956 to a low of 3,400 tons in 1963, but the normal average is about 7-10,000 tons annually. Forestry Forestry resources are large and consist of some 6 million hectares in high forest, 4.7 million hectares in degraded high forest, and about 8.3 million hectares in coppice. The annual volume of production is reported to be growing at 25 percent of which the major share is in industrial wood and secondary by-products but only 2 percent fuel wood. By comparison, the value of production during the First Plan grew by 7 percent per annum and by only 5.3 percent during the Second Plan. Large-scale development projects have been implemented to increase production of timber, paper and paper board. The public sector created all such large production units until 1964, but since then private sector activities have increased in all branches except pulp and paper. Government forest development policy and objectives have been to preserve and manage the State forests and to attend to the social welfare of the 12 million forest villagers. Forest management is good; out of twenty-four - 189 - forest conservation areas in the country, twenty-one have been inventoried. High forest surveying has improved, but demarcation and registration have lagged. In general, conservation rather than production has tended to be the guiding principle. Forest road construction has progressed rapidly to over 50,000 km, and there is also a program of reforestation and erosion control. Forest raw materials prices and pricing systems are major factors hampering the export of timber products. Until recently the Ministry of Forests did not use consultants nor accept foreign investments, and this served to delay the transfer of modern technology. The future of forestry experts will depend on whether costs of production can be lowered, and this will partly depend on what role the private sector is allowed to play in the development of this resource. To summarize the broad influences responsible for recent sectoral performance, production increases in the early 1950s reflected increases in cropped area. Thereafter--i.e., from 1962 to 1972--extension of new area grew only 10 percent while output for the sector increased by 44 percent. While Turkey can probably continue to expand the total area under crops at an annual rate of about 0.5 percent, real development of the sector will depend on measures which increase the productivity of the land already devoted to agriculture. Recent experience with these is outlined in the section which follows. Table 48 LAND-USE CHANGES, 1952-72 (Million hectares) Vineyards, Meadows Waste, Cultivated Area Tree Crops, and Lakes and Total Sown Fallow Vegetables Pastures Marshes Forests 1952 17.4 11.8 5.6 1.7 34.8 13.5 10.4 1955 21.0 14.2 6.8 1.8 31.0 13.5 10.4 1960 23.2 15.3 8.0 2.1 28.7 13.1 10.6 1965 23.6 15.4 8.5 2.3 28.2 13.1 10.6 1972 24.5 15.9 8.6 3.1 26.1 13.1 18.3 D. The Use of Inputs, Services and Investment Fertilizers The use of fertilizers has shown particularly rapid expansion during the last two Plan periods which parallels the shift from extensive acreage to productivity increase as the major source of agricultural growth. In 1950 only 42,000 tons of fertilizers were applied, but by the beginning of the First Plan this volume had risen to 422,000 tons. The use of fertilizers tripled during the First Plan and then more than doubled again during the Second Plan, reaching 3.3 million tons by 1972. This development was sup- ported by both domestic production, which has grown from annual levels of 322,000 tons to 1.4 million tons, and imports. The latter amounted to 2.5 million tons in 1972. - 190 - Fertilizers have been an important factor explaining the rapid increases in productivity for cotton and sugarbeets over the past decade, but they have also contributed to higher cereal yields. In this latter case, the benefits have been largely confined to the coastal areas where there is adequate rainfall or where cereals can be grown under irrigated conditions and where improved varieties of wheat can be successfully introduced. In the marginal rainfall areas, fertilizers can bring about significant in- creases in yields only when the rainfall is favorable; such favorable weather and fertilizers are an important part of the explanation for the exceptional grain yields realized in 1971. Farm machinery There is extensive use of farm machinery in Turkey. The number of tractors in use remained fairly stable during the late 1950s and early 1960s, but in recent years this stock of equipment has been rising at a rate of about 10,000 units per year. The number in use reached 136,000 by 1972. At the same time there has been continuing increase in the number of iron plows and horse-drawn grain drills and roughly the same level of use of wooden plows. This experience tends to suggest that tractors have been augmenting animal power rather than replacing it on a major scale--an observation which is at variance with Government statistics which show a drop in the area cultivated by animal power (e.g., from 20 to 15.8 million hectares between 1963 and 1971).10/ Improved seeds Improved seeds are being distributed at an annual rate of 200,000 tons with new varieties of wheat making up 140,000 tons of this total and other cereals accounting for an additional half million tons. The Ministry of Agriculture is largely responsible for this activity, working through a National Improved Seed Committee which sets up annual requirements on a regional and crop basis. While cereals are clearly the overwhelming bulk of the improved seeds program, other crops which benefit include cotton, sun- flower, sugarbeets, sesame, peanuts, soybeans, grass and alfalfa. Plant protection The plant protection efforts have been substantial in recent years in dealing with losses from fungi, parasites, animals and insects, which have been estimated to reach TL8 billion per year. The Ministry of Agriculture's Plant Protection Department is now represented in sixty-four of the sixty- seven provinces, organized in ten major areas for field operations; there is also a nationwide plant quarantine network. Much of the plant protection work is done by crop spraying from private sector aircraft, but the technical specifications are provided by the Government. As indicators of the extent of the effort involved, about one million tons of seed are treated annually 10/ Part of the explanation may lie in the use of a fixed coefficient of 75 hectares cultivated per tractor in arriving at estimates of the area involved. Application of such a coefficient would automatically reduce the area of non-tractor cultivation when used with a growing number of tractors assumed to be in operation. - 191 - (equally divided between the public and private sectors), over five million hectares of field crops and 67 million trees are sprayed or treated, and 60,000 tons of crops are treated in warehouses. Grain storage Additional savings should be realized from the program of grain storage, cleaning and transportation begun in 1951. Much of this has been in the public sector under Soil Products Office (TMO) which, with external assistance, nearly doubled its 1953 storage capacity to about 2 million tons in 1972. Extension services Extension service activities are fragmented and spread among several Government agencies and State enterprises, but the system works with varying degrees of efficiency. Executive, regulatory and control activities are organized on a provincial basis, chiefly for the Ministries of Agriculture and Rural Affairs; and the Ministry of Agriculture has established one ex- tension division in each of the sixty-seven provinces and subdivisions in each of the 629 counties. The Agricultural Bank, under the Ministry of Commerce, provides extension in more than twenty provinces, and the Sugar Factories Corporation does also through its seventeen factories. Altogether some 7,000 Government agents are involved in extension work, but extension staff shortages are serious--the present ratio is only one extension agent for every 600-1,000 farm families. Furthermore, despite long-term efforts toward the objectives, there is not yet an agricultural extension service per se. Satisfactory coordination has not been achieved among the several Government agencies and organizations involved. Equipment and funds available at the field level are too limited. Agricultural research Agricultural research is carried out at over 120 research stations by Government ministries and universities and on experimental farms and ranches. Although no formal coordinating body exists and there is thus some duplication, there are exchanges of views, progress reports and evaluations of proposed development projects for cereals, horticulture, agronomy, livestock and mechanization. Recent plans call for aggregating research stations into large units on a regional basis and for taking a multi- disciplinary approach to problems. Unfortunately and perhaps because of its diversification and rapid growth, research has not been closely linked with extension work at the farm level. It should be particularly noted that both extension services and research are overconcentrated in relation to crops and to regions. The Sugar Corporation, for example, has an extensive and highly developed system of research on sugarbeets, soil samples and fertilizer and seed trials. Information needed to produce higher beet yields is rapidly disseminated to beet growers. There is also a concentration of research and extension efforts and services in priority coastal areas. - 192 - Agricultural investments The investments in agriculture by the public sector during the First and Second Plans are summarized in Table 49. Although the amounts shown rep- resent an increase of about 24 percent as between the two Plan periods, the share of public sector investment going into agriculture has been declining from about 20 percent at the start of the First Plan to 17 percent by 1967 and to less than 10 percent by 1972. Private sector investment has tended to run about 35-40 percent of public sector levels through the First and much of the Second Plan, but by 1972 it actually exceeded the public sector. The evident reason is the enhanced opportunities for private investment in agriculture in the wake of the technological improvements represented by irrigation and associated inputs. This also emerges in the breakdown of the public sector investment by major objectives, which shows that water and soils development and machinery and equipment accounted for more than three- fourths of such investment in both the First and Second Plans. Table 49 INVESTMENT IN AGRICULTURE BY MAJOR OBJECTIVES DURING THE FIRST AND SECOND FIVE-YEAR PLANS (1971 PRICES) First Plan 1963-67 Second Plan 1968-72 (TL million) (TL million) % Water and soils developmentl/ 7,600.9 52 9,561.0 51 Machinery and equipment 3,525.0 24 4,767.6 26 Research, publications and other services 595.3 4 792.3 4 Agricultural structures and marketing facilities 403.3 2 664.2 4 Seeds, orchards, etc. 306.5 22 351.2 2 Breeding stock 36.5 .2 47.2 .2 Forestryl/ 1,699.0 12 1,756.0 9 Fisheries 351.7 2 508.0 3 Other investments 56.9 .4 185.8 1 Total 14,625.1 100 18,633.3 100 1/ Machinery included. Source: SPO. E. The Impact on Labor Special mention should be made of the role of labor in the sector because the rural population is large and is rising--from 17.1 million in 1950 to 22.8 million in 1970. Rural population is not a measure of the agricultural labor force nor of the labor used in agricultural production, but the direction of change in the rural population may be as accurate an indicator as existing data on agricultural employment. If it is used to indicate labor's contribution to agricultural production, the growth in output of 3.6 percent annually between 1950 and 1960 occurred when rural population grew by 1.8 percent, which implies that labor productivity was - 193 - increasing at 1.8 percent annually. Similar comparisons for the 1960- 1970 period give 1.9 percent as the measure of productivity increase. But growth in rural population probably overstates the growth of the agricultural labor force and thus understates labor productivity. A - rate of growth in labor productivity of about 2.5 percent--somewhat higher than that suggested by rural population growth--may therefore be a better estimate for the past decade and a more reasonable approximation for the Third Plan than the high rate of 5.1 percent assumed by SPO. The rural population and agricultural labor force of most developed countries have tended to reach a plateau and remain there until well into the industrialization process; this is even more likely to be the case where rates of population growth are high, as in Turkey, despite efforts to induce reductions in the agricultural labor force. Agricultural unemployment was estimated at 8 to 10 percent during the peak season and 85 percent during the slack season in the First Plan; the Second Plan estimates were 9 and 77 percent respectively. A very detailed methodology, combining labor requirements for each major agri- cultural operation under differing methods (power sources) of production, was developed by FAO and Turkish authorities in 1963 to estimate labor force demand and supply in agriculture. This methodology produced the results for 1967-72 in Tables 50 and 51. Table 50 PEAK PERIOD (JULY-AUGUST) SURPLUS LABOR IN AGRICULTURE, 1967-72 (adults of both sexes in thousands) Year Demand Supply Surplus Number % 1967 9.173 10.083 910 9.0 1970 9.680 10.143 463 4.8 1972 10.025 10.138 113 1.1 Table 51 NET SEASONALLY REMOVABLE LABOR SURPLUS IN AGRICULTURE, 1967-72 (adults of both sexes in thousands) Seasonable Period 1967 1972 1. December - February 619 959 2. March - May 3.824 4.463 3. June 4.744 5.016 4. July - August 0 0 5. September - November 4.227 4.523 Source: Essays on Labor Force and Employment in Turkey, Duncan R. Miller (Ed.). On the other hand, by modifying the methodology to include other age groups and adjusting the work week, it has also been demonstrated that the situation in 1972 need not improve over that of 1967 and that the peak - 194 - season surplus could be 13 percent and the slack season surplus could be 61 percent of the total labor force in agriculture. General observation in- dicates a high degree of seasonal underemployment exists, but whether labor's marginal product could be removed from agriculture without reducing output is debatable. Labor time is consumed in the rural sector in a great variety of ways which are missed by the coefficients employed in the study cited, and many activities "employ" the rural population outside the strict production of crops. Agriculture or the larger rural sector will absorb the labor force which resides in it if wage rates are not kept high and if mechaniza- tion is not subsidized. Irrigation, which is also subsidized, can increase employment by increasing yields and the number of crops grown and by in- ducing more labor-intensive crops. Although large-scale irrigation projects, concentrated as they are in a few regions, have tended to use less labor- intensive methods in their construction, maintenance and operation as well as the availability of irrigation after the construction phase serves to concentrate the labor demand regionally. In those irrigated areas the demand for labor may rapidly rise above the local supply; and, if machinery is then subsidized, its acquisition costs may well be lower to an individual farmer than the costs of labor. A more regionally diversified irrigation program along with smaller-scale projects would use more labor in the construction and development stage and produce a less regionally con- centrated labor demand for the irrigated agriculture which ensues. F. Trade and Export Projections Following devaluation in the late 1950s, agricultural exports grew at about 6.5 percent annually, reaching US$ 607 million in 1972. In addition to these, US$ 168 million of processed agricultural products were exported. By 1972 the agricultural sector accounted for about 87 percent of Turkish exports, and the growth of agricultural exports exceeded plan levels for both the First and Second Plans. Exports are dominated by crops whose domestic prices are heavily influenced by Government policy. Exports of cotton, hazelnuts and tobacco (each exceeding US$ 100 million in 1972) accounted for 70 percent of agri- cultural exports. Cereals, raisins, olive oil and sugar accounted for another US$ 90 million. Both price and quantity increases accounted for the rapid rise in export value. Export prices have risen especially rapidly since 1968 (Appendix Table 7.19). The volume of cotton exports was especially large in 1970 and 1971, falling slightly in 1972, while record quantities of hazel- nuts, tobacco and raisins were exported in 1972 (Appendix Table 7.19). Previously burdensome stocks of many of these commodities have now been re- duced to fairly manageable levels. The devaluation at the end of the 1950s was an important factor explaining the growth of agricultural exports in the 1960s. From 1950 through 1960 export prices of most crops were well below domestic prices, but since 1961 export prices have been above domestic prices (Appendix Table 7.19) with the exception of cotton and hazelnuts in some years. Since 1968 the rise in exports has been paralleled by an equally rapid rise in wholesale - 195 - prices. Sugar and tea, however, are disposed of at whatever price is ob- tainable, and for these commodities the f.o.b. export price is close to or below the Istanbul wholesale price (Appendix Table 7.19). Despite rapid growth in Turkey's agricultural exports, the Government (SPO) has tended to underestimate growth possibilities and con- tinues to do so in future plans. The world demand for raisins, hazelnuts and similar speciality fruits and nuts is not strong but can be expected to increase as incomes grow. Despite the general assumption of an inelastic demand, research on export earnings indicates that "the foreign demand for Turkey's hazelnuts is elastic, and is probably more elastic now than it was during the 1950's."l1/ As the export of hazelnuts expanded and contracted in the 1960s, export earnings changed in the same direction but not to the same extent. The same appears true for raisins. Only minor downward adjustments in support prices seem necessary to ensure that Turkey remains competitive in these commodities. Based on past performance, little potential exists for expanding exports of figs and olive oil. Sugar is likely to be imported to meet rising demand. The quantity of tobacco exports did not change significantly during the 1960s, but quality problems associated with support-price policies continue to be major impediments despite the large export volume achieved in 1972. A flexible price-support policy based on quality would encourage tobacco exports at competitive prices, improve export prospects generally, and reduce stock problems. This is especially true since the consumption of lower-quality tobacco is increasing with changes in processing tech- nology and the increased production of filter-tipped cigarettes. Declines in cotton prices from their current high levels are anticipated in all commodity projection studies. Whether Turkey continues to export cotton lint or manufactured cotton products, its competitiveness partly depends on whether the present large, disguised subsidy through irrigation is continued. Future plans call for continued expansion of cotton on irrigated land, and there appears to be some chance of altering the present policy with respect to recouping irrigation costs. As discussed further below, the high returns from cotton on irrigated land (particularly after the recent price increases), which have induced farmers in certain areas to undertake their own land leveling, suggest that reasonably com- petitive production could take place without the present subsidy. Thus, continued growth in export earnings from the major export commodities can be expected, but it is reasonable to anticipate (as SPO does) that growth will not be as rapid for these commodities as in the past. Fruits, vegetables, livestock and forestry products have the largest potential for expansion. The major impediment with respect to fruits and vegetables is the inadequate marketing mechanism. Production 11/ Forker, O.D. Vol. Two, 1972. - 196 - potential is good; farmers have demonstrated considerable ability to move into available markets, including widespread development of inexpensive greenhouse production. Experience with the World Bank's fruit and vegetable export project further indicates that, under the conditions prevailing in Turkey, progress is likely to be slow without the support of a strong organization concerned with the specific problems of fruit and vegetable exports. The same tangle of regulations, incomplete marketing facilities and inadequate credit inhibits rapid movement into fruit and vegetable exports by the private sector. The prohibition of exports of livestock and feeds (oil cake, for example) should only be a temporary measure in view of the difficulty of controlling illegal exports and the comparative advantage that Turkey has in livestock production. Until domestic marketing improves, markets for livestock in the Middle East and in Europe are likely to continue to be more profitable for Turkish producers in regions closer to these markets than to the more-distant domestic market. Turkey's location and production conditions might also justify long-run, export-oriented livestock programs which depend partly on imported feeds. Up to now, the pricing system for forest raw materials has been a major factor hampering the increase of timber product exports, but recent developments in the forestry industry to change this may provide some im- provement in the outlook for exports. Nevertheless, the Third Plan projec- tions seem too optimistic. A fundamental shift is planned in agricultural exports. Compared with recent real growth of over 6 percent annually, agricultural exports are projected in the Third Plan to grow at only 2.8 percent (Table 52). Table 52 EXPORT ESTIMATES OF THE AGRICULTURAL SECTORl (TL million at 1971 f.o.b. prices) (% increase per annum) 2nd Plan 3rd Plan 1967 1972 % per annum 1977 % per annum (1) (2) (3) (4) (5) Crop production 2,582 3,476 6.1 3,990.6 2.8 Livestock production 288 126 -15.3 97.1 -5.1 Forest production 42 82 14.4 132.0 10.0 Fishery production 92 33 -18.3 52.5 9.5 Total 3,003 3,717 4.3 4,272.2 2.8 1/ The exports of tobacco, hazelnuts, dried figs, raisins, pistachio nuts and meat are included in the sector on foodstuffs. Source: State Planning Organization. - 197 - Export projections are not given in quantities, and the value projections (Table 53) were based on seriously underestimated exports in 1972. As a con- sequence, the 1977 level projected for the Third Plan (US$ 600 million) is below that actually achieved in 1972 (US$ 607 million). Table 53 PROJECTIONS OF EXPORTS, 1972-77 (US$ million) Third Plan Projections Mission Projections (1971 prices) (1972 prices) 1972 % growth 1972 % growth est. 1977 per annum actual 1977 per annum Cereals 16 17 0.1 36 20 -12.5 Nuts, fruits, vegetables 150 190 4.8 197 350 12.1 Industrial products 325 365 2.4 333 397 3.6 (Cotton) (191) (257) (6.1) (Tobacco) (131) (120) (-1.9) Animal and fish products 30 16 -8.9 36 79 17.0 Forestry products 4 12 26.0 5 16 26.0 Total 525 600 2.7 607 862 7.3 These modest growth projections in agricultural exports are based on the recognition that domestic demands are increasing and also reflect a policy preference for expanding industrial exports. Because it has been regarded as inconsistent to export oilseed cake when domestic livestock production is lagging, exports of these and similar products which can be used domestically are not planned. The major crop exports anticipated are industrial crops (primarily cotton), fruits, nuts and vegetables. Cotton lint export is expected to increase due to increases in production in spite of the expected growth of domestic con- sumption. Agricultural imports are expected to increase at an annual rate of 10 percent, but this is and will remain an insignificant volume. Such in- ports are planned to consist primarily of breeding stock, improved seeds and products not raised in Turkey. Caution with respect to agricultural exports is generally valid. The present boom in world agricultural export demand is likely to slacken off significantly in the next five years, and domestic demand is growing rapidly. However, only a fraction of many of the crops that Turkey has traditionally exported--hazelnuts, raisins, tobacco, etc.--is consumed domestically, and continued growth albeit with fluctuations can be expected. From a national self-sufficiency point of view, cessation of livestock and oil cake exports may be desired; but there are strong arguments to continue these exports until such time as they can be efficiently utilized within the country. Restrictions on their export in the past have simply resulted in illegal exports (livestock) or reversal of the policies (oil cake in 1973). - 198 - The Plan projections of forestry products seem somewhat optimistic in light of past problems affecting this subsector. G. Agricultural Policies The foregoing review of agricultural performance omits various policy aspects which have been important determinants of that performance and which deserve a more lengthy exposition. These include: (a) Irrigation--the importance of on-farm works and the need to complete existing irrigation projects; (b) Price Policy--the need to restructure pricing policies to encourage desired production patterns and to diversify (regionally and by commodity) agricultural investment; (c) Credit--increasing the amount of credit provided to farmers, in part by reducing the drain on credit availability stemming from existing institutional arrangements; (d) Agrarian reform--the scope for agricultural improvement for more effective implementation of agrarian reform intentions. The sections which follow discuss these in turn. H. Irrigation Irrigation has had important influence on selected aspects of recent agricultural performance though its benefits have been limited to selected regions and its potential for future development could be con- siderable. Large-scale irrigation is a recent--i.e., post-World War II-- phenomenon, and the ultimate physical scope is huge--5.5 million hectares are considered economically irrigable (out of 12.5 million hectares the Turkish authorities estimate can be physically irrigated). State-financed development projects amounted only to about 180,000 hectares in 1962, and the area under privately developed schemes probably exceeded this. By the end of 1972, however, the total area equipped for irrigation had reached 2.3 million hectares of which 1.1 million hectares were in the public sector and 1.2 million hectares in the private sector (Appendix Table 7.22). The current annual rate of irrigation development in the public and private sectors is now about 120-140,000 hectares, but utilization of this area lags seriously. Official reporting places the total area under full agricultural production in 1972 at 1.9 million hectares, or 400,000 hectares less than the area equipped. Benefits from irrigation have not been seriously analyzed, but studies indicate increases in average gross value of agricultural production of three times the level reached with dry farming. Full returns from irrigation are not being achieved because of poor preparation, deficient water use, inadequate on-farm development and insufficient inputs other than water. Nevertheless, a number of benefits from irrigation can be - 199 - observed--modern technology has been introduced and new industries now supply irrigation structures and other production inputs, equipment and machinery. In many regions irrigated agriculture has brought about a definite and dramatic takeoff in economic development. Of special importance for the national economy is the fact that irrigation is available for about 67 percent of the sown area for industrial crops (mainly cotton, sugarbeet and sunflower), more than 65 percent of the vegetables area, 20 percent of the fruit area, and a small but growing part of the areas devoted to legumes and animal feed production. Only 2 percent of the cereal area is irrigated. DSI and Topraksu--the institutional structure Major irrigation development is the responsibility of the General Directorate of State Hydraulic Works (DSI), a part of the Ministry of Energy and Natural Resources. The General Directorage of Soils and Water (Topraksu) under the Ministry of Rural Affairs is responsible for minor irrigation canals and drains and on-farm development. A number of World Bank reports have dealt in detail with the organization, structure and problems of these agencies, including a detailed study in 1970 contained in "The Development Prospects of Turkey," Vol. III, March 1971. The observations of this and other recent World Bank reports are not repeated here, but certain of the critical elements warrant continuing emphasis in the discussion below. The lack of coordination between DSI, Topraksu and the Ministry of Agriculture, each of which is involved in irrigation development but none of which is able or willing to take responsibility for the performance of irri- gated areas, has been strongly criticized in earlier reports; and various corrective organizational measures have been proposed. The essential problem accounting for the lag in on-farm work, however, seems to be that DSI, the strongest organization dealing with irrigation, receives the lion's share of the resources and has a strong bias toward large-scale projects with heavy engineering components. The resources it received from the Government far exceed those available to Topraksu, which is underfunded and understaffed; but the water charges levied by DSI recover nothing of investment, interest, planning design or supervision costs, and only half of the operation and maintenance costs. Even if the staffing and funding of Topraksu were improved to permit better performance in public sector on-farm development, the basic trends will probably continue--namely, the heavy unrecouped investment in irrigation development which limits resources available for projects outside the irrigated areas. There is no question that a major economic advantage is gained from irrigation. The expansion of private irrigation and the extensive land leveling and on-farm works being carried out presently by farmers at their own expenses in the Gediz plain testify to this. Under existing policies, however, the State will eventually do both irrigation and on-farm work at little or no expense to the farmer if he is willing to wait long enough--a practice for which there seems little justification in view of the large resources involved, the regionally specific benefits received, and the obvious need for resources in other agricultural subsectors. In 1968-71 80 percent of Topraksu's irrigation development invest- ment went to the Seyhan and Gediz project areas. In somewhat more precise terms, half the leveling in 1966-70 went to 152 farmers, adding an average - 200 - of about TL766,000 to each farmer's annual income. For the twenty-three largest farmers, the annual average income increased by over TL2 million. Because Seyhan is a Government project area, most if not all of this investment was financed through Topraksu's budget; all the work was carried out by public sector organization with large-scale, imported equipment. A different approach to on-farm development in the Izmir region outside the Government project area is of interest. There Topraksu provides technical assistance to farmers for planning and land improvement; and during 1968-71, the annual capacity for small-scale land leveling with domestically produced equipment rose to 11,940 hectares. Half of the equipment used is owned and operated by the private sector, and the total annual land-leveling capacity which is privately financed has now reached 60 percent of Topraksu's capacity for land leveling. Besides encouraging private investment and expanding the benefit from a unit expenditure by Topraksu, the system has encouraged the emergence of a domestic small-scale industry and has resulted in land leveling of much smaller farms than on Government projects as well as more employment of labor per hectare leveled. Extension of this system would free on-farm development from the present major restraint--the size of Topraksu's budget. If these on-farm costs and a larger share of irrigation costs were shifted to benefiting farmers, some of the resources now tied up in major Government irrigation projects would go to other regions and other projects--smaller-scale irriga- tion activities, livestock projects, soil moisture retention practices in dry grain areas, and the like. The same result would be achieved if on-farm work were paid for by the farmer, whether it was carried out by the private sector, Topraksu or DSI, except that in the latter case the scale of operation would probably remain large and the impact on local industry would be smaller. A reason for lags in the completion of on-farm works is the structure and staffing of DS. Staff and operational costs absorb a disproportionally large portion of its budget, leading to pressure on funds available for works. When new projects are considered, a clear delineation between the various elements of investment costs should be made to insure that funds needed to complete projects are not absorbed by staff and operational costs. Completing existing projects should be given first priority before new large-scale projects are undertaken. This need is recognized in the Third Plan, and strong efforts to meet it should be made. I. Price PolicV Forces of supply and demand play a limited role in determining agricultural prices in Turkey because agricultural commodity prices like many other "basic goods" are under comprehensive price support and control by the Government. They include wheat, sugar, hazelnuts, raisins, tea, tobacco and others. The objectives of the pricing policy are social as well as economic, and they are administered through complex and multi-institutional structures. The primary objectives appear to be: (a) maintain low, stable and regionally uniform food prices for consumers; (b) support incomes of producers. - 201 - The stated objective for intervention in wheat is to maintain a low, stable, uniform consumer bread price and a stable and nationally uniform producer price. Intervention in other crops is in order to support the producer prices. Direct intervention is not practiced for fruits and vegetables and livestock feeds, but their prices are influenced by inter- vention in other product prices. Minimum support prices are specified by a decree from the Council of Ministers. The decision is influenced by the recommendations of the Ministers of Commerce and Finance, the SPO and the relevant agencies. Ultimately the decision is strongly influenced by political considerations. The appropriate agency is then directed to offer to buy all available quantities at the established price. The Government agrees to provide the funds for these purchases and to cover all operating losses of the agency through short term loans supplied through the Central Bank or Agricultural Bank. The principal organizations and their agricultural price intervention activities include the following (Chart 18): The Soils Product Office The Soils Product Office (TMO), a State Economic Enterprise, is responsible for supporting the producers' price and for maintaining retail prices of wheat and other cereals by purchasing all offered supplies at the' established price and selling them with a fixed margin. TMO announces purchase prices of commodities before harvest and purchases any amount offered at the established prices. A selling price is also announced at the same time, applicable to municipalities and villages with a small margin above the purchase price (currently 10 percent). TMO also handles all imports, storage and distribution of cereals, including those under U.S. PL 480 aid. TMO's purchases, which consist mainly of wheat, have typically been less than 10 percent of total annual cereal output in recent years (between 0.6 to one million tons), and only 50-60 percent of its annual storage capacity of 1.8 million metric tons have been used. The remaining trans- actions are undertaken in the private sector. TMO's support prices in recent years have tended to be below market prices, though they apparently have been above farm gate prices. Because of TMO's dual objectives of price support and price control, the operating expenses are not fully covered by the margin between purchasing and selling prices; the operating losses are financed by the Government. Operating expenses are burdened by the need to meet transport and storage costs which the private sector has no incentive to carry due to small price difficulties. It is generally recognized that operating margins would need to be doubled if this organiza- tion were to be financially self-supporting. The Sugar Factories Corporation The Sugar Factories Corporation is a long-established and powerful State Economic Enterprise (SEE) and by contract with growers has a monopoly on sugarbeet purchases, sugar processing and retail sugar sales. The Council of Ministers establishes producer and retail prices. The differential between the sugarbeet and retail sugar prices is supposed to permit the Sugar Corporation to operate at a profit and pay the tax on sugar sales - 202 - (TLO.80 per kg), but the Corporation operates at a loss which accumulates in the form of outstanding loans with the Central Bank. The financial account of each of the activities of the Corporation does not seem to be clear because it is engaged in a wide variety of activi- ties in addition to sugar-related industries, such as livestock fattening, poultry, dairying, research and extension. It is, therefore, difficult to identify the origin of the overall financial losses of the Corporation. Turkish State Monopolies Turkish State Monopolies function in pricing and marketing of tea and tobacco. The tea monopoly has been reorganized in 1973 into a separate SEE and is expected to operate similarly to the Sugar Corporation. In the past the monopolies had mainly concentrated in supporting producers' prices through substantial public subsidies--a pattern which resulted in over- supply, high prices and accumulation of stocks at Government cost. Meat and Fish Corporation (EEK) The Meat and Fish Corporation (EEK) is also a SEE. It operates as TMO and the Sugar Corporation but exerts considerably less influence in the livestock sector, in part because it has fewer resources at its disposal. Since its establishment in 1952, it has constructed slaughter and meat- processing plants in six locations but has had considerable managerial difficulties, excess capacity and high operating costs. Thus, it has occasionally been unable to accept all animals supplied to it and has had little influence in increasing meat output. In line with Government policy to prevent meat prices from rising, the Corporation has imposed price ceilings on meat animals accepted by it. Meat retail prices have been con- trolled not by EEK but by the municipalities. In June 1972 meat price controls were centrally removed, but some form of municipal control may have continued. Sales Cooperatives Sales Cooperatives are essentially Government organizations whose managers and staff are appointed by the Ministry of Commerce but whose membership is voluntary. They can influence price intervention for cotton, hazelnuts, pistachio nuts, grapes, dried figs, olive oil and sunflowers. In the process of price intervention, the Union of Cooperatives for each respective commodity concerned acts as an agent for the Government by purchasing all quantities offered at the intervention price by both members and nonmembers, handling, storing and selling the product. The Government specifies the intervention price, and the Agricultural Bank extends credit to the Union of Cooperatives to cover purchase and operating costs while any operating losses are borne by the Government as in the case of TM0. No direct price intervention is undertaken for fruits and vege- tables and for most livestock feeds. However, prices of livestock and live- stock feeds have in the past been indirectly affected by the controlled retail prices of livestock products and meat animals. - 203 - Producer prices The "Prices Received by Farmers" in district markets have been published in Turkey since the 1930s (Statistical Appendix, Table 7.14).12/ These, however, are district market prices and can be assumed to exceed farm gate prices. A series of "crude" farm prices contained in the recently published results of the 1970 census (Statistical Appendix, Table 7.15) show farm prices at 10 to 20 percent below district market prices for most commodities. The relationship between aggregate farm prices (wholesale) and the general level of wholesale prices over the past two decades has been close, but the relationship between the prices of different farm products has not. Between 1954 and 1964 the index of agricultural product prices rose no faster than the general price index. The former rose considerably slower than the implicit GNP deflator; during the 1965-69 period it rose slightly faster but fell rapidly behind after 1970. There appears to have been no evident link between changes in the prices of most farm products and changes in domestic production. For example, wheat prices increased 27 percent in 1957 at the same time production in- creased 30 percent; but in 1959-60 wheat prices continued to increase at averages of between 15 percent and 20 percent annually when production was down, thus partially catching up with the rapid increases in general prices between 1955 and 1959. For other years between 1953 and 1960, wheat prices either increased about 5 percent a year or did not increase at all despite sharp annual changes in domestic production. This behavior of wheat prices was significantly influenced by Government intervention, which included the importation of U.S. PL 480 wheat to stabilize prices. Turkey has received US$ 650-700 million in food items under U.S. PL 480 since 1954 when the program was introduced, and wheat has accounted for over 60 percent of these imports. Nevertheless, the area in production of wheat expanded rapidly throughout the 1960s. But given the significant percentage of total living cost devoted to these commodities, particularly wheat and its contribution to the food price index, U.S. PL 480 commodity imports contributed to the lag in food prices and general price stability. Barley prices also exhibited the same lack of correlation with annual changes in production, although intervention was minimal; but barley prices consistently rose faster than wheat prices. This suggests that stabilization of wheat prices by the Government may have influenced the prices of other cereals. As Table 54 and Chart 17 indicate, prices of commodities subject to intervention have generally risen less than prices of commodities which are not. Crops which receive support usually loom large in total land use, either in the country as a whole (wheat, cotton and sugarbeets) or in specific 12/ These prices are collected on the "fifteenth of the data collection month" (six times a year)and are the "prices of crops sold by the villagers at the district markets." The published series is the "yearly average" of these data. Tarmisal Yapi Ve Uretim 1969, State Institute of Statistics, Turkey, Ankara 1971, p. v. - 204 - regions (tea and hazelnuts). The generally lower prices of supported crops may partially reflect the fact that the organizations which implement support programs are powerful enough to ensure that input flows and price/cost rela- tionships are so structured that the desired level of output is forthcoming. In contrast, credit, fertilizer, marketing facilities and other resources tend to be less available to those sectors not associated with such institutions. Table 54 INDEX OF 1972 PRICES OF MAJOR SUPPORTED AND NONSUPPORTED AGRICULTURAL PRODUCTS COMPARED WITH 1963 Supported Crops Nonsupported Crops Wheat 167 Barley 202 Sugar 141 Corn 175 Hazelnuts 139 Beans 276 Raisins 151 Lentils 254 Figs 209 Potatoes 139 Tea 88 Mutton 296 Tobacco 148 Beef 296 Olive oil 189 Butter 218 Cotton lint 186 Cheese 238 Cotton seed 147 Eggs 204 Milk 145 Sunflower seed 188 Source: Ministry of Commerce. One effect of TMO's operations may have been to retard productivity increases in wheat production and possibly other subsectors as well. Some of the land devoted to wheat could have produced livestock feed which could have brought some lowering of relative prices and thereby facilitated the growth of livestock products. The consumer price of bread has been kept down but so has the producer price. As a consequence, TMO has been a major drain on the short-term credit supply without serving as a force to promote tech- nological improvement. If wheat prices had been higher, this might have stimulated greater productivity gains in that crop. Sugar and cotton provide a case where rapid productivity gains have been achieved while producer prices have declined or remained low in real terms. The prices of these and other export crops are evidently influenced by world prices, but the interplay of causal factors here is obscured by the large element of subsidy these crops have received through publicly supplied irrigation and low fertilizer and machinery prices. The impact of this subsidy is demonstrated by cost and income data for cotton in the Seyhan Irrigation Project (Table 55). Despite the slow growth in cotton prices, net returns from cotton are substantial, primarily because of the insignificance of the water charges. Since irriga- tion is a major factor permitting increased use of fertilizer and machinery, both of which are also subsidized, producers of these crops have a double advantage. - 205 - CHART 17 INDEXES OF SELECTED AGRICULTURAL PRICES 1955 - 1972 g957 I Il l i I il l lIl l 1 1 1 "LIVESTOCK I 700 - 600- GNP DEFLATOR 500 soo - - / * E 500 . WHEAT *. SUGARBEETS 300 100 11111 1955 1960 1965 1970 1975 Source: 1955-66-TURKIYE THRIMINDA GELISME EGILIMI...193846. ANKARA 1968 196749-TARIMSAL YAPI VE URETIM 1969, ANKARA 1971 1970-72-DERIVED FROM MINISTRY OF COMMERCE INDEX (1963 BASE) BY RAISING THIS INDEX BY SAME PERCENTAGE World Bank-8116(R) - 206 - CHART 18 DIAGRAMATIC SKETCH FOR FUNDING DOMESTIC PRICE INTERVENTION PROGRAMS'l GOVERNMENT m mmmmm CENTRAL AGRICULTURAL TREASURY m BANK BANK SOILS PRODUCTS SUGAR FACTORIES MONOPOLIES UNION OF SALES OFFICE COMPANY COOPERATIVES WHEAT SUGAR BEETS TOBACCO HAZELNUTS OTHER CEREALS TEA COTTON o OPIUM RAISINS FIGS OLIVE OIL PISTACHIO MOHAIR SUNFLOWER SEED Underwrite Loss (through debt consolidation) seasassassassassassasses Rediscount privilege intervention Fund Credit This diagram covers the extension of credit only. In addition the Government makes a direct budget allocation to support some of the costs of the State Economic Enterprises. The Monopolies Organization was reorganized in 1972-73 into separate organizations for tea and tobacco. World Bank-8060(R) Table 55 PRODUCTION COSTS, GROSS INCOME AND NET RETURN PER DECARE OF COTTON, SEYHAN IRRIGATION PROJECT 1968 1969 1970 1971 Production Costs Rent 103 103 120 172 Fertiliter 48 73 63 97 Land preparation 36 18 13 40 Seeding - 12 8 17 Weed control 49 44 40 61 Irrigation 26 26 29 36 Insect control 51 80 52 126 Harvesting 77 82 120 173 Total 390 439 445 722 Gross Income 580 656 953 1,357 Net Return 190 217 408 635 Source: Seyhan Irrigation Project, Stage II, Extension Service Annual Report for 1971, pp. 30-34. The prices of cotton and tobacco relative to wheat have declined significantly, but the provision of irrigation has allowed cotton to remain profitable and competitive with world prices. In the case of tobacco, however, price inter- vention has produced a deterioration in quality and declining yields. Regional prices Retail prices of agricultural commodities are quite uniform among regions. Government provision of wheat, sugar and tea at fixed prices and of municipal control of meat prices was to ensure more uniform national prices. There is, however, a noticeable area of low beef prices in the central and eastern parts of the country near production centers; but higher prices prevail in the western half and around the northern and southern boundaries. Producer price data indicate even greater national uniformity than exists for retail prices. J. Effects of the Price Policies and Their Implication Because of the complex mechanism in the pricing system, the multiplicity of the Government's objectives in price intervention, and interactions among these aspects, it is practically impossible to quantita- tively measure the net effects of the price policies. Nevertheless, a number of broad generalizations may be pertinent. The price policies in general have permitted if not actually encouraged rapid output increases in the export crops, sugar, fruits and some vegetables. These policies have also contributed to general stability - 208 - in the prices of grains and nuts, both of which are seasonally inherently unstable and from year to year. Against these advantages must be weighed the generally slower growth of food production, especially in livestock; limited productivity gains in food crops and livestock; the more-rapid price increases for non-intervention crops; and the poor quality and costly surplus disposal problems for such crops as tea, hazelnuts and tobacco. The rapid expansion of sugar production has forestalled sugar imports, and cotton exports have contributed substantially to export earnings. These earnings and savings are probably somewhat misleading, however, because of the existence of disguised heavy public irrigation subsidies which, in turn, have high opportunity costs. Although seasonal and year-to-year stability of farm prices is generally considered desirable, the effect is a highly unstable income for many of the producers in the case of cereals, fruits and nuts. A uniform price for.wheat by region and season penalizesthe producers of high-quality hard wheat on the plateau while it gives an unwarranted advantage to pro- ducers of lower-quality wheat in the coastal areas. Favorably situated farmers--i.e., those in plentiful and more-reliable rainfall areas or where irrigation has been provided--obtain both higher and more-stable yields. They benefit from their location and from subsidized irrigation and inputs, but they are also the prime beneficiaries from price supports.13/ The absence of price differentials between regions also inhibits investment in storage and transport facilities by the private sector and regional specialization of commodities. The practice of announcing the support price for most crops at or near harvest time rather than at the time of sowing does not induce more-efficient resource allocation to alter production patterns. Greater regional and quality price differentials and greater price flexibility in general are required as long-term solutions. This has often been advised. Two considerations, however, make these impractical as short-run measures, particularly in expanding livestock production or in increasing fruit and vegetable exports. First, the deeply entrenched nature of price intervention and its heavy political content and the strong predilection for maintaining parity relationships among commodities and national price uniformity make it unlikely that any major freeing up of prices would be possible in the short run. Even if it were attempted, the result could be considerable short-run confusion. Second, the strongest among existing public sector institutions tend to do a creditable job of channeling resource and service flows into agriculture and products out of it for their special clients despite price distortions, regulations or market inefficiencies. 13/ Wheat farmers on the plateau may obtain one ton of wheat every other year from one hectare while those in the Chukarova or Gediz valleys may obtain two to four tons per year from one hectare. TMO's purchases have been especially heavy in the coastal areas where wheat quality is generally lower. - 209 - A more practical way of achieving short-run improvements in selected sectors may be to develop or increase the relative strength of institutions serving the subsectors where stimulation is desired while at the same time doing whatever is possible to bring about more desirable overall price relationships. In the livestock subsector, for example, recent rapid price increases have helped improve the command over resources flowing to that sector. But marketing and processing bottlenecks still exist, and the incentives to produce livestock feeds are low because of the present price-support policies for crops that compete with feed crops. If sufficient incentives for rapid development of private sector processing and marketing cannot be provided but if it is also desired that livestock output should grow faster than output in other subsectors, more financial and human resources could be transferred to the Meat and Fish Organization. Alternatively, the present successful livestock-fattening operations of the Sugar Corporation could be expanded. Special incentives could also be provided which induce the production of feed supplies until such time as the broader price-policy problems can be resolved. Such a system obviously carries with it the risk of further compartmentalization in agriculture and delays needed changes in the general price and incentive structure. But, given the deeply entrenched price intervention and compartmentalization which already exist, some inter- mediate approach is needed to achieve short-run resource reallocations while developing more flexible and effective long-run price policies. K. Credit The trend in the allocation of credits to both private and public sector agriculture reflects the emphasis on industrialization in the planned development strategy of the country and in the major role of the public sector in fixed investment. From 1963 to 1971 18 percent of increases in outstanding credits was allocated to agriculture, compared to 45 percent to industry and mining. The Central Bank credit to agricultural agencies is determined primarily by the needs created by price-support policies and harvest surpluses. In addition, high purchase prices and inadequate margins to meet operating costs were responsible for additional borrowing needs of TMO and the Agricultural Sales Cooperatives, which administer the price- support program. Therefore, there has never been sufficient credit available to farmers for production purposes on reasonable terms, particularly to the small farmers. Private sector credit to agriculture is only partially reported, and public sector credit includes activities not directly related to the initial production of agricultural products nor to farming as such. The Central Bank and Agricultural Bank provide public sector credit to (a) farmers directly; (b) underwriting the operation of intervention agencies, especially TMO, the Tea and Tobacco Monopolies and the Agricultural Sales Cooperatives; and (c) the Sugar Corporation and Agricultural Supply Organization, both of which have large industrial components. Private sector investment, of course, comes from private banks and the traditional sources of rural credit which are difficult to measure, including merchants, traders and larger - 210 - farmers. In 1962 these sources probably provided 50-70 percent of agri- cultural financing.14/ The Agricultrual Bank, second in size to the Central Bank, provides almost all of the institutional credit available to farmers. It has some 750 branches scattered throughout Turkey and carries out a full range of banking activities. In March 1973 the interest rate on short-term loans made directly to farmers by the Agricultural Bank dropped to 9 percent from 10.5 percent, which had been the rate in effect since September 1970. Allowing for interest subsidy, this would mean an effective rate of 8 percent. Interest on medium-term loans was also lowered to 9 percent from 10.5 percent. (See Appendix 6.1 for other interest rates.) Productive "farm credit" is difficult to separate from the broader Turkish concept of "agricultural credit." Appendix 7.11 shows statistics on Agricultural Bank credit outstanding by functions for the period 1963- 1971. In 1971 outstanding credits from the Central Bank and Agricultural Bank to all activities connected with agriculture rose from TL3.4 billion in 1963 to TL16.4 billion. Private sector credit is not included. Agricultural credit provided directly to farmers by the.Agricultural Bank and the Agricultural Credit Cooperatives rose from an annual volume of TL2.1 billion in 1963 to TL6.7 billion in 1971--roughly half the total public sector credit supplied except in such intervention years as 1966 and 1971. The Agricultural Bank's outstanding credits (in current prices) are broken down according to length of term and function in Appendix Table 7.9. These outstanding credits rose from TL2.5 to TL11.5 billion between 1963 and 1971 and excluded those supplied directly by the Central Bank and the small fraction of credit provided by the Sales and Credit Cooperatives from their own resources. When these outstanding credits are deflated to eliminate the effect of price changes, the amount of credit to the agri- cultural sector in real terms reached a peak in 1956 and did not regain that level until 1966. They then doubled between 1965 and 1969 or 1970 but declined thereafter. The increase in agricultural credit after 1963 was associated with a heavy concentration on short-term credit; short-term loans were 58 percent of the total in 1961 and 84 percent in 1970. When considered according to function (Appendix Table 7.11), the supply of credit to farmers rose more slowly (300 percent) in current prices than the supply to other activities within agriculture (440 percent). There has been little increase since 1969 in the volume of outstanding credit which has gone directly to farmers, and this would even have fallen drastically except for the large increase in delinquent and foreclosed loans from TL529 million in 1969 to TL1.0 billion in 1970 and finally to TL1.3 billion in 1971. The major increase in credit outstanding from the Agricultural Bank and the Central Bank has been for Government intervention programs. The public sector provided relatively minor proportions of assist- ance in the form of credit directly to farmers or as investments which could 14/ Small Farmer Credit in Turkey, November 1972, p. 14, American University, Beirut, Lebanon. - 211 - be used by small farmers during the last two plans. Credit supplies have been eroded by intervention programs and investments tied up in irrigation projects and machinery. Aside from the need to increase credit resources for short-term production and for investment purposes, there is a need for institutional reform in the administration of agricultural credit programs. The Agricul- tural Bank's policies and lending operations should be tied closely to the overall priorities of Turkey's agricultural development program. Effective coordination with the activities of other agencies in the sector is needed, especially with the Ministry of Agriculture. Given the importance of agricultural credit, a study of overall requirements and policies, institu- tional and organizational arrangements for long-term agricultural development within the sectoral context would be desirable. Such a study is an element in the Bank's Fruits and Vegetable Export Project. L. Agrarian Reform Efforts at land reform in Turkey began with the adoption of the Swiss Civil Code in 1926, which legally ended feudal practices but did not eliminate large holdings, especially in the south and east. Land redistri- bution laws were enacted in 1927 and 1929, but little land was actually distributed. The laws were applied largely in the east where the Government used land redistribution as a device to break the power of tribal chiefs who led the Kurdish uprising of 1925. The Land Reform Law of 1945 called for a transfer of sufficient land to landless and land-poor peasants to provide them a living. Four million hectares, slightly more than one-fourth of the area then cultivated, were to be transferred to about one million peasant families. The land to be distributed was held by the State, by religious foundations, by municipalities, by large landholders and by unknown owners. Private holdings in excess of 500 hectares could be expropriated, and land- owners were to be compensated by twenty-year Government bonds. A bitterly contested article of the law provided that, in regions where these sources did not provide sufficient land for redistribution, smaller private holdings could be broken up. This provision was never implemented, however, and was finally annulled in 1950. From 1947 to 1967 almost 2 million hectares were distributed to 370,000 peasant families in accordance with the 1945 Land Reform Law of which about 1.8 million hectares, or less than half the targets in terms of land and number of recipients, were distributed by 1960. Clearly, land re- distribution had virtually ceased by the early 1960s. The State Planning Organization viewed land reform as essential if Turkey were to achieve its economic and social development objectives, but opposition from politically powerful landowners resulted in the deletion of any reference to it from the Development Plan. A resumption of modest land distribution, which began in 1967, reflected the land policy of the Justice Party Government to proceed with land distribution of the sort practiced in the 1950s; but it avoided controversial measures, such as the expropriation of large holdings. The existing landholding situation is still unclear because title to much of the land has not been registered and the cadastral survey is - 212 - proceeding very slowly. Appendix Tables 7.44 and 7.45 compare conditions in 1963 with those in 1970. Both sets of census figures show that a large part of the land--e.g., about 13 million hectares in each case--is unaccounted for. By 1970 about 4,000 farm units with holdings of 1,000 hectares or more were at one end of the spectrum. At the other end were 800,000 farm units with one hectare or less and another 600,000 units with between one and two hectares. Nearly half of all farms fall in these two latter categories but accounted for only 11 percent of the land covered by the 1970 census sample. This share of total agricultural land would have been much lower had the census included more areas in the southeast, where large ownership units are numerous. A further complicating factor is that the distribution of rights within families and the widespread practice of sharecropping probably tend to reduce the size of the units which are reported in the census. The 1970 census sample also excludes 408,000 hectares occupied by ninety-seven State farms and does not estimate the number of landless laborers. There are significant differences in landholding patterns among regions. In the fertile and generally well-watered alluvial plains on the Aegean and in the Chukarova on the Mediterranean, large landholdings are numerous. These regions have the most productive, innovative and commer- cialized agriculture in Turkey and have been the major beneficiaries of large irrigation projects. In the short run, one would expect land reform in these regions to depress output, although much would depend on how a land re- distribution was carried out. For example, factors, such as the size of the new units, the availability of credit, marketing and other supporting services, and the extent to which existing landholders were permitted to retain viable holdings, would affect the outcome significantly. Breaking up larger holdings would undoubtedly bring change to the pattern of agriculture, including crop selection; reducing the scale of operation would probably encourage more labor-intensive practices. Ownership units are also large in the dry area of the southeast, often running to several villages under one owner and with absentee land- lordism prevalent. Agricultural practices there are mostly traditional, and much of the land is sharecropped. Because these tenure arrangements pose a barrier to innovation and to increased agricultural productivity, land reform in this region should serve to raise output as well as contribute to a more viable social and political order. The need for supporting services there would be especially great because these services are not well developed at present and because farmers rely on the traditional landlord-merchant relationships for such services as they receive. Finally, around the Sea of Marmara and along the Black Sea coast, land is generally owned in smaller units of more nearly equal size. Land ownership on the Anatolian Plateau is also distributed in a relatively even pattern, but large units do exist. In addition to varied land ownership patterns, landholdings in most of Turkey are highly fragmented as a result of inheritance practices. Nearly all farm units (90 percent) consist of two or more parcels of land, more than half include six or more parcels, and about one-fourth have ten or more parcels. Parcels are often minute and located in scattered directions around the farm villages. There is obviously scope for improvement through consolidation, and the problems may be less than those encountered by a policy of expropriation and redistribution. - 213 - M. Current Land Reform Status After elaborate preparation, a draft Agrarian Reform Law was published in 1972. It proposed sweeping reforms, including detailed land allocations by province, methods of implementation and establishment of supporting services. The total cost of the reform--including expropriation and fully developed services--was given in 1973 as TL33 billion. A total of 3.2 million hectares was to be redistributed of which 830,000 hectares were to be obtained through expropriation and the remainder from land presently owned by the State. Beneficiaries were to total about 540,000 farm families. The reform was carefully designed; but, after publication of the draft Law, a series of modifications was made which reduced the significance of the reform--primarily by allowing larger holdings and increasing the speed and size of compensation payments. The Turkish National Assembly passed the Land Reform Bill on June 13, 1973, but in still further watered-down form. Maximum limits of 30 to 101 hectares were established for irrigated land, and 48 to 202 hectares for unirrigated land--the limits varying according to climate and soils. A crucial modification was introduced at the last minute which permitted "model farms" (any farm with yields 10 percent above the average yield in the area) to retain twice the stipulated limit. In October 1973 the Government announced Urfa in the southeast as the first province in which the provisions of the Law are to be applied. The future impact of the new Agrarian Reform Law is difficult to determine because it is not clear how fast, how completely and with what level of funding it will be carried out. Over TL9 billion is to be ear- marked for the reform during the Third Plan. This would be 27 percent of the total amount of agricultural investment; and commitment of such a sum or a larger sum to land reform, if made, may have to be at the expense of investment in agriculture or general investment. As noted above, the 1970 Agricultural Census has deficient data on large farm units--i.e., the farms from which much of the expropriated land would be obtained. It therefore seems likely that, as in the past, initial land allotments will come from Government land. It also seems likely that lengthy legal disputes will arise in the Cukurova and Aegean areas where rapid agricultural improvement has taken place in the past decade and where large-scale farmers can be expected to search for ways of subdividing their farms among family members to stay within the provisions of the law. The land reform implementation is expected to start in the Akcale town of the Urfa region and concerns 122 villages. Then would come the thirty-nine villages of Viransehir. Land registration and surveys throughout the Urfa region are expected to be completed in 1975. Land Reform without a heavy investment in associated services and a fundamentally different set of institutions to serve small farmers is not capable of producing rapid improvements in production. This is particularly true for the southeastern region. If the physical reform proceeds without the services, the production pattern is likely to shift toward one of self-sufficient farming. The draft Agrarian Reform Law stipulates that such services as cooperatives, extension and credit will be provided and that machinery will be established to resolve the intricate legal issues connected - 214 -- with land title, fragmentation and communal property. Nevertheless, it seems unrealistic to assume that these developments will proceed rapidly enough to. have much effect on overall production during this plan period. On balance, it appears that Agrarian reform is likely to proceed somewhat more rapidly than during the past decade, but firm estimates of the direction of movement and its consequences must await enough time to assess how vigorously the Government will press implementation of the Law. - 215 - PART III : MA JOR SOCIAL AND EC 0 N 0 MIC SECT 0 RS XI. INDUSTRY, MINING AND POWER A. Industry At the beginning of the fifties, the Turkish industrial sector was relatively small though the policy of "etatism" in the previous two decades led to reasonable growth. According to the 1950 Industrial Census, although the private sector accounted for over 54 percent of the value added in manufacturing and 67 percent of manufacturing employment, public enterprises predominated among the larger establishments. One hundred and three public sector establishments with an average value added of TL4.1 million contributed 58 percent of the total output of the larger establish- ments, whereas 2,515 private establishments with an average value added of only TL120,000 contributed 42 percent. Sumerbank had invested mainly in consumer goods, particularly textiles; but a substantial stake had also been acquired in cement and pulp and paper. Etibank had a quasi monopoly in mining. The State Coal mines in the Zonguldak region, the Karabuk Steel Mill, and the Divrigi Iron Ore mines represented potentially by far the most important State industrial complexes. One positive aspect of State manu- facturing activity was its regional diversification. This was partly due to the fact that many State industries are resource based (e.g., mining, steel and paper); but it also reflects a conscious Government policy to spread industry. The private sector was concentrated in Istanbul with secondary footholds in Ankara and Izmir, mainly in consumer goods industries. In retrospect and with some oversimplification, the period since 1950 may be divided into three stages of industrialization. During the first stage (1950-1962), the tendency was heavily towards import substitution; and the main emphasis was placed on new large projects in the State sector. MKEK, the Machinery and Chemicals Industry Organization, was formed in 1950, the State Nitrogen Corporation in 1954; steel, cement, textiles and paper production by State Enterprises was greatly expanded. However, aided by strong protectionism and the creation of the Turkish Industrial Development Bank in 1950, the private sector also made substantial progress. During the second stage (1963-69) the emphasis on import substitution continued, but export promotion measures were started and there was increasing concern about the inefficiency of State Enterprises. Within the last three years, the country has entered into a third stage of greater outward orientation. The main vehicles for this transformation are the 1970 devaluation which, coupled with rapidly accelerating inflow of workerstremittances, has eased the foreign exchange constraint; the Common Market Agreement; and expanded incentives. Industry, including mining and power, has grown at a rapid rate, accounting for about 23 percent of GDP in 1972 compared to 13 percent in 1950 and 17 percent in 1960. Of the total, manufacturing accounted for about 85 percent of value added and mining about 8 percent in 1972. The main manufacturing activities have been in traditional consumer goods: food, beverages and tobacco processing (accounting in 1972 for 37 percent of manufacturing production) and textiles (16 percent). During the sixties, however, modern industries developed fast (mainly basic metals, metal - 216 - products and machinery, chemicals and petroleum products) and now account for about 40 percent of manufacturing production. Growth was slow during the fifties but picked up remarkably during the sixties. Industrialization has been given high priority during the Plan periods, and industrial growth averaged about 10.5 percent during the First Plan and 9.8 percent during the Second Plan despite virtual stagnation in 1970. Industry has absorbed a growing portion of the nation's resources as the number and size of projects have been stepped up both in the State and private sectors. The share of manufacturing in total gross investment rose Erom 24 percent in 1962 to nearly 30 percent by 1972. As a result, Turkey has acquired a very diversified industrial sector. However, the growth of output and investment in industry has been accompanied by a high capital- output ratio and a slow growth of employment. Employment in industry increased to about 11 percent of total employment in 1972, compared to 8 percent in 1962. As a result of the rising investments per worker, output per worker has increased substantially (Table 3). The diversification of industry has implied a relative shift away from consumer goods industries with the major shift taking place to inter- mediate goods and the share of investment goods fluctuating. Changes in industrial structure are difficult to analyze because detailed data in noncensus years are available only for medium- and large-sized establish- ments and, more seriously, because after 1968 only gross output figures are available, even for the larger establishments. Based'on partial data, the overall changes in industrial structure are presented in Table 57. Table 56 INDICATOR OF INDUSTRIAL PERFORMANCE (INCLUDING MINING AND POWER) 1959 1962 1967 1972 Gross Industrial Product TL billion at 1968 prices 5.63 10.1 17.7 28.3 Cumulative growth rate over preceding years, % -- 5.5 10.5 9.8 Share of industry in GDP at current prices, % 12.9 17.0 19.8 22.9 at constant prices, % 16.6 16.2 19.5 22.6 Share of industry in gross fixed investment, %'/ 32.12/ 32.0 41.5 Share of manufacturing in gross fixed investment, %1/ 23.62/ 20.4 29.4 Industrial investments, TL billion at 1968 prices 0.4 2.7 5.4 11.0 Marginal capital-output ratio over preceding period 3.1 2.7 3.4 Industrial employment in thousands 995 1175 1519 Average annual increase in jobs over preceding period, in thousands 36 69 Share of industry in total employment, % 7.9 8.7 10.8 Output per worker, TL thousand at 1968 prices 15.1 15.1 18.6 1/ At constant 1971 prices. 2/ Figure for 1963. - 217 - Table 57 INDUSTRIAL PRODUCTION STRUCTURE (In percent) Survey Data Large and Medium Census Data Establishments 1950 1963 1963 1968 Consumer goods 67.8 50.2 51.5 50.1 Intermediate goods 21.3 31.6 33.1 38.1 Investment goods 10.9 18.2 15.4 11.8 100.0 100.0 100.0 100.0 According to the average daily wages published by the Social Insurance Institution, the overall wage increase has averaged 11.6 percent per year from 1965 to 1970 at current prices and 4 percent at constant prices. It seems to have slowed down in 1971 when the increase in money wages (11 percent) was less than the increase of the wholesale or consumer price indexes (16 percent and 21 percent). That tendency may have continued in 1972 when there were few major collective wage negotiations in manu- facturing. The average rise in real wages has been about equal to the average rise in output per worker in recent years. Gains in productivity are very difficult to assess; but, according to the available statistics, the average rise in value added per worker in industry has been about 4 percent a year during 1965-1971 (Tables 1.2 and 2.1). Industrial development policy The First and Second Five-Year Plans aimed at rapid industrializa- tion as the leading factor in sustained economic growth and as a means to absorb surplus manpower from agriculture and reduce dependence on foreign aid. In the pursuit of these objectives, industrial development policy has emphasized import substitution, and the policy tools have been high protec- tion and generous incentives for domestically oriented industry (see Annex 1 of this chapter for a discussion of protection and the incentives framework). The main results of this policy have been twofold: a fast growth in industries catering to the home market but sometimes at the expense of high-cost production and uneconomic size plants and, till recently, a slow growth of industrial exports. Turkey has achieved a high degree of self-sufficiency; industries, such as cement, oil, refining, steel, fertilizers, paper and road vehicles, have developed fast. The possibility of import substitution has now become very limited except in the area of semifinished and capital goods, where value added domestically is often obtained at a high cost and where the size of the domestic market is often smaller than the output. The case of road vehicle and tractor industries in the private sector is an example: about fifteen firms produce some 30,000 road vehicles and 15,000 tractors per year. The local content ranges between 55 percent and 75 percent of the value of production. Both public planners and private industries appreciate the importance of plants which are, from the economic standpoint, minimum- sized. Recently planners have aimed at minimum-size projects and relied on exports to absorb the surplus capacities above the need of the domestic - 218 - market (as is the case in planning the capacities of engine plants, the extensions of the Yarimca Petrochemical Complex or the proposed second. petrochemical complex in Aliaga). Inward-oriented policies have led to slow gro*th of industrial exports. Incentives for export-oriented industries in the mid-sixties were insufficient to offset the disadvantages of an overvalued currency, high costs of imported and domestic imports, and the insufficiently developed export channels. During the Second Plan period and particularly after the 1970 devaluation, industrial exports increased sharply (an average of 21 percent per annum over the Second Plan). But despite this, exports still accounted for only 2.6 percent of the value of manufacturing production in 1972. Industrial development policy also puts a strong emphasis on heavy industries and sector of advanced technologies as a base for future indus- trial growth. Thus, projects for an aluminum smelter, a third integrated steel mill, a petrochemical plant, a diesel locomotive factory and a shipyard were promoted in some cases despite economic disadvantages. While leading to a rapid growth of output, such a policy has implied, however, the development of industries in which Turkey has no comparative advantage (as in the case of the petrochemical industry, sophisticated machinery and vehicle production) and in which she may not be able to compete freely with the EEC. Certain types of industries deserve higher priority than they have been given. In particular, labor-intensive industries are potentially more competitive and can help cope with the problems of unemployment and regional underdevelopment. Industrial development should be further accelerated also in fields where the domestic market has a high potential growth, either to support the development of other sectors (e.g., ferti- lizers) or to improve population welfare as incomes rise (e.g., food, clothing, housing, furniture, household appliances, and so forth). Industries based on natural resources (minerals, woods, textiles) and their downstream processing can also be stimulated by measures ensuring adequate supply at low cost, including exploration and exploitation of the more economic mineral resources, improvement of forest management and access roads, and sawmill reorganization.l! Another policy objective is a better balance between regions in industrial development. The textile factories of Sumerbank have been spread in this manner; and other public sector enterprises have been established in various parts of the country, sometimes at a substantial cost to the economy (Chapter 9). Some specific investment incentives are granted on the basis of regional location. More and more enterprises choose locations outside the industrialized area of Istanbul in places where labor, utilities and land are cheaper; but this trend benefits the coastal areas and has not extended to central and eastern Turkey. Weak local administration and trans- port facilities as well as general life conditions reduce their attractiveness. An alternative to dispersion of industries, which is worth studying for its 1/ For a detailed discussion of developments and prospects of individual industries, see Annex II of this chapter. - 219 - economic cost, is the promotion of poles of industrial development, giving due weight to such factors as the proximity of raw material, supply and markets. Turkey has followed a system of a mixed economy since the thirties. At present, the public sector accounts for about 40 percent of value added in manufacturing industry and 80 percent in mining industry and has a virtual monopoly in steel, petroleum refining, fertilizers, petrochemicals, pulp and paper. It has also accounted for about 55 percent of industrial in- vestment during 1963-72. Most of these industries are operated by State Economic Enterprises (see below). As a general rule, the public sector enters fields considered of vital importance or where the private sector is unwilling to invest, either because of shortage of financing capacity or because of low financial return. The policy proclaimed in the Second Plan is to encourage the private sector to take over manufacturing in the long run. This seems to be the trend at present in some mixed branches, such as cement, earthenware, and textiles. Large enterprises with mixed capital have also developed. The role of foreign private investments in industrial development is limited. The policy is to accept them where there is a pressing need for technological transfer and only in sectors which could not be developed with local resources. The Government has declared its intention in 1972 to be flexible in its application of the rule requiring a minimum 51 percent Turkish ownership (public plus private), which was applied in 1971. Foreign direct investments in new industrial projects fell to nearly nothing in 1971, but extension of existing enterprises absorbed most of the $45 million of total direct foreign investment. Potential foreign investors are con- cerned about the long-term effect of declining protection and import liberalization on prospective profits in such industries as vehicles, machines and chemicals. Imports and exports As a result of the import substitution policy and the control system in external trade, the share of consumer goods in industrial imports has fallen considerably and that of intermediate and investment goods risen. By 1972 substantial import dependence existed only in machinery and transport equipment as well as in basic metals, chemicals and ferti- lizers. Together these groups accounted for over 90 percent of Turkey's industrial imports. Table 58 IMPORTS OF MANUFACTURED PRODUCTS (TL billion) Estimated 1963 1972 Consumer goods 0.3 0.3 Intermediate products 1.6 7.2 Investment goods 2.8 9.2 Total 4.7 16.7 - 220 - During the 1960s manufacturing exports lagged considerably behind agricultural and mining exports. Hence, their share in total exports declined from 25.1 percent in 1960 to 17.1 percent in 1970. Manufactured exports expanded at 3.9 percent during the first half of the 1960s but virtually stagnated during the second half of the decade. Since 1970 there has been a remarkable upsurge due to both the devaluation, which made the export incentives more effective, and booming world demand and prices. Manufactured exports in 1972 ($237.1 million) not only exceeded the Second Plan export target for manufacturers ($196.9 million) for that year but also the 1973 target ($233 million). The major growth in industrial exports in the last few years has been in textiles, food, beverages, hides and leather products, chemicals and petroleum products. Table 59 EXPORTS OF INDUSTRIAL PRODUCTS BY CATEGORIES (In million US$) 1951 1962 1967 1972 Olive oil 2.4 14.0 6.8 2.9 Sugar 0.2 7.9 n.a. 23.5 Oil cake 7.8 10.6 n.a. 28.0 Other agricultural items 10.1 2.8 n.a. 33.0 Textiles 0.9 2.0 3.1 54.8 Hides and leather products 0.2 -- - 0.2 21.5 Forest products -- -- 1.2 4.9 Petroleum products -- 6.1 0.4 22.7 Chemicals 3.6 1.7 3.2 10.7 Nonferrous metals 8.1 9.9 18.2 3.7 Other 23.4 17.8 48.1 31.4 Total 56.7 72.8 81.2 237.1 Even the 1972 export totals are exceptionally low; the average share of exports to domestic production for all manufacturing industries was only 2.6 percent. Thus, as yet, Turkey has no major export industry. Even in hides and leather products and textiles, the export shares were only 13 and 3 percent respectively. Protection and incentives framework Various instruments are used for the protection of domestic in- dustry, including tariffs, other charges and taxes on imports, quota restrictions and absolute prohibition of some imports. To some extent these measures merely offset the overvaluation of the lira, but their extent and scope have had various undesirable effects on industrial development. As shown above, high-cost import substitution has developed; export growth has been poor as a result of the relatively higher profitability to produce for the home market and the high costs of domestic and imported inputs. As an illustration, a manufacturer may realize (in gross proceeds) TL22.40 for every dollar saved through import substitution but only about TL15 for -221 - a dollar saved in export trade (at 1972 exchange rate of TL14 = US$1).2/ Other effects of the control system have been to raise substantially the domestic prices of imported goods, have led to delays and substantial time use of skilled personnel in gaining import permits, and have produced under- utilization of industrial capacity and high inventory costs to offset the uncertainty of import availability. There have been some limited attempts to measure the extent of protection. One study undertaken in 1968 showed net effective protection rates ranging from minus 50 percent (certain batteries, rubber tires) to 300-500 percent (car and truck assembly). A more recent 1972 study covering a sample of twenty-three IBRD/TSKB-financed projects in textiles, chemicals, plastics, glass, cement and metal products shows protection ranging from -11 percent for metal drums to over 1,000 percent for steel billets and certain plastics. The median net protection was 42 percent, and there were ten projects with 96 percent or higher protection. There may be shortcomings in methodology and accuracy of measurement in both studies,3/ but these hardly affect the major conclusions--namely that industry is highly pro- tected and that the present range of protection rates seems to have no clear economic rationale. This is not a unique situation for a developing country. In fact, it is more likely to be the typical case. In Turkey it is the result of several factors: a development strategy of import substitution which has only recently given way to a more outward-oriented industrialization philosophy; a chronic shortage of foreign exchange only recently relieved, which made the country rely on quantitative import restrictions and other administrative controls; and a State industrial sector whose investments were partly geared to noneconomic goals and which has shown poor overall financial results. During the sixties export and investment incentives were offered to encourage industrial development. They include tax rebates for exports, exemption from custom duties or their deferral for two to five years, sub- sidized investment credits for export-oriented production, and tax allowances for investment. Higher rates of incentives are offered for investment in regions that are classified as underdeveloped. The incentive schemes and their effects are discussed in detail in Annex I. The most important incentives have been the investment tax allowance and exemption and deferral of customs duties. The total incentives package has been considerable and has undoubtedly encouraged private investment in industries, particularly textiles, processed food, chemicals, metal products and machinery and trans- port vehicles. However, despite the extent of these incentives to industry (budgetary cost in 1972 estimated at $400-500 million), the cost of the incentives program and its distribution between sectors is only partially 2/ For detailed discussion of protection measures and their effects, see Annex I of this chapter. 3/ SPO is undertaking a new survey covering a sample of 300 industrial firms. - 222 - known. The Government has not evaluated the effects of the incentives in relation to its objectives nor attempted to develop a system which would achieve the desired objectives at least cost. With such partial informafi6n, it is not possible to develop a rational system of incentives. Another dif- ficulty with the measures was that they were implemented on a project basis leading to complaints about the lack of objectivity, delays and partiality. Based on available information, it seems that the industrial incentives have been concentrated in textiles (50 percent of total) as well as chemicals and foodstuffs (accounting for another 25 percent). Finally, till 1970 the in- centives offered for export were unable to offset the relative disadvantages created for export industries by the protection framework. Incentives for regional dispersion of private investment have been insufficient to offset the natural disadvantages, and it seems that the dispersal of State industries in different regions has had a more important effect on regional development (Chapter 9). The incentives bill presently in Parliament reportedly tries to systematize the whole incentives system. It is based on sectoral priorities with different incentives laid down for each sector, which would depart from the need to evaluate particular projects for granting incentives and thus hopefully solve the problems of delays and partiality of the past. It may also help in maintaining a better record of the cost and distribution of incentives and thus enable the definition of a rational incentives system. But its implementation still remains to be seen. Role of State Economic Enterprises The public enterprises sector in Turkey consists of over one hundred enterprises spanning all major sectors, contributing over 10 percent of the value added in the economy, and employing 6 percent of the non- agricultural labor force. The public sector has a virtual monopoly in electricity, petroleum refining, steel, nitrogen, paper, railways, air transport; controls most shipping and communications; and has a big share in textiles, cement, coal, sugar, machinery and chemicals. Thirty-five major enterprises account for most of public enterprise activity. Of these, eight are in the financial sector and the rest are titled "producing" or "operational" SEEs. The growth of all SEEs taken together and the share of SEEs in manufacturing, mining and electricity can be seen from the following table (in TL millions). - 223 - Table 60 INDICATORS OF SEEs' GROWTH 1952 1957 1962 1967 1972 Value added: Total 1,231 2,648 5,305 9,672 Manufacturing (402) (688) (1,602) (3,101) Mining (144) (276) (596) (1,097) Electricity (-- ) (26) (111) (312) Fixed investment: Total 1,530 3,809 11,140 Manufacturing (287) (748) (706) Mining (491) (1,067) (7,120) Electricity) Employment: Total (in thous.) 201 248 280 350 Manufacturing (52) (62) (81) (97) Mining (39) (43) (48) (59) Electricity (2) (3) (3) The industrial SEEs show an increasing trend in their porportions of total SEEs' value added and fixed investment and a fairly steady propor- tion for employment (about 45 percent). Their share in total value added rose from 44 percent in 1952 to 47 percent in 1967 and their share in fixed investment from 51 percent in 1962 to 70 percent in 1972. The hope of the planners was that the SEEs would generate sub- stantial surpluses to finance future public investment, but the profits generated by the SEEs have not been commensurate with the volume of their operations or the capital resources used by them. The SEEs have required increasing budgetary support to finance operating losses. The financial performance of the SEEs and their implications for public finance are discussed in Chapter 5. The profit performance varies considerably between different SEEs (Tables 5.15 and 5.16). Railways have been by far the largest losers, and others with substantial deficits were the Maritime Bank, nitrogen, petrochemical, coal and PTT (Post Telegraph and Telephone Corporation). The industrial sector as a whole has had low but rising profits, as shown in the table below. Table 61 NET PROFITS BEFORE TAX OF INDUSTRIAL SEEs (TL millions) 1960 1965 1970 1972 Mining and power 55 246 380 900 Coal, petroleum and steel 82 31 455 824 Manufacturing 105 103 -261/ 378 1/ Mainly as a result of devaluation which raised the costs of inputs and TL cost of external loans. Source: Table 5.16. - 224 - The low profitability of the SEEs is even more striking when one analyzes their rate of return (net profit before tax as a percentage of the book value of net fixed assets), which was only 2.7 in 1969 and only 0.9 between 1969-71, despite the highly subsidized credits provided to them by the State Investment Bank and the large subsidies by the Central Budget. Relatively few SEEs earned rates of return in excess of 10 percent during the Second Plan. These were sugar, Etibank, electricity, petroleum, iron and steel, which are all in the industrial sector. Low profitability of SEEs may derive from two reasons: inefficient operations, the pursuit of noneconomic objectives through the SEES, or both. A judgment on economic efficiency of SEEs can be arrived at only by first separating the costs incurred by the SEEs to fulfill the noneconomic goals of the country and second by individually analyzing the SEEs for their efficiency of operations. However, Government subsidies to SEEs in Turkey are not allocated by specific category but are lump sum budgetary transfers to offset operating losses and meet additional investment requirements. The Government "compensation" to SEEs does not provide for any "normal profit" in addition to incurred costs. Consequently, a precise separation of the costs incurred individually by the SEEs to meet noneconomic goals is not possible. SEEs are burdened with numerous social goals, influencing the level of consumption of some goods, redistributing income, increasing employment, encouraging the development of backward regions, and so forth. In an in- flationary environment when the Government is exhorting producers not to raise prices, SEEs may also be required to set a good example. The relative importance of these objectives has varied considerably in the last couple of decades in Turkey. Before 1960 the sociopolitical pressures to keep SEEs' prices low and to subsidize agricultural incomes led to considerable ex- pansion in bank credit to SEEs. This is regarded as the major reason for the rapid inflation which averaged 15 percent per annum from 1954 to 1959. Then the First Plan explicitly stated that prices ought to be determined on the basis of production costs but recognized that exceptions may be made to satisfy redistributive goals. The Second Plan deemphasized the role of costs and added the protection of price stability as one of the objectives of SEEs' pricing policy. This policy led to a delay of nearly a year before SEEs' prices responded to the substantially increased costs arising from the devaluation of August 1970 and was largely responsible for the deficit in 1970. The principal reason for the low profits of SEEs has been the policy of rigid prices in the face of general inflation in the rest of the economy. This policy has been followed as a means of restraining the rise in the general price level and, in the case of SEEs' prices of intermediate goods, as a means of encouraging industrialization and import substitution. In several cases low prices had social aims as well, particularly in employ- ment in underdeveloped regions, and in maintaining income of some groups. A positive economic result of this policy has been the relatively high utiliza- tion of the production capacities of SEEs (with a few exceptions, notably MKEK and Milk). Since SEEs account for such a large proportion of non- agricultural output (12 percent in 1969), their regulated low prices and the consequent budget support have a significant effect on the allocation of resources, the economic cost of which has to be set off against nonfinancial - 225 - or indirect economic benefits. The pressure on the budget to finance the deficits incurred by SEEs led to price increases in mid-1971 in Post and Telegraph rates (60 percent), cement (8-20 percent), electricity (55 percent), coal (61 percent), and paper (34 percent). Prices of textiles and steel were also increased. With the continuing high inflation in 1972 and 1973, some further price increases in SEEs' products were announced in 1973. Apart from pricing policy, there are many other factors influencing the resource generation performance of SEEs which are widely recognized and have been acted upon. Following an intensive study in 1960, a standardized accounting system has been devised and is now being introduced; and decisions on participations in equity have been centralized to enable better control of the use of share capital. But many ills remain: the high turnover of management personnel, the shortages of skilled labor, the interference of the ministries in management decisions, and the absence of an adequate system for assessing the operational efficiency of individual enterprises. Improving the efficiency of SEEs has been a subject of discussion for many years by a succession of committees, but so far no concrete pro- posals have emerged. The main concern appears to be an administrative regrouping of the enterprises, perhaps into holding companies, and a heavy emphasis on improving the quality of management and reducing staff turnover through financial incentives and greater autonomy. These are difficult measures which will remain subject to administrative and political pressures. In the meantime, to make possible a clear assessment of the operating efficiency of individual SEEs, an explicit statement of the social and general economic objectives of individual SEEs should be made and specific subsidies allocated to meet such objectives. The review system of SEEs' performance should thus be substantially strengthened; and the rules governing management, salaries and operations made more flexible. Finally to improve the financial performance itself, pricing policy should be made more flexible so as to keep pace with the general price rise in the economy as well as to adjust individual SEEs' prices when they are far out of line with the market price structure. B. Prospects The Third Plan constitutes the first stage of a long-term strategy for the period 1973-95 in which industrial growth is emphasized. The major premises of the Third Plan for industry are the following. Turkey must accelerate the transformation of her industrial structure to resemble that of advanced industrial nations. This means establishing intermediate and investment goods industries in the shortest possible time which would permit the application of advanced technology, the development of a more diversified industrial structure, and eventual development of a wide range of industrial exports. The overall Plan targets imply a reduced dependence on foreign aid through increase in exports, particularly industrial products, and through emphasis on import substitution with the concentration shifting from light manufactures in the Second Plan to intermediate and investment goods in the Third Plan. A restrictive attitude is taken with respect to foreign direct investments which would be allowed only where they bring in new technology (this criterion would be applied less rigidly where substantial exports are planned). - 226 - Net output in manufacturing is expected to grow by about 11 percent per year. Whereas consumer goods production would increase by only about 7 percent per year, growth rates of about 14 and 17 percent respectively are projected for intermediate and investment goods. The highest growth is assumed for petrochemicals (nearly a sixfold increase), fertilizers (3.5 times the 1972 figure) and machinery (nearly three times). The major projects would be expansion of the steel complexes at Erdemir and Iskenderun, the second petrochemicals complex, and a new petroleum refinery and chemicals complex at Tarsus. Further expansion would take place in nitrogen, ferti- lizers and aluminum. A breakthrough in the engineering industries would be highlighted by the production of automotive gears and transmissions, automotive and ship diesel engines, and by the expansion of shipbuilding into larger vessels. All the projects mentioned would be in the public sector. Just as in the Second Plan, manufacturing investments are targeted to more than double under the Third Plan, representing 45 percent of total targeted investments. Investments in intermediate goods industries would form a smaller percentage of total manufacturing investments than in the Second Plan (61 versus 68 percent), whereas investments in equipment goods industries would rise sharply. As before, investments in metallurgy and chemicals (including fertilizers) account for nearly half the total. The fastest growth would occur in metal products and machinery (prominently including motor vehicle components, heavy industrial machinery, pumps and compressors), their share in total manufacturing investments rising from 9 to 18 percent. Import substitution would be particularly heavy in basic metals (especially in steel), chemicals and fertilizers and, to a lesser extent, investment goods. For the balance of all other industries, the share of imports in total consumption would increase. As a consequence, the shares of imports of different categories would change with investment goods im- ports rising from 55 percent in 1972 to 69 percent in 1977, intermediate goods falling from 43 percent to 28 percent, and consumer goods rising marginally from about 2 percent to 3 percent. Rapid growth is projected in industrial exports (21.5 percent per annum for manufactured products and 16.9 percent for mining products), thus raising the share of mining and industrial exports from 31 percent of total exports in 1972 to 49 percent in 1977 (42 percent for manufactured products) (Table 3.15). The fastest growth is expected to be in textiles (22.5 percent per annum), wood and printing products (29 percent), chemicals (33 percent), leather (18.5 percent) and nonferrous metals (46.6 percent). - 227 - Table 62 THIRD PLAN TARGETS FOR THE MANUFACTURING SECTOR (Figures in TL billion at 1971 prices) Approximate Importance of SectorlI/ Perc.: Rate Ratio of Approximate 1977 of Growth Value Added to Share in Domestic Domestic of Production Gross Output Value Added 1972 Demand Exports Imports Production 1972-771/ 1968 1972 Consumer Goods industries 69.1 7.0 0.6 75.5 43.0 40.4 Food processing 34.7 3.7 0.2 38.2 35.5 29.7 17.3 Beverages 2.3 0.1 0.1 2.3 64.4 72.0 2.1 Tobacco 5.3 1.5 -- 6.8 51.2 60.2 5.6 Textiles and clothing 26.8 1.7 0.3 28.2 50.9 39.9 15.4 Intermediate Goods Industries 90.5 3.2 6.4 87.3 95.4 48.6 Forest products 5.8 0.3 0.0 6.1 56.5 76.8 6.2 Pulp, paper and printing 5.6 0.1 0.3 5.4 100.0 45.7 2.5 Hides and leather 3.7 0.6 0.1 4.2 82.6 22.6 1.1 Rubber and plastics 5.1 0.2 0.3 5.0 85.3 44.2 2.5 I Petroleum products 19.2 0.2 0.2 19.2 128.5 70.0 12.1 Chemicals and Fertilizers 22.7 0.7 4.1 19.3 87.7 39.0 8.3 D Nonmetallic minerals 7.6 0.1 0.2 7.5 59.7 58.7 5.7 1 Basic metals 20.9 1.0 1.3 20.6 112.5 51.0 10.2 Investment Goods Industries 49.6 0.8 15.8 34.6 116.0 11.0 Metal products 8.4 0.0 1.2 7.2 105.8 23.7 1.7 Machinery 19.3 0.2 9.0 10.5 162.5 35.0 2.9 Electrical machinery and electronics 8.3 0.4 2.8 5.9 156.5 37.4 1.8 Transport equipment 13.6 0.2 2.8 11.0 80.4 37.0 4.6 Miscellaneous 0.5 -- 0.5 -- Manufacturing industry, Total 209.7 11.0 23.3 197.4 73.9 100.0 Imports in Relation to Consumption 13.5% 11.1% Exports in Relation to Production 5.4% 5.6% 1/ Computed on two simplifying assumptions, namely (a) that the ratio of value added to gross output in firms employing ten or more persons in a given manufacturing subsector would be representative for this subsector taken as a whole and (b) that there was no change in this ratio between 1968 and 1972. 2/ The rates of increase in gross output values, as might be suspected, differ somewhat from increases in value added by manufacture. The latter are not shown for individual industries but figures for major subdivisions are shown as follows in Table 111.03 of the Plan: Consumer Goods 29 percent, Inter- mediate Goods, 90 percent, Investment Goods, 114 percent, All Manufacturing Industries, 67 percent. Source: Third Plan Document. Table 63 INDUSTRIAL INVESTMENTS IN THREE PLANS AND INVESTMENT/OUTPUT RATIOS IN THE THIRD PLAN Investment/Output Relationships Percentage Distribution of in the Third Plan Industrial Investments Investments Increased Value FFYP SFYP TFYP 1973/77 Added 1972/771/ 1967-67 1968-72 1973-77 TL billion TL billion Capital/Output Actual Actual Projected at 1971 prices at 1971 prices Ratiol! Consumer Goods 28.0 17.5 16.6 14.5 4.1 3.5 Food, beverages and tobacco 12.8 8.9 6.6 5.8 Textiles and clothing 15.2 8.6 10.0 8.8 Intermediate Products 58.2 68.2 61.4 53.9 11.7 4.6 Forest products and printing 5.7 9.5 6.7 5.8 Leather, rubber and plastics 5.1 1.9 2.1 1.8 Petroleum, chemicals, fertilizers 13.0 24.4 22.7 19.9 Cement, glass and clay 11.3 8.7 4.0 3.5 Steel and nonferrous 23.1 23.7 26.0 22.9 Investment Goods 13.1 13.8 22.0 19.3 6.0 3.2 Metal products and machinery 7.5 7.5 14.1 12.3 Electrical machinery and electronics 2.4 1.7 3.5 3.1 Transport equipment 3.2 4.5 4.4 3.9 Small Industries 0.7 0.5 n.s. -- Total 100.0 100.0 100.0 87.7 21.8 4.0 n.s.: Not specified. 1/ Value added figured at factor cost which leads to some overstatement of the true capital/output ratio. However, the ratio of investment to output valued at market prices would presumably be even more biased because of the heavy inci- dence of indirect taxes on industrial prices. Thus, it appears that industrial net output valued at market prices is no less than 48 percent higher than the same output valued at factor cost, whereas the difference for the economy as a whole is only 12.5 percent. Adding the latter average share in indirect taxes to net manufacturing output at factor cost would only reduce the incremental capital/output ratio from 4.0 to 3.6. This is indeed only a very rough calcu- lation since (a) we do not know to what extent industrial investments bear their fair share of indirect taxes nor (b) whether there is an economic rationale (e.g., external diseconomies) behind the heavy indirect taxation of industry. Source: Investments, Plan Table IV.19. Value added, Plan Table 111.03. Table 64 IMPORTS OF MANUFACTURED PRODUCTS 1972 and projected 1977 Value in TL Billion Import Share in Domestic Demand 1972 (est.) 1977 1972 (est.) 1977 Chemicals and fertilizers 3.4 4.1 25.2% 18.1% Basic metals 3.1 1.3 32.2% 6.3% Machinery and equipment 9.2 15.8 35.6% 31.9% All other 1.0 2.1 13.2% 18.0% Manufactured products 16.7 23.3 13.5% 11.1% Source: Third Plan Document, SPO. The prospects for achieving the Third Plan's targets for overall industrial growth (11 percent per annum) are good with any shortfalls in sectors like chemicals and minerals production (in which the Plan expects the fastest growth) being offset by the growth of textile production faster than assumed (8.5 percent).4/ The investment targets in industry also appear realistic, though the financing of State Economic Enterprises would have to. rely more on external financing and higher borrowing from the financial markets than assumed in the Plan because the optimistic targets of surplus generation by the SEEs are unlikely to be achieved (Chapter 5). Moreover, as the Plan expects, the share of public investments in manufacturing, which has been increasing in the past, will level off, leaving the shares of public and private sectors at approximately one-half each. The basic principle in investment policy in the Third Plan is that the State would undertake high-priority investments (i.e., those introducing new technology or providing substantial external economies) in areas where, because of the long gestation periods, high capital requirements and high risks, or both, the private sector does not venture even when provided with reasonable inducements. On the other hand, the SEEs will not invest in fields where the private sector is sufficiently active nor expand their operations unnecessarily except through complementary investments to improve the operational efficiency and competitiveness of existing State plants. Private investors are also barred from the exploitation of strategic natural resources and from investments with a monopolistic potential. A major weakness of the Plan is that it opts for a capital- intensive industrial emphasis without a careful analysis of its implications or consideration of alternatives--e.g., implications of a more labor-intensive industrial growth or more export-oriented strategy, including the prospects for major industrial exports in the context of Turkey's membership in the EEC. Moreover, important analyses and assumptions are not spelled out in the Plan--e.g., criteria for project appraisal and employment, productivity assumptions and so forth. As a result, the Plan does not contain a careful appraisal of projects to be included nor a consideration of alternative project specifications to achieve desired macro targets. 4/ For a discussion of prospects in individual industries, see Annex 2 of this chapter. - 230 - Moreover, the extent of import substitution emerges in the Plan as a residual requirement based on exogenously projected foreign exchange earn- ings without a consideration of the costs and benefits of such a strategy. In the past high costs of steel, basic petrochemicals and fertilizers have developed and distorted economic development; further development of high-cost basic industries may impede the development of industrial exports in the future. A major cost of the type of approach taken in the Plan to determine import substitution requirements and hence the sectoral allocation of in- vestments is that errors in forecasting future foreign exchange availabilities lead to a particular investment strategy which may be inappropriate in a situation of improved foreign exchange availabilities. The events of 1972 and 1973 have shown that foreign exchange earnings are likely to be much higher (Chapter 6) and that Turkey would be able to import much more than projected in the Plan; consequently, the extent of import substitution re- quired would be less than assumed. Imports of industrial goods are likely to grow faster than assumed in the Plan (7 percent per annum) due to the improved foreign exchange availability and because the import regime will probably be more liberal than in the past. The high export growth assumed in the Plan is likely to be achieved, given the high growth in 1972 and 1973. Cotton yarns are being exported to Europe, and gains are being made in exports of finished fabrics despite the growing market difficulties. There are also good prospects for exports of ready-made clothing, leather articles, nonferrous metals, tomato juice and canned fruit, chipboard and plywood, and some cast-iron articles. Mineral exports may also expand rapidly; but this will depend partly on international price development (mercury and chromite are fairly difficult at present) and partly on the ability of Turkish mines to raise productivity and improve marketing efforts, particularly of new products (production of boron salts is planned to reach 800,000 tons per year by 1977). A number of other mining projects which are under construction or have been put in operation recently (copper, aluminum, mercury, lead and zinc, wolfram) should contribute substantially as more mineral products are exported in processed form as metals (copper, aluminum, mercury, zinc, ferrochromium) or chemicals (boron derivates). The mission projections for overall industrial exports are, therefore, based on the Plan targets (adjusted upwards by 10 percent to allow for the change of base year from 1971 to 1972 in view of the dollar de- valuations and increased world prices in 1972). It is probable that processed food and beverage exports will be higher than assumed in the Plan and other items--e.g., nonferrous metals--will be lower (Table 3.15).5/ The achievement of the export targets would, however, depend on the continuation of the export incentives policies and control of the present high inflation. For the SEEs the Third Plan explicitly recognizes all the problems discussed above (Chapter 5). The need to separate the goal of efficient operation from other socioeconomic goals is clearly stated. Monopolistic public enterprises are directed to set prices so as to make reasonable pro- fits; competitive SEEs are directed to use market prices. The Plan promises budget subsidies to compensate for losses incurred in meeting the objective of optimum capacity utilization or other social objectives mentioned above. 5/ For a discussion of prospects in individual industries, see Annex 2; for mining products, see paragraphs below. - 231 - However, there are no new specific proposals in the Plan; if the past achievements in SEEs' reform despite various studies are any guide, overall reform of the SEEs would take a long time. In the meantime, reform of in- dividual Enterprises should be pushed ahead as rapidly as possible. The availability of medium- and long-term funds to the private entrepreneur is recognized as a major problem in the Plan. It, therefore, aims to increase the resources of existing industrial and credit institutions and also to create a new development bank which would direct the private sector towards regions and industries of high economic priority. The Plan is brief on industrial protection and incentives.6! It expresses concern about duty reductions and greater enlargements under the EEC treaty. The escape clauses in the EEC agreement, it is stated, provide for emergency protection of existing industries but will not help new in- dustries. The main support for the latter would come from the incentives ("encouragement and guidance") system which will be designed to meet the following standards: (a) objectivity with a minimum of administrative discretion; and (b) impartiality as between public and private enterprise, established enterprise and new enterprise. A judgment of the incentives system will have to await the passage of the Incentives Bill now in Parliament and its successful implementation. Industry in the past has been relatively well distributed due in part to favorable geography and infrastructure and in part to a deliberate State policy to spread locations for State Enterprises in, e.g., steel, cement, paper, and textiles, sometimes at considerable additional investment and operating costs. The heart of the regional development problem is represented by the part of Turkey, east of the Adana-Kayseri-Samsun line, encompassing roughly one-quarter of the Turkish population. The Third Plan emphasizes the continued development of the mineral and agricultural resources of this region; continued implantation of State-sponsored "seed" projects in textiles, construction materials, agricultural processing, and mechanical industries; and continued existence of preferential incentives for the establishment of private industries (see Chapter 3). For the longer term, Turkey has the resource base for fast growth in industrial output and exports. Prospects would depend on the control of inflationary pressures or more frequent adjustment of the exchange rates than in the past to offset domestic inflation and maintain competitiveness of Turkish industry and on the industrial policies undertaken by the Government in the medium term to prepare for eventual EEC membership. In view of the new conditions which will gradually prevail in the application of the association agreement with the EEC, the aim of reducing costs and raising the efficiency of industry in order to improve its competitiveness gains in importance. A smooth transition would also require greater re- sponsiveness to market forces and flexibility of price policy. Development of new competitive industries should be concentrated in fields in which Turkey has or is reasonably expected to have comparative economic advantages. In addition to existing incentives, the development of export-oriented 6 / For a discussion of the changes affecting industry under the EEC protocol and its implications, see Chapter 7, Annex 1. - 232 - industries in particular would also require a better knowledge of the European markets, strict specialization in the lines of production, search for subcontracting activities, and a flexible policy on associations with foreign partners. Creation of various organizations7/ (e.g., a national export council, export promotion center, export bank and an export credit agency and subsidies for market research and market development) would be needed to ensure substantial increases in exports in the future. C. Mining Minerals production today accounts for about 1.7 percent of the gross national product and about 8 percent of the combined value added in manufacturing and mining. Mining production (TL million at constant 1971 prices) increased by an average of 11.5 percent per year in the 1962-1972 decade. However, during the last three years there has been some stagnation with declines in crude petroleum, copper and chrome ore production with a very sizeable fall in iron ore production. With Turkish demand for minerals steadily increasing, particularly for crude oil, iron ore and phosphate rock, the balance of trade in minerals has deteriorated rather rapidly. Table 65 TRADE IN MINERALS (Million US$) 1967 - 1972 Imports 59.7 109.5 Exports 20.7 35.1 Trade deficit 39.0 74.4 The above figures refer to minerals only. Copper for many years was ex- ported in the form of blister; copper exports declined from $16 million in 1967 to zero in 1972. The slow development of the minerals industry in Turkey (other than coal and lignite) reflects insufficient exploration, obsolete mining laws, management and staffing problems, and high transportation costs. Etibank, which controls two-thirds of the country's minerals production, has been unable to devise and implement an efficient approach. The State Minerals Survey has sacrificed basic geological mapping and surveys to exploration; proven results have been meager. The private mining sector generally lacks the capital and know-how for efficient development. Foreign companies could make a contribution, but it is difficult to find a viable formula for their participation because this is an intensely political issue in Turkey. The Mineral Reform Bill in Parliament, therefore, bars foreign companies from acquiring minerals exploration licenses in Turkey but apparently leaves a door open for their financial participation in companies formed to develop mineral resources. 7/ For a fuller discussion of organizations that may be useful, see Annex 3. - 233 - The mining industry has a high priority for development for several reasons. Turkey has a substantial minerals potential with great export pos- sibilities in copper, chrome and boron products (being a leading world producer in the latter two categories). Though oil reserves may prove limited, there is enough high-grade coking coal to supply the needs of the Turkish steel industry and enough lignite to provide the bulk of the country's thermal power needs for some time to come, particularly at recent oil prices. The plan sets a target of roughly doubling minerals production between 1972 and 1977, corresponding to an average annual growth rate of 15 percent (as compared with less than 10 percent in the Second Plan). Production of metallic minerals would grow by no less than 27 percent per year while fuel production would expand by 10 percent per year (mainly through a near tripling of lignite production from 6.5 million tons to 19.2 million tons). As a result, the increase in minerals imports would have been contained at about $70 million equivalent at 1971 prices (crude oil figuring prominently). However, the recent oil price increases will lead to dramatically increased mineral imports, estimated at $210 million for oil alone in 1973 and going up to more than $600 million in 1977. Exports are projected to grow by $44 million (about 17 percent per year) with borates, sintered magnesite, chromite, tungsten and marble expected to lead the way. At the same time, iron ore production would be stepped up from 1.6 million tons of iron content to 5.5 million tons, virtually eliminating the need for imports; integrated production of aluminum-alumina-bauxite (project under construction) would begin at a rate of 100,000 tons of aluminum metal per year. The success of this program will hinge on two main issues: the general framework for mining operations in Turkey and the performance of three State Economic Enterprises which hold a key position in this sector, namely the State Minerals Survey (MTA), the State Coal Mines Authority (TKI), and Etibank (a State holding company for most of its mineral interests outside coal and oil). Etibank is Turkey's largest State Economic Enterprise with a range of mining and industrial activities (chemical as well as metallurgical). During the last three years it has shown net profits after taxes averaging about TL140 million per year. In contrast, its 1973 investments are ex- pected to total nearly TL1.0 billion. Having just completed substantial bauxite-alumina and sulphuric acid facilities, the company over the next few years will start up its first aluminum smelter and its first ferrochrome smelter and greatly increase its production of boron minerals, boric acid and borate salts. It will furthermore expand its production of caustic soda and apparently take over from the Turkish Iron and Steel Company the expansion of iron ore production in two major State mines (one of them an entirely new operation) from one million tons today to 10 million tons by 1980. According to rough preliminary estimates, the necessary investments in iron ore and pelletizing facilities alone would be about $250 million equivalent to which must be added about $150 million equivalent for improve- ments in the rail lines to Samsun and Iskanderun. The Third Plan is, therefore, the period during which Etibank would reach maturity as a minerals concern of world standing. The tasks seem enormous and will not be attained unless Etibank (a) can strengthen its - 234 - managerial, technical, and commercial capabilities; (b) pursue decentraliza- tion (the creation of separate companies with private participation for copper mining and metallurgy in the Black Sea region and zinc mining and metallurgy in the Kayseri region are steps in that direction); and (c) in- tensify its cooperation with foreign companies in both technical and marketing matters, preferably through some form of financial participation in Etibank subsidiaries. An important question will be whether the State will be able to exercise control over this powerful Enterprise to ensure that progress, costs and benefits in developing Turkey's minerals resources are reasonably in line with a good international standard. This question applies equally to exploration (in particular MTA activities) which, according to figures quoted above, would account for about 40 percent of the total investments in minerals development excluding metallurgy. The State Coal Mines in the Zonguldak region by the end of 1971 employed 33,500. The mines produce about 4.8 million tons of coal per year, most of it metallurgical grade suited to the steel industry. It is expected that by 1976 the steel industry would absorb most of the output except for the lower grades separated in the washing process which are used for power generation at the mines. Mining conditions are difficult (seams are geologically disturbed and gassy), and the mines do not lend themselves well to mechanization. Operating costs rose at an average annual compound rate of 10.5 percent in the 1965-71 period due to steady wage increases unaccompanied by any significant increase in productivity. Nevertheless, even at present wages and low productivities, labor costs per ton coal are lower than in Western Europe mines; and prices in mid-1972 were roughly competitive with imported coal. The company operated with a small profit in 1969, but during the last three years losses have averaged TL160 million per year with even higher losses expected for 1973. Under its original investment program, the company had planned to increase its output to 5.8 million tons by 1972. This target date was sub- sequently changed to 1976; but at the same time the company initiated a Master Plan Study which would explore the economics of further expansion, thus obviating coal imports. In the Third Plan, however, the target has again been reduced to 5.2 million tons by 1977. One of the major problems may be the drain of coal mining labor to Western Europe. The company has also experienced difficulties in staff recruitment. The Bank's 1972 project identification mission recommended that the company be made to operate under a more objective market framework with prices fixed at import parity, with freedom to establish salaries which would keep and attract skilled personnel, and with the company's present heavy social and community obligations taken over by some other Government agency to the extent needed to place it on an equal basis with other industrial concerns. The future of the coal industry hinges, in part, on the results of the Master Plan study and the formulation of a long-run exploitation and investment plan, but more fundamentally on management's ability to solve fundamental problems of staff recruitment, excess manpower, and spiraling wages. D. Energy and Electric Power Turkey has coal, lignite, hydropower and some oil, geothermal and uranium resources. Although Turkey's official energy policy is to "meet the entire demand...by developing resources within Turkey, and to replace - 235 - noncommercial energy resources...," projections indicate that such a policy will be practically impossible to fulfill unless substantial additional resources are discovered. Despite intensive efforts to develop indigenous resources, reliance on imported sources was expected to increase from 20 percent of total consumption in 1965 to over 60 percent by 1985 (Table 8.10) before the recent increases in oil prices. This policy will have to be re- viewed now since Turkey will probably not be able to finance the cost of excessively large oil imports in the eighties. In 1973 consumption of commercial energy is expected to reach about 16.5 million tons petroleum equivalent, nearly half of this from imported oil. Consumption in the form of electric energy accounts for about 20 percent of total commercial energy (Table 8.10). Consumption of noncommercial forms of energy (wood and tezek--dried dung) add another 7.3 million tons petroleum equivalent or 30 percent of total energy consumption in 1973. Consumption of these noncommercial forms has remained nearly constant and is expected to continue to do so despite Government efforts to conserve wood for other uses (e.g., paper) and to introduce alternative fuels for tezek. Sources of energy Coal. The Zonguldak basin on the Black Sea is the principal coal- producing area. Proven reserves are about 150 million tons with another 800 million tons possible. Annual production is about 5 million tons, expected to double by 1985. About half of this production is earmarked for the iron and steel industry, and expansion will be largely for this purpose. The coal is of relatively poor quality (4,000 kcal/kg compared with ordinary bituminous at 7,000 kcal/kg); deposits are in thin, steep seams, usually faulted, which makes mining difficult and expensive. As a result of these conditions, average production is less than one ton per day per man compared with 3 or 4 tons per day in Western Europe. Lignite. Lignite has been identified in over forty-five basin areas throughout Turkey with present reserves estimated at 5,000 million tons of which 3,000 million are in the Elbistan basin in east-central Turkey. Other principal basins include Soma, Tuncbilek and Seyitomer, all in western Turkey. Although some lignite is mined underground (principally Soma and Tuncbilek), most production is by opencast mining. The lignite is not of good quality (about 2,500 kcal/kg), that in Elbistan being especially poor (1,000 kcal/kg). The western reserves have a high ash content (up to 50 percent, although sulfur is low--less than one percent), and consequently combustion is difficult. Since nearly half of the lignite production is used for domestic and commercial heating, pollution is a serious problem. The situation is particularly acute in Ankara because of the geographical location, so much so that Government has undertaken a crash program to convert heating plants in public buildings from lignite to oil and will not approve installation of lignite-fired heating plants in new commercial buildings. Lignite production in 1973 is expected to reach 10 million tons; but large increases are planned in addition to the 20 million tons-per-year mine at Elbistan, reaching 50 million tons per year in 1985. Despite this intensive exploitation only about 13 percent of commercial energy requirements will be met from lignite through 1985, about the same as 1970. - 236 - Petroleum. Oil has been produced in small quantities in Turkey since the 1930s, but no significant fields have been discovered. There are two general reserve areas at Batman in southeast and on the Mediterranean Coast near Iskenderun. Current production is from the Batman area, and offshore prospecting is under way near Iskenderun. Proven reserves are variously estimated at 20 to 70 million tons, or only six to twenty years at current production rates. The wells are generally low yielding, and prospects are not bright for increased production. Despite this, in 1972 indigenous oil met 25 percent of Turkey's need for commercial energy. Various proposals exist for oil and gas pipelines from Iran and Iraq which, if realized, would strengthen Turkey's energy position. However, the construction of the proposed Sumed Line through Egypt is likely to have a negative effect on these proposals. No commercial fields of natural gas are known, and there is no production although some gas does occur in connection with the oil production. Since 1955 Turkey has produced most of its petroleum products from local refineries processing indigenous and imported crude oil. Refining capacity is being increased to meet anticipated needs although requirements of some products, particularly fuel oil, will have to be met partially by imports. Hydropower. Hydroelectric potential in Turkey is estimated to be 73,000 Gwh (73 Twh; 16,000 Mw at 50 percent plant factor). Of this, 31,000 Gwh is in the Firat (Euphrates) basin. Hydro-plants in operation in 1972 totaled 880 Mw and produced 3,200 Gwh of energy. Plants under construction and expected in service by 1974 will add 368 Mw and 907 Gwh to this total. DSI (State Hydraulic Works) has a program to develop virtually all of the commercially viable sites, totaling over 7,000 Mw (30,000 Gwh) by 1990 of which 4,000 Mw (20,000 Gwh) will be on the Firat. Although accounting for only 4 percent of commercial energy production in 1985, hydro-energy will supply half of the energy consumed as electricity. Other sources. Exploration of geothermal resources started in 1962, assisted by a UNDP project in 1967. Nine prospective geothermal areas were identified and intensive exploration undertaken at Kizildere near Dinizli in southwest Turkey. Resources at this site are thought to be suitable for about 30 Mw, but as yet there are no firm plans for development. The steam wells have the usual problems of relatively low temperatures and closure through mineral precipitation; development for power, therefore, may have to await improved technology. However, pilot projects for direct use of the heat energy (e.g., agricultural greenhouses) are under way. Although insignificant in terms of Turkey's total energy requirements, more aggressive development of this resource would probably be justified. Early surveys have indicated the existence of about 3,000 tons of uranium oxide equivalent in relatively low-grade ores (less than 0.05 percent), but systematic prospecting for uranium and thorium is just beginning. The identified reserves, thought to be commercially exploitable, could provide the basis for a modest nuclear power program. A nuclear plant of about 600-Mw capacity is planned for the early 1980s, and electric power development after 1990 will have to rely heavily on nuclear energy. At present, natural uranium technologies are being considered to avoid dependence on outside enrichment, but a final choice has not yet been made for the initial plant. - 237 - Organization of the sector Control of energy policy and development in Turkey is the responsi- bility of the Ministry of Energy and Natural Resources. In carrying out this function, the Ministry acts through several agencies and enterprises, includ- ing principally: MTA, the mining development institute responsible for mineral and energy exploration; Etibank, a state banking enterprise with financing and operating interests in mining, formerly also in electric power; TKI, the Turkish coal mining enterprise, which operates all State-owned coal and lignite mines, including distribution and retailing; TEK, the Turkish Electricity Authority, responsible for operation of all State-owned electri- city generation and transmission facilities, the construction of thermal power plants, village electrification and some distribution; and DSI, the State Hydraulic Works agency responsible for the development of water resources. In addition, there are a Petroleum Office, several organizations for the development of oil and oil products (TPAO--Turkish Petroleum Corporation, IPRAS--Istanbul Petroleum and Refinery Corporation, and PETKIM-- Petrochemicals Corporation), and the Atomic Energy Commission dealing with nuclear research and development. Although control of the sector rests with the Ministry, other public and private interests are important. Some coal mining is in private hands but has stagnated and is gradually being taken over by TKI under the provisions of the mining reform bill. Private oil companies (Mobil, Shell and British Petroleum) handle 50 percent of petroleum product refining and distribution. Two concessionary companies (Cukurova Elektrik and Kepez) account for 10 percent of electricity generation; distribution still rests largely with municipal agencies. Electric power The demand for electric power has for several years grown at a rate of approximately 12 percent per annum. This is expected to rise to about 14 percent through 1978 partly as a result of the addition of the Seydisehir Aluminum Smelter load. Thereafter, a progressive decline in the rate of growth is expected. Forecasts of an 11 percent growth rate in 1985 and 8 percent in the year 2000 are being used. Individual electric power- intensive industries such as the Seydisehir Aluminum Smelter in 1974 will tend to distort this trend as they are added to the system. Over 75 percent of electric power consumed in Turkey is used in industry; domestic and commercial consumption accounts for about 20 percent, and the remainder is for government, street lighting and miscellaneous consumption. These ratios have persisted since the introduction of intensive electrification in the early 1950s and are expected to continue through the next two decades in accordance with the planned emphasis on industrialization. TEK has an integrated system covering the western and central por- tion of the country, supplying 95 percent of the demand. TEK is expanding this system with the goal of establishing a grid covering virtually the whole of the country by 1980 (Tables 8.11 and 8.12). - 238 - The installed capacity of public generating plant at the end of 1972 was 2,346 Mw.8/ This capacity was insufficient to supply the total demand, estimated at 2,450 Mw; TEK shed load through frequency reduction and voltage reductions of up to 5 percent on peak. In October 1973 plant failures and delays in completing projects forced actual interruption of supply of one hour per day to most customers on a rotating schedule. Even though nearly 3,000 Mw of additional plants (including the 1,200-Mw Elbistan project) is under construction or in the bidding stage, the system is expected to be strained until the completion of Elbistan, scheduled to come into operation in successive stages in the 1978-80 period. The development program is a complex one, including over thirty separate projects through 1987. The Third Five-Year Plan (1973-77) provides for the expenditure of TL21 billion (US$1,600 million) for capital projects in electrical energy in the public sector, including TL13 billion for generation, TL3.6 billion for transmission and TL4.4 billion for distribution. This figure does not include power-related investments for mine and water resource developments, which are estimated at TLll billion, bringing total planned investment in the subsector to TL32 billion (US$2,300 million). The program includes the addition of about 1,600 Mw of'hydro- electric plant (principally Keban, 900 Mw, and Gokcekaya, 300 Mw) and 1,800 Mw of thermal power stations (net of retirements). About 2,500 km of 380-ky transmission lines are also included as the second stage of the EHV system as well as about 4,000 km of extensions to the 154-ky network and about 2,000 km of lower-voltage lines. When the 154-ky program is completed, the remaining separate systems will be integrated into the TEK interconnected system. To meet part of the immediate shortage, the Government has nego- tiated an agreement with Bulgaria to import power into the Istanbul area. A 220-ky transmission line interconnecting with the Bulgarian system was to be completed early in 1972 for this purpose. 'jwever, delays in equipment deliveries and operating conditions on the TEK system have so far prevented completion of the tie. Power transfer will be limited to about 50 Mw initially. Other international connections (USSR, Syria, Iran) have been explored but found unfeasible. Village electrification A start was made in 1964 to bring electric power to villages, although some ten villages had previously been assisted by the Government to install power supplies using self-help methods. During the First Plan (1963-67) the electrification of 1,026 villages was achieved, and under the Second Plan further 1,013 were electrified by the end of 1971. By mid-1973 a total of 4,800 villages will have been electrified under the Plans out of 36,000 villages. It is projected that 25,000 villages would be electrified by 1992 at the rate of 1,000 per year. Under this program, the percentage of 8, There was also about 400 Mw of privately owned generating capacity, mainly industrial. - 239 - the total population having access to electricity has increased from 28 percent in 1953 to 39 percent in 1973. Prior to 1970 the responsible authority for village electrification was the Ministry of Rural Works. In 1970 responsibility was transferred from the Ministry of Rural Works to a self-accounting unit in TEK. Finance to support the rural electrification work is obtained through a 25-percent capi- tal contribution from the villagers, a levy of one kurus / per kwh from all consumers whose annual consumption is not greater than 250,000 kwh, and contributions from the Government's annual budget. The 1973 program envisaged expenditures totaling TL309.4 million, met by TL97.8 million from the consumption levy, TL69.8 million from village contributions, TL111.6 million Government contribution from general revenues, and TL30.2 million by TEK in transmission line works. The average cost of electrifying a village is of the order of TL230,000 ($16,500). The total expenditure in the period 1964 to 1973 is expected to reach TL1,400 million (i.e., $100 million). Villagers pay for electricity on a communal basis, whereby the whole village is centrally metered and charged at 35 kurus per kwh. Pricing policies Energy prices in Turkey are administered prices. Oil prices (including local production) are based on Persian Gulf posted prices plus transportation and taxes; the taxes range from TL170 per ton for fuel oil to over TL900 per ton for motor fuels. Retail gasoline prices are typically TL1.8 per liter (about US$0.50 per gal.). Coal and lignite prices are typically priced to be competitive with alternatives (e.g., fuel oil) at retail prices. In some cases prices set on this basis do not cover costs; consequently, TEK receives periodic operating subsidies (e.g., TL440 million in 1971). Wholesale electricity prices are established under a rate-of- return provision in the law which created TEK. Retail electricity prices are set by each municipality, generally to meet cash flow objectives; however, cross-subsidization (e.g., electricity-gas-transport) is common in municipal operations with electricity revenues often being diverted into nonenergy operations. Under present structures average wholesale electricity tariffs (including sales to large industry) are about 26 kurus per kwh (US$0.018 per kwh), and typical retail tariffs are 46 kurus per kwh (US$0.033 per kwh). Since Turkey is not blessed with resources which permit development of "cheap" electricity, prices on the whole cannot be considered high. E. Annex 1: Industrial Protection and Industrial Export and Investment Incentives in Turkey Industrial protection Over the last decade tariffs along with import quotas and pro- hibitions with the primary aim of keeping external payments in balance have 9/ One Turkish lira = 100 kurus. - 240 - provided a high degree of protection and generated revenue. The existing structure of protection is briefly examined below. Tariffs. In 1954 Turkey adopted an ad valorem tariff covering most commodity imports. The 1954 schedule was revised in 1964 in order to increase revenues and protect certain new industries (by placing higher tariffs on finished goods imports than on primary product imports.10/ As a result of the tariff revision, revenues rose sharply with duties collected as a percent of imports, rising 50 percent in 1964 over the previous year. Except for a few commodities such as petroleum products, the 1964 tariff schedule is still applied on an ad valorem basis; only minor modifications were made in tariff rates in 1967 and 1971. The degree of protection afforded Turkey's manufacturing industry by customs duties appears to be relatively high, as may be observed in Table 1.11/ These duties, on a comprehensive sample of manufactured goods weighted by the world value of output, averaged about 50 percent in 1968; 61 percent of the production tax on imports (border tax) is included. The structure of Turkish tariffs--higher rates on consumer goods and lower rates on intermediate and capital goods--affects to some extent the pattern of imports and reflects the Government policy of favoring low-cost inputs to the local manufacturing sector. Nontariff import levies. Imports are subject to a variety of nontariff levies, such as the municipal tax, wharf duties, production tax and stamp duties. These nontariff levies significantly increase the landed cost of manufactured imports, in many cases actually doubling protection to domestic manufacturers. This can be observed in Table 2 in the illustrative example of a piece of imported machinery with alternative customs duties of 25 and 50 percent with the corresponding nontariff levy rates shown. The table shows that the production tax is today the most important nontariff levy on imports, followed by the stamp and wharf duties. The lower the customs tariff, the greater is the relative importance of the nontariff levies.12/ Effective protection. Import duties and other nontariff levies provide only an impressionistic view of the system of protection because protection has been achieved through quantitative restrictions in addition 10/ Tariff exemptions and special rates required by EEC, MFN and GATT agreements form a complex set of modifications to the standard tariff schedule. 11/ There are great analytical difficulties in evaluating relative degrees of protection in countries like Argentina, Brazil or Chile where cus- toms duties were a substitute for devaluation. This was also true to a lesser extent in Turkey. 12/ The figures quoted exaggerate the average incidence of customs duties and other levies because widespread exemptions have been granted on investment goods imported for projects deemed of sufficient priority. - 241 - Table 1 AVERAGE TARIFF LEVELS FOR MANUFACTURES: SELECTED COUNTRIES (In percent) Developing Countries Nominal Argentina 141 (1958) Colombia 106 (1962) Pakistan 96 (1963/4) Chile 89 (1961) Brazil 86 (1966) Turkeyl/ 50 (1968) Peru 35 (1962) Spain 31 (1966) Taiwan 30 (1966) Philippines 29 (1965) Mexico 20 (1960) Developed Countries Nominal Effective Effective as % of Nominal Japan 16.1 (9.4) 29.5 (16.4) 183 United Kingdom 15.2 (9.1) 27.8 (16.u) 183 United States 11.5 (6.8) 20.0 (11.6) 174 European Common Market 11.0 (6.6) 18.6 (11.1) 169 Sweden 6.6 (3.8) 12.5 ( 6.7) 189 Industrial Countries 12.3 (6.5) 21.7 (11.1) 176 l/ Estimate based on incomplete data. Figures in parentheses are post- Kennedy Round estimates. Source: Developing Countries: For Brazil, Chile, Mexico, Pakistan, and the Philippines: Bela Balassa, The Structure of Protection in the Developing Countries, The Johns Hopkins University Press, Baltimore, 1971, Table 3.1, p. 54. For Argentina and Taiwan: Ian Little et al., Industry and Trade in Some Developing Countries, Oxford University Press, London, 1970, p. 163. For Colombia and Peru: Harry H. Bell, Tariff Profiles in Latin America, Praeger Publishers, New York, p. 65. For Spain: IBRD Industry Report on Spain, 1972. Developed Countries: Bela Balassa, "The Structure of Protection in the Industrial Countries and Its Effect on the Exports of Processed Goods from Developing Countries," IBRD Report No. EC-152a, February 28, 1968, p. 16, except for Turkey. - 242 - Table 2 ILLUSTRATIVE TARIFF AND NON-TARIFF LEVIES ON IMPORTED MANUFACTURES, 1973 25% 50% Custom Custom Duty Duty Machinery import Percent Percent (a) Import price (c.i.f.) 100.00 100.00 (b) Customs duty (25% and 50% of (a)) 125.00 150.00 (c) Municipal tax (15% of (b))1/ 128.75 172.50 (d) Wharf duty (5% of (a) + (c))2/ 135.18 181.11 (e) Production tax (10% of (a) + (b) + (c) + (d))3/, 148.69 199.22 (f) Stamp duty (10% of (a))4/ 158.69 209.22 Total duties and levies (b)+(c)+(d)+(e)+(f) 58.69 109.22 Custom duties (25.00) (50.00) Other levies (33.69) (59.22) I! Municipal tax is a special import levy calculated on the basis of the customs duty rather than the c.i.f. value of imports. It is a constant share, 15 percent of the value of the customs duty. 2/ The wharf duty is 5 percent of c.i.f. import value, the customs duty and the municipal tax. 3/ The production tax on this item of equipment is 10 percent of the c.i.f. value of imports, customs duty, and the municipal tax and wharf duty. This tax rate is the same for imported and domestically produced manufactured goods, and the rate varies from commodity to commodity. 4/ The stamp duty is presently (July, 1973) 10 percent (9.5 percent on imports from the EEC), but the Government has the right to apply rates up to 25 percent. A duty of 5 percent was introduced in 1963, raised to 15 percent in 1967 and to 25 percent in 1969. After the 1970 de- valuation, the rate was reduced to 10 percent. - 243 - to the tariffs and because the protection granted a certain industry depends also on the effect of the import regime upon the cost of its inputs. The relevant concept is, therefore, effective protection--i.e., the percent- age by which the domestic value added in a protected situation exceeds value added under free trade conditions.13/ There is only limited information on effective protection in Turkish industries. One relatively comprehensive study undertaken in 196814/ is now out of date, and it would be hazardous to extrapolate it for generalizations with respect to the present situation. The State Planning Organization is undertaking a new survey of the cost structure and prices for a sample of 300 industrial firms; the results were to be available by the end of 1973. Instead, we have used partial data from a 1972 IBRD/ TSKB survey covering a sample of twenty-three TSKB-financed projects in textiles, chemicals, plastics, glass, cement and metal products (Table 3).15/ The study shows effective protection for the twenty-three projects ranging from -11% for metal drums to over 1,000 percent for steel billets and plastics. While the median is 42 percent, there are ten projects with 96 percent or higher protection. Although detailed studies would be necessary for specific recommendations, it is clear that high prices per- mitted by protection and limited domestic competition produce monopoly or quasi-monopoly profits in some firms. Inefficient plants of suboptimal scale, such as in the auto industry, earn high financial rates of return. There is a strong incentive to invest in the highly protected sectors which can earn high rates of financial return although they may not be internationally competitive. This is clearly the case in some of the very highly protected firms in the textile, plastics, ceramics, steel wire, rods and ingots, and metallurgical industries which show negative or low economic rates of return. The few cases of low financial returns apparently reflect Government price control (auto tires and steel wire rods), the export of a high share of the output at unremunerative prices even after export subsidies, or a highly competitive situation on the domestic market. The economic rates of return show a wide dispersion, ranging from negative to 49 percent with a median of 14 percent. In the TSKB sample about two-thirds have an economic rate of return equal to or exceeding 12 percent, and about one-fifth showed negative or zero rates of return. About half of the investment funds in the project sample were misallocated from a social as opposed to a private viewpoint. Economic inefficiency in 13/ Nevertheless, it measures the effect of protection only and not the total impact of the protection and incentives framework. 14/ Ahmet Aker obtained price data for 130 firms and over 460 commodities in order to make comparisons between Turkish and EEC prices in his Study of the Industrial Price Structure of Turkey as a Guide to her Association with the European Economic Community, 1968. 15/ International Bank for Reconstruction and Development, TSKB Special Studies Report, Part C, 1973. - 244 - Table 3 ESTIMATES OF ECONOMIC AND FINANCIAL RATES OF RETURN AND EFFECTIVE RATES OF PROTECTION FOR SELECTED INDUSTRIES/PRODUCTS Financial Rate of Return Economic Rate Industry/Product Effective Protection (before Corp. tax) of Return Metal drums -11 33 12 Transformers -2 21 49 Tires -1 12 31 Chemicals 0 41 44 Motor pumps 0 21 10 Canning vegetables 0 27 33 Glass wool 6 7 14 Tomato paste 15 16 22 Wood/formica 24 44 18 Cement 29 19 28 Textiles 40 19 14 Cement 42 30 19 Plumbing supplies 53 20 12 Textiles 96 9 0 Light bulbs 118 63 48 Textiles 153 52 22 Textiles (synthetic) 197 29 9 Metal parts 276 33 12 Steel wire/rods 291 12 neg. Copper/steel wire 294 36 2 Ceramics 363 100 neg. Plastics 1,060 26 neg. Steel billets 1,911 44 neg. Median 42 26 Source: IBRD/TSKB Special Studies Report (Part C: TSKB's impact on Resource Allocation, Table X.3, p. 44). the sample appeared to derive mainly from suboptimal plant size and ex- cessively diversified production lines with inadequate management another likely explanatory factor. Some broad conclusions emerge from this brief review of the Turkish tariff structure. The protective structure is characterized by a wide range of effective protection rates with no clearly discernible economic rationale. Overprotection has led to overcrowding in many industries with uneconomic size of plants and with prices and profits remaining high. Industrialization through high tariffs and quota restrictions created a twofold bias against exports. Discouragement of exports is inherent in a protectionist policy because inputs whose imports are restricted raise the cost of production. Moreover, import restrictions enabled Turkey to maintain an overvalued cur- rency which also has the effect of discouraging exports. However, the effect - 245 - of tariff policy alone should not be exaggerated because tariffs, combined with the other charges on imports, quota restrictions and absolute pro- hibitions, foreign exchange controls and tax incentive schemes, have shaped past industrial developments. Export incentives Prior to the 1970 devaluation, the combined effect of the over- valued exchange rate, rigid import controls and high import tariffs and taxes was a strong bias in favor of production of manufactured goods for the home market. During the 1960s various incentives were introduced by the Government that aimed at promoting Turkey's manufactured exports, but they were inadequate to make export production attractive. An important export promotion measure was the provision of free exchange by the SPO of up to 50 percent of the value of the export commit- ments, the typical allocation being in the range of 20-35 percent. This free exchange could be applied to imports of raw materials and components required in the production of the export commodity. The benefits of this incentive were proportional to the price difference between inputs freely imported and inputs at domestic prices, which varied from commodity to commodity. Apart from the profits to be earned from such imports, an important advantage for exporters was that it permitted savings in time, administrative and financial costs involved in obtaining imports through the cumbersome import regime. After the 1970 devaluation this incentive has become less important. The main present incentives to exporters of manu- factured goods are tax rebates on exports and export credits on preferential subsidized terms. Rebate of taxes. Tax rebates on exports were established by Law 261 in 1963 in an effort to stimulate the growth of nontraditional manufac- tured exports. At present the scheme refunds following taxes: production, border, sugar, customs, stamp, ser-ic-s (insurance, banking, postal and transport transactions), municipal L.,Lhers. Profits from exports are also exempted from personal and corporate income taxes. A list of products benefiting from the export tax rebate is published annually in a special decree by the Ministry of Commerce. The present system (1973) classifies exports benefiting from tax rebates under six lists. Four of the lists contain export products for which two rates are applied; the higher rate is applicable to exporters whose total exports exceed $1.2 million during the course of any calendar year. The rebate is applied to the f.o.b. export price. In general, products subject to a higher degree of manufacturing or processing enjoy higher rebates. Application of the scheme has been gradually broadened to cover an increasing number of manufactured articles. The share of eligible exports in total exports has risen from 2.8 percent in 1964 to 26 percent in 1972, the big jump occurring in 1969. Total disbursements under the rebate scheme have increased sharply from TL12 million in 1964 to about TL720 million in 1972--i.e., an increase in average rebate as a percentage of f.o.b. price of eligible exports from 11.7 percent to 22.4 percent (Table 4). Sectors receiving the greatest benefits (in rebate value terms) from the export tax rebate scheme are food products, textiles, chemicals and nonferrous metals, followed by cement, leather and wood products. These seven categories of - 246 - industrial exports accounted for nearly two-thirds of the tax rebates approved by the Government in 1972. Products of the mining, animal husbandry and fertilizer sectors have not been given the rebate privilege; agriculture was only added to the system in 1968. The rebate system has, therefore, been encouraging industrial exports in accordance with GoveTnment policy. Table 4 EXPORT TAX REBATES GRANTED TO MANUFACTURING INDUSTRY, 1964-1972 Total Exports Eligible Share in Value of Average Exports for Rebates Total Exports Tax Rebate Rebate Year (TL billion) (TL million) (percent) (TL million) (percent) 1964 3.6 104 2.8 12 11.7 1965 4.2 303 7.2 29 9.7 1966 4.2 220 5.2 28 12.5 1967 4.7 250 5.3 25 9.9 1968 4.1 248 6.1 57 23.4 1969 4.8 1,427 29.5 208 14.6 1970 (7.1)1/ 1,733 (25.0)1/ 290 16.7 1971 9.5 1,825 19.2 385 21.1 1972 12.4 3,202 25.8 718 22.4 I/ Because of the devaluation by the middle of 1970, this percentage is only approximate. Source: Annual Budget Reports. Export tax rebates only partially compensate manufacturers for the discriminatory treatment of their export sales under present exchange rate and protection policies. This may be illustrated by a hypothetical example.16 Import price c.i.f. 100 Export price f.o.b. 8017/ Import price including duty 145 Import price including duty and other levies 160 Export price and subsidy 10818/ The implication in this illustrative case is that a manufacturer would get TL22.40 (at the rate of TLl4 per US dollar) for every dollar saved through import substitution but only about TL15 for dollars earned in export trade. We have no way of knowing how well this hypothetical illustration reflects reality; but it does underline the need for further study of the incentives 16/ The reader may visualize the case of steel made predominantly from domestic coal and iron ore. 17/ The difference between the export and import prices is assumed to re- flect the need to add transportation and similar charges to the import prices while deducting them from the net f.o.b. sales realization. 18/ At 35 percent of f.o.b. prices. - 247 - system, suggesting also that in the future the gradual adjustment of the Turkish price level to the international level in the context of the EEC membership might be achieved more smoothly and efficiently through greater reliance on the exchange rate and less on selective measures affecting trade like import quotas, duties and nontariff levies and export "incentives." In such a new policy framework, incentives might be granted for certain types of industrial production with complete equality (neutrality) as between import substitution and exports. Until such a new framework is developed, some strengthening, rationalization and updating of the export "subsidy" scheme will no doubt be found desirable. This revision might be based on the following ideas: (a) The rationale for excluding various categories from the export tax rebate should be reexamined. There are some inexplicable anomalies. Thus, kraft paper enjoys a tax rebate. Cement bags made of kraft paper do not. But the principle of equal treatment of all exports goes beyond mere anomalies. (b) Where an industry suffers from an excessively high cost of domestic inputs, an alternative route may be followed, namely a certificate for duty-free imports corresponding to quantities incorporated in exported goods. The domestic supplier industry may then be given the option of redeeming these certificates by meeting the terms quoted by foreign suppliers. (c) The rationale for tying the export subsidy to the tax incidence would probably need to be reexamined if a uniform value added tax is introduced which is neutral between different industrial branches and between production for exports and the domestic market. This would mean that exports could no longer be subject to discriminatory treatment. Export credit policy. Export credits have lower maximum lending rates than the general lending rate. Medium-term credits made for export- oriented production are exempt from the payment of the 25 percent banking transactions tax. About 10 percent of the commercial banking system credits to the private sector are for exports, and hence these incentives are important. In addition to the lower rates, the Government introduced interest subsidies for export credits to be paid through a Selective Credit Fund; but due to budgetary problems these subsidies have not been operative for the last two years. The Government announced in 1973 that the selective subsidies will be properly funded and that the subsidies will be paid. The present terms and conditions for export credits are summarized below: - 248 - Table 5 TURKEY'S EXPORT CREDIT INTEREST RATES Rates With Interest Subsidy} 1970 1973 1973 Short-term Export Credits (a) General rate 8.0 8.0 3.0 (b) If rediscounted with Central Bank 9.0 7.5 6.0 Medium-term Export Credits (a) General rate 12.0 12.0 12.0 (b) If rediscounted with Central Bank 12.0 10.5 8.0 1/ The effective rate paid by borrowers who receive the subsidies provided for Decree No. 7/5822, effective March 1, 1973. This subsidy is not in operation but is included in the draft reform of the incentive system. Source: Table 6.1. Industrial investment incentives The industrial incentive regime aims at stimulating industrial development within the policy and incentive framework of the Five Year Plans and over the longer run at modifying industrial incentives (tax, credit and other incentives) to harmonize with EEC policies and practices. The vehicle for granting incentives, thus greatly simplifying administrative procedures, is the investment certificate. Most industries are eligible for benefits (except those producing luxury goods), and the industries covered and the types of benefits available are published each year in the Govern- ment's Annual Program. Investment projects that meet the following criteria are given preferential attention in the allocation of investment benefits: new or advanced technology, export or import substitution potential and efficient plant size to insure world market competitiveness. The main incentives are described below. Tax allowances for investments. Private investors with projects in eligible industry sectors and with investments of TL300,000 or over are allowed to deduct from their taxable corporate income an amount equivalent to 30 percent of the value of investments financed with their own funds. This allowance sharply reduces corporate tax liability during the initial years of the investment when demands on a firm's cash flow are greatest. Investors in any one of forty (out of a total of sixty-seven) provinces designated "underdeveloped" in the 1973 Annual Program are allowed to deduct 50 percent of the value of self-financed investments. Customs duties and import tax exemptions. At the preproduction phase of the investment, exemption from the payment of customs duties and import taxes has the effect of increasing the funds available for investment goods. Exemptions are authorized mainly for investment goods although some basic raw materials may also be granted exemption on a project basis. In order to maintain equitable treatment and fair competition between - 249 - manufacturers, if one manufacturer of a given product is granted customs exemption, other manufacturers of the same producL will also be eligible. Deferred payment of customs duties and charges. Under this incen- tive all customs tariffs and similar charges on imported investment goods (customs duties, production tax on imports, municipal taxes and wharf duties, excepting only the stamp tax), can be paid in up to five equal annual in- stallments. Most eligible industry sectors receive five years' deferments although foodstuffs, textiles, clothing and forestry products generally receive deferments in the two to four-year range. In addition to reducing the demands on a firm's liquidity, this incentive implies a substantial effective reduction in import charges. Thus, the present value of TL100 in import charges payable in five years at an illustrative interest rate of 12 percent is only TL57. Building construction tax exemption. Payment of the construction tax is exempted for nearly all industries that are eligible for incentive certificates. During the initial years of plant operation, the value of the tax, tariff and financial incentives made available to Turkey's industrial in- vestors seems to be considerable. A rough idea of the incentive effect on a manufacturing enterprise that is eligible for the maximum available bene- fits can be gathered from the following example of a TL39.3 million investment in a wood processing plant in Turkey (Table 7). Other evidence suggests that this illustrative case roughly represents average experience for those investors obtaining maximum benefits although some downward adjustment of benefits must be made for firms receiving weaker incentives--for example, customs tariff deferment instead of full exemption or less subsidized credit. The most important benefits are the exemption from import charges and the investment tax allowance. In a different category the tax rebate on exports is also important in this case. The other fiscal and financial in- centives (credit subsidies, investment tax allowance, construction tax exemption) amount to less than half of the value of the customs exemption alone. Benefits derived from customs exemptions amount to TL10 million-- i.e., about 70 percent of the cost of imported equipment. The cumulative present value of all investment incentives, in this case, amounts to about 54 percent of the total investment (fixed investment plus working capital, excluding customs duties). The approximate range of the benefits for individual projects, depending upon import requirements, access to subsidized credit and so forth appears to be of the order of 30-60 percent. - 250 - Table 6 VALUE OF INCENTIVE BENEFITS ACCRUING TO INVESTORS IN A MANUFACTURING PLANT (In thousands of TL) Enterprise Costs Estimation Present Investment and Without With of Gross Value of Other Costs Incentive Incentive Benefits Benefits Land 556 556 -- -- Factory and other buildings 2,568 2,568 -- -- Machinery and equipment - imported 14,730 14,730 -- -- - locally produced 3,500 3,500 -- -- Customs duties and import taxes 10,310 -- 10,310 11,547 Other investment costs 17,942 17,942 -- -- Total Investment 49,606 39,296 Interest payments - TSKB long-term dollar credit 10,206 10,206 - TSKB long-term TL credit 717 358 358 1,110 - Short-term export credit 208 104 104 116 Tax Refund on export 1,444 1,444 4,476 Investment tax allowance 2,911 2,911 4,075 15,027 21,324 Data on the fiscal cost of the industrial incentive system are not collected and analyzed in a comprehensive and systematic manner. The follow- ing figures suggest the order of magnitude of the customs duties exemptions, investment tax allowance and tax rebates on exports granted in 1972. Table 7 APPROXIMATE FISCAL COST (REVENUE FOREGONE)1! OF INDUSTRIAL INVESTMENT INCENTIVES, 1972 (In million TL) Private All Economic Manufacturing Sectors Custom exemptions 1,595 3,009 Investment allowance 783 1,351 Export tax rebate 476 718 Total 2,854 5,078 Additional data are provided in Table 8 to show the historical development of the system and the share of the private manufacturing sector in the total benefits to all economic enterprises, both public and private. With some reservation for the lack of complete comparability over time, the figures suggest the following conclusions. Up to 1971, private manufacturing firms shared only to a minor extent in eligible total investments and imports. - 251 - However, their share rose substantially in 1971 and 1972. The private manufacturing sector's share in the total value of customs exemptions was 4 percent in 1968, 66 percent in 1971 and 53 percent in 1972. In 1972 the share of the private manufacturing sector in investment tax allowance was about 58 percent. Total customs exemptions to all sectors have been rising except for a sudden fall in 1971, probably related to the suspension of incentives in 1971. Table 8 INVESTMENT INCENTIVE LICENSES APPROVED FOR PRIVATE1/ MANUFACTURING INDUSTRY (Millions of TL) CIF Investment No. of Total Invest- Value Customs No. of Total Invest- Tax Year Projects ment Costs Imports Exemptions Projects ment Costs Allowance 1968 14 215 83 40 1969 21 801 401 312 1970 21 907 324 165 1971 272/ 2,603 1,461 1,118 1972 1597/ 7,087 2,456 1,595 117 2,6093/ 7834/ INVESTMENT INCENTIVE LICENSES APPROVED FOR ALL5/ ECONOMIC SECTORS, PUBLIC AND PRIVATE (Millions of TL) CIF Investment No. of Total Invest- Value Customs No. of Total Invest- Tax Year Projects ment Costs Imports Exemptions Projects ment Costs Allowance 1968 30 4,774 1,584 945 183 3,702 1,852 19696/ 85 5,203 2,355 1,722 214 4,809 2,065 19701/ 37 8,111 3,151 2,529 167 3,278 1,858 1971 36 5,447 2,238 1,685 666/ 1,274 616 1972 308 11,622 4,307 3,009 154 4,504 1,3514/ 1/ The table includes specific incentive licenses granted to private investors whohave received general incentive certificates. The figures in the table refer to planned, not realized, investments. 2/ Based on private sector data which may include other nonmanufacturing sectors. 3/ Last 11 months of 1972, but includes most of the licenses granted in 1972, since few were granted in January, 1972. 4/ Estimate. 5/ The table includes specific investment licenses granted to private and public investments that have received general investment certificates. The figures refer to planned, not realized, investments, imports, etc. 6/ First 11 months. Source: Compiled from various official sources. - 252 - Conclusions Turkey's industrial incentive system has some substantial results to its credit in terms of stimulating private entrepreneurship and in produc- tion for the home market. The incentive system clearly has a powerful impact on industrial investment. The suspension of incentives in 1971 had an adverse effect on private industrial investment, and their resumption in 1972 was paralleled by a sharp pickup in investments. However, it was only partially successful in promoting exports of certain manufactures and had little impact on the geographical redistribution of private manufacturing investment. Some of the incentive programs may provide excessive benefits such as the investment tax allowance, and others provided to stimulate ex- ports and industrial relocation may be inadequate. There are a number of problems facing the existing incentive legislation. First, it is transitional legislation which creates some investor uncertainty. A codification of existing incentives has been pro- posed in draft legislation although new legislation is not likely to be introduced until sometime in 1974. Given the large amount of revenue foregone (of the order of $400-500 million a year), a full analysis of the costs and benefits of the incentive schemes and their impartial implementation is very important. Second, there are considerable sectoral imbalances in the granting of incentive certificates. For example, the textile sector accounted for nearly half (TL12 billion) of the TL26 billion of approved investments in 1972 with chemicals and foodstuffs accounting for just under one-fourth, leaving just over one-fourth for all other industry sectors. Third, to ensure effective implementation, the administrative machinery for the im- plementation of incentives needs to be improved. In view of the discussion above, consideration should be given to the following: (a) The Government should undertake a thorough review of the budgetary effects (and differential sectoral and geographical effects) of tax, tariff and other incentives with a view to rationalizing and improving the adminis- tration of the industrial incentive system and to eval- uating the "benefits" of the incentives relative to their costs so that a rational incentive program can be implemented at least cost. (b) It may also be useful to examine, in view of widespread application of customs duties exemption or deferment on manufactured imports, the,practicality of lowering tariffs on investment goods imports and applying re- strictive measures to nonencouraged industries. (c) Benefits in favor of export production compared to benefits granted to home market-oriented investors should be increased. Export incentives might be related to the amount exported on the principle that proportion- ally greater benefits go to firms that export a higher proportion of their output. - 253 - (d) Greater attention should be given to the intersectoral allocation of benefits. Some sectors received large allocations in recent years; industrial promotion out- side of the textile, foodstuffs and chemicals sectors may have been deficient. (e) The investment promotion services of the Ministry of Industry should be strengthened (or alternatively to create another entity, to undertake the investment problem-solving, coordinating and expediting function previously discharged by the SPO)--e.g., commissioning feasibility studies, extending technical assistance to investors (especially small and medium sized) and ex- panding long-term credit. (f) Regional investment incentives for the private sector are too weak to overcome the adverse investment condi- tions in many of the less-developed provinces. The Government might establish a regional development bank to provide medium- and long-term credits and to promote regional industrialization by helping local investors to establish local industries; to undertake resource and investment surveys, feasibility and marketing studies; and generally to assist investors to obtain Government incentives and services in Ankara. (g) Since inefficient, small-scale production is a major factor explaining high costs in some sectors, the Government might consider adopting an industrial merger policy, providing special inducements to merge small-scale enterprises into larger ones that can benefit from the economies of scale and marketing. F. Annex 2: Manufacturing Sector Iron and steel The following table summarizes supply and demand for finished steel products in 1962-72 together with the Plan projections for 1977. Table 1 CONSUMPTION, PRODUCTION, AND IMPORTS OF FINISHED IRON AND STEEL1/ (Thousand tons) 1962 1967 1972 1977 Consumption 1,267 2,198 4,185 Annual rate of income -- -- 12.4% 14.7% Production 451 1,247 2,007 3,956 Imports, finished steel no data 107 241 229 semis 154 815 44 Import value (TL million at 1971 prices) (740) (2,624) (1,000) - 254 - 1/ The difference between imports plus production on the one hand and con- sumption on the other hand in 1967 and 1972 presumably reflects inventory accumulation plus exports. The latter are known to have been quite small. One outstanding characteristic of the 1972 demand/supply pattern is the imbalance between metallurgical and rolling capacity necessitating large imports of semis (semimanufactures or semifinished metals). This imbalance will be eliminated by 1977. The 1972 production of finished products came essentially and in roughly equal proportions from two integrated mills: the old and badly situated Karabuk steel mill which produces bars, rods, rails and so forth and the recently constructed Erdemir steel mill on the Black Sea which produces exclusively flat products. A third steel mill is under construction with USSR financial aid at the deep-sea port of Iskenderun. By 1982 both Iskenderun and Erdemir would have attained a production of 4.0 million tons. During the Third Plan, MKEK (the State metal products and machinery concern) would create an additional 200,000 tons of electric steel capacity. The Plan shows the following investments in steel expansion: Table 2 INVESTMENTS IN STEEL EXPANSION Investment per TL million US$ equiv. Finished steel ton steel at 1971 prices millionL/ output tons US$ equiv. First Plan 4,337 482 796 605 Second Plan 5,684 440 760 580 Third Plan 15,400 1,100 1,949 565 1/ At current exchange rates. Whereas steel absorbed 14 percent of total manufacturing investments in the Second Plan, that share is projected to rise to 17.6 percent in the Third Plan. The economics of such expansion is, therefore, a vital issue which is not seriously faced by the Plan. Preliminary indications are that the two major raw materials, coal and iron ore, could be supplied at or close to com- petitive world market prices. Barring an unexpectedly sharp increase in wages over the next decade, Turkey should have an edge in labor costs (in spite of relatively low productivities). Turkey's main disadvantage in this highly capital-intensive industry lies in the investment cost per ton of steel. Erdemir's average investment at the projected 1.3 million ton finished products level works out at about $450 per ton, which is hardly competitive, though the projected marginal cost for the expansion from 0.5 to 1.3 million tons at an estimated $360 per ton would be competitive. The latest Annual Report by the State Investment Bank implies for the Iskenderun complex an average investment of $630 per ton, including working capital. As a standard of reference, a recent estimate indicates an average investment cost for steel expansion in industrialized countries, excluding working capital, of about $300 per ton. In view of this, the question should be seriously anal- yzed (in planning for the fourth steel mill) whether investments in steel represent the best use of the country's capital resources. - 255 - Chemicals, petrochemicals and fertilizers The chemicals and fertilizers industry accounted for slightly more than 8 percent of the value added in manufacturing in 1972. Contrasted with its contribution to GNP, this industry is absorbing a very large share of total manufacturing investments, about 25 and 23 percent respectively in the Second and Third Plans. Whereas at the end of the First Plan consumer goods (soaps, detergents, paints, matches and medicines) dominated the picture, the Second Plan was characterized by the expansion of fertilizer production (the capacity of nitrogen fertilizers production rose from 118,000 tons to 1.4 million tons and of phosphates fertilizers from 222,000 to 1.6 million tons) and the initiation of petrochemicals production, synthetic fibers production (from imported intermediates) and boron chemicals production. The Third Plan places high priority on the chemicals industries which is said to be justified by a heavy increase in the demand for both chemicals and fertilizers, the strong forward and backward linkages in the chemicals industry, and the role of these industries as "carriers and ac- celerators" of technological development. As a result, rising imports during the Second Plan would be slowed down. The increase in imports would fall almost entirely within the group of sundry, unspecified chemicals. Major increases in chemicals production would occur in alkalies, boron products, synthetic fibers, detergents, films, medicines, insecticides, plastic materials, carbon black and synthetic rubber. Production of nitrogen fer- tilizer would triple and phosphate fertilizers double with even larger increases in phosphoric acid and sulphuric acid production. Apart from marginal exports in e.g., plastics to take advantage of unused capacity, the major increases in exports would come from boron products. The Third- Plan period would witness the completion of the petrochemicals complex in 1974, the partial completion of the Aliaga complex (producing intermediates for synthetic fibers), two major nitrogen fertilizer plants, a major alkali complex and a new boron products plant. All the projects described would be in the State sector. Table 3 IMPORTS OF CHEMICALS AND FERTILIZERS (TL million) 1967 1972 1977 Specified chemicals 1,000 1,108 1,327 Sundry unspecified 405 450 1,608 Petrochemicals 273 796 485 Fertilizers 638 987 681 Total imports 2,316 3,342 4,100 Exports 59 172 708 Net imports 2,257 3,170 3,392 Petrochemicals and fertilizer production up to now have proved difficult fields for developing countries because they are highly capital- intensive lines with major advantages in scale. There is intensive development of new products and processes where the profits are typically - 256 - made in the early period of the introduction of a new process or product. With a tendency towards overcapacity, price cutting is practiced extensively on the world market. However, Turkey has entered in a gradual manner in this field, starting with products at the consumer end where a market exists and where advantages of scale are relatively moderate. It has also initiated production of intermediates and basic chemical raw materials like ammonia, ethylene, aromatics, although the derived demand is at present hardly sufficient to justify units of optimum size. Historically, this is not the way the Turkish chemicals and fertilizer industry has grown. The first major unit, the integrated nitrogen fertilizer plant at Kutahaya (1961) based on lignite, encountered all the difficulties mentioned above and has made losses even in recent years. The Yarimca petrochemicals complex faced many delays in construction, and several of the major units were well below competitive size. Capacity utilization in nitrogen fertilizer production in the 1968-72 period has varied between 44 and 69 percent. Textiles and clothing The textiles industry holds an important place in the Turkish economy. Together with clothing and footwear (production of which on an industrial scale is relatively insignificant), it accounts for over 20 percent of manufacturing output and roughly one-third of manufacturing employment. Textiles exports, of minor importance until 1967, have increased eighteen times over the last five years. At $55 million equivalent, they now account for roughly one-third of industrial nonfood exports (Table 3.2). Whereas cotton yarn exports led the way and still accounted for one-half of the total in 1971, there has recently been increasing diversification into grey and printed woven goods, towels, carpets and garments. Before World War II, textiles production was dominated by Sumerbank, a State undertaking. During the postwar period, the private sector has expanded, often with State encouragement, and now contributes 75 percent of the total output. The textile industry has drawn substantial investment and export incentives. Most textile products benefit from an export tax rebate of 25 percent (10 percent higher for exporters with more than $1.2 million exports per year). In addition and till recently, export proceeds from cotton were exchanged at a lower rate than the official rate, thus encourag- ing the processing of cotton for exports. The Third Five-Year Plan envisages a 8.5 percent annual increase in textile and clothing production with exports increasing by 23 percent per year. Most of the expansion is expected to take place in cotton spinning and weaving, artificial fiber weaving and knitwear. In the woolen and worsteds sectors, the major effort would be towards modernization (in fact, substantial unused capacity is reported for this subsector). Total investment require- ments for textiles and clothing are estimated at TL8.8 billion. The textiles and clothing industry has a high priority for development because there is an expanding market in Western Europe to which - 257 - Turkey will be granted increasing access on increasingly favorable terms.19! Although the OECD countries now absorb over 80 percent of Turkey's textile exports, Turkey's share of the total OECD textile imports is insignificant except for grey cotton yarn representing about 9 percent of total imports and cotton yarn about 5 percent. Turkey has a comparative advantage because of its high-quality cotton of which only 40 percent is being processed in Turkey and because of low labor costs20/ and easier physical access to the European market than major Asian producers. Table 4 SUPPLY AND DEMAND OF THE TEXTILE AND CLOTHING INDUSTRY (TL million at 1971 prices) 1972 1977 Estimate Projection Gross output 18,700 28,200 Imports 210 350 Export 600 1,680 Turkey could, therefore, expand its exports but to do so must improve its productivity and marketing effort. Present productivity, measured in yards per man-hour is only about 60-80 percent of the British and German productivities for print cloth and about 50 percent for duvetyne. Clearly, there exist problems, both of management and of inadequate structure. The structural problem relates to both the size of individual units and the balance between production units. A 1971 survey found forty-seven out of seventy-two spinning plants and thirty-six out of fifty weaving plants below optimum size. On the other hand, there were also a few mills of a size too large for proper supervision and management under Turkish conditions. Finishing plants were poorly utilized; there was a tendency for small mills to have their own finishing plant apparently out of fear of becoming too dependent upon large finishing plants. However, the potential for improve- ment is there as indicated by the fact that some recently engineered, well- managed plants show excellent productivities comparable to best European standards. A training and technical research center has been proposed for the textile industry which could make a valuable contribution. Because of its employment-creating potential,.the clothing and knitwear sector would seem to merit more study and a more intensive Government promotional effort than it seems to have received thus far. 19/ According to the EEC Treaty and Annex Protocol, immediate duty-free access will be granted to Turkey for twenty-nine out of thirty-two tex- tiles positions, including fabrics of blended natural and man-made fibers as well as ready-made garments. Duty-free quotas for cotton yarns and fabrics are fixed at respectively 500 and 1,000 tons per year. Import duties will be eliminated over twelve years and reduced by 25 percent initially and by 50 percent after four years. 20/ In 1970 the hourly labor cost in the textile industry was about two-thirds of Hongkong, one-half of Japan and one-fourth to one-fifth of Western Europe rates. - 258 - Forest industries The forest industries in recent years have contributed about 5' percent of the net manufacturing output and, together with forest exploita- tion, account for about 3 percent of GNP. This proportion, has been declining during the last decade. Exports of forest products are comparatively small, and in 1972 Turkey had a net import surplus (essentially imports of pulp and paper) of approximately $5 million equivalent. Turkey's forests, located mainly in the coastal mountain areas, are among the largest in Europe, covering an area not far below the Swedish or Finnish forests. Yet, the 1972 annual cut of about 0.8 cubic meters per hectare was less than one-third of the Swedish figure; and whereas the Swedish production is predominantly industrial wood, nearly two-thirds of the Turkish cut is fuel wood. Much of the forest is overmature or otherwise degraded with a consequent subnormal annual growth rate and a great need for accelerated exploitation. Both forestry and conversion have been largely State managed with centralized control and a lack of integration between saw milling and pulping operations. The State Forest Department controls the felling and marketing of logs. Buyers complain about irregular supplies and uncertain qualities and prices. High prices for wood reflect the overvaluation of the currency, (particularly until 1970) and the subsidization of the forest villagers who have entrenched rights to free wood. The low degree of exploitation is another handicap. In the absence of a recent forestry inventory, there has been poor knowledge of the total resource. According to FAO studies, a doubling of the cut even at present techniques and degrees of mechanization could be achieved with a relatively small increase in the work force through improved organization and a better seasonal utilization of labor. With a 70 percent increase in the cut of industrial wood over the last six years, the situation is improving. It is expected that wood costs in the new Antalya project (see below) will become competitive by international standards. The State Pulp and Paper Corporation (SEKA) was established in the early 1930s when its first mill was built at Izmit. The economic results from this mill have never been good due to small units, lack of specializa- tion, overstaffing and frequent changes in management. In 1965 SEKA started constructing three new integrated paper mills with a combined capacity of about 230,000 tons of paper. There were delays in implementation and higher- than-expected capital costs. Two of the three mills are now operating at near design capacities; but even at full operations, these mills will have high production costs per year since at an average capacity of about 75,000 tons they are only about one-third the size of similar modern North European and North American mills. One reason for the small scales originally selected was concern over wood supplies. There are also three small recently constructed nonintegrated private paper mills with a capacity of about 10,000 tons each. Wood conver- sion other than paper production is dominated by the private sector: among 5,000 saw mills in Turkey, fourteen relatively large State-owned mills account for only about 7 percent of the total output. The private mills are hampered by small size, obsolete equipment and, again, because of un- certainty regarding log supplies, the need to keep excessively large wood inventories. Difficulties in obtaining the guaranteed local supply of logs may explain the clustering of many plywood and board mills around the main - 259 - market of Istanbul. Turkey has altogether ten plywood mills with a combined 1971 capacity (based on one shift) of 42,500 cubic meters, three fiberboard mills (46,000 tons) and two particleboard mills (42,000 tons). All the wood conversion plants are small by international standards. A new approach is clearly needed for the development of the Turkish forest resource, based on the following ideas: (a) an economic size for the industrial installations, specifically a 130,000 tons-per-year integrated kraft paper mill deriving much of its raw material in the form of waste from a saw mill located on the same site with an output of 182,000 square meters per year of sawn wood; (b) increase of log production in the Antalya region from presently 300,000 cubic meters roundwood to 800,000 cubic meters; (c) feasibility studies to prepare future integrated forest utilization projects in the Adana/Mersin and Marmara regions; (d) the hiring of high-level expertise to assist in construction and early operations and to prepare long-range forest management plans. Motor vehicles and tractors The Turkish automotive industry is essentially an assembly operation and is highly fragmented. During the Second Plan the local content of trucks and vans assembled in Turkey increased from 20 percent to 57.5 percent and of buses from 30 percent to an average 70 percent. This, however, was done without efficient planning and coordination of subcontractor industries; the result was a large number of scattered firms operating at noneconomic levels of production. There are nearly twenty companies engaged in motor vehicles and tractors production. Six of these manufacture tractors; four make buses; and three make passenger cars, light pickups, or both. Engines and transmissions are imported. Whereas other car production plants in the Mediterranean area have reached an output of 200,000 or over (which is often regarded as a minimum economic scale), in Turkey two manu- facturers by 1977 would share a production of 50,000 vehicles. The difference between local and c.i.f. prices for trucks and tractors ranges between 40 and 60 percent. Statistics for Turkish production of motor vehicles over the last two Plan periods are as follows: - 260 - Average Average annual annual increase 1972 increase 1962 1967 1962-1967 Planned Actual 1967-1972 Tractors 2,574 12,038 36.0% 15,000 20,000 10.8% Trucks/vans 1,354 8,903 45.0% 12,000 18,300 15.5% Buses 820 944 2.8% 3,900 3,600 31.0% Passenger vehicles 877 4,032 36.0% 16,500 26,000 45.0% The Turkish strategy for the Third Plan is to push hard towards the all-Turkish car and truck (85 to 90 percent domestic component). In a second stage, tractor production and truck production would be reorganized to achieve desired additional integration of domestic components through merger of scattered small firms. Complementary industries (i.e., manufacture of parts, including engines) will be encouraged as well as participation by foreign companies with a view to opening foreign markets. To push backward integration, the Government intends to launch two key projects shortly: a diesel engines plant in addition to a gears and gearboxes plant. The State Planning Office estimates that, by the end of the Third Plan, Turkey's domestic demand for motor vehicles, its exports, imports and national production would be as follows: Domestic National Average Annual Demand Imports Exports Production Increase Tractors 35,350 400 50 35,000 11.8% Trucks/vans 28,400 -- 100 28,500 9.3% Buses 8,650 -- 180 8,830 19.5% Passenger vehicles 53,000 3,000 -- 50,000 14.0% A group of consultants (TUSTAS) in connection with a 1971 study for the development of engine production prepared fleet forecasts for private auto- mobiles, trucks, buses, and tractors. Their figures shown below are more optimistic than the Plan projections: Passenger Vehicles Trucks Buses Tractors 1969 actual 137,000 122,000 35,000 90,000 Projected 1978 362,000 260,000 83,000 248,000 According to the same study, about 25 percent of the trucks would be light vans for up to one ton load, another 10 percent light vans with 2.5 tons load, 40 percent would be medium trucks in the range of 3 to 5 tons, and the remaining 25 percent trucks over 5 tons. The same fragmentation holds true for the tractor market. It will take extremely careful planning to find a viable production structure both for the vehicle industry and for the production of major components like engines, gears and transmissions at these small scales of output. Among major possible develop- ment objectives (apart from optimum timing of investments) should be the concentration of truck production to one or, at the most, two plants - 261 - (perhaps one for heavy and the other for medium trucks), standardization of tractor engines, limitation of the buildup of domestic content to economically defensible levels, and increased pressure on foreign companies to secure some of their procurement in Turkey in return for the protected market that they would be guaranteed. - 262 - PART III : MA J 0 R SOCIAL AND EC 0 N 0 MIC SECT 0 RS XII. TRANSPORT A. The Transport System Turkey's large size and rugged terrain have rendered construction of the land/surface transport network difficult and costly. Its area is 777,000 of which 15,000 square kilometers lie in Europe, separated from the Asian part by the Bosphorus Strait, the Sea of Marmara and the Dardanelles Strait. About one-half of Turkey lies above 1,600 meters. The Anatolian plateau in the center is bordered by the northern Anatolian Range and in the south by the high Taurus Mountains; in the east, mountains rise to over 5,000 meters. In view of the rugged terrain, transport routes have had to be circuitous. Population density and economic activity are highest in Thrace and along the Black Sea, the Marmara and Aegean coasts. However, early in the Republic Ataturk followed a deliberate policy of promoting inland regional centers and connecting them with Ankara, mainly through railways. During the past three decades, the transport system underwent basic structural changes; and the emphasis placed on railway construction was replaced by a rapid expansion of the highway system. In the period 1950 to 1970, the length of all surfaced national and provincial roads has doubled from 24,000 km to 48,000 km; and the number of motor vehicles per km of road increased fivefold from 1.3 to 6.3. Similarly, traffic density increased eightfold from 150,000 unit/km of road to 1.2 million unit/km of road. This compares with a threefold increase of GDP in real terms during the same period. Road traffic is very unevenly distributed with 68 percent of the total in 1969 concentrated in the major centers of economic activity: Istanbul, Bursa, Izmir, Konya, Ankara and Adana. The Turkish State Railway (TCDD) network has remained substantially the same in the past twenty years at around 8,000 km except for a small extension in 1971 to connect Turkey with the Iranian railway system and the construction of a small line from Edirne to the Bulgarian border. The alignment is generally circuitous; as a result, rail distances between main traffic centers are generally greater than via the more recently developed road network. The network also conforms poorly to the present pattern of main traffic flows. Partly due to lack of funds, track maintenance has been largely neglected; nearly 50 percent of the network has become overage and a safety hazard. Consequently,delays, accidents and speed reductions are frequent. On the other hand, overall traffic density on the railways in- creased during the 1950 to 1970 period by 75 percent, from 680,000 to 1.2 million traffic units per km of line. Still, about 30 percent of TCDD's network has very low density traffic; studies of abandonment or rationaliza- tion of these lines will soon be started as part of a program for the physical and financial rehabilitation of the railway. Analysis of the traffic in each mode, as given in Table 66, shows a shift during the 1960 to 1970 period in the relative traffic shares of rail and road. - 263 - Table 66 PERCENT OF TOTAL TRAFFIC (Rail and road) 1950 1960 1970 1972 Freight Rail 76 56 25 28 Road 24 44 75 72 Passenger Rail (main line) 51 25 8 6 Road 49 75 92 94 In absolute terms rail freight increased by about 3.5 percent per annum from 1950 to 1965 while mainline passenger traffic grew at about 2.3 percent, compared with an annual increase in population of 2.7 percent and in GDP of 5.8 percent during that period. The faster development of road traffic can be attributed partly to the effects of the rapid development of light and heavy industries centered around major cities which primarily generate short-haul general goods traffic that favors road transport. Con- versely, the slower growth of rail traffic, which is generally more competitive in transport of agricultural and mining bulk commodities over long distances, reflected the relatively slow expansion of these sectors. Bulk traffic is the backbone of TCDD's business; it accounted for about 70 percent of the railway's total freight transport (in ton per km) and 60 percent of total freight revenues in 1971. Minerals (iron ore, chrome, coal and others) and cereals accounted for over 50 percent of total ton per km in 1970. General goods (such as building material, machines and equipment) and consumer goods represented about 30 percent of total ton per km and remained almost static in the period 1964-1971, indicating that only road traffic benefited from the increased production and consumption of these commodities. However, prospects for future rail traffic, particularly bulk traffic, are encouraging. Total railway traffic is expected to double during the decade 1972 to 1982 from 5.7 billion ton per km to 11.4 billion ton per km. This net growth of about 8 percent per annum will be almost wholly due to the planned expansion of iron ore mining in Turkey, and iron ore traffic is expected to quadruple in the decade 1972 to 1982 from its level of 1.4 million ton per km. As for passenger traffic TCDD will be merely a residual carrier in 1982 with about 2.3 percent of all passengers carried by land surface transport. More detail on traffic forecasts appears in Section F below. Turkey operates seven ports for international trade: Istanbul and Haydarpasa (also in Istanbul area), Izmir, Samsun, Trabzon, Mersin, Iskenderun and Derince. These ports of Zonguldak, Eregli and Izmit are predominantly industrial. There are also many minor ports, harbors of refuge and natural landing places along the long coastline. Port traffic increased in the past (from 1963 to 1971) at about 6 percent per annum. Operation of these ports is the responsibility of the Maritime Bank (Istanbul, Izmir, Trabzon) and TCDD (Haydarpasa, Derince, Samsun, Mersin and Iskenderun); specialized ports are operated by other State Economic Enterprises. The Ministry of Communications has prepared a draft law which would consolidate - 264 - operation of ports under a single authority. However, the draft law has not yet been submitted to Parliament. The Turkish merchant marine consisted in 1970 of about 786 ships of 100 gross tons and over with a combined gross tonnage of 455,736, of which cargo ships accounted for 64 percent, tankers 20 percent, and passenger ships 15 percent. In international seaborne shipping, Turkish flag vessels carried about 37 percent of all imports to and 20 percent of all exports from Turkey. Coastal vessels transported approximately 11 million tons (unloading only). With the exception of tankers, the national and international fleet is outmoded and too small in average size. There are two international airports (Yesilkoy at Istanbul and Esenboga at Ankara), fifteen civil airports for domestic traffic and three military airports which are also used for scheduled domestic air traffic. Out of 103,000 aircraft movements recorded in 1970, about 39 percent was international traffic (60 percent in terms of passenger traffic). The importance of the two international airports for Turkey is highlighted by the fact that in 1970 they handled about 70 percent of all aircraft move- ments and 75 percent of all passenger traffic. The civil airports are operated by the General Directorate of State Airports (DHMI). Operation of air services is subject to approval by the Ministry of Communications. However, at present only Turkish Airlines (THY), a State Economic Enterprise, operates domestic services. B. Assessment of the System Considerable efforts are still needed in order to raise the physical efficiency of the system and lower transport costs. In the road sector new construction is at present on a modest scale, attention being focused on maintaining and improving the existing network. Demand for road capacity is greater than supply mainly in the larger urban areas. Of these, Istanbul is of particular importance. A new bridge crossing the Bosphorus was opened in late 1973, and a circumferential highway is to be completed in 1974. In regards to road vehicles, the problem of an anti- quated vehicle fleet seems to have been partially resolved through a sizeable increase in the domestic production and assembly of motor vehicles. Imple- mentation of plans to increase the output of domestically manufactured or assembled vehicles is under way and is expected to result in a marked improve- ment in the age composition of the road vehicle fleet within the next five years. The most urgent need of the railways is for renewal of track on main trunk routes and new rolling stock, especially locomotives, which are mostly overage steam locomotives. In the shipping sector the fleet consists of old and small ships which do not permit economic operation. The commercial air fleet has expanded considerably in recent years (during the period 1968 to 1972) and now operates a modern fleet of jet aircraft. Turkish ports need improvement to meet efficiently the demands of growing traffic. There are shortcomings in equipment, availability of mechanical installations and speed of operation, harbor depths, length of wharves and storage capacity. - 265 - The airport infrastructure is, by and large, adequate. There is a program under way to equip Turkey's major domestic and international air- ports with modern air control facilities. Only the important international airport, Yesilkoy in Istanbul, needs considerable extension and improvement to cope with future tourism and other international traffic. Summaries of traffic data and the transport infrastructure and traffic data are given in Tables 10.1 and 10.2 respectively. C. Planned Targets and Performance Targets for traffic growth have been met or surpassed with the exception of railway traffic while shipping traffic exceeded the plan estimate by over 100 percent and international air traffic by several times. The following table shows the growth targets and actual performance for each mode of transport: Table 67 SECOND PLAN TRANSPORT TARGETS AND REALIZATIONS Annual Increase Percent 1967 1972 Plan Actual (a) Freight (million t/km) Road 12,500 25,700 15.8 15.5 Railway 5,476 6,600 4.9 3.8 Sea Coastal shipping 4,417 7,417 2.4 11.0 International 8,131 24,260 2.9 24.5 Air Domestic 2 2 11.8 4.8 International 1 4 15.6 25.3 (b) Passengers (million pass/km) Road Interurban 36,100 60,000 10.7 10.7 Intraurban 1,045 1,325 2.9 4.9 Railway Interurban 3,548 3,650 4.1 0.6 Intraurban 753 1,300 4.8 11.5 Sea Domestic 1,277 1,711 0.3 6.0 International 102 230 4.9 17.7 Air Domestic 216 198 12.0 -1.8 International 115 683 8.7 42.8 - 266 -- The actual increase in traffic corresponded closely to the ex- pansion of the vehicle fleet of the transport industry. However, there are signs of overinvestment in road passenger transport where capacity has grown much faster than demand. Growth rates of ship capacity (in DWT) both in the private and State sector werebelow plan targets, and passenger shipping transport capacity actually declined although demand increased in the Marmara area and did not decline in the Black Sea and Aegean. The share of the transport sector in total capital formation (both public and private) was 14 percent in the First Plan period (1963-1967) and is estimated at 16 percent during the Second Plan period (1968-1972). Public investment in transportation totaled TL8.9 billion during the 1963-1967 period and is estimated at TL12.2 billion during the 1968-1972 period. Highways accounted for 71 percent of the total during the first period and are expected to account for 51 percent of the total during the Second Plan. These investments were used almost exclusively to upgrade existing roads. The total amounts spent on highways appear adequate; but there is a need to place greater emphasis on expanding capacity or modernization in the main centers of industrial activity where serious bottlenecks already exist, particularly in Istanbul and on the links Istanbul-Ankara and Istanbul-Izmir. Railway investments in the First and Second Plans amounted to 17 percent and 22 percent of total transport investment respectively. Expenditures for railways were too low in relation to the needs for renewals and for cost- reducing investments, resulting in accelerated deterioration of the railway infrastructure. In ports and shipping the need for modernization was also not met. Development of a more-balanced investment program in transport was hampered by institutional weaknesses (see below) as well as by financial constraints. Partly as a result of inadequate investment, coordination, manage- ment, and also as a result of the Government's pricing policy, the State transport sector has sustained heavy financial losses. The deficit in the transport sector amounted to about TL1.3 billion in 1970, equivalent to about 51 percent of total budget expenditures in that year (Table 66). The financial results of the transport enterprises vary, however, from a huge deficit in the case of the railways to a relatively large surplus in the case of ports. The financial results of the railways have progressively worsened since 1965. The 1970 deficit of TL1.3 billion was larger than total gross revenues, and no reduction in the deficit is expected in 1971 or 1972. The principal factors contributing to this financial deterioration are the following: on the cost side, (i) increases in personnel costs and a stag- nation in the productivity of labor; (ii) worn out track which hampers the efficiency and quality of service; (iii) continued operation of some uneco- nomic lines, stations and services. On the revenue side are: (i) lack of a commercially oriented, cost-related tariff system and (ii) insufficient marketing efforts. Rates and fares have increased only slightly since 1965. In real terms they decreased by about 25 percent in the period 1965-1971. For passenger services and certain commodities, analysis suggests that revenues do not even cover the marginal cost of providing the service. - 267 - Table 68 RESOURCES AND EXPENDITURES OF TRANSPORT ENTERPRISES, 1970 Expenditures Revenues (Million TL) Net Transport Ente,-rises Railways 1,248 2,566 -1,318 Maritime banik. 947 1,068 -121 Airports 38 52 -14 Total 2,233 3,686 -1,453 Ports 306 147 159 Airlines 353 341 12 Cargo lines 311 300 11 Total 970 788 182 Total Government 27,100 29,900 -2,800 D. Organization and Management The present system of formulation and implementation of transport policies is complex and uncoordinated. Besides the six State Transport Enterprises which operate services, there are many ministries and agencies1/ directly or indirectly dealing with transport policy formulation; infra- structure planning and construction; pricing; licensing; taxation and subsidies; public service obligations; and the supervision, administration and operation of transport services. The regulatory policies, tax policies, subsidies, investment policies and so forth are not coordinated; and their effect on transport costs and prices and intermodal competition is not adequately andJ ed. The Ministry of Transport and Communications, which theoretically is in a position to assume responsibility for formulating and implementing a national transport policy and coordinating all activities related to the transport sector, is in fact the weakest of the agencies dealing with transport matters due mainly to its poor organization and the difficulty it has to attract qualified personnel. Although the Ministry has broad statutory authority over the transport sector, the only main function it performs at present is the supervision of the State Transport Enterprises. Management of State Enterprises is, according to Law 440, the responsibility of the Board of Directors and the Director General of the State Enterprise. However, Government intervention occurs frequently, I/ The ministries and agencies dealing with matters affecting the trans- port sector include: Ministry of Transport and Communications; Ministry of Public Works; State Planning Organization; Ministry of Finance; Supreme Planning Council; Council of Ministers; Ministry of Commerce and Indus- tries; Ministry of the Interior; and Ministry of Village Affairs. - 268 - particularly by the Ministry of Transport and Communications, with respect to the railways and air transport. Pricing of transport services of public and private enterprises is, according to Turkish law, the responsibility of the enterprises. There are many exceptions to this rule and, as regards to State Enterprises, their pricing policy is controlled by the Ministry of Transport and Communications. The Government uses direct and indirect subsidies and administrative control of prices of the State Transport Enterprises to promote regional and sectoral objectives. This policy has led to price distortions (in relation to costs) and to increasing deficits of major public transport enterprises, par- ticularly the Turkish State Railways. Furthermore, in 1971 a price control board was established with the authority to control price increases. For road operators the Ministry of Communications has established price ceilings as an upper limit for price increases. Because of intense competition, these ceilings are at present of no practical importance. While operation of air transport services requires a license (with the exception of domestic passenger services of ships over 18 tons), entry into the road and sea transport industries is not restricted. No quality standards are established for operators who wish to enter the road transport industry. In view of the small amount of capital required for purchase of a vehicle and easy credit terms, many operators with insufficient capital and qualifications have entered the market. This has led, in conjunction with lax enforcement of existing traffic laws, to overloading; neglect of proper maintenance of vehicles; noninsurance of drivers, pas- sengers and freight; and an ever-increasing rate of accidents. A stricter weight control system has been instituted since 1971; but control on the entry into the market and compulsory insurance for drivers, passengers and freight, which were envisaged by the Second Five Year Plan, have not been carried out. Importation of equipment by public and private transport enter- prises is subject to various taxes, customs duties and restrictions. The complicated system, dating back to the 1920s, was intended to raise revenues and promote import substitution; but its impact on transport prices and intermodal competition has not been assessed. Recommendations for abolition, modification or creation of new taxes and so forth are not coordinated and are made by the Ministries of Finance, Commerce, Customs and Monopolies, and Industry to Parliament; the Ministry of Transport and Communication is consulted. Studies carried out by the TCPC in 1971 on road user charges indicated that revenues covered construction, maintenance and renewal needs of the road system. The structure of road user charges was found, however, to favor trucks, particularly heavy trucks, and seemed to encourage operation of obsolete vehicles. However, it remains unclear as to what extent the system of taxation and other charges conforms with the principle of equality of treatment of each mode, a question that will be investigated by the Transport Coordination Agency. - 269 - E. Policies and Implementation The Second Five Year Development Plan (1968-1972) contains guidelines for a rational economic approach to transport policy which would bring about extensive reform of the sector.2/ However, the principles for- mulated in the Plan have not been implemented so far although their importance is well appreciated by the Government.3/ In particular, effective coordina- tion of policy and investment planning is unrealized. The problem of reducing or eliminating the numerous direct and indirect subsidies which are a main cause of the sector's deficit has not been tackled. The reorganization of the State Transport Enterprises with the objective of organizing them more along qualified specialists to the private sector has not been checked. In the area of investment planning, the responsibility for new investments (including construction of railway lines) comes under the Ministry of Public Works, which generally initiates plans and executes them. Other types of investment (renewal, modernization and so forth) may be initiated by the State Enterprises concerned, the supervisory ministry or the State Planning Organization, and are usually executed by the State Enterprises. Plans and prospects of both types of investments have to be approved by the State Planning Organization, which also works out a financing plan in conjunction with the Ministry of Finance. The project also requires 2/ The guidelines contained in the plan are: (a) intermodal competition under similar conditions as well as encouragement and regulation of intermodal competition on the basis of the inherent cost and service characteristics of each mode rather than on discriminatory pricing; (b) setting rates and fares so as to reflect the incremental costs of each type of transport service plus an equitable share of the infrastructure cost of each mode; (c) the operation of State Transport Enterprises according to commercial criteria; (d) specific accountability for compensation of losses result- ing from imposed noneconomic services; (e) modernization of the technical facilities of the transport sector as well as of its organization, management, adminis- tration, planning and research, both on the Government and modal level; and (f) establishment of safety standards and prevention of acci- dents in the transportation system. 3/ Several important draft laws have been prepared, mostly in early 1971, but have not yet been acted upon. For example, the consolidation of port administration under one agency, a new organic law for the rail- ways, a consolidation of the State's two shipping companies under one agency, and establishment of a State building organization. - 270 - the approval of the High Planning Council and the Council of Ministers. This system has not resulted in systematic coordination at the planning stage between the two types of investment in the same transport mode and between investments in the various modes of transport. Coordination is sometimes achieved in the subsector through personal contact between officers of the agencies concerned but is not systematically pursued. As one of the consequences, in the road subsector also, investments were too low to check the increasing deterioration of the system and, at the same time, emphasized somewhat such lower-priority projects as electrification and new line construction. Coordination of investment projects and plans between various modes of transports is undertaken at present by the State Planning Organiza- tion according to macroeconomic criteria such as increase in GDP, sectoral distribution of economic activity and so forth, taking also into account financial constraints. However, this useful framework for overall planning does not fully utilize the detailed data and forecasts of demand necessary for the establishment of intermodal project priorities. In addition, the interdependency between the transport projects and projects in other sectors, such as mining, industry, agriculture, and tourism, is not adequately studied--e.g., through proper systems analysis. Improving coordination of transport planning and implementation would require some centralization of the responsibilities now dispersed among the various present ministries and agencies. Improving the organization and administration as well as resource allocation in the transport sector would also require a substantial addition of qualified transport specialists to these agencies, including the management of most State Transport Enterprises. In an attempt to improve the effectiveness of the institutional machinery dealing with implementation of transport programs and projects, a plan of action was adopted by the Government in 1972 establishing target dates for (i) the setting up of a transport coordination agency within the Ministry of Communications, (ii) the formulation of a body of clear and consistent policies in the transport sector, (iii) the reorganization of the Ministry of Communications and Transport, (iv) development of a management information system, and (v) undertaking studies on the adequacy of user charges and on the effect which the existing restrictions on the importation of transport equipment have on the operational efficiency of the transport system. This plan of action is being implemented. The Government has strengthened the ministry's policy-making and coordinating function by (i) setting up a transport coordination agency, directly responsible to the Undersecretary of the Ministry in August 1972, (ii) streamlining depart- mental responsibilities on the basis of transport modes in the spring of 1973. F. The Third Five Year Plan and Prospects Compared with the Second Five Year Plan, total transport investment during the Third Plan period (1973-1977) will increase by about 28 percent in real terms, rising to TL33.8 billion in 1971 prices. Of this about TL10 billion is estimated as private sector investment, principally for road - 271 -- vehicles. The plan figures give only global investments by mode of transport as summarized below (see also Table 10.6). Table 69 PLAN INVESTMENTS IN TRANSPORT (TL billion) Second Plan Third Plan (1965 prices) (1971 prices) Road transport 12.2 17.61/ Railways 3.2 7.6 Sea 0.9 4.2 Air 0.5 4.4 Total 16.8 33.8 1/ Of which new road construction or major renewals: TL7.6 billion. Since no breakdown into individual projects is available, and since only general comments on a modal basis are given, a realistic assess- ment of the plan's investment objectives is very difficult. However, the physical and traffic objectives set out in the plan allow an indirect assessment of the realism of the general investment level foreseen for each mode. The figures given in the plan should be considered as a frame of reference only, and they are likely to be subject to considerable modification in the subsequent annual budgets for the following reasons: (i) They are based on rough traffic estimates, often ex- trapolations of past trends. (ii) No attempt has been made, except for railways, to determine the economically justifiable needs of each mode of transport. The plan's traffic forecasts are presented in the following table, followed by an assessment of development prospects in each subsector: - 272 - Table 70 THIRD PLAN TRAFFIC FORECASTS 1972 1977 Annual rate Unit Actual Planned of increase (%) Road Passengers billion pass/km 61.4 131.4 16 Freight billion t/km 25.7 60.6 19 Railways Passengers billion pass/km 4.9 5.9 4 .Freight billion t/km 6.6 10.1 9 Sea Passengers billion pass/km 1.9 2.6 6 Freight billion t/km Domestic 7.4 12.8 12 International 24.2 39.0 10 Air Passengers million pass/km Domestic 498.0 1,236.0 20 International 683.0 1,697.0 20 Freight million t/km 6.1 8.8 - 7 Road transport Road transport will remain the most important transport mode for short and medium haul of bulk and nonbulk goods constituting about 75 percent of total land transport in 1977. The Third Plan estimated growth in road freight traffic (in ton/km) at 19 percent per year compared with about 12 percent recorded in the previous five years. This rate of growth may not be achieved, however, considering that motorization is already well advanced, that fuel prices have risen sharply, and that the growth rate tends generally to slow down in later stages of motorization as it approaches the GDP growth rate. In addition, the projected investments of about TL7.6 billion in road construction and renewal would seem much too low in relation to projected demand since the main traffic arteries would have to be enlarged to be able to cope with such additional traffic. As far as passenger traffic is concerned, road traffic will retain its dominant role with over 95 percent of all land passenger traffic. Again, SPO's forecast passenger traffic growth (16 percent per annum) seems to be on the high side in relation to the projected growth of GDP (8 percent) and of the transport sector as a whole. A more realistic estimate of traffic growth seems to be one in the region of 10 percent per year for both types of road transport. The Third Plan emphasizes the maintenance and upgrading rather than expanding the existing network. It is planned to convert about 1,100 km of road annually into hard-surfaced roads and about 800 km of substandard roads into stabilized roads. While the envisaged program would generally meet the needs, additional investments will probably be required for the construction of throughways or bypasses that would ease the growing conges- tion in urban industrial centers. A new law will enable the Government to - 273 - levy a toll on newly constructed roads, provided there is an alternative road. The Bosphorus Bridge will be the first toll road in the country. Further plans call for a Gebze-Izmit speedway and a new highway between Tarsus and Pozanti. Rail transport The role of rail transport has shifted gradually with the growth of road traffic from that of an all-purpose carrier to long-distance bulk carrier, and it is now closely linked to mining and heavy industries. The geographical importance of the system is now confined to a few trunk lines running north-south from Samsun to Iskenderun and east-west from Istanbul- Ankara to Erzurum. The rail transport system has been allowed to deteriorate during the past three decades; it has reached a point where it is a serious bottleneck to the development of mining and heavy industry, especially with regard to the iron and steel industry. The investment plan which TCDD developed with the assistance of the World Bank is designed to eliminate this bottleneck. However, project implementation needs to be accelerated to meet the requirements of iron ore transport to the steel mills, par- ticularly to Iskenderun in 1975 and 1976. Otherwise, the planned investments in railway infrastructure and rolling stock will be inadequate to meet the needs of the economy. The growth rate of freight is expected to be somewhat lower than plan projections, and passenger traffic may actually fall. Much emphasis is given by TCDD in a ten-year plan to the physical and financial rehabilitation and to overall modernization of the railway in order to improve its efficiency and competitiveness. The first part of the plan (from 1972 to 1977) envisages investments of TL7.5 billion (US$533 million), mainly on track rehabilitation (US$150 million), signalling and telecommunications (US$23 million), dieselization and procurement of rolling stock (US$176 million), and on maintenance and repair facilities (US$25 million). The proposed investments compare with about TL2 billion (US$140 million) in the Second Five-Year Plan and are considered the minimum program necessary to achieve TCDD's physical and financial rehabilitation and to provide the capacity required for the expected traffic. The Ministry of Public Works has been preparing an extensive new construction (TL5.8 billion) program. However, none of these projects will be carried out during the Third Five-Year Plan period. Only those projects already approved during the Second Five-Year Plan will be completed. Air transport In the field of air transport, both international and domestic airports will need adaptation to the rapidly growing air traffic. Naviga- tional aids and terminal facilities in general are insufficient. The Government considers that, in four out of the eighteen domestic airports (Bursa, Elazig, Erzican and Antalya), the capacity of the runways is in- adequate at present for civilian traffic. Feasibility studies are under way for a new airport between Izmir and Antalya to develop tourism in this region. The total appropriation of TL4.4 billion ($314 million) for airports and the Turkish Airlines (THY) is justified by the rapid increase in air traffic, which in the past was consistently underestimated. For airports the investment consists mainly of equipping all Turkish airports with modern - 274 - traffic control equipment. One larger investment project of TL1.7 billion (of which TLO.9 billion was allocated during the Plan) is the extension of Yesilkoy airport in Istanbul with the construction of a new passenger - terminal building and hangars and the installation of traffic control facilities. While allocation for investment in the air transport subsector is adequate, the bottleneck for its development is the rather low capacity for efficient operation of such investments due partly to a dearth of quali- fied personnel, particularly engineers. Airport management suffers from the lack of coordination of the various services, such as customs, processing of cargo and passengers, catering and so forth. Consequently, delays of planes are frequent. The main problem facing the Turkish Airlines is undercapitalization. In 1972 the paid-in capital was TL300 million, the unpaid capital TL100 million, whereas an adequate capitalization would be about TL900 million. The Government is considering an increase in THY's capital. THY's domestic passenger tariffs do not cover their costs, and this contributed to a loss on domestic lines of about TL140 million in 1972. The Government has not granted THY requests for increases in domestic air fares. Looking to the future, THY traffic can be realistically expected to more than double by 1977; and the planned expansion of the airline's fleet will be able to cope with the projected increase. The administration of civil aviation in Turkey is still in its formative stage. There are some legal gaps to be filled--e.g., there is no air traffic law and no master plan for Turkey's airports and air traffic control systems. However, technical assistance is helping to identify investment and organizational needs of air transport; preparation of necessary legislative proposals is underway. Sea transport In sea transport the main Turkish ports have difficulties in handling equipment despite recent improvements in warehouse capacity. A program is under way to modernize handling equipment in ports and to increase the length of wharves to accommodate larger ships. The port of Samsun, important for iron ore shipments, has been enlarged and improved during the Second Five-Year Plan to handle the projected increase in iron ore, copper and fertilizer traffic. A long-term expansion and modernization plan for the port of Izmir has been drawn up and will be implemented over the period of the Third and Fourth Five-Year Plans. Izmir may also provide facilities for container traffic after its completion. Faster modernizing of ports requires better coordination of planning and larger investment funds. A par- ticularly acute problem is the congestion in the Istanbul and Haydarpasa port complexes which contributes substantially to Istanbul's urban traffic problems. Plans to construct a third port outside of the city have been drawn up, but this port will probably not be operative before 1984. During the Third Five-Year Plan, a large program of modernization and expansion of the Turkish merchant marine will take place. DWT are ex- pected to increase by 64 percent from 1.1 million in 1972 to 1.8 million in 1977. This increase will be sufficient to carry about 50 percent of Turkey's - 275 - projected annual imports and exports. The program, while necessary, is very ambitious; it can be carried out only if the Government allows the import of a substantial part of the additional ships, given the capacity of Turkey's shipbuilding yards. G. Long-term Prospects The growth rate and pattern of transport services in the long run will essentially depend on the growth rate and pattern of the Turkish economy. By 1995 Turkey aims at a per capita income of 1,500 US dollars equivalent, a 50 percent share of services of GDP and a level of urbanization of 75 percent. This would imply that growth rates for freight and passenger traffic will probably decline gradually as experienced in other European countries when they reached a similar stage. On the other hand, the share of air traffic in total passenger traffic can be expected to increase. International freight traffic by all modes of transport is also expected to increase in importance with the gradual integration of Turkey into the European Economic Community. As mining activity and processing of raw materials gain in im- portance during the next two decades, railway transport will benefit. However, road transport will remain the dominant mode of inland transport both for passengers and freight. As far as long-term investment policy is concerned, the strategy is to continue the upgrading and renewal of existing roads but not to extend the road system except for the construction of toll roads. While the road system will generally be adequate for the expected traffic, the rapid urban- ization and industrial expansion in a few key regions are expected to necessitate some construction of new roads. The railways are expected to play a more active role in the coming decades and should be completely re- habilitated and modernized by about 1982 if they are to cope with the planned growth of the mining and primary industries. In shipping, the expansion planned for the Third Five-Year Plan is likely to continue due to increasing international trade with progressing integration into the iropean Common Market. In conclusion, while the transport pattern will not change dras- tically in the next two decades, investment policy will be focused on main- taining and upgrading the existing network with special emphasis on railways. The transport sector will face some existing problems which are likely to extend well beyond the Third Five-Year Plan period. Shortages of high-level technical personnel, particularly engineers, are likely to continue to hamper the efficiency of State Transport Enterprises unless salaries are made competitive with the private sector. A difficult problem to handle will also be a cutback of direct and indirect subsidies to users of the transport infrastructure, already attempted without much success during the Second Five-Year Plan. Finally, coordination of Government agencies as regards to transport policy, investment planning and implementation may continue to pose a problem. - 276 - PART III : MA J 0 R SOCIAL AND EC 0 N 0 MIC SECT 0 RS XIII. TOURISM Turkey offers a wide range of opportunities for tourism, including long and varied seashores, high mountains and lakes, and many historical and archeological sites. However, tourism until recently has played a very minor role in the development of the country; and Turkey's share in the rapid ex- pansion of tourism in the Mediterranean basin during the last ten years has been small. In 1971 Turkey received only about one percent of total tourists in the Mediterranean basin (Table 8.7). Domestic tourism has been expanding rapidly. A. Development of Tourism, 1950-72 During the period 1950-72, only modest efforts were made by the Government for the promotion of tourism: it extended credits for the con- struction or modernization of a few tourism facilities; created in 1955 the Tourism Bank which, however, had limited funds; and exempted new investments in the sector from building tax and real estate tax during ten years. Nevertheless, the number of tourists increased from 29,000 in 1950 to 173,000 in 1962 or by 16 percent per year. Tourist receipts averaged $3 million per year during the period or about one percent of exports of goods (Tables 8.8 and 3.7). The First Plan (1963-67) aimed at the development of tourism as a means of narrowing the large gap in the balance of payments. Measures to promote growth were to include training facilities for the personnel to be employed in the sector and larger financial resources for the Tourism Bank. Investment in tourism represented, however, only 1.4 percent of the total planned investment. The public secLor was to concentrate on the development of infrastructure while investment on the superstructure was to be left to the initiative of the private sector. Priority was to be given to the development of the Marmara, the Antalya and the Aegean regions. During the Plan period, in fact, investment in tourism reached only 2 percent of the total Plan investment (Table 2.3). Measures envisaged to promote the devel- opment of the sector were not implemented; the Tourism Bank remained a weak institution, cooperation between private and public sectors remained minimal, and training of the required personnel lagged. Nevertheless, the number of tourists continued to increase at 15 percent per year (compared to a target of 19 percent), reaching 364,000 in 1967 (Table 8.8). The number of excur- sionists--foreigners visiting Turkey for less than a day--was registered for the first time and reached 175,000. Domestic tourists increased at 8 percent per year and reached 1.3 million. Receipts from foreign tourism were estimated, however, at $12 million (compared to the Plan target of $42 million) (Table 3.7). Tourism continued to develop along the same lines during the Second Plan (1968-72). In 1972 the number of foreign visitors increased to about one million, or by 12.5 percent per year (compared to a target of 25 percent), the number of tourists reaching 570,000 (10.5-percent growth per year) (Table 8.8). Tourists receipts increased to $104 million (compared to a target of $135 million) or at over 50 percent per year and amounted to - 277 - 9.4 percent of exports of goods and nonfactor services (Table 3.7). Domestic tourism increased also rapidly to over 3 million in 1972. Invest- ments in tourism during 1968-72 amounted to 1.9 percent of total plan invest- ment (compared to a target of 2.3 percent) (Table 2.3). During the last years of the Second Plan, some progress was made in physical planning for the priority regions; and the Government implemented a system of incentives to encourage private investment. In 1973 the number of tourists increased by 47 percent over the comparative figure for 1972, and tourism receipts in- creased to $171 million or by 64 percent. The lodging capacity increased from about 42,000 beds in 1964 to about 72,000 beds in 1972 or at about 7 percent per year and remained far behind the Second Plan target of 192,000 beds in 1972. The hotel occupancy rate was estimated at 70 percent in 1971 during the seven months average working season, which is a more favorable situation than in most Mediterranean countries. But a large share of the lodging capacity consists of city hotels, a large part of which do not have a tourism license. In 1972 35,000 beds belonged to licensed establishments (48 percent of total beds); and only 28 percent of total bed capacity belonged to holiday resorts compared, for instance, with 77 percent in Tunisia. The largest part of the licensed facilities is in the Marmara region (48 percent), followed by the Aegean (24 percent), Central Anatolia (14 percent) and the Mediterranean (8 percent). Most of the foreign visitors originate from Western Europe (56 percent in 1971) and the United States and Canada (17 percent in 1971). Tourists spent an average of 5.5 days in Turkey in 1971 (compared to 15 in England and 9 in France and Greece). In 1971 excursionists arrived in Turkey mostly by sea while tourists arrived nearly in equal number by road and by plane (Table 8.8). B. Incentive and Credit to the Tourism Sector In December 1972 the Government enacted several measures to promote tourism investments. Foreign investors who wish to undertake tourism investments have to form joint ventures with local firms in accord- ance with Law 6224 on foreign investments and are guaranteed the transfer of profits, capital, loan, repayments and interest charges. A 35-percent tax is levied on profit transfers. They are permitted to make use of blocked funds to finance their investment. Foreign personnel can represent up to 15 percent of the employees of an establishment and are authorized to transfer savings outside of Turkey after the approval of the Ministry of Finance. The shares of local and foreign borrowing have to be the same as the shares of local and foreign equity financing. Incentive measures, which benefit other foreign and local invest- ors, include corporate tax exemption equal to 30 percent of the equity investment for projects with a minimum capacity of 100 beds. Holders of tourism licenses are exempt from building and land tax for a period of five years, and the Ministry of Tourism helps them in leasing suitable land for the development of their projects when these projects are located in priority areas. The Government has recently drafted a new and more generous incentive bill which is still in Parliament. It would increase investment - 278 - incentives for joint projects controlled for at least 80 percent by Turkish partners: the corporate tax exemption would range between 40 percent and 95 percent of the investment cost depending on the location, employment effect and the size of the project; projects with a minimum capacity of 300 beds would be allowed deferred payments in custom duties. An important factor for the promotion of investment in tourism has been the reorganization of the Tourism Bank. The Tourism Bank, which remained a weak organization with practically no financing capacity during the two first Plans, was reorganized in 1972. Its head office moved from Istanbul to Ankara; its capital was raised from TL300 million (of which TL144 million is paid up) to TL500 million (of which TL417 million has been paid). The management and personnel of the Bank also underwent considerable changes leading to improved qualifications and a larger number of profes- sionals, many of whom trained abroad. Other public banks are no longer allowed to finance tourism projects, and the Tourism Bank inherited the small portfolio owned previously by Vakiflar Bank and Iller Bank (TL164 million). The Bank realized a small profit (only TL1 million) for the first time in 1972 and increased its capital to TL600 million in 1973. Demand for credit from the Bank amounted to TL135 million in January-May 1973, compared to TL13 million granted credits in 1972; the 1973 target amount of lending (TL150 million) is expected to be exceeded. The Tourism Bank lends up to 60 percent of the investment cost for projects in priority areas and up to 40 percent for projects in the development areas with an 8-percent interest rate for construction and furniture and 11.5 percent for working capital, a maturity and grace period of twelve and three years respectively for construction, six and two years for furniture, and two and one year for working capital. C. Third Plan Targets and Prospects The Third Plan strategy for the development of tourism emphasizes the need for physical planning to prevent the unregulated development of tourist facilities and the need to coordinate the development of super- structure and infrastructure investments. The Ministry of Tourism and the Ministry of Reconstruction and Resettlement will be in charge of preparing and implementing land use plans in the priority areas. Private activity will be promoted through a selective credit system (see previous paragraph) and by adequate financing from the Tourism Bank and other commercial banks. The number of tourists is expected to increase to about one million in 1977 (16.3 percent per year) and the number of excursionists to 811,000 (17.6 percent per year), leading to an increase of receipts to $187 million (12.4 percent per year). An investment program representing 1.5 percent of total plan investment is envisaged with one-third representing public invest- ment in infrastructure and two-thirds investment in accommodation facilities, mostly by the private sector. The public sector will participate in super- structure investment only in case of failure of the private sector to provide the required financing in priority areas. The lodging capacity is expected to increase to 126,000 beds in 1977 (11.9 percent per year). Investment will be concentrated in priority areas and will have to conform to the needs of mass tourism. Priority will be given to the - 279 - development of integrated tourist complexes on the south coast which could be large enough to sustain a variety of supporting services and to attract charter group traffic. The three priority areas of the south coast are Side, Antalya and Mugla. Over 1.3 million foreigners visited Turkey during 1973 or 10 percent above the Third Plan target. In the light of these recent develop- ments and of the low present volume of tourism in Turkey, the Third Plan targets for tourism growth seem conservative and might be exceeded. Bed capacity is expected to increase rapidly, a large number of projects coming into completion in the early years of the Third Plan. The most important of these projects are the Side complex (5,000 beds), the Kiziltepe Vacation Village (1,300 beds to be later increased to 2,500 beds), the Antalya Holiday Village (1,300 beds), the Istanbul Sheraton and Intercontinental Hotels (1,500 beds), and the Cesme Holiday Village (1,000 beds). In the longer term, growth of foreign tourism in Turkey will depend on (a) the coordination between infrastructure and superstructure investment, (b) the adequacy of local financing and of training of personnel, (c) the promotion measures to attract mass tourism, as well as (d) the cost of tourism in Turkey in relation to competing Mediterranean countries. Domestic tourism is likely to continue growing at a fast rate, given the expected increases in real personal income, and might conflict with foreign tourism for bed and site occupancy. This situation should be analyzed carefully. Spreading the holidays on a larger part of the year, as proposed in the Third Plan, would help accommodate more tourists while increasing the occupancy rates in the hotels. Proper phasing of the infrastructure development and the construction of tourism facilities is already becoming urgent so as to avoid possible bottlenecks. The demand in Western Europe and the United States is growing rapidly, and private investors are eager to take advantage of this situation without insurance that the infrastructure investments will be ready in time. The intentions of the Government on the order of priority to be given to infrastructure investments are not clear, and projects are not implemented nor even seriously analyzed. As a consequence, shortages and bottlenecks begin to appear in various fields, such as water supply, energy, airport capacity for charter flights, and road transport. Further delays in the implementation of infrastructure master plans when generous incentives attract private capital would lead to an unbalanced development of tourism and may damage the natural resources of Turkey. Master plans for the regions of Antalya, Mugla and the South of Izmir have been recently completed. Local infrastructure is available for Eastern Antalya, and investments have been approved for other infrastructure work. Prospects for adequate local financing of tourism facilities have improved significantly with the reorganization of the Tourism Bank. The new incentives given to foreign investors should attract more foreign capital than in the past. From 1954-1972 only TL59 million foreign equity was invested in the tourism sector against commitments of TLl85 million. The Tourism Bank is now liquid and will remain so as long as the yearly allocations it gets from the Budget continue. Financing 50 percent of the investment target for superstructure during the Third Plan would require - 280 - TL280 million per year, and the Tourism Bank should have the capacity of playing a leading role in insuring the financing needs. Prospects for foreign tourism in Turkey can be adversely affected by the rapid rate of domestic inflation combined with a fixed exchange rate. Turkey has already lost a large part of the price advantage it had in the past as a result of the price inflation of the last three years. Continued rapid price rises (unless adjusted for by devaluation or a special exchange rate for tourism) can be expected to check the rate of growth of tourism, lead to lower expenditure per head, or both. - 281 -  PART IV : TECH NICAL AN NEX XIV. ANALYSIS OF MEDIUM- AND LONG-TERM GROWTH PERSPECTIVES A. Introduction Growth of the Turkish economy has been impressive in the last two decades. Turkey has reached a per capita income of $420 in 1972 compared to about $230 in 1950 (in 1972 dollars) and is now entering a new phase of de- velopment which should lead to an even more radical transformation of its economic structure. The Government has recently adopted a new twenty-two- year development strategy with the aim of reaching per capita income of about $1,500 and full membership in the European Common Market by 1995. This plan for rapid industrialization and urbanization would bring the economy to the stage of development of Italy in 1970. Past performance and the natural and human resources of the country indicate that these ambitious plans are feasible. However, Turkey will have to overcome important constraints, prob- lems and imbalances. While growth in the last twenty years has been charac- terized by nearly continuous foreign exchange shortages and inflationary pressures, the main problems of the next twenty years are likely to be employ- ment creation, income distribution, and economic management (particularly demand management). No single macroeconomic model is suitable for exploring all aspects of economic development, but each focus on some set of specific problems. Here we discuss two models which explore different long-term growth problems of the Turkish economy. These models are not substitutes to the long-term model pre- pared by SPO but rather are devised to focus on specific aspects of the economy and add to our knowledge of its potentials and constraints. With a dynamic linear programming model, we examine the link between economic growth patterns and employment generation. With a two-gap Harrod-Domar type model, we explore relationships between growth, inflation and the balance of payments. The programming model has been developed with the cooperation of the Development Research Center of the Bank, and the data were partly supplied by the SPO in Turkey. The two-gap model was built by the Regional Program Department and is based on a more-detailed analysis carried out by the World Bank. The possibil- ities for linking the two models have not been systematically investigated, but the two sets of projections are consistent. The results of the two models add insight into the possible long-term development trends of the economy, but the specific numerical magnitudes should not be considered as rigidly predictive of the future. B. Growth and Employment Perspectives of the Turkish Economy, 1972-87 An Exploration of Optimum Patterns The objective of this chapter is to analyze some of the results ob- tained from a dynamic linear programming model of the Turkish economy developed by Charles R. Blitzer of the Development Research Center, IBRD, in 1970. The first section describes briefly the major characteristics of the model. The second section describes some of the projections generated by the model for 1987. Particular emphasis is planned on sectoral production and investment, the volume and composition of foreign trade, employment generation and human capital forma- tion. A description of how the data base was originally developed by C. Blitzer - 283 - Table 71 SUMMARY OF CONSTRAINT ROWS Constraint group Definition Number of rows Ast labor balances 25 Bit material balances 40 C foreign exchange balances 5 Eit output capacity 40 Fst education capacity 15 Gzt upper bounds on exports 25 Hzt lower bounds on exports 25 lit sectoral investment levels 48 It aggregate investment levels 6 TXit sectoral gross output 40 St marginal propensity to consume 5 ACt total consumption 5 GDPt gross domestic product 5 C6 terminal consumption 1 Ki terminal investment levels 8 Ks terminal education levels 4 OBJ objective function 1 298 - 284 - and updated during the basic mission is given in Annex Al. Possible further improvements in the mcdel are briefly discussed in Annex A2. A perspective planning model for Turkey 1/ Labor balance constraints (Ait). This dynamic multi-sector model has been built to explore the link between the pattern and pace of economic growth and employment in the Turkish economy. The model maximizes a given function (GDP, consumption or employment) for each of five three-year periods between 1972 and 1987, starting with 1972. Growth of the economy is limited by skilled labor availability, physical capital stocks, and foreign exchange and savings constraints. All projections are given in 1972 prices and start with 1972 as the base year--for which an input/output table, a trans- actions matrix and a capital coefficients matrix have been estimated by the Bank mission in close cooperation with the Development Research Center of the Bank and the SPO in Turkey (Tables Al to A4). Material balance constraints (Bit). For each of the eight producing sectors of the economy, these material constraints ensure that in each time period total resources (imports plus gross output) meet all intermediate, con- sumption, investment, export and migration demands. The labor force is divided into six skill categories (Table A16). Turkey is considered as a labor surplus economy only for unskilled labor in agriculture (skill labor 6). The labor constraints ensure that manpower availability of each skill level meets the various demands for each time period. For skill levels I to 4, labor supply can come from three sources: (1) exo- genous supplies of skilled labor (Table All), (2) upgrading skills through human capital formation (Table A4), and (3) downgrading of high skill levels which may be in excess supply. Additional unskilled urban labor (skill level 5) comes from the agricultural labor force through urban/rural migration. While unskilled agricultural labor is assumed to be in surplus, rural/urban migration involves costs to the economy (Table A9). Labor demands are derived from an analysis of labor requirements per unit of output in 1972 and exogenous changes in labor productivity (Tables A10 and A12). The skill composition of the in- crease in employment in each sector is kept constant over time but is quite different from the initial skill composition. Foreign exchange constraints (Ct). For each time period, foreign exchange earnings (exports, net foreign capital, workers' remittances) must meet the costs of imports of consumer goods, intermediate raw material and capital goods. Imported goods have been divided into competitive and non- competitive categories--noncompetitive imports being those which Turkey is unlikely to produce at international cost within the planning period. The model allows for import substitution for competitive imports only and utilizes rigid coefficients in deriving levels of noncompetitive imports. Exports are 1/ For a detailed presentation of the model and its equations, refer to "A Perspective Planning Model for Turkey: 1969-1984," Charles R. Blitzer, Memorandum No. 114, Research Center in Economic Growth, Stanford University, California (August 1971). - 285 - divided into five categories, och c' whifh-e o bound by an upper and lower growth rate. The levels o" net foreitn , workers' remittances and net changes in foreign exchange reserves -I. -et exogenously and take into account the Turkish objective of less dept-L-ence on foreign resources as well as the result obtained from a two-gap model (see Table A15). Savings constraint. The domestic marginal propensity to save is limited to 26 percent in the basic case. This is a parameter which we vary to test the sensitivity of our projections. Basic solution for 1987 For the basic case of the programming model, we have chosen maximi- zation of GDP in 1987 as the objective. This case is referred to as "basic" since it will serve as a benchmark from which various trade-offs between various objectives and formulations will be measured. Macroeconomic results. The major macroeconomic results are presented in Table 76. The average annual growth rate of GDP is projected to be 7.2 per- cent during the projection period. Consistent with this, investment grows at 8.5 percent per year, domestic savings at 10.2 percent per year with the mar- ginal propensity to save always remaining at its 26 percent limit. Note that per capita consumption is planned to increase at 4.1 percent since we assume 2.5 percent average growth of the population. The incremental capital-output ratio (ICOR) averages 3.32. The reorganization of the economy towards a pat- tern which permits maximum long-term growth involves some major readjustment in the early years. This readjustment explains the relatively low growth rate of GDP, the slightly decreasing ICOR, and some peculiar sectoral growth rates of investment. The long-term growth targets of the Turkish Government for the same period are somewhat more ambitious. In the official strategy GDP is to grow at 8.7 percent per year, investment 11.7 percent, domestic savings at 11.8 percent and per capita consumption at 4.9 percent. The more conservative estimates obtained from our dynamic linear programming model are mainly due to a lower marginal propensity to save (26 percent instead of 38 percent), the explicit consideration of skilled labor constraints, migration costs, and to different assumptions regarding the incremental capital requirements in the various sectors. Sectoral growth and investment allocation (Tables 77 and 78). The projected maximum growth pattern for 1972-87 emphasizes rapid development in industry and utilities while agriculture and services grow more slowly. How- ever, this growth pattern is more balanced than that which prevailed in the recent past and more balanced than the pattern proposed in the official de- velopment strategy. This strategy proposes faster growth in agricultural output (5.6 percent instead of 5.1 percent) and a slower growth in other sectors, particularly mining (6.9 percent instead of 12.9 percent), construction (7.2 percent instead of 10.7 percent) and utilities (8.6 percent instead of 11.9 percent). The investment allocation which leads to this growth pattern continues the past emphasis on industrialization but with less acceleration than in the long-term plans of the Government and more concern for the agricultural sector - 286 -- Table 72 SUMMARY OF ACTIVITY COLUkNS activity type number of activity colums Ct per capita consumption increase 6 between base year and period t; unit: 1963 TL X gross output increment in sector j 40 between base year and period t (, unit: billions of 1963 TL VJ,t annual increase in capacity of sector 66 3 during time period t (j=1,.. ...,5) N.B. sectors 9,10, and 11 are education sectors; unit: billions of 1963 TL Mi,t annual "competitive" imports of item 1 15 during time period t (i=1,2,3;t=l,...,5); unit: billions of 1963 TL Z annual earnings from export activity 25 z during time period t (z=l,...,5;t=l,...,5); unit: billions of 1963 TL MLt level of migration during period t 5 unit: thousands of persons ED,t level of education activity j during 20 the time period t (=1,... ,4;t=1,...,5); unit: thousands of persons LD labor downgraded from skill level ] 20 during period t (J=1,...,4;t=l,...,5); unit: thousands of persons I annual investment level in sector ] 48 during period t (j=1,...,8;t=0,1,...,5); unit: billions of 1963 TL TX. t annual gross output level in sector 3 40 ',t during period t (j=1,...,8;t=1,...,5); unit: billions of 1963 TL AC annual total consumption during period 5 t (t=1,...,5); unit: billions of 1963 TL It annual total investment level during period 5 t (t=l,...,5); unit: billions of 1963 TL GDPt annual level of gross domestic product during 5 period t (t=l,...,5); unit:billions of 1963 TL 300 - 287 - Table 73 (Ast) CONSTRAiaNLS requirement requirement for skill for skill level s in + level s in < productive production of sectors human capital 8 O8 t4 (L 0 TX. ) + X TX + p EDJ 3=1j=1 J=1 00 Go exogenous net additions and losses net gains [urban-rural supply, time + from training activities + from down- + migration; t in prior periods grading only for s=5 t-1 t + ED -ED + LD - LD + ML s' s-1, s-l,t s,t T T=1 I T=1 (s=1,...,5; t=1,...,5) Table 74 (Bit) CONSTRAINTS year 0 increase "[competitive" output, net + above base + imports 1-1,2,3 > of industry year output, demand net of industry demand 8 + ai, Xjt + M > 00 c:scapit populatio per capita + investmen + export + aigration co sumption Ldeand demand costs 11 5 t 0 + ci C + 1 bu Vj,t + t + T (1,...c8; 1,.. ., T1 Table 75 (Ct) CONSTRAINTS population base year increase in intermediate increase in capital good competitive" per capita + per capita + imports, base + intermediate + imports + imports above consumption consumption year good imports minimum levels of imports of imports 8 11 3 P (C + c C ) + + m X + u V + m t m,0 m tJ,t j.1 J,t export net foreign workers' earnings + loans in + remittances time t and other invisibles 5 (..5 + L Table 76 MACROECONOMIC PROJECTIONS (BASIC CASE) 1972 1975 1978 1981 1984 1987 GDP 207.11/ 249.5 306.5 377.2 471.9 590.4 Consumption 176.8 208.2 250.3 302.7 372.7 460.4 Per capita Unit: consumption 4753 5183 5787 6515 7516 8725 (1972 TL) billions Net capital 1972 inflow, changes 11.9 13.3 16.3 15.5 14.8 14.5 in reserves and TL invisibles Domestic savings 30.3 41.3 56.2 74.5 99.2 130.0 Investment 42.2 54.6 72.4 90.0 113.9 144.5 % 1972-87 GDP 6.4 7.1 7.2 7.8 7.8 7.2 Unit: Consumption 5.6 6.3 6.5 7.2 7.3 6.6 annual Domestic savings 10.9 10.8 9.8 10.0 9.4 10.2 Investment 8.9 9.9 7.5 8.2 8.2 8.5 growth Marginal propensity .26 .26 .26 .26 .26 .26 rates to save Incremental capital- 3.42 3.43 3.44 3.23 3.27 3.32 output ratio 1/ In the preparation of the 1972 transaction matrix and input-output table, taxes on imports have been added to CIF imports, which then gives a slightly different definition of gross value added than normally adjusted (207.1 instead of 215.7 by SIS). Table 77 GROSS OUTPUT PROJECTIONS (BASIC CASE) (Units: average annual growth rates and billions of 1972 TL) Average annual Average annual rate of growth rate of growth Gross output, Gross output, 1963-1972 1/ 1972-1987 Sector 1972 1987 (percent) (vercent) 1. Agriculture 83.3 189.4 3.6 5.6 2. Mining 5.6 15.2 6.7 6.9 3. Manufacturing 117.1 408.8 10.6 8.7 4. Utilities 6.6 22.9 9.9 8.6 5. Construction 27.1 77.2 6.6 7.2 6. Commerce 27.3 80.2 9.1 7.5 7. Transportation 24.1 73.7 7.9 7.7 8. Services 63.1 160.2 6.3 6.4 Total 354.2 1027.6 6.6 7.3 1/ Growth rate of value added at factor cost. Table 78 PERCENTAGE COMPOSITION OF INVESTMENT BY SECTOR OF DESTINATION (Basic Case) Sector 19721/ 19752/ 1978 1981 1984 1. Agriculture 11.1 16.6 15.7 16.2 15.6 2. Mining 4.0 2.4 2.3 2.3 2.1 3. Manufacturing 29.5 25.3 26.0 27.2 25.9 4. Utilities 7.8 9.5 10.0 9.7 9.7 5. Construction 1.0 1.5 .8 1.0 1.0 6. Commerce 1.2 1.6 1.7 1.7 2.3 7. Transport 16.8 12.3 11.7 12.2 12.6 8. Services 28.6 30.8 31.8 29.7 30.8 Total 100.0 100.0 100.0 100.0 100.0 Note: The 1987 investment pattern is not shown since it is somewhat biased by terminal condition problems. 1/ Actual. 2/ The reorganization of the actual growth pattern of 1972 into an "optimal" one, in the sense of the model, explains the rapid change of investment composition between 1972 and 1975, particularly in agriculture and trans- port. These results should not be taken as fact but as an indication of the long-term allocation pattern towards which investment should be oriented. - 293 - and less investment in the transport sector. Compared to the past investment structure, the share of investment going to the agriculture sector increases (about 15 percent compared to 13 percent during 1963-72), the share allocated to industry increases (about 40 percent compared to 35 percent), and the share devoted to services decreases (45 percent compared to 52 percent). In the Government's long-term strategy, the share devoted to industry increases even more rapidly (to 48 percent), while the shares allocated to agriculture and services (10 percent and 42 percent respectively) decreases more rapidly than in all basic cases. Labor situation (Tables 79 and 80). Manpower requirements and employ- ment projections by skill category and time period are described in Table 79, and educational requirements and skill downgrading are shown in Table 80. The pace and pattern of growth described in the previous paragraphs require a yearly growth of skilled labor of 5.0 percent, the fastest employment growth being in skill level 3 (administrative and clerical) and skill 1 (university level). The requirements for unskilled urban manpower lead to the migration of nearly 3 million persons from the rural areas (200,000 persons per year). The total urban labor force is defined as the sum of the exogenous urban labor force (increasing at 2.5 percent per annum) and rural/urban migra- tion; it is employed both in production and the creation of human capital. Hence, the differences between total employment and the urban labor force is attributable to the education and training activities. For example, in 1978, 5,912,000 man-years are required by the eight production sectors while the urban labor force totals 6,039. The difference of 127,000 man-years repre- sents the labor being utilized in human capital creation. The long-term strategy of the Government estimates an urban labor force of 13 million in 1987 and a demand for labor of 11 million, leaving 2 million urban unemployed. The programming model indicates that urban employment would amount to 9.7 million, leaving 3.3 million (or 34 percent) urban unem- ployed, if we use the same migration assumptions as the Government. Employment requirements lower than expected might slow down rural/urban migration and thereby reduce unemployment somewhat, But these estimates indicate that the problem is more serious than expected in the Government strategy. Our results indicate a certain oversupply of professionals in 1972. During the early period this implies downgrading of professionals while lower skill levels are being educated and promoted to higher skills. During 1972-87 education is given to nearly 3 million persons in excess of what is provided by the existing education system, mostly to unskilled urban labor (2.4 million). Changes in the skill composition of the labor force over the period are significant as can be expected in a fast-growing and modernizing economy. The decrease in the share indicates an adaptation of the education system to the requirements of the growth pattern. The drop of the unskilled agricultural labor in total labor force decreases dramatically from 68.3 percent in 1972 to 54.6 percent in 1987, although even this is less than expected in the Government strategy (38 percent in 1987). - 294 - Table 79 MANPOWER REQUIREMENTS AND EMPLOYMENT PROJECTIONS (BASIC CASE) (Units: thousands of man-years, annual growth rate) Average Annual Growth Skill level 1972 1975 1978 1981 1984 1987 Rate, 1972-1987 1. Scientists, engineers, doctors, 58 66 76 94 104 123 5.2 professors 2. Other technical 529 586 660 754 859 993 4.3 & professional 3. Administrative 3. c sria e 465 573 660 793 949 1160 6.3 & clerical 4. Skilled & semi- 2894 3232 3675 4214 4844 5620 4.5 skilled urban 5. Unskilled urban 700 742 841 934 1060 1199 3.7 Total: 1-5 4646 5199 5912 6789 7816 9095 4.6 Cumulative endogenous -- 307 650 1731 2056 2938 migration Exogenous urban 4646 5004 5389 5804 6251 6732 2.5 labor force Total urban emplym n 4646 5311 6039 7535 8307 9670 5.0 employment Agricultural 10020 10485 10972 10786 11425 11581 0.9 labor force Tehle 89 LABOR SKILL SUPPLY PROJECTIONS tn thousand wotkers) A,t powr ED12 ED1C E14 ED5 ED 2D,2 EL,V EDIciED ED41 FdL ED43 ED44 ED45 LDI1 LD12 LD14 LD21 LD22 LD2 LD24 LD,:, LD,1 LD3; LP 4 ppi,y Ali 70 -4 Al 82 - A13 -49 A14 106 .10 Al5 119 7 -1 1 12 A?1 649 4 -67 556 A22 769 - 6 -115 660 A,3 889 -14 -120 754 A?4 1009 -12 -15 1 -124 859 A?s 11p9 -7 .12 -5 -15 -97 993 A31 535 67 -49 573 A3P 605 115 -60 660 A33 675 3 -5 120 793 A34 745 3 155 -5 124 ·73 949 A35 815 -60 3 155 155 -5 97 1160 A41 3050 133 49 3232 A42 3233 -5 265 122 60 3675 A43 3446 -3 -232 265 P44 494 4214 A44 3691 -3 -155 -232 265 244 988 227 73 -254 4844 A45 3970 -3 -155 -155 -232 265 244 98 453 245 5620 A51 700 -265 307 742 A52 -700 -265 -244 650 841 A53 700 -265 -244 -988 1731 934 A54 700 -265 -244 -9M8 -453 254 2056 1060 A55 700 -265 -244 -96W -453 -489 2938 1199 Table 81 COMPOSITION OF URBAN LABOR FORCE Skill 1972 1987 1. Scientists, engineers, doctors, professors 1.3 1.4 2. Other technical and professional 11.4 10.9 3. Administrative and clerical 10.0 12.8 4. Skilled and semiskilled urban 62.3 61.7 5. Unskilled urban 15.0 13.2 Total 100.0 100.0 Balance of payments and foreign trade (Table 82). The programming model is not designed to focus particularly on this problem. Availability of foreign exchange is specified exogenously, and the model can choose between import substitution or five categories of exports. With the present cost structure of Turkey, maximization of the GDP in 1987 leads in the initial years to a very rapid import substitution and to strong export growth only in the agricultural sector where a 6 percent upper limit has been imposed. On the other hand, exports spurred up in later years, specifically in manufacturing. Manufacturing exports grow at 10.7 percent per year and total exports at 7.7 percent per year or slower than in the long-term strategy (10.1 percent). Joining the EEC will lead to more imports of goods which Turkey could produce at a competitive cost, particularly consumer goods and intermediate raw material. In the structure of this planning model, EEC's entry translates into more "noncompetitive" goods. A sensitivity analysis describing the effect of this structural change has been carried out in the following section. Dual variables. Associated with a programming model of this kind, there are dual variables, also referred to as shadow prices or efficiency prices. These are of great interest and importance in linking "macro" planning with project evaluation and decentralized decision-making. They reflect the marginal value of scarce resources (such as foreign exchange, output, skilled labor and physical capacity) and the costs of economic rigidity (such as limits on the rate of export growth and the marginal propensity to save). Shadow prices are most important in those planning situations where market prices do not adequately reflect true economic scarcity either statically or dynamically. Typically, market prices in the LDCs (less-developed countries) are especially poor indicators for a number of reasons. Most importantly, if unskilled agricultural labor is in surplus, its efficiency price may be near zero even though there is a positive wage rate. This can lead to serious overvaluation of labor in projects which are valued using market prices alone and, therefore, a choice of technique overly excessive in its use of capital. Overinvestment in physical capital not only will lead to inefficiency in the use of scarce resources but could also lead to a worsening of the distribution of income against unskilled workers who make up the bulk of the labor force. Finally, by using market prices, there is no obvious way to take account of future changes in relative prices, a problem automatically taken care of when shadow prices are used. The analysis of dual variables associated with the pro- gramming model has not been carried out very far. Tables 8 and 9 indicate the shadow prices associated with sectoral activities and skill levels. - 297 - Table 82 FOREIGN EXCHANGE PROJECTIONS (BASIC CASE) (Unit: billions 1972 TL) Average Annual Growth Activity 1972 1975 1978 1981 1984 1987 Rate, 1972-1987 Non-competing 14.4 20.5 26.5 33.9 43.1 53.4 9.2 imports1/ Ml,t. Agriculture .4 imports M2,t. Mining .3 .5 .7 1.1 1.6 2.4 14.9 imports N3,t. Manufacturing 10.3 7.8 7.1 3.3 .4 -- -- imports Total imports 25.4 28.8 34.3 38.3 45.1 55.8 5.4 Zl,t. Agriculture 8.0 9.5 11.3 13.5 16.1 19.2 6.0 exports Z2,t. Mining .5 .5 .5 .5 .5 .5 -- exports Z3,t. Manufacturing 3.3 3.3 3.3 5.1 8.7 15.1 10.7 exports Z4,t. Freight & .2 .2 .2 .2 .2 .2 -- shipping exports Z5,t. Tourism 1.5 2.0 2.7 3.5 4.7 6.3 10.0 Total exports 13.5 15.5 18.0 22.8 30.3 41.3 7.7 Invisibles & net foreign loans 11.9 13.3 16.3 15.5 14.8 14.5 1.3 of which: net foreign 8.6 2.8 1.7 .8 loans net factor 9.0 13.3 17.6 17.9 18.2 18.1 16.0 services 1/ Imports of raw material and equipment goods for which Turkey will not become competitive in the projection period. The shadow prices of sectoral activities represent the relative value of output in each sector and reflect the distortion of the present price sys- tem. In a perfectly competitive market, they would all be equal. Here; utili- ties, transport and services are relatively high-cost sectors; and future dis- tortions in cost structure seem to remain about the same.over the entire period (Table 83). As shown in Table 84, the shadow wages of skilled labor categories 1 to 3 increase over time while the shadow wages of skilled and unskilled labor decline in real terms. This indicates only the increasing scarcity of high- skilled manpower in a fast-growing and modernizing economy. This is especially true since high-skilled manpower is evidently in surplus during the early years. The equality of shadow wages in skills 1 to 4 in this period indicates some skill downgrading in levels 1 to 3, which, of course, puts the efficiency price of these groups at identical levels. The shadow wage of skill 5 is not zero because of the cost of migration to the economy (TL2,900 per man and per year, or a little less than the normalized shadow wage of skill 5). These large differences between shadow wages of low and higher skills do not indicate a deterioration of the income distribution. Shadow wages are calculated independently of any consideration of the market force which deter- mines the level of real wages, such as minimum salary legislation and the bar- gaining power of trade unions. It is interesting to note that the changes in the skill composition of the labor force lead to nearly no increase in the average shadow wage which changes from TL4,814 in 1972 to TL4,993 in 1987. Alternative growth patterns Modifications to the assumptions made in the basic case are intro- duced one at a time. Six alternative solutions have been explored and are described in Table 85. Although some of the modifications are rather extreme, they do not have too large an impact on the pace of growth of the Turkish economy. Thus, the yearly growth rate of GDP always remains between 7.0 percent and 7.6 percent. This result is typical of linear programming models; relaxing one constraint allows increases in growth only as long as another constraint does not become binding.2/ While overall growth is not very sensitive to the various alternatives, some particular variables are. The comparison of a number of alternatives with the basic case is summarized below and in Table 86. An employment-oriented economy. The trade-off between a maximum aggregate growth and a long-term maximum employment strategy is formalized in case 1 of Table 86. To avoid excess supply of output in labor-intensive sec- tors, output has been constrained to equal demand in 1987. In the programming model the unskilled agricultural labor force is taken as surplus and consti- tutes the source of rural/urban migration. As a consequence, maximizing em- ployment leads the model to emphasize growth of industry and services at the expense of agriculture. Industrial and service output grow faster than in the basic case while agricultural output growth falls to 2.4 percent. The overall economy investment, consumption and savings all grow only slightly more slowly than in the basic case. The pattern of investment is more oriented towards 2/ It would be easy to build cases where the growth rate "blows up" by relaxing several constraints simultaneously. - 299 - Table 83 DUAL VARIABLES FOR MATERIAL BALANCES (Bit) FOREIGN EXCHANGE BALANCES (Ct) AND CONSUMPTION (ACt) (Units: 1972 TL per unit of good i, normalized by dual variable for consumption in year t) (Basic case) Sector i 1975 1987 1. Agriculture .751 .783 2. Mining .991 1.210 3. Manufacturing .807 .839 4. Utilities 2.320 2.431 5. Construction .520 .540 6. Commerce .349 .340 7. Transportation 1.154 1.219 8. Services 1.437 1.328 Foreign exchangeL/ .807 .863 Dual variable for consumption (in terms of maximand) .755 1.422 1/ The shadow price of foreign exchange is always equal to the shadow price in the manufacturing sector, which forms the bulk of internationally traded goods, but in the terminal year. This indicates that there seems to be no premium on foreign exchange, or that the conventional price of foreign exchange equals its shadow price. The difference in the terminal year reflects terminal conditions problem. The shadow interest rate on foreign capital between 1975 and 1984 averages - 300 - Table 84 DUAL VARIABLES FOR LABOR BALANCES (Ast) (Units: 1972 TL per man-year of skill level s, normalized by dual variable for consump- tion in year t) Skill s 1975 1987 1. Scientists, engineers, doctors, professors 4888 11974 2. Other technical and professional 4888 7458 3. Administrative and clerical 4888 7658 4. Skilled and semi- skilled urban 4888 19o 5. Unskilled urban 4368 3611 - 301 - Table 85 ALTERNATIVE SOLUTIONS No. Name Characteristics 1. Employment-oriented economy Maximization of employment (instead of GDP) - oversupply of material goods at the end of the projection is not allowed. 2. Labor surplus economy No labor constraints for all skill levels. 3. Less domestic savings Marginal propensity to save (MPS)= .24 4. More domestic savings MPS= .30 5. More dependence from Increased net foreign capital borrowing. foreign capital 6. EEC membership Less competitive economy (in the sense of the model): more non-competitive imports in consumption and raw material. - 302 - Table 86: Sensitivity Analysis 1963-1172 1972-1987 Basic case Max.employ. Labor surplus MP3=.24 MPS=.30 Hore borrowing EEC entry eurkist Dev. Yearl Growth R.ates (<) (1) (2) (3) (4) ($) () Strateg t prices 6.6 7.2 7.0 7.5 7.' 7.6 7.5 7.8 .7 Sonsumption 6.0 6.6 6.4 6.9 6.5 6.7 6.8 6.6 7.5 Domestic Savings 10.2 10.2 9,9 10.5 9.5 11.6 10.5 13.2 11.5 Investment 9.8 8.5 5.3 8.8 7.9 9.8 8.9 b.9 11.2 MPS /1 .22 .26 .26 .26 .24 .30 .26 .26 .3 Total imports 6.5 5.4 13.3 5.1 4.9 6.4 5.6 9.2 7. Non-competitive imports n.a. 9.2 8.3 8.8 8,9 10.2 9.4 13.2 .a, Total expcrtn 7.0 7?,7 1L.0 7.3 7.1 9.1 7.9 12.6 10.1 Industrial exports 11.8 10,7 20.0 9.3 8,7 1h.0 11.0 19.2 17.9 Total urban employment /2 5.8L 5.0 6.2 n.a. b7 5.6 5.3 5.0 5.8 I Volume of migration- in 1987 (rillionz) 2.9 4,7 n.a. 2.5 3.8 3. 2.9 n.a. Agricultur labor force .9 - .1 n.a. 1.2 .5 .7 .9 - .6 Growth of output Agriculture 3.6/k 5.6 2.h 5.8 5.5 5.8 5.6 5.4 5.1 Industry 10.2 8.6 9.1 8.8 8.3 9.1 8.9 8.4 11.3 Services 7.2 7.0 7.4 7.2 6.8 7.5 7.3 7.2 8.9 Total 6.6 7.3 7.3 7.6 7.1 7.9 7.6 7.3 9.3 Structure of investment (% of total during period) Agriculture 13 15 7 14 13 12 12 15 10 Industry 35 38 38 37 41 41 42 37 48 Services 32 47 55 49 46 47 46 48 4±2 GDP per capita in 1987, in 1972 US$ 79-) 776 831 776 848 828 794 996 / 1. Marginal propensity to save during 1972-1981. 2. Accumulated migrations during 1972-1987 for urban employment creation. 3. 1965-1970. 4. Value added at factor cost. 5. Assuming a population of 52.8 millions in 1987. services (55 percent of total investment compared to 47 percent) at the expense of agriculture (7 percent compared to 14 percent). The modern sector leads to more exports, especially industrial exports (20 percent compared to 10.7 per- cent) and to more import growth (10.3 percent compared to 5.4 percent), a sub- stantial amount of agricultural imports being due to the low agricultural growth. As expected, this employment strategy leads to a much faster growth of urban employment (6.2 percent compared to 5.0 percent) at all skill levels, including labor employed in new education activities which increases from about 600,000 in the basic case to 1.7 million. This translates into a total mi- gration of more than 2 million people to the cities. Compared to the Government's long-term strategy, this case leads to a better employment situation, lower per capita income (but obtained with less savings), more emphasis on the services sector, and a better income distribution within the urban area but with a deterioration in the relative income of the agricultural sector unless a system of financial transfers is simultaneously set up. An economy without labor constraints. Assume that growth is in no way constrained by skilled labor shortages as implied in the Government's long-plan strategy and Third Plan projections. These assumptions, of course, lead to a faster overall growth than in the basic case; and we have tested it in case 2. While growth is accelerated somewhat at a macro level, the differences are more striking in the foreign sector where now exports and imports grow more slowly. The pattern of imports is changed with more rapid import substitution in the manufacturing sector and gradual import substitution in agriculture--the reverse situation of the basic case. This reflects a decrease in the relative profita- bility of agriculture once skilled labor is also in surplus (Table 86, case 2). Changes in the savings effort. The marginal domestic savings rate has been 26 percent during the First Plan and 13 percent during the Second Plan. Official strategy assumes an increase in the MPS to 38 percent during the Third Plan and to 35 percent during the next twenty-two years overall. Variations in the marginal savings rate significantly affect the rate of growth of the economy, employment levels and, to a lesser extent, the pattern of growth. Changing the marginal savings rate from 26 percent to 30 percent in- creases the yearly growth rate of GDP from 7 percent to 7.6 percent, of invest- ment from 9.5 percent to 11.6 percent, of imports from 4.9 percent to 6.4 percent, and of exports from 7.1 percent to 9.1 percent with emphasis on faster growth in industrial exports (14 percent instead of 8.7 percent). Growth in urban employment increases by nearly one percent per year and more than one million more employed by 1987 than in the basic case. Growth rates increase in all sectors, but particularly in industry and services; and the investment pattern gives slightly more emphasis to services at the expense of agriculture (Table 86, cases 3 and 4). Relying more on foreign savings to sustain fast growth is equivalent to higher MPS in many respects. Assuming that Turkey borrows net TL17.8 billion more than in the basic case (which is equivalent to US$50 million per year in 1972 prices), GDP growth increases from 7.2 percent to 7.5 percent with moderate growth in industry, services and urban employment (Table 86, case 5). - 304 - A more-open economy. In the basic case, imports are classified into competitive and noncompetitive, competitive imports being defined as imports of goods which could be produced at a competitive cost in the medium term. The list of competitive imports prepared by Mr. Blitzer and Mr. H. Cetin (SPO) in 1970 served as a basis for this classification. The entry of Turkey into the EEC may create a situation in which Turkey will import more goods in which it will be competitive in the long term but not at present or in which Turkey is competitive but consumers prefer foreign products. To account for this possi- bility, the input/output and capital matrices have been revised with more manu- facturing imports than in the basic case being classified as noncompetitive. These modifications leave the rates of growth and employment levels unchanged but modify the growth pattern and the foreign trade sector (Table 86, case 7). The external sector presents a substantially different pattern. Imports grow more rapidly (9.2 percent compared to 5.4 percent) since import substitution is limited to a narrower field. Exports must increase more rapidly (12.6 percent compared to 7.7 percent) to finance this increased import bill. Manufacturing exports grow especially fast at 19.2 percent. Although the disaggregation of the model does not enable us to answer specific questions of comparative advantage, this alternative probably corresponds to a development strategy in which Turkey specializes in the production of those manufactured products in which it has relatively low costs and open export markets. C. Annex 1: Data Base for the Linear Programming Model A detailed analysis of the data base for the programming model is available in previous writings.3/ This note is a brief description of the method by which this data base has been updated during the basic economic mission. Current account input/output coefficients (Tables Al, A2, A3) The estimation of these coefficients is based on the 1967 input/ output study done by the SPO and the modifications to this table done for the preparation of the Third Plan. These modifications account for technological changes which have taken place during 1967 and 1972 and also for the 1970 devaluation. The latter also raises the noncompetitive import coefficients.4/ A detailed analysis of the 1972 Customs Statistics enabled us to classify all imports into competitive and noncompetitive categories. We were able to subdivide noncompetitive imports by sector of delivery. It turned out that the list of competitive imports prepared by Mr. Blitzer and Mr. H. Cetin (SPO) in 1970 did not have to be revised substantially. The thirty-seven sectors coefficient matrix was then aggregated into eight sectors, using the 1967 transaction matrix values as weights to average the coefficients. Some coefficients were then modified to account 3/ C. Blitzer, ibid. Appendix: Numerical data for "A Perspective Planning Model for Turkey." 4/ For a detailed explanation of the technological changes, see "Explanatory note of the 1967 1-0 study for the use in the TFYP model," international colloquium on the TFYP model, SPO (February 28-29, 1972). - 305 - for further technological changes during the 1972-1987 period, essentially in utilities, commerce and agriculture. Capital coefficients (Table A4) The capital coefficients matrix was revised from new Turkish sources of information.5/ Total ICORs were raised in agriculture, mining, utilities and lowered in construction, commerce and services. The ICORs were then broken down into sectors of origin following the previous methodologyb/ and using the 1967 input-output analysis. The education-investment ratios were updated to account for the price changes between 1963 and 1972. Export coefficients (Tables A5, A6, A7) The only modification to the export delivery coefficients consisted of shifting 10 percent of the origin of tourism exports from services to agri- culture. Long-term upper limits on export growth rates were increased to 6 percent for agriculture and 20 percent for manufacturing on the basis of mis- sion analysis of export prospects. Incremental consumption coefficients (Table A8) These coefficients were revised on the basis of the 1967-1972 per- formance. Urban transformation cost (Table A9) This cost was revised on the basis of a study carried out by the Planning Office of the Ministry of Reconstruction and Resettlement and has been estimated to TL2,900 in 1972 prices. Labor input and labor force projections (Tables Al0, All, A12, AL3) The procedure used to prepare exogenous projections of labor force has not been changed, but projections are now based on the results of the 1970 census. From these, estimates of employment and skill coefficients for 1972 have been derived. Projections of productivity changes have been modi- fied according to work carried out in the SPO by Mr. Yigit Alemdar and of the mission analysis. The labor input norms for production by sector and by skill (Jts,j)7/ have been recalculated accordingly. 5/ Sevin Yayin and Nuran Uras, TFYP. Marjinal sermaye--uretim iliskilleri, SPO (1971). 6/ C. Blitzer, ibid. 7/ See Table Al3. - 306 - Material and foreign exchange balances (Tables A14, Al5) The constants of the material balances constraints are calculated from Table A3 and from population projections prepared by the Bank and included in Table All. The constants of the foreign exchange constraints are made from exo- genous projections of net factor income, net changes in reserves, and net capi- tal inflows. These constants have been determined using the balance-of-payments results from the two-gap model (see Annex A2). Workers' remittances have been assumed to increase from $900 million in 1972 to $1,300 million in 1977, then to $1,700 million in 1987 in constant 1972 prices. Foreign profit remittances increase at 5 percent per year from $35 million in 1972, interest increases an average of 10 percent per year from a base of $62 million in 1972. Taking into account the Turkish strategy of less dependence on foreign savings, net capital inflows decrease from $275 million in 1972 to $247 million in 1987 (in 1972 dollars) out of which net official capital decreases from $177 million in 1972 to $70 million in 1987. Net reserves, calculated as a residual item in the balance-of-payments equilibrium, change as indicated in Table Al5. D. Annex 2: Further Improvement of the Programming Model The use of this programming model represents a first step towards a better understanding of the alternative possible growth patterns of Turkey and of the trade-offs between various policies. A second step would consist of carrying further research to improve this model. There are many directions of improvements among which the follow- ing can be indicated: (1) Linking productivity growth and skill composition with income distribution in each sector: this would require data collection on employment by sector and the estimation of income elastici- ties. (2) Introduction of a public sector into the model to explicitly account for public investments, public savings and taxation, and the analysis of the link between private savings and personal income. (3) Further analysis of the changes over time of industrial com- petitiveness in Turkey. This would require a comparison of the cost of industrial production with the cost of c.i.f. imports and an appraisal of future potential changes. A two-gap model for the Turkish economy8/ Objective of the model. The main objective of this two-gap model is to estimate the foreign capital requirements of the Turkish economy for 8/ The present two-gap model is a modified version of a modeling framework originally formulated and empirically implemented by J. Garcia dos Santos in 1972-73. - 307 - Table A.1 1972 INPUT-OUTPUT COEFFICIENTS (MATRIX E-A) Sector of destination Rector of oriqin 1 2 3 4 5 6 7 8 1. Agriculture .782 -.025 -.179 - -.014 - -.005 -.018 2. Mining - .986 -.025 -.080 -.021 -.001 -.005 -.003 3. Manufacturing -.081 -.089 .757 -.199 -.335 -.031 -.274 -.069 4. Utilities - -.028 -.016 .950 - -.005 -.001 -.006 co 5. Construction - - - - 1.000 - - - 6. Commerce -.025 -.064 -.055 -.112 -.102 .962 -.118 -.021 7. Transport -.012 -.031 -.037 -.013 -.047 -.019 .991 -.013 8. Services -.009 -.010 -.002 -.001 -.006 -.042 -.030 .945 Non-competing imports -.008 -.013 -.052 -.003 -.007 -.010 -.003 -.004 Value added per unit of output .647 .726 .391 .542 .468 .854 .555 .811 Table A.2 MARGINAL INTER-INDUSTRY MATRIX (1972-1990) Destination Qrigin 2 3 4 5 6 7 8 1. Agriculture .210 .025 .105 - .014 - .005 .018 2. Mining - .014 .025 .080 .021 .001 .005 .003 3. Manufacturing .081 .089 .282 .199 .335 .031 .274 .069 4. Utilities .001 .042 .024 .050 .001 .007 .002 .008 5. Construction - - - - - - - - 6. Commerce .017 .044 .037 .075 .068 .035 .079 .014 7. Transport .012 .031 .037 .013 .047 .019 .009 .013 8. Services .009 .010 .002 .001 .006 .042 .030 .055 Total competitive inputs .330 .255 .512 .408 .492 .135 .404 .180 Non-competitive imputs .008 .013 .052 .003 .007 .010 .003 .004 Total inputs .338 .268 .564 .411 .499 .145 .407 .184 Value added .662 .732 .436 .589 .501 .850 .593 .816 - 309 - Table A.3 1972 TRANSACTION MATRIX (1972 billions T) Deliveries Intermediate Total origin deliveries Consumption Investment Exports demand Imports Output 1. Agriculture 40.9 56.4 6.4 85.7 .4 85.5 2. Mining 4.4 1.2 - .5 5.9 .3 5.6 3. Manufacturing 59.1 57.7 7.6 3.0 127.4 10.5 117.1 4. Utilities 2.9 3.7 - - 6.6 - 6.6 5. Construction - - 27.1 - 27.1 - 27.1 6. Commerce 17.8 7.5 .8 1.2 27.3 - 27.5 7. Transport 8.4 14.3 .2 1.2 24.1 - 24.1 8. Services 6.s 55.2 1.4 65.1 63.1 Non-competing imports 7.1 .8 6.5 - 14.41L/ 14.41/ - Total 147.1 176.8 42.2 15.5 579.61/ 25.41/ 354.2 1/ Including import taxes. Table A.4 CAPITAL COEFFICIENT MATRIX . Des tination i 2 3&TD T 3. Manufacturing . 47 .88 .32 .51 .10 .06 .80 .07 .20 .15 .07 5. Construction .85 .13 .30 3.35 - .l3 1.00 3.30 .52 .70 6. Co=erce ..0 J0 .08 .40 .02 .04 .21 .03 .06 .04 .0 7. Transport .0 .18 .02 .11 .01 .01 .06 .01 .02 .01 .0v Non -mpe tIng importz . 1.0 .28 .35 .10 .16 .l .20 .12 .0 ICOR 1,70 2.67 1.00 . .23 .40 2.75 3.52 1.00 1.00 1.00 Student-investment tatto 55.5 56.0 153.6 Table A.5 EXPORT DELIVERY COEFFICIENTS (zi,j) x port activity, j Agricul- Manufac- Freight Sector of origin tural Mining turing and goods goods goods Shipping Tourism 1. Agriculture .769 - - - .100 2. Mining - .683 - - - 3. Manufacturing - - .796 - .251 6. Commerce .089 .131 .076 .032 .076 7. Transport .073 .125 .056 .888 .099 8. Services .069 .061 .(72 .080 .474 Total 1.000 1.000 1.000 1.000 1.000 Table A.6 EXPORTS IN 1972 (Billion TL) Agricul- Manufac- Freight tural Mining turing and goods goods goods Shipping Tourism Total Agriculture 6.2 - - - .2 6.4 Mining - .5 - - - .5 Manufacturing - - 2.6 - .4 3.0 Commerce .7 .1 .3 - .1 1.2 Transport .6 .1 .2 .2 .1 1.2 Services .5 - .2 . .7 1.4 Total 8.0 .5 3.5 .2 1.5 13.5 Table A.7 UPPER LIMITS ON EXPORT GROWTH RATES Export activity Upper growth rate (e ) (1 + e,) 1. Agriculture 6% 1.191 2. Mining 15% 1.521 3. Manufacturing 20% 1.728 4. Shipping, freight 10% 1.331 5. Tourism 20% 1.728 Table A.8 INCREMENTAL CONSUMPTION COEFFICIENTS Agriculture 12.2 Mining 0.4 Manufacturing 45.0 Utilities 2.0 Commerce 5.0 Transport 10.0 Services 25.0 Non-competing imports 0.4 100.0 - 314 - Table A.9 URBAN TRANSFORMATION COSTS (Fi) The Planning Office of the Ministry of Reconstruction and Development has estimated that the costs of absorbing the additional population of Ankara would be approximately TL 25,859 per capita during the Third Plan, broken down as follows: Destination TL/capita 1. Drinking water 1,240 2. Sewage 417 3. Electricity 220 4. Roada 1,609 5. Markets, car parks, etc. 7,320 6. Accomodation 10,050 7. Transport 5,000 8. Plans and designs 3 TOTAL 25,859 Assuming that a) expenditure on 1, 2, 3 and 5 is current expenditure b) expenditure on 4, 6 and 7 has to be repeated every 20 years, and on S every 40 years, the annual expenditure per capita comes to TL 2,900, broken down into TL Utilities 330 Transport 330 Services 2,240 2,900 - 315 - Table A.10 EMPLOYMENT AND PRODUCTIVITY CHANGES BY SECTORS Annual productivity 1/ 1972 Employment growth rate 1972-1990 Sector in thousands in % of total (%) 1. Agriculture 8,765 65.7 2.5 2. Mining 114 .9 1.5 3. Manufacturing 1,589 10.4 4.5 4. Utilities 16 - 3.5 5. Construction 435 3.2 2.3 6. Comerce 605 4.5 3.4 7. Transportation 450 3.4 3.0 8. Services 1,579 11.9 1.2 TOTAL 13,549 100.0 1/ Linking productivity growth to income with elasticities is not possible at this stage because of lack of statistical information. Table A.11 EXOGENOUS PROJECTIONS OF LABOR FORCE (In thousands--yearly growth rate) Nonagricultural and Skill agricultural skilled Total Total 1 2 3 4 5 6 labor force labor force population 1960 30 167 289 1 591 462 9,091 2,539 11,630 27,755 (1.3) (8.3) (1.0) ( .2) (-1.8) (1.4) (3.1) (1.9) (2.5) 1965 32 249 303 1,959 421 9,723 2,964 12,68 31 391 (9.8) (12.5) (6.7) (6.6) (8.3) (--) (714) (1.9) (.6) 1970 51 449 419 2,691 628 9,723 4,238 13,961 35,667 (6.7) (8.5) (5.3) (1.1) (--) (2.5) (2.5) (2.5) (2.6) 1972 58 529 465 2,894 700 10,020 4,646 14,666 37,200 (6.5) (7.1) (4.8) (1.8) (--) (2.5) (2.5) (2.5) (2.6) 1975 70 649 535 3,050 700 10,792 5,004 15,796 40,177 (5.4) (5.8) (4.4) (2.0) (--) (2.5) (2.5) (2.5) (2.5) 1978 82 769 605 3,233 700 11,622 5,389 17,011 43,266 (4.7) (4.9) (3.7) (2.1) (--) (2.5) (2.5) (2.5) (2.4) 1981 94 889 675 3,446 700 12,517 5,804 18,321 46,457 (4.0) (4.3) (3.2) (2.3) (--) (2.5) (2.5) (2.5) (2.2) 1984 106 1,009 745 3,691 700 13,481 6,251 19,732 49,590 (3.7) (3.8) (3.0) (2.4) (--) (2.5) (2.5) (2.5) (2.1) 1987 118 1,129 815 3,970 700 14,519 6,732 21,251 52,780 (3.3) (3.4) (2.8) (2.6) (--) (2.5) (2.5) (2.5) (2.0) 1990 130 1,249 885 4,287 700 15,638 7,251 22,889 56,olo Table A. 12 SECTORAL EMPLOYLNT COEFFICIENTS (Ttousand men ycar/billion TL outmtt in 1972 prices) Annual Product it.t 1972 1975 1978 1981 1984 1987 1990 growth ( Agriculture .72 .67 .62 .57 .54 .50 .46 2.5 Mi 20.4 19.3 18.5 17.7 16.9 16.1 15.4 1.5 anufactcrivg 11.9 10.4 9.1 8.0 7.0 6.2 5.4 4.5 ili,es 2.4 2.2 220 1.8 1.6 1.4 1.5 3.5 ~on strci onv 16,0 150 1.0 13K.1 12.2 1. 1062.3 22.9 20.0 18.1 16.4 14.8 13.4 12.1 3.4 Transpoö» 18.f 17.1 15,7 14.3 13.1 12.0 11.0 3.0 Service 25 0 24.1 23.3 22.5 21.7 20.9 20.2 1.2 Table A.13; LASOE COEFICIE1TS MATRICES (t Skill s - 2 3 4 5 1 2 3 4 5 1 2 8 4 Sector I .047 .045 .231 .397 - .72 .037 .035 1 .183 .314 .57 .030 .029 .148 .264 246 .408 1.P65 7.650 10.832 20.4 .212 .354 1.097 6.638 9.399 17.7 .185 .308 .95s 5.775 8.1" . S.095 .298 .750 1.590 .167 11.9 .064 .201 .504 7.124 .112 8.0 .043 .135 .340 4.807 .0 .4 4 05s5 .137 .372 1.514 .322 2.4 .041 .103 .279 1.136 .241 1.8 .030 .074 .202 .820 .'4 1 .00 .416 .64r 7.168 7.696 16.o .066 .341 .524 5.869 6.301 13,1 .063 .276 .424 4.749 1.099 I0. .1 .422 6.660 14.052 .999 22.2 .049 .312 4.920 10.381 .738 16.4 .036 .230 3.630 7.659 .14 2.1 7 .6 .355 3.946 14.006 337 '8.7 .042 .272 3.017 10.711 .257 14.3 .033 .209 2.321 8.239 .19' 11,:- 5 4.950 11.400 2.375 25.0 .5?8 5.063 4.455 10.260 2.138 22.5 .525 4.545 4.000 9.211 1.919 20, a1 6at 04 t .369 [ .67 .035 .33 .:73 297 - .54 15 17 7. 38 10.248 19.3 .203 .338 1.048 6.338 8.974 16.9 9.2'56 .146 10.4 .056 .175 .441 6.129 o98 e7.l b .- .541 1_gtA .295 2.2 .037 .091 .248 1.010 .214 1.6 75 9.90 600 ).720 7.215 15.0 .061 .317 .488 5.4665, 68 12 060 . t0 00 12.660 .900 20.0 .044 .281 4.440 9.368 ,666 14.8 051 .32> 60 12.o 3 s 08 17.1 .03' .249 2.764 9.812 .236 13.1 7 .4 4.77 10.990 2.290 24.1 .564 4.882 4.297 9.895 2.062 21.7 1 4 199 342 .62 .033 .031 .160 .276 50 .370 ',!47 6.938 9.824 18.5 .193 .322 .998 6.038 8.549 16,1 07 .22' .573 A o98 .128 9,1 .050 .155 .390 5.516 ,086 6.2 .046 .4 . 10 562 .268 2.0 .032 .080 .217 .883 .188 1.4 .o 3 6.272 6.734 14.0 .057 .296 .456 5.107 5.483 11.4 054 .44 430 11.457 .815 18.1 .040 .255 4.020 8.482 .603 13.4 34 .291 3 19 11.759 .283 15.7 .036 .228 2.532 8,988 .216 12.0 43 4.613 10.625 2.214 23.3 .543 4.703 4.138 9.530 1.986 20,9 Table A.14 RIGHT-HAND CONSTANTS FOR MATERIAL BALANCES: Ptc9 -(net output)? Year Sector 1972 1975 1978 1981 1984 1957 1990 1 - 6.0 - 3.1 - .1 3.0 6.1 9.3 12.4 2 .1 .2 .3 .4 .5 .6 3 -.3 4.4 9.2 14.2 19.0 23.9 28.9 4 - .3 .6 .9 1.2 1.5 1.8 5 -27.1 -27.1 -27.1 -27.1 -27.1 -27.1 -27.1 6 - 2.0 - 1.4 -.8 -.2 .5 1.1 1.8 7 - 1.4 -.3 1.0 2.2 3.3 4.6 5.8 8 - 1.4 3.0 7.7 12.4 17.0 21.7 26.5 Table A.15 RIGHT-HAND SIDE CONSTANTS FOR FOREIGN EXCHANGE CONSTRAINTS (In billion 1972 TL) 1972 1975 1978 1981 1984 1987 1990 1972 Intermediate imports 7.1 7.1 7.1 7.1 7.1 7.1 7.1 plus P C0 .8 .9 1.0 1.0 1.1 1.2 1.3 t m plus net increase in reserves 3.6 3.4 5.8 6.0 6.5 7.0 less net capital in flow -8.6 - 3.9 h*5 - 2 -3.7 -3.5 -2.5 less net factor services -9.0 -15.0 -15.2 -17.1 -17.3 -17.5 -17.7 RHS -4,o - 5.5 - 8.3 - 7.4 - 6.6 - 6.2 - 3.8 Includes short term capital and errors and omissions. Table A.16 SKILL CATEGORIES OF LABOR FORCE Skill level Definition 1. Scientists, engineers All university professors regardless of field, professors. natural scientists, physicians, dentists, vete- inariane, engineers and architects. In general the education level attained by this group corres- ponds to more than three years of higher education. 2. Technical and professional All other workers, except those already included workers. in skill level 1, included in the Turkish population census as technical and professional workers. The majority of this category are teachers. Also included are such diverse occupations as imams, lawyers, medical technicians and artists. The level of educational achievement is in general equivalent to three years of universityi 3. Managerial and clerical Aworkers Those classified under this category in the Turkish population census. The education level of this group is roughly equivalent to three years of lycee (high school). 4. Skilled and semi-skilled workers Those whose jobs in general require the equivalent of a middle school education. This category includes craftnen, production workers, drivers, police, and salesmen, among others, 5. Unskilled urban workers This group of occupations has little or no requi- rement for edpcation above the primary level As such, many of the new migrants into the urban labor force are engaged in work of this skill level These occupations include miners, manual workers, servants, poormen, shoeshiners, and street peddlers. 6. Unskilled aricultural workers They form the bulk of the Turkish labor force. Although this group is primarily farmers, it also includes lumbermen, fishermen and hunters. In general the highest level of education achieved is primary schooling. - 322 - the 1973-87 period. The other objectives are to measure the impact of infla- tion on domestic savings, foreign trade, and the requirement of foreign re- sources as well as the impact of large inflows of workers' remittances on - growth. Description of the model.9! Like other models of this type, this one compares the ex ante foreign exchange gap with domestic savings gap on the basis of a given set of target growth rates in four major sectors of produc- tion (agriculture, industry, construction and services). Then, with the assump- tion that the dominant one of the two gaps will be filled by resources from abroad, the ex post identity of the two (I - S = M - X)10-/ is established with- in the framework of national accounts. Unlike other models of this type, however, this one employs domestic and foreign prices as one of the determinants of the behavior of real economy, thus allowing for the room to test the impact of different policy decisions on such instruments as exchange rate or domestic money supply. A full descrip- tion of the model is available on request from the Bank's Comparative Analysis and Projections Division, but the main results are presented below. Simulation over some part of the observation period (1967-72) has been conducted to test the predictive ability of the model, and the range of prediction errors on all major economic indicators falls within the acceptable limit (5 percent of the real value). The important endogenous variables are money demand, GNP deflator, effective terms of trade, private and public con- sumption, ICORs, imports of capital goods, raw materials, consumer goods and nonfactor services, net and gross foreign capital requirements. The exogenous variables are money supply,11/ the growth rate of value added in four major production sectors (agriculture, industry, construction and services), exports, workers' remittances and the official exchange rate. Sensitivity analyses have been carried out to measure the trade-offs introduced by changes in money supply growth, exchange rate, export growth, workers' remittances, and the borrowing terms of foreign capital. Variables of national accounts (GDP, GNP, sectoral value added, investment, consumption, and exports and imports of goods and nonfactor services) are estimated in constant 1968 Turkish Lira while the components of balance of payments are estimated in current US dollars. The domestic price changes are explained by the changes in the demand for and the supply of money. Money demand, in turn, is explained by real GDP and prices; and money supply is taken as a policy variable. 9/ See J. Garcia dos Santos, "Turkey Model." Mimeographed. Washington, D.C.: Comparative Analysis and Projections Division, World Bank, 1973. 10/ 1 - S = ' - X: Investment - Saving = Import - Export. 11/ An attempt to project money supply growth on the basis of the variables which "explained" most of this growth in the past (Treasury borrowing from Central Bank, agricultural price-supporting credit and foreign assets) has been abandoned. - 323 - Starting from a set of target growth rates for the four major pro- ducing sectors, we determine the investment requirements through incremental capital output ratios, which were estimated on the basis of past relationship between investment and value-added growth rate. Private consumption and, therefore, domestic savings are explained by disposable income and prices; whereas Government consumption is mainly explained by the level of GDP. Three different functions have been specified for commodity imports. They all in- clude effective terms of trade as an explanatory variable, measured by an index representing the composite effect of the changes in custom duty rate, domestic price, international price of imported goods, and the official ex- change rate. The other variables explaining the value of commodity imports are fixed investment and export plus workers' remittances for capital goods, value added in industry for intermediate goods, and disposable income as well as the rate of import substitution for consumer goods. Imports of nonfactor services are explained by a time trend. The two ex ante gaps between investment--saving and import--exports are equalized ex post through changes in stock; if the changes in stock reach a maximum or minimum allowed in a year, the rest of the adjustment comes from private consumption and imports.12/ Gross foreign capital requirement equals the sum of the ex post resource gap in current dollars, foreign debt-service payments, and the ex- pected profit transfers by foreign-owned firms. Foreign exchange availability is exogenous and includes workers' remittances, official project and program assistance, TL grain imports under P.L. 480, NATO infrastructure and offshore receipts, imports with waiver, and direct investment. Official capital in- flows are projected on the basis of existing loan commitments and expected pipelines. If the foreign exchange requirements exceed their availability, the gap is filled first by drawing on the reserve holdings of the Central Bank until the reserve level reaches a minimum of three months' equivalent of imports and then by an inflow of suppliers' credit. If foreign exchange availability exceeds the requirements, accumulation of reserves takes place. Case 1--basic case 1. Assumptions The basic case has the following underlying assumptions on major exogenous variables: (a) The annual growth rates of value added at factor cost in agriculture, industry, construction and the services sector are 4 percent, 11 percent, 8 percent and 8 percent respectively. 12/ The results of the projections show that, except for two cases (lower expectations for workers' remittances or slower export growth), the investment-savings gap is the dominant one throughout the entire pro- jection period. - 324 - (b) Money supply increases at 17 percent per year during the Third Plan (26 percent during the Second Plan) and 14 percent per year thereafter. (c) Export grows by 25 percent in 1973, by 8 percent until the end of 1977 and by 9.3 percent per annum thereafter. (d) Workers' remittances reach $900 million in 1973 and $1,400 million in 1977 (current dollars). After 1977 they grow by 5 percent annually. (e) The current official exchange rate, TL14 to $1, does not change during the projection. (f) Import duty rate remains at the 1972 level until 1977 (39.6 percent of imports in TL), decreasing by 5 percent in 1977, 1982 and 1987 to account for the tariff reductions amounted with the EEC agreement. (g) Import prices grow by 10.1 percent in 1973, 5.8 percent in 1974, 4.2 percent in 1975, 3.7 percent in 1976 and 3.5 percent per year thereafter, and export prices by 17 percent in 1973 and 3 percent per year thereafter. (h) Imports grow by 25 percent in 1973. - (i) Growth rates of other major balance-of-payments items in current US dollars: (i) Convertible TL account outstanding drops from $364 million at the end of 1972 to $100 million by mid-1975 and remains at the same level thereafter. (ii) Earnings from NATO infrastructure remains at $10 million. (iii) Projected profit transfer in 1973 is $41 million and increases by 3 percent per annum. (iv) Direct investment increases from $44 million in 1973 to $55 million in 1977 and grows by 5 percent annually thereafter. (v) Disbursements are calculated from the following bench- mark years' official new commitments:13! 1973 365 1977 : 380 1983 416 1987 : 445 13/ These official loans have been projected for each source and them summed lip. - 325 - (vi) The average terms of new loans are: 1973 1977 1987 Interest rate (%) 5.2 5.4 5.5 Maturity (years) 23 21 21 Grace period (years) 4 4 4 Grant elements* (%) 31 29 29 *Discounted at 10%. 2. Results In the basic case GDP at market prices grows at 7.9 percent per year during the Third Plan, investment at 12.3 percent and consumption at 6.8 percent. The marginal rates on domestic and national savings reach 29 percent and 31 percent respectively. Imports of goods and nonfactor services increase by 15.6 percent per year and exports by 10.3 percent. This pace of growth is close to the Plan targets for investment and GDP but corresponds to a more open economy, growth requiring a less dramatic savings effort than in the Plan, and private consumption increasing faster. In the longer term, from 1973 to 1987, GDP grows at the same pace with investment increasing by an average 9.9 percent per year; the marginal rate on domestic and national savings reach 28 percent and 30 percent respec- tively. Imports growth levels off to 9.1 percent per year, reflecting in- creasing import substitution in intermediate goods, while exports increase at 9.6 percent per year. The current account deficit of the balance of payments is expected to increase to $774 million in 1977 and result in a slight decrease of foreign exchange reserve during the Plan period ($200 million). The average gross capital inflow reaches about $475 million per year ($290 million net). The debt-service ratio on the basis of export plus workers' remittances is 7.3 in 1977 and 10.9 in 1987. During the Third Plan period, the average annual GNP deflator is projected to increase by 8 percent and corresponds to a 17 percent annual money supply increase. This increase is lower than the price increase during the Second Plan (10 percent per year) and implies that the Government has been able to control the inflation to a certain extent. The GNP deflator increases by 6.7 percent annually during 1973-87. During the projection period the share of the industrial sector grows from 22.6 percent of GDP in 1972 to 26.3 percent in 1977 and 34.7 percent in 1987. The share of construction (including housing) does not change during the Third Plan period (11.7 percent) and decreases very slowly thereafter. The share of agriculture decreases continuously from 28.4 percent in 1972 to 24.1 percent in 1977 and 16.4 percent in 1987. The share of services increases slightly during the Third Plan period from 37.1 percent in 1972 to 37.9 percent in 1977 but decreases slightly thereafter. The ratios of investment to GNP increases to 23 percent in 1977, while the ratio of con- sumption to GNP decreases to 76 percent. These two ratios reach 25 percent and 73 percent respectively in 1987. - 326 - Case 2--lower expectations for workers' remittances 1. Assumptions The inflow of workers' remittances is assumed to be lower than in the basic case due to a lasting stagnation of the German economy. Workers' remittances are estimated at $1,013 million in 1974, $749 million in 1975, $606 million in 1976, $667 million in 1977, $733 million in 1978, and growing at 10 percent per year afterwards (see Part II, Annex 3 for a description of the underlying assumptions). All other assumptions used in the Basic Case remain valid. 2. Results The current account deficit of the balance of payments increases to $1.5 billion in 1977, and the gross capital inflow required to keep reserves at three months' imports would average $800 million per year during the Plan. A gross inflow of $600 million per year on average, which represents a sub- stantial increase over the past recorded inflow, would lead to gross reserves of $400 million at the end of 1977, or one month of imports. A continuation of this situation after 1977 leads to unrealistic levels of borrowing and of a debt-service ratio increasing from 11 percent in 1977 to 16 percent in 1982. The foreign exchange gap becomes dominant over the savings gap beginning in 1976. Case 3--better control of money supply growth 1. Assumption In this sensitivity analysis we assume that growth of money supply is controlled by the Government to an annual rate of 10 percent until 1977 and 8 percent thereafter. 2. Results The most striking change from the basic case is that the rate of price increase is reduced from 8 percent to 3.8 percent annually during the Third Plan period and from 6.7 percent to 2.0 percent over the period 1973-87. This lower inflation rate affects savings positively; the marginal rate on national savings increases from 31 percent to 35 percent during the Third Plan period and from 30 percent to 33 percent between 1973 and 1987. The annual import growth decreases slightly from 15.6 percent to 15.4 percent during the Plan due to the favorable change in the effective terms of trade which has been made possible by a better control of domestic inflation. Case 4--devaluations 1. Assumption It is assumed in this case that, to compensate for the deterioration in the export potential of Turkey due to an 8 percent inflation rate, the Government introduces discreet devaluations of the lira either through a mul- tiple exchange-rate system or through a change of the official parity. Devalua- tions of 20 percent in the years 1977, 1982 and 1987 have been assumed. Thus, - 327 - the official exchange rate becomes TL14 to $1 until the end of 1976, TL16.8 to $1 from 1977 to the end of 1981, TL20.2 to $1 from 1982 to the end of 1986, and TL24.2 to $1 in 1987. 2. Results The most distinctive change appears in the balance of payments; the devaluations slow down import growth; and the current-account deficit in the balance in 1977 changes from $774 million in the basic case to $453 million in this sensitivity run, the average gross capital inflow required to maintain reserves at a level of three months of imports falling to $377 million per year ($475 million in the Basic Case). Case 5--faster export growth 1. Assumption It is assumed that export will grow faster than in the basic case. The annual export growth rate increases from 8 percent to 10 percent over 1974-77 and from 9.3 percent to 12 percent after 1977. Results The clearest response to this change in assumption appears in the balance of payments. The current-balance deficit in 1977 reaches $593 million and changes from $33 million to $185 million; the average gross capital inflow reaches about $500 million per year. Accordingly, the debt-service ratio for 1977 decreases from 7.3 percent in the basic case to 6.9 percent in the present sensitivity analysis. Case 6--slower export growth 1. Assumption A slower export growth (6 percent per year) has been assumed from 1974 to 1987. 2. Results The balance-of-payments situation changes sharply, and the foreign exchange gap becomes dominant over the savings gap throughout the entire pro- jection period. The gross borrowing requirement increases to $550 million per year during the Plan period, and the debt-service ratio rises from 7.3 percent in the basic case to 7.9 percent in 1977. After 1977 the borrowing requirements increase rapidly, leading to a debt-service ratio of about 15 percent during the eighties (with a peak of nearly 18 percent in 1982). Case 7--borrowing terms hardened 1. Assumption It is assumed in this case that the maturity and grace period of all new loans are shortened by half. Thus, the new terms of borrowing in a - 328 - typical loan would change from: Maturity = 21 years, Grace Period = 4 years, to Maturity = 10 years, Grace Period = 2 years. 2. Results The gross borrowing requirement increases to $515 million per year ($475 million in the Basic Case), and the debt-service ratio increases from 73 percent in 1977 in the Basic Case to 9.7 percent and from 13 percent to 15 percent in the eighties. - 329 -  PART V : STASTICAL APPENDIX  Table 1.1: POPULATION GRDWTH AND CHARACTERISTICS - URBAN AND RURAL Urban Rural Total Population Census (000) October 1950 3,872 17,075 20,947 October 1955 5,355 18,710 24,065 October 1960 7,308 20,l47 27,755 October 1965 9,523 21,868 31,391 October 1970 12,843 22,824 35,667 Average Yearly Growth Rate (%) 1950 - 1955 6.7 1.8 2.8 1955 - 1960 6.4 1.8 2.9 1960 - 1965 5.4 1.3 2.5 1965 - 1970 6.2 0.9 2.6 Demographic Characteristics in 1966/67 Crude Birth Rate (0/00) 31.4 13.9 39.6 Crude Death Rate (0/00) 10.7 16.7 14.6 Infant Mortality Rate (0/00) 112-7 168.3 153.0 Life Expectancy at Birth 58.6 52.8 5i.9 Net Reproduction Rate 1.60 2.238 2.018 Dependency Ratio 0.779 0.927 0.876 L Settlements of 10,000 and more. Source: State Institute of Statistics; 1966-67 Demographic Survey, Hacettepe University. Statistical Yearbook of Turkey: 1971. - 333 - Table 1.2: LABOR SUPPLY AND DEMAND 1962-72 (Thousands) Average Annual 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Rate of Growth 15-64 Age Group 15,978 16,333 16,709 17,140 17,632 18,099 18,628 19,230 19,870 20,474 20,956 2.5 Supply of Labor 12,766 13,055 13,228 13,572 13,784 13,978 14,245 14,473 14,747 15,102 15,468 1.5 Participation Rate (%) 79.9 79.9 79.2 79.2 78.2 77.2 76.5 75.3 74.2 73.8 73.8 Demand for Labor 12,531 12,750 12,874 13,167 13,319 13,448 13,670 13,853 14,117 14,401 14,718 1.1 Armed Forces 569 659 530 514 530 536 564 562 615 615 630 1.0 Civilian Domestic Dem&nd 11,951 12,055 12,269 12,492 12,600 12,732 12,886 12,971 13,059 13,260 13,482 1,2 Agriculture 9,216 9,267 9,370 9,287 9,167 9,07- 8,900 8,775 S,763 8,763 8,763 0.5 Industry 995 1,013 1,033 1,054 1,110 1,175 1,270 1,310 1,384 1,450 1,519 4.3 Construction 305 317 332 343 360 369 387 402 412 419 433 3.5 Transportation 258 268 275 283 304 324 350 378 399 424 450 5.7 Services, Trade & Unspecified 1,177 1,190 1,259 1,525 1,659 1,791 1,979 2,106 2,101 2,204 2,317 6.9 Net Foreign Demand 11 36 75 161 189 180 220 320 443 526 606 Lbor Surplus 235 305 354 405 465 530 575 620 630 701 750 A-ricultural ahor Surplus in Peak Season 750 750 780 800 850 910 895 890 880 860 850 1.2 Tt,,l labor Surplus 985 1,055 1,134 1,205 1,315 1,315 1,440 1,470 1,150 1,561 1,600 4*9 Labor surplus as , of Labor Supply 1.8 2.3 2.7 3.0 3.4 3.8 4.0 a.3 4.3 4.6 5.0 Total Labor surplus as i of labor Supply 7.7 8.1 8.6 8.9 9.5 10.3 10.3 10.4 10.2 10.3 10.8 1/ Et-mated. Source: SPO, except for net emigration figures for 1962 to 1961 which were taken from Report or the demograohic and social pattern of migrants in Eirope, especially with regard to international migrations by Prof. M. T ivi-Bacci (Italy) and Mr. H.M. Hap ann (Switzerland), Research Directors. Table 1.3: WORKERS PWLOYED ABROAD country 1966 1967 1968 1969 1970 1971 1972 SC3367 7 42 204 101 737 l 109 11 y U1 Y Germany ILI w 3 -W Belgium - - - - 431 583 113 France - - - 191 3,507 7,897 10, 610 Netherlands 1,208 48 875 3,40 9,036 4,853 74h AWTA 622 1 258 770 1 10 13063 7 251586 Switzerland 153 215 97 183 1,598 1,342 1,312 United Kingdom - - - 4 843 1,289 82 0Other ountries 442 150 1078 6109 21 2021 Autrli -- 107 1,166 Other - 442 43 108 L,923 1,295 1,381 Total New Departure 34,41o 8,947 4103,975 128,288 ML4? L5,22M Workers returning to Turkey 16,168 17,84L 3,525 4,115 4,756 5,695 n.a. Total not increase in workers abroad 28,242 -8,897 39,679 99,860 123,532 82,77 n.a. Total Workers NF9214 18.34 220,024 984 443,416 526,163 n.a. halyed Abroad 28,4 n.a.4 39, Source: Turkish Employment Service: Work and Munpower Bulletins: (Table 24); SIS Tourism Statistics for workers returning to Turkey. - 334 - Table 14: THIRD PLAN INVESTMNT IN EDUCATION Investment Percent of TL '000 Total Basic 37,800 27.0 General Lycee 4,300 3.1 Technical Lycee 21,000 15.0 Vocational Lycee 5,000 3.6 Handicrafts 20,000 14.3 Other Practical Schools 1,500 1.1 Extension Courses 500 0.3 Universities 17,500 12.5 Academies, etc. 5,000 3.6 Scientific Research 2,000 1.4 Culture, Youth and Sports 8,700 6.2 Other 700 0.5 Projects left over from Second Plan 16,000 11.4 Total 140,000 100.0 Source: Third Turkish Five-Year Plan. - 335 - Table 2.1: GROSS DOMESTIC PRODUCT AT CURRENT FACTOR COST BY TYPE OF ECONIC AcTIVITY (<n nillion TL A At current Pries 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1. AgrIculture 4183.9 5173.3 5739.5 6677.9 5545.5 7058.0 8468.6 11409.4 14555.0 16677.7 17315.4 17228.2 19640.8 23032.1 23482.1 23044.8 ,76952. 29008.8 30319.9 32376.6 37968.4 46989.6 52893.1 2. Iedustry 1126.3 1286.9 1535.0 1894.3 2514.3 2654.1 3387.1 4280.7 5577.8 6781.3 7090.2 7800.5 8569.3 9802.1 11041.1 12852.3 15269.7 17306.0 20320.0 22582.8 25441.4 33812.7 43549.3 3. constructin 225.7 301.5 415.5 565.4 695.1 910.6 1073.9 1466.7 1706.5 256.3 2470.3 2323.0 2615.0 3138.2 3723.4 4143.9 5040.8 6151.6 7520.9 83.2.5 9463.1 10031.4 12330.6 4. Tranmspet 418.3 491.1 694.6 756.9 904.2 1091.0 1274.3 1556.7 1761.0 2458.2 2656.4 2960.8 3365.4 3837.9 4155.1 4650.3 4995.5 5823.8 6895.8 7494.1 8377.8 10219.8 12106.6 5. Hosntng 309.9 343.1 382.5 435.3 590.3 6s1.8 876.8 1090.8 1470.8 1992.2 2495.3 2799.0 3034.0 3317.4 3678.8 3882.7 4163.7 4619.6 5101.3 5834.7 6541.9 7547.1 8603.5 6. Government services 954.1 998.1 1130.9 1313.0 1522.2 1564.1 1804.7 2144.7 2441.8 3653.3 3745.4 4622.1 4845.4 5697.0 6467.0 7110.9 8250.6 9180.2 10480.3 11387.4 13323.1 20029.5 25530.2 7. Other service 1531.8 1800.9 2158.9 2591.5 2930.8 3874.1 3853.2 4267.2 4911.8 6473.3 7041.0 7392.4 8351.5 9681.2 10391.6 11362.3 13487.2 15440.6 17431.8 19562.7 22547.1 29009.5 35462.1 GDP at current facter cost 8750.0 10394.9 iUos6.9 14234.3 14502.4 17803.7 20738.6 26216.2 32419.7 40292.3 42814.0 45128.0 50421.4 58505.9 62939.1 67047.2 78902.7 8753o.6 97870.0 107570.6 123662.8 157639.6 190475.4 Net indirect taes 900.0 900.0 1000.0 1300.0 1400.0 1500.0 1800.0 1900.0 2400.0 2800.0 4200.0 4700.0 4972.9 5763.3 6414.8 7188.2 8836.3 9726.8 10840.6 12733.4 14345.4 19251.2 25212.5 CDP at arket pres 9650.0 11294.9 13056.9 15534.3 15902.4 19303.7 21538.6 28116.2 34819.7 43092.3 47014.0 49828.0 s5393.4 64269.2 69353.9 74235.4 8739.0 97257.4 108710.6 120304.0 13800.2 176890.8 215687.9 Net farter income - 20.0 - 24.0 - 32.0 - 30.0 - 44.0 - 74.0 - 97.0 - 139.0 - 146.0 - 253.0 - 313.0 - 291.0 - 283.2 - 108.9 - 163.8 + 286.2 + 643,5 + 295.2 + 303.3 + 422.1 + 2285.3 + 5469.0 + 7667.5 GNP_ et narket s 9630.0 11270.9 13024.9 15504.3 15858.4 19229.0 21441.6 27977.1 34673.7 42839.9 46701.0 49537.0 55110.2 64160.3 69190.1 74521.6 88382.5 98252.6 109013.9 12T26.1 140293.5 182359.8 223355.4 --... .. . .. .._ ...-- -B. At 1968 prices 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1. AgrIculture 1544?.4 18528.1 19649.9 21420.1 17435.8 18788.9 20573.8 21540.4 P3972.4 23937.6 24166.3 23515.2 24797.5 27163.6 27859.2 26832.9 29536.5 29684.6 30319.9 30397.5 31984.6 35768.9 35558.2 2. Industry 5634.7 6104.3 6609.7 7272.5 7605.9 7897.0 8401.0 9003.0 9366.2 9651.3 9837.8 10023.0 10727.2 11825.2 13157.3 14526.7 16573.1 17715.7 20320.0 22237.4 22934.4 25269.0 28286.7 3. Constrt 1833.3 2192.Z 2597.1 3680.7 3048.2 3364.9 3454.1 4320.7 4419.4 4764.9 4758.1 4082.1 4471.8 4891.1 5436.2 5629.7 6409.5 6592.6 7320.9 7527.5 8151.2 7780.5 8439.8 4. Transport 1437.4 1567.6 1919.6 2049.8 2461.2 2718.2 2821.1 3017.6 2991.1 3614.0 3688.3 3857.4 4201.4 4530.6 4825.3 5186.9 5432.5 6(74.0 6895.8 7215.1 7548.5 8123.3 0974.8 5. Ho ing 1118.0 1193.6 1291.5 1387.7 1495.9 16s5.6 1909.7 2260.1 2555.5 2914.4 3409.0 3908.8 4090.9 4184.0 4419.2 4479.6 4658.7 4855.0 5101.3 5378.8 5705.2 606s.7 6412.2 6. coverent .er.vies 3573.3 3768.4 4040.3 4633.8 4982.4 4891.2 4969.6 5511.9 5843.0 6244.4 6244.4 7066.5 7351.4 7990.3 8176.1 8715.2 9206.4 9068.1 10480.3 11316.6 12257.7 12968.6 13696.1 7. Other services 4855.5 5655.2 6144.4 6651,2 6384.1 7074.5 7512.4 7896.2 8890.7 9434.1 9583.5 9860.4 10626.9 11447.1 126118. 13254.7 14987.2 15956.2 17431.8 18T32.0 19580.2 21613.4 23832.5 GDP at constat factor cost 33894.6 39009.7 42252.5 47095.4 433335 46390.3 49641.7 53549.9 58040.3 60560.7 61687.4 62313.4. 66267.1 72431.8 76485.1 78625.7 868o3.9 90746.2 97870.0 102804.9 108161.8 117589.4 125200.3 Net indirect taxes 3800.0 4100.0 4000.0 5200.0 4700.0 4500.0 5100.0 4600.2 5700.0 4700.0 7500.0 7700.0 7665.3 8218.0 8530.5 8817.0 10438.8 11064.1 10840.6 11525.1 11738.5 12953.4 14584.2 GDP nr marketpres 37694.6 43109.7 46052.5 52295.4 48033.5 51890.3 54741.7 58149.9 63740.3 65260.7 69187.4 70013.4 73932.4 80649.6 85015.6 87442.7 97242.7 101810.3 108710.6 114330.0 119900.3 130542.0 139784.5 Net farter ince - 78.0 - 92.0 - 113.0 - 101.0 - 133.0 - 199.0 - 247.0 - 288.0 - 267.0 - 284.0 - 328.0 - 309.0 - 275.8 - 103.1 - 162.6 + 289.7 + 575.6 + 302.0 + 303.3 + 426.1 + 1476.6 + 3004.1 + 3999.8 GWP at market prices 37616.6 43017.7 46139.5 52194.4 47900.5 51691.3 54494.7 57861.9 63473.3 64976.7 68859.4 69704.4 73656.6 80546.7 4853.0 87732.4 97018.3 102112.3 19013.9 114756.5 121376.9 153546.9 143784.3 -Sources: 1962-1971: SIS. 1950-1961: IBRD, based on SIS and SPO estimates . Note After the completion ef this eport, revised end tensolidated narionel aecount series far the period 1948-1972 (provisional figures for 1969-1972) were published by the Turkish State lnstitute of Statistics, under the tille National heroe and Expenditure of Turkny 1948-1972 (Ankara 1973). The same bar data hes been largely u-ed by the missio in preparieg this reble and the differences between the ten setie ert mior. In partiular, rhe lerk in the published serins af 1972 estirates of expenditre en grass nation produtt (and of public and prit in.t .vestent breakdons) has made a complete revision of the report's figures imprcticable, especially, since the analysi, covers the wholn plan period 1967-72 and rompares it ith other plan periods. Table 2.2: RESOURCES AND USES OF RESOURCES (In billion TL) A. At current prices 1950 1951 1952 1953 1954 1955 19s6 1957 1958 1959 196o 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 GDP, market prices 9.7 11.3 13.1 15.5 15.9 19.3 21.5 28.1 54,8 43.1 47.0 49.8 55.4 64.3 69.4 74.2 87.7 97.3 108.7 120.3 138.0 176.9 215.7 Imports of goods and n.f.s, 0.9 1.2 1.7 1.7 1.6 1.5 1.2 1.2 1.0 1.6 2.5 5.0 6.5 6.6 5.6 5.9 7.3 7.1 8.1 8.6 13.5 20.4 25.1 Exports of goods and n.f.s. 0.8 1.0 1.2 1.5 1.1 1.0 0.9 1.1 0.8 1,1 1.4 5.6 4.4 3.8 4.4 4.8 5.1 5.7 5.7 6.1 9.2 11.9 14.7 Resource gap 0.1 0.2 0.5 0.4 0.1 0.5 0.3 0.1 0.2 0.5 1.1 1.4 2.1 2.8 1.2 1.1 2.2 1.4 2.4 2.5 4.3 8.1 10.4 Total resources 9.8 11.5 15.6 15.9 16.4 19.8 21.8 28.2 35 Q 43.6 48.1 51.2 571 6 1 bo.6 5 3 89.9 987 111.1 122.8 142.3 185.4 226.1 Fixed investment 1.0 1.4 1.9 2.2 2.4 5.2 3.6 4.1 5.1 6.6 7.2 7.6 8.3 9.9 10.1 11.7 14.8 17.0 20.2 23.2 28.7 32.2 42.3 Public ( 0.4) ( 0.6) ( 0.8) ( 1.1) ( 1.0) ( 1.5) ( 1.8) ( 2.1) ( 2.4) ( 3.0) ( 3.5) ( 5.6) ( 3.7) ( 4.8) ( 5.4) ( 6.1) ( 7.9) ( 9.0) (11.2) (12.8) (14.4) (,16.2) ( 21.4) Private ( 0.6) ( 0.8) ( L.1) ( 1.1) (1.4) ( 1.7) ( 1.8) ( 2.0) ( 2.7) ( 3.6) ( 3.7) ( 4.0) ( 4.6) ( 5.1) ( 4.7) ( 5.6) ( 6.9) ( 8.0) ( 9.0) (10.4) (14.3) ( 16.0) ( 20.9) Changes in stocks n.a. n.a. n,a. n.a. n,a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 0.8 1.7 1.6 1.2 2.5 1.9 2.2 1.6 1.9 3.7 1.6 Consumption 8.8 10.1 11.7 13.3 14.0 16.6 18.2 24.1 29.9 37.0 40.9 43.6 48.4 55.5 58.9 62.4 72.6 79,8 88.7 98.0 111.7 149.4 182.2 Public ( 1.2) ( 1.3) (1.8) ( 1.9) (1.9) ( 2.3) ( 2.4) ( 2.7) ( 3.3) ( 4.4) ( 4.8) ( 5.6) ( 6.6) ( 7.4) C 8.3) ( 9.3) (10.5) (12.0) (13.1) (14.8) (17.7) ( 24.9) ( 29.4) Private L( 7.6) ( 8.8) ( 9.9) (11.4) (12.1) (14.3) (15.8) (21.4) (26.6) (32.6) (36.1) (38.0) (41,8) (48.1) (10.6) (53.1) (62.1) (67.8) (75.6) (83.2) (94.0) (124.5) (152.8) B. At 1968 prices 1950 1951 1952 1955 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 GDP, market prices 77.7 43.1 46.3 52.3 48.0 51.9 54.7 58.1 63.7 65.3 69.2 70.0 73.9 80.6 85.0 87.4 )7.2 101.8 108.7 114.3 119.9 130.5 139.8 Imports of goods and n.fis. 5.7 4.1 5.8 6.1 E.6 5.0 4.0 3.7 5.0 5.0 4.7 4.9 6.9 6.1 5.1 5.4 6.9 6.8 8.1 8.4 9.6 11.2 12.9 Exports of goods and n.f.s. 2.5 2.5 3.4 3.9 3.2 2.8 2.4 5.1 2.4 5.6 2.7 4.3 4.4 3.5 4.5 4.8 5.1 5.7 5.7 6.1 6.7 6.7 8.7 Resource gap 1.2 1.6 2.2 2.2 2.4 2.2 1.6 o.6 0.6 1.4 2.0 0.6 2.5 2.6 0.8 0.6 1., 1.1 2.4 2.5 2.9 4.5 4.1 Total resources 38.9 44.7 48.5 54.5 50.4 54.1 56 Sf8J 6_4L 66 715 2 0.6 76.4 81.2 85.8 88.0 99.0 102.9 111.1 114.6 122.8 155.0 143.9 Fixed investment 5.2 6.8 8.1 9.4 8.0 9.1 8.5 8.8 8.7 8.6 9.3 9.7 10.5 11.9 11.6 13.0 15.7 17.0 20.2 21.9 22.9 22.5 26.4 Public ( 2.1) ( 2.9) ( 3.4) ( 4.7) ( 3.5) ( 4.3) ( 4.2) ( 4.5) ( 4.1) ( 3.9) ( 4.6) ( 4.7) ( 5.0) ( 5.9) C 6.0) ( 7.0) ( 8.4) ( 8.7) (11.2) (11.7) (12.3) ( 11.2) ( 13.4) Private ( 5.1) ( 3.9) ( 4.7) ( 4.7) ( 4.7) ( 4.8) ( 4.5) 4.5) ( 4,6) ( 4.7) ( 4.7) ( 5.0) ( 5.3) ( 6.0) ( 5.6) ( 6.0) ( 7.5) ( 8.5) ( 9.0) (10.2) (10.6) (11.1) ( 13.0) Changes in stocks n.a. n.a. n.a. n.a. n.a. n.a. n.0. n.a. n.a. n.a. n.a. n.a. 1.0 2.1 1.9 1.4 2.7 2.0 2.2 1.5 1.7 2.7 1.0 Consumption L 35.7 37.9 40.4 45.1 42.4 45.0 47.8 49.9 55.6 58.1 61.9 60.9 65.1 69.1 72.3 73.6 80.6 83.9 88.7 93.2 98.2 110.3 116.s Public ( 4.1) ( 4.4) ( 5.8) ( 6.0) ( 5.6) ( 6.5) ( 5.8) ( 5.9) ( 6.6) ( 6.6) ( 7.2) ( 7.6) ( 8.5) ( 9.0) ( 9.8) (10.6) (11.3) (12.5) (15.1) (14.0) (15.8) ( 20.9) ( 22.0) Private L (29.6) (3.5) (34.6) (39.1) (56.8) (38.7) (42.0) (44.0) (49.0) (51.5) (54.7) (55.3) (56.6) (60.1) (62.5) (63.0) (69.5) (71.6) (75.6) (79.2) (q2.4) ( 89.4) ( 94.5) L Includes changes in stocks from 1950 to 1961. ,2ge: IBRD, based on SIS and SPO estimates. Note See note on table 2.1 Table 2.3: FIXED INVESTMENT BY DESTINATION AND SECTOR (In millions TL) A. At current prices B. At 1971 prices 1963 1964 196b 1966 1967 1968 1969 1970 1971 1972 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Agriculture Public 768 1.039 1,267 1,430 1,606 1,974 1,944 1,956 1,849 2,076 1,314 1,685 1,972 2,102 2,191 2,599 2,439 2,243 1,849 1,874 Private 577 560 600 800 995 1,100 1,200 1,150 1,456 2,664 987 908 934 1,176 1,358 1,448 1,505 1,319 1,456 2,503 Total 1,345 1,5 99 1,867 2,230 2,601 3,074 3,144 3,106 3,305 4,740 2,301 2,593 2,905 3,278 3,548 4,047 3,944 3,562 3,305 4,377 MininE Public 313 354 592 750 580 500 540 725 845 1,256 535 574 921 1,103 792 659 678 832 845 1,134 Private 85 230 210 200 194 120 150 180 223 429 145 373 327 294 265 158 188 206 223 480 Total 398 584 802 950 774 620 690 905- 1,068 1,685 680 947 1,248 1,397 1,057 817 866 1,038 1,068 1,614 Manufacturing Public 485 646 665 993 1,300 1,748 2,563 2,865 3,669 5,953 830 1,047 1,034 1,460 1,773 2,301 2,965 3,285 3,669 5,373 Private 1,820 1,370 1,300 1,600 2,134 2,600 3,100 3,890 4,850 6,514 3,114 2,221 2,023 2,352 2,912 3,423 3,889 4,461 4,850 5,881 Total 2,305 2,015 1,965 2,593 5,434 4,348 5,463 6,755 8,519 12,467 3,944 3,268 3,057 3,812 4,685 5,724 6,854 7,746 8,519 11,254 Power Public 425 609 691 895 1,116 1,543 1,945 2,488 2,256 3,109 727 987 1,075 1,315 1,523 2,031 2,439 2,853 2,256 2,806 Private 4 30 25 25 65 150 175 150 181 199 7 49 39 37 89 198 220 172 181 181 Total 429 639 716 920 1,181 1,693 2,120 2,638 2,437 3,308 734 1,036 1,114 1,352 1,612 2,228 2,659 3,025 2,437 2,987 Transportation Public 1,333 1,174 1,244 1,710 2,004 2,349 2,626 3,054 3,791 5,001 2,280 1,903 1,936 2,513 2,735 3,092 3,294 3,502 3,791 4,514 Private 200 300 450 700 782 950 1,300 1,450 1,803 2,084 342 487 700 1,029 1,067 1,251 1,631 1,663 1,803 1,611 00 Total 1,b53 1,474 1,694 2,410 2,786 3,299 3,926 4,504 5,594 7,085 2,622 2,390 2,636 3,542 3,802 4,343 4,925 5,165 5,594 6,125 Tourism Public 24 32 44 66 61 161 159 182 222 171 40 52 69 97 83 212 200 209 222 155 Private 40 60 120 180 190 300 350 385 424 443 69 97 187 265 259 395 439 442 424 411 Total 64 92 164 246 251 461 509 567 646 614 109 149 256 362 342 607 639 651 646 566 Housing Public 1b9 192 186 293 365 403 539 654 604 470 271 310 229 430 498 531 676 750 604 424 Private 2,160 2,100 2,500 3,024 3,140 3,475 4,100 5,145 6,380 7,763 3,696 3,404 3,890 4,445 4,284 4,575 5,143 5,900 6,380 7,188 Total 2,319 2,292 2,686 3,317 3,505 3,878 4,639 5,799 6,984 8,253 3,967 3,714 4,119 4,875 4,782 5,106 5,819 6,650 6,984 7,613 Health Public 111 175 215 257 227 335 375 365 433 477 190 283 335 378 392 439 471 419 433 431 Private 6 10 10 15 12 25 35 35 43 55 10 16 16 22 16 33 44 40 43 49 Total 117 185 225 272 299 35A 410 400 476 532 200 299 351 400 408 472 515 459 476 480 Ed.cationPublic 611 802 752 871 1,000 1,279 1,175 1,172 1,366 1,370 1,046 1,299 1,169 1,280 1,364 1,683 1,474 1,344 1,366 1,236 Private 8 10 15 15 13 30 35 35 29 33 14 16 23 22 18 40 44 40 29 32 Total 619 812 767 886 1, 013 1,309 1,210 1,207 1,395 1,403 1,060 1,315 1,192 1,302 1,382 1,723 1,518 1,384 1,395 1,268 other Public 525 405 462 590 656 837 1,047 980 1,196 1,518 899 657 719 868 936 1,140 1,375 1,125 1,196 1,369 Private 10 180 200 500 325 350 400 480 612 664 170 292 311 441 443 461 502 550 612 601 Total 555 b8s 662 890 1,011 1,187 1,447 1,460 1,808 2,182 1,070 949 1,050 1,309 1,379 1,601 1,877 1,675 1,808 1,970 Total Public 4,7b4 5,427 6,118 7,855 9,004 11,157 12,763 14,442 16,229 21,400 8,134 8,798 9,459 11,545 12,285 14,686 16,010 16,561 16,229 19,314 Private 4,909 4,850 5,430 6,869 7,850 9,100 10,845 12,900 16,001 20,850 8,554 7,863 8,448 10,081 10,711 11,979 13,604 14,793 16,001 18,905 Total 9,664 10,277 11,548 14,714 16,854 20,257 23,608 27,342 32,230 42,250 16,688 16,661 17,907 21,626 22,996 26,665 29,614 31,354 32,230 38,219 source: SFo. Note: See note on table 2.1. Table 2.4: STRUCTURE AND GROWTH RATE OF GDP Structure of GDP Trend yearly (as o of GDP at factor cost, current price) growth rates (9) 1950 1955 1960 1967 1972 1950-72 1950-62 Agriculture 47.8 39.8 40.4 35.1 27.8 3.5 5.4 Industry 12.9 14.9 16.6 19.8 22.8 7.2 5.5 Construction 2.6 5.1 5.8 7.0 6.5 6.2 7.5 Transport 4.8 6.2 6.2 6.7 6.4 8.1 9.1 Housing 3.5 5.7 5.8 5.5 4.5 8.7 12.4 Government sei-vices 10.9 8.8 8.7 10.5 15.4 6.1 6.0 Other services 17.5 21.8 16.4 17.6 18.6 7.0 6.2 GDP, factor cost 100.0 100.0 100.0 100.0 100.0 5.6 5.5 GDP, market prices 110.5 108.4 109.8 111.1 115.2 5.7 5' GNP, market prices 110.0 108.0 109.1 112.2 117.5 5.8 5.5 Source: Table 2.1. Note: See note on table 2.1. Table 2.5: STRUCTURE OF RESOURCES AND THEIR USES (As 0/ of GNP at current market prices) 1950 1955 1960 1967 1972 1950-72 1950-62 196-5-67 19(9-72 GNP, current market prices 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Imports goods, n.f.s. 9.5 7.8 5.4 7.2 11.2 8.6 7.6 8.5 10.4 Exports goods, n.f.s. 8.2 7.2 3.0 5.8 6.6 5.9 5.2 6.0 .2 Resource gap 1.1 2.6 2.4 1.4 4.6 2.7 2.4 2.5 4.2 Net factor income - -.5 -.6 .7 5.4 1.0 -.5 .2 2.1 Total resources 101.1 103.1 103.0 101.1 101.2 101_j 102.9 102.1 102.! Fixed investment 10.5 16.7 15.4 17.75 18.9 17.5 15.1 16.1 1P.9 Public ( 4.1) ( 7.8) ( 7.5) ( 9.2) ( 9.6) ( 8.8) ( 7.0) ( 8.4) ( 9.2) Private ( 6.2) ( 8.9) ( 7.9) ( 8.1) ( 9.5) ( 8.5) ( 8.1) ( 7.7) ( 9.1) Changes in stocks n.a. n.a. n.a. 1.9 .7 1.5 n.a. 2.5 1.4 Consumption Ll 90.8 86.4 87.6 81.9 81.6 87.1 87.8 875.7 81.P Public (12.4) (11.9) (10.5) (12.9) (175.2) (12.2) (11.1) (12.1) (12.9) Private L1 (78.4) (74.5) (77.5) (69.0) (68.4) (70.9) (76.7) (71.6) (68.9) National savings 9.2 15.6 12.4 18.1 18.4 16.9 12.2 16.5 1 .2 /1 Includes changes in stocks from 1950 to 1962. Source: Table 2.2. Note: See note on table 2.1. - 339 - Table 2.6: MACROECONOMIC TARGETS AND ACHIEVEMENTS OF THE DEVELOPMENT PLANS (In 4) 1st Plan 1963-1967 2nd Plan 1968-1972 3rd Plan 1973-1977 Target Actual Target Actual Target Sectoral growth rates Agriculture 4.2 3.7 4.1 3.6 3.7 Industry 12.3 10.6 12.0 9.9 11.2 Construction 10.7 8.0 7.2 5.0 11.9 Transport 10.5 7.8 7.2 8.8 8.2 Housing n.a. 3.5 5.9 6.8 5.0 Services 6.2 7.5 6.3 7.7 7.1 GDP factor cost 6.9 6.5 6.8 6.6 7.5 GNP market prices 7.0 6.7 7.0 7.1 7.9 Fixed Investment Structure Agriculture 17.7 14.9 15.2 12.2 11.7 Industry 30.9 31.1 34.1 37.1 45.4 Transport 13.7 15.7 16.1 16.7 14.5 Housing 20.3 22.3 17.9 20.3 15.7 Social sector 9.4 8.1 8.5 6.2 6.4 Other services 8.0 7.9 8.2 7.5 6.3 Total 100.0 100.0 100.0 100.0 100.0 Ownership Public 59.9 52.0 52.7 52.4 56.3 Private 40.1 48.0 47.3 47.6 43.7 Total 100.0 100.0 100.0 100.0 100.0 As % of GDP (average in plan period) 18.3 16.2 21.3 19.3 23.4 Consumption growth Public 8.7 7.7 8.8 12.3 8.0 Private 5.4 4.8 5.1 5.5 5.9 Total 5.7 5.2 5.8 6.6 6.3 National Savings Yearly growth rate 13.4 16.2 12.2 9.1 13.6 As ( of GNP (average in plan period) 14.8 16.3 20.8 18.2 23.3 Marginal savings rate 26.0 18.3 38.0 (on national savings) Source: First, Second and Third Plan documents, and tables. - 340 - Table 2.7: THIRD PLAN SECTORAL DISTRIBUTION OF INVESTMENTS First Plan Second Plan Third Plan Sector Actual Estimatee Target Agriculture 14,625 15.3 18,633 11.8 33,000 11.7 Mining 5,329 5.6 5,528 3.5 16,300 5.8 Manufacturing 18,765 19.6 40,614 25.7 87,700 31.1 Energy 5,846 6.1 13,416 8.5 24,000 8.5 Transportation 14,990 15.6 25,957 16.4 40,600 14.5 Tourism 1,218 1.3 3,277 2.1 4,500 1.6 Housing 21,457 22.3 31,967 20.2 44,000 15.7 Education 6,252 6.5 7,513 4.7 14,000 5.0 Health 1,658 1.5 2,389 1.5 4,000 1.4 Other Services 5,737 6.0 8,724 5.5 13,000 4.7 Development Fund -- -- 214 0.1 -- -- Total 95,879 100.0 158,233 100.0 281,100 100.0 Source: Third Plan Document. - 341 - Table 2.8: THIED PLAN PROJECTED RATE OF INCREASE OF VALUE ADDED BY SECTOR, 1971 FACTOR COSTS 1972 /a 1977 Annual Marginal TL % of TL % of Average Increase Million GDP Million GDP Increase () (4 of GDP) Agriculture 46,450 28.1 55,703 23.4 3.7 12.8 Farming 31,423 19.0 37,389 15.7 3.5 8.3 Animal Husbandry and Fishing 13,817 8.4 16,615 7.0 3.8 3.8 Forestry 1,210 0.7 1,699 0.7 7.0 0.7 Industry 37,472 22.6 63,700 26.8 11.2 36.3 Mining 3,064 1.8 5,745 2.4 13.4 3.7 Manufacturing 32,376 19.6 54,131 22.8 10.8 30.1 Consumption goods 14,280 8.6 18,423 7.8 5.3 5.7 Intermediate goods 12,893 7.8 24,549 10.3 13.8 16.1 Investment goods 5,203 3.2 11,159 4.7 16.5 8.3 Power 2,032 1.2 3,824 1.6 13.5 2.5 Services 81,580 49.3 118,347 49.8 7.7 50.9 GDP (factor cost) 165,502 100.0 237,750 100.0 7.5 100.0 Indirect taxes minus subsidies 20,811 12.6 36,000 15.1 11.6 21.0 GDP (mkt. prices) 186,313 112.6 273,750 115.1 8.0 121.0 Foreign factor income 4,914 2.9 5,780 2.4 3.3 1.2 GNP (mkt. prices) 191,227 115.5 279,530 117.5 7.9 122.2 /a Estimate of Actual. Source: Third Plan, Table 2.9: THIRD PLAN PROSPECTS INVESTMENT-SAVINGS BALANCE (1971 prices, TL million) Annal 5 of CNP 1973-77 Average T of C TRYP 1972 1973 1974 1975 1976 1977 Total Increase () '972 1975 1974 197, 1976 1977 Period Savtings Total Domestic Savings 57,552 42,820 48,760 55,430 62,740 70,980 280,750 13.6 1q.6 20. 22.0 2. 2 24.3 25.4 23.3 Privace 20,947 21,800 23,060 25,390 28,280 51,520 130,050 8.5 10.9 10.6 10.4 10.6 11.0 11.3 10.8 Pablic16,605 21,020 25,700 30,040 54,460 39,460 150,880 18.9 8.7 10.2 11.6 12.6 13.3 14.1 12.5 Foreign Savings 2,548 2,410 2,240 2,050 1,950 1,820 10,470 - 6.5 1.4 1.? 1.0 0.8 0.8 0.6 0.9 Total Savings 40,100 45,230 51,000 57,480 64,690 72,800 291,200 12.7 21.0 22.0 23.0 24.0 25.1 26.0 24.2 Investment Fixed Investments 38,400 43,830 49,350 55,530 62,390 70,000 281,120 12.8 20.1 21.3 22.3 23.2 24.2 25.0 25.4 Private 18,000 18,650 21,110 24,000 27,390 31,490 122,660 11.8 9.4 9.1 9.5 10.0 10,6 11.3 10.2 Publie 20,400 25,180 28,240 31,530 35,000 38,510 158,460 13.6 10.7 12.2 12.8 13.2 13.6 13.7 13.2 Stock Changes 1,700 1,400 1,650 1,950 2,300 2,800 10,100 10.5 0.9 0.7 0.7 0.P 0.9 1.0 0.8 Private 800 900 1,050 1,200 1,400 1,750 6,500 16.9 0.4 0.4 0.4 0.5 0.5 0.6 0.5 2ublic 900 500 600 750 900 1,050 3,800 3.1 0.5 0.5 0.3 0.3 0.4 0.4 0.3 Total Investments 40,100 45,230 51,000 57,480 64,690 72,800 291,200 12.7 21.0 22.0 23.0 24.0 2F.1 26.0 24.2 Source: Third Plan - 342 - lc2.10: THIRD PLAN PRODUCTION ESTIMATES FOR THE SUBSECTORS OF THE MANUPACTURING INDUSTR. (In TL million at 1971 prices) SFYP (1967-72) TF iP_.(1972-77) Gross Average Gross Average Value of Annual Value of Annual Output Increase Output Increase in 1972 % in 1977 % Constrer 2od Industries 52 815.4 7.7 75,501.0 7.4 S28,169.0 6.9 38,153.0 6.3 B eVEra-s 1,419.0 3.2 2,350.0 10.6 Tobacco 4,527.4 11.6 6,798.0 8.5 Textilec and Clothing 18,700.0 8.2 28,200.0 8.6 Injermiediate Goods Industries 44,675.0 12.8 87,308.0 14.3 Forest Products 3,934.3 8.3 6,055.0 9.0 Pulp and Paper 1,609.5 19.1 3,140.0 14.3 Printing 1,140.0 13.5 2,262.0 14.7 Hides and Leather Industry 2,251.0 5.6 4,232.0 13.4 Rubber 1,590.0 7.5 2,500.0 9.5 Plastics 1,100.0 16.4 2,500.0 17.8 Chemicals 6,914.5 16.5 12,881.0 13.3 Petrochemicals 491.9 44.9 2,861.0 42.3 Petroleum Products 10,288.8 13.8 19,254.0 13.4 FerZilizers 1,005.7 32.0 3,442.0 28.0 Cement 1,972.0 15.0 3,016.0 8.2 Clay and Cement Products 1,138.7 11.8 1,830.0 10.0 Glass 1,202.2 21.0 2,016.0 10.9 Ceramics 358.2 10.8 646.0 12.5 Iron and Steel 7,884.1 10.1 15,881.0 15.0 Non-ferrous Metals Industry 1,794.1 11.7 4,792.0 21.7 Investment Goods Industries 15,960.0 14.6 34,618.0 16.8 Metal Products 3,500.0 9.2 7,200.0 15.5 Machinery 2,500.0 9.1 7,140.0 23.4 Agricultural Machinery and Appliances 1,494.0 19.7 3,329.0 17.4 Electrical Machinery 1,235.0 10.8 3,057.0 19.9 Electronics 1,108.0 31.3 2,880.0 21.0 Road Vehicles 5,248.0 20.0 9,369.0 12.3 Railway Vehicles 540.0 13.9 945.0 11.8 Shipbuilding 335.0 15.7 698.0 15.8 ToEal Manufacturing Industry 113,450.4 10.4 197,427.0 11.7 .1Estimrates. Source: Third Plan Document. - 343 - Table 2.,1: THIRD PLAN PERCENTAGE DISTRIBUTION OF THE VALUE OF GROSS OUTPUT IN THE MANUFACTURING INDUSTRY, 1972-1977 Subsectors 1972 1977 Consumer Goods Industries 46.6 100.0 38.3 100.0 Food 53.3 50.5 BeveraFes 2.7 3.1 Tobaccc 8.6 9.0 TextilEs and Clothing 35.4 37.4 Intermediate Goods Industries 39.4 100.0 44.2 100.0 Forest Products 8.8 6.9 Pulp and Paper 3.6 3.6 Printing 2.6 2.6 Hides and Leather 5.0 4.8 Rubber 3.6 2.9 Plastics 2.5 2.9 Chemicals 15.5 14.8 Petrochemicals 1.1 3.3 Petroleum Products 23.0 22.1 Fertilizers 2.3 3.9 Cement 4.4 3.4 Clay and Cement Products 2.5 2.1 Glass 2.7 2.3 Ceramics 0.8 0.7 Iron and Steel 17.6 18.2 Non-ferrous Metals 4.0 5.5 Investment Goods Industries 14.0 100.0 17.5 100.0 Metal Products 21.9 20.8 Machinery 15.7 20.6 Agricultural Machinery and Appliances 9.4 9.6 Electrical Machinery 7.7 8.8 Electronics 6.9 8.3 Road Vehicles 32.9 27.1 Railway 3.4 2.8 Shipbuilding 2.1 2.0 Manufacturing Industry 100.0 100.0 Source: Third Plan Document. -344 - Table 3.1: BALANCE OF PAYMENTS (Million US 9) 1950 1951 1952 1953 1954 1955 1956 1957 158 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 19732 ?197a4 CURRENT ACCOUNT Foreign Trade Import. (eif) -286 -402 -556 -533 -478 -498 -407 -397 -315 -470 -468 -510 -622 -688 -537 -572 -718 -685 -764 -801 -948 -1171 -1563 2099 -2550 Exports (feb) 263 314 363 396 335 313 305 345 247 354 321 347 381 368 411 464 490 523 496 537 588 677 685 1317 1400 Trade Balance _23 -88 -193 -143 -185 102 - 52 - 6 -16 -147 6e -241 -920 -126 -106 -228 -162 -268 -264 360 - 494 -_678 -_8_ -1150 Inv-iibles Tourism.a d Travel, net - 6 - 1 - 7 - 9 -10 - 7 - 9 - 9 - 8 - 6 - 2 - 5 -10 -13 -14 -10 -14 -14 - 9 - 5 4 21 44 79 95 Interest Lb - 15 - 10 - 12 - 18 - 18 - 21 - 16 - 14 - 6 - 22 - 29 - 30 - 30 - 32 -2 - 31 - 35 - 41 - 45 - 47 - 60 - 62 - 59 - 125 Profit Transfers - - - - - - - 5 - 7 - 4 - 4 - 2 - 1 - 2 1 - 5 -15 -16 -25 -32 -32 -33 - 36 - 35 - 35 - s0 Workera renittances - . - - - - - - - - - - - - 9 70 115 93 107 141 273 471 740 1183 1150 Others (net) -6 5 14 - -6 -7 -10 -17 -28 -32 -11 -19 1 15 2 -3 -9 15 2 -24 -16 -30 -47 93 -45 Invisibles Balance - 27 -6 - 5 -27 -34 35 - 4 -4 -46 - 64 -_44 -_55 - 41 -_9 -_42 10 45 _4 p7 53 181 -6 640 1260 1035_ NATO lcfrasrrcture and cff-ahore receipts - - - - - 43 67 40 52 35 52 48 40 49 59 20 19 14 10 8 8 6 30 18 15 Current Account Balance - 50 - 54 -198 -164 1_7 -_75 -7 -_59 -64 -145 -199 -170 -242 -300 -109 -_6 -164 -114 -261 -21 -171 - 122 - 6 497 100 CAPITAL ACCCJNT Private Resources 2 28 95 113 134. 130 142 104 58 35 54 49 62 36 42 27 41 29 _ 44 92 72 __ 129 150 Supliers Credits - 21 4 64 104 127 98 ~6 45 28 30 15 26 10 10 - - - - - - - -- Direct Invesrment 2 7 10 8 6 3 2 17 13 7 24 34 36 21 25 22 30 17 13 24 58 45 43 79 70 Direct Imports (with caivers) - - - - - - - - - - - - - 5 7 5 11 12 22 20 34 27 39 50 80 Cnorcial credits - - 81 41 22 - 45 21 - - - - - - - - - - Offici.l 103 3]3_ _2 62 65 81 10 _75 105 169 116 151 13 347 195 274 238 246 274 _29 357 343 304 _3_ 30 Project Assistance 5 1 6 11 14 15 8 S 4 1 2 7 26 81 40 57 56 83 127 174 179 219 231 269 300 Program Assistance: KMA Credits - - - - - - - - 4 21 1 5 45 35 20 - - 25 25 15 25 1b - - : Other 98 112 66 51 51 66 95 70 97 147 11 94 92 104 106 172 111 92 87 79 67 59 63 48 30 Debt relief - - - - - - - - - - - - - 27 14 38 52 46 35 11 16 13 20 - - IA Refinancing - - - - - - - - - - - - - - 15 50 20 - - - 50 57 - - - T.L. Grain imports and grants - - - - - - 14 32 42 27 22 6s 71 88 31 29 17 - 41 8 16 - 10 Gresn Capital Infio 105 541 _16 175 199 211 22 211 204 231 194 265 296 _71 263 330 296 2. _309 364 512 470 402 466 490 Amortiztion of Publi Debt - 15 - 18 - 22 - 20 - 73 -10b - 69 - - 6 - -4 - 97 -101 -114 -170 -124 -106 - 94 -115 -197 -125 -127 125 Net Capital Inflow 90 123 145 155 126 106 127 128 336 11 129 181 199 _70 149 160 172 (9 _s15 249 115 _'45 2 . 365 Orerall Balance 40 29 -i -_29 -_71 96 43 84 26 __ - _44 _2u 26 Net IMF position - - 5 20 6 -9 - 7 17 3 3 10 4 3 15 - 7 27 -1 4- - - - SDR's - - - - - - - - - - - - - - - - - - --- Shorttemcapital (net) 2 3 11 10 57 61 -1 -11 - 7 -10 -16 -39 - 15 - - - - 7- 168 292 IR- 612 332- Erros acd cmsesicce - 52 - 11 - 62 48 - 66 - 62 - 45 - 58 17 44 82 97 22 - 22 - 80 - 67 - 18 - 81 - 25 76 - 24 60 28 Changes in reserers (- incras) - 30 - 21 99 - 69 66 71 - 38 - 7 - 67 31 - 51 - 79 350 48 37 - 10 12 - 4 -122 -166 -746 -566 - 711 - 265 15 Gross of dobt relief. 2 Inflos on convertible lira acounts. SPrcvisional . Source: Ministry of Fince. Table 3.2: EXPORUTS BY COMMODITIES (MillOion 0S$) 1950 1951 1952 1953 1954 1955 1956 1957 1950 1959 1960 1961 1962 1963 1964 1%5 1966 1967 1968 1969 1970 1971 1972 1973 Agricultural and AnimaI Products 235.8 293.4 318.8 2.5 245.0 225.9 279.? 187.2 281.S 22-7.0 67.9 295.1 286.0 312.7 347.8 M".1 420.7 496.6 405.1 442.0 491.3 607.4 858.0 Cerel. god pulse. 5.8 22.9 89.5 87.4 76.4 20.7 28.8 2.3 8.2 33.7 6.2 13.6 6.4 8.1 9.9 10.5 10.2 8.7 9.7 6.8 9.8 13.7 36.3 t d -tabl-.0 2. 54.7 6001 0.4 .2 . 13, 2'.7 11.743 197.4 Hazelnt. 18.3 10.0 18.4 22.0 25.1 43.9 28.7 44.4 29.5 42.3 39.1 76.8 64.4 54.0 50.2 61.7 56.7 82.7 76.0 107.6 87.0 04.2 116.5 121.7 Raising 20.9 10.8 11.4 7.2 11.2 8.2 15.3 18.5 18.5 18.0 22.0 17.4 16.4 16.7 16.9 21.3 22.1 22.7 22.6 22.8 20.8 21.7 30.5 58.2 Dried fig, 4.7 6.1 7.0 6.7 7.2 7.0 6.8 7.2 8.6 9.9 16.1 Citru fruits 1.8 3.9 5.4 6.6 8.6 10.2 15.0 1s.6 18.0 Other. 9.4 9.3 5.8 13.4 12.7 14.2 7.7 15.2 22.5 Industrial crops and forestry products 148.5 153.1 176.6 151.3 139.5 121.4 182.6 109.3 151.2 111.5 143.1 161.8 149.9 184.5 194.1 240.3 254.1 240.1 204.1 261.6 292.5 337.6 Tobacco 61.0 67.0 61.9 85.3 85.9 89.0 93.6 138.9 q4.3 91.8 65.4 87.2 96.2 66.8 90.1 89,6 107.5 117.7 94.8 81.5 78.6 85.9 130.9 132.9 cotton 70.0 77.3 77.2 78.7 52.4 45.8 26.4 41.5 22.9 54.1 46.1 55.9 62.4 78.4 88.2 98.2 126.7 128.5 139.1 113.6 173.2 193.1 191.3 305.8 Forestry products 3.6 2.9 2.0 3.1 1.8 - - - - - - - - 1.3 1.6 1.9 ) y 1.9 2.3 2.0 3.9 5.1 Others 0.6 1.D 1.0 0.7 2.9 1.4 2.2 2.1 S.3 - - 3.2 4.7 4.9 4.7 4.2 ) 4.3 6.7 7.0 9.6 10.3 Anintal produts and fisheries 26.9 12.7 18.3 16.0 23.7 21.0 23.4 13.3 28.0 31.7 38,4 36.5 41.9 33.9 40.0 29.9 25.4 30.0 32.5 33.7 39.7 36.1 Livestaok 8.6 7.5 2.7 . 5.3 4.5 4.0 2.? 1.3 4.5 7.1 14.7 18.0 17.0 13.7 17.4 9.9 8.8 10.7 113 15.7 19.4 16.3 25.5 Wool 12.2 3.9 6.4 10.8 0.7 11.0 10.0 14.6 7.8 16.7 6.1 4.7 3.2 3.3 4.4 3.3 1.8 2.1 1.9 1.2 - - - Mohair 0.5 ) ) ) >) ) >) ) >) 9.9 11.7 7.8 12.8 5.9 8.6 6.7 6.4 6.8 5.3 3.7 4.2 - Fisherles (fresh) 1.0 0.9 1.1 0.9 1.8 3.6 5.3 4.5 2.4 1.5 2.3 - - 1.6 2.0 2.9 3.2 2.5 4.4 5.9 6.7 8.4 9.2 11.0 Others 4.6 2.5 2.8 2.2 4.6 1.7 2.1 2.1 5.3 6.3 7.3 6.7 7.2 7.9 7.8 8.3 5.7 6.3 8.8 7.6 7.7 10.6 Miing ad uag Productg 21.5 31.5 36.8 22.9 25.4 2,5 29.6 22.6 13.2 13.1 15.0 13.3 10.1 14.4 18.4 22.7 20.7 26.1 34.9 .45.4 40.1 35.1 _. chromium 0re 12.7 16.5 22.9 20.2 15.5 19.9 23.3 21.4 18.7 10.1 11.5 11.1 9.1 4.5 7.1 8.7 10.4 7.2 9.6 12.8 15.7 17.5 11.7 13.6 0" Bortes ) o.6 5.5 7.4 6.8 - Magneite .9 11.5 12.8 13.5 2.1 2.4 4.3 4.6 4.3 Quicksilver 7)1.6 3.2 3.2 2.9 1.8 Other ) 12.2 11.0 14.8 6.3 17.3 1ndustrial Prodnts 56-7 _3._. 40.4 22.5 42.9 5_0. 5 . .4 60.4 80.6 63.8 72.8 72.0 83.6 97. 90.8 81.2 63. 969 100.3 145.2 237.1 Fond ond beverages 20.5 20.8 21.7 13.1 17.7 16.2 14.4 11.G 19.1 42.5 30.2 35.3 39.4 44.0 46.8 38.0 48.0 29,> 54.9 41.3 53.1 87.4 Olie ni 0.1 2.4 0.2 0.6 - 0.7 0.2 0.4 0.1 0.2 0.7 0.1 14.0 10.8 4.1 11.8 2.5 6.4 0.9 12.7 0.2 0.9 2.9 47 8 Sogar 0.2 0.1 0.3 0.1 - 0.8 3.7 1.7 1.9 17.5 16.7 7.9 10.1 19.3 8.2 6.9 - 1.5 12,2 4.0 3.1 23.5 :.1 011 oke 4.5 7.8 10.3 10.2 9.7 13.3 12.1 7.4 6.7 10.4 10.6 8.7 10.6 11.0 14.2 17.8 19.8 - 19.8 17.6 20.8 22.1 28.0 Others 10.1 10.2 1o.6 3.3 3.7 3.1 2.9 3.1 6.6 14.1 4.7 2.8 6.7 6.4 9.0 8.8 7.7 12.4 16.3 27.0 33.0 Tetiles 0.9 0.6 0.6 - 0.2 0.3 2.7 2.7 2.2 2.0 2.8 4.3 4.2 2.4 3.1 8.0 15.9 25.9 37.5 54.8 1-2 cotton textiles - - - - ( 1.0) ( 1.6) ( 2.9) ( 2.6) ( 0.4) ( 0.5) ( 3.5) ( 11.6) I 12.5) ( 7.7) 711.4) Wood and printing products 0.2 - . 1.2 2.0 2.1 2.7 4.9 4.9 Rides gnd leather produols 0.2 0.1 - 0.1 0.2 0.3 1.0 4.6 1o.6 21.5 Chenicals 0.5 3.6 2.4 2.6 2.6 3.4 3.1 1.9 3.6 1.8 2.3 1.7 1.7 2.1 2.1 3.0 3.4 3.2 3.2 6.7 8.7 9.5 10.7 Peronleon pro t 0. 0.2 6.1 n.9 8.7 5.5 4.3 0.4 1.3 2.6 0.6 2.5 22.7 49.3 Gls sand eramics - - 0.1 - 0.3 1.0 0.4 1.0 2.7 3.7 nn-ferros mtal 8.1 14.9 11.9 7.2 8.9 6.8 9.6 17.0 7.3 9.9 6.3 11.9 18.9 27.0 18.2 16.7 9.0 11.4 5.7 11.2 Coppe (blister, electroyltie) ( 3.1) I 14.9) I 11.9) ( 7.1) ( 8.8) ( 17.0) I 8.6) I 6.4) ( 6.8) ( 11.0) ( 4.8) ( 3.8) ( 5.9) I 10.2) ( 17.2) ( 24.8) ( 16.0) ( 13.6) ( 6.8) ( 6.1) ( 1.9) - ) Metal produets gnd achinnery 1.8 1.7 0.1 - 0.1 - - - - - C.1 0.1 - - 0.1 2.4 0.2 0.2 0.9 1.0 2.7 3.7 Electrical machines 0.1 - 0,1 0.3 0.6 0.9 Others 1.9 2.2 24.8 28.3 27.7 22.5 18.3 131 13 20.0 16.7 6. 1.2 33 2.1 1 15. .. TOTAL EXPORTS i- 263.4 313.9 362.8 396.0 374.8 313.2 305.1 345.2 247.1 353.5 320.8 346.7 381.2 368.1 410.7 463.7 490.6 522.7 496.4 536.8 588.5 676.6 885.2 1317.1 0 Figores may not add up to the lotals hecsuse of rounding. Source: MInistry of Finance ond Yearbook of Intenational Trade S,ttistics by IMN. Table 3.3.: GEOGRAPHICAL. DISTRIBUTION OF FOREIGN TRADE ' (Million Us$> 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 EEC Countries I.port. -93.7 -172.8 -256.9 -224.8 -161.1 -148.9 -150.7 -112.1 -101.9 -157.1 -166.9 -165.8 -188.1 -196.1 -154.5 -163.2 -236.5 -237.9 -281.9 -284.7 -325.2 -457.7 -652.6 1155.3 Exports 91.5 126.6 171.8 141.9 96.8 106.8 103.6 108.0 85.8 139.8 1(7.5 122.7 154.0 139.9 137.8 156.9 171.4 176.7 164.1 214.9 239.1 260.1 347.0 611.5 Balanc - 2.2 - 46.2 - 87.1 - 82.9 - 64.3 - 42.1 - 47.1 - 4.1 - 16.1 - 17.3 - 59.4 - 43.1 - 34.1 - 56.2 - 16.7 - 6.3 - 6s.i - 61.2 -117.8 - 69.8 - 86.1 -197.6 -35.6 -543.8 EFTA Countries Import. -49.7 - 94.7 -149.6 -114.9 - 68.4 - 60.0 - 52.3 - 47.7 - 36.8 - 88.3 - 79.4 - 92.3 -102.0 -111.5 - 90.7 -104.2 -126.6 -135.4 -156.7 -161.0 -164.6 -214.3 -301.6 - Exports 64.5 45.6 48.6 50.3 47.1 45.0 46.0 53,2 34.1 52.7 56.1 61.4 73.4 90.1 97.1 83.4 92.2 88.1 85.1 81.0 104.4 127.6 163.5 - Balaxce 14.8 - 49.1 -101.0 - 64.6 - 21.3 - 15.0 - 6.3 5.5 - 2.7 - 35.6 - 23.3 - 30.9 - 28.6 - 21.4 6.4 - 20.8 - 34.4 - 47.3 - 71.6 - 80.0 - 60.2 - 86.5 -138.3 - USA and Canada Import. -73.6 - 46.0 - 48.2 - 62.6 - 73.2 -111.7 - 86.0 -121.9 - 87.9 -123.9 -121.8 -140.7 -181.5 -211.8 -1ss.6 -162.6 -175.4 -124.6 -129.7 -162.9 -221.4 -207.5 -206.4 -221.5 Export. 46.1 69.6 58.6 80.5 56.7 48.9 60.3 90.4 48.4 64.2 59.1 65.9 75.8 50.7 73.7 82.8 81,2 94.1 73.8 62.6 57.6 67.3 105.6 134.8 Oalance -27.5 23.6 10.4 17.9 - 14.5 - 62.,- 24.7 - 31.5 - 39.5 - 59.7 - 62.7 - 74.8 -105.7 -161.1 - 81.9 - 60.0 - 94.2 - 30.5 - 55.9 -100.3 -163.p -140.2 -100.8 -86.7 Other OECD Countries Import. - 6.9 - 9.0 - 3.6 - 6.1 - 18.2 - 6. - ?.9 - 13 - 1.7 - 2.1 - 3.7 - 3.6 - 7.8 - 5.7 - 2.2 - 11.2 - 16.1 - 19.4 - 14.9 - 16.9 - 30.8 - 31.1 - 13.6 -276.3 Export. 11,0 6.2 6.4 24.9 15.7 6.4 5_. 3. 2.7 5,7 9.6 6.i 12.0 10.9 13.9 17.3 25.7 37.6 __ .8 24. 26.5_ 23.6 32.1 30255 Balanne 4.1 - 0.8 2.8 18.8 - 2.9 0.3 2.4 2.5 1.0 3.6 6.1 2.5 4.2 5.2 11.7 6.1 7 6 18.2 15.9 s.6 - 2.3 - 7.5 - 21.7 26.2 Bilateral Countries Socialists Import. -21.5 - 18.7 - 17.9 - 23.4 - 36.3 - 91.1 - 59.5 - 66.7 - 57.3 - 42.4 - 42.4 - 39.6 - 37.6 - 50.0 - 41.7 ~ 57,1 - 83.6 - 90.3 - 97.8 - 93.5 -115.1 -115.2 -162.3 -174.9 Export. 16.7 22.8 16.8 22.5 43.9 66.6 59.9 63.5 56.0 41.0 39.1 29.9 26.6 35.4 47.7 68.5 74.5 67.3 90.0 90.6 i3.5 79.9 87.3 :01 9 Blanc. - 4.8 4.1 - 1.1 - 0.9 7.6 -22.5 0.4 - 3.2 - 1.3 - 1.4 - 3.3 - 9.7 -11.0 -14.6 6.0 11.2 - 9.1 - 3.0 - 7.8 - 2.9 - 31.3 -35.3 -75.0 -33 Other Bilateral Contries Import, - - - - 0.1 - 2.1 - 2.5 - 1.0 - 2.0 - 3.2 - 0.2 - 17.4 - 19.8 - 34.3 - 33.5 - 21.1 - 20.2 - 20.2 - 14.5 - 11.0 - 11.4 - 8.3 - 26.8 - 69.3 -69-. Eoporto 7.6 3.6 1.8 4.5 4.0 1.9 5.9 18.7 17.8 10.4 12.6 22.2 20.4 16.4 8.5 12.1 17.5 14.7 10.9 51.6 65. Bolance - - - 6.9 1.5 0.7 3.5 2.0 - 1.5 5.7 1.3 - 2.0 - 23.9 - 20.9 1.1 0.2 - 3.8 - 6.0 1.1 6.1 6.4 - 15.9 · 13.7 -3.6 Other Countries Ixports -40.2 - 56.5 - 77.8 -100.5 -119.0 - 77.1 - 54.9 - 45.4 - 27.2 - 55.9 - 36.5 - 47.6 - 70.9 - 79.1 - 71.4 - 53.1 - 58.0 - 62.4 - 71.6 - 6.6 - 82.0 -118.2 -116.4 -216.7 Exports 35.6 41.2 60.6 68.9 69.4 35.7 25.4 22,3 18.2 44.2 30.4 42.9 29.0 28.5 28.. 34.7 59.2 30.4 40.3 45.7 65.1 1(r 6 93,9 105.5 Balance - 6.6 - 15.3 - 17.2 - 31.6 - 49.6 - 41.4 - 29. - 253.1 - 9.0 - 11.7 - 6.1 - 4.7 - 41.9 - 50,6 - 43.1 - 18.4 - 28.8 - 32.1 - 31.3 - 22.9 - P1.9 - 11.2 - 22.5 -116.2 1 EEC: France, Italy, Gerany, Belgium. LuxemourOg, Netherlands EFTA: Austria, Denmark, Noay, Portugal, Sweden, Switzerlond, UK ter 5ECD. Spai, Greece, and aftr 1964 Japan. SanISolt Bilateral: Bulgaria (slnce 1955), Crechoslovakia (1949); E. Germany (1955); Hngary (1949); Poland (1946); Roaia (1954); USSR (1977). Other Blt eral: Yugoolavia (1965-1971 March); 1rael (1960); UAR (19>7-66); Iran (1960-64); Finland (1960-64) . 2 Japan is inluded in OECD a of the beginnig of 1965; before 1965 i oa cinclded anong "Orher C.ontries." Source: Ministryof Finne nd Y.Earbook of Tnrnatonlrade Satstill by UN. Table 3.4: IMPORTS BY COMHODITY GROUPS (Million USS) 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 Vood and Orverages 25.3 24.6 13.2 13.6 15.5 46.8 27.4 61.1 3P.5 12.5 31.2 74.1 78.7 95.1 36.4 34.4 39.8 10.2 6.9 40.8 87.8 67.' 2. 2 46.6 Petrolem Products 30.7 40.3 44.5 41.1 42.1 35.8 53.2 40.4 65.7 51.6 52.1 77.2 66.3 67.6 57.4 55.2 53.5 64.0 6.0.8 66.7 124.7 1.. 210.7 Pertiliner 1.9 1.1 3.5 3.2 2.3 2.9 3.7 2.8 2.5 6.1 1.8 6.8 8.5 5.6 4.6 17.7 28.1 37.3 48.1 5Ž.0 31.4 52.0 62.2 131.5 Mainly Industrial Raw Materials Chemicals, pharmaceutical,, plastics, rubber, etc. 36.4 48.5 45.6 46.0 50.7 56.5 48.2 45.4 73.2 60.3 62.6 77.7 84.2 69.7 88.9 103.2 113.5 125.7 128.8 74.5 89.0 134.4 163.9 Rides, leather, wod, paper, porel.in, glans 20.3 29.3 43.3 30.9 34.8 47.8 28.7 34.8 20.4 24.6 21.8 22.4 24.9 24.6 15.7 25.8 26.2 37.3 33.1 35.9 15.0 35.0 21.2 22.6 Tex.ile. 72.9 85.5 73.9 67.3 38.9 19.9 23.3 20.4 20.4 21.4 26.6 35.6 43.7 36.9 38.3 42.0 42.0 42.2 38.4 37.2 40.9 36.2 52.9 Stel, other tal,, etc. 34.9 45.4 66.2 80.0 55.4 73.6 52.7 36.0 29.6 56.4 66.6 53.8 6s.3 79.7 65.6 76.6 89.0 71.3 69.1 85.4 105.8 144.4 189.5 310.5 Mainly investmnt Goods Machinery and Equipment 65.0 101.4 165.0 131.6 168.2 135.6 107.9 89.9 83.5 109.3 131.9 114.7 139.4 196.4 182.4 173.3 236.0 227.8 253.8 2?4.0 247.2 350.3 517.0 652.7 Mans of Tran.port 21.7 33.6 55.0 59.3 39.6 41.4 62.0 27.9 22.9 53.2 62.1 77.6 96.0 72.6 42.6 42.7 71.0 59.7 84.9 86.0 112.7 108.1 179.0 233.9 Optical and Measuring Equipinent 7.5 10.7 6.5 6.0 5.7 4.2 5.4 4.6 5.4 7.7 9.2 9.3 10.9 9.0 12.0 15.4 16.3 18.2 15.1 17.3 24.7 32.0 40.5 Other 19.1 28.9 41.5 8.1 13.9 8.7 14.5 12.8 4.1 11.8 0.0 8.4 8.9 6.5 2,1 12.1 15.3 19.6 .9 152.0 174.4 211.0 223.1 TOTAL 285.7 402.0 555.9 552.4 478.3 4T7.4 4072.5 597.1 515.0 469.9 468.2 499.9 622.2 688.0 537.0 572.0 718.0 684.7 763.7 801.1 947.6 1,170.8 1,562.7 2.099.0 Sore: Ministry of Finane and Yearbeok 0f Internatonal Trådt Staitic by UN. Table3 IMPORTS BY USE (millin)) Investment Goods Construction Materials Machinery Total Raw aterials Conumer Goods Grand Total Year Value % Value S Value Value - ae Value SIS Estimate 1 33.8 11.B 97.6 34.2 131.4 46.o 953 33.L 5L.6 20.6 2-5.5 1 5 89.9 18.1 180.1 36.2 27'j.0 5.3 154.5 31.1 72.9 10.6 D9.4 1960 3h.2 7.3 209.P 44.8 2".0 52.1 17?.2 35.3 10,,0 9.6 468.2 1961 29.1 5.7 199.3 39.1 228.4 U0.8 235.5 45.2 90.6 9.9 509.5 1962 29.7 4.8 250.3 40.2 280.0 45.0 297.0 47.7 )6.2 7.3 622.2 1963 L1.7 6.1 273.2 39.7 314.9 45.8 335.8 08.8 36. 5.4 687.6 1960 25.5 I.8 219.9 0.9 208.0 45.7 269.6 L9. 26.2 4.9 537.2 1965 28.7 5.0 212.9 37.2 2)1.2 42.2 305.6 53.5 24.8 4.3 971.6 1966 39.5 5.5 301.7 2.0 341.2 47.9 31.2 47.5 35.9 5.0 718.3 1967 30.0 4.0 293.1 02.8 323.9 07.2 327.7 07.9 33.3 L.9 684.7 1968 26.9 3.5 30.1 00.8 366.6 08.0 360.7 47.2 36.3 0.6 763.7 1969 37.0 4.6 313.9 39.2 350.9 03.8 399.6 09.4 5L.7 6.8 801.2 1970 55.7 5.9 390.3 41.2 096.0 47.1 49.3 47.9 07.3 9.0 947.6 1971 67.0 5.7 004.2 37.9 511.2 03.7 600.7 91.3 98.9 5.0 1,170.C 1972 69.9 5.5 696.8 00.6 782.7 90.1 707.2 05.3 72.6 0.7 1,562.7 1973 116.2 9.5 886.4 42.2 1,002.6 97.8 1,005.9 47.9 90.0 4.3 2,099.0 Source: SIS - Annual Foreign Trade Statistics State Institute of Statistics. Table 3.6: IMPORTS BY TYPES OF FINANCING (Million Us$) 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 I. Programmed Imports - Liberalized list 239 247 293 326 361 3414 366 533 708 1162 - Quota list 128 159 217 196 202 185 192 260 412 478 Convertible currency for prograrmmed imports 367 406 510 522 563 534 558 793 1120 16ho - Bilateral agreement countries 50 69 95 105 108 104 96 110 100 78 Total 417 475 605 627 671 638 659 903 1220 1718 II. Self-financing Imports - Foreign Credits 60 44 60 38 63 75 113 148 249 295 - Foreign Private Capital 16 16 21 4 6 10 43 29 28 15 - Imports with Waiver 2 5 11 11 17 54 62 27 55 50 - NATO Infrastructure 5 2 4 3 2 3 17 7 10 21 - TL Grain Imports and Grants 33 29 17 -- -- 2 55 55 -- -- - Others 4 1 1 1 5 19 4 2 -- -- Total non-programmed imports 120 97 114 58 93 163 294 268 342 381 L Due to difference in classification figures may differ from balance of payments. Source: State Planning Organization. - 349 - Table 3.7: RECEIPTS AND EXPENDITIURES OF FOREIGNM TRAV4 (Million US$) 1950 1951 1952 1953 1954 1955 l956 1957 1958 1959 1960 1961 seceipts 6 15 7 8 7 3^ 3 3 3 5 6 7 Tourist 2 2 2 2 5 6 5 Other 1 1 1 1 - - 2 eIxpenditures 23 16 29 34 37 10 11 16 13 13 8 12 Tourist 1 1 2 1 2 1 6 the r 9 10 12 12 11 7 8 BalRnce -1 -1 -22 -26 -30 -7 -8 -11 -10 -8 -2 -5 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 Receipts 9 8 8 16 12 13 24 37 52 63 104 171 Tourist 7 6 7 12 11 12 22 34 67 60 99 166 Other 1 2 1 2 1 1 2 3 5 3 4 5 xpenditures 18 21 22 24 27 26 33 61 68 62 59 93 Inurist 9 6 9 10 11 10 17 21 25 26 35 65 Other 10 15 13 14 15 17 17 20 23 16 23 28 3___nce -10 -13 -14 -11 -14 -16 -9 -5 h 21 44 78 '1 Figures may not add up due to rounding. Source: Ministry of Finance. - 350 - Table 5.8: GOLD AND NET CONVERTIBLE FOREIGN EXCHANGE RESERVES 1 (In million US$) '2 Change in Gross Reserves12 Liabilities Net Reserves Net Reserves 1950 195 68 127 1951 210 112 99 - 28 1952 197 191 6 - 93 1953 208 139 69 + 63 1954 204 201 2 - 67 1955 208 278 - 70 -72 1956 225 259 - 34 + 56 1957 268 326 - 58 - 25 1958 286 271 15 + 73 1959 148 118 26 + 11 1960 209 198 11 - 15 1961 149 55 96 + 85 1962 156 78 79 - 17 1965 149 113 36 - 42 1964 155 104 50 + 14 1965 181 123 58 + 7 1966 157 152 25 - 32 1967 149 105 45 + 20 1968 154 115 40 - 5 1969 224 55 169 +150 1970 414 11 405 +233 1971 755 5 748 +345 1972 1325 12 1313 +565 1973 2036 12 2024 +711 /1 These figures are based on the last weekly statement in December from the Central Bank. They differ substantially from the monetary survey data which (i) records letters of credit at the time they are opened as liabilities (ii) treats convertible lira accounts as liabilities. In this table and in table 3.1, these two items are not treated as lia- bilities. Minor differences with table 3.1 are due to differences in classification. ,2 Excluding SDR's. Source: Central Bank. - 351 - Table 3.9: TAXES/PREMIUMS ON IMPORTS AND EXPORTS OTHER THAN TARIFFS Imports 1. Guarantee Deposit Requirements. 1952-4%; 1955-10%; 1964 - lib. list I: 70% lib. list II: 100%; 1965 - public sector subject to a guarantee deposit of 10% with a TLlOO,000 max. and only for AID-financed imports. 1970 - pre-devaluation - lib. list I: 90%; lib. list II: 120%; quota lists for industrialists: 20%; quota lists for importers: 50Z; bilateral imports: 20%. 1970 - after August devaluation - all pre-devaluation rates reduced by half. 1973 - till July - lib. list I: 50%; lib. list II: 20%; quota lists for importers: 20%; industrialists: 5%. July 1973 - all rates reduced by half. 2. Municipal Tax. 15% of customs duty. 3. stam Duty. 1963-5% on c.i.f. value; 1967-10%; 1968-15%; 1969-25%; after August 1970-10%. Since Sept. 1, 1971, imports from EEC charged 9-9.5%. 4. Quay Charges. 5% on the sum of c.i.f. value, customs duty, municipal tax, stamp duty and customs clearance expenses. 5. Production Tax. Variable percentage depending on commodities as a percentage of c.i.f. value, customs duty, municipal tax, stamp duty, customs clearance expenses and quay charges. The production tax rate varied from 10-60% in the mid-sixties. In 1971, it varied between 10-25%. 6. Special Levies. (a) In 1953, a special 'Allocation Fund' established for charges on lunury imports at variable rates; the Fund was abolished in 1957. (b) In 1957, a special charge called 'Treasury Share' levied at about 40% of import c.i.f. value, which was abolished in the early sixties. Exports 1. Export Earnings Retention. In 1952, for a few commodities (about 3% of exports in value), exporters allowed to retain foreign exchange earnings to use in any way desired. Present rate is 25% for imports of goods required in the production of the exported goods only. 2. Eport Premiums. Established in 1953 for marginal exports at 50% of export price for $ earnings and 40% for EPU currency earnings. In 1955, premiums raised to 100% for $ earnings and 75% for EPU currency earnings. 1957 pre- mium export rates varied between TL3.50-5.60 per US$, when official exchange rate was TL2.80. Multiple rates were abolished in 1960. In the sixties, ex- port premia given to tourist earnings and workers' remittances. 3. Interest Subsidies on Export Credits. A decree under law 933 provided that 35% of the funds blocked in the form of import deposits would be made available for export financing; credits were granted for terms up to four years at 6% interest. - 352 - Table . 9: ITLUSTRATIVE CALCULATIONS OF PERCENTAGE INCREASE IN IMPORTERS' COST DUE TO VARIOUS CHARGES ON IMPORTS (continued) 1964 1970 1971 Pre-August 1970 Devaluation a. c.i.f. value 100 100 100 b. Customs duty 20 20 20 c. Municipal tax 3 5 3 d. Stamp duty 5 25 10 e. App.ication, customs clearance, storage, etc. 3 3 3 Subtotal 131 151 136 g. Quay charges 6.6 7.5 6.8 . Production tax at 25% 34.4 40.0 33. Subtotal 172.0 198.5 178.5 i. Interest cost of prepayment in advance at 100% of application for foreign exchange, with a six month waiting period 5.25 5.25 n.a. /2 Interest cost of guarantee deposit at 120% of c.i.f. value with a six month waiting period 5.25 6.so n.a. L2 Total 182.5 210.05 178.5 Subsidy Implied in Export Incentives (1970, Pre-devaluation) a, Selling price f.o.b. 100 b. Tax refund 25 c, interest subsidy - for six months at 4.5% i.e. difference between general lending rate of 10.5% and export credit at 6% 2.25 d. Value of free exchange, with allocation of 25% of export proceeds and 67% market premium on such free exchange 1L Total 144.25 I At 100o of c.i.f. value. Not applicable; effectively can be ignored despite high levels of prepayments and guarantee deposits: the waiting period for import applications became negligible after devaluation. - 353 - Table 3.10: REVENUE IMPACT OF TAXES/DUTIES ON IMPORTS Import Duties Total Import Taxes/Duties Value of Imports as of Import Value as ( of Import Value (TL m) 1950 800 15 1951 1126 14 1952 1557 12 32 1953 1491 14 34 1954 1339 16 38 1955 1393 18 40 1956 1141 17 40 1957 1112 17 73 1958 882 28 106 1959 1315 44 127 1960 2214 25 69 1961 4585 13 35 1962 5600 13 36 1963 6216 13 36 1964 4878 19 53 1965 5193 22 59 1966 6522 22 53 1967 6218 22 65 1968 6934 19 65 1969 6785 17 61 1970 9598 15 5 4 1971 17565 11 40 1972 22351 10 40 - 354 - Table 3.11: 1968 DOMESTIC-C.I.F. PRICE RELATIONSHIPS Domestic Ratio c.i.f. Price Landed Cost Wholesale (5) to (3) to Comodity (TL) Q Price () _11 (1) (2) (5) (4) (5) Acidic industrial oils 2.64 4.44 5.50 2.08 1.25 Cocoa oil 8.14 18.72 32.00 3.95 1.71 Kerosene .51 .70 .77 2.48 1.09 Motorin and correlates .19 .56 .76 4.00 1.56 Vaseline 1.94 3.18 6.00 5.09 1.88 Suiphuric acid .25 .44 1.00 4.00 2.26 Sodium hydroxide .90 1.44 2.00 2.22 1.59 Zinc oxide 2.42 3.88 5.50 2.27 1.42 Sodium Hydrosulfide 3.50 5.08 7.50 2.14 1.47 Aluminum sulfate .45 .74 1.20 2.79 1.62 Sodium bicarbonate .50 .79 1.40 2.80 1.77 Potassium carbonate 1.71 2.74 3.75 2.19 1.57 Methyl 2.41 3.86 4.50 1.86 1.16 Resin 1.74 2.5 5.50 3.16 2.25 Rav rubber 4.48 9.60 55.00 7.81 3.64 Tires (inner) 10.50 21.69 80.00 7.62 5.68 Cork 1.67 2.11 5.00 2.99 2.56 Artificial thread 9.57 22.48 55.00 5.75 1.55 ATYthetic fiber 8.97 15.47 47.50 5.29 5.52 Jute 2.89 5.64 5.50 1.90 1.51 Pia iron .50 .76 2.50 5.00 S.25 Sectional iron and steel 1.05 1.71 2.50 2.45 1.45 Zinc (raw) 3.07 5.57 22.00 7.16 4.09 Motor pump 1,566 2,564 6,000 3.85 2.54 Lathes 1,179 1,929 8,500 7.21 4.40 Drilling machines 2,898 4,745 6,500 2.24 1.57 Electric engines (under 2 hp.) 86.98 156 500 5.44 2.19 Electric engines (2 - 10 hp.) 500 474 750 2.50 1.58 Tractors (under 15 hp.) 7,655 12,266 50,000 6.53 4.07 Source: Turkey's domestic-foreign price relationships, 1969, Anne 0. Kreuger, mimeo, - 355 - Table 3.12: EXPORT OF MAIN AGRICULTURAL PRODUCTS (In thousand tons, million dollars and dollars per ton) 1970 1971 1972 1973 Hazelnuts Volume 63.6 65.9 94.2 94.4 Value 87.0 84.2 116.5 121.7 Average price ($ per ton) 1,568 1,278 1,257 1,289 Tobacco Volume 74.0 88.7 124.5 101.4 Value 78.6 85.9 150.9 132.9 Average price ($ per ton) 1,062 968 1,051 1,311 Cotton Volume 341.1 325.0 297.1 368.7 Value 177.2 197.1 191.5 305.8 Average price ($ per ton) 508 598 644 829 Raisins Volume 70.5 89.1 114.6 89.6 Value 21.1 22.1 51.1 58.2 Average price ($ per ton) 299 248 271 649 Fruits Volume 84.1 17.7 127.1 150.2 Value 19.0 27.8 34.1 78.4 Average price ($ per ton) 226 208 268 521 Vegetables Volume 50.9 52.6 55.3 126.9 Value 8.4 11.8 14.8 37.2 Average price ($ per ton) 165 224 268 293 Source: Monthly Economic Indicators. - 356 - rable 3.13: MAIN INDICATORS OF THE PATTERN OF TRADE (In percent) 1950 1955 1960 1965 1970 1972 Exports A. Commodity Composition 100 1 100 100 100 100 100 Agricultural and animal products 75.1 82.2 70.8 75.0 75.2 68.6 -Cotton, hazelnuts and tobacco (51.7) (57.1) (46.9) (53.8) (57.6) (49.6) -animal products and fisheries ( 8.6) (11.6) ( 9.9) ( 8.6) ( 5.7) ( 4.1) Mining and quarry products 6.8 8.1 4.1 4.0 7.7 4.0 Industrial products 18.1 9.6 25.2 21.0 17.0 26.8 -Food and beverages ( 6.5) ( 4.9) ( 9.7) (10.1) ( 7.0) ( 9.9) -Textiles ( - ) ( - ) ( 0.8) ( 0.9) ( 4.4) ( 6.2) B. Geographical Distribution 100 100 100 100 100 100 EEC countries 34.8 34.1 33.5 33.8 40.7 39.2 EFTA countries 24.5 14.4 17.5 18.0 17.8 18.4 USA and Canada 17.5 15.6 18.4 17.8 9.8 11.9 Bilateral agreement countries 6.3 22.5 18.0 19.1 16.8 16.1 Import s C. By Use 100 100 100 100 100 100 Investment goods 46.0 54.3 52.1 42.2 47.1 50.1 Raw materials 33.4 31.1 38.3 53.5 47.9 45.3 Consumption goods 20.6 14.6 9.6 4.3 5.0 4.7 D. Geographical Distribution 100 100 100 100 100 100 EEC countries 32.8 29.9 35.7 28.5 34.3 41.8 EFTA countries 17.4 12.0 17.0 18.2 17.4 19.3 USA and Canada 25.7 22.4 26.0 28.5 23.4 13.2 Bilateral agreement countries 7.5 18.8 12.8 13.5 13.0 14.8 1 Data on comrodity composition of exports refer to 1951. Source: Appendix Tables. - 357 - Table 5.14: BALANCE OF PAYMENTS - THIRD PLAN PROJECTIONS ($ million) Annual Av. Growth Rate 1972 1973 1974 1975 1976 1977 1973-77 Current Account Exports 750 825 910 1000 1090 1175 9.4 Imports -1315 -1430 -1532 -1637 -1749 -1850 7.1 Trade Balance - _ 6 -622 -637 -659 - Touriam and travel (net) 20 30 43 56 70 85 33.5 Interest -79 -79 -80 -80 -81 -85 Profit transfers -40 -41 -46 -50 -55 -60 8.5 Workers' remittances 510 540 555 570 585 600 3.3 Services for project credits -40 -40 -ho -h0 -40 -42 Other (net) 5 13 20 25 31 37 Invisibles Balance 376 423 452 481 510 535 Nato infrastructure and offshore receipts 7 10 10 10 10 10 Current Account Balance -182 -172 -160 -146 -139 -130 Foreign private investment h0 42 65 48 51 55 6.6 Imports with waiver 30 32 34 37 h1 45 8.5 Foreign credits 296 278 209 172 146 127 TL food imports 18 20 22 24 26 28 Debt repayment -202 -200 -150 -135 -125 -125 Capital Balance 182 172 160 146 139 130 Source: SPO. - 358 - Table 3.15: EXPORT AND IMPORT PROJECTIONS ($ million) Annual Av. Percentage Growth Rate of Total 1972 1973 1974 1975 1976 1977 1973-77 in 1977 Exports Agriculture 25.0 550.0 56 . 50.0 590.0 600.0 2.7 51.1 Cereals 16.o 17.0 17.0 17.0 17.0 17.0 -- Nuts, fruits and vegetables 150.0 162.0 172.0 180.0 186.0 190.0 4.8 Industrial raw materials 325.0 338.0 345.0 351.0 357.0 365.0 2.4 Animal and fish products 30.0 28.0 26.5 33.5 19.5 15.5 -- Forestry 4.0 5.0 6.5 8.5 10.5 12.5 26.0 Mining _7.0 42.0 50.5 60.0 70.0 81.0 16.9 6.9 Industry 188.0 233.0 22. 60.0 0.0 49 .0 21.5 42.0 Food and beverages 61.9 7. 72.3 77.T 80.0 83.0 6.1 Textiles 43.0 56.0 71.0 86.0 103.0 120.0 22.5 Wood and printing products 8.0 11.0 14.0 18.1 22.5 28.0 29.0 Leather 18.0 23.0 28.5 35.0 39.0 42.0 18.5 Chenicals 12.0 17.0 26.0 35.0 42.5 50.0 33.0 Petroleum products 13.0 15.0 15.0 16.0 17.0 17.0 5.5 Glass and ceramics 4.0 5.0 6. 7.5 8.5 10.0 20.5 Non-ferrous netal 10.5 15.0 21.0 34.0 52.0 70.0 46.6 Metal products & machinery .j- _ 19.0 _0._ _2.0 49.5 63.0 Total exports 750.0 825.0 910.0 1000.0 1090.0 1175.0 9.4 100,0 Imports Investment goods 450.0 490.0 530.0 575.0 625.0 6800 8.7 36.8 Intermediate goods 775.0 845.o 902.0 952.0 100i.0 1040.0 6.1 56.2 Consumption goods 90.0 95.0 100.0 110.0 120.0 130.0 7.6 7-0 Total imnorts 1315.0 1430.0 1532.0 1637.0 1749.0 1850.0 7.1 100.0 Source: SPO. - 359 - Table 4.1: TURKEY-EXTERNAL DE1T OUTSTNDING YEAREND SELECTED YEARS.:. DEB gT e U†i TADNG December 31. 196E D 1 December 31. 1970 December 31, 1971 December 31 1972 Diebursed In-gding Dibrsed .cdg Diobreed Inlding Dibured Including DibuFred Includng Only Undtebureed only Undurburnd Ontl Undibureed On,y Undisbured Only Undisburaed UTAL ETERNALDBT 732.1 _I u. . 2.75,9 2,283.8 3,106.4 2,523.9 3,445.4 I. TOTAL PUBLIC DEBT 73,6 837.6 979.1 1,265.0 2 2,681.2 2,235.2 3,041% 2,5.6 336å äÄ =ä =4 Åä - - - Suppliera Credit. 363.4 378. 207.3 214.8 34.4 99.8 59.9 115.2 66.4 133.8 Consolidated Co-ercial Crediä, 3M7 .4 _="T2E7 1.6 . - = = Prench Govt. Guaranteed Credids /2 - 4.9 11.9 19.5 65.9 33.5 81.9 å1L 77.1 Other -- 16.5 61.6 36.2 36.7 7.3 26.3 26.L 33.3 25.0 56.7 Bonds - n.. n.. 21.8 21.8 18.9 15.9 20.6 20.6 19.8 19.8 Privata Financial Institutions 5.6 5.6 5.6 ,6 18.1 87.4 69.1 96.0 57.4 95.6 Italy - - - . -0. m.o .7 10.7 - - Japan - - - - - - 1.6 10.7 Switzerland - - - - 28.1 28.2 28.2 25-9 25-5 United Kingdom 5.6 5.6 5.6 5.6 8.1 28.1 24.3 27.7 24.0 27.4 USA - - 21.0 5.8 29.3 5.9 32.2 Internatioal Organization 119.7 170.3 160.7 232.8 383.5 559.1 466.5 637.6 372.0 - IBRD tE. 5.0 30.9 30. 73. 139. 77. 109.o 91.3 IDA - - 18.6 65.7 83.0 92.3 87.9 111.8 99.4 155.8 MA /3 72.5 122.5 106.5 126.5 .121.6 161.6 142.8 -142.0 - - EIB - - 5.0 120.5 160.1 157.5 1B7., 175.1 189.3 ERF 1.8 1.8 3.9 3.9 1.6 5.7 5.7 5.7 5.4 5.L Eurafima 0.9 0.9 0.8 0.8 0.3 1.3 0.2 0.2 0.2 0.2 Los from Oernmente 241.8 283.2 583.7 789,1 1.387.1 1 91 2. 1 619 1 172 .0 1,939.0 2.403, OED ember Countries 240.5 2S.9 7e. T,222 ,9-0 2519.2 1,766.2 1,726.5 2,M8.2 Atria 55 . . 13 '-t ~~5 7 ~ - 6 ¯ 9.c Belgium 1.5 1.5 5.3 7,1 10.2 13.7 12.6 14.0 14.8 14.9 Canada - - 24.5 26.1 26.4 26.4 25.0 25.c Denmark 0.8 0.8 0.7 2.5 1.8 4.5 2.1 4.7 1.9 1.) France 26.7 26.7 3.5 7.0 29.9 52.7 60.8 36.8 56.2 Gemany 89.3 89.3 202.0 213.2 322.0 345.5 361.3 L42,3 381.4 J62.7 Italy 4.3 4.3 17.2 26.6 70.3 97.6 89.3 98.9 91.5 107.6 Japan - - - - 15.4 15.7 15 7 84.1 17.6 100.1 Luxembourg - -- 0.1 - - Netherlands 1.6 1.6 5.1 7.1 11.0 12. i3. 5 i5.8 1.3 15.1 Norny 0.5 0.5 1. 1.4 2.5 3.3 2.9 3.5 3.4 4.h Sweden 0.8 0.8 0.9 5.5 3 7.3 8.9 8.4 Ö.9 Switzerland 1.5 1.5 3.9 6.' IC2 13.5 12.3 15.9 Uniled Kingdom 26.1 26.1 57.8 79.3 i20.2 113.2 145.5 126.3 137.0 United state. 86.8 128.1 278.7 424.2 712.7 8899 821.7 938.2 986.4 1,116.5 Exort-lmport Bank (17.3) (20.) i'6.7) ('7.8) (23.0) (24.6) (21.1) (21.5) Other /4 (261.5) (L03.7) 096.0) (o72. (798.7) (913.6) (965.3) (1,095.1) Soviet-Bla Countris 1.2 1.2 4.1 .4 6- 9 310.2 99.9 305.8 212.2 305.1 Czechoslovakia - 3.! - " 7.T - - -_21--._ - - - - Hungary - - - - - 1.0 1.3 1.3 13 Poland -- .5 1.5 07 0.7 -- U8SR 7.1 9. ... ... 61.3 30(6 98.1 303.2 210.9 301.8 II. TOTAL PRIVATE DEBT 1.5 7.9 5-.5 56. 1.8 _ . .6 64.9 0y.5 b0.t Suppliera cradita 1.4 7.2 10.4 12.6 _ _.3 .3 ,.0 7.0 j.. 17.5 Private Financial Inatitutions - 0.6 7.5 9.L 1.,9 2 3. 3 5.1 Ö Switzerland .- 0t 0 0. f . United Staten o.6 6.7 7., 1.0 . 2.5 4.5 5.5 International Organisations - IFC -2.h 12.2 22.1 184. 21.6 Overnente .. ... 33.6 37-7 35 31.5 32.5 34.1 35.5 France 6.C 6,2 - - Italy ... ... 0.5 C.5 USA . - 27.1 31.0 31,. 32 31.5 32.5 34.1 35.5 /1 Dbti wth an original or extended aturity af morm than ane ear. 72 Credit. isaued under Consortiu- aid pledge. 73 Debt outstading inluiden former Europan Pyments Union credit. 7 Inolud only that part af P.L.480 credite repayable in U.S. dollarn. Source: Govenmt of Turkey External Debt Reports to IBRD. Detailen may not acd to totals owing to rounding. - 360 - Table 4.2: GROSS DISBURSEMENTS TO TURKEY, 8Y SOURCE OF RIEDIT, 19(0-1972 (ln millions of 1.S. d.Ollro1 1960 1961 1962 1963 L964 1960 1966 1967 1968 1969 1970 2971 1972 TOTAL DISBURSEXENTS 78.2 96.6 122.1 127.6 65.9 247.6 226.8 237.4 266.3 305.0 322.7 417.7 380.b TOTAL PUBLIC SETOR 77.3 87.8 109.0 1.6 32.7 236.5 220.6 236.6 264.9 303,3 321.7 L08.2 358.0 Suppliers Credits /3 26.3 1.2 79.B 2.0 1.7 12.2 9,1 6.0 6.7 10,1 5.0 35.2 19.6 Bonds - - - - - --. Private Financial Institutions - - - - - - - - .9 7.2 10.0 53.4 2.4 Italy - - - - ¯ - - - - - 10.0 - Japan - _ - - _ . - - - - - 1.6 Switzerland - - - - - - - 3.3 - 29.8 - United Kingdom - - - - - - - .9 3.9 - 16.5 .? United States - - - - - - - - - - - 7.0 - International Organizatiorng 2.4 505. 65.C 1.1 27.19 t.6 3.6 67.7 99.0 72.9 125,9 107.4 72.4 Council of Europe -5 - - -. - - - 1.2 - WHPOFIMA .5 - - - - - - - ..- - Europea Fund .5 58.0 15.0 50.0 20.0 5c.r 20.0 25.0 50.c 15.0 75.0 52.. 27.1 European Investment Bank -- - - - - - 6.7 22.5 30.3 34.9 26.2 26.2 16.3 ,Jorld Bank Group: .9 .t ... .6 7.i i0.L 17.0 20.2 1.7 21.7 2ü.7 27.7 26.9 IBRD) (.9) (.5) (. ) (-) (-) (-) (-) (4.3) (5.1) (11.0) (17.5) (22.7) (25.1) IDA (-) (-) (- (.6) (7.6) (10.6) (17.C) (15.9) (13.6) (D.7) (7.2) (5.0) ( 3.8) L.ans from Goveene.ts 48.5 23.1 56.0 62.3 103.1 163.7 168.7 166.0 158.4 213.1 180.8 212.3 263.6 0ECD Members 68.5 20.6 6.8 58.9 23.1 163.2 168.7 164.0 151.1 176.8 150.1 170.2 150.5 Austria - - - --- .9 1.C .9 .5 1.3 1.0 - . .6 Belgiu .7 - - - 1.3 3.2 1.4 1.5 .9 1.1 1.4 2.1 3.7 Canada - - - - - - - ... 6.3 10.7 7.9 1.8 - Denark - - - , - - 2.3 .6 .5 .2 .2 .2 ,3 - France - - - - - 2.5 11.8 5.8 3.6 3.7 6.8 5.3 6.7 Ger-any (Fed. Rep.) 36.8 12.5 37.5 28.6 13.2 20.9 22.2 18.5 25.1 30.7 27.7 11.1 44.4 Italy - 1.0 4.0 10.8 .4 3.0 9.L 12.2 13.2 22.3 8.2 18.5 9.6 Japan - - - - - - - .3 13.8 1.1 .3 1.9 Luxembourg - Netherlands - - - 1.0 2.5 1.2 .1 3.8 1.0 .7 1.3 1.0 Norway - - - - - L o - .6 .5 - - .5 Portugal .2 - - - Sweden .6 - - - - . .5 .5 1.5 1.0 .6 2.3 1.2 Switzerland .8 - - - - 3.' 2.8 1.7 1.1 1.2 ... 1.6 1.2 United Kingdom 6.9 - .1 10.7 9.1 .7.7 16.3 26.8 8.0 8.6 8.5 9.3 21.6 United State. /1 6.7 6.8 2.3 7.9 77.5 108.1 102.5 97.8 87.1 80.3 88.9 16.6 58.3 Soviet 810 Contrie_ - 2.7 _12.1 3. _-. _ -_ 7._ 36.. 30.7 _h2.1 12.9 Czechoslovakia - - 8.6 3.4 - - -- dungary - - - - -- - - - - - - 1.0 .3 Poland - - 2.2 - - - - - - 10.6 - - USSR - 2.7 1.6 - - - - - 7.3 26.0 30.7 61.2 112.6 TOTAL PRIVATE SECOR .9 6.8 13.1 12.2 13.2 n.1 6.. 1.8 1.6 1.7 1.0 9.5 22.8 Suppliers Credits .9 1.8 7.6 1.1 - 1.L 1.5 .2 .4 - - ... 9.1 Private Financial Instituuions - 5. - . 1.8 .3 - - - - - Switzerland - - - - - - - - - - - United States - 5.0 - - 7.0 l.C .3 - - - - - 6.5 International Organization - IFG - - - - - .7 .2 - 1.5 1.0 9.6 6.6 Goverments - - . 11.1 12. 7 1 1 . - - France - - - 5. 5.1 _ - - .2 - - - -taly - - .5 - - - - - - - - - United States - - 5.0 6.0 7.5 0.7 1.9 1.4 1.0 - - - 2.6 /1 Debt with an original or extended maturity of more than one year. 72 This includes goverment-guåranteed loans to the private sector, e.g. IBRD loan to the Industrilo Development Bank of Turkey (TSKB). 73 Mainly credits issued under Consortiurn Aid Pledges by France. . 7U Inclides only that portion of' PL.480 credits repayable in U.S. dollars. Source: Government of Turkey EXternal Debt Reports to IBRD. Details may not add to botals due to rounding. - 361 - Table. : GROSS DISBURSEMENTS AND NET TRANSFER OF RESOURCES TO TURKEY THROUGH MEDIUT-AND LONG-TERM IDANS, 1960-1972 (In millions of U.S. dollars) 1960 1961 1962 1963 19T67 1965 1966 1967 196d 1969 1970 1971 1972 TOTAL PUBLIC AND PRIVATE SECTOR Gross Disbursements 78.2 94.6 122.1 127.6 115.9 27.6 224.8 237.4 266.3 305.0 322.7 417.7 38C.1 Less: Amortization h2.1 72.0 69.0 103.5 82.0 136.4 95.3 80.7 101.3 95.7 131.8 113.4 18.8 Fqua1s: Net Flow 36.1 22.6 53.1 24.1 63.9 111.2 129.5 156.7 165.0 209.1 190.9 304.3 232.0 Less: Interest 22.3 23.7 24.8 19.6 26.1 24.8 29.0 29.4 32.2 39.6 L4.5 54.2 61.1 Equals: Net Transfer 13.6 - 1.1 28.3 4.5 37.8 86.4 100.5 127.3 132.8 169.7 146.L 250.1 167.9 TOTAL PUBLIC SECTOR Gross Disbursements 77.3 87.8 109.0 115.5 132.7 236.5 220.4 235.6 265.9 303.3 321.7 408.2 358.0 Less: Amortisation 42.1 72.0 68.7 103.2 77.1 132.7 91.0 76.5 96.4 92.4 128.6 110.. 17.6 Equals: Net Flow 35.2 15.8 40.3 12.2 53.6 103.8 129.4 159.1 168.5 210.9 193.1 297.8 210.1 Less: Interest 22.3 23.7 25.4 18.6 24.0 22.3 25.9 26.3 28.7 37.0 12.2 51. 6G.9 Equals: Net Transfer 12.9 -7.9 15.9 - 6.4 29.6 81.5 103.5 132.8 139.8 173.9 150.9 246.1 189.5 PilBLIC SECTOR: EUROPEAN FUND Gross Disbursements 0.5 50.0 b5.0 50.0 20.0 50.0 20.0 25.0 50.0 15.0 75.0 52.4 27.1 Less: Amortization 5.0 28.1 21.6 h1.7 17.7 71.8 31.9 11.9 37.0 22.0 67.1 42.2 56.0 Equals: Net Flow - 4.5 21.9 23.5 8.3 2.3 -21.8 -11.9 13.1 13.0 - 7.0 7.9 10.2 -28.9 Less: Interest 1.1 1.9 3.1 4.3 h.3 3.2 3.7 3.7 h.3 L,3 3.5 5.1 1.1 Equals: Net Transfer - 5.6 20.0 20.3 5.0 - 2.0 -25.0 -15.6 9.4 8.7 -11.3 4.4 5.1 -30.0 PJBLIC SECTOR: EXCLUDING EUROPEAN FIND Gross Di.bursements 76.8 37.8 6L.0 65.4 111.7 186.5 200.4 210.6 211.9 288.3 246.7 355.8 33c.9 Less: Amortization 37.1 43.9 h7.1 61.5 61.4 60.9 59.1 65.6 59.4 70.4 61.5 68.2 ;1.6 Equals: Net Flow 39.7 - 6.1 16.9 3.9 51.3 125.6 141.3 146.0 155.5 217.9 185.2 287.6 239.3 Less: Interest 21.2 21.8 21.3 14.3 10.7 19.1 22.2 22.6 24.5 32.7 38.7 46.3 59.8 Equals: Net Transfer 18.5 -27.9 - 4.5 -10.4 3L.6 106.5 119.1 123.4 131.1 185.2 146.5 241.3 179.5 T(TAL PRIVATE SECTOR Gross Disbursements 0.9 6.8 13.1 12.2 1i.2 11.1 5.4 1.8 1.4 1.7 1.0 9.5 22.o Less: Amortization 0.0 0.0 0.3 0.3 2.9 3.7 4.3 4.2 4.9 3.3 3.2 3.0 1.2 Equals: Net Flow 0.9 6.8 12.8 11.9 10.3 7.5 0.1 - 2.4 - 3.5 - 1.6 - 2.2 6.5 21.6 Less: Interest 0.0 0.0 0.4 1.0 2.1 2.5 3.1 3.1 3.5 2.6 2.3 2.8 3.2 Equals: Net Transfer 0.9 6.8 12.4 1C.9 8.2 h.9 - 3.0 - 5.5 - 7.0 - 4.2 - -.5 3.7 18.. /1 EXcludes credits repayable in Turkish lira. Figures may differ from those 1hown in the balance of payments. Source: Government of Turkey external debt reports to the iBR. Table 4.4: MATURITY STRUCTURE OF TURKEY'S EXTERNAL DEBT, 194d-72 External Debt Proportion of Principal (Including Undisbursed) Due within: As of Year Ending: 2 years 5 years 10 years Turkey 1948 15% 36% 52% 1958 54% 71% 78% 1960 17% 51% 92% 1967 10% 25% 43% 1971 12% 22% 45% 1]72 9% 22% 48% All Developing Countries 1971 22% 36% 61% Source: Government of Turkey External Debt Reports to IBRD. Table 4.5: AVERAGE TERMS OF BORROWING, 1948-72 1948-57 1958-59 1960-62 1963-67 1968-69 1970-71 1972 All Loans Interest (% p.a.) n.a. 4.o 3.9 2.8 3.5 3.8 4.3 Grace (yrs.) n.a. 3.9 4.8 7.1 4.6 5.8 6.3 Maturity (yrs.) n.a. 13.7 14.6 28.1 23.2 21..8 22.0 Grant element(%) n.a. 34.0 37.0 57.0 46.0 45.0 41.o Avg. annual commitment ($ n.) n.a. 181.2 (100%) 81.0 (100%) 273.7 (100%) 367.8 (100%) 434.2 (100%) 466.7 (100%) Loans from Governments Interest (% p.a.) 3.2 5.6 3.3 2.7 2.6 3.0 2.8 Grace (yrs.) 15.5 8.0 9.3 7.9 5.1 7.h 8.7 Maturity (yrs.) 35.7 16.4 29.9 30.9 27.3 26.7 26.8 Grant element(%) 62.0 30.0 56.0 60.0 56.0 55.0 58.o Avg. annual commitment ($ mn.) 11.5 61.8 (34%) 27.9 (34%) 197.4 (72%) 225.8 (61%) 259.2 (601) 178.3 (38%) Loans from International Organizations /1 Interest (% p.a.) 4..1 3.3 3.5 3.1 4.5 4.6 5.8 Grace (yrs.) 7.8 6.9 2.9 5.5 4.5 3.6 5.2 Maturity (yrs.) 22.8 13.7 5.2 21.9 19.0 15.5 20.7 Grant element(%) 45.0 42.0 21.0 49.0 27.0 32.0 27.0 Avg. annual commitment ($ mn.) 7.9 24.2 (13%) 33.5 (42%) 70.3 (26%) 95.7 (26%) 136.2 (31%) 242.3 (52%) Suppliers Credits Interest (% p.a.) n.a. 3.1 5.4 5.3 5.4 5.9 1.2 Grace (yrs) n.a. .5 1.8 2.0 1.8 2.6 1.8 Maturity (yrs.) n.a. 12.0 9.1 11.6 12.8 12.9 7.1 Grant element(%) n.a. 30.0 /2 19.0 22.0 22.0 22.0 31.0 Avg. annual commitment ($ Mn.) n.a. 95.2 (53%) / 19.6 (24%) 6.1 (2%) 12.6 (4%) 24.0 (6%) 31.7 (7%) Table 4.5: AVERAGE TERMS OF BORROWING, 1948-72 (continued) 1948-57 1958-59 1960-62 1963-67 1968-69 1970-71 1972 Commercial Banks Interest (% p.a.) n.a. - - -5.8 6.0 8% Grace (yrs.) n.a. - - - 2.8 .3 1.9 Maturity (yrs.) n.a. - - - 10.5 4.3 1*9 Grant element n.a. - - - 20.0 8.0 6.0 Avg. annual commitment ($ mn.) n.a. - - - 23.2 (6%) 4.7 (1%) 2.0 (1%) Other private Financial Institutions Interest (% p.a.) n.a. - - - 6.0 4.8 4.5 Grace (yrs.) n.a. - - - 2.6 3.1 5,0 Maturity (yrs.) n.a. - - - 11.6 10.6 20.0 Grant element n.a. - - - 20.0 25.0 38.0 Avg. annual commitment ($ mn.) n.a. - - - 10.5 (3%) 10.0 (2%) 10.8 (2%) /1 Mainly European Fund and the World Bank. 72 The commitments are chiefly the refinancing of consolidated commercial credits under the terms of May 11, 1959 debt rescheduling agreement. Source: Reports by the Government of Turkey to the IBRD on external debt. Table 4.6 GROSS AND NET DEBT RELIEF TO TURKŒY (Mllns of US $) 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 177 1979 1979 1980 1981 19821( 1956-71: Total Bet Debt Relief Principal 2.2 2.3 .. . . ... ... ... ... ... ... +36.0 16.4 -19.8 -45.4 -0.5 - 9.9 -54.1 -31.7 -42.1 -37.0 -10.1 -15.7 -15.1 -14.7 -7.8 -3.7 -3.6 Interest 2.0 2.1. . - 62 -7.4 - 1.0 - 8.9 -7., 7,9 - 9.1 - 8.6 3 -2.4 - 2.3 - 2.6 - 1.8 - 1.0 -0.6 -0.5 -0.4 Total +4.2 +4.4 +-119---+47.6 +22.5 -2. -12.7 -11.9 -25.7 -54.8 +29.8 +1.0 ~20.-8 -54.2 -7.8 -17.8 -63.3 -40.3 -49.9 -39.4 -12.4 -11.3 -17.2 -15.7 -9.4 -4.2 -4.0 af which: 1959; Multilateral ResCheduling of Consolidated Camaercial Credits A. Amounts Rescheduled Princip ... ... ... ... ... Interest ( . ... ... 2.. ... . Total (2.7)4.1 17.7 9.70.2 B. Repayment of Rescheduled Amounts Principal 11.2 17.1 22.2 26.0 29.3 38.0 35.2 32.7 34.6 32.4 30.7 28.3 7.6 Interest 10.4 10.0 9.5 8 8 2.1 __2 6.0 _5.0 4.0 35,. 2.0 _1._1 0.2 Total 21.6 27.1 31.7 34.8 37.4 45.2 41.2 37.7 38.6 35.4 32.7 29.4 7.8 C. Net Deblt Relief (A-B) Princtipal.. ... .. . . .. ... ... . . . -32.7 -34.6 -32.4 ~30.7 -28.3 ~7.6 Interest ... .. ... - .. . ... - .0 - 4.0 - 3.0 - 2.0 - 1.1 -0.2 Tatal 716W-- 43.4 18.0 3.9 -17.1 -27.7 -44.6 -41.0 -37.7 -38.6 -35.4 ~32.7 -P9.4 -7.1 1965: Multilateral Debt Relief A. Amount Rescheduled or Refinanced principal (206.5) 1.8 8.9 68.7 47.0 4.0 0.1 - Interest 6.5) 0.6 2 1.9 1.2 0.1 ... Total (213.0) 1 <.4 91.6 70.6 44.2 4.1 0.1 - B. Repay-ten af Rehsceduled Aoutor Principal - - - - 13.1 24.3 36.1 48.2 34.3 22.4 12.8 7.8 6.0 5.4 4.8 4.4 0.2 Interet - 31 4.6 5.0 5.2 4.5 3.7 2.9 1.9 1.3 0.8 0.6 0.4 0.3 0.1 . Total - - 3.1 4.6 18.1 29.5 40.6 52.4 37.3 24.3 14.0 8.6 6.6 5.8 5.a 4.5 0.2 C. Net Debt Relief (A-B) Principal 1.8 88,9 68.7 43.0 - 9.1 -24.2 -36.1 -4R.7 -34.3 -22.4 -12.8 -7.8 -6.o -5.4 -4.C -4.4 -0.2 Iterest 0.6 27 - 1.2 - 3.4 - 4.9 -5.2 -4.5 -_. -2.9 - 1.9 - 1.3 -0.8 -0.6 -0.4 _-u -0.1 .. Total 2.4 91.6 67.5 39.6 -14.0 -29.4 -40.6 -52.4 -37.3 -24.3 -14.0 ~R.K -6 -5.8 -9.0 -4.5 -0.2 1968-71, 3ilateral Debt Relief A. .mnta Recheduled or Reflianced Principal (169.3) 21.7 10.1 64.7 52.0 6,4 3.1 3.1 7.1 7.1 - - - Interest ( 24.7) 7.0 4.2 4.0 3.5 2.5 1.0 0.9 _0. 0.5 0.3 0.1 - Total (194.0) /2 28.7 14.3 168.7 55.5 10.9 4.1 4.0 3.8 3.6 0.3 0.1 - n. Repytnt. of Rescheduled Amaunt2 Principal - 0.6 o.6 5.6 28.2 12.4 32.4 32.3 7.2 10.3 10.3 10.3 7.6 3.7 3.6 Interest 0.1 5.9 5.9 7.5 8.7 7.7 __ _3 2.2 1.9 1.4 0.9 o.6 0.5 0.4 Total 0.1 6.5 6.5 17.1 36.9 20.1 39.8 34.6 9.4 12.2 11.7 11.2 8.2 4.1 4.0 C. Not Debt Relief (A-B) Principal 21.7 9.5 64.1 46.4 -19.8 - 9.3 -29.3 -29.2 -4.1 -10.3 -10.3 -10.3 -7.6 -3.7 -3.6 Intere.t 6.9 -1.7 - 1.9 -4.1 - 6.2 -6.6 - 6.s - 1.6 -1.7 - 1.6 - 1.3 - 0.9 -0.6 -0.5 -0.4 Total 28.6 7.9 62.2 42.4 -26.0 -15.9 -35.1 -30.8 -5.8 -11.9 -11.6-11.2 -8.2 -4.1 -4.0 ' Including $97.4 million wich was paid in Turkish lita for reinesatmn,t ta Toriey ly the crdlitor Ironi deabt relief. Repayentns an rescheduled aounts coatinue till 1996. Table 4.7: DEBT-SERVICE PAY?ENTS 1971-72 AND ESTIMATED DEB? S9RVICE ON 10TAL DEBt OUTSTANDING AS OF END1972, 1973-82 (I. 111ti- t U.3. dollar-) låtimted FuueDb Srieo tta Debt Outstøndin. a kofDc ili 9 I. PRIVATE DEBT5. L1.. 11.6 31,.2 16.4 19.5 17.6 10.7 9.9 2.9 111 P-in-ipa 1 2 - - - -. Inter.et 2.8 3.2 4.5 4.6 4.2 3.4 2.7 20 1.4 0. 0.2 - II. PUBLIC DEBT Supplier. Crite 137 16.7 1.5 _2:.9 25.1 25.4 4- 2 - ,,1 ..2 principal 12.1 :3.2 i.l 19.9 19.7 20.4 19,8 18.8 13.6 7. 5 6 Interest 1.5 3.5 3.7 5.1 5.4 5.1 4.: 3.2 2.1 . :0 Private Financial Inatitutios 6.9 17.2 17.7 16.2 13.7 11.6 11.8 11.0 1. 10.C .5 . Principal - -44 49 . Intere.t 1.8 3.2 3.4 3.1 2.8 2.8 2.1 2.2 1.7 1.05 0.7 Bind. 1.5 1.7 1.6 1.6 1.6 1.6 1.6 1.6 1.6 l.. --,o Principal 0.7 0.8 0.6 0,6 0.6 0.6 0.7 0.7 0.7 0. 0 . Interest 0.7 0.9 1.1 1.1 1.0 1.0 1.0 0.9 0,9 0.9 0.B C. Intergoernmental Loans 78.5 95.6 1 142 X38.5 159.9 166.6 1 principal 46.1 57.6 83.7 91.8 84.3 88.5 96.9 1IC.3 116.3 1u4 u-, 13. e 32.4 38.0 48.8 48.6 49.8 50.0 50.6 49.5 50.2 7.2 ., International Organiation7 61.3 77.3 23.6 .7 » 36.7 50.2 2.9 5h11 1- Principal 46.4 61.9 8.8 11.5 15.3 16.8 23.e 25.2 27.2 28. 3e? 32.. Interest 14.9 15.4 14.8 16.2 18.2 19.8 26.4 27,7 26.9 27 2_4 '22.19 TOTAL PUBLIC DEBT 61.8 206 1 201.8 208.1 213.9 25.3 27 1.. 236." 22 22.. Principal 1= "6 "19.I Interest 51.4 60.9 71.8 73.9 77.3 78.7 85.0 83.5 81.9 76.6 71.4 66.5 mII. MTAL 0E7EZL D"T 167.6 212.9 202.6 216.0 224.5 229.L 28.1 256.0 258.4 2.5.0 21.7 220. Principal 1131" 3..I Inte.est 54.2 69.1 76.3 7 .5 81.5 . 7.7 5.5 83.3 77' 7,.6 66.5 Memorandum Iter: Pub1tc 3ector Debt Seric, Clas siried by Piscal -esponalbility Tctal Principal and Interest 161.8 208.5 11.0 201.8 208.1 21 .. 28. 236 '22 2 220.1 General Budget T ., . 23 2. .:• T*"7 . 7T7 Anx Budget 7.4 8.6 12.0 15.4 18.4 22.8 26.1 26.3 25.9 213 24.F 2t12 Reloned to Public Sector. 15. g 22.9 30.1 33.2 34.4 35.6 36.1 38.3 39.9 39.7 39.2 3b.3 State Investment Bank 0,2 12.0 12.5 11.0 9.8 9.2 .8 2.3 7.9 st, onomtnt erprisee 16.1 12.7 37.6 45.9 47.2 48.4 49.h 52.7 54.1 19.2 44.1 u1.2 Private Sector with Public Setor Guarantee 3.7 10.7 11.6 13.7 14.3 15.9 17.4 16.o 15.3 15.2 n.i6 30.8 oneolideted Co,mercial Deot 7.9 - - - - . - - Source' Turkisb Government Report, to the IBRD n external debt. Detail* may not add to totals owing to rounding. - 366 - Table 5.1 CEWRAL GOVEROM TAX REVENUE Qillions of Turkish Lirse; fiscal year) 1952 1957 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972L 1973L Taxes on income 349 1 110 2.674 3.1295 18 9 N 1 6 092 0 52,532 15,560 _Q,5']6 Personal income tan 299 975 1,911 2,240 2,431 2,691 3,315 3,978 4,444 5,178 ,596 9,584 11,715 14,700 Corporate income tax 50 135 359 415 446 521 651 830 940 1,245 1,568 1,519 2,117, 2,490 Capital gains tax on real property - - - - - - * - - - - 244 2843 350 Fiscal balance tax - - - - * * - - - - - 538 1,536 Revenue from saving bonds - 404 474 542 637 770 910 625 731 888 1,185 906 - Taxes on wealth and wealth trrnsfers 31 84 13 206 289 3 417 19 598 __39 917 I382 _,10 _,252 Real property tax 5 12 31 3 92 117 132 15 188 220 259 302 2;1 525 Motor vehicles tax - 41 51 57 71 72 82 89 15 104 1'2 125 Inheritance and gift tax 3 12 13 14 16 19 26 29 39 53. 58 95 152 175 Real property purchase tax 23 60 91 115 130 160 188 234 289 377 445 634 953 1,100 Motor vehicle purchase tax - - - - - - - - - - P47 452 527 lexes on production .4 968 1~ 6 0 1.?- 2 017 2 149 .3 ,8 410 546 675 759 .06 omestic production tax 16 453 64 8 78 705 - 1,143 1,3015.52 l,Z8 2,205 2,903 4,1,-2 5,305 Petroleux production tax - 14 32 58 97 215 328 451 537 666 944 1,069 L,214 1,S00 Monopoly revenues 209 450 941 1,072 1,193 1,013 1,068 1,620 1,265 2,148 2,276 2.714 1, 982L 3,c Construction tax - - - - - - - - - - 4 O1 10 Abolished taxes 62 51 29 11 22 13 24 15 20 4 1 3 74 10 Iaxes on expenditures 241 330 459 519 449 650 581 7 02 7( 13 1,2 5 Operation (sales) tax - - - - 311 451 1,000 Foreign travel tax - - - 98 110 120 143 162 214 572 258 293 470 470 Football pool tax - - - - - - - 35 55 0 Sugar consumption tax 137 241 330 361 409 329 507 419 363 730 442 688 65 Taxes and fees on services 315884 999 0 b'^6 1 E207 2 1 .i, Bank and insurance transactiOns tax 27 110 237 342 379 431 532 658 T5s9 64) 1,140 1,544 1 93 2 50 PT service tax 5 13 27 36 40 46 52 5e 62 7 6 75 114 ,9 200 Transportation tax 18 44 62 64 69 87 95 100 98 , 122 234 323 ??0 Stamp duty 50 154 276 305 354 428 509 582 662 729 94B 1,200 1,63 . Fees 33 71 152 137 157 174 206 198 254 271 405 576 635 50 TaCs and dutias on imports 597 5 Custom duties 1914614 58 62 74 9 2 ,0 Ti ,19)o ,0 23 Custom duty on petroleum ...L6 358 336 337 382 327 210 168 162 i.56 16 153 222 240 Production tax on imports 225 191 837 883 743 894 1,060 1,167 1,198 1,020 1,291 1,842 2,399 2,F74 Petroleum production tax 81 100 251 300 496 568 680 864 992 899 1,240 1,937 2,595 2,700 Stamp duty on imports - - - 240 214 246 315 611 953 1,341 1,075 1,112 25L 1,80 Wharf duty - - . - - , 24 24 56 _ 90 Total tax revenue 1,580 3,592 7,518 8,890 9,824 10,911 13,227 15,783 16,883 19,841 253,890 32,59L 39.879 4^, /I Revised estimates. L Budget estimates* , Includes TL 12 million transferred from local governments L4 Excludes profit remittances of monopolies . L Custom duty on petroleum included in custom duties. Sorc: Ministry of Finance . Turkish fiscal years begin Marc'n 1. - 367 - Table 5.2: GENERAL BUDGET XPENDITURES BY MINISTRIES (Millions of Turkish Liras; fiscal year) 1957 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973/1 Current Expenditures LM 69 7.5 630 0 . 8.863 10027 10.906 9 82 Ministry of Finance ... 603 916 227 246 291 303 341 373 461 669 1,153 Ministry of Defense 1,134 2,065 2,278 2,609 2,748 2,897 3,320 3,866 4,028 4,659 6,492 7,958 ... Ministry of Education 409 1,112 1,324 1,496 1,670 1,984 2,218 2,466 2,838 3,674 5,812 6,701 ... Ministry of Public Works ... 18 45 13 13 15 16 23 31 47 125 130 ... Ministry of Health and Social Welfare 151 363 438 454 508 602 663 735 804 1,012 1,535 2,056 ... Ministry of Rural Affairs - - - - - - - - - - - 258 ... Ministry of Agriculture ... 223 266 253 263 303 356 391 421 510 729 736 ... Gendarmerie ... 214 260 271 296 340 360 416 438 527 710 836 ... Others .., 1,699 2,248 1,107 1,226 1,455 1,627 1,789 1,973 2,530 4,021 4,342 ... oIcotu^nt Ex8enditureE 1.411 71 3J95 1,1 1 2.293 2. 84 2903 3 3,461 3,476 ... Ministry of Finance ... 6 ,19 127 25 924 1 3 4 2 Mini of Defense 104 287 305 301 316 510 476 235 183 178 239 72 ... Ministry of Education 70 223 394 397 336 435 450 578 143 163 200 269 ... Ministry of Public Works 206 313 516 561 571 723 797 984 1,503 1,351 1,668 1,852 ... Ministry of 'ealth and Social Welfare '.. 27 151 24 14 19 31 24 11 6 13 58 ... Ministry of Agriculture 35 97 124 142 196 225 262 285 304 291 315 71 ... Gendarmerie ... 5 10 - - 10 32 21 12 26 3 19 ... Others ... 269 325 228 224 346 378 564 746 1,019 1,019 862 ... Tranefers 5.402 E 068 8.076 8 448 11577 15 180 22716 2415 ... Ministry of Finance - - * 5,135 5,4556,716 7,552 7,746 11,012 14,460 21,259 19,598 ... Ministry of Defense - - - 71 46 91 100 199 73 88 390 94 ... Ministry of Education - - - 37 44 54 71 103 63 77 198 99 ... M.nistry of Public Works - - - 35 26 32 25 49 43 77 68 46 ... Ministry of Health and SocLal Welfare - - - 25 244 29 35 28 32 35 51 44 Ministry of Agriculture - - - 25 239 40 52 56 54 47 74 74 Gendarmerie - - - 4 4 6 5 11 5 13 52 16 ... Others - - - 70 66 100 236 256 295 383 624 2,713 ... Total Expenditures 4.163 9.118 11.72 3 14.' 17,248 07 89 2 5.32 31.637 468 49418/- 61.45 Ministry of Finance ... 2,203 3,042 5,410 5,858 7,032 8,719 8,243 11,38 14,924 21,931 20,753 24,065 Ministry of Defense 1,238 2,352 2,583 2,981 3,110 3,498 3,896 4,300 4,284 4,925 7,122 8,124 11,100 Ministry of Education 479 1,335 1,718 1,930 2,050 2,473 2,739 3,147 3,044 3,914 6,210 7,o69 8,921 Ministry of Public Works ... 331 561 609 610 770 838 1,056 1,577 1,474 1,861 2,028 1,118 Ministry of Health and Social Welfare ... 390 589 503 546 650 729 787 847 1,053 1,600 2,158 2,543 Ministry of Agriculture ... 320 390 420 498 568 670 732 779 848 1,118 881 1,080 Gendamerie ... 219 270 275 300 356 397 448 455 566 764 871 1,283 Others ... 1,968 2,573 1,405 1,516 1,901 2,241 2,609 3,014 3,933 5,664 6,893 10,743 B Budget estimates; article I of the 1973 Budget Law, however, reduced all appropriations (except defense, gendarmerie, security and debt service) by 1 percent so that total general budget expenditures come to TL 61,023 million only. L Breakdowns shown under these figures are budget appropriations which totalled TL 24,170 million for current expenditures, TL 4,366 million for investment expenditures, TL Q1,776 million for transfers and TL 50,312 million for total expenditures; however, the 1972 Budget Law reduced all appro- priations (except debt service) by 10 percent. Source: Ministry of Finance. Turkish fiscal years begin March 1. - 368 - Table 5.3: EXPENDITURES OF ANNEXED BUDGET ORGANIZATIONS (Millions of Turkish Liras; fiscal year) 1957 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971' 1972i 1975 Directorate General of: State Hydraulic Works 393 580 675 923 1,191 1,452 1,739 2,219 2,448 2,766 3,037 3,400 4,102 State Highways 490 814 915 978 1,038 1,288 1,538 1,937 2,151 2,415 2,533 2,398 2,880 Monopolies 64 122 152 120 128 115 135 191 190 175 311 391 386 Forestry 30 90 114 115 119 128 135 145 150 181 165 253 Religious Foundations 35 43 47 51 55 64 75 84 102 80 79 101 State Airfields Operations 9 37 44 50 43 51 53 51 56 74 91 100 ) 970 Physical Education 2 35 71 44 58 66 101 127 93 85 113 150 State Farms 3 6 8 9 9 9 9 9 44 21 57 63) Coasts and Frontiers 1 3 4 6 6 7 10 6 5 7 8 10) Petroleum Administration 1 1 1 1 1 2 2 2 2 5 - 3 Universities: Ankara University L 21 59 76 92 11 136 172 109 167 200 208 365 Hacettepe University - - - - - - - 124 200 229 185 303 Istanbul University 23 62 72 71 76 92 104 157 175 211 227 )66 Istanbul Technical University is 31 34 41 39 46 54 52 61 76 70 138 )1,913 Aegean University - 20 29 30 30 35 39 78 97 129 131 210 Economic and Connercial iciences Academies - 24 21 36 Total 1,084 1,903 2,243 2,531 2,884 3,492 4,166 5,273 5,943 6,678 7,861 7,488 10,252 of which: Current 236 395 492 604 678 809 931 1,033 1,242 1,463 1,999 2,260 ... Investment 848 1,508 1,751 1,594 1,817 2,276 2,750 3,580 4,028 4,232 4,638 4,182 ... Transfers - - - 333 389 407 485 659 674 983 1,224 1,045 ... Budget estimates, except total, current, investment and transfers which are actuals. Budget estimates which the 1973 Budget Law reduced by 1 percent or to a total of TL 10,151 million. L Includes expenditures of Racettepe University in 1966 and 1967. Source: Ministry of Finance. Turkish fiscal years begin March 1. Table 5.4: CENTRAL GOVERNMENT EXPENDITURES (Millions of Turkish Liras; fiscal year) 1952 1957 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971L 19724' 1973 General Budget (net) 1 3,207 7,604 9.927 112424 12,130 14,242 16.847 17,403 20,229 6 4 42.913 52.457 Current 1,484 2,752 6,297 7,775 6,430 6,970 7,887 8,863 10,027 10,906 13,435 20,093 21,783 ) Investmnt 412 1,411 2,821 3,951 1,701 1,784 2,293 3,350 2,847 2,903 5,037 3,461 3,476 )61,453 Transfers - - - - 5,402 5,734 7,068 8,076 8,448 11,577 15,180 22,716 24,157 Less: Transfers to Annexed Budgets - 209 - 956 -1,514 -1,799 -2,109 -2,358 -3,006 -3,442 -3,919 -5,157 -5,506 -6,158 -6,513 -8,996 Annexed Budgets 556 1.084 1.903 2.243 2511 2,884 3,492 4.166 5,272 5.944 6,678 7.%1 7,487 10.252 Current 270 236 395 492 604 666 792 929 1,033 1,242 1,463 1,999 2,260 ... Investment 286 848 1,508 1,751 1,594 1,777 2,204 2,750 3,580 4,028 4,232 4,618 4,182 Transfers - - - - 333 441 496 487 659 674 983 1,224 1,045 Total: Consolidated Budget 2243 4.291 9.507 12.170 13.955 15.014 17574 21,01 22.67 267 32.824 4 5 62.709 Current ... 2,911 6,537 8,089 7,034 7,636 8,679 9,792 11,060 12,148 14,700 22,170 24,044 Investment ... 1,380 2,70 4,081 3,295 5,561 4,497 6,100 6,427 6,931 7,000 7,890 7,659 Transfers - - - 3,626 3,817 4,558 5,121 5,188 7,094 10,500 17,300 18,512 fL Breakdown of total consolidated budget consists of preliminary estimates adding up to TL 32,200 million in 1970, TL 47,360 million in 1971 and TL 50,215 million in 1972 . L Budget estimates, which the 1973 Budget Law reduced by 1 percent (except for defense, gendarmerie, security and debt service). Source: Ministry of Finance. Turkish fiscal years begin March 1. - 369 - Table 5.4a: CENTRAL GOVERNMENT TRANSFERS (Millions of Turkish Liras; fiscal year) 1964 1965 1966 1967 1968 1969 1970 1971 Capital Transfers General Budget 250 416 235 370 642 459 1,658 4,312 Annexed Budgets ... ... ... 201 397 332 618 649 Consolidated Budget ... ... ... 571 1,039 791 2,276 4,9C2 Debt Service (interest included) ... ... ... 1,661 2,217 3,048 3,797 6,679 Other Current Transfers General Budget 1,416 1,629 1,814 1,990 1,935 3,074 4,430 5,104 Annexed Budgets ... ... ... 67 86 128 154 248 Consolidated Budget ... ... ... 2,057 2,021 3,202 4,584 5,351 Total Transfers 1 ... ... ... 4,289 5,277 7,041 10,657 16,991 1 The sum of capital transfers, debt service, and other current transfers of the consolidated budget; this sum is not equal to transfers shown in Table 5.4. Source: Ministry of Finance. Turkish fiscal years begin March 1. - 370 - Table 5.5: CENTPAL GOVERNMENT EXPENDITURES: FUNCTIONAL AND ECONOMIC CLASSIFICATION (Millions of Turkish Liras; fiscal year) 1952 1957 1965 1966 1967 1968 1969 L 1970 L. 1971 Z' 1972 L Current Expenditures 5 29 1 l 13,887 14,497 16,91s 19,266 25 34.669 Defense 523 986 3,421 3,864 4,300 4,771 4,878 5,125 7,149 9,024 Agriculture ... ... 421 492 562 529 670 820 1,309 2,045 Education 198 484 1,892 2,243 2,519 2,800 2,932 3,109 4,834 7,715 Health 74 171 536 635 701 761 879 881 1,217 2,100 Transport and Communication ... ... 518 585 615 757 1,168 1,135 1,490 2,124 Interest 115 157 450 568 664 788 1,040 981 1,696 1,844 Other ... ... 2,908 3,205 4,526 4,091 5,348 7,215 7,377 9,817 Capital Expenditures ...0 1.24 4 5,422 6.274 7[337 8 8,704 10,953 13,583 Agriculture ... ... 925 1,142 1,285 1,452 1,891 1,721 1,669 2,484 Education 25 104 721 823 899 1,185 1,428 1,321 1,571 1,697 Health 12 24 104 149 144 153 195 163 193 238 Transport and Communication ... *** 834 1,063 1,450 1,787 1,734 2,258 2,494 2,323 Industry and Power ... ... 723 502 600 809 1,713 1,391 1,502 1,621 Housing ... ... 81 213 234 228 269 197 261 295 Other ... ... 710 1,530 1,662 1,722 1,289 1,653 3,263 4,925 Debt Repayment ... 7 722 855 841 1,236 1,926 2,3 o5,716 Domestic ... ... 286 445 526 507 634 960 933 1,714 Foreign -.. 484 329 33 602 966 1,4g2 02 Total Expenditures 1,811ZI 4,144/ 15,014 17,734 21,016 22,674 26,670 29,896 38,472 51,968 Budget estimates. Budget estimates whtch the 1972 Budget Law reduced by 10 percent (except debt service). Exclude use of counterpart funds. Source: US AID Mission in Ankara, Turkish fiscal years begin March 1. Table .6: FIRANCING OF CEWTRAL GOVERNMENT XPENDITURES (Millions of Turkish Liras; fiscal year) 1952 1957 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1975 Total expenditure (Table 5.4) 2,243 4,291 9,507 12,170 13,955 15,014 17,734 21,013 22,675 26,173 32,24 47,973 50,390 62,709 Tax revenue (Table 5.1) 1,580 3,592 7,518 8,890 9,824 10,911 13,227 15,783 16,883 19,841 23,890 32,594 39,879 48,322 Anneed budget revenue 385 217 389 44 422 526 486 724 T76 669 1,028 1,417 1,511 1,256 Other receipts 3D3 325 1,407 2,603 2,114 2,000 2,868 2,298 2,995 2,616 7,466 7,605 10,142 12,701 of which: (Development bonds- ( - ) ( * , ( - ) ( ) ( 200) ( 400) ( 700) ( 500) ( 500) ( 601) ( 600) ( 800) (4,000) (4,000) (External sources)-) ( 231) ( 147) (1,062) (1,953) (2,024) (1,381) (1,86B) (1,331) (1,319) (1,017) (2,846) (1,547) ( 419) ( 700) (Other) ( 72) ( 178) ( 345) ( 650) ( 110) ( 219) ( 300) ( 467) (1,176) ( 998) (4,020) (5,258) (5,723) (8,001) total budgeted receipts 2,268 4,134 9,314 11,937 12,360 13,437 16,281 18,895 20,654 23,126 32,384 41,616 51,532 62,279 Budget deficit (- = surplus) -25 157 193 233 1,595 1,577 1,153 2,208 2,021 3,047 440 6,357 -1,142 430 1 Budget estimates. Gross receipts from long.term bond sales. Gross receipts from extemal prograst aid. jZ2j!e: Ministry of Finance. Turkish fiscal years begin March 1. - 371 - Table 5.: TREASURY ACCOUNTS (Millions of Turkish Liras; fiscal years) December 1952 1957 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1972 1973 Treasury Position at Years En2 Assets 550 _.J 104 992 IL57 1,511 1 281 1,403 1.746 2.826 5,996 4,rl 6,529 7,785 9.261 Cash and bank deposits 177 392 3Z 4 7593 Advance payments 374 331 649 646 815 776 515 193 813 1,337 4,003 2,611 4,045 4,568 5,912 Li"i1liti.es 628 1.IM 1.8 L-q- k H54 3.678 4.115 4.51l1 5.598 8.514 99 37 15,2 16.430 16319J 15.747 Central Bank advances - 551 - - 51,135 1456 1,937 2,302 2 3, 6,85 7,557 7,340 7,846 Treasury bills and notes 71 197 680 531 729 763 652 686 1,068 938 978 2,240 1,495 2,287 641 Deposit funds 440 538 870 1,027 724 688 1,116 282 1,289 1,77 2,34 3,448 3,807 3,252 5,218 Deferred payments 117 319 433 512 768 1,092 1,291 1,036 939 1,736 3,060 3,164 3,571 3,440 2,042 Net ponition 78 - 806 947 -1,078 -1,586 -2,167 -3,234 -3,108 -3,852 -5,717 -3,980 -10,966 -9,901 -8,534 -6,486 ftsets -64 j5 8 49 1g 0 ~3 2 .80 35170 -1 225 1.758 1.476 Cask and baok 2 qcnits -A1 --T8 --Z 9 293 31 44 123 556 054 -1i 324 132 Advance paymento 24 - 35 105 - 3 169 - 39 261 78 220 524 2,666 - 1,392 1,434 1,344 Liailities so 2.~g ~ 82 _=1 8- 1 4 1..7 2.4 LAU5 1.-161 693 - 572 C-tral B-, advances 622 013 321 *Z47 36 1,590 28 3,021 672 506 Treasury b: 1s and notes - 60 42 341 - 149 198 34 - 111 34 382 - 130 40 1,262 - 745 -1,646 Deposit fund -16 19 19 152 - 303 - 36 428 - 264 437 688 97 1,374 359 1,966 Deferred payments 26 85 - 148 79 256 324 199 - 255 - 97 797 1,324 104 407 -1,398 Nec position -14 -177 - 25 - 131 - 608 - 581 -1,067 126 - 744 -1,865 1,737 -6,986 1,061 2,048 Sconce: Ministry of Finance. Turkish fiscal years begin March 1. Table 5.8: DOMESTIC PUBLIC DEBT (Millions of Turkish Liras) 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Outstanding at Year's End General budget Bonds issued L 737 601 721 1, 032 1,629 2,012 2,378 2,818 3,238 6,286 Consolidated debts L? 7,036 6,995 6,933 7,206 7,161 7,112 7,061 7,340 7,283 7,380 Consolidated municipal debts - - - 1,763 1,663 1,477 1,401 892 2,907 2,488 Savings bonds 1,232 1,756 2,375 2,969 3,994 4,686 5,400 6,244 7,397 7,592 Others /4 1 152 123 120 1 6 1 1 12 130 125 105 Subtotal 9,141 9,504 10,152 13,090 14,583 15,418 16,367 17,424 20,950 23,851 Annexed budgets L 20 19 17 16 14 13 11 9 7 5 State Investment Bank bonds /6 669 991 1,737 2,134 3,031 4,597 5,719 6,776 7,926 8,590 State Economic Enterprises /7 573 658 607 590 559 527 493 548 507 467 Municipal bonds 96 90 85 79 73 67 60 203 192 180 Total 10,499 11,262 12,598 15,909 18,260 20,622 22,650 24,960 29,582 33,093 Changes during Year General budget Bonds issued -136 120 311 597 383 366 440 420 3,048 Consolidated debts - 41 -62 273 - 45 - 49 -51 279 -57 97 Consolidated municipal debts ZI - - 1,763 -100 -186 -76 -509 2,015 -419 Saving bonds 524 619 . 594 1,025 692 714 844 1,153 195 OtherL4An 16 -29 L 16 - 5 - 4 - 5 - 20 Subtotal 33 9 2,938 1,493 835 949 1,057 3,526 2,901 Annexed budgets L -1 - 2 - 1 - 2 - 1 - 2 - 2 - 2 - 2 State Investment Bank bonds L 322 746 397 897 1,566 1,122 1,057 1,150 664 State Economic Enterprises /7 85 -51 -17 - 31 - 32 -34 55 -41 - 40 Municipal bonds - 6 - 5 - 6 - 6 - 6 - 7 143 -11 - 12 Total 763 1,336 3,311 2,351 2,362 2,028 2,310 4,622 3,511 /1 Treasury. 2 Under Laws 154 and 250. Under Law 691. /4 Exchange losses due to Central Bank under Law 65, and excluding 1935 Turkish bonds which are included in external debt. /5 State Waterworks bonds; excluding Treasury guaranteed bonds of State Highways and Monopolies which have maturities of less than one year. 6 Including amortization and credit fund bonds. Agricultural Bank, Real Estate Bank and People's Bank. Source- Ministry of Finance. - 372 - Tzble 5.9: PUBLIC ENTERPRISES. VALUE ADDED. DEPRECIATION. SUBSIDIES AND PROFITS (Millions of Turkish Liras; current prices) 1952 1957 1962 1963 1964 1965 1966 1967 1968 Value added 1,231 2 648 5 30 6 036 6716 7 328 8,751 9 672 11067 Transportation 284 730 1,218 1,367 1,397 1,699 1,975 2,106 2,413 Manufacturing 402 688 1,602 1,840 2,326 2,273 2,770 3,101 3,519 Mining 144 276 596 641 832 904 1,055 1,097 1,207 Electricity - 26 111 146 135 152 179 312 460 State monopolies 307 670 1,319 1,495 1,587 1,759 2,088 2,356 2,736 Ancillary agencies 55 152 266 311 216 283 360 332 382 Agriculture 22 41 75 93 88 97 116 141 134 Construction - 13 30 25 45 50 61 54 60 Services 18 52 88 118 91 111 148 173 156 Value added (1962 prices) 25996 4_874 ilLI 54596 6,102 6,24 7,455 7,653 8.769 Transportation 827 1,460 1,218 1,274 1,209 1,412 1,597 1,591 1,790 Manufacturing 718 1,081 1,405 1,560 2,268 2,276 2,557 2,817 3,315 Mining 416 701 596 613 770 764 847 818 853 Electricity - 46 1141 151 127 145 166 207 305 State monopolies 784 1,155 1,319 1,334 1,317 1,457 1,715 1,675 1,932 Ancillary agencies 139 244 266 292 196 246 303 256 295 Others /2 112 187 193 232 213 224 268 288 279 Depreciation allowances 7 206 562 636 668 709 743 83 954 Transportation 38 92 209 228 232 241 240 277 323 Manufacturing 16 38 212 246 259 282 298 323 361 Mining 15 37 50 66 80 73 77 75 79 Electricity - 13 28 31 33 38 54 77 81 State monopolies 3 5 14 15 16 19 20 21 26 Ancillary agencies 2 15 30 35 32 33 36 39 51 Agriculture 3 5 5 5 10 13 16 18 21 Construction - 1 8 4 2 3 -4 2 4 Services 1 1 7 6 4 7 6 6 7 Subsidies 95 E 269 300 2 296 198 544 Transportation 2 5 65 162 244 222 235 116 399 Manufacturing 11 37 167 83 56 54 62 82 82 Mining 5 54 20 - - - - - - Ancillary agencies - - - - - - - - 63 Services - - 20 24 - - - - - Profits, incl. subsidies (-= losses) 174 3 444 584 865 640 1,100 942 1,460 Transportation 14 66 -87 -42 17 116 198 -126 111 Manufacturing 57 99 188 189 338 108 412 514 702 Mining 35 - 6 92 81 181 176 178 155 87 Electricity - -20 9 47 33 48 42 121 234 State monopolies 30 103 126 147 54 58 39 56 108 Ancillary agencies 21 48 72 75 5 58 106 64 124 Agriculture 9 20 40 53 36 35 44 64 42 Construction - 2 - 2 -1 -2 -3 5 2 1 Services 8 24 7 35 24 44 76 92 49 /1 Differences with current prices figures are not explained. 2 Breakdown is not available. Source: State Institute of Statistics. Note: These series concern the enterprises listed in Table 5.11. Details may not add up to rounding due to rounding. - 373 - Table 5.10: PUBLIC ENTERPRISES. CAPITAL STOCK AND EMPLOYMENT (Millions of Turkish Liras) 1952 1957 1962 1963 1964 1965 L966 1967 1968 Naina ital Stock 2,389 6 191 12,672 13,653 14,745 15,792 16 989 0 118 22, 90 Transportation 1,452 3,136 5,154 5,371 5,677 6,007 6:511 7,260 8,298 Manufacturing 323 1,083 4,038 4,491 5,014 5,366 5,768 6,920 8,007 Mining 362 706 1,142 1,264 1,349 1,477 1,634 1,802 1,967 Electricity - 518 877 966 977 1,067 1,067 1,904 2,070 State monopolies 107 154 351 398 454 514 559 20 734 Ancillary agencies 85 467 791 828 878 910 967 G,0S7 1,199 Agriculture 46 89 152 170 194 227 252 301 382 Construction 1 12 89 80 114 124 126 126 122 Services 12 25 78 86 86 106 106 128 127 Deflated Capital Stock 11,2 15,300 2 20,89 21,243 2 21,967 _9 ransportation 7,880 8,654 10, 061 10,133 10,005 9,963 10,013 10,325 10,841 4anufacturing 1,974 3,010 5,370 5,566 5,670 6,003 6,888 lining 975 1,729 2,024 2,083 2,063 2,029 2,126 2,107 2,160 Clectricity - 261 1,034 1,234 1,243 1,310 1,532 1,932 2,0O tate monopolies 546 626 786 826 838 865 884 921 981 kncillary agencies 268 719 1,242 1,248 1,271 1,267 1,227 1,212 1,219 Sthers 8 186 301 494 445 452 488 515 535 547 Emoloyment (in thousands) 201.: 247.9 280.0 =85.3 309.9 328.0 3.8 15. lLil Transportation 82.5 97.7 100.7 102.9 104.2 105.2 109.6 113.2 119.0 lanufacturing 51.9 61.8 81.1 83.3 88.1 88.6 93.8 96.6 100.0 i4ining 39.1 43.1 48.1 47.1 51.9 55.2 56.7 56.8 57.7 -lectricity - 1.8 2.7 2.4 2.2 2.3 2.4 3.0 3.0 tate monopolies 28.4 31.1 35.2 40.0 39.3 51.5 54,6 31.5 58.2 Ancillary agencies 4.3 9.4 10.1 10.0 11.0 11.8 12.7 12.8 13.0 )thers j 4.0 11.9 15.6 14.8 13.3 13.5 14.1 14.5 14.5 Expenditures on fixed assets at original cost as recorded in years' end balance sheets. 2 Net of depreciation for wear and tear and deflated for price changes. Breakdown is not available. Soirce: State Institute of Statistics. Ntce: These series concern the enterprises listed in Table 5.11. Details may not add up to totals due to rounding. - 374 - Table 5.11: LIST OF PUBLIC ENTERPRISES Transportation and communication 1. State Railways (1924) 2. State Seaways (1954) 5. State Airways (1955) 4. State Postal; Telegraph and Telephone Services (1933) Manufacturing 1. Heavy industry includes Machine and Chemical Industries (1950), Iron and Steel Works (1959), and Istanbul Oil Refinery (1960) 2. Food processing includes six companies (1925, etc.) 3. Textiles includes 20 companies or factories (1950, etc.) 4. Other manufacturing includes 18 companies (1958, etc.) Mining 1. Coal industry includes several companies (1959, etc.) 2. Copper includes three Etibank companies (1959, etc.) 3. Other mining includes six Etibank companies (1954, etc.) and Turkish Petroleum Company (1954) State monopolies General Directorate of Monopolies (1932) Ancillary agencies 1. Soils Products Office (1938) 2. Meat and Fish Organization (1955) 3. State Supplies Office (1954) 4. Petroleum Office (1946) 5. National Lottery (1959) 6. Press Advertising Agency (1962) 7. Domestic Products Trade Co. (1958-61) Other public enterprises 1. Agriculture includes state farms (1925, etc.) and a Lamb Raising and Trade Co. (1958) 2. Construction includes seven companies (1949, etc.) 5. Services include 16 companies (1939, etc.) Note: This list does not cover exactly the same enterprises as those shown in the tables of the Ministry of Finance (5.12 through 5.16) because it includes enterprises such as the state monopolies which are part of the central budget. Further, it gives detailed rather than con- solidated accounts for the 52 Sumerbank subsidiaries and the 14 Etibank subsidiaries. The dates operations began for an enterprise or a group of enterprises are shown between brackets. Source: State Institute of Statistics. - 375 - Table 5.12: FIED INVESTHENT BY STATE ECONOMIC ENTERPRISES (SEEs) (Millions of Turkish Liras) 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 Trish Sector an _j66 56 86 6 86 154 15 157 125 151 25 56 Turkish Sugar Company 72 12 43 52 5.5 43 * 7 64 37 57 7 1D0 178 Soil Products Office 13 20 6 10 12 8 10 8 16 16 2 7 24 18 Yeat and Fish 13 3 5 7 9 3 5 19 27 60 44 36 49 173 Agricultural Supply Office - - 2 3 9 4 6 9 14 9 2 9 10 20 Milk Industry - - - 1 5 17 35 19 2 2 7 45 72 Wool and Mohair - - - - - - - - - - 1 - 1 - Feed Industry - - - - - 1 17 13 17 10 6 15 Mining and Power 85 58 118 20 36 1.4 a 036 2.14 2,876 2.714 Etibank 510 ) 2) 4) 1,047 ) 706 979 1,293 937 TEK ) ) ) ) 1,330 1,164 1,583 1,777 Coal, Petroleum and Steel 258 1 1 3 426 691 2 685 _L 1.070 2.257 4.244 5.128 coal corporation _7- - F33 1W -9 103 119 18 110 18 175 258 277 471 50 Iron and Steel 138 110 185 191 172 138 100 110 95 108 269 902 2,479 2,695 Petroleum Company 49 68 74 87 137 364 432 230 215 457 713 669 597 835 Petzoleum Office 5 2 6 14 14 25 40 57 37 39 29 29 69 104 Petrochemical - - - - 45 132 178 238 291 298 380 624 844 Mianufs rina ; 3 292 2" 2 -'e9 48 859 l 8 67T 06 1212 Somerbank 41 43 120 193 140 99 181 182 192 149 139 124 167 299 Turkish Cement 45 29 21 33 70 59 74 89 147 103 99 77 ) 102 ) 118 Ankara Cement - - 5 10 5 5 27 38 - 4 2 ) ) Nitrogen 125 136 13 4 3 10 123 259 196 142 91 59 155 260 Machinery and Chemical 69 69 76 14 46 45 48 47 61 44 65 165 160 400 Pulp and Paper 38 40 47 30 20 14 61 124 251 621 465 250 119 134 State Supply Office 2 8 5 8 6 11 12 9 12 7 3 2 3 1 Transport and Comunication 7 6 5 5 1 430 685 1 790 900 7 1.432 2.370 2.732 Turkish Airlines 34 16 7 5 4 7 9 28 71 95 55 305 794 330 Maritime Bank 98 110 86 80 88 62 75 35 48 67 79 90 90 253 Maritime Bank Cargo Lines - - 3 - 5 2 20 32 38 103 238 316 381 410 State Railways 122 14 206 141 187 265 432 269 390 392 344 403 542 825 Post, Telephone, Telegram 25 25 57 128 110 79 117 150 214 207 323 283 450 663 Turkish Radio and Televisici - - - - - 15 30 30 15 18 16 28 113 240 Tourism Bank - - - - 14 - 2 7 14 18 17 7 - 11 Total Operational SEEs 1.039 899 1 193 L31 1.514 1 795 L 250 322 4 224 5 662 6 659 10,430 12,362 Financial SEEs 222 215 180 192 201 221 4 0 629 676 512 586 710 241 Provinces Bank ) - - - - 265 32 440 447 7 447 493 ---7 Social Security Institution ) ) 50 35 45 74 66 114 97 117 97 102 104 31 Pension Fund )321 )146 43 67 98 54 64 62 48 27 23 19 24 46 Bank of Pious Foundations ) ) * - * - - - - 4 - - 9 People's tank ) ) - - - 1 3 7 4 1 1 - 8 6 Agricultural Bank ) ) - 18 10 24 30 24 38 25 22 11 65 28 Real Estate Bank ) ) 44 56 5 4 2 - 2 59 1 2 10 15 State Investment Bank ) ) 20 10 - - - - - - 3 5 6 - Total SEEs 1.582 1.260 1.530 1.691 1.887 2 173 7 3 3 8 6.173 7.245 114 12.603 Ll Program estimates. Surrrce: Ministry of Finance. - 376 - Table 5.13: FINANCING OF OPERATIONAL SEEs INVESTMENT (Millions of Turkish Liras) 1963 1964 1965 1966 1967 1965 1969 [970 1971 1972 L 1973 L Fixed investment 1,313 1,514 1,795 2,657 2,520 3,222 4,224 5,662 6,659 10,450 12,362 Changes in stocks ... 2017 45 890 815 99 - 412 1,453 3,697 523 580 Participations ... ... ... ... ... ... 40 550 367 537 307 Total investment 1,313 1,721 1,840 3,527 5,335 5,321 3,852 7,645 10,723 11,490 13,249 Financed by: Own resources 384 640 769 871 1 294 1,326 1,298 904 2 2,819 3,756 After-tax profit -223 - 34 42 88 376 288 144 - 971 570 558 947 Depreciation 607 674 727 783 918 1,038 1,154 1,456 1,802 2,261 2,809 Other /3 - - - - - - - 419 357 - - State Investment Bank (net) 172 456 452 588 1 1.0 1,276 1,534 - 26 16 2,659 Disbursements 583 747 723 927 1,972 2,231 3,057 2,541 1,402 2,109 4,150 Repayments -411 -291 -271 -339 -958 -1,050 -1,781 -1,007 -1,658 -2,093 -1,491 External loans (net) 22 9 - 68 - 16 - 40 288 817 2.310 1 2,534 2.574 Disbursements 4 496 204 227 209 150 457 944 2,607 2,067 3,314 3,596 Repayments -268 -195 -295 -225 -190 - 169 - 127 - 297 -843 - 780 -1,022 General budget transfers 380 645 726 721 613 807 1,476 1,619 3,527 6,661 6,000 Other sources L 149 - 29 - 39 1,363 454 - 501 -1,015 1,278 3,479 - 540 -1,740 /i Provisional estimates. 2 Program estimates. Accretions to various reserves, 4 Include counterpart funds until 1966. 5_ Mainly short-term borrowing. Source: Ministry of Finance. Note: Figures for 1963-68 are based on incomplete information and are therefore not strictly comparable to 1969-73 figures. - 377 - Table 5.14: CENTRAL GOVERNMENT CONTRIBUTIONS TO SEEs (Millions of Turkish Liras) 1969 1970 1971 1972 CAPITAL PARTICIPATIONS 55)7 24 4987 SUmerbank 200 114 36 )9 Mech. and Che. Ind. - - 120 -84 T. Cement Ind. - 31 124 202 Iron and Steel Mill - 71 187 465 Paper and Pulp - 27 1.45 10 Etibank - - 250 460 TEK - 50 - Petroleum Office - - 45 35 Milk Industry 10 25 55 1 Maritime Bank - 17 286 MB Cargo Lines - - 59 State Railways - - 256 Turkish Airlines - 17 52 Peoples Bank 22 25 15 27 TRT - 26 42 46 Coal Mines 196 54 - 297 Petroleum Corp. 78 100 - )5C Nitrogen Ind. - - 27b Tourism Bank- 7 - 15 11 Meat and Fish - - 80 PPT - 100 115 Agricultural Bank 25 - - Real Estate Bank - - 9 LOSS SUBSIDIES -596 52 Mech. and Chem. Ind. - 86 57 SUmerbank - 43 19 Etibank - - -5 Coal Mines - 30 410 Nitrogen Ind. - 100 38 100 Meat and Fish - 32 4 - MB Cargo Lines - 5 s 50 Maritime Bank - 4 2 20 State Railways - 75 52 54 Tourism Bank - 2 5 2 Real Estate Bank - - - - Peoples Bank - - Sugar Corp. -- -- Agr. Supply Office - 1 5 Agricultural Bank - - 5 Source: Ministry of Finance. - 378 - Table 5. 14: CENTcr G,R T CEKMIBTIONS T Es (ont d) 1569 1970 971 1972 DEFICIT SUBSIDIES 100 789 1 112 648 Provincial Bank 139 140 227 125 State Railways 677 649 885 56 Maritime Bank 13 - 7 Coal Mines 83 - - Mech. and Che. Ind. 40 - - Nitrogen Ind. 40 - - Meat and Fish 28 - - Sugar Corp. - LOAN DISBURSEMENTS 112 - Provincial Bank - - Nitrogen Bank - 82 219 - Cement Ind. - 0 State Railways - Etibank MB Cargo Lines 24 - Petroleum Office 10 - Meat and Fish 257 TOTAL i,660 784 , 5,960 Source: Ministry c' n Table 5.15: NET PROFITS AFTER DIRECT TAXES CF OPERATIONAL SEEs (Millions of Turkish Liras) 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 L972 l 1973 2 Agricultural Sector -65 12 16 4 28 102 3 15 44 149 2 - 5 10 116 Turkish Sugar Co. 27 27 17 17 19 43 -75 47 27 38 43 _7 61 79 Soil Products Office -42 - 3 - 3 - 48 - 54 - 1 - 58 1 53 23 - 23 -250 - 8 Meat and Fish Organiz.tion -49 - 12 - 5 46 48 36 9 - 20 0 39 - 69 - 53 -119 34 Agricultural Supply 0 fice ... ... 7 27 14 22 31 45 16 25 23 - 23 1 11 Milk Industry .. ... - - - - - 0 - 5 - 12 - 17 15 8 7 Wool and Mohair ... .. - - - - 1 0 2 3 - 1 1 3 5 Feed Industry ... ... - - - 1 2 1 3 3 0 2 2 2 Mining and Power 119 49 38 54 229 166 7 69 250 322 247 460 692 570 Etibank 114 7 38 54 229 174 369 250 322 100 195 132 154 TEK ... ... - - - - - - - 147 265 560 416 Coal. Petroleum and Steel 125 4 105 97 13 4 216 231 52 380 629 646 574 Turkish Coal Corp. ... ... ... .. .. .. -100 -7 -109 6 -250 -71 1727 -325 Turkish Iron and Steel Mills Corp. 120 31 25 43 81 114 75 395 319 327 197 Turkish Petroleum Co. 56 s6 60 63 62 43 58 149 180 216 253 443 382 626 Petroleum Office 35 25 -8 7 -1 -3 0 5 41 31 - 10 25 31 Is Petrochemical Industr, - - - - - - 0 0 5 -6 -8 87 34 61 1janufacturing 58 - 3 20 17 27 48 124 195 254 156 -109 190 215 173 Sumerbank - 19 - 44 5 3 -21 -77 50 2- 1T31 7 -53 -7 _75 53 37 Turkish Cement Industry Co. 13 - 10 14 15 17 17 12 31 39 - 5 - 14 6 14 13 Ankara Cement Co. ... ... ... ... 3 0 16 4 - 6 . * ;* Nitrogen industry Co. - 1 - 2 -81 - 59 - 51 - 50 - 41 - 48 -4 - 51 -109 1 11 2 Machinery and Chemical Industry Co. 12 9 23 6 6 16 34 38 89 48 16 45 42 27 Pulp and Paper Factortes 43 14 8 20 29 4 29 28 62 92 - 9 33 74 46 State Supply Office 10 4 3 14 11 11 25 15 29 15 20 32 21 25 Transport and Communication -116 -226 -333 -442 -415 -261 -180 -421 -491 807 -1,491 -704 -685 -484 Turkish Airlines -15 -22 - 2 2 18 -7 -9 -5 -11 11 10 23 51 l1 Maritime Bank 36 15 2 - 37 - 23 - 29 0 - 14 - 64 -142 -104 75 -144 -168 Maritime Bank Cargo Lines - - - 44 - 7 - - 3 15 - 13 - 9 -32 6 3 - 4 54 Mtate Railways -158 -221 -303 -396 -413 -262 -256 -46 -480 -76 -991 -74 88 -749 Post, Telephone, Telegram 20 2 14 25 39 40 70 74 76 55 -399 124 261 222 Turkish Radio and Television Co. - - - - - - - 5 - 3 11 - 8 22 61 20 Tourism Bank - - - - - 17 - 2 4 Total 121 -111 -222 -223 - 42 88 376 288 144 971 570 558 947 of which: Profits 279 203 224 345 526 396 569 1,009 1,015 1,098 1,036 1,634 2,131 2,204 Losses -158 -314 -446 -568 -560 -354 -481 -633 -727 -954 -2,007 -1,064 -1,573 -1,257 L Provisional estimates, L2 Program estimates. Source: Ministry of Finance. Note: Figures for 1960-65 are based on incomplete information. - 380 - Table 5.16: NET P,OFITS BEOEN DI ECT TAES OF OPERATIONAL SEES (Millions of Turkish Liras) 1960 1961 1962 1965 1964 1965 1966 1967 1968 1969 1970 1971 1972 <ý 1973 ii ujcurao Sector 93 - 30 9 49 60 126 115 40 73 169 3 32 -290 136 ura_ eCo. 30 31 24 24 48 56 54 61 54 56 61 76 80 98 Prod.ets Of.ie -12 3 3 -48 -54 - 1 58 1 53 29 4 -250 -8 S-g' ird Fish Orgaiatic o -111 58 12 46 48 46 25 12 0 39 - 66 - 53 -119 34 ,aran i PsOr Offr - - - - 27 18 23 32 47 16 25 23 23 1 11 cr tr - - - - - - 0 0 - 5 - 12 - 17 -15 - 8 -7 utr y - - - - 1 0 3 4 0 2 4 6 -d r 1,. hir - - 2 1 4 4 1 3 2 2 ard Power 55 88 '79 9( 253 246 273 453 381 460 380 517 900 887 n ,,ank Poe 273 453 381 460 233 224 213 231 E.n ••. ••. .•• • - - - 147 293 687 656 Petroleum and Steel 82 134 131 166 141 31 34 256 296 412 455 707 824 871 Coal Corp. -86 -20 -31 30 39 -52 -90 1 -104 14 -241 71 -142 -325 T Týiý ron and Steel M1I1o Carp, 87 64 68 43 22 25 51 102 148 128 49 390 48e5 350 Turkish Petrol e Co. 52 7 4 72 76 74 55 65 152 202 235 275 450 416 764 Petroleum Office 19 26 22 17 6 3 8 1 45 41 - 10 25 31 21 t-ochemicaIndustry - - - - - - 0 0 5 - 6 8 87 34 61 105 21 83 89 89 10 174 288 352 250 -26 259 378 341 60 81 5 38 81 167 110 t7 -=7 99 122 108 nebEnK -40 _7 14 5 28212 Turkish Cement Industry to 1 5 16 17 21 15 19 39 83 14 - 5 2 22 27 An aceeot Co. - - - 3 2 5 4 1 16 8 - 5 8 11 25 'nar g e mnd-t' Co . - · - 2 -69 - 58 -51 - 50 - 41 - 48 - 46 - 51 -109 54 65 51 r:.inery and Chemical Irdustry Co. 23 15 29 25 21 31 43 60 101 67 39 59 123 95 arad Paer Factories 32 26 16 32 41 21 38 44 80 117 30 .*. •. 5ea e Supply Office 10 10 10 17 17 15 30 25 37 28 29 ... 35 35 'rugnortation and Communicanion -116 - -312 -406 -382 -244 -147 379 449 768 -1458 702 672 399 runish Airlines -15 -21 -2 - 28 - 18 -7 2 5 - 11 11 12 25 37 144 Naritime Bank 36 15 2 - 37 - 23 -29 0 -14 - 64- -142 -104 -75 -144 -168 Vor1- imre Bank CargoLineiz -20 -20 -41 - 7 - -3 15 -13 - 9 - 32 6 3 - 4 54 raite Railways -150 -222 -292 -66 -390 -261 256 -468 480 687 -991 -784 -888 -749 Post, Telephone, Telegraoh 33 12 21 32 49 56 92 106 112 75 -372 124 251 273 Turkish Radio and Television - - - - - - - 15 4 11 - 4 22 68 43 Tourism Bank - - - - - - •4• ••• 4-7 "tal 3 77 -10 -5 161 262 449 658 653 523 - 813 1.140 1,836 Treet Taxes Paid ... ... 210 218 196 220 361 282 365 379 354 242 582 889 Net roit after Taxes ... ... -220 -223 - 35 42 88 376 288 144 -971 571 558 947 irogram estimates. Ministry of Finance. F- igures for 1960-65 5re based on Incomplete information. - 381 - Table 5.17: STATE INVESTMENT BANK ACCOUNTS (Millions of Turkish Liras) 1963 1964 1965 1966 1967 1968 1969 1.970 1971 1972 1973 Receipts Sale of bonds to: Social Security Fund 216 290 530 797 794 1,035 1,373 1,080 737 1,114 1,123 Pension Fund 245 175 205 37 236 281 144 148 82 137 185 Others - - 20 15 10 2 - 2 4 23 513 Receipts from SEE's: Loan repayments 344 212 131 173 993 942 1,691 1,244 1,682 2,658 2,177 Interest payments /2 66 86 493 479 557 L2 , 1 L Other receipts 24 153 51 250 255 795 173 1,401 1,902 1,689 1,916 Total receipts 829 830 1,003 1,358 2,781 3,534 3,938 3,875 4,407 5,621 5,914 Payments Loan disbursements 672 499 723 955 2,095 2,284 3,248 2,875 2,696 2,259 4,300 Debt service payments 84 83 188 226 387 409 470 553 744 823 921 Other payments 73 248 92 177 299 841 220 447 967 2,539 693 Total payments 829 830 1,003 1,358 2,781 3,534 3,938 3,875 4,407 5,621 5,914 1 Program estimates. 2 Included in loan repayments. Source: Ministry of FLnance. Table 5.18: SOCIAL SECURITY FUND ACCOUNTS (Millions of Turkish Liras) 1950 1955 1960 1965 1966 1967 1968 1969 1970 1971 1972 Receipts Payments to Fund 25 127 485 1,082 1,273 1,523 1,947 2,439 2,817 3,236 4,000 Interest receipts 1 8 37 131 214 221 232 339 408 470 551 Other current receipts 1 8 44 89 290 184 212 285 264 436 487 Total receipts (= layments) 27 143 566 1,302 1,777 1,928 2,391 3,063 3,489 4,142 5,038 Payments Social security payments 7 44 226 434 546 660 796 980 1,598 2,119 2,524 SIB bonds purchases 1 34 63 533 797 794 1,035 1,373 1,080 711 1,114 Other payments 19 65 277 261 434 474 560 710 811 1,312 1,400 Source: Ministry of Flaance. - 382 - Table 5.19: PENSION rUND ACCOUNTS (Millioi cf Turkish Liras) 1950 1955 1960 1965 1966 1967 1968 1969 1970 1971 Receipts Payments to Fund 331 164 459 721 763 813 897 1,467 1,694 4,337 4,488 Interest 14 63 93 172 182 198 227 247 264 306 370 Other current receipts - 2 18 23 30 45 58 88 68 81 iC7 Total receipts (= paymen-s 345 229 570 916 975 ,056 1,182 1,802 2,026 4,394 4 9C5 Pay"ents Social security paymeats 11 69 207 497 549 595 653 1,147 1,346 2,651 4,083 Operating axpenditures 2 4 11 20 26 38 44 76 42 48 Financial investments SIB bonds purchases - 10 20 100 23 219 266 139 138 45 Other investments 68 115 77 145 101 216 88 68 203 165 7 Fixed investment - 24 98 82 54 63 19 87 4 6 Other payments 264 7 157 72 222 -75 132 285 293 4 ¯5 8 Sourcei Ministry of Fitance -73- Table 5.20: PROVINCIAL GOVERNMENTS ACCOUNTS (Millions of Turkish Liras) 1965 1966 1967 1968 1969 1970L 1971/1 1972/1 Current expenditures 256 268 287 333 364 311 465 531 Personnel 159 7 181 215 245 220 378 411 Other 97 101 106 118 119 1 87 120 Investment expenditures _14 40 454 582 502 179 143 206 Studies 3 5 4 4 4 1 1 1 Construction 317 400 421 549 467 159 131 184 Equipment 23 25 29 29 31 19 12 21 Capital formation and transfers 96 112 125 149 160 133 166 197 Participation 5 7 5 7 2 2 9 Fixed assets purchases 9 18 11 21 14 13 8 17 Transfers /2 62 65 77 82 94 87 99 115 Debt service payments 20 23 32 40 50 31 53 56 Total expenditures 695 810 866 1,064 1,026 623 774 934 of which: Istanbul 88 117 160 163 182 182 221 254 Ankara 53 61 63 83 93 90 110 162 Izmir 35 40 49 51 54 45 61 63 Other provinces 519 592 594 767 697 306 382 455 Tax revenue 310 359 381 _439 408 546 706 880 Income and wealth taxes 250 292 327 371 390 488 613 798 Expenditure taxes 55 61 48 60 10 49 83 71 Other taxes 5 6 6 8 8 9 10 11 Non-tax receipts 396 483 _47 _39 555 77 68 54 Profits and dividends 8 4 4 4 5 4 4 5 Properties revenue 34 38 39 46 45 48 36 28 Fines and miscellaneous 244 325 284 381 275 24 23 15 Special funds 107 116 140 208 230 - 6 5 Total receipts 706 842 848 1,078 963 623 774 934 1 Budget estimates which are not comparable to final accounts because transfers from central budget mainly for investrLent are excluded. 2 More than half are financial transfers and about 40 percent social transfers. Source: State Institute of Statistics. - 384 - Table 5.21: MUNICIPAL GOVERNMENTS ACCOUNTS (Millions of Turkish Liras) 1965 1966 1967 1968 1969/ 1970 1971/L Current expenditures 635 735 872 1.013 1341 1LLI 2,151 Personnel 400 452 530 635 841 937 1,495 Other 235 283 342 378 500 576 656 Investment expenditures 222 276 -31 17 567 619 789 Studies 10 13 16 20 22 25 24 Construction 175 225 268 258 471 530 674 Equipment 36 39 47 40 74 64 91 Capital formation and transfers 258 248 __124 370 550 655 6_7 Participations 3 2 4 3 8 7 7 Fixed assets purchases 45 68 92 89 150 146 145 Transfers /2 138 89 123 149 205 219 244 Debt service payments 102 89 105 129 187 283 281 Total expenditures 1,115 1,259 1,527 1,700 2,458 2,786 3,618 of which: Istanbul 319 339 427 467 730 903 1,277 Ankara 119 145 152 167 254 288 339 Izmir 72 79 93 97 137 150 195 Other provinces 605 696 855 969 1,337 1,445 1,807 Tax revenue 644 694 794 849 1L066 1,131 1.362 Income and wealth taxes 173 175 235 251 312 350 460 Expenditure taxes 173 186 207 201 265 226 259 Other taxes 297 333 353 397 489 555 642 Non-tax receipts 513 709 695 895 1.392 1 Profits and dividends 182 275 236 334 408 464 467 Property revenue 118 175 175 195 647 837 1,340 Miscellaneous and fines 173 225 246 265 279 303 391 Special funds 39 34 36 40 58 51 58 Total receipts 1,157 1,403 1,487 1,684 2,458 2,786 3,618 1 Budget estimates which on average tend to be about 20 percent higher than final accounts. 2 About 75 percent are financial transfers and 23 percent social transfers. Source: State Institute of Statistics. - 385 - Table 5.22: VILLAGE GOVERNMENTS ACCOUNTS (Million of Turkish Liras) 1965 1966 1967 1968 1969 1970 1971 Total expenditures 18 19 218 244 267 272 284 General administration 60 63 71 71 78 79 90 Agricultural and economic services 10 12 13 12 16 15 17 Cultural services 16 18 18 17 18 21 20 Health and public welfare 14 17 19 21 24 25 24 Public works 65 64 72 89 93 92 93 Others 20 22 24 33 37 37 40 Aid to soldiers' dependents 1 1 1 1 1 3 1 Total revenues 212 22 249 2 292 305 J16 Village tax 57 59 64 62 63 68 75 Cooperative activity 63 65 70 73 81 82 84 Duties and fees 82 91 102 122 133 143 141 Aid to soldiers' dependents 1 1 1 1 1 1 1 Outstanding taxes 9 11 13 13 15 12 15 Source: State Institute of Statistics. Table 5.23: FINANCING OF PUBLIC EXPENDITURES, 1962-67 (Millions of Turkish Liras) Total 1962 1963 1964 1965 1966 1967 1953-67 Expenditures Current and transfers 8,076 9,874 10,741 11,855 13,289 15,025 60,784 Investment 3,689 4,754 5,427 6,080 7,855 9,004 33,120 Total 11,765 14,628 16,168 17,935 21,144 24,029 93,904 Receipts Tax revenue 7,025 8,538 9,417 10,427 12,588 15,029 55,999 Other public revenues 822 1,144 1,119 1,130 1,186 1,614 6,193 Savings bonds 404 475 543 637 770 910 3,335 SEE's own resources 818 887 1,000 1,146 1,943 2,297 7,273 Local Gov'ts revenues 1,270 1,355 1,588 1,632 1,809 2,144 8,528 External resources l 1,254 2,106 1,490 1,479 1,477 1,408 7,960 Miscellaneous 118 204 430 622 855 823 2,934 Total 11,711 14,709 15,587 17,073 20,628 24,225 92,222 Deficit (-= surplus) 54 -81 581 862 516 -196 1,682 l TL counterpart funds and proceeds from project loans. Source: State Planning Organization. - 386 - Table 5.24: FINANCING OF PUBLIC EXPENDITURES, 1968-72 (Millions of Turkish Liras) Total 1968 1969 1970 1971 1972-/' 1968-72 Expenditures Current 12,422 15,678 16,820 24,912 28,650 96,482 Investment 11,156 12,765 14,442 18,875 21,777 79,015 Transfers 4,755 5,759 9,261 15,461 12,654 45,888 Total 28,331 32,200 40,525 58,248 65,081 221,585 Receipts Tax revenue 16,439 19,400 23,093 33,632 39,900 132,464 Non-tax revenue 2,240 2,147 5,515 6,417 5,800 21,917 Domestic borrowing 514 610 600 800 2,500 5,024 Other receipts 7,873 8,089 11,677 11,669 11,126 50,454 Total 27,066 30,246 40,685 52,518 59,526 209,859 L 1973 Program estimates. Source: State Planning Organization. - 387 - Table 5.25: FINANCIAL BALANCE OF PUBLIC SECTOR (Millions of Turkish Liras; 1971 prices) % Annual Total Increase 1972 1973 L 1973 1974 1975 1976 1977 1973-77 1972-77 Tax revenue 39,226 45,857 43, 080 47, 480 53,250 59,837 67,253 270,900 11,4 Non-tax revenue 5,262 6,205 2,500 2,624 2,892 3,220 3,510 14,746 - 8.2 Factor income 8,947 10,169 10,303 12,914 14,823 16,188 18,170 72,398 15.2 Social funds 1,449 547 942 951 85 - 678 - 1,963 - 663 - Less: Current transfers - 4,934 - 4,552 - 3,485 - 3,609 - 3,745 - 3,892 - 4,020 - 18,751 - 4.2 Interest on external loans - 743 - 1,080 - 1,020 - 960 - 865 - 815 - 790 - 4,450 1.2 Disposable income 49,207 57,146 52,320 59,400 66,440 73,860 82,160 334,180 10.8 Less: Current expenditures -29,400 -33,800 -31,300 -33,700 -36,400 -39,400 -42,700 -183,500 7.8 Saving 19,807 23,346 21,020 25,700 30,040 34,460 39,460 150,680 14.8 Investment: Fixed investment -21,400 -26,425 -25,180 -28,240 -31,530 -35,000 -38,510 -158,460 12.5 Stock increases - 377 - 575 - 500 - 600 - 750 - 900 - 1,050 - 3,800 22.8 Capital transfers: Wealth taxes 1,850 2,350 1,375 1,550 1,700 1,900 2,100 8,625 2.6 Other transfers - 2,603 - 2,893 - 283 - 491 - 708 - 699 - 265 - 2,446 - Purchase of fixed assets - 1,186 - 1,297 - 1,200 - 1,290 - 1,394 - 1,496 - 1,616 - 6,996 - Overall deficit (-= surplus) 3,909 5,494 4,768 3,371 2,642 1,735 - 119 12,397 - Net use of cash and bank credit - 1,332 422 - 84 - 885 - 1,021 - 1,046 - 1,770 - 4,806 - Net external borrowing 468 1,931 812 616 266 56 - 210 1,540 - Net domestic borrowing 1,048 2,221 - 1,078 - 1,086 - 1,112 - 1,354 - 1,394 - 6,024 - Additional financing required 3,725 920 5,118 4,726 4,509 4,079 5,255 21,687 - 1 1973 Program estimate. 2 1973 Program estimate at 1972 prices, Source: Third Five-Year Plan and 1973 Program. - 388 - Table 5.26: FINANCIAL BALANCE OF CENTRAL GOVERNMENT (Millions of Turkish Liras; 1971 prices) % Annual 1 Total Increase 1972 /1 1973L2 1973 1974 1975 1976 1977 1973-77 1973-77 Tax revenue 37,550 44,150 41,380 46,050 51,905 58,315 65,560 263,210 11.8 Non-tax revenue 5,300 5,930 2,320 2,400 2,500 2,750 3,000 12,970 -12.0 Factor income 3,750 3,525 2,195 2,309 2,580 2,723 2,890 12,695 - 5.3 Less: Current transfers - 5,520 - 5,000 - 3,815 - 3,910 - 4,050 - 4,195 - 4,330 - 20,300 - 5.0 Interest on external loans - 743 - 1,080 - 1,020 - 960 - 865 - 815 - 790 - 4,450 1.2 Disposable income 40,337 47,525 41,053 45,889 52,070 58,778 66,330 264,125 10.4 Less: Current expen6itures -26,500 -30,800 -28,200 -30,450 -32,900 -35,600 -38,600 -165,750 7.8 Saving 13,837 16,725 12,858 15,439 19,170 23,178 27,730 98,375 14.9 Fixed investment - 9,395iL-12,725 -10,960 -12,170 -13,890 -16,140 -18,610 - 71,770 14.6 Capital transfers: (a) Wealth taxes 1,850 2,350 1,375 1,550 1,700 1,900 2,100 8,625 2.6 (b) Other transfers - 8,237 - 7,920 - 6,115 - 7,431 - 8,994 -10,282 -11,342 - 44,164 6.6 (c) Purchase of fixed assets - 1,038 - 1,175 - 1,060 - 1,165 - 1,280 - 1,410 - 1,550 - 6,465 8.4 Overall deficit (-= surplus) 2,983 2,745 3,902 3,777 3,294 2,754 1,672 15,399 -12.0 Financed by: Net use of cash and bank credit - - - - - 120 - 373 - 540 - 1,033 Net external borrowing - 1,575 - 525 - 927 - 160 14 188 119 - 766 Net domestic borrowing 804 2,350 - 289 - 789 - 1,109 - 1,140 - 1,162 - 4,489 Other unspecified 3,755 920 5,118 4,726 4,509 4,079 3,255 21,687 /1 1973 Program estimate. 2 1973 Program estimate at 1972 prices. ' Includes TL 30 million for stock increase. Source: Third Five-Year Plan and 1973 Program. Table 5.27: FINANCIAL BALiNCE OF LOCAL GOVERNMENTS (Millions of Turkish Liras; 1971 prices) 1972 /1 197- 1973 1974 1975 1976 1977 Total %Annual Increase Tax revenue 2,350 2,650 2,600 2,750 3,100 3,500 3,900 15,850 10.6 Non-tax revenue 500 600 490 520 570 650 700 2,930 7.0 Factor income 700 850 890 920 1,000 1,150 1,250 5,210 12.3 Less: Current transfers - - - 165 - 209 - 220 - 237 - 250 - 1,081 - Disposable income 3,550 4,100 3,815 3,981 4,450 5,063 5,600 22,909 9.5 Less: Current expenditures -2,900 -3,000 -3,100 -3,250 -3,500 -3,800 -4,100 -17,750 7.2 Saving 650 1,100 715 731 950 1,263 1,500 5,159 18.2 Plus: Transfers 112 - 135 179 40 - 203 - 340 - 189 - Fixed investment 762 1,100 850 910 990 1,060 1,160 4,970 8.8 1 1973 Program estimate. 2 1973 Program estimate at 1972 prices. Source: Third Five-Year Plan and 1973 Program. - 389 - Table 5.28: FINANCIAL BALANCE OF PRODUCING SEEs (Millions of Turkish Liras; 1971 prices) 1972 1973 1973 1974 1975 1976 1977 Total Annual Increase Factor income 3,276 4,323 6,000 8,125 9,415 10,425 12,040 46,005 29.7 Current transfers 405 448 495 510 525 540 560 2,630 - Less: Tax payments - 659 - 889 - 81s -1,160 -1,600 -1,820 -2,050 -7,445 25.4 Profit remittances - 498 - 316 - 150 - 160 - 170 - 180 - 190 - 850 Disposable income = saving 2,524 3,571 5,530 7,315 8,170 8,965 10,360 40,340 32.6 Fixed investment -10,598 -12,363 -13,155 -14,927 -16,335 -17,436 -18,284 -80,137 11.5 Stock changes - 347 - 575 - 500 - 600 - 750 - 900 -1,050 -3,800 25.0 Capital transfers 6,301 5,619 8,449 10,100 11,068 12,050 12,596 54,263 Purchase of fixed assets - 30 - 54 - 14 - 5 4 15 37 37 Overall deficit (-= surplus) 2,150 3,802 - 310 -1,883 -2,157 -2,694 -3,659 -10,703 Net use of cash and bank credit - 500 540 33 - 781 - 788 - 550 -1,089 -3,175 Net external borrowing 2,544 2,574 1,739 776 252 - 132 - 329 2,306 Net domestic borrowing 136 688 -2,082 -1,878 -1,621 -2,012 -2,241 -9,834 1 1973 Program estimate. 2 1973 Program estimste at 1972 prices. Source: Third Five-Year Plan and 1973 Program. Table 5.29: FINANCIAL BALANCE OF FINANCIAL SEEs (Millions of Turkish Liras; 1971 prices) 1973-77 1972 L1 1973 1973 1974 1975 1976 1977 Total % Annual Increase Factor income 1,221 1,466 1,220 1,560 1,828 1,890 1,990 8,488 10.2 Social funds 1,449 547 942 951 85 - 678 -1,963 - 663 - Less: Tax payments - 15 - 54 - 85 - 160 - 155 - 158 - 157 - 715 - Profit remittances - 40 - 9 - 160 - 136 - 8 - - - 304 - Disposable income = saving 2,796 1,950 1,91T 2,215 1,750 1,054 - 130 6,806 - Fixed investment - 675 - 237 - 215 - 233 - 315 - 364 - 456 -1,583 - 8.5 Capital transfers - 779 - 592 -2,752 -3,339 -2,822 -2,264 -1,179 -12,356 Purchase of fixed assets - 118 - 68 - 126 - 120 - 118 - 101 - 103 - 568 Overall deficit (-= surplus) -1,224 -1,053 1,175 1,477 1,505 1,675 1,868 7,701 Net use of cash and bank credit - 832 - 118 - 11T - 104 - 113 - 123 - 141 - 598 Net external borrowing - 500 - 118 - - - - - - Net domestic borrowing 108 - 817 1,295 1,581 1,618 1,798 2,009 8,299 1 1973 Program estimate. 2 1973 Program estimate at 1972 prices. Source: Third Five-Year Plan and 1973 Program. - 390 - Table 6.1: MAXIMUM LENDING INTEREST RATES (In annual percentages) 1961 1970 1973 Interest Rate Effective RateL Paid by Borrower After Subsidy I. Short-term Credits A. General Interest Rate 10.5 11.5 10.5 10.5 B. Differential Interest Rates 1. People's bank credit to artisans and small businesses 9.0 10.5 9.0 8.0 2. Agricultural credits: a. General Rate 9.0 10.5 9.0 8.0 b. From proceeds of Agriculture Bank's bonds 5.0 3.0 3.0 3.0 3. Export credits:/2 a. General Rate 9.0 10.5 9.0 6.0 b. If rediscounted with Central Bank - 9.0 7.5 6.0 4. Preferred Industrial Credits - 10.5 10.5 10.5 II. Medium-term Credfts A. General Interest Rate 10.5 12.0 12.0 12.0 B. Differential Interest Rates 1. People's bank credit to artisans and small businesses 9.0 12.0 9.0 8.0 2. Agricultural credits 7.0 10.5 9.0 8.0 3. Export credits:/ a. General Rate 9.0 12.0 12.0 8.0 b. If rEdiscounted with Central BankL - 12.0 10.5 8.o 4. Credits to sectors (except the agri- cultural sector) specified in the Genera3 Schedule of Encouragement of the Annual ProgramL - 12.0 12.0 6.0 III. Central Bank Rediscount 1. General Rediscount Rate 7.5 9.0 8.75 8.75 2. Credits for exports, small businesses and artisans, preparation and manufacturing of exports subject to certificatep, agriculture 5.25 L 7.5 7.0 7.0 3. Bills of priority industry branches - 7.5 - - 4. Medium-term credits: a. General - 9.0 9.0 9.0 b. Exports, as specified in Annual Program - - - - c. Agricultural credits - - 7.0 7.0 5. Advances against bonds 10.0 11.0 11.0 11.0 6. Advances against gold 6.0 7.0 7.0 7.0 IV. State Investment 13ank Lending Rate - 9-10.5 9.5-10.5 9.5-10.5 V. Bond Rates 1. Government long-term bonds 6.0 9.0 9.0 9.0 2. Private corporations - 15.0 15.0 15.0 The effective rate paid by the borrower who receives the subsidies provided for in Decree No. 7/5522, effective March 1, 1973. The subsidy will not be paid if the credit is extended out of special funds or from credit sources obtained abroad, and is not applicable to credits made by the State Investment Bank. The subsidy is increased by 1% for credits for investments in underdeveloped regions. This covers two types of export credits: (a) for the period between delivery of sales documents to the banks and receipt of payments by the banks; and (b) for the preparation and manufacturing phases of export goods. Credits made for export-oriented projects are exempt from the 25% Banking Transactions tax provided a special encourage- ment certificate is obtained. Credits of any maturity and from any source of financing are eligible. Since the exemption also applies to the interest paid on Central Bank rediscounts, the bank is expected to change a lower interest rate. Sectors specified in the 1973 Annual Program, excluding the agricultural sector. Does not include credits extended for the preparation and manufacturing of exports subject to certificates, Source: Ministry of Fin8nce. - 391 - .ab T.2: MAXIMUM INTEREST RATES ON DEPOSITS (in annual percentages) 1961 1970 1973 Deposits with Banks Sighteosits Saving 3.0 3.0 2.5 Corzerc ial 2.0 1.0 0.0 Officicl 2.0 1.0 0.5 Interbonk 2.0 1.0 (free) T'ime depos,its 4 to 6 4ts .0 4.0 4.0 /1 6 months to 1 year 5.0 6.0 4.0 71 1 year tc 18 months 6.0 9.0 7.0 77 rore than 18 months 6.5 9.0 9.0 77 1nttrest rates payable to banks on cash reserve requirements dth the Central Bank Cash reserves corresponding to sight deposits and deposits of a term up to one year 4.0 4.0 4.0 Cash reserves corresponding to deposits of 1 year and more 6.5 6.5 7.0 Penal interest rates payable by banks failing to establish cash-reserve require- ments witI the Central Bank in due time Cash reserves corresponding to sight deposits and deposits of a term up to 1 year 4.0 Cash reserves corresponding to deposits deposits of 1 year or more - 1.0 'i 3 months to 1 year. /2 1 tc 2 years. /3 over 2 years. Source: Central Bank of Turkey. - 392 - Table 6.3: MOIMTABY SURVEY, 1952-1961 (BIllions of liras) 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 forein Assets / 0.55 0.58 0.57 0.58 0.63 0.75 0.30 0.74 2.27 2.13 Nei Claims on Public Sector 1.18 1.50 1.66 2.62 3.09 4.96 5.35 5.99 5.64 7.52 Net Credit from Central Bank T8O 1.19 1.7 2.03 2.13 272 2=9 9737 3.09 Credit (1.15) (1.35) (1.37) (2.16) (2.25) (2.94) (3.25) (3.66) (3.59) (0.40) therClamsL& (-) (-) (-) (-) (-) (-) (-) (-) (0.16) (5.43) Less: Public Deposits (0.11) (0.16) (0.10) (0.13) (0,12) (0.32) (0.36) (0.28) (0.66) (0.38) Net Credt from Commen A Banks -0.30 .0.29 -0.31 -0.25 -0.19 6.82 0.90 0.79 0.39 -0.20 Credit (0.26) (0.36) (0.46) (0.65) (0.89) (2.05) (2.26) (2.48) (2.29) (1.33) less: Public Deposits (0.56) (0.65) (0.77) (0.90) (1.08) (1.23) (1.36) (1.69) (1.90) (1.53) L-Sal Reserve Assets /3 0.30 o.45 0.54 0.61 0.91 1.00 1.11 1.26 1.51 1.62 Bon:ds / 0.11 0.12 0.12 0.12 0.10 0.12 0.20 0.27 0.30 0.22 Participations (semi-public) 5 0.03 0.03 0.04 0.11 0.14 0.20 0.25 0.29 0.35 0.43 Cla ns on Private Sector 2.40 3.12 3.90 4.56 5.17 6.04 6.77 7.38 7.80 7.58 Cred it 2737 3.0OI T7 7739 77 357 737 4.92 7. 23 6.99 Bonds 0.03 0.03 0.03 0.03 0.03 0.03 0.05 0.07 0.08 0.01 Part;cipations 5 0.03 0.05 0.06 0.15 0.20 0.27 0.34 2.39 0.49 0.58 Other Ites (net) 0.49 0.62 0.47 0.32 0,83 0.30 0.01 1.51 2,63 3.21 Total Assets 4.62 5.82 6.60 8.08 9.72 12.05 12.93 15.62 l8.34 20.44 Foreign LiabiLities 0.59 0.46 0,62 0.81 0.75 0.96 0.91 0.95 2.18 1.60 Money Supply 2,42 2.95 3.37 4.21 5.36 6.87 7.42 3.70 9.26 10.02 Currency 7115 I33 77 I 977 972 79i 5 77T 37= 7 Demand Deposits / 1.27 1.62 1.99 2.41 3.04 3.93 4.37 5.29 5.43 5.88 Quasi-Money 0.21 0.37 0.32 0.41 0.51 0.80 0.67 1.19 1.27 2.05 Tine Deposits 7 T7 0.27 -.32 07 0.50 0.50 0.57 0.2 1.09 Deposits wIth Central Banks 0.03 0.03 0.04 0.09 0.C7 0.30 0.17 0.62 0.45 0.96 Commitments 0.17 0.30 0.20 0.44 0.64 0.83 0.89 1.36 1.98 2.40 Bonds 7897 0.33 8'28 909120.39 00 Capital and Reserve6 1.15 1.1 177 195 21 2.26 -.a 2.9s9 3.26 3.97 Total Liabilities 4.62 5.82 6.60 4.08 9.72 12.05 12.93 15.62 18.34 20.44 1 As shown in International Financial Statistics, ImF The Central Bank classifies these as "claims to be licuidated." They are the result of a consolidation of SEE debt in 1960. Excluding deposits with the Central Bank. It was assumed that 20% of bonds were public and 80% were private for the years 1952 to 1960, since only the total was available. Small amounts of bonds included are held by the Central Bank. 5 It was assumed that 42% of participations were public and 58% private for years 1952 to 1961. The Central Bank does not make credits directly to the private sector, but helps finance them by advances to banks. Defined as all sight deposits -- savings, commercial and those held at the Central Bank, Source: Central Bank of Turkey. - 393 - Table 6.4: MONETARY SURVEY, 1962-72 (TL billions; outstanding and-December) September December 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1972 Loreign Assets / 20 2 1.93 1.93 1.96 2.20 3.42 8.64 18.63 22.1 Net Claims on Public Sector 7. .12 10.12 11 26 13.60 14.60 16.41 17. 22.14 24,25 5.5. Net Credit from Centra. Bank 3 7.21 9.22 23006 !678 1 58 33 7d* Credit (0.88) (1.87) (2.52) (3.06) (6.08) (4.98) (5.73) (7.15) (8.28) (11.84) (14.36) (13.54) Other Claims / (5.40) (5.40) (5.40) (5.40) (5.40) (5.39) (5.39) (5.39) (5.81) (6.32) (6.32) (6.37) Less: Public Deposite (0.35) (0.31 (0.30) (0.25) (0.26) (0.31) (0.34) (0.46) (0.73) (0.91) (1.28) (1,34) Net Credit from Commercial Ba Xs -0.57 -0.18 -0.11 0.49 0.34 0.14 -0.29 -0.29 -0.72 -1.55 -2.38 2.65 Credit (1.45) (1.72) (1.96) (2.54) (2.57) (2.78) (2.67) (3.00) (3.21) (4.23) (4.62) (5.97) Less: Public Deposits (2.02) (1.90) (2.07) (2.05) (2.23) (2.64) (2.96) (3.29) (3.93) (5.78) (7.00) (7.92) Legal Reserve Assets / 1.55 1.54 1.51 1.52 1.53 1.59 1.63 1.66 1.75 1.79 1.81 Bonds 0.24 0.17 0.41 0.54 0.64 0.86 1.49 i.69 1.66 3.22 3.91 .a. Participations (semi-public) 0.48 0.63 0.69 0.93 0.96 0.95 0.99 1.27 1.24 1.43 1.51 r.a. Claims on Private Sectors 9.63 10.94 12. 14.22 18.31 2132 25.72 1 34.87 39.80 45.26 n.a Credit 1/i4 I 17. 209 .1 32.60 7 50. Bonds 0.06 o,06 0.06 0.06 0.05 0.05 0.05 0.05 0.07 0.03 0.02 n.s Participations 0.66 0.72 0.79 0.60 o,64 0.68 0.77 0.88 1.00 1.17 1.24 n.a Other Items (net) 2.80 2.50 2.55 2.76 3.31 4.07 4.59 3.98 7.52 6.75 5.99 5.a. Total Assets 22.02 24.62 27.05 30.60 36.24 40.97 4.11 549 68.32 81.59 ~ 023 Foreign Liabilities / 1.62 2.01 1.74 1.36 1.96 2.00 2.25 3.60 8.48 7.10 o17 143, Money Supply 102 32.17 14.00 16.44 19.78 22.68 ?J.27 39, 35.27 4L.59 48,32 58 Currency 733'3~ 8I 1 ~ .29 940 11a 13.92 !1.9 Demand Deposits / 6.44 7.24 8.16 10.11 12.62 13.97 17.73 21.05 23.42 29.67 31.57 37.27 Quasi Money 23 2.70 2.77 3. 4.13 4.97 6.30 7.15 10.48 14.44 16.40 18,43 Time Deposits r-W I13 2. .7 2 ) *7 IW 8 T-2 Deposits with Central Banks 1.07 1.13 0.97 0.69 0.47 0.55 0.87 0.71 1.58 1.37 o.18 0.18 Commitments 2.55 2.64 3.16 12 4.30 4.72 5.5 6.26 5.81 62 6.52 6.54 Captal and Reserves GI 9 5 7.3N _"7 Total Liabilities 22.02 24.62 27.05 30.60 3 4 47.11 54.92 68.32 17 1 As shoswn in laternational. Firsancial Statistics. 555 2 The Central Bank classifies theae as "claims to be liquidated." They are the result of a consolidation of SEE debt in 1970. 3 Excluding deposits with the Central Bank. The Central Bank does not make credits directly to the private sector, but helps finance them by advances to banks. a,Defi ned as all sight deposits -- savings, commercial and those held at the Central Bank. Ba. - not available Source: Central kanx o lurkey. - 394 - Table 6.5: CONSOLIDATED BANKING SYSTEM CP.DITS, 1952-60 (TL billion, outstanding end-December) 1952 1953 1954 1955 1956 1957 1958 1959 1960 A. pUBLTC SECTjR Genera-Paiet 0.0b 0.02 0.18 0.35 0.54 0.61 0.60 0.95 1.23 Central Bank 0-4 0T 0 07 0 =9 _17J9 (Short-tern advances to Treasury) (0.02) (-) (0.03) (0.31) (0.49) (0.57) (0.5h) (0.65) (0.86) (Other claims)I (-) (-) (- -) (-) (-) (-) (-) (0.16) (Other) (0.02) (0.02) (0.15) (0.04) (0.05) (0.04) (0.06) (o.06) (0.06) Banks 0.- - - - - - 0.26 0.15 Annexed Budget 0.16 0.16 0.20 0.21 0.27 0.30 0.27 0.35 0.38 Central Bank 0.16 0 0.20 0.21 0.27 0.30 0.27 0.31 0.37 (Moncpolies Administration) (0.10) (0.11) (0.11) (0.12) (0.20) (0.22) (0.22) (0.26) (0.32) (Other) (0.06) (0.05) (0.09) (0.09) (0.07) (0.08) (0.05) (0.05) (0.05) Banks - - - - - - - 0.04 0.01 Local AdministrationsL 0.11 0.17 0.23 0.27 0.33 0.43 0.60 0.77 0.86 Other Official Administrations 0.19 0.24 0.26 0.27 0.33 0.62 0.50 0.15 0.14 Central Bank 0.07 0.07 07 0 0.09 0.11 0.13 0.17 0.17 Banks 0.12 0.17 0.19 0.21 0.24 0.51 0.37 0.01 - State Economic Enterprises 0.91 1.12 0.95 1.6.4 1.48 2.80 3.30 3.57 3.24 C?ntrala 03sn -10T 092 T7 _739 1.92 2.25 r7~ (Soil Products Office) (0.52) (0.76) (0.71) (0.49) (0.52) (0.92) (1.37) (1.55) (1.56) (Sugar) (0.08) (0.09) (0.13) (0.21) (0.25) (0.31) (0.35) (0.13) (0.45) (Other) (0.29) (0.25) (0.08) (0.84) (0.58) (0.69) (0.53) (0.53) (0.15) Banks 0.02 0.02 0.03 0.10 0.13 0.88 1.05 1.06 1.08 Semi-Public - - 0.01 0.07 0.19 0.23 0.24 0.35 0.19 TOTAL PJBLT 1.41 1.71 1.83 2.81 3.14 4.99 5.51 6.14 6.0h Of Which: Central Bank3 T T 2 32 =3 T77 Of Which: Banks 0.26 0.36 0.46 0.65 0.89 2.05 2.26 2.48 2.29 B. PRIVATE SECTOR Agriculture 1.05 1.20 1.48 1.54 1.87 2.10 2.14 2.29 2.39 Industrial banks 0.04 0.07 0.11 0.14 0.14 0.16 0.18 0.21 0.22 Building & construction 0.12 0.17 0.23 0.35 0.38 0.43 0.46 0.53 0.63 Small artisans, etc. 0.01 0.02 0.0t 0.06 0.06 0.07 0.09 0.10 0.12 Commercial & othes 1.13 1.59 1.95 2.30 2.48 2.98 3.50 3.79 3.86 TOTAL PRIVATE 2.34 3.04 3.81 )4-8 4.94 5.74 6.38 6.93 7.23 n, CONSOLIDATED BANKING SYSTEM 3.75 h.-5 5.6: 7.19 8.08 10.73 11.89 13.07 13.27 /I The Central Bank classifies these as "Claims to be liquidated." /2 Credits made by banks. /3 Direct credits only. The Central Bank does not make credits directly to the private sector, but helps finance them by advances to banks. Source: Central Bank of Turkey. - 395 - Table 6.6: CONSOLIDATED BANKING SYSTEM CREDITS, 1961-72 (TL billion; outstanding end-December) Set. Dec. 1961 1962 1963 196b 1965 1966 1967 1968 1969 1970 1971 19 2 1972 A, PUBLIC SECTOR Geneal t 5.64 6.00 6.37 6.72 7.36 7.75 8.11 8.39 9.32 10.78 13.06 14.58 16.41 CntriNtBnk nT 579 M S7 7.20 M~ F.0 1. 27 1.4.26 (Short-tem. advances to Treasury (-) (0.31 (0.39) (0.60) 1.14(1.44) (1.91) (2.18) (3.06) (.36) (6.09) (7.62) (7.4L7) (other claims) Ll (5-43) (5-48)(5.k0)(5k0)(S.8)5-)5 39) (39) (5.39) (5.81) (6.32) (6.32) (6.32) (Other) (0.05) (0.08) (0.42) (0.57) (0.66) (0.69) (0.68) (0.67) (0.66) (0.32) (0.29) (0.26) (0.26) Banks 0.16 0.21 0.16 0.15 0.16 0.22 0.09 0.15 0.21 0.29 0.36 0.38 0.36 Annexed Budget 0.07 0.01 0.09 2i34 0.1,2 0.72 0.77 1.21 1.76 1.76 1.75 1.75 1.75 Central Bank 0k3 .0 0.72 T.21 1T T. 7 1.75 T. 77 (Monopolies Admnistration) (0.05) (-) (0.08) (0.34) (0.12) (0.72) (0.75) (1.21) (1.75) (1.75) (1.75) (1.75) (1.75) (other) (-) (W M- M- M- W- W- W" W- M W Banks 0.02 0.01 0.01 - - - 0.02 - 0.01 0.01 - -- Local Administrations- 0.92 0.97 .0 1.17 1.2k 1.28 1.30 1.29 1.39 1.5 2.33 2.52 2.64 Other Official Administrations - .. . .- Central Bank - State FconVic Enterprises 0.35 O.2 1.01 1.24 1.17 1.67 2.19 2.23 232.77 .7k 5.85 5.74 (Soil Prducts office) (0.22) (0.32) (0.87) (0.86) (0.57) (0.80) (1.01) (1.02) (0.95) (1.13) (3.00) 3.75) (3.35) (Sugar) (0.09) (0.17) (0.11) (0.16) (0.28) (0.43) (0.60) (0.65) (0.73) (0.71) (0.71) 0.71) (0.71) (other) (-) W- W (-W) (-) W (-) (-)3 - f) f Bank 0.04 0.03 0.03 0.22 0.32 0.44 0.58 0.56 0.67 0.93 1.13 1.39 1.68 i-ublc/2 0.18 0 23 4 041 0.81 0.63 0 0 67 0.72 0 0. 41 0.32 0.39 TOTAL PUBLIC , 7.16 J! 00~ 9.88 11-03 120 131 13.79 15.54 17.30 22.39 25.02 2L4.93 Of -Which: Centra.l Ba.k-! 75 6.2 r7 7 _rL ** M ".k I0 M T T5 T4 7~ TMT 2079689 Of Which: Banks 1.33 1.45 1.73 1.96 2.54 2.57 2.78 2.67 3.00 3.21 4.23 4.62 5.07 B. PRIVATE SECTOR Agriculture 1.68 1.95 2.41 2.99 3.21 4.53 5.55 7.12 8.55 9.03 8.87 7.79 9.78 Industrial banks 0.28 0.33 0.39 0.49 0.59 0.82 1.04 1.25 1.50 2.13 2.39 2.78 2.79 Building & construction 0.84 1.13 1.29 1.53 1.66 1.77 1.86 1.90 2.03 2.3k 2.52 2.50 2.71 Small artisans, etc. 0.16 0.18 0.20 0.25 0.31 0.43 0.59 0.78 0.97 1.11 1.27 1.47 1.54 (ommercial & other h.03 5.31 5.87 6.23 7.79 10.07 11.55 13.86 17.13 19.18 23.56 29.46 34.05 TOTAL PRIVATE 6.99 8.91 10.16 11.48 5 17.62 20.59 24.90 30.19 33.80 38 60 44.oo 50.87 C. CONSOLIDATED BANKING SYSTEM 1k.14 16.65 19.17 21.39 24.58 29.68 33.76 38.71 k5,72 51.08 61.00 69.02 75.80 /1 The Central Bank classifies these as "Claims to be liquidated." /2 Credits made by banks. /3 Direct credits only. The Central Bank does not make credits directly to the private sector, but helps finance them by advances to banks Soure: Central Bank of Turkey. - 396 - Table 6.7: COMPOSITION OF DEPOSITS WITH BANKING SYSTEM, 1961-72 (TL million) Sept. 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1972 Public Deposits 1,905 2,371 2,205 2,372 2,298 2,498 2,955 3,298 3,743 4 6 8,280 9,248 With Central Bank 377 348 307 301 250 265 311 339 455 729 912 1,280 1,335 Consolidated Budget (245) (195) (175) (171) (175) (195) (247) (219) (366) (576) (769) (951) (969) State Economic Enterprises ( 9) ( 5) ( 8) ( 8) ( 5) ( 6) ( 20) ( 46) ( 16) ( 16) ( 20) ( 71) ( 66) Other (123) (148) (124) (122) ( 70) ( 64) ( h4) ( 74) ( 73) (137) (123) (258) (300) With Banks 1,528 2,023 1,898 2,071 2,048 2,233 2,644 2,959 3,288 3,933 5,785 7,000 7,913 Consolidated Budget (642) (967) (720) (805) (725) (772) (1,111) (1,168) (1,203) (1,815) (2,227) (2,832) Local Administrations (220) (264) (256) (246) (287) (317) (295) (342) (351) (397) (529) (550) Compulsory Insurance (449) (520) (625) (728) (739) (800) (801) (1,087) (1,310) (1,218) (2,316) (2,699) Other (217) (272) (297) (292) (297) (344) (437) (362) (424) (503) (713) (919) Demand DepositsL 5,885 6,437 7,2411 6 13,968 17,731 21,042 31,498 37,275 Savings Sight Deposits 3,967 4,487 5,242 5,934 7,528 9,410 10,390 12,800 15,018 16,819 20,916 21,804 24,929 Commercial Sight Deposits 1,688 1,747 1,805 2,207 2,555 3,181 3,562 4,926 6,014 6,591 8,704 9,463 11,901 Sight Deposits with Central Bank 230 203 194 23 25 25 16 5 14 8 50 231 445 Time Deposits 1,093 _61 1571 1,798 2,651 3,662 5,430 6,439 3 13,071 1862,215 Savings 969 1,014 1,361 1,583 2,293 3,203 3,954 4,913 5,848 8,224 12,313 15,2Y8 17,174 Commercial 124 147 210 215 358 459 465 517 591 679 758 937 1,077 Other Deposits with Central Bank 955 1,072 1,132 965 688 474 553 867 709 1,576 1,366 181 182 Interbank Deposits , 803 933 0 7 6,134 7,216 11,788 16,801 2280 With Banks 298 271 259 300 417 505 693 848 1,131 1,817 3,100 5,741 7,879 With Central Bank 505 662 832 1,o60 1,563 2,306 2,604 3,920 5,003 5,399 8,688 11,060 14,701 TOTAL 10,641 11,974 13,240 5 17,725 22,061 25,192 32,094 3,7 75 62,592 , Commercial deposits are those held by business, including SEEs; savings deposits are defined as all deposits other than public and commercial deposits. Source: Central Bank Monthly Bulletin. Table 6.8: MATURITY STRUCTIE OF co1aic AND SAVINGS DEPOSITS, 1963-72 (TL million; outstanding at end of year) 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 50J 1 34 5 443 6 604 7 269 ;463 12 977 4,41 2 5 ;7 04 months 17 35 57 54 52 38 54 115 128 123 4 months-1 year 41 30 126 k 171 137 162 187 202 148 433 Over 1 year 39 151 175 234 276 317 349 361 483 520 *its 6 60 7 518 9 822 12 610 14344 17 714 20 866 25 043 3328 4210 0-4 montha 300 356 67 692 812 990 1,155 1,491 2,485 3,86 4 moontbs-1 year 603 631 1,014 L,402 1,739 2,135 2,568 3,784 5,471 8,137 over 1 year 458 596 812 1,106 1,402 1,789 2,125 2,949 4,356 5,191 Total 8 617 9 939 12 737 16 251 18 379 2317 2 7 32 310 42 691 5,8 0-4 months 317 391 524 746 864 1,028 1,209 1,606 2,613 3,969 4 moths-1 year 644 661 1,140 L,573 1,876 2,297 2,755 3,986 5,619 8,570 over 1 year 607 747 987 1,340 1,678 2,106 2,474 3,310 4,839 5,711 Sowg : Banks Associatiot of Turker Baahna e Sheet, F&L Accoonta, Organisation, Deposits and Credits of Banks in Turky. Table 6.9: INTERNAL PUBLIC DEBT, 1963-72 (TL million; outstanding as of end-December) 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 I. General Budget 9.672 10,233 10,913 !3.72 152 16,669 17,305 1L,40 23,90 25,171 1. Treasury Bills 344 348 348 348 348 348 333 - - - 2. Treasury Placement Bonds 187 381 413 304 338 903 605 978 2,240 1,326 3. Long-term Goverpment Bonds 1 737 601 721 1,032 1,629 2,012 2,378 2,818 3,238 6,286 4. Domestic Consolidated Debts 2 7,036 6,995 6,933 7,206 7,161 7,112 7,061 7,340 7,283 7,380 5. Consolidated Municipalities' Debts - - - 1,763 1,663 1,477 1,401 892 2,907 2,488 6. Savings Bonds 1,232 1,756 2,375 2,969 3,994 4,686 5,400 6,244 7,397 7,592 7. Other Debts 136 152 123 120 136 131 127 130 125 105 II. Annexed BudgetL - State Waterworks Bonds 20 1 37 16 14 13 11 9 7 5 II.Saeivsmn akBmSL_ 669 991 1,737 2,134 3,031 4,597 5,719 6,776 7,926 3,590 III. State Investment Bank Bond 991 IV. State Economic Enterprises/ 573 658 607 590 559 527 93 548 507 h67 V. Municipal Bonds 96 85 7 73 67 60 203 192 180 TOA TOTAL 11,030 1.1,991 13,359 16,56 18,26 21.87 23,288 2598 3182 3,9 1 Treasury. 2 Consolidated debts unaer Law 154 and 250. 3 Consolidated debts under Law 691. Exchange losses paid to the Central Bank under Law 65 and excludes Turkish debt bond 1935 which are included in the external debt repayable in foreign exchange. 5 Treasury guaranteed bond of State Highways and Monopoly Administration are excluded since they have a maturity of not more than a year. Including amortization and credit funds bonds. 7 Agricultural Bank, Real Estate and Credit Bank and People's Bank. : Ministry of Finance. - 398 - T-ble 6.10: LONG-TERM GOVERNMENT BONDS, BY CATEGORY OF PURCHASER (TL million) Purchased by Year Total Issue Banks Private Public Others Companies Institution 1953 125.0 29.0 8.0 43.0 45.0 1955 108.0 17.0 5.0 74.0 12.0 1956 75.0 73.0 - 2.0 - 1960 250.0 19.9 - 153.0 77.1 1964 200.0 97.2 9.8 32.4 60.6 1965 400.0 221.6 21.0 90.0 67.4 1966 700.0 322.1 31.4 292.5 54.0 1967 500.0 268.6 32.8 102.9 95.7 1968 500.0 338.7 23.0 80.1 58.2 1969 600.0 348.8 12.5 207.1 31.6 1970 600.0 347.4 28.0 88.5 136.1 1971 800.0 406.7 50.6 114.2 228.5 1972 4,000.0 1,905.1 156.3 1,298.1 640.5 Total 8,2858.0 4,395.1 378.4 2,577.8 1,506.7 % 100.0 49.6 4.3 29.1 17.0 Source: Ministry of Finance. - 399 - Table 6.11: CORPORATE BOND MARKET Number of lames TL Million Cuaanteed Non- Guaranteed bN Non- Total Other folding Guaranteed Total Other Holding A Guaranteed TSKB Banks Companies TSKB Banks Companies 1968 13 5 7 - 1 108.5 25.0 82.3 - 1.2 1969 15 4 8 1 2 170.0 30.0 76.0 50.0 14.0 1970 27 5 3 7 12 331.5 50.0 16.5 110.0 155.0 1971 10 3 2 1 4 127.5 35.0 26.0 20.0 46.5 1972 214 4 2 3 5 229.5 43.0 45.0 25.0 116.5 1973 (5 montbs)16 3 1 3 9 195.8 19.8 15.0 35.0 126.0 Total 95 24 23 15 33 1,162.8 202.8 260.8 240.0 459.2 A Including issues made by Holding Companies. Sourqe: TSKB. Table 6.12: INSURANCE PREMIUMS, 1962-71 (TL million) Branches of Insurance 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 Accident 75 81 75 76 92 116 137 155 164 202 Fire 87 93 104 111 130 145 161 183 206 254 Life 26 30 30 32 31 38 44 52 61 96 Other /1 42 41 40 47 57 63 77 93 133 192 Total 230 245 250 265- . 309 363 421 482 564 744 Reassurance 61 76 71 75 86 100 116 135 168 255 Grand Total 291 321 321 340 396 462 537 617 732 999 /1 Growth in this category is primarily in transport insurance. Source: Ticaret Bakalii Sigorta Murakabe Kurulu, Thrkiye'de Sixorta Faaliyeti Hakkinda Rapo- 0 -400 - Table 6.13: LIFE INSURANCE, 1967-71 1967 1968 1969 1970 1971 A. Number of Persons Insured (Thousand) Endowment 55.2 60.1 39.0 39.8 52.3 Individu als 7 Groups 26.8 31.4 10.8 11.2 20.0 Term-Life 51.2 86.6 148.2 91.6 80.8 Individuals 01s 07 Groups 50.7 86.0 147.5 90.9 80.1 Whole-Life 10.7 10.2 14.6 16.5 34.9 Individuxls 27 T777 7 Groups 0.2 0.7 2.2 2.8 3.2 Total 116.9 156.7 201.8 147.9 167.9 Individuil_1- 378_7 ~~777 7T.7 T7 Groups 77.7 118.1 160.5 104.9 103.2 B. Insured Capital (Million TL) Endowment 783.2 931.5 973.7 1,138.6 1 667.7 Individuals 7 767 77 7 Groups 408.8 494.7 488.8 516.6 806.0 Term-Life 354.9 511.9 740.5 612.9 641.7 Individuals T7 27F7 -777 727 _77 Groups 337.6 489.2 716.8 588.2 613.6 Whole-Life 126.1 160.1 419.4 609.4 1 9W Individuals n37 U57 zy 387F -i Groups 0.6 17.6 30.6 52.8 66.7 Total 1 28o.0 1,616 0 2,155.0 2,374.0 6,2?K.0 Individuals '7. 0 602. '897.0 77U57 '7777 Groups 764.0 1,014.0 1,258.0 1,171.0 3,j C. MathelLatical Reserves (Million TL) L89.0 211.0 238.0 263.0 3'8 0 D. Premiu, Receipts (Million TL) 38.0 44.0 52.0 61.0 Source: Ministry of Commerce, Insurance Control Board, Istanbul. - 401 - Table'6.14s INSURANCE COMPANIES: DISTRIBUTION OF ASSETS (TL million; end of year figures) 1964 1965 1966 1967 1968 1969 1970 1971 SmAES Ima 49.7 46.6 48.4 53.4 62.4 67.5 74.1 83.0 Insurance & Reassurance Co. 5.8 6.1 11.7 11.2 12.1 12.6 13.3 13.4 Other Companies /1 15.2 19.2 22.3 30.0 33.6 .3 5.3 6.2 Industrial Enterpriaes (47.0 (583" Others 83 (5.9) BOMDS =Ete Bonds 23.5 27.9 44.4 54.3 61.8 78.o 74.8 107.7 Amortization & Credit Fund Bonds 23.9 22.3 18.1 17.0 17.5 13.0 11.9 9.2 k=icipality Bonds 8.3 8.2 8.2 8.2 8.5 7.3 7.2 6.7 Bank Bonds /1 13.5 13.3 19.1 15.2 18.2 8.: 18.7 24.4 Publi -- (8.1) 23.8) Private (0.6) (C.6) Joint Stock Co. Bonds /1 10.2 12.5 4.1 10.3 3.1 5.9 3.5 17.2 Industrial Znterpriies (11.9) (16.0; Others ( 1.6) ( 1.2) TOTAL (&ares and bonds) 150.2 156.1 176.4 199.6 219.2 213.3 268.3 325.8 CASH A 2aU =2st1= 72.5 36.2 96.8 127.3 102,- -29.1 1- .1 202.7 rxr ISSays 42.4 48.1 50.1 56.8 6'77 83.8 107.4 126.7 Lo__s 40.6 43.2 44.7 49.4 53.3 62.2 72.0 73. OTHER AsES1 a 322.6 331.9 382.1 428.2 552.-1 13. ?1-. 955.6 T. -Is, I ie Balance sheet) 628.3 665.5 750.. 861.3 995.7 1,1293 15D8 1,6S,. 2 /1 a : a.re not available -ntil 1970. _____ fl t lanlif Sigorta Marata:z Ku-' Turk ye:de Sigorta Faali er: E ki - 402 - Page Table 6.15: SECTORAL DISTRIBUTION OF CREDITS, 1963-67 (TL million; outstanding end-December) Private Public Total Banking Banking Banking Total (including System % System SIB Total $ System % SIB) 1963 Industry, Mining 1,74.1 17.0 400 - 400 11.4 2,141 15.6 2,141 15.6 Agriculture 2,477 24.2 977 - 977 27.8 3,454 25.1 3,454 25.1 Small Artisans, etc. 202 2.0 - - - - 202 1.5 202 1.5 Housing, Construction 2,527 24.7 - - - - 2,527 18.4 2,527 18.4 External Trade, Tourism 1,580 15.4 104 - 104 2.9 1,684 12.2 1,684 12.2 Financial SectorL4 119 1.2 815 - 815 23.2 934 6.8 934 6.8 Distribution, Services 1,588 1 1,221 1 . 7 2,809 20.4 2,809 20.4 Total 10234L 100.0 3.517 - 3,517 100.0 13,75 100.0 13,75 100.0 1964 Industry, Mining 1,993 17.2 500 697 1,197 23.6 2,493 15.6 3,190 19.1 Agriculture 3,209 27.6 1,015 - 1,015 20.0 4,224 26.4 4,224 25.3 Small Artisans, etc. 247 2.1 - - - - 247 1.5 247 . 1.5 Housing, Construction 2,839 24.5 - - - - 2,839 17.8 - 2,839 17.0 External Trade, Tourism 1,488 12.8 137 - 137 2.7 1,625 10.2 1,625 9.8 Financial SectorL 120 1.0 1,390 - 1,390 27.5 1,510 9.5 1,510 9.1 Distribution, Services 1,715 14.8 1,324 - 1,324 26.2 3,039 19,0 3,039 18.2 Total -11,L611 100.0 4,.366 697 5,063 100.0 15,977 100.0 16.67 100.0 1965 Industry, Mining 2,318 16.8 900 1,555 2,455 35.3 3,218 16.8 4,773 23.0 Agriculture 3,427 24.9 853 - 853 12.2 4,280 22.3 4,280 20.7 Small Artisans, etc. 312 2.3 - - - - 312 1.6 312 1.5 Housing, Construction 3,075 22.3 - - - - 3,075 16.1 3.075 14.8 External Trade, Tourism 1,864 13.6 229 - 229 3.3 2,093 10.9 2,093 10.1 Financial SectorL4 208 1.5 2,012 - 2,012 28.9 2,220 11.6 2,220 10.7 Distribution, Services 2,562 18.6 1 - 1 20.3 3,972 20.7 3,972 19.2 Total 13,766 100.0 5,404 1,555 6,959 100.0 19 100.0 2 100.0 1966 Industry, Mining 3,474 19.6 800 2,607 3,407 37.3 4,274 17.6 6,881 25.6 Agriculture 4,837 27.2 1,231 - 1,231 13.4 6,068 25.0 6,068 22.6 Small Artisans, etc. 427 2.4 - - - - 427 1.8 427 1.6 Housing, Construction 3,257 18.3 - - - - 3,257 13.4 3,257 12.1 External Trade, Tourism 1,998 11.3 370 - 370 4.1 2,368 9.7 2,368 8.8 Financial SectorL4 239 1.4 2,619 - 2,619 28.7 2,858 11.8 2,858 10.6 Distribution, Services 3,521 19.8 1,504 1,504 16.5 5,025 20.7 5,025 18.7 Total 17,753 100.0 6,524 2,607 9,131 100.0 24,27 100.0o 684 0. 1967 Industry, Mining 4,171 20.0 950 4,268 5,218 44.3 5,121 18.1 9,389 28.8 Agriculture 5,742 27.5 1,612 - 1,612 13.7 7,354 25.9 7,354 22.5 Small Artisans, etc. 585 2.8 - - - - 585 2.1 585 1.8 Housing, Construction 3,385 16.2 - - - - 3,385 11.9 3,385 10.4 External Trade, Tourism 2,235 10.7 414 - 414 3.5 2,649 9.3 2,649 8.1 Financial SectorL4 291 1.4 3,111 - 3,111 26.5 3,402 12.0 3,402 10.4 Distribution, Services 21.4 1,413 - 1 12.0 5,864 20.7 5 18.0 Total 2080 100.0 7,500 4,268 ILL 100.0 28,60 10.0 32,628 100.0 1 This table has been compiled using data from the Risk Centralization Office of the Central Bank and from the State Investment Bank. 2 Public sector consists of the General and Annexed Budgets, State Economic Enterprises and Local Administrations. The private financial sector consists almost exclusively of the Bank Liquidation Fund. Source: State Planning Organization, Turkey. - 403 - Page 2 Table 6.15: SECTORAL DISTRIBUTION OF CREDITS, L 1968-71 (continued) (TL million; outstanding end-December) Private Public Total Banking Banking Banking Total (including System % System SIB- Total % System % SIB) 1968 industry, Mining 5,576 22.1 1,000 6,482 7,482 51.2 6,576 19.8 13,058. 32.8 Agriculture 7,370 29.3 1,674 - 1,674 11.4 9,044 27.2 9,044 22.7 Small Artisans, etc. 777 3.1 - - - - 777 2.3 777 2.0 Housing, Construction 3,442 13.7 - - - - 3,442 10.3 3,442 8.7 External Trade, Tourism 2,936 11.7 225 - 225 1.5 3,161 9.5 3,161 7.9 Financial Sector/4 272 1.1 3,801 - 3,801 26.0 4,073 12.2 4,073 10.2 Distribution, Services 4,794 19.0 1446 - 1 9. 18.7 15.7 To_tal 25L67 100.0 8,-146 6,482 ____ 100.0 33,313 100.0 39L795 100.0 1969 Industry, Mining 7,024 23.1 1,000 9,554 10,554 54.2 8,d24 19.9 17,578 35.1 Agriculture 8,892 29.2 1,684 - 1,684 8.7 10,576 26.2 10,576 21.2 Small Artisans, etc. 971 3.2 - - - - 971 2.4 971 1.9 Housing, ConStrUcti on 3,725 12.2 - - .- - 3,725 9.2 3,725 7.5 External Trade, Tourism 3,608 11.8 387 - 387 2.0 3,995 9.9 3,995 8.0 Financial SectorA 266 0.9 5,217 - 5,217 26.8 5,483 13.6 5,483 11.0 Distribution, services 5,92 19.6 1 1,10 8.3 7,562 18.8 7,562 15.2 Total 30,438 100.0 9,898 9,554 1942 100.0 4036 100.0 49,890 100.0 1970 Industry, Mining 9,217 27.0 1,000 12,412 13,412 56.9 10,217 22.6 22,629 39.2 Agriculture 9,473 27.8 1,834 - 1,834 7.8 11,307 25.0 11,307 19.6 Small Artisans, etc. 1,108 3.2 - - - - 1,108 2.4 1,108 1.9 Housing, Construction 4,255 12.5 - - - 4,255 9.4 4,255 7.4 External Trade, Tourism 3,703 10.8 361 - 361 1.5 4,164 9.0 4,064 7.0 Financial Sector/4 329 1.0 6,l09 - 6,109 25.9 6,438 14.2 6,438 11.2 Distribution, Services 6,3 17.7 1 - 1 7.9 7,881 17.4 7,881 13.7 Total 134,11 100L. 0 1-1.,152 12,412 23,564 100.0 45,27 100.0 57,68 100.0 1971 Industry, Mining 11,437 29.4 1,000 14,674 15,674 51.4 12,437 22.8 27,111 39.1 Agriculture 9,431 24.2 3,709 - 3,709 12.2 13,140 24.0 13,140 19.0 Small Artisans, etc. 1,267 3.3 - - - - 1,267 2.3 1,267 1.8 Housing, Construction 5,345 13.7 - - - - 5,345 9.8 5,345 7.7 External Trade, Tourism 4,111 10.6 537 - 537 1.8 4,648 8.5 4,648 6.7 Financial sectorL4 295 0.8 7,838 - 7,838 25.7 8,133 14.9 8,133 11.7 Distribution, Services 7 18.0 2,697 2,9 8.9 9,703 17.7 9,703 14.0 Tota 38,92 10.0 157841,645 100.0 54,67 100.0 9347 100.0 FLOW 1963 TO 1971 Industry, Mining 9,696 34.0 600 14,674 15,274 57.0 10,296 25.0 24,970 45.0 Agriculture 6,954 24.0 2,732 - 2,732 10.0 9,686 24.0 9,686 18.0 Small Artisans, etc. 1,065 3.0 - - - - 1,065 3.0 1,065 2.0 Housing, Construction 2,818 10.0 - - - - 2,818 7.0 2,818 5.0 External Trade, Tourism 2,531 9.0 433 - 433 2.0 2,964 7.0 2,964 5.0 Financial Sector/ 176 1.0 7,023 - 7,023 26.0 7,199 17.0 7,199 13.0 Distribution, Services 5 19.0 1,476 - 1 5.0 6,894 17.0 6,894 12.0 Total 28658 1~~_00.0 12264 14674 2698 100 422 0.0 5 56100 = a_ _ _ =& 12L != 112 Z2 /1 This table has been compiled using data from the Risk Centralization Office of the Central Bank and from the State Investment Bank. Public sector consists of the General and Annexed Budgets, State Economic Enterprises and Local Administration. The State Investment Bank which lends exclusively to State Economic Enterprises. The private financial sector consists almost exclusively of the Bank Liquidation Fund. Source: State Planning Organization, Turkey. - 404 - Table 6.16: TOAL ASSETS OF FINANCIAL INSTITUTIONS, 1962 to 1971 (Outstanding at end-Dcember) 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 (TL million) Central Bank 9507 10706 11594 12661 14672 16810 19337 24005 32573 38825 Commercial Banko 23162 25298 28001 34496 42725 48786 59124 72345 77560 91882 --Public 15736 16878 18691 22918 28263 32352 38559 45949 48178 54835 --Private 7426 842o 9310 11578 14462 16434 20565 2639 29382 37047 Development Banks 8699 8706 7127 9280 12316 9603 11069 12706 16428 16449 --Public 8133 8105 6398 8398 11224 8187 9431 10813 13718 13361 --Private 566 601 729 882 1092 1416 1638 1893 2710 3088 Insuranco Conpanie 533 683 628 666 750 861 996 112) 1 ] 1681 o TOIa 41901 4593 47350 57103 10463 76060 90526 110185 127912 148840 (Per Cent) Central Bank 22.7 23.6 ?4.5 22.2 20.8 22.1 ?1.4 21.8 25.5 26.1 Commercial 55.3 55.7 59.2 6o.4 6o.6 64.1 65.3 65.7 60.7 61.7 --Public 37.6 37.2 39.5 40.1 40,1 42.5 42.6 41.7 37.7 36.8 --Private 17.7 8.5 29.7 20.3 20.5 21.6 22.7 24.0 23.0 24.9 Development Banko 20.8 19.2 15.0 16.2 17.5 12.7 12.? 11.5 12.8 11.1 --Public 19.4 ¯7¯ 13.5 14.7 16.0 10.8 1049 10.7 9.0 --Private 1.4 1.3 1.5 1.5 1.5 ].9 1.8 1. 2.1 2.1 Insurance Companeo 1.3 1.5 1.3 1.2 1.1 1.1 1.1 1.0 1.0 1.1 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Banko Asoca~tin of Turkey Ministry ef Coerce, Tnsu.rance Central Bard. Table 6.17: THE COST OF BANK CREDIT (Legal ceilings on interest and commissions) Before After 28 NeV7 973 28 Te. 1973 Rate of Interest Rate Rate of Interest Rate Tax and h=or. Medium Tax and Short Medin Commissions Term rem /2 Coissins Term er Amount of Credit 100.000 100.000 100.000 100.000 Interest 12.114 12.550 10.812 12.> Transaction Tax 25% 3.028 3.137 25% 2.703 3.137 ,omnission on Advances on Bills 2% 2.500 2.500 2% 2.500 2.500 ,ransaction Tax 25% 625 625 25% 625 625 3tamp Tax 5% 100 100 5% 100 100 Communication, etc. 2.5% 250 250 2.5% 250 250 .ransaction Tax 25% 62 62 25% 62 62 Expertise Fee 5% 100 100 4% 80 60 Transaction Tax 25% 25 25 25% 20 20 .nvestigation and Control Fee 6% 600 600 3% 300 300 Transaction Tax 25% 150 150 25% 75 75 Mortgage Cost 7% 182 182 7% 182 182 Total 19.736 20.231 17.709 19.861 Cost of Credit 19.73% 20.23% 17.71% 19.88% lax Component in Cost of Credit 3.99% 4.09% 3.58% 4.01% /- To obtain a credit of Tl 100,000,the borrower has to present documents to the value of TL 125,000 for credit against bills and TL 130,000 for credit against mortgage. The interest rate ceiling on general short-term credits was reduced from 11.0% to 10.5% in February, 1973. The interest rate ceiling on medium-term credit is 12%. Source: Nr. Gungor Uras, "What is the effect of new decisions on interest and credit, Turkish Economic Gazette, 22 February 1973. - 406 - Table 6,.18: RESOURCES OF SIATE INVESTHENT BANK (TL million; outstanding as of end of December) Pald-up Reserves retained Total Bond Reserve Deposits trer Treasury Ionternal Other Shor,t Total xiterna] Grand yrr Capital and Provisiona Earnings Internal Outstnding Requirements agaiast bonds Deposit Lans Fa inance Funds ter Credits Rearesre. Total Resurces to be issued Taken over 1964 432.7 - 71.9 5046 1,026.1 1,?33.8 33.9 151.3 - _ 155.1 2,6o0.2 3,104.8 1965 482.0 16.7 63.6 562ý 1,769.5 1,251.Å 15.1 163.o . _ 174.4 3,371.4 3.933.7 1966 525.1 45.1 77.3 647.5 2,463.6 1,268.7 74.5 2.7 - 202.2 4,035.8 4,683.3 1967 895.6 79.5 116.6 -'.' 2,' ,'.? 1,284.' 7o 113. 631 - .26..3 272.4 ,9294 8.023.1 1968 969.6 131.7 84.1 1,184.9 4,670.3 1,289.4 å6o 0.1 656.7 1,170.7 455.4 8,208,5 2393.4 1969 1,000.0 184.9 19.7 1,244.6 5,738.4 1,291.5 233.0 - 706.5 1,031.5 566.9 9.567.6 o.812 2 1970 1,000.0 244.6 -208.8 1 035 8 7,001.6 1,293.9 15.1 - 1,963.5 1,243.6 409.9 11,927.6 12,963.4 1971 1,000.0 266.8 35.7 1,302.5 7,657.8 1,295.6 - i,44o.8 1,190.6 473.3 12,058.1 13,360.6 1972 1,023.3 302.5 92.1 i.,415.o 8,207.5 1,296.'4 46.0 - 482.4 669.2 1,491.0 12.192.5 13,607.5 Source: St,ate Investment Bank Annual Reports. Téble 6.19: FLOWS OF FUNDS THROUGH FINANCIAL INSTITUTIONS, 1963 - 1968 (TL million; increases in arounte outstanding at end Dec.) Intermediary Sectors Fund Creating and Using Sectors AJ A2 A3 k4 Bl B2 B3 B4 B5 B6 Total certial Al -- 3321 --- 0 3040 697 --- --- 59 151 8631 A2 4194 - --- -14 1601 717 9837 5314 -- 14638 36287 Social Insur-ance and over,nent : F 3 h h58 4077 354 186 h53 470 -- 1270 7278 ItvesInvestent Bank Aå 25 1329 -58 --- -164 2866 --- --- 151 41.49 Li-c Finanpial B 176 2h24 --- 1558 4158 B2 116 578 --- 59 753 ?. irate Firms B3 702 2912 13 --- 3752 Äuseholds B4 2445 11616 6829 --- 20890 cis i n Sector B5 -505 43 --- -1U05 -1867 0t her B6 1477 13606 369 -126 15326 TOTAL 8634 36287 7278 4L9 l 4831 4466 10290 5784 59 17579 99357 Scurce: Ozar Ertuna : Turkiye'de Fon Akimlari Uzerine Bir Inneleme TSKB, Istanbul, 1970. - 408 - Table 6.20: COMPONENTS OF COST OF CORPORATE BOND BORROWING The effective cost of borrowing by the issue of corporate bonds is estimated to be 20 percent per annum on the following assumptions: 1. Amortization: A seven-year bond with two-year grace; repayment in five equal annual installments. 2. Interest: A nominal interest payment of 15 percent of the outstanding volume of bonds. 3. Guarantee Commission: L 1 percent of the outstanding volume of principal and interest payment due in that year. 4. Servicing Commission: 2 1 percent of the amortization and interest payments due to be paid to bondholders each year. 5. Banking ano Insurance 25 percent of commissions for guarantee, Transactions Tax: servicing and underwriting. 6. Other Experses: 1. 0.12 percent of initial issue. 7. Initial Issuing Expenses: . (as percent of initial issue) (a) UnderAriting fees: 3 percent (If the issue is underwritten on a best effort instead of firm basis, this would be 1 percent.) (b) Advertising: 1 percent (c) Stamp_duties: 0.9 percent (d) Listing: 0.05 percent (e) Printing: 0.07 percent (f) Mortgage: 2.6 percent (A mortgage is required to cover 1.4 times the initial issue; the cost of obtaining a mortgage is assumed to be 0.7 percent.) 8. The effective cost is calculated as the internal rate of return on the net flows over the eight periods. 1 This is the legal ceiling on the interest rate. /2 Commissions and fees are subject to agreement between the issuer and guarantor. The stated rates are approximately those currently charged by TSKB. Source: TSKB. - 409 - Table 7.1: IAND USE, 1952-1971 Area nultivated Tree Croos, vineyars and ve5etable Area Sown Fallow Total Vegetables Vineyards Fruit Clive groves Total Forest Meadows %nd Wasteland Are, Trees Pastures Lakes and Marshes I - 1,000 hectares .......... ---------------million hectares 1952 11,775 5,586 17,361 - 649 635 382 1,666 10,418 34.8 13.5 1953 13,021 5,791 18,812 - 671 639 397 1,707 10,418 33.3 13.5 1954 13,209 6,408 19,616 - 690 648 422 1,760 10,118 32.4 13.3 1035 14,205 6,793 20,998 - 707 660 443 1,810 10,11 32.0 13.3 936 11556 7,897 22,453 . 728 681 467 1,876 10,18 29.5 13.3 1957 1 L392 7,769 22,161 - 743 690 476 1,909 10,418 29.7 13.3 198 14,764 1,001 22,765 - 710 696 513 1,919 10,381 29.1 13.3 1959 15,02 7,920 22,940 - 770 711 537 2,018 10,Z8 29.O 13.4 i960 15,305 7,939 23,26 - 782 730 51. 2,060 10,98 28.7 13.1 '961 15 ,12 7,91's 23,976 - 775 793 e,6 2,154' 10,584 28.8 13.1 1962 15,15? 8,093 23,260 - 802 816 599 2,217 10,586 28.6 13.1 19S3 15,276 8,57 23,823 - 794 821 607 2,225 10,584 28.3 13.1 196 15,367 8,176 23,843 - 300 832 636 2,268 10,38 28.3 13.1 196 13,291. 8,262 23,556 - 800 862 613 2,305 10,58 28.0 13.1 1966 15,15, 8,52B 23,982 930 808 606 2,124 10,58 28.0 13.1 1067 15, 8,383 23,898 - 810 900 67 2,414' 12, 7t 26.1 13.1 S3S 15,400 8,797 24,092 h16 8 938 723 2,925 .19,273 26.1 13.1 !959 15,848 8,22 24,672 144 838 951 726 2,964 10,273 26.1 13.1 i970 15,589 8,705 24,294 LbW 845 1,019 731 3,043 18,273 26.1 13.1 1971 15,924 8,603 24,527 l 1,044 7LO 3,082 18,273 26.1 1972 16.077 8,996 25,073 1,032 751 18 273 26.1 13, 3 11 23 3183 823 2. L The vegetable area was included In the area oocCupied by fruit trees until 1968. LZ Since 1961 tea area Included. /I Estimates of forest area include actuaL measured area for Antalya, Balikesir, B, lu, Canakkele, Deniali, Isparta, Mugla and Zonguldak provinces and preliminary estimates of other unmeaured provinces. The much higher figures after 1967 ar, the result of new forest inventories completed in 9 of the 23 forest conservanciem Source: "Summary of Agricultural Statisties: 1972", State Institute of Statistics, Turkey end "Trends in Turkish Agriculture 1938-66", Ministry of Agriculture, Turkey. - 410 - Table 7.2: MAJOR FIELD CRPS: AREA SOWK. PRODUCTION AND Y=E2I - 1952-72 E R E A L S 0I L S E E D S I N 1D TT,S T F A 1 C 2 S svn cotton Total Wheat Garley Pulses Total Cotton Seeds F1ower Total Tobacco Ougar Beets Lint Foisatoes AR EA S W N S1,000 Ha ----------- -------------------------------------------------- Hectares ---------------------------------------------------- 1952 9,868 5,4oo 2,312 455,980 947,900 675,000 it,900 947,397 130,047 45,020 675,000 102,00< 1953 11,077 6,41o 2,437 481,120 910,670 604,700 115,300 921,026 159,926 52,600 6-4,700 i94,0o 195 11,271 6,4o5 2,500 479,411 892,820 581,750 135,200 889,773 156,000 70,303 551,750 1C9,000 1955 12,079 7,080 2,640 519,356 957,780 625,ooo 154,000 980,740 173,000 95,048 625,000 109,00o 1956 12,270 7,885 2,612 517,027 987,580 637,000 168,000 1,022,658 175,000 122,358 637,000 tio,O2O 1957 12,207 7,167 2,680 533,190 958,400 625,000 154,00 1,024,507 170,030 143,907 625,000 11 ,00 1958 L2,546 7,451 2,700 534,648 954,970 631,000 138,000 1,o16,484 156,965 140,119 631,000 137,00o 1959 12,687 7,586 2,750 543,356 953,030 624,0o 145,000 1,055,745 176,785 165,260 624,00c '1- ,oo 1960 12,945 7,700, 2836 572,470 940,830 621,000 130,000 1,100,004 189,587 202,917 621,000 u, O 1961 12,865 7,-17 2,786 586,850 950,800 649,o 117,600 1,009,419 140.025 130,344 649,000 l7,co 1960 12,965 7,800 2,800 585,394 912,760 660,000 81,300 1,027,921 129,346 125,739 660,o 169 00 1963 13,j17 7,850 2,850 564,389 898,285 628,485 91,00 1,098,352 235,669 134,585 628, 5 -0<, 1964 12,930 7,870 2,750 562,439 987,900 68o,o 16o,000 1,214,023 272,069 186,750 680,oo ]4, 00 19 12,9 6o 7,900 2,770 552,163 987,200 685,o00 16c,o 1,129,805 222,062 157,749 6<5,000 145, 00 1966 12,974 7,951 2,710 555,853 1,060,350 712,000 218,000 1,209,511 284,945 153,254 712,000 150,000 19 13ol 0 8 ,00 2,725 551,328 1,o65,990 717,600 215,000 1,220,699 297,149 149,578 717,oOO o5,'0 '96» is,i3 8 250 2,730 544,763 1,099,735 712,835 24C,000 1,160,069 273,717 126,539 712,835 43,00 S 13,475 6,660 2,697 543,699 1,064,269 638,520 286,000 1,107,576 311,840 102,637 638,520 7,00 10 13,324 8,6oo 2,590 533,500 1,011,133 527,635 360,000 1,025,907 328,498 123,838 527, 63 5 5') 1971 13,325 8 ,00 2,600 536,030 1,209,169 688,415 396,o000 1,2,40 ,62 15,012 688 3,41 69, 1972 13,185 8,730 2,530 603,750 1,371,710 760,147 495,000 1, 2,90 8,35 1 1,168 760,14 75,02 PRODUCTN N ------ ------------------------------------------- Tons ---------- - --~--------------- 1952 12,242 6 447 3,159 491,945 534,930 338,000 99000 1,342,050 91,958 1,068,936 165,0o0 -, ! 1)53 14 4 B,ooo 3 640 519,668 486,150 253,600 n14,000 1,443,193 117,795 1,171,349 139,000 1 .0,0 9 ,21 4 900 24o00 435,967 475,115 260,000 120 Oo 1,424,847 182,C00 i,i64,ol6 142,000 0,ûo 1 1955 12, 33 6,900 2.985 487,057 538,550 285,000 136,000 2,032,011 120,900 1,736,411 157,001 ,6, 00 195, 11 818 6,40 2,900 487,112 513,830 294,000 102,000 2,093,020 116,570 1,791,300 165,00, ,10,o 5 14 598 8,300 3650 531,650 470,820 270,000 95000 2,488,112 123,000 9,206,388 135,000 1,20 O,00 1958 15,077 8,550 3,600 574,209 546,890 319,000 95,000 2,655,031 115,326 2,338,280 18,000 1,i?-,ooo 195; 13,996 7,852 3,300 597,32- 577,420 316,000 127 6oo 3,814,283 129,383 3,468,910 195,000 i,5,000 196C 15,215 8,450 3,700 639,620 552,040 305,700 123.000 4,717,658 139,343 4,384,647 175,500 1 1,40 00 1961 l2,-36 7,000 2,948 592,036 570,450 360,000 96,700 3,210,172 101,407 2,877,113 212,000 1,4?5, 00 1962 14,618 8,450 3,500 586,o65 587,700 409,000 6o,oo 3,149,638 69,793 2,730,932 24),000 1963 17,40 10,300 -,288 607,527 620,780 418,0o0 87,000 3,815,285 132,183 3,280,715 257,511 , ,' 9c4 13,488 8,300 3,200 583,484 792,400 528,500 i65,ooo 5,302,057 193,668 -,705,783 326,0O 1, 196 14,6 70 8,50 3,303 589,166 792,900 527,000 160,000 3,935,481 132,374 3,-21,353 325,0o0 , , 196 1 16 -1 9,6oo 3,800 588,162 909,090 611,190 200,000 5,014,617 164,197 ,422,085 382,000 ,50,' 197 1- 069 10 00 3,800 610,127 968,678 633,688 230,000 5,877,268 189,259 5,2'3,492 396 ,5 , 6 19, 15,E82 9,52C 3,560 594,393 1,048,501 696,451 230,000 5,356,923 163, D3 ,715,5780 435,282 1, c5,0o 1 17,109 10,500 3,740 591,374 1,07L,780 640,oo0 310 000 3,938,230 145,592 3,356,472 ,ly,- ,,),,0 197 '5,8<2 '0,000 3,250 561,800 1,120,700 64,000 375.000 4,846,243 149,861 4.253,61 4o0, 00 ,915, JO 20,799 13,500 -,170 619,410 1,426,788 835,200 465,oo 6,676,9v3 173,861 5,956,176 522,<00 ,10 ,00 ,972 18,638 12,200 3,725 665,200 1,535,233 869,686 560,000 6,636,014 173,368 5,896,042 543,554 2,00, 000 ------------------- ------- -------------------------- YIFLD KIGGRAM/ECTARG ---- .---- -.-- - 1952 1,241 1,19- 1,379 1,097 - 501 893 - 74 22,26û 24- -559 1953 105 1,249 1,494 1,084 - 419 956 - 740 22,49 239 9,542 195- 854 765 960 910 - 447 862 - 645 16,557 24 ,174 1955 1,029 977 1,130 931 - 456 896 - 693 ½8,29 251,2 1956 905 872 1,110 636 - 461 607 - 662 14, o 239, 1957 1,195 1,159 1,387 997 - 432 616 - 735 15,31 2.1 c,o4 0958 1,201 1,147 1,333 1,075 - 505 689 - 734 16, 25 1939 1,103 1,042 1,202 1,i04 - 506 58 - 731 20,93<, 1960 1,175 1,097 1,314 1,117 - 492 897 - 734 21,608 2,70 1961 982 907 1,058 1,009 - 554 82 - 721 20, 9, 550 1962 1,127 1,083 1,250 1,001 - 620 738 - 61 21, 7193 .,,6 1963 1,336 1,273 1,534 1,076 - 665 925 - 56o 2 4,3r6 1 ,2 196- 1,113 1,054 1,163 1,037 - 777 1,031 - 711 25,198 4,9 ,7 1965 1,132 1,076 1,191 1,067 - 765 0,000 - 596 21,8 74, 1966 1,265 1,2o5 1,102 1,059 - 858 917 - 576 28,855 1,66 1967 1,296 1,250 1,394 1,107 - 883 1.070 - 637 35,122 S1733 1968 1,209 1,15) 1,304 1,090 - 977 958 - 596 37,266 6li 96 1969 1,268 1,212 1,392 1,088 - 1,002 1,,84 - 460 32,70 2å 2, 1970 1,199 1,163 1,255 1,053 - 1,342 - 456 31,318 ,5 1971 1,561 1,552 1,604 1,156 - 1,213 1,174 - 510 37,457 46 1972 1,414 1,397 1,472 1,102 - 1,144 1,131 - 453 39,447 715, Source: S.I.S. - 411 - Table 7.33 PRODUCTION OF MAJOR 14UTS AND FRUITS - 1952-72 (Tons) Walnuts Hazelnuts Chestnuts Amr1cota Pluma AjpLes Pears Grapes Figs Cranges Nandarinel Lanons4l 1952 55,668 77,857 14,483 11,772 43,845 94,956 64,795 1,633,503 118,413 74 9 20 1953 66,403 46,075 22,646 30,390 63,526 139,192 119,227 2,000,267 105,084 71 10 20 1954 75,062 123,147 17,557 32,677 67,485 160,995 123,082 2,247,784 107,378 111 14 30 1955 67,185 52,639 29,342 10,994 51,313 108,782 83,633 1,895,164 100,399 141 24 30 1956 87,081 151,001 31,354 26,704 78,174 195,910 127,136 2, o,777 121,176 15 21 34 1957 58,177 73,353 32,097 34,640 75,776 115,562 91,735 2,009,592 137,102 173 30 69 1958 78,260 132,183 39,523 30,288 76,586 193,443 107,059 2,991,688 154,609 179 28 70 1959 79,520 104,705 34,050 39,415 82,330 267;870 132,160 3,224,545 .155,645 155 30 67 1960 70,200 58,470 28,750 21,400 62,760 207.900 110,100 2,775,200 145,000 179 29 70 1961 80,500 76,000 38,400 137,300 93,200 282,800 145,200 3,189,300 203,700 178 34 70 1962 84,930 122,380 35,260 34,020 89,270 321,900 132,660 3,382,270 210,040 188 27 74 1963 82,090 83,440 31,64o 29,400 96,840 326,655 2151,570 2,692,870 208,190 257 42 77 1964 86,000 195,215 32,000 38,000 98,800 337,000 142,640 2,790,000 206,000 253 29 37 1965 81,000 62,000 33,000 30,000 91,298 362,000 134,000 3,350,000 210,000 300 35 78 1966 80,000 190,000 30,000 17,800 84,6oo 440,000 135,000 3,100,000 215,000 310 50 84 1967 88,000 71,000 34,000 53,000 101,750 64o,000 165,000 3,500,000 232,000 380 65 90 1968 96,000 138,000 43,000 55,000 104,600 700,000 180,000 3,725,000 215,000 476 56 130 1969 84,000 170,000 45,500 50,000 99,oo 620,D00 160,000 3,635,000 215,000 414 60 121 1970 103,000 255,000 48,000 52,000 119,000 748,o00 180,000 3,850,000 214,000 445 68 126 1971 110,025 166,000 48,000 34, 000 110,600 780,300 175,000 3,853,000 195, 000 460 75 141 1972 113,400 190,000 30,600 63,000 130,700 850,000 196,000 3,434,000 216,000 467 97 149. /Iin 1000 ton Source: "The Summary of Agricultural Statistics - 1972 State institute of Statistics, Turkey. - 412 - Table 7.4: NUMBERS OF LIVESTOCK AND LIVESTOCK PRODUCTION, 1962-71 (in thousand heads and in tons) Years Sheep Ordinary Angora Cattle Buffaloes Camels Horses Donkeys Mules Hogs Total Goats Goats 1952 26,534 16,123 4,922 10,695 1,013 96 1 216 1,725 117 - 62 440 1953 27 267 16,094 4,869 10,758 1,044 94 1,201 1,748 117 - 63r212 1954 26,807 16,121 ?98 107867 1r070 89 1,214 17710 117 - 62r956 1955 26,444 16,216 4,816 117059 11056 72 17219 1 7698 125 - 62,706 1956 27,974 16 486 57o28 11,546 1,075 66 1,257 11772 131 - 657335 1957 29,209 17,248 5?573 12064 1,122 54 17291 1,777 138 - 68,478 1958 30,823 18197 6,035 12,484 1,162 57 11333 1,840 154 - 72,085 1959 33F613 18,941 6,137 13,076 1 229 65 1,386 1,874 172 - 76,494 1960 34,463 18,637 5,995 12,435 1,140 65 1,312 17892 170 10 76,120 1961 337307 18,101 51848 12,097 1 140 56 1?305 17916 187 9 737967 1962 31r614 16,420 5,655 12?662 1 160 53 1,238 1,880 208 8 70,899 1963 32,279 15?918 5,587 12,704 1 166 48 17171 1888 205 11 70,976 1964 32,654 15,599 5,563 13,211 1 202 46 1 210 17918 216 17 71 637 1965 33,382 15,305 5,500 13F203 1Y216 46 1f199 1,971 225 18 72,065 1966 347 63 15r315 57617 13,769 1,253 43 1,204 1,986 238 16 7410 1967 35,878 f5 200 57459 14,165 1 248 43 1,183 17965 259 14 75,413 1968 36,587 15,187 51450 13,761 1 257 42 1 151 1-986 273 14 75,708 1969 36,351 15,336 41931 13r189 1,178 39 1 110 1'936 290 18 74,378 1970 36,471 15,040 4,443 12,756 1l1,7 31 1,049 1 ,805 299 20 73,031 1971 36,760 14,752 4,111 12,653 1,026 29 1 7027 1,76 301 13 72,437 1972 38,806 14 7820 3P643 13,045 17039 25 962 17 01 312 12 14"13 6 Milk Production .IBe-it Productior 174 Total Cowr Shoocp L :.a,-ib,5 Goats Cattle Calves Total Production ---- --- --- ---- --- --- - 2 n, - : = --- ---- --- --- --- ------- --- --- (in 000) 1952 3,484,949 1,475,366 34,548 9,560 11,473 36,333 3,419 102,159 978;629 1953 37376,716 11495,881 32,544 9,858 12,094 39,862 4,208 106,109 1,094 269 1954 2.,62,881 1,194,660 36,310 8,685 13,050 50,366 5,216 121,539 1 ,1134 12 1955 37480,102 1,6417715 41,253 10,482 13,294 56,414 5,896 137,418 171187421 1956 3,656,256 1 716,784 44,497 11,128 14,580 64,137 7,524 153,186 1 165r672 1957 31334,618 1 81L?298 43,726 10,261 15,798 68,328 7,344 157,608 1 193,350 1958 41178,859 21349,307 38,838 10,474 15,880 52,508 5,550 134,983 1 2387581 199 4,405,007 2,457,042 43,155 12,529 15,570 55,231 7,365 143,639 1 303,550 190, ) 199,620 2,248,260 53,728 13,638 16,380 58,606 9,838 161,966 1 3227510 1961 470347590 2,102,480 52,370 17,260 17,580 66,300 12,630 177,714 1 308 033 1062 4,066,610 2,3497310 51,310 16,260 15,760 70,550 13,830 181,042 11349?947 1963 4,058r540 2,350,590 43,550 21,420 17,060 66,020 12,900 178,180 1 335,043 196 4,134F800 2,4367600 45,450 15,950 18,780 62,094 13,366 171,293 1 359,462 1965 47158,000 2,446,000 46,953 17,317 18,016 65,563 13,747 177,837 1 74787894 1966 41322,000 2,590,000 49,076 18,504 18,394 73,294 15,336 191,921 17455,319 1967 4,426,000 2 666,000 46,852 19,586 17,272 66,814 14,716 183,806 1 ,536?189 19-6 41451000 2 664,000 48,415 20,092 15,563 69,398 17,612 189,781 1,760,010 1969 4,361,000 2,609,000 51,990 23,033 16,952 77,361 21,271 211,891 1 ,828,268 1970 4?302?000 2,551 000 54,092 28,131 19,643 72,426 22,927 219,042 17914?044 1971 4,280,000 2,535,000 54,265 25,790 21,874 67,277 19,253 207,687 2 1317361 1972 4,358 000 27558, 000 44,581 26,458 L&-746- 56,769 19,426 181,422 2461,750 Source: Summary of Agricultural Statistics - 197211 State Institute of Statistics, Turkey. - 413 - Table 7.5: PUBLIC AND PRIVATE SECTOR WORKS (In hectares) Areas Equipped Major Works .1inor Works Total Public Sector - Upo to end of 1962 103,257 Z 6 176,720 1963 18,150 21,205 39,355 1964 31,773 21,568 53,341 1965 68,915 26,077 94,992 1966 48,211 31,337 79,548 1967 70,475 50,862 121,337 output FFYP (1963-67) 237,524 151,049 388,573 Prior 1962 up to 1967 340,781 224,512 565,293 1968 43,202 50,022 93,224 1969 15,962 36,108 52,070 1970 67,085 49,000 116,085 1971 82,750 34,900 117,650 1972 78,844 46,189 125,033 Output SFYP (1968-72) 287,843 216,219 504,062 Total end of 1972 628,624 440,731 1,069,355 Private Sector /3 1,272,100 Total end of 1972 (Public and Private) 2,341,355 /2 Areas Actually Irrigated Public Sector 667,000 Private Sector 1,272,000. Total 1,939,000 /1 Public sector figures are "gross" and include irrigation, drainage, on-farm development structures, feeder roads, etc. /2 Land under effective irrigated agriculture. 7 No exact data available. - 4 However, percentage of actually irrigated land assumed not higher than 60 percent. No exact data available. Source: SPO and DSI. - 414 -- Table 7.6: FERTILIZER PRODUCTION, IMPORTS AND CONSUMPTION (1,000 tons) Year Production Imports Consumption Nitrogen L Phosphates Ll Total 1950 42 1950 43 1951 67 1953 83 1 953 82 1954 8 1955 138 1956 82 1957 82 1958 70 1959 176 1960 107 1961 217 1962 104 60 164 187 295 1963 145 180 325 141 426 1964 161 156 317 146 532 1965 155 224 379 458 812 1966 157 223 380 705 1,025 1967 155 206 361 1,279 1,535 1968 166 297 463 2,003 2,117 1969 250 273 523 1,846 2,448 1970 389 397 786 1,204 2,213 1971 356 621 977 1,426 2,568 1972 670 734 1,404 2,502 3,284 /l Gross weight. Nutrient content of Nitrogen --20-2'%; phosphate --16-18%. Source: State Planning Organization. - 415 - Table 7.71 NUMBER OF FARM MACHINES Drills Years Wood plows Iron plows Disk harrowp Tractors Trgilers Combines Grain Cotton Beet (millions) ---------------------------------= ---th ------ .......... C n ------- --------t-o---------------------- 1952 2.0 854 9 31 13 3 Horse Tractor Total 14 .1 1953 1.9 931 12 36 17 4 Drwn r-awn 2 7 .2 1954 2.0 958 14 38 18 4 -20 8 .2 1955 2.1 1,026 16 40 22 6 25 9 .5 1956 1.9 1,033 17 44 23 6 26 11 .8 1957 2.0 1,012 18 44 24 7 27 9 .7 1958 2.1 1,059 18 43 25 7 30 9 1.3 1959 2.0 1,129 18 42 ?5 6 30 11 1.5 1960 2.0 1,159 18 42 25 6 35 11 1.7 1961 2.1 1.159 18 42 26 6 35 11 1.4 1962 2.1 1,210 18 44 27 6 31 9 40 13 1.8 1963 2.0 1,237 19 51 31 6 31 9 4o 17 6.2 1964 2.0 1,323 21 52 33 7 32 10 42 17 5.8 1965 2.0 1,380 22 55 37 7 37 13 50 19 5.7 1966 2.1 1,445 28 65 4 7 33 12 45 20 6.7 1967 2.1 1,446 29 75 52 8 4o 14 54 23 8.1 1968 2.0 1,447 32 61 8 35 15 50 23 8.4 1969 1.9 1,447 37 96 80 8 41 25 66 25 7.5 1970 2.0 1,552 42 lo6 93 9 40 25 65 26 8.1 1971 1.8 1,520 54 116 97 9 38 19 57 30 8.7 1972 1.8 1,507 54 138 113 9 39 21 60 33 7.6 Source: SIS. Table 7.8: CREDIT OUTSTANDING TO AGRICULTUREP ALTERNATIVE INDICATORS, 1963-71 (TL millicna, current prices) 1963 1964 1965 1966 1967 1968 1969 1970 1971 Concept I (Public Sector Credit to Agriculture) Agricultural Bank to: 1. Farmers 1,358 1,466 1,563 2,058 2,809 3,530 4,156 4,302 4,167 2. Credit Cooperatives 625 770 851. 998 1,246 1,733 2,054 2,292 2,414 3. Sales Cooperatives 349 894 918 (1,629) (1,494) (2,129) 1,980 2,140 3,626 4. Agricultural Supply Organization 96 a40 192 308 402 278 308 480 450 5. Seed and Fertilizer Distribution 141 359 171 158 159 164 177 199 155 Central Bank to: 6. Tobacco Monopoly 215 217 298 209 233 239 298 248 214 7. Sugar Corporation 75 325 250 400 570 620 700 675 675 8. Monopolies Organization 75 335 423 723 750 1,210 1,750 1,750 1,750 9. TMO (Soils Products Office) 515 739 525 680 990 1,020 950 1,125 3,000 Total: 3,449 4,845 5,191 7,163 8,653 10,923 12,373 13,211 16,451 of which Essentially farm credit (1,2 and 5) 2,124 2,395 2,585 3,214 4,214 5,427 6,387 6,793 6,736 Essentially intervention, industrial 1,325 2,450 2,606 3,949 4,439 5,496 5,986 6,418 9,715 or trade credits % farm credit of total 62 49 50 45 49 50 52 51 41 Concept II (Agricultural Credit from the Banking System) Agriculture 977 1,015 553 1,231 1,612 1,674 1,684 1,834 3,709 Private Agriculture 247 ,0 2 3 . O .9 .7 Total Agriculture 354 4,2 2 0 7Oi]914 I577 11,307 l1710 Total Economy 13,751 16,674 20,725 26,884 32,628 39,795 49,890 57,682 69,397 Agriculture as % of Total 25 25 21 23 23 23 21 20 19 Sources: Agricultural Bank, Central Bank and State Planning Organization. - 416 - Table 7.9: AGRICULTURAL CREDIT PROVIDED BY THE AGRICULTURAL BANK, 1950-71 Current Prices 1 Constant 1950 Prices 2 Constant 1968 Prices L Index Index TL million 1954-58=100 TL million 1954-58=100 1950 412 412 37 1,585 37 1951 646 627 56 2,393 56 1952 1,068 971 87 4,643 109 1953 1,213 1,037 93 4,133 98 1954 1,497 1,160 104 4,403 104 1955 1,554 1,050 95 4,063 96 1956 1,888 1,180 106 4,605 108 1957 2,108 1,153 104 4,302 101 1958 2,161 1,005 90 3,859 91 1959 2,313 903 81 3,401 60 1960 2,392 899 81 3,417 80 1961 2,127 762 69 2,955 70 1962 2,389 818 74 3,185 75 1963 2,515 809 73 3,105 73 1964 3,244 1,030 93 3,957 93 1965 3,492 1,060 96 4,108 97 1966 4,823 1,378 124 5,300 125 1967 4,258 1,582 143 6,090 143 1968 7,917 2,062 186 7,917 186 1969 9,709 2,415 220 9,806 231 1970 11,023 2,511 226 9,569 228 1971 11,546 2,225 200 7,596 179 /1 Agricultural Bank. 2 Deflated forward from 1950 with GNP deflator based on 1968 prices. /3 Deflated backward from 1968 with GNP deflator based on 1968 prices. Source: Agricultural Bank. - 417 - Table 7.10: AGRICULTURAL CREDIT PROVIDED BY THE AGRICULTURAL BANK - 1950-71 (TL thousand) Years Short term Medium term Long term Total 1950 386,582 12,659 1,955 412,196 1951 516,111 100,415 29,980 646,506 1952 811,093 210,525 6,047 1,067,665 1953 925,088 223,979 63,775 1,212,842 1954 1,156,088 243,751 97,318 1,497,157 1955 1,228,335 217,995 108,009 1,554,339 1956 1,587,176 188,132 112,487 1;867,795 1957 1,779,525 216,491 112,165 2,106,181 1958 1,782,585 249,034 129,683 2,161,302 1959 2,102,073 115,613 95,594 2,313,280 1960 2,031,697 65,804 294,556 2,392,097 1961 1,226,107 212,387 688,801 2,127,295 1962 1,450,600 255,465 683,218 2,389,283 1963 1,677,571 429,330 408,320 2,51,221 1964 2,325,452 482,666 436,436 3,244,554 1965 2,554,863 88,427 448,950 3,492,240 1966 3,711,186 628,554 483,011 4,822,751 1967 5,240,953 788,452 228,495 6,257,900 1968 6,602,620 1,037,661 276,619 7,916,900 1969 8,063,964 1,333,745 341,272 9,708,981 1970 9,234,359 1,442,033 346,248 11,022,650 1971 9,611,409 1,585,488 348,924 11,545,821 Source: Agricultural Bank. - 418 - Table 7.11: AGRICULTURAL BANK CREDIT OUTSCANDING ACCORDING TO FUNCTION, 1963-71 (TL million) 1963 1964 1965 1966 1967 1968 1969 1970 1971 Direct to Farmers: Operating Loans 736.3 802.7 874.3 1,184.6 1,673.5 2,038.5 2,264.1 2,028.2 1,485.6 Loans for Marketing and iales 27.2 31.4 26.3 46.0 58.0 51.1 41.7 44.0 47.8 Machinery and Equipment loans 252.8 264.0 264.8 376.6 564.3 740.5 781.3 655.7 695.3 Loans for Increasing Proauctivity 6.4 5.2 4.1 16.4 20.3 20.7 18.5 10.2 6.3 Loans for Land Purchases and Fixed Capital Installations 83.9 91.1 80.6 121.2 167.8 209.7 261.2 251.3 241.4 Loans for Agricultural InJustries 8.7 8.0 8.9 11.1 16.1 19.8 21.6 18.6 15.8 Delinquent and Foreclosed Loans 158.0 173.1 221.2 222.1 239.9 327.8 579.2 1,001.2 1,322.3 Loans for which Payments save been Rescheduled 85.2 63.3 43.3 28.6 17.0 14.0 23.0 110.5 152.8 Agricultural Loans Extend d fron Reserves - 26.4 33.7 32.1 - - - - - Sunervised Credit Program - 1.2 6.1 18.9 52.1 107.6 165.1 181.9 199.8 Sub-Total 1,358.5 1,466.4 1,563.3 2,057.6 2,809.0 3.529.7 4,156.5 4,301.6 4,167.1 Loans from Special Funds: AID 34.2 39.6 44.5 44.7 47.3 51.2 48.6 53.5 48.9 Other 14.2 13.9 13.1 12.3 11.7 31.7 166.5 206.9 221.6 Agricultural Credit Cooperatives 573.0 621.0 727.3 920.7 1,334.0 1,735.2 2,003.1 2,125.2 2,015.8 Agricultural Sales Cooperat4ves 394.1 944.5 973.4 1,629.0 1,494.0 2,127.2 2,849.6 3,656.3 4,487.1 Agricultural Supply Agency 95.9 140.2 192.2 306.0 402.1 278.0 307.6 480.4 450.3 Seed and Fertilizer Distribution 141.2 159.2 170.6 158.6 159.1 163.8 177.0 198.7 155.0 TOTAL 2,611.1 3,384.8 3,684.4 5,130.9 6,257.2 7,916.6 9,708.9 11,022.6 11,545.8 Source: Agricultural Bank. - 419 - Table 7.12: AGRICULTURAL BANK LOANS TO SALES COOPERATIVES THAT ARE INVOLVED IN INTERVENTION 1954-72 1 (TL million) Olive Year Hazelnuts Raisins Figs C3tton Oil Pistachios Total 1954 76 9 2 183 11 1 282 1955 32 9 5 214 11 2 273 1956 115 35 10 391 10 6 567 1957 17 23 11 510 24 6 748_ 1958 181 12 9 634 20 6 862 1959 192 24 10 598 26 8 858 1960 171 19 12 632 26 7 867 1961L2 69 40 11 487 12 6 625 1962 88 80 6 445 4 7 630 1963 86 11 4 239 4 5 349 1964 516 35 5 322 12 4 894 1965 405 130 5 364 8 6 918 1966 220 180 na na na na na 1967 700 100 22 610 102 na na 1968 290 165 22 440 82 na na 1969 610 155 37 967 141 70 1,980 1970 598 124 37 1,192 160 29 2,140 1971 1,226 341 84 1 689 152 54 3,626 1972 1,161 356 84 1,094 302 110 4,979 5 The figures represent the total loans made to cooperatives marketing the commodity. Therefore, the total figure is for all purposes. The cooperatives handle one product so the loans to a commodity can be identified. /2 The distribution of the consolidation amount is not known. Previous loans consolidated. Distribution of the ionsolidated amount is not known. Source: Agricultural Bank. Table 7.13: LABOR AND POWER REQUIREMENT COEFFICIENTS PER TON AND HECTARE OF CROPS Hours of Labor Hours of Power by Adult Workers by Pair of Horses L Crops Per hectare Per ton Per hectare Per ton Fallow 34 - 34 - Wheat 141 150 81 73 Maize 202 188 82 23 Barley 141 134 81 58 Alfalfa hay 165 19 - 6 Cotton, fiber 242 122 16 3 Cotton, seed - 122 - 4 Tobacco 1,102 600 116 4 Sugarbeets 575 31 76 13 Opium, gum 561 80 81 - Opium, seed - 365 - 5 Tea 500 463 20 8 Sunflower 152 143 81 4 Peanuts 321 249 9 3 Potatoes, onions 491 32 111 5 Garlic, vegetable 579 80 96 5 Melons 237 15 97 8 Citrus fruit 416 28 91 8 Olives 101 44 11 8 Figs 200 36 55 8 Grapes 96 19 96 8 Hazelnuts, pistachios 55 250 66 8 Walnuts, almonds 26 80 6 8 L Tractor power in case of cotton and peanuts. Source: Y. 0. Hamurdan, "Surplus Labor in Turkish Agriculture," Annex Table 3, State Planning Organization. - 421 - Table 7.14: PRICES RECEIVED BY FABDERS, SELECTED YEARS 1950-69 1950 1955 1960 1965 1969 ----------------- kurush/kg---------------- Wheat 28.4 33.2 59.1 85.5 97.2 Corn 20.2 26.8 52.7 70.4 89.4 Barley 16.3 26.2 48.5 65.1 80. Sugarbeets 6.2 7.8 15.2 14.1 14.1 Beans 32.6 67.0 166.7 216.2 269.2 Cotton (lint) 303.0 283.8 494.1 516.6 564.6 Hazelnuts 108.0 159.1 324.6 489.3 557.7 Tobacco 181.4 235.5 470.0 843.3 685.5 Table 7.15: AGRICULTURAL PRODUCT PRICES 1962-70 (CENSUS DATA) 1962 1965 1965 1970 --------------kurush/kg---------- Wheat 68.0 76.3 80.2 85.0 Corn 60.0 61.3 79.7 87.0 Barley 46.2 52.2 64.5 67.1 Sugai,beets 12.4 14.1 1L.1 2C00 Eean!- 15.1 176.1 227.6 251.6 Cotton (fibre) 190.2 182.9 204.8 249.0 Hazelnuts 557.7 521.2 562.6 689.9 Tobacco 738.5 742.7 812.5 835.2 Source: TOPRUK VE TARIM REFORMU ACI3IDAN SAYILARLA TURKIYE, Ankara, 1973, p. 75. - 422 - Table 7.16: PRICES RECEIVED BY FARERS FOR MAJOR TYPES OF LIVESTOCK, SELECTED LOCATIONS, 1969 AND 1967-69 AVERAGE TL/head Istanbul Ankara Adana Izmir Erzurum Konya Kars Mush ----------------------------------1969-------------------------------- Sheep 214 185 210 228 202 185 190 242 Lambs 87 88 10k 124 86 81 89 114 Cows for beef 856 891 833 929 844 968 802 887 Oxen for beef 1050 1016 1037 983 1040 1108 947 175 Hens and cocks 18 14 13 15 11 13 10 9 ----------------------------------1967-69 Average--------------------- Sheep 204 183 193 216 210 179 205 221 Lambs 90 84 88 111 99 82 90 103 Cows for beef 899 828 815 832 816 959 800 836 Oxen for beef 993 906 968 885 988 1030 917 1068 Hens and cocks 17 1k 12 1k 10 13 13 8 Source: TARIMSAL YAPI VE URETIM 1969, State Institute of Statistics, Ankara 1971. - 423 - Table 7.17: INDEXES OF WHOLESALE AND EXPORT PRICES (1968 = 100) Commodity 1969 1970 1971 1972 Cotton Export Price 92 105 156 178 Wholsale Price Adana 100 131 195 181 Izmir 92 109 160 177 Tobacco Export Price 105 107 131 144 Wholesale Price (Istanbul) 103 120 135 168 Hazelnuts Export Price 108 138 150 149 Wholesale Price 115 134 150 148 Figs Export Price 113 152 174 203 Wholesale Price 102 134 170 194 Livestock Export Price 107 150 197 248 Wholesale Price (Kars) 102 141 208 315 Istanbul 107 123 167 232 Source: Ministry of Commerce. - 424 - Table 7.18: MAJOR AGRICULTURAL EXPORTS BY QUANTITY 1961-72 (Thousand tons) Fruits Year Hazelnuts Tobacco Cotton Raisins Figs Tal -TTrus Livestock Fish Sugar Olive Oil Vegetables (head) 1961 36 87 90 6h 24 - - - 10 - - 1962 43 89 105 68 30 - - - 7 - .3 - 1963 42 43 135 66 27 - 25 - 6. 41 14.8 - 1964 49 55 152 52 28 - 15 - 7 125 7.5 - 1965 57 65 175 65 29 - 32 845 11 79 20.h - 1966 52 82 236 69 28 - 42 1,235 10 58 4.2 - 1967 71 90 223 72 32 - 46 683 6 76 12.5 - 1968 62 80 224 7h 32 - 59 412 5 26 1.4 - 1969 81 67 204 76 28 75 68 436 7 46 22.2 33 1970 62 69 310 69 29 100 52 348 9 40 .3 27 1971 66 89 323 89 33 133 107 641 7 27 1.3 52 1972 94 12L 297 114 32 127 - 416 7 112 3.4 55 1973 94 101 369 90 33 150 - 587 10 14 44.4 126 Sources: Konjonktiir, Ministry of Commerce. Monthly Bulletin of Statistics, SIS. Monthly Economic Indicators, SIS. - 425 - Table 7.19: EXPORT, WHOLESALE, RETAIL SUPPORT AND FARM PRICES OF MAJOR AGRICULTURAL COMMODITIES (1962-72) (Kurush/ ,kg) SUGAR 9EA RAISINS FOB etail Farm (support) rice Export Wholesale p 7)B Export Wholesaesupport ets) Istanb (Green (Istanbul) (Iz4ir ö 8.5) (IzlIr #9) Mber Non,,em.-er (Processed) Leaf) 1962 54 250 12.4 - 3840 300 215 180 - 176 - 1963 223 250 13.7 - 3840 300 225 211 - 203 - 1964 139 250 14.1 - 3840 300 2019 237 242 228 - 227 1967 93 250 14.1 - 3840 350 295 228 225 231 - 227 1965 107 250 14.1 499 3840 350 2P 217 222 228 - 227 1967 7) 295 14.1 494 3V> 350 210 219 227 - 227 1968 50 300 14.6 218 3840 350 1 201 206 21, - 227 1969 75 300 14.1 - 3840 350 /0 204 224 233 - 242 1972 161 310 20.0 220 384 - >h22'/ 247 254 280 270 1971 179 - 20.0 329 384o - 1l, 261 271 277 292 275 1972 172 360 20.0 3361 , 00 10 511 352 403 307 21, TOBACY M KE MJB Export 'Nholesale Monopoly Merchant Farm Price /1 <33 Export oport olesale lopport, -arm Pricel11 (Istanbul) Census PR by 1Member *n-Membeber (1tanbu) 'esus Pb 1962 972 1201 1177 1152 738 1071 169 - - - 57 23 60 19o0 1392 1514 909 874 1164 812 196 - - - 5 56 62 196. 1463 1557 807 677 889 758 216 - - 61 57 55 61 1965 1239 1328 897 841 743 847 215 - - 68 57 56 65 1966 1178 1325 822 793 881 808 216 - - 71 57 55 71 1967 1176 1362 809 700 809 821 203 - - 71 57 59 70 1968 1068 1341 855 738 808 854 194 - 76 59 61 72 1969 1084 1387 877 728 812 685 220 - - a1 60 64 76 1970 1106 1604 1135 1039 835 - 321 2u0 190 81 65 67 - 1971 1250 1809 1170 1046 - - 212 235 220 90 75 - - 1972 1288 2249 1313 1404 - - 344 260 240 92 75 - - /1 PR by F = Prices received by farmers in district markets - Census = producer prices contained in 1970 Census. Source: KONJONKTUR "Ministry of Comnerce" TARIMSAL YAPI VE URETIM, SIS. Monthly Agricultuxal Price Policy in Turkey, O.D. Forker, 1971 TOPRAK VE TARIM REFORMU AGISINDAN SAYILARLA TURKIYE. Table 7.19: EXPORT, WHOLESALE, RETAIL SUPPORT AND FARM PRICES OF MAJOR AGRICULTURAL COMMODITIES (1962-72) (continued) (Kurush/kg) CORN WHßAT BARLEY holesale TYD Farm Price Wholesale TWO Farm Price Wholesale T. Farm Price (Istanbul) Support Census FPR by F sbul) ah Support Census PP by F (Bn S t Census PR by F (sot T t (Hard) 3feed) (whi 1962 - - 60 68 - - - 75 68 82 - - 40 46 59 1963 - - 62 72 75 73 ' - 75 70 82 56 54 35 48 59 1964 62 - 53 69 78 72 - 75 70 81 57 58 35 48 59 1965 66 - 61 7D 85 79 - 75 76 36 74 69 35 52 65 1966 85 - 71 80 89 81 - 80 77 90 71 7.1 47 56 71 1967 60 - 70 8 90 86 - 80 77 90 - 69 50 56 71 1969 79 - 71 83 92 93 - 80 77 92 64 79 55' 59 74 19£9 96 - 80 89 97 89 . 84 80 97 79 85 60 64 80 1970 96 90-95 81 - 101 93 80- 90 90- 95 85 (100) 69 83 55-65 67 - 171 99 90-95 - - 110 106 84-103 103-106 - - 98 90 55-65 - 1972 136 90-95 - - 125 109 98-103 103-106 - - 100 104 65-80 - - IHAZELNU'Ij COTTON 1 Erport Wholesale . OB Eport Support Farm Price 0B Export Supot Farm Price Istanbu1) (u,stelied) Census PR by F i9(ukaova Ceosus 2P by Fi (SheleId Mejrer Non Member Meber Non Member (fiber 196f 115, 1155 613 - 558 501 537 - - 190 524 1961 11,1 1120 638 - - 541 524 523 - - 195 535 1964 925 856 478 450 - 426 503 523 - - 188 523 1965 953 972 464 525 - 521 489 508 - - 183 517 1966 946 977 496 500 - 480 519 483 - - 187 512 196, 1039 1072 539 530 - 508 498 518 - - 211 543 1968S 1082 1054 591 - - 513 529 457 225 - 200 552 1969 1181 1214 569 - 563 558 490 235 - 205 565 1970 1400 311 800 750 730 690 - 686 270 260 249 - 1911 1597 1579 797 850 800 - - 726 320 300 - 1972 1634 1561 801 850 800 - - 852 355 332 - - I Prices received by farmers. - 426 - Table 7.20: INVESTMENTS IN THE AGRICULTURAL SECTOR (TL million, 1971 prices) Investments in Investments in Investments in 3rd Plan Period 1st Plan Period 2nd Plan Period Total Distri- (Realizations) Realization estimates Value bution Water-soil resources dev. a 7,600.9 9,561.0 14,209 43.1 Agricultural tractors, machinery, equipment 3,575.0 4,767.6 11,136 33.8 Research, publication, other public services 595.3 792.3 1,810 5.5 Agricultural buildings, marketing facilities 403.3 664.2 1,162 3.5 Seeds, orchards, etc. 306.5 351.2 636 1.9 Breeding stock 36.5 47.2 140 0.4 Forestry /a 1,699.0 1,756.0 3,088 9.3 Fishery products 351.7 508.0 769 2.3 Others 56.9 185.8 50 2.2 TOTAL 14,625.1 18,633.3 33,000 100.0 a Machinery included. Source: State Planning Organization. - 427 - Table 7.21: LAND USAGE BALANCE 1972 ESTIMATED AND 1977 PROSPECTED 1972 1977 1000 Ha. 1000 Ha. Grains 13231 13016 Local 6000 3900 High-yielding wheat 2600 4500 Barley 2700 2900 Maize 675 750 Rice 70 81 Other farm crops 1186 887 Edible legumes 380 410 Industrial crops, oil seeds 1750 1850 Sunflower 400 L60 Potatoes 165 180 Sugar beets 190 170 Cotton 710 760 Others 325 250 Fruit 2600 2745 Citrus fruit 45 85 Tea 27 30 Olives 725 760 Vineyards 855 870 Others 948 1030 Vegetables 500 Forage crops 410 898 Fallow 8600 000 TOTAL 27871 27171 Source: SP0. - 428 - Table 7.22; IRRIGATION BALANCE 1972 1977 Area Area Index 1977 (000 Ha.) Percent (000 Ha.) Percent 1972: 100 Cereals 510 26. 65O 26.2 127.5 Wheat 290 15.0 360 14.5 124.1 Rice 70 3.5 81 3.3 115.7 Corn 90 4.6 10 5.6 155.6 Others 60 3.1 69 2.8 115.0 Legumes - Feed 90 4.6 124 5.0 137.8 Ind. Plants 824 I2.5 1,065 43. 129.2 Cotton 500 25.8 620 25.0 124.0 Sugarbeet 130 6.7 160 6.5 123.1 Sunflower 90 4.6 170 6.9 188.9 Others 104 5.4 115 4.6 110.6 Fruits 215 11.1 290 11.7 134.9 Citrus 45 2.3 55 2.2 122.2 Others 170 8.8 235 9.5 138.2 Vegetables 300 1 14.1 116.7 TOTAL 1,939 L 100.0 2,479 A 100.0 127.8 Source: State Planning Organization. a Approximately 670 thousand hectares are state irrigation. /b Estimated that 1.1 million hectares shall be from state irrigation. - 429 - Table 7.23: DOMESTIC DEMAND ESTIMATES FOR ANIMAL PRODUCTS (1971 prices) 1967 1972 Second Plan 1977 Third Plan Amount Value Amount Value Annual Av. Amour+ Value Annual Av. ('000 tons) (TL M) ('000 tons) (TL M) Inc. (%) ('000 tons) (TL M) Inc. (W) (1) (2) (3) () (5) (6) (7) (8) 3eef, mutton 435.9 5539.4 545.8 6952.0 h.6 730.1 9241.3 5.9 'hicken 72.7 981.3 118.9 1604.9 10.3 180.1 2131.7 Total meat 508.6 6520.7 664.7 8556.9 5.6 910.2 11673.0 6.L Milk 2777.5 5007.8 3377.6 6089.9 4.0 4L29.6 7986.5 5.6 1ggs 84.8 693.8 119.9 980.8 7.2 195.6 1599.9 1C.- !ohair, wool 62.7 850.3 73.3 995.3 3.2 89.7 1241.5 4.5 Others -- 7481.9 -- 7664.8 0.5 -- 847.0 2.0 Grand total 20554.5 24287.7 3.4 305L7.9 5.0 Source: State Planning Organization. Table 7.24: ESTIMATES CF TEE DOMESTIC PRODUCTION OF ANIMAL PRODUCTS (-1971 prices) 1967 1972 Second Plan 1977 Third Plan Products Amount Value Amount Value Annual Av. Amount Value Value Inc. (%) ('000 tons) (TL M) ('000 tons)(TL M) Inc. (%) ('000 tons) (TL M) Five Annual Years Average (1 ) (2) (3) (1) (5) (6) (7) (8) (9) Beef, mutton 447.9 5,691.9 545.8 6,952.0 1 730.1 9,21.3 32.9 5.9 Chicken 72.7 981.3 118.9 1,6o4.9 10.3 180.1 2,431.7 5 8.7 T5otal meat 20.6 6,673.2 664.7 8,556.9 5.1 910.2 11,673.0 36.4 6.4 MIk 2,777.5 5,007.8 3,377.6 6,089.9 4.0 6,429.6 7,986.6 31.1 5.6 Eggs 84.8 693.8 119.9 980.8 7.2 195.6 1,599.9 63.1 10.3 Mohair, wool 60.0 793.4 68.4 914.6 2.9 84-5 1,152.0 26.0 4.7 Others - 7,481.9 - 7,649.9 0.L - 8,L26.5 10.2 1.9 Grand total 20,650.1 2L,192.0 3.2 30,837.9 27.5 5.0 Ncte: Includes bee-keeping, silkworm, rabbit and turkey breeding. Scurce: State Planning Organization. - 430 - Table 7.25: LAND DISTRIBUTED BY LAND COMMISSION L 1947-67 Number of Year Land Distributed Families (1,000 ha) Given Land 000's 1947 5 1.4 1948 24 4.3 1949 39 8.4 1950 82 18.6 1951 103 19.0 1952 166 39.2 1953 210 39.2 1954 242 43.5 1955 181 36.0 1956 195 35.5 1957 153 29.8 1958 148 35.5 1959 126 27.8 1960 125 30.5 1961 6 .4 1962 2 .3 1963 1 .4 1964 .5 .5 1965 10 1.2 1966 16 1.4 1967 154 28.1 1947-67 1.98 L01.0 1973 L 2,204 817.0 Total: Cultivated area (including fallow and orchards/ vineyards). A Excludes pastures and lPnd ditriblited +. immigrants. /2 Reported to the mission in 1973 and probably not comnarable considering the difference in number of families. Source: State Institute of Statistics. - 431 - Table 7.26: NUMBER AND AREA OF LAND HOLDINGS BY SIZE OF UNIT, 1963 Size of Unit Number of Units Land Area ha '000 '000 ha 0.1 - 0.5 399 12.8 114 0.7 0.6 - 1.0 375 12.1 317 1.9 1.1 - 2.0 495 16.0 745 4.5 2.1 - 3.0 349 11.2 870 5.2 3.1 - 4.0 291 9.4 1,024 6.1 4.1 - 5.0 223 7.2 1,009 6.0 5.1 - 10.0 562 18.1 3,995 23.9 10.1 - 20.0 292 9.4 3,973 23.8 20.1 - 50.0 100 3.2 2,842 17.0 50.1 - 100.0 11 0.4 755 4.5 100.1 - 250.0 2.9 0.1 370 2.2 250.1 - 500.0 1.0 .04 314 1.9 500 + ., .02 406 2.L Total 3,101 100.00 16,734 100.0 / Numbers do not add to totals due to rounding. Source: SIS. - 432 - Table 7.27: NUMBER AND AREA OF LAND HOLDINGS BY SIZE OF UNIT, 1970 Size of Unit Number of Units Land Area Parcels of Land ha '000 Million ha 7'000 per unit 0 - .5 459 15 142 1 802 1.75 .6 - 1.09 4OS 13 329 3 1,158 2.86 1.1 - 2.09 622 20 873 7 2,306 3.71 2.1 - 3.09 375 12 960 7 1,962 5.23 3.1 - 4.09 259 8 926 7 1,556 6.01 4.1 - 5.09 196 6 901 7 1,392 7.10 5.1 - 10.09 453 15 3,233 24 3,h64 7.65 10.1 - 20.09 221 7 3,03 23 1,945 8.80 20.1 - 50.09 78 3 1,991 15 812 1o.41 50.1 - 100.09 17 1 804 6 186 11.23 Total 3,081 100 13,202 100 15,543 5.04 Note: Data are from a sample of the agricultural census and exclude about 13 million ha which are in larger size units. There are about 4,000 units with 1,000 or more ha and an undetermined number with 100 to 1,000 ha which together account for about 13 million ha of cultivated area, orchards and vineyards not included in the above tabulation. Source: State Statistical Institute, 1970 Agricultural Census (sample tabulation). - 433 - Table 8.1:INDUSTRIAL PRODUCTION OF SELECTED COMMODITIZS (1000 tons, except as indicated) 1962 1967 1968 1969 1970 1971 1972 Manufacturing Cement 2,323 4,238 L,727 5,795 6,374 7,546 8,421 Chemicals, fertilizer -Ammonium sulfate 2 86 81 90 88 84 84 -Sulphuric acid 2 22 23 22 23 22 21 31 -buperphosphate 2 205 187 151 195 287 433 Glass and bottles - 22 47 52 83 82 64 65 Ccke -- -- 1,430 1,594 1,531 1,445 1,453 Metals -Pig iron L 847 910 98 1,034 881 1,135 -Ingots and steel L 993 1,11- 1,170 1,312 1,122 1,142 -Rolled procb4ots -- 357 442 587 547 326 -Sheet iron 1 260 333 323 414 390 367 -Paper 3 94/ 109 116 116 118 330 259 -sugar 1 390 609 718 588 518 723 794 Textiles -Cotton yam 29 3h 37 34 7 48 47 -Cotton fr>ric 1 16bL 189 209 200 220 222 211 (mill. meters) -Woolen fabric / 4/4 6 5 5 5 (mill. meters) woolen yarn 3 3 3 3 3 3 Window glass -- -- -- 54 72 63 73,632 Consamer products 1 -Tea -- -- 35 50 46 31 14,536 -Cigarettes 31 33 35 38 35 44 43 -Packed Tobacco 2 3 3 3 3 3 3 -Alcohol 18 16 15 18 21 25 -Beer 25 33 38 Li 44 56 54 -Raki 6 8 10 9 9 11 -aine 10 14 17 15 21 18 16 -Cther liquors 5 6 7 4 5 5 lYuel and Energy Asphalt 186 223 199 189 211 Crude petroleum 595 2,752 3,101 3,599 3,L60 3,41 10,732 Fuel oil 4 2,258 2,765 2,96c 3,260 3,997 4,709 Gasoline 1 797 913 923 980 1,16- 1,516 Electricity (mill. kwh) L 3,559 6,016 6,886 7,830 8,622 9,780 -- Kerosene -- -- 471 123 137 183 506 Motorine -- -- 1,501 1,242 1,620 2,080 2,518 ining Coals i 3,893 7,168 7,94 7,731 7,598 7,817 7,862 LigniteL 2,979 6,550 8,078 8,384 8,773 9,566 Chrome ore 1 527 632 609 656 757 916 649 Copper/3 769 25 24 19 19 18 1,106 Iron ore 1 813 1,553 2,223 2,125 2,954 2,519 1,953 Sulphur 19 25 2h 25 27 2' 81 Boracite 1 Co 107 392 135 611 / Public and private sectors. Private sector only. Public sector only. 70 1963 data. zcurce: -tate Institute of otatistics; Monthly Economic Indicators; Monthly Economic Indicators. Table 8.2: VALUE OF MANUFACTURING PRODUCTION (TL millions, current prices) Average Annual Rate of Growth (Preliminary) Program () 1967 1968 1969 1970 1971 1972 1973 1967 - 1972 Food processing 18,049 19,557 23,445.7 26,378.3 35,424 40,802 41,043 17.7 Beverages 812 916 1,175.8 1,447.8 1,636 1,774 1,969 16.9 Tobacco processing 2,432 3,063 3,838.5 3,913.3 3,996 4,437 5,229 12.7 Textiles 9,100 9,850 11,090.0 11,800.0 16,810 19,880 22,300 16.9 Wood products 1,983 2,260 2,842.6 3,138.5 3,757 4,330 4,746 16.9 Paper 386 438 442.3 533.2 1,114 1,609 1,852 33.0 Printing 446 560 665.6 760.0 980 1,140 1,305 21.0 Hides and leather prod. 258 279 310.6 1,533.2 2,125 2,990 3,327 60.0 Rubber products 985 870 948.9 993.3 1,380 1,590 1,720 10.0 Plastic products 278 447 586.0 700.0 840 1,200 1,490 34.0 Chemicals 2,383 2,779 3,674.7 4,593.6 5,580 6,993 7,835 24.0 Petroleum products 3,483 3,982 4,038.2 6,626.3 8,331 9,925 11,380 23.0 Ceramics 173 211 253.6 296.7 380 516 312 24.0 Glass 389 443 465.8 590.2 859 1,006 1,535 21.0 Cement 740 802 985.2 1,083.6 1,752 1,972 2,134 21.0 Cooked lime & cement goods 577 696 867.3 958.3 1,018 1,252 1,389 16.8 Iron and steel 3,360 3,520 3,742.8 4,207.1 5,561 6,995 7,970 15.8 Nonferrous metals 640 901 1,150.2 1,234.9 1,423 1,470 2,373 18.2 Metal products 2,040 2,360 2,775.0 2,858.0 3,100 3,730 4,200 12.9 Machinery 1,200 1,319 1,665.9 1,784.0 2,280 2,695 3,055 17.1 Agricultural machinery and implements 451 629 798.1 594.0 1,162 1,780 2,065 31.0 Electrical machinery 715 905 1,219.0 1,370.0 1,642 1,991 2,349 23.0 Electronics 298 318 282.A 202.0 335 502 635 11.0 Road vehicles 1,566 2,025 2,365.7 2,127.7 3,563 5,567 6,323 29.0 Railway vehicles 200 248 216.0 473.5 4o6 583 690 24.0 Shipbuilding 74 55 170.2 224.2 200 325 409 34.0 Aircraft repair and maintenance 12 18 19.8 20.4 - - - - Total 53,125 59,500 70,035.9 79,256.7 105,654 127,054 142,835 Price deflatorL ('67=100) 100.0 101.5 104.2 113.5 134.8 147.2 8.1 General price deflator for the manufaecturing sector. Source: State Planning Organization. T DEMAND AND SUPPLY FOR MANUFACTURED PRODUCTS. 19( 1, 1969 AND 197P (Figures in TL billion at currnt prices; 1972 data at 1971 prices) 1963 1969 1972 (at [971 pri...) C inr s ion Production 19ports Exports Consunption Consu,r 6ods lodustries 14.9 0.3 0.2 14.9 36.9 0.1 1.6 35.4 52.8 0.3 4.9 4B.2 Food proces..ng 6.7 0.2 0.2 6.7 21.5 0 0 1.5 20.0 28.2 0.1 2.7 25.6 Heerage. 0.5 0.0 0.0 0.5 1.2 0.0 0.0 1.2 1.4 0.0 0.0 1.4 Tob cco 1.7 - - 1.7 3.3 - 0.0 3.3 4.5 - 1.5 3.0 lextilr and Clothing 6.0 0.1 0.0 6.0 10.9 0.1 0.1 10.9 18.7 0.2 0.6 18.3 lote-ndiat, (c,ods lnd-strian 6.5 1.6 0.2 8J0 21.3 3.0 0.3 24.1 44.7 7 2 11 50.9 For- Produ rts 1.0 0.0 0.0 1.0 2.9 0.0 0.0 2.7 3.9 _0.1 3. Pulp. P pr ad Punstng 0.8 0.1 - 0.9 1.1 0.2 0.0 1.4 2.7 0.2 0.0 2.9 Hide .nd Lea-ther 0.3 0.0 - 0.3 0.3 0.0 0.1 0.3 2.3 0.0 0.3 2.0 Rubb-r and PlastIc 0.0 0.2 - 9.2 1.0 9.1 0.0 1.1 . 2 7 0.1 D.0 2.B Ptolu Prduts 1.1 0.1 0.1 1.7 4.5 0.2 0.0 4.7 8.4 0.3 0.2 b.5 Cho-cals and Pertilx.ers 1.3 0.7 0.0 1.9 4.0 1.8 0.1 5.8 10.0 3.4 0.2 11.5 Non-MetIllic Ccneral- 0.8 0.1 0.0 0.9 2.7 0.1 0.0 2.8 4.7 0.1 0.1 4.7 faic Mctals 1.2 0.5 0.1 1.7 5.0 0.6 1.1 5.4 9.7 3.1 0.2 12.6 ln,-I-pnt Guods lrd.stlir 4.2 i2 0.0 6.9 10.9) 3.1 0.0 13.3 16.0 9.2 0.1 3.1 Mt.-1 Products 2.0 0.2 - 2.2 298 0.2 0.0 2.9 3.15 0.4 00C 3.9 M-chin,ry 0.5 1.4 1.9 2.7 2.0 0.0 4.0 4.0 5.5 0 0 9.5 Flctricial Machinery and Electron us 0.5 0.4 - 0 9 1.5 0.5 0.0 2.0 2.3 1.3 0.0 3.6 T1ranport . qu. omn. t 0.8 0.7 1.4 2.8 0.6 - 3.6 6.1 1.9 0.0 8.0 M,si .sl nouo 0.4 0.1 0.0 0.5 0.2 - - 0.2 - Manuccu tur g industry 25.9 4.7 0. 29.9 68.1 6.6 1.9 72.7 113.5 16.7 6_F"'1 124.1 Imsport. in neli tso iconsumption 15.81 9.1% 13.51 Exp-rt- in re ltI on o producion 1.6% 2.8% 5.4, 1 The bi h figu Ir export- of processed food& and tobacco in 1972 arn appar ntly d.r, La ry lrge port, t - extensive deticition of industrial procossing Th. Mission, includiIg such najor products as sugur, olv oil, 0l -ck rriv. aI an exportfgre of only CL 1.2 billion as contrased -xth IL 2.7 billion how in the Plan. So 19, I and 19(9 (SPO 1970) 197 (SPO 1975; Plua data) - 435 - Table 8.4: FIXED CAPITAL FORMATION IN MANUFACTURING (TL millions, constant 1965 prices) Total 1st Total Plan (1963-67) 1968 1969 1970 L 1971 1972 (1968-72) Total Manufacturing L Public 3,918 1,515 1,712 2,152 2,761 3,225 11,365 Private 7,864 2,254 2,688 3,109 3,118 3,527 14, 96 Total 11,782 3 4,400 5,261 2879 6Z2 EJ9L Food, beverage, tobacco Public 696 209 200 243 165 181 999 Private 819 232 253 227 284 286 1,282 Total 1,515 441 453 470 449 467 2,281 Textiles & clothing Public 312 80 59 53 80 140 411 Private 1,503 361 399 254 360 632 2,006 Total 1,815 441 458 307 40 772 2,L18 Forestry products Public 53 28 61 $6 33 31 209 Private 118 43 $4 63 85 40 285 Total 171 71 11$ 119 118 71 494 Pulp & paper Public 218 240 431 367 127 53 1,218 Private 4$ 26 48 81 95 30 280 Total 263 266 479 448 222 84 1,498 Printing Public 48 10 6 4 1 2 23 Private 178 34 48 33 55 $1 221 Total 226 44 54 37 56 53 244 Leather & skins Public 7 2 3 3 2 1 11 Private 41 8 15 17 9 13 62 Total 48 10 18 20 11 15 78 Rubber Public -- -- -- -- -- -- Private 49 36 78 46 31 47 232 Total 449 36 78 46 32 47 238 Plasties Public -- -- -- -- -- -- -- Private 85 65 66 50 51 5L 286 Total 85 65 66 50 51 54 286 Chemicals Public 896 426 fl1 386 403 574 2,09C Private 708 286 692 624 1 41p1 2,35 Total 1,604 712 993 1,010 821 992 4,528 Petroleu= Refining Public -- 106 263 315 424 291 1,4c5 Priva.te -- 87 30 118 136 87 8 Total 193 299 433 560 378 1,863 - 436 - Table 8.h: FIXED CAPITAL FKRMATION IN MANUFACITURING (Contd.) (TL millions, constant 1965 prices, Total 1st Plan Total Target (1963 to 1967) 1968 1969 1970 L 1971 1972 (1968 to 72) (1966 to 72) Cement Public 132 88 87 48 55 410 Private 208 87 258 153 71 777 Total 360 175 365 201 126 1,187 950 Non-metallic products Public 4 10 -- -- 7 61 Private 160 70 208 196 336 968 Total 184 80 208 194 343 1,009 340 Iron & Steel L Public 81 63 115 874 1,663 2,796 Private 173 164 175 217 651 1,380 Total 256 227 290 1,091 2,314 6,176 4,200 Non-ferrous metal Public 66 104 401 507 -- 1,078 Private 130 82 250 265 -- 727 Total 196 186 651 772 -- 1,805 1,500 Metal Products Public 77 9 27 11 15 15 77 Private 512 136 131 175 161 166 767 Total 589 163 158 186 176 181 8644 1,150 General Machinery Public 106 31 12 8 19 103 173 Private 129 59 120 175 225 16 723 Total 235 90 132 183 264 247 896 1,550 Agricultural Machinery Public 9 2 3 1 3 2 11 Private 30 36 39 63 38 26 202 Total 39 38 62 6L 41 28 213 150 Electrical Machinery & Electronics Public 2 7 6 7 15 35 Private 287 75 107 96 66 124 468 Total 289 75 114 102 73 139 503 600 Vehicles Public 134 63 62 89 48 86 328 Private 260 112 185 175 239 149 960 Total 374 155 247 264 287 335 1,288 460 Others Public 54 6 6 7 5 6 30 Private 39 9 20 21 36 103 189 Total 93 15 26 28 41 109 219 365 1 Totals are slightly different from those in Table 2.5. 2 Five-Year Plan Targets (1968 to 1972). 3 Petroleum refining is included in manufacturing only, since the beginning of the Second Plan Period is from 1968. Investments in Eregli Steel Corporation are included in the private sector although the majority of ownership is public. Source: State Planning Organization. - 437 - Table 8.5: MINERAL PRODUCTION (1,000 of metric tons) 1963 1967 1968 1969 1970 1971 1972 Program Fuels Crude oil 595 2 2,728 3,105 3,599 3,5;2 3,550 3,500 3,800 Bituminous coal 4,153 5,031 4,769 4,684 14,53 )4,67 4,800 4,850 Lignite 4,,0o 4,618 5,341 5,773 5,782 5,796 6,500 7,750 Metallic minerals Iron ore 749 1,553 2,223 2,502 2,544 2,600 3,000 n.a. Manganese ore 21 41 25 1J4 12 9 lb4 Mercury ore 28 56 75 113 132 100 150 Antimony concentrate 2.9 2.4 3 5.3 4*5 3 4 Chromite ore 2s 632 607 662 757 800 900 Chromite concentrate 128 226 223 252 250 268 290 Copner concentrate 58 82 82 71 70 87 100 Pyrite 97 125 137 130 91 55 120 Lead & zinc concentr. 22 33 41 53 54 40 77 N on-rietallic minerals Boron minerals 113 288 363 432 524 613 615 615 Maagnesite ore 29 92 119 219 209 200 2L9 270 Magnesite (calcined) 22 26 32 43 80 30 40 Sulphur (refined) 19 25 P)4 26 27 32 35 45 Barite 1. 35 22 33 30 27 35 50 Emery 11 31 31 43 103 105 110 1.20 Marble 50 90 90 95 92 125 150 Salt 645 519 589 68 650 660 700 1 Data for 1971 and 1972 are rough estimates. 2 1962 data. Source: State Planning Organisation, Annual Proj:rams and revised 1971 estimates. - 438 - Table 8.6: PRODUCTTO AND USES OF ELECTRICITY 1osses anc TotaL iatio of losses Total Jtation Iross and 2tator. Uze Year Domestic & Others Industy Traction Consumption TJse Gereration to Generation ( 7h~() ÎEh (Gwh) (5) .(h-) () w) (Gwh) (5 1-50 152 21.1 547 76.5 16 ?.h 737 30 3 790. 1962 769 25.1 2;246 73.5 h 1.4 3,059 100 501 3,560 14.1 19C7 1,377 25.8 3,892 73.1 58 1.1 5,327 100 890 6,217 14.3 196C 1,508 25.6 4,316 73.4 60 1.0 5,bö4 100 1,052 6,936 15.2 1,616 25.2 4,739 73.8 63 1.0 6,418 100 1,820 7,838 18.1 197 i,68å 23.6 5,377 75.5 64 0.0 7, 122 100 1,5C1 ,623 1?.J 1971 1,885 23.6 6,019 75.5 69 0.9 7,973 100 1,728 9,701 17.8 r577 2,167 22.8 7,250 76.4 75 o.8 7,492 100 1,750 11,242 15.6 Source: TPEK - 439 - Table 8.7: TOURISM IN MEDITERRANEAN COUNTRIES Comparative Data for 1970 and 1971 Gountry Gross Foreign Receipts Number of Tourists As percent of Exports of (In 000) (Million US$) Goods and Non Factor Services 170 1971 1970 1971 1970 1971 Spain 1,681 2,054 34.5 35.6 24,105 26,758 Yugoslavia 275 359 9.5 12.6 4,748 5,239 Portugal 222 305 19.0 N,A. 3,343 1*287 Greece 194 305 16.1 16.4 1,108 1,983 Morocco 136 162 19.5 20.4 747 823 Lebanon 132 175 27.2 822 1,015 Tunisia 55 99 15.6 25.9 411 608 Turkey 51 60 7.4 7.0 446 494 TOTAL 2,746 3,519 36,030 38,207 Turkey as percent of total 1.8 1.7 1.2 1.3 Turkey ranking 8 8 8 7 8 (out of 8) Note: In 1969, 345,000 tourists entered UAR, spending an estimated US$ 65 million, or about 15 percent of exports. - 440 - Table 8.8: ARRIVALS OF FOREIGN NATIONALS BY COUNTRY OF ORIGIN (Thousands) 1950 1963 1967 1968 1969 1970 1971 1972 1973 Total of Arrivals 28.6 198.8 574*1 6o3.o 694.2 24.8 926.0 1,035 1 ,32 1. By Country of Origin USA 72.7 64.1 62.5 108.2 125.6 18.1 Germany 18.7 51.9 49.1 105.1 111.8 147.4 UK 16.5 22.9 26.0 50.1 70.2 96.8 France 12.9 30.4 34.1 63.6 70.2 95.0 Italy 6.4 15.4 19.6 43.9 38.1 55.8 Austria 4.L 13.4 11.3 15.3 17.4 19.5 Yugoslavia -- 56.9 50.9 35.3 28.4 18.4 Iran 6.6 17.6 13.4 10.9 14.2 15.8 Lebanon 4.5 10.4 21.1 21.8 21.1 21.1 Syria 6.3 13.1 12.2 17.4 13.2 18.5 Others 49.8 278.0 302.8 222.6 214.7 289.7 2. By Purpose of Visits Tourists 198.8 345.7 374.8 424.0 446.4 494.0 Excursionists 174.8 167.3 202.3 218.3 361.4 Others 53.6 60.9 67.8 60.1 70.6 3. By Means of Transport Plane 114.7 166.5 199.8 236.4 247.1 255.1 Train 12.0 27.8 21.9 15.6 23.6 30.6 Motor Vehicle 18.1 186.3 193.1 215.2 209.8 250.5 Vessel 54.0 193.4 188.3 226.8 244.2 389.9 Source: State Institute of Statistics and State Planning Organization. - 441 - Table 8.9: LODGING CAPACITY OF TURKY IN 1971 Resort Hotels, Hotels, CityAHtels and Motels Holiday Villages Total Etab _atab- lishment Room Bed lishment Room Bed lishment Room Bed Mrar.a Region Istanbul with touristic certificate 65 3,959 6,670 28 1,502 2,906 93 1 9,576 without touristic certificate 510 13,352 26,141lc 7 279 528 170 5, L61 26,968 Other Cities 19 858 1,654 29 1,669 3,599 8 2,527 5,253 Total 8k2 18,169 34,.64 6L 1LA LM_0J 206 21.61 4Ja j Aegean Region IIr 15 1,103 2,172 72 1,146 2,305 d7 2,249 4,477 Dther Cities 4 159 30 54 2,924, 5,991 58 3,083 6,295 TotalL 1 1 262 LL 126 4.070 8.296 45 L 10177l Mediterranean Region Total 22 791 L L 11 2.233 L 1& 2.li ,entral Anatolian Region Ankara 35 2,381 3,9h0 2 69 156 37 2,450 4,096 Dther Cities 26 879 1,571 3 159 338 29 1,038 1,905 Total 61 1.260 5,511 228 4 66 J.,488 6.001 Black Sea Region rotal 28 700 120 11 UZ 298 2 8Z 1.58 Sast F Southeast Anatolia Region Total 19 12 -- -- -- 19 2 Country Total 991 24,917 6,656 210 9.038 ,ZI o 1.23 § 0 *i.ru: TSKB, Report on Tourism, 1971, p.119. Table 8.10: ENERGY CONSIMPTION, HISTORICAL AND FORECAST ------------------- Commercial Energy --------------------------------------- Total--------------Non-Commerial------- -Total Li"nite Hydroelectric Petroleum Com'1 Energy 10 ton TPE 1 h TPE Imort Dom. TPE Wood TPE Dung TPE f L 1 3.9 1.6 2.7 0.7 1.0 0.1 1.3 0.4 4.1 13.0 3.9 12.8 3,2 9.9 9 5 4.4 7.7 4.5 1.1 2.2 0.2 3.3 0.8 7.1 12.9 3,9 13.2 3.3 14.3 19 0 4.6 1.8 5.7 1.4 3.0 0.3 4.3 3.4 11,2 12.8 3.8 13.5 3.4 18.4 19 1 4.6 1.8 6.3 1.6 2.5 0.2 5.9 3.4 12.9 12.2 3.7 14.6 3.6 20.2 19 2 4.6 1.8 8.3 2.1 3.4 0.3 6.3 3.5 14.0 12.0 3.6 15.0 3.7 213 19,3 4.9 2.0 10.2 2.5 4.2 0.4 8,1 3.5 16.5 12.0 3.6 15.0 3,7 23.8 195 6.8 2.7 13.0 3.3 8.9 0.8 10.8 3.6 21,2 12.0 3.6 15.0 3,7 28.5 90 8.9 3.6 40.7 7.2 13.0 1.2 21.2 3.8 37.0 11.0 3.3 13.0 3.3 43.6 15 9.9 4.3 53.1 7.8 26.4 2.4 39.3 3.9 57.4 11.0 3.3 13.0 3.3 64.c TPE - 100 tons petroleum equivalent. Source: TEK - 442 - Table 811: PUBLIC ELECTRICITY-GENERATING CAPACITY, 1973 - ---------- -------Interconnected System--------------------------- ---------Not Interconnected - ------- STE K C E A S Kepez Auto-Municipal I E K Other Total Plant Production Plant Production Plant Production Plant Production Plant Production Plant Production Plant Production MEd awl, ed WhP MW GWh 14d GWhI M41 GTb Mid GWfi lEd Gwh Hydro 817 2,771 192 993 25 160 5 25 49 274 5 25 1,093 4,24F Thermal L 9 1 - 55 _-0 Total 2,352 12,101 293 1,693 25 160 50 375 49 274 2789 14(2 I Includes capacity under construction and planned for service by end-19'3. 2 igures for hydro-generation are for an average water year. Source: TEK. Table 8.12: ELECTRICITY GENERATION AND CONSUMPTION (GWh) 1972 1975 1980 1985 Total Generation 11,242 17,200 30,150 51,300 Generated by: Kepez 1,223 160 160 160 CEAS 12 1,584 1,600 1,600 Isolated towns 18 185 100 100 Auto producer 746 270 440 660 Balance by TEK ZLL 15,001 27a850 48,780 of which: Thermal 6,828 11,125 17,918 24,161 Hydro 2,297 3,876 9,932 24,619 Used by Auxiliary Plant 502 863 1,542 2,670 Sent out to TEK system 8,623 14j,138 26,308 46,110 Less Transmission Losses 362 566 1,072 1,818 Sold by TEK 8,261 13,572 25,236 Ub,292 Sales by others: Kepez and CLAS 1,076 1,535 1,549 1,549 Isolated towns 804 432 513 722 Total Sales 10 141 15 2298 6,563 Effective annual average growth rate of sales 15.2% 11.9% 11.3% Population (millions) 37.5 4o.4 45.7 )2.0 Per capita consumption (kWh) 300 426 660 987 Source: TEK. - 443 - Table 9.1: COMPARISON OF PRICE CHANGES (1968-100) December 1950 1952 1960 1961 1962 1963 1964 1965 1966 1947 1968 1969 1970 1971 1972 192 1973 Cost of 1jw'ng indexes Ankarac- 27.1 35.7 71.0 71.7 74.8 79.6 62.4 83.5 85,5 93.4 100.0 106.5 115.1 133.9 151.2 177.7 207.0 Istanbul /1 24.7 31.8 63.3 65.5 68.0 72.7 72.8 76.2 82.6 94.2 100.0 108.0 115.3 133.4 149.1 163.0 195.4 Wholesale price index U Total 26.2 34.4 69.3 71.3 75.5 78.6 79.5 85.9 90.1 96.9 100.0 107.2 114.5 132.7 157.2 166,9 215.5 Foodetuff 26.6 33.0 6s.4 69.8 75.9 79.1 79.3 87.3 92.0 98.1 100.0 108.1 111.6 127.4 147.7 157.2 207.9 Industrial rav material 25.4 36.6 77.6 74.8 74.8 77.6 79.7 63.7 87,1 95.0 100.0 106.0 119.3 141.4 172.8 182.6 227.9 GNP deflator 25.6 37.2 67.8 71.1 74.e 76.3 81.5 84.9 90.4 96.2 100.0 105.2 115.6 136.6 155.3 Fixed investment deflator 19.2 35.2 77.4 78.4 80.6 83.2 87.1 90.0 94.3 100.0 100.0 105.9 125.3 144.4 160.2 Deflator of agricultural value added- 27.1 37.6 71.7 73.3 79.2 84.8 84.3 85.8 935.8 97.7 100.0 106.5 116.7 131.4 148.9 Deflator of industrial value added - 20.0 33.6 72.0 77.8 80.0 82.9 83.9 88.5 92.1 97.7 100.0 101.6 110.9 133.8 114.0 Export pr ce indexes in 8Le32.0 46.8 51.8 83.7 100.0 102.9 102.5 9.2 98.0 100.1 100.0 101.0 121.4 19.1 174.8 in $ 83.2 115.4 89.S 87.8 85.8 111.1 101.6 98.1 98.9 101.4 100.0 100.4 104.2 114.6 125.9 Import price indexes Ior tL 4 i 23.8 30.0 13.2 84.7 94.2 102.0 106.1 108.9 105. 103.4 100.0 103.0 12e.2 199.3 in $ 74 63.1 89.0 92.4 94.2 94.3 95.4 104.7 96.7 100.7 101.4 100.0 103.6 110.0 114.7 12.7 Exchange rate index (import rate) 31.1 31.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 152.0 165.2 154.2 Foreign terms of trade index . 131.9 129.7 96.9 93,2 91.) 116.5 97.0 99.4 98,2 100.0 100.0 96.9 94.7 98.2 Domestic terms of trade indexes '6 a) wholeeale prices 104.7 91.5 84.3 93.3 101.5 101.9 99.5 104.3 10b.6 105, 100.0 102.0 9. 90.0 85.5 b) value added deflators 135.5 111.9 99.6 94.2 99.0 102.3 100.5 96.9 101.e 100.0 100.0 104.8 107.0 98.2 96.6 so:r. 1 1950-1968: ministry of Coreere - 1968-1973: sis (Be 1965), 2 Ministry of Conalerce (Base 1958). Tables 3.1 and 3.2. In TL: National accounts deflators 1950-1962 and Ministry of Trade 153-1971, In $: IBRD, from exports and imports date in dollars. 5, Price index of exporte/Triaa index of imports e Agricultural price index/Industrial price index. Table 9.2 RETAIL PRICE INDEXES IN VARIOUS CITIES. 1968-72 Adana Ankara Antalya Bursa Dyarbakir Erzurum Eakiqehir Istanbul Izmir Ordu Samsun A. General tadex 1968 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1969 106.9 106.5 107.7 108.5 109.1 108.0 107.0 108.0 106.9 111.3 108.7 1970 117.1 115.1 117.1 119.5 118.1 118.4 114.9 115.3 115.0 123.0 116.6 1971 136.5 133.9 134.7 138.6 137.4 140.1 131.8 153.4 137.6 143.3 154.7 1972 154.3 151.2 155.0 160.9 161.0 161.4 148.9 149.1 157.9 159.5 158.4 3. Food Index 1968 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1969 107.8 109.6 110.6 109.4 111.0 108.5 107.2 111.3 106.6 115.1 110.3 1970 114.7 118.2 119.4 117.1 117.6 118.1 113.9 116.9 115.1 124.5 116.8 1971 131.6 134.7 134.0 138.6 131.6 133.4 125.3 132.4 132.0 143.7 131.5 1972 150.6 149.5 154.5 159.4 149.5 155.3 143.5 149.9 149.4 161.2 153.7 C. Clothin Index 1968 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1969 104.6 106.3 106.6 110,0 105.2 104.9 110.8 108.9 107.6 108.3 110.0 1970 117.1 120.1 123.5 124.4 117.0 115.1 124.7 120.5 115.9 121.0 119.1 1971 146.1 142.2 150.7 140,8 148.8 139.0 145.8 147.3 150.2 141.5 145.1 1972 162.7 166.9 177.8 162.1 180.0 152.6 168.8 170.2 184.8 152.5 165.9 D. Housing Index 1968 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1969 110.8 100.8 103.1 104.7 105.5 104.0 103.2 102.1 105.7 107.0 107-3 1970 125.1 104.8 107.7 117.7 113.2 113.1 108.9 107.3 105.4 113.6 114.3 1971 138.2 124.7 116.5 131.6 126.1 135.6 121.0 117.9 118.5 126.4 125.1 1972 160.1 147.0 127.7 155.6 160.1 159.0 132.2 127.3 131.9 139.9 154.5 - 444 - Table 9.3; WHOLESALE FOOD PRICES (ISIANBuL) 1960-72 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Ite.s ...-Ku.--.--.--.--...-..--------------------------------Kurus------------------------------------------------------- Wheat (kBr) 58 83 77 75 79 87 90 86 92 96 101 113 125 Barley 47 52 55 57 57 '4 72 79 87 79 95 98 115 Corn 5 56 65 78 80 63 86 95 83 90 103 102 106 140 sesm 223 221 409 323 243 299 422 447 358 310 041 7"6 638 Broad bean ' 67 68 73 65 71 88 86 84 93 103 140 16~ 174 Lentil 171 101 127 144 136 124 141 169 113 166 206 467 366 Potato - 61 10 102 103 102 90 94 125 104 99 106 120 143 Sugar " 315 265 265 265 265 265 310 315 315 33 357 375 Olive oil " 505 536 512 683 548 514 657 69o 637 P21 902 1.045 1, 26 Razelnut (shelled) P,72 1,056 1,1t5 1,120 856 972 977 1,072 1,054 1.214 1,416 1,579 1,561 Raisin 205 231 180 211 237 228 217 210 201 204 227 261 318 Fig (dried) 112 99 104 128 145 131 125 132 142 139 179 229 267 Tea " 3.40 3,840 3,340 3,840 3,840 3.840 3,940 5,840 ),840 'F40 ,040 3,'40 3,564 Tobacco 851 981 1,201 1,514 1.557 1.328 1,325 1.562 1,341 1.317 1,604 1,09 2,249 Meat (sheep) " 0sA 626 625 762 8 806 927 1,051 1,082 1.145 1,262 1.E27 1,P3s Meat (beef) 500 479 493 562 624 680 680 823 d67 902 1,025 1, 325 1,665 Milk (it.) 115 115 115 121 120 112 128 139 135 141 1o2 12 176 Butter (kgr) 1,247 1,138 1,075 1,329 1,410 i,565 1,098 1.796 1,954 1,9P 2,172 2.492 2,904 Cheese (white) 506 518 518 541 646 615 614 743 '49 093 945 1,105 1.PP7 Egg (box of 1,440 eggs) 31,81P 33,474 35,963 40,702 41,P00 45,340 49,095 51,349 55,740 55,443 64,464 76,7. P3,20 Solt (raw) (kgr) 11 10 10 11 11 11 12 12 12 12 12 16 16 Sosur: The Chambor of Cos ce, Istanbul, Table 9.4: WHOLESALE PRICES OF INDUSTRIAL PRODUCTS (ISTANBUL) - 1960-72 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Itevis --------------------------------------------------------toru------------------ Rubber (kgr) 1,632 1,138 1,114 873 922 872 857 820 775 1,241 1,315 1,124 984 Wool 764 668 647 727 808 828 883 862 809 854 958 1,092 1,588 Mohair 1,742 1,779 1,654 1,515 1,565 1,597 1,629 1,475 1,335 1,257 1,657 2,018 2,685 Hide 850 787 441 387 395 620 518 734 570 551 611 786 1,549 Goat ckin "07 491 432 416 472 475 636 645 505 sO6 600 867 1,215 Silk cocoon 1,670 1,800 2,104 2,824 2,411 1,808 2,50 2,922 2,779 2,455 2,176 3,190 4,102 Pig iron (ton) 85,500 85,500 85,500 85,500 85,500 85,500 85,500 99,452 101,500 101,500 144,800 173,800 175,840 Copper (kgr) 1,2538 1,222 1,167 1,077 1,351 1,625 2,161 2,350 2,350 2,360 2,582 3,065 3,520 Lead 440 438 528 572 569 643 864 870 809 765 793 776 916 Zino 583 539 661 613 730 854 920 1,082 1,269 1,344 1,231 1,301 1,388 Tit-plate 389 511 347 345 391 424 458 445 598 393 392 446 510 Cotton yarn (pkg of 4.5 kg) 4,747 4,811 5,122 5,484 5,380 5,385 5,821 6,099 6,073 6,090 6,566 9,602 11,653 Silk yarn (kgr) 11,264 11,127 11,803 14,040 15,067 -12,011 15,425 18,468 17,796 17,391 22,442 29,652 31,756 Cement (ton) 12,500 12,500 12,500 12,500 12,625 14,000 14,208 15,875 16,000 16,000 16,617 21,640 24,200 Brick (1,000 pieces) 12,770 13,092 13,875 13,750 11,115 11,60s 13,677 14,567 14,727 15,135 14,336 15,325 17,946 Timber (m3) 67,812 65,667 69,550 73,400 73,800 72,800 72,400 72,500 76,215 88,617 98,415 122,500 151,60o Gasoline (kgr) 105 105 104 125 130 130 130 139 143 143 162 195 201 Wood coal 4 60 40 40 40 40 40 40 46 70 78 77 10 130 Scarce: The Chaber of Cosmer., Istanbul. - 445 - Table 9.5: INDEXES OF AGRICULTURAL MARKET PRICES - 1964-72 1964 1965 1966 1967 1968 1969 1970 1971 1972 Cereals 100.8 113.9 117.0 115.4 121.7 131.9 133.6 144.5 159.1 Wheat 100.8 107.9 111.1 112.1 115.5 120.4 123.8 137.0 144.0 Barley 111.8 135.8 139.4 134.8 153,5 169.4 167.1 179.4 203.0 Rye 98.4 104.4 106.5 109.5 121.0 121.8 127.9 138.7 152.2 Oats 100.3 128.8 149.7 147.0 167.1 179.7 162.8 178.0 223.4 Spelt 87.8 116.9 137.3 118.2 152.1 165.9 138.9 153.8 '.199.7 Maize 85.5 95.9 114.7 108.3 107.8 125.4 131.6 132.1 165.9 Milet 89.3 103.9 109.2 113.7 112.4 121.1 124.8 150.0 174.4 Rice 114.9 180.9 141.7 123.3 145.2 192.1 184.1 183.1 218.8 Canary seed 54.8 61.9 71.4 96.8 151.1 243.5 105.4 113.6 162.1 Pulses 92.7 94.9 96.5 104.7 115.0 120.0 141.3 208.3 257.1 Broad beans 110.6 140.4 128.7 130.7 144.7 157.0 166.2 217.4 219.0 Chick peas 86.3 81.9 84.4 96.2 84.4 . 94.3 132.6 241.8 264.7 Dry beans 88.8 78.7 73.7 85.3 105.8 116.4 119.6 157.7 171.4 Lentils 103.0 121.6 137.8 145.6 156.4 142.1 178.9 288.5 311.6 Cow vetch 88.3 115.2 125.8 107.6 96.0 124.7 189.0 222.4 212.6 Wild vetch 95.1 116.7 109.7 103.4 118.0 141.3 140.5 169.9 168.2 Oil seeds 85.1 1,04.8 120.5 120.3 114.5 118.0 149.0 184.1 179.2 Cotton seed 82.6 87.9 106.1 103.9 91.6 97.8 124.9 145.2 147.3 Sunflower seed 87.4 132.1 142.1 140.8 142.5 137.1 159.6 191.8 188.2 Sesame seed 74.7 94.4 129.2 128.7 103.7 100.1 159.1 238.0 200.9 Opium 112.4 154.2 133.7 126.8 150.3 204.9 263.9 299.6 259.9 Flax/Seed 66.0 79.8 108.2 135.6 133.3 130.7 134.8 124.1 128.4 Hemp/Seed 65.1 51.3 38.2 36.7 45.2 66.7 131.2 142.9 138.9 Croundnuts 112.6 130.3 130.7 131.7 138.5 156.1 184.2 243.9 278.0 Soybeans 104.4 131.5 134.0 129.6 129.2 - - - 197.9 Rapeseeds 84.4 90.8 105.4 103.8 - 93.1 97.4 139.2 116.9 102.8 109.0 111.6 .126.2 118.4 114.4 133.4 142.4 165.1 Lemons 106.2 110.6 102.7 107.7 108.8 108.8 130.9 130.0 133.4 Oranges 104.0 109.1 118.8 135.8 120.7 120.7 136.3 145.0 183.0 Mandarins 91.7 108.7 91.3 112.4 Grapefruit 92.7 88.3 100.0 107.6 Source: "The Summary of Agricultural Statistics - 19711 State Institute of Statistics, Turkey. - 446 - Table 9.5: INDEXES OF AGRICULTURAL MARKT PRICES - 1964-72 (continued) 1964 1965 1966 1967 1968 1969 1970 1971 1972 Industrial crops 102.8 100.4 99.5 106.2 105.1 102.0 136.5 169.8 177.5 Sugar beets 110.4 110.4 110.4 110.4 110.4 110.4 156.9 156.9 156.9 Cotton lint 99.2 94.8 93.1 103.5 101.7 95,7 125.2 175.4 186.1 Opium gum 100.0 100.0 100.0 100.0 77.4 76.0 75.1 74.E 107.1 139.3 144.2 Oilseed 68.7 89.3 107.6 164.6 159.9 174.3 163.0 157.0 271.8 Gall nuts 97.1 97.7 63.6 55.3 59.5 65.3 84.7 111.2 132.2 68.0 122.1 145.3 136.7 132.1 120.7 139.3 204.6 237.8 108.3 113.9 126.3 148.5 150.0 154.7 179.3 243,6 326.8 104.2 107.4 120.2 139.3 142.9 146.0 167.0 218.8 283.4 Sheep 104.2 106.5 121.0 139.9 143.6 147.1 166.6 214.3 274.9 Goats 104.4 113.2 121.4 135.5 138.3 133.3 169.8 246.3 317.2 114.5 123.6 135.5 162.4 160.6 167.6 197.7 280.7 391.9 Oxen 113.2 123.3 136.0 162.5 165.7 169.9 197.6 270.1 394.0 Cows 113.6 120.4 129.4 157.2 139.0 150.6 173.6 285.6 364.3 Young cattle 116.2 125.4 137.0 160.0 161.2 171.7 207.7 293.7 398.5 Buffaloes 122.3 129.9 144.6 176.6 177.6 186.2 - 233.5 316.8 433.3 118.3 135.4 154.1 148.9 Cow hides 123.3 150.2 163.5 150.3 Buffalo hides 113.9 139.7 174.2 166.7 Sheep hides 117.1 130.4 147.2 145.5 Goat hides 110.7 113.3 150.0 153.8 103.3 106.0 113.4 110.6 105.9 114.1 117.9 136.5 173.3 Wool . 105.6 109.0 117.6 115.9 112.3 118.3 123.2 143.2 184.3 Goat 93.0 91.5 85.4 75.0 64.0 -101.5 84.7 69.9 70.4 Mohair 100.8 102.9 107.7 97.9 90.3 86.0 106.0 142.2 182.7 59.2 59.3 80.6 90.5 77.3 80.3 84.6 138.9 153.7 107.7 84.4 67.6 72.8 67.6 80.3 99.5 113.4 107.4 Source: "The Summary of Agricultural Statistics - 1971" State Institute of Statistics, Turkey. - 447- Table 9.6: EXPORT PRICE INDEXES (1968 100) 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Total 102.9 102.5 98.2 98,0 100.5 100.0 101.0 121.4 159.1 174.8 Cotton 96.5 95.7 93.8 89.1 95.6 100.0 92.1 104.7 156.0 178.2 Tobacco 126.5 132.9 112.6 107.1 106.8 100.0 104.8 106.7 130.7 144.0 Hazelnuts 109.0 86.0 88.5 88.0 96.6 100.0 107.7 138.1 150.4 149.1 Vegetables 58.8 68.7 69.4 73.3 93.7 100.0 95.3 151.9 s16.( ?67.8 Grapes 83.1 104.9 107.4 106.3 103.1 100.0 99.9 115.1 118.1 132.1 Other fruits 87.2 87.0 99.8 122.0 102.8 100.0 102.8 142.5 182.3 203.0 Figs 105.1 115.9 108.3 108.3 105.8 100.0 113.4 152.1 174.4 202.8 ,,lives 149.3 86.3 96.8 90.9 95.7 100.0 100.0 158.5 164.7 212.1 Livestock 62.3 64.5 77.8 81.7 81.6 100.0 107.5 148.9 197.6 248.8 Fish 56.0 64.6 62.9 77.3 94.0 100.0 107.4 136.5 265. 27 Mohair 94.4 105.5 101.8 112.3 104.8 100.0 91.0 127.4 154.4 1168. Oilcake 99.9 101.5 106.5 105.5 105.4 100.0 90.2 101.9 151.7 176-0 Sugar 403.5 262.4 169.0 191.4 145.8 100.0 143.4 205.2 316.' 52'.2 Mining products 91.7 87.3 96.7 94.0 102.7 100.0 104.8 140.2 178.4 177.8 Copper 65.4 87.2 92.9 137.6 116.4 100.0 99.7 128.5 173.6 Source: Ministry of Commerce - Exports in Turkish Liras. Table 9.7; EXPORT PRICE RELATED TO DOMESTIC WHOLESALE PRICE FOR SELECTED AGRICULTURAL COMMODITIES (In percent) 1950 1955 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 Beans (fazulye) 76 102 26 26 62 107 112 93 113 156 136 119 109 89 133 132 Hazelnuts (shelled) 57 90 59 35 65 99 73 104 108 93 102 97 103 97 105 104 Figs (dried) 146 145 62 40 138 209 180 170 166 181 184 170 162 177 150 .59 Raisina (seedless) 110 77 61 45 79 125 124 98 119 131 131 129 133 121 12b 117 Cotton, lint 75 77 39 31 61 99 76 74 9h 93 96 9b 98 94 93 90 Mohair 99 62 56 33 56 106 112 105 114 116 107 121 127 125 128 1 3 Sources: Export prices: Ministry of Commerce, Konjonktfr (1971). Wholesale SIS, Statistical Abstact, 1953, 1966, prices: SIS, Monthly Bulletin of Statistics, 1973. - 448 - Table 9.8: RELATIVE MOVEMENT OF DOMESTIC AND IMPORT PRICES (1968=100) MT OER OE (1 + MT Index of Relative Average Tax Official 100' Import Effective Prices Burden on Exchange Rate Effective Price Cost of Domestic Imports in for Imports Exchange Rate Index Imports GNP Prices/TL TL (%) (TL/US$) for Imports In $ In TL Z1 Defl. Cost of Imp. 1952 31.9 2.82 3.72 73.9 18.4 28.2 153.3 1953 34.3 2.82 3.79 70.0 17.7 29.7 167.8 1954 38.4 2.82 3.90 77.7 20.2 33.1 163.9 1955 39.9 2.82 3.95 93.3 24.6 37.3 151.2 1956 40.3 2.82 3.96 93.3 24.7 39.3 159.1 1957 72.8 2.82 4.87 96.4 31.3 48.4 154.6 1958 105.6 5.41 11.23 93.5 70.1 54.6 77.9 1959 126.5 9.03 20.45 90.9 124.1 65.9 53.1 1960 69.2 9.04 15.30 92.4 94.4 67.8 71.8 1961 34.7 9.o4 12.18 94.2 76.6 71.1 92.8 1962 35.8 9.04 12.28 94.3 77.3 74.8 96.8 1963 36.1 9.04 12.30 95.4 78.3 76.3 97.4 1964 52.9 9.08 13.88 104.7 97.0 81.5 84.0 1965 58.6 9.08 14.40 98.7 94.5 84.9 89.8 1966 53.2 9.08 13.91 100.7 93.5 90.4 96.7 1967 64.8 9.08 14.96 101.4 101.3 96.2 95.0 1968 65.0 9.08 14.98 100.0 100.0 100.0 100.0 1969 61.3 9.08 14.65 103.6 101.3 105.2 103.8 1970 53.6 11.45 17.59 110.0 129.2 115.6 89.5 1971 39.5 15.00 20.93 116.7 163.1 136.6 83.8 1972 39.6 14.00 19.54 123.7 161.4 155.3 96.2 Source: IBRD, based on various Turkish sources. 1 Import price index in US$ X index of effective exchange rate for imports. - 449 - 0ab o.1: TRII'AFFIC DATA Domestie Traffic by 'de 1960 1961 1962 1,63 1966 1965 1966 1967 1968 1969 1970 1971 1972 1973 197 4 1975 1976 1977 ...... ,...................,.... ........ « . . . . . A . . s .........,................. ................... ..... ........... .. . ...... .. ., . F o r e c a s a- t . . .. ............ 1, Freight (million Ion--km> nauay 1,732 6,968 3,t56 L,111 5,979 ,35,7,6 5,681 s,786 ;,746 5,747 6,739 7,792 8,188 10,380 10,628 10,909 Vighwa'y 3,678 L,915 6,297 6,b17 7,17 9,411 10,07L 11,118 L9,86 15,657 17,447 19,112 - 25,797 22293 24,990 27,176 29,481 31,913 Goasta l Shipping 16 132 L,2 139 108 102 97 78 67 69 3 Air Transprt 12 11 10 12 12 15 18 18 21 271 29 - ------------------ na- - ------------------------ o w,86 3,6c6 9,38 10,675 12,979 14,267 11,168 17,633 19,819 2?,295 ?2,771 ?. Pasen,ger (Million pass-km) Rau9mp' 3,11 3,151 3,oB9 3,00 9,609 3,6 3,492 3,968 3,6L3 3,640 3,969._ 3,9oD> 2,1o0 2,500 2,500 P,600 2,500 2,700 fighay i 1M08 L,191 15,590 i 39 33,667 24,931 25,958 3,049 bi,342 39,571 41,311 - H,939 3 61,49s 65,o0 6,9,oo 74,000 79,00 85,00 cotal shipping 30 265 729 215 202 20e 211 171 158 150 133 230 Air Transport U1 1o 107 129 135 163 199 216 25 259 308 683 - ----------- n.. --------------- Total 1h,93? 17,662 19,010 22,713 26,113 28,713 20,855 30,963 3,709 38,997 9,1196 64,h58 3. Other Traffle Port,' (ooo 1ons) Lde 3,767 9,51 9,619 8,699 9,926 5,91 5,307 6,071 5,693 > Uloaded 9,927 9,632 5,29 5 5,8B3 6,712 7,117 7,55h 8,111 7,25 - ------- ----- .a ---- -- ----- otal - - ------ n.-.-- - -- 8,696 81,196 0,00 10,7n2 11,6hr 12,6,18 i 81' f61 1,182 13,523 < MLreraft Mov"met," Do'estic i,973 92,107 67,298 68,926 67,271 63,839 73,824 tnatioa----- r ---------- - - - - -- 5,481 26,25? 21,271 3,w f 30,743 39,463 37,629 ---- ------------- - - ----- 70tai 73.5 77,39 88,56y 7,916 97,969 103,?97 111,u8 Missiton's, estimte,. Based 0n traffic counts made 9 times a year fo- 74 I at 72 saon0. timeu a year f-r 9 h a 6135 t0taons. The po-sible err,r is -st-mted between I 15'£ ant 1 25t deperdin on the frequeny of m,. traffic ounts. Es-A imatetd. .3 lcluding suburban traffie. For comparison forecats of State Planning Grganizati-o (based on agency/enter0rize forocasts): Freight ( tllion ton-k") 1977 Ra,l1ay lo,70o' High.qy 60,500 Pasegr( pass-km) 1977 RaiwatS (including suuba raffic) 3l0h0,y 131,300 Note: n.a. - not available. All figures ronded. Sources: Ton-k. and Pas-k, 1968-1970: jtate Institute of 2t0tistics; For1 traflic ad Ai, rcraf: Moverærit1: 3n0try > louiion1 Table 10.2: TRANSPORT INFRAÅSTRUCTURE 1965 1967 1969 1971 1972 1. Ralwa-p Length of Line (km) 8,008 8,008 7,985 8,135 8,132 locomtive-/ Steam 868 857 859 8S6 Dieel 107 106 109 129 Electric 3 3 3 11 Total 974 966 961 986 986 Ri lars 88 86 86 83 53 Passanger Cars 1,180 1,218 1.283 1,219 1,183 Preight Car, 19,980 20,249 23,71 20,496 21,392 Trafnc Density-Unt-km per km of 1Ine ('000) 1,161 1,17 1,227 1,416 1,382 IL 1. Road Metwork 2 (km) (a) National Highways -avd 11,530 11,808 11.532 n.a. 18,879 rav~l 18,027 18,953 17,456 13,116 other -1 5,787 3,741 3,278 3,021 Sub-total 34,502 34,502 35,266 35,016 (b) Provincia Road, Faved 329 669 914 n .. 2,577 Gravel , 12,701 15,992 13,559 13,430 Other -- 11,26o 7,779 9,765 8,430 Sub-total 24,290 2,290 21,258 25,437 (c) To.1 Pa-ad 11,859 12,477 15,476 .a. 21,456 Gravel, 30,728 34,845 31,005 26,56 tor /- 16,7? 11,510 13,03 11,451 Grand Total 58,634 58,832 59,524 59,53 Km road per O km2 /4 6.1 (.0 n.a. 6.0 Traffo Desi t-yUnit-k per km of road (100) 73.0 924.9 1,451.1 1,785 2. Koter Vehicle Fleet Poene.ger cars 67,565 112,367 137,345 n a. 208,320 Buesa 22,169 29,310 36,069 50,270 Tracks 79,121 96,816 118,133 193,0$l ltar Cycles 26,09 39,647 52,959 n,a, cther 3,535 3,6 59 Total 218,507 261811 49 , Motor Veoile, -2 per 1,000 parose 6.1 6.9 A0 per km of road 4.4 4.R 6.3 9.4 Population per Motor Vehiole 165 145 117 79 3. Trafri. Accidots Injuries 13,65h 15,21 na. na. Foalids 2,564 3,364 T-tal 16,218 18,575 5. ot of Ae-idUnts a (Illion TLý ..a n a aot per Accident ('L) 30,663 35,629 II. VesSelS (Gross Tons) . Cargo vasesla n.a. 36,463 390,963 130,863 655,012 Passengar Va,sel 112,002 112,002 115,982 33,763 .2 Oi tankers 169,516 250,516 301,516 336,6Lh Other. 47,037 48,537 51,136 47,835 Total 694,018 802,018 898,797 1,063,253 IV. Aircraft carrylng Capacity (Million pass. or tan-km) 1963 1972 passengsr 314 813 1,059 Freight 8 21 26 . ExlUding shunter-, xEmluiing ubanrannd village roads. 1 oraded earth roade and others. Ontly surfaced natinoal and prwincial r~do. Excluding notor cyls. Based on oriteria established in 1965. EX11WIng b emsel. under 300 gros to Etibe,ana. 1973. 1 E-luding prinste sector. MOTE: Al figures rounded. flo. •• not a~ailable, :-up Turkish State Railway; Gneral Directorate af Wigh-y- (road tratfi); Stat. Planinsg Organi.ation (vessl, and aircrafxt car7Ig capaolty). - 451 - Table 10.3: TOTAL LENGTHS OF NATIONAL AND PROVINCIAL ROADS BY SURFACE TYPES (KM) 1950-1972 AND THIRD FIVE-YEAR PLAN 1973-1977 Bituminous Crushed Graded Primitive .ear Surfacing Stone Stabilized Earth Roads Total J950 1,624 17,965 L,625 10,311 12,555 47,080 "954 2,152 12,305 14,255 8,068 14,34h 51,124 '958 5,408 6,192 28,247 8,858 9,607 58,512 1962 9,095 1,315 32,682 5,722 10,797 59,611 i966 12,386 742 32,368 8,186 5,110 58,792 1970 19,226 2,841 26,058 5,403 5,925 59,453 1972 21,449 2,710 24,646 4,880 3,420 57,105 Plan 1973 22,953 2,057 2L,659 4,867 0,919 59,455 197 24,023 1,790 24,536 4,836 J,323 39,508 25,057 1,580 24,416 4,810 3,590 T9,43 1 76 26,130 1,350 24,0 4,786 2,783 19,03 77 27,16! 1,123 24,609 ,780 1,776 59, 53 sinistry of Public Works for 1950-70 and SPO for 1972-77. Table 10.: NUMBER OF MOTOR VEHICLES BY TYPE 1950-72 and Third Five-Year Plan 1973-77 Total Year Passenger Cars Buses Trucks Motor Vehicles Motor Cycles 1950 13,405 3,755 15,0 32,564 3,06 1954 28,599 6,671 30,250 65,520 9,510 1958 34,244 8,065 39,721 82,030 7,329 1962 60,731 16,437 73,323 150,491 12,816 1966 91,469 22,954 79,393 193,816 32,099 1970 147,01 37,581 126,817 311,412 62,508 1972 205,000 46,500 179,900 431,00 n.a. Plan 1973 208,320 50,470 193,010 451,804 n.a. 1974 233,318 54,779 207,784 495,881 1975 261,316 59,413 223,791 544,520 1976 292,673 64,538 21,148 598,359 1977 327,793 70,054 259,978 657,825 Sources: Ministry of Public Works for 1950-70 and SPO for 1972-77. - 452 - Table 10.5: OPRATING RESUITS OF STATE TRANSPORT ENTERPRISES (Million TL) 1965 196 1)67 1968 1969 1970 1971 1972 I. Turkish State Railways (TCDD) kevenues 901.8 1,019.7 933.5 971.2 1,055.4 1,247.6 1,088.1 ) 1,165.0) Expenditures 1,271.2 1,427.7 1,646.1 1,730.6 2,038.5 2,565.5 2,393.5 ) - 2,617.0) Profit (Deficit) (369.4) (408.0) (712.6) (759.4) (983.1) (1,317.9) (1,305.1)) (1,452.0) II. Tm - Porte Revnues 85.3 11.1 212.8 263.4 261.9 305.d 1 1 Rxpenditures 8.A 39.L 55.8 69.7 10b.3 147.1 n.a. n.a. Profit (Deficit) 36.9 7.7 157.0 193.7 157.6 158.7 1 1 III. Turkish 1aritime Bank Revenues 614.2 713.6 743.7 814.5 818.7 946.7 1,194.0 1,317.1 Expenditure, 6W2,8 713.h 757.9 878.0 961.1 1,06?.1 1,221.1 1,493.4 Profit (Deficit) (28.6) (0.2) (14.2) (64.1) (142.4) (103.4) (27.1) (lU6.3) IV. Turkish Cargo Lines Reveues 17.7 187.1 173.3 193.5 195.0 311.4 498.6 637.0 Expenditures 150.5 176.0 186.2 207.4 227., 301,0 48.0 608.0 Profit (Deficit) (2.8) 11.1 (12.9) (8.9) (32.0) 11.4 13.6 29.1 V. General Directorate of Airports Revenues 9.3 11.8 14.5 17.1 25.7 37.! 3-., 1.7 Expenditures 25.8 31.6 35.2 35.4 38.5 51., 42.2 C4.6 Profit (Deficit) (16.5) (19.8) (20.7) (18.3) (12.8) (t.2) (6.6) (29.1) Vi. Turkish Airlires Revenues 95.6 126.5 141.0 186.7 249.0 352.7 .1o 723.7 Expenditures 102.2 124.5 145.6 198.1 238.2 341.0 .3o.h :75.4 Profit (Deficit) (6.6) 2.0 (.6) (11.4) 10.8 11.7 loo.6 6d.3 N3TE: US$1 - TL 1 .L For years 1971 and 1972 operating revennes and expenditures only. loobes: Ministry of omunications, TCD. - 453 - Table 11.1: REGIONAL SHARES IN AREA, POPULATION AND VALUE ADDED, 1965 (Percent) Value Region Area Population Added Marmara 9.4 18.6 27.0 Central Anatolia 29.1 25.1 24.1 Aegean 8.5 11.2 11.7 Antalya 4.7 3.0 2.6 Cukurova 5.0 6.1 6.6 Western Black Sea 4.2 4.7 5.7 Eastern Black Sea 9.0 13.1 8.7 Eastern Anatolia _0.3 20.2 13.6 Turkey 100.0 100.0 100.0 /1 Regions are shown in map. 2 Totals for Turkey were as follows: - area: 780 thousand square kilometers; - population: 31.4 million; - value added: TL 65.1 billion at 1961 prices. Source: Ministry of Reconstruction and Development. Table 11.2: REGIONAL SHARES IN ORGANIZED MANUFACTURING, 1965 AND 1967 (Percent) Number of Workers Value Added Region L- 1963 1967 1963 1967 Marmara 46.4 46.6 49.1 48.0 Central Anatolia 16.6 13.9 16.1 18.5 Aegean 14.7 15.1 8.7 11.6 Antalya 1.3 1.1 1.5 0.9 Cukurova 7.4 6.7 6.9 12.9 Western Black Sea 3.3 4.8 4.7 4.8 Eastern Black Sea 5.3 7.5 5.4 8.6 Eastern Anatolia 5.0 4.5 7.6 4.9 Turkey 100.0 100.0 100.0 100.0 Units (thousands) (TL millions) Totals 304.3 420.4 6,643 18,919 L Regions are shown in map. Source: National Report on Turkey prepared by Tulgar Can for the Economic Commission for Europe, 1970. - 454 - Table 11.3: DISTRIBUTION AND GROWTH OF URBAN POPULATION BY REGION A (Percent) Annual Region L 1965 1970 Growth Marmara 35.8 55.7 5.2 (Istanbul) (27.3) (27.8) (5.2) Central Anatolia 26.5 27.0 5.6 (Ankara (14.4) (14.9) (5.9) Aegean 9.4 8.9 4.2 (Izmir) ( 6.6) ( 6.4) (4.8) Antalya 1.8 1.8 5.0 Cukurova 9.6 9.2 4.2 Western Black Sea 1.7 1.7 5.1 Eastern Black Sea 2.8 2.7 5.9 Eastern Anatolia 12.4 13.0 6.8 Turkey 100.0 100.0 5.2 Thousands 6,278 8,098 - 1 Population in municipalities of more than 50,000 persons. /2 Regions are shown in map. Source: State Institute of Statistics. - 455 - Table 11.4: RATIOS OF URBAN TO TOTAL POPULATION BY REGION 1 (Percent) Increase Region 1950 1955 1960 1965 1970 1950-70 Marmara 36.5 41.8 45.5 47.0 52.4 15.9 Southern 21.7 25.8 31.6 34.4 39.8 18.1 Aegean 24.1 26.9 30.5 51.2 34.1 10.0 Central 19.9 25.5 24.8 50.0 56.1 16.2 Southeastern 15.1 17.4 16.1 18.5 25.0 7.9 East 8.5 10.1 13.4 16.8 22.2 13.7 Black Sea J.1 9.1 11.4 l3-1- 10.6 Turkey 18.5 22.1 25.2 29.8 33.5 15.0 L Population in municipalities of more than 10,000 persons. Source: Rusen Keles, "Country Report on Turkey" in International Urbanization Survey by the Ford Foundation, 1971. Table 11.5: PER CAPITA VALUE ADDED AND PUBLIC FIXED INVESTMENT BY REGION (Turkish liras) Value Public Fixed Investment 3 Region A Added 1965-67 1968-70 Marmara 3,011 265 385 Central Anatolia 2,164 235 334 Aegean 2,167 161 340 Antalya 1,798 197 280 Cukurova 2,244 214 277 Western Black Sea 2,815 447 557 Eastern Black Sea 1,578 145 244 Eastern Anatolia 1,397 236 31 Turkey 2,074 228 325 1 Regions are shown in map. 2 1965 at 1961 prices. 3 Excluding investments by local governments. Source: Ministry of Reconstruction and Development and State Planning Organization. - 456 - Table 11.6: RELATIVE IMPORTANCE OF ISTANBUL AND THE EASI MARMARA SUB-REGION 1 (Percent of totals for Turkey) L2. Item Istanbul East Marmara 1960 1965 1960 1965 1. Value added 11.2 17.5 15.2 21.7 Agriculture 1.6 1.1 7.1 6.0 Mining 2.5 0.7 4.0 1.1 Manufacturing 25.8 25.3 34.0 34.6 Construction 12.7 23.3 20.2 30.7 Electricity, water 27.4 24.0 28.7 27.7 Transportation 14.9 14.9 22.7 22.0 Trade 12.3 24.7 18.9 31.7 Banking, insurance 22.9 31.7 27.6 36.0 Other services 18.0 22.2 23.6 27.8 2. Labor force 5.8 6.4 11.0 11.1 Value added per worker (Turkey = 100.0) 208.2 257.9 159.1 190.2 3. Population 6.8 7.3 12.2 12.5 Value added per capita (Turkey = 100.0) 165.6 207.7 143.5 173.5 /1 The East Marmara sub-region includes the provinces of Istanbul, Kocaeli, Bursa, Sakazya and Bilecik. /2 Based on estimates at 1961 prices for value added. Source: Ministry of Reconstruction and Development. - 457 - Table 11.7: COMPOSITE INDEX OF SOCIAL AND ECONOMIC DEVELOPMENT BY PROVINCE, 1970 /1 Rank Province Index Rank Province Index 1 Istanbul 0.61597 34 Erzincan 0.88705 2 Ankara 0.68004 35 panakkale 0.89066 3 tzmir 0.72047 36 Kir§ehir 0.89096 4 Adana 0.79167 37 Giresun 0.89112 5 Kocaeli 0.81140 38 Denizli 0.89257 6 19el 0.82580 39 Bolu 0.89286 7 Bursa 0.83706 40 Artvin 0.89929 8 Eskipehir 0.84475 41 Upak 0.90085 9 Konya 0.84583 42 Siirt 0.90186 10 Kayseri 0.84733 43 NiAde 0.90315 11 Balikesir 0.84971 44 Afyon 0.90497 12 Rize 0.85035 45 forum 0.90959 13 Zonguldak 0.85156 46 Kars 0.91003 14 Hatay 0.85520 47 pankiri 0.91200 15 Sakarya 0.85669 48 Sivas 0.91308 16 Gaziantep 0.85823 49 K.Marap 0.91369 17 Aydin 0.86448 50 Diyarbakir 0.91447 18 Trabzon 0.86740 51 Bitlis 0.91465 19 Antalya 0.86959 52 Bilecik 0.91808 20 Samsun 0.87006 53 Urfa 0.91993 21 Nanisa 0.87027 54 Tokat 0.92292 22 Isparta 0.97060 55 Kastamonu 0.92545 23 Tekirdag 0.87119 56 Gldmuphane 0.92606 24 Edirne 0.87398 57 Van 0.92870 25 Kfitahya 0.87720 58 Ordu 0.92943 26 Elazig 0.87873 59 Tunceli 0.93655 27 Amasya 0.88094 60 Sinop 0.93758 28 Malatya 0.88211 61 Agri 0.94250 29 Kirklareli 0.88285 62 Yozgat 0.94710 30 Nevpehir 0.88484 63 Mardin 0.95087 31 Mul1a 0.88586 64 Adiyaman 0.95195 32 Erzurum 0.88640 65 Mup 0.95428 33 Burdur 0.88656 66 HakkAri 0.96773 67 Bing'61 0.97070 1 The composite index measures the distance between each province and a hypdthetical province with index 0, which would score highest (or lowest depending on the indicator) with respect to the 53 indicators making up the composite index and listed in Table 10.8. Source: State Planning Organization. Table 11.8: FIFTY-THREE INDICATORS OF SOCIAL AND ECONOMIC DEVELOPMENT BY PROVINCE 1 Industrialization 1. Programmed investment in mining & manufacturing over total programmed investment, 1963-70. 2. Programmed investment per capita, 1963-70. 3. Electric power consumption by manufacturing, 1969. 4. Value added per worker in manufacturing. 5. Input-output ratio in manufacturing. 6. Unskilled labor as percent of total labor in manufacturing. 7. Value added per establishment in manufacturing. Agricultural modernization and development 8. Agricultural output per capita. 9. Irrigated area as proportion of total cultivated area. 10. Cultivated area per ton of fertilizer consumed. 11. Meat and milk output per capita. 12. Amount of cooperative credit per member. 13. Agricultural credit per head of agricultural population. 14. Average size of farm units. 15. Gross value of agricultural output. 16. Agricultural output per hectare. 17. Gini concentration ratio. 18. Cultivated area per tractor. Finance and commerce 19. Receipts from transaction tax on banking and insurance per provincial branch. 20. Number of bank accounts over total population. 21. Amount of demand deposits per bank account. 22. Commercial credit per capita. 23. Transfers from central government per capita. 24. Income tax receipts per head of population in industry and services. 25. Local government revenue per capita. 26. Receipts from income tax on banking. Social and cultural development 27. Population over number of radios. 28. Electric power consumption for lighting over municipal population. 29. Legal documents and cases per capita. 30. Total population over population covered by social security. 31. Number of newspapers sold. 32. Number of parks, hotels and restaurants. 33. Construction in square meters according to permits. - 459 - Table 11.8: FIFTY-THREE INDICATORS OF SOCIAL AND ECONOMIC DEVELOPMENT BY PROVINCE 1 (continued) Health situation 34. Population over reported number of contagious diseases. 35. Population per doctor. 36. Occupation ratio of hospital beds. 37. Number of hospital calls per capita. 38. Programmed investment in health per capita, 1963-70. 39. Population per drugstore. 40. Population per vaccination. Education 41. Literates as proportion of population 6 years and older. 42. Population age 7 to 11 per teacher in primary education. 43. Programmed investment per capita in education. Demography 44. Population density, 1970. 45. Population in cities of more than 10,000 over total, 1970. 46. Population growth rate, 1960-70. 47. Population per housing unit.. 48. Death rate. Transportation and communication 49. Population per motor vehicle. 50. Area per kilometer of roads. 51. Number of communications per capita. 52. Population per telephone. 53. Ton-kilometers of transport. /1 Indicators making up the composite index in Table 10.7. Source: State Planning Organization. - 460 - Table 11.9: INCOME DISTRIBUTION IN CITIES IN TURKEY Income Groups (TL/mooth) Item -500 501-1,000 1,001-1,500 1,001-2,000 2,000+ 1. Households in income group (Percent of total) Istanbul 12.5 58.6 21.7 11.7 15.5 Ankara 13.2 33.0 19.4 10.1 24.3 Izmir 15.0 43.7 17.9 8.5 14.9 Adana 22.2 43.8 17.7 9.7 6.6 Diyarbakir 27.2 41.6 19.5 6.7 5.5 Erzurum 33.5 37.6 14.2 9.1 5.6 Ordu 22.8 38.6 16.7 10.1 11.8 Antalya 22.2 40.3 18.9 8.3 10.3 Samsun 22.6 44.5 21.0 4.5 7.2 Bursa 29.6 44.4 14.7 -5.1 6.6 2. Income earned by households in inco!e group (Ptrcent of total) Istanbul 4.3 22.4 20.5 14.8 38.0 Ankara 3.8 17.5 15.5 11.9 51.8 Izmir 5.7 29.5 19.0 11.7 34.0 Adana 14.1 39.3 24.8 10.6 12.0 Diyarbakir 11.9 38.3 25.4 11.2 13.0 Erzurum 13.2 31.6 17.1 18.0 20.0 Ordu 9.6 29.5 18.6 17.0 25.9 Antalya 10.0 31.6 21.6 11.5 25.2 Samsun 9.2 34.4 24.8 7.6 24.0 Bursa 13.2 39.2 20.4 10.4 17.2 - 461 - Table 11.9: INCOME DISTRIBUTION IN CITIES IN TURKEY (cont'd) Income Groups (TL/month) -500 501-1,000 1,001-1,500 1,501-2,000 2,000+ 3. Average household income in group (TL/month) Istanbul 418 708 1,148 1,549 2,989 Ankara 393 723 1,089 1,604 2,917 Izmir 380 677 1,067 1,394 2,285 Adana 516 715 1,181 1,623 1,891 Diyarbakir 453 954 1,350 1,914 2,489 Erzurum 460 978 1,428 2,307 4,160 Ordu 511 842 1,235 1,963 2,554 Antalya 446 773 1,140 1,358 2,420 Samsun 371 711 1,083 1,307 3,064 Bursa 383 745 1,165 1,667 2,218 4. Ratio of group's average income to average income of lowest group Istanbul 1.0 1.7 2.7 3.7 7,2 Ankara 1.0 1.8 2.8 4.1 7.4 Izmir 1.0 1.8 2.8 3.7 6.0 Adana 1.0 1.4 2.3 3.1 3.7 Diyarbakir 1.0 2.1 3.0 4.2 5.5 Erzurum 1.0 2.1 3.1 5.0 9.0 Ordu 1.0 1.6 2.4 3.8 5.0 Antalya 1.0 1.7 2.6 3.0 5.4 Samsun 1.0 1.9 2.9 3.5 8.2 Bursa 1.0 1.9 3.0 4.4 5.8 Source: Consumer expenditure surveys by State Institute of Statistics during the period 1964-1970. - 462 - Table 11.10: AGRICULTURAL INCOME BY FARM SIZE Farm Size (Decares) 1-50 51-200 200-1,000 1,000+ Number of farms (%) 68.8 27.5 3.6 0.1 Annual income per farm (TL) 2,900 10,300 44,510 298,500 Annual per capita income (TL) 485 1,117 7,417 49,750 Total income (TL million) 5.2 8.8 4.9 2.1 Share in total income (%) 24.8 42.0 23.2 10.0 Source: Second Five-Year Plan, p. 265. - 463 - Table 11,11: CENTRAL AND LOCAL GOVERNMENT REVENUES 1965-72 (LT Million at current prices Provincial Central Provincial Municipalitres Centrol Municipalities' Village Central Village Total Central All Local Central Local Total Admlnistration Governoent Io-e Total Inco Covernment Income Total Goernmet ncm .ocal Governoent Government Goveranent Covernent Municlpal Year Total Incone (CG) Leos CG Assistanco Less CG Income Asslstance Less CG Gover-net Assitantee Incoen Inoo Incme Assistance Asistance to Asslntance To Villages A.sitance Inome To all l,ss CG An per-eat ef Ar per-ent of to Prointce _ __ _Munialities _ -- __ _______ _Loca__Gat__ Assistance Publi Income Public Inon (1) (2) ()(4) (S) (6) (7) (8) (9) (10) (11) (12) (1)(14) (15) 1965 705.6 293.9 411.7 1,156.4 16.2 1,140.2 212 9 203 2,574.1 319.3 1,754.8 13,831.9 15.0 8.3 1966 842.3 376.6 465.7 1,402.8 27.5 1,375.3 227 9 218 2,471.d 412.6 2,059.2 16,357.8 15.0 8.6 1967 847,9 377.8 470.1 1,487.3 22.1 1,465.2 249 16 233 2,584.1 416.3 2,167.8 19,315.0 12.2 7.7 1968 1,077.4 512.9 564.5 1,683.8 20.7 1,663.1 771 27 244 3,032.2 560.4 2,471.8 21,168.5 14.3 7.9 1969 1,016.8 415.4 601.4 1,844.9 16.9 1,828.0 316 24 292 3,177.9 456.5 ?,721.4 23,967.7 13.3 7.7 1970 1,002.6 343.3 659.3 2,109.8 47.8 2,062.0 328 t 309 3,240.8 410.5 3,030.3 32,875.0 10.5 6.2 1971 1,200.0 540.0 660.0 2,452.0 102.0 2,350.0 346 24 322 3,998.3 666.3 3,332.0 41,616.2 9.6 5.9 1972 1,310.0 575.0 735.0 . 2,855.8 130.8 2,725.0 363 25 338 4,528.6 730.6 3,798.0 51,930.0 8.7 5.5 Perrent Growth Rate 1965-72 9,2 10.1 8.2 13.8 34.6 13,3 8.0 15.7 7.6 11.8 12.6 11.6 70.8 -- : Third Pilan. Table 11.12: GROWTH IN URBAN SETTLEMENTS, 1935-7C Total urban population Census Total $ of total Annual growth rate year population population for 5-year periods (in millions) 1935 16.6 16.27 1940 17.82 18.10 3.8 19-45 18.79 18.57 1.8 1950 20.95 18.73 2.3 1955 24.o6 22.54 6.7 1960 27.75 26.20 6.1 1965 31.39 29.77 5.3 1970 35.67 35.09 6.1 /1 1970 preliminary census returns. Source: State Institute of Statistics. Table 11.13: REGIONAL DISTRIBUTION OF URBAN POPULATION BY CITY SIZE - 1965, 1970 (In percentages) 10,001-20,000 20,001-50,o0 50,001-100,000 100,001-500,000 500,000 + Total REGION 1965 1970 1965 1970 1965 1970 1965 1970 1965 1970 1Q65 197C MAr-RAA 17.0 16.7 17.0 15.4 21.8 10.3 10.3 16.1 70.3 61.9 33.3 32.' EASTERN ANATOLIA 21.5 22.3 16.5 22.0 19.2 8.2 22.9 34.2 - - 12.? 15.2 MIDDLE ANATOLIA 17.8 23.1 19.9 15.3 5.4 19.2 27.5 26.0 29.7 26.6 22.6 23.2 WESTERN BLACKSEA 2.9 2.7 6.7 5.2 5.3 10.1 - - - - 2.2 2.4 EASTERN BLACKSEA 13.0 12.6 12.3 15.2 5.8 6.0 5.4 4.9 - - 6.4 6.4 AEGEAN 15.0 10.0 18.2 15.6 11.9 15.0 19.9 - - 11.5 11.8 10.4 ANTALYA 3.4 5.3 3.6 1.5 6.4 10.8 - - - - 2.2 1.6 CUKUROVA 9.4 5.3 5.8 6.8 24.2 20.4 14.0 16.8 - - 8.6 8.0 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.C Source: State Institute of Statistics. - 465 - Table 11.4: DISTRIBUTION AND ANNUAL GROWTH RATE OF URBAN POPULATION AND URBAN SETTLEIGNTS (Population in 1,000 persons, numbers of settlements and percentages) 19 1960 DISTRIBUTION ANNUAL GIWTH RATES p. oot Fp. tNo.of 6 1 19 0-60 1960-70 CITY SIZE Setti. Settl. Settl. Pop. tl 9. Sp e 1. Settl. 10,001-20,000 888 65 1,056 77 1,620 120 22.6 61.3 12.9 51.9 1.8 1.7 4.4 4.6 20,001-50,000 918 30 1,575 56 2,224 71 23.4 28.3 17.8 30.7 5.6 6.5 3.5 2.4 50,001-100,000 397 6 1,277 19 1,359 20 10.1 5.7 10.9 8.7 12.4 12.2 0.6 0.5 100,001-500,000 738 4 1,246 7 2,761 17 18.8 3.8 22.1 7.4 5.4 5.8 8.3 9.3 500,001 + 983 1 2,117 2 4,540 3 25.1 0.9 36.3 1.3 8.0 7.2 7.9 4.2 TOTAL 3h. k , 72m1 161 . 4 ?. 100.0 o 100.0 100.0 6.4 5.6 Source: State Planning organisation. Table 11.15: PROJECTIONS OF DISTRIBUTION OF URBAN POPULATION BT CITY TZE PERCENTAGES OF URBAN TO TOTAL POPULATION AND ANNUAL GROWTH RATES OF URBAN PCPULATION 1970 1977 1985 % of Urban to City Size Pop. Sett, POP. tt Pop. Sett. Total Population Annual Groth Rates (%) (thous.) (thous.) (thous.) 1970 1977 1985 1970-77 1977-85 1970-85 10,001 - 50,000 3,844 191 4,484 212 5,212 236 10.8 10.5 9.5 2.2 1.9 2.0 50,001 - 100,000 1,359 20 1,672 25 2,721 38 3.8 3.9 5.0 3.1 6.2 4.8 100,001 - 500,000 2,761 17 6,103 31 6,089 36 7.7 14.3 11.1 12.0 -0.1 5.4 500,0001 + 4,540 3 8,129 4 15,699 12 12.7 19.0 28.6 8.7 8.6 8.6 Total 12,504 231 20,388 272 29,720 322 35.0 47.7 5L.2 7.3 4.9 6.0 Source: (1) Censuses of Population, 1970, State Institute of Statistics, Ankara, Turkey. (2) Projections for 1977 and 1985, Ministry of Resettleaent and Reconstruction, Regional Planning Department, Ankara, Turkey. - 466 - Table 11.161 REGIONAL AND RURAL-URBAN DIFFERENCES IN TURKEY Rural Regional Differences Place-size' Differentials Characteristic Central Black Aegean- Mediter- Eastern Place-size class - Anatolia Sea Marmara ranean Turkey I II III IV V Household size 6.08 6.64 5.46 6.10 6.29 6.11 5,55 4.78 4.87 4.04 Running water () - 1 4 2 - 2 39 59 63 83 Electricity (%) - - 5 1 - 1 53 84 88 96 Gas or gas stove (%) 6 3 12 11 3 7 44 64 63 86 Radio (,%) 30 32 34 46 28 36 66 79 74 92 Sewing machine (1) 14 14 16 42 9 17 46 51 50 61 Married women aged under 49 Literate (%) 19 18 29 10 7 18 39 56 42 80 Reads or listens to newspaper being read, every day or every few days (%) 2 4 4 2 1 3 25 40 38 80 Not born in current residence and lived there for 4 years or less (%) 8 8 6 6 17 9 14 24 23 21 Currently pregnant (A) 19 13 11 15 19 16 11 12 11 9 Number of children ever born 4.42 3.95 3.63 4.20 4.84 4.20 3.86 3.21 3.92 2.74 Expected number of children 6.91 6.27 5.44 6.69 7.92 5.50 4.97 4.14 4.42 3.62 Unconditionally dis- approve family planning (%) 35 26 36 37 44 35 25 18 23 1h Has heard about IUD ( ) 4 27 24 26 26 30 53 74 80 85 Husbands of women aged under L5 If literate, elementary school or below (%) 98 99 97 100 99 99 83 76 78 54 Listens to radio often (%) 28 33 42 52 27 36 65 74 73 88 Reads newspaper daily or once every few days (%) 9 8 34 12 9 16 61 77 76 91 If not born in current residence, lived there for L years or less (A) 2 1 1 2 8 3 10 18 21 22 If heard about IUD, wife used it($) W 2 - 7 - 3 4 4 9 8 Ever used condom ( 6) 7 9 19 12 9 11 35 35 27 61 Wife ever used contra- ceptive pills (%) 11 8 5 12 5 7 21 24 23 25 *Place-size classes: I With population under 2,000. II Population 2,000 - 12,999, III Population 12,000 - 49,999. IV Population 50,000 and over excluding Ankara, Istanbul and Imir V Metropolises of Ankara, Istanbul and Izmir. Source: K. Srikantan, Regional and Rural-Urban Socio-Demographic Differences in Turkey, Middle East Journal, Summer 1973. - 467 -  BULGARIA _ 1: 1. y-ý -7 ' 5 5 R KIRKLARElU - Zonquldak LJTEKIRDAG 4- Istanbul- MSUN Sea o/ Marmara -B O LU R, GR -C AN c3A M L v,'CANAKKALE - & 2'ý - ? ARAN s A AN S Nazil DI RBAK -ÍURFA ..---- /W | R- Naz1i A IRA -I A T E TURKEY -,ý,AH NTAALKY PROVINCIAL RANKING OF SOCIAL -rSAND ECONOMIC DEVELOPMENT - 35*- oa 2P R. j Highest 20% in deveiopmern 00~s 1o30- ··Lowest 20% in development ..'L.METERS Medion developmeni F LANKINESTABLSH- By THFSTATF I --~----PLANNING 0RGANI7ATION DS-IN ATA-ONO C L o M T RSz -IP ro v in c ia l o u n d a rles MIC M ETR OD INCORPO R T G D - - --- International boundaries o SocIAL. AND ECONOMIC DFAELOPMENT. M35 -, ær 40- (  BUL C, -A R iA -y0 U. S 5. R. - V ES T ERN.- - - . B ACK -SE - -,- -l__NREGTO - EASTERN BLACK - 'SE - - - - - - ne. -KA RS M ARMAR-AG -1-1R'aO AR0R O REGION LL -g ---URUM AGRI L- C-N NTR Ä L- ,.. E k3 RE 0 N- EASTERN ýIRAN AE AN A OLl V - -- -- - r BITLIS - - - - \ \ - REGION -- - -5IIRT Y -RE'Oi0N AÑTALYA --HAKKARI MURGIONS A LA N A - R A Q RE1 ajygN i-'- -- 2. ' r.E ..r -, -4 TURKEY REGIONS AND GROWTH CENTERS VIIT9.: -Lhf.4L.• DEVELOPED A desatd bv1 .:é 2 .:1:ii "fTiii6RS mli-t,,vofR,,nn,ction r.Y R l i C . i't ·. FLOPED n k 35°- C N PRUS - --119 1 - «. -1 -f ARIES iq KI LOME TE iAi - 1- -- -- iii i i -.i- -I- 1.'NDARIES MI M'~, _. mpyed cp-, b the 5° I''-WorldB«,nkandits-ffffia-tes  믐뱁인 :  G'-b G ? E (E .- r - cn -> - bO c b- n .. '- ' )- t -= 5 t .-b -- 2b - I -0 ii tb b \ b c- Z £6' blBO.L(   World Bank 1818 H Street, NW Washington, D.C. 20433, U.S.A (202) 393-6360 Cable Address: INTBAFRAD