Turkey - Ports Rehabilitation Project

Document of FIL-E COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-2382-TU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TURKEY FOR A PORTS REHABILITATION PROJECT June 13, 1979 This document has a restrlcted distriwtion and may be used by recipients only In the performance of their oieficil duties. ItS contents may not otherwise be disclosed without World Bank antborization.  CURRENCY EQUIVALENTS 1/ Currency Unit Calendar 1978 March 1979 US Dollar 1 TL 24.28 TL 25.00 TL 1 US$ 0.04 US$ 0.04 1/ Note: This Report and the Staff Appraisal Report have been prepared on the basis of the exchange rate of TL25 US$1.00, which prevailed until Turkey introduced a multiple exchange rate system in April which was again modified on June 11, 1979. The current rate is TL 47.1 = US$1.00, except for oil and fertilizer imports and agriculttural exports for which it is TL 35 = US$1.00 FISCAL YEARS Republic of Turkey - March 1 to February 28 DB and TCDD - January 1 to December 31 ABBREVIATIONS CLAs - Convertible Lira Accounts CMEA - Council for Mutual Economic Assistance GDP - Gross Domestic Product DB - (Denizcilik Bankasi) Turkish Maritime Bank LI - (Limanlar Insaati) Directorate of Harbor Construction in the Ministry of Public Works OECD - Organization for Economic Cooperation and Development SEE - State Economic Enterprise TCA - Transport Coordination Agency TCDD - (Turkiye Cumhuriyeti Devlet Demiryollari) Turkish State Railways UNDP - United Nations Development Programme UNITS AND MEASURES 1 Metric Ton (MT) - 1.1023 US Short Tons  FOR OFFICIAL USE ONLY TURKEY PORTS REHABILITATION PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Turkey. Beneficiaries: Turkish Maritime Bank (DB) and Turkish State Railways (TCDD). Amount: US$75.0 million equivalent in various currencies. Terms: Seventeen years, including four years grace, at 7.9 percent per annum. Relending Terms: The Borrower will onlend to DB and TCDD the equivalent of about $20.8 and $50.8 million respectively for seventeen years, including 4 years of grace, on the same terms as the proposed loan. The Borrower will retain about $3.4 million for technical assistance and equipment. Project Description: The proposed project's objectives are the rehabilitation and modernization of Turkey's ten main public ports, the initiation of institutional and financial improvements in DB's and TCDD's ports operations, and assistance in rationalizing future port investment decisions through master planning and feasibility studies. The project includes: (i) provision of cargo-handling equipment and floating craft, including spare parts; (ii) expansion and improvement of open and covered storage areas, as well as dredging and slipway construction; (iii) training for ports operational and managerial staff, including stevedores and equipment operators; (iv) expert studies designed to improve the efficiency of port organiza- tions in Turkey; and (v) assistance to complete an ongoing national port planning study (Phase I) and thereafter to prepare a national master plan of port investments includ- ing a special study of a major new regional port in the Istanbul/Marmara region (Phase II); and undertaking of preliminary engineering design and detailed feasibility studies of the new Marmara port or any other higher priority port selected in Phase II (Phase III). The project will substantially increase the efficiency of Turkey's major ports by maximizing use of existing port infrastructure. Together with other on-going ports infra- structure development projects, it will provide sufficient ports capacity to meet Turkey's traffic requirements up to about 1985, especially for general cargo. It will also help prevent recurrence of the severe ports congestion This, document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - i~i - of 1975-76, which cost Turkey scarce foreign exchange through congestion and for demurage charges. The core of the project, the rehabilitation of the ports, is free from any significant risk, although projected increases in efficiency depend largely on the effectiveness of the proposed training and managerial improvements which may not fully materialize. Nevertheless, sensitivity analysis indicates that even in the extreme case where only one half of the general cargo traffic growth and improvements on efficiency are realized the economic returns remain satisfactory. The institution building features are more long term and depend, in part, on parliamentary or general policy action. Estimated Cost: Local Foreign Total ---------- (US$ Million) -------- Equipment (including spare parts) 24.8 53.3 73.1 Civil Works 13.3 7.2 20.5 Technical Assistance (including training, consultants and planning study) 0.4 1.6 2.0 Subtotal 38.5 62.1 100.6 Contingencies Physical (civil works only) 2.7 1.5 4.2 Price 39.4 11.4 55.0 Total 30.6 75.0 155.6 Financing Plan: Local Foreign Total ---------- (US$ Million) -------- Bank - 75.0 75.0 Goverrnment 80.6 - 80.6 Total 80.6 75.0 155.6 Estimated Disbursement: IBRD FY 1980 1981 1982 1983 Annual 0.5 30.6 35.8 8.1 Cumulative 0.5 31.1 66.9 75.0 Rate of Return: 37 percent. Appraisal Report: Report No. 2277c-TU dated April 12., 1979 Regional Projects Department, EMENA  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TURKEY FOR A PORTS REHABILITATION PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Turkey for the equivalent of US$75.0 million to help fi- nance the foreign exchange cost of a project to rehabilitate Turkey's ten major public ports. The loan would have a term of 17 years, including 4 years of grace, with interest at 7.9 percent per annum. The equivalent of about US$50.8 and US$20.8 million would be on-lent respectively to the Turkish State Railways (TCDD) and Maritime Bank (DB) for a term of 17 years, on the same terms and conditions as the proposed loan. PART I - THE ECONOMY 1/ 2. An economic report (No. 1272-TU) entitled "Country Economic Memo- randum - Turkey" dated October 21, 1976, was circulated to the Executive Directors on November 2, 1976. The situation subsequently deteriorated, culminating in a serious economic crisis. This Part analyzes these develop- ments. (A fuller account may be found in the Economic Annex to the Report and Recommendation of the President on the Erdemir Stage II Steel Project, dated June 15, 1978.) It also describes the short and medium-term policy initiatives of the Ecevit Government which took power in early 1978, and cautiously assesses economic prospects. A special economic mission visited Turkey in April 1979 to review the Fourth Five-Year Plan (1979-83). A com- prehensive report on the medium-term outlook is being prepared based on its findings. Economic Structure and Causes of 1977 Crisis 3. In most respects, the record of Turkish economic development over the last two decades has been good. As the result of a strong commitment to rapid growth and modernization, real output has grown, on average, by more than 6 percent per annum. Laudable strides have also been made towards meeting basic needs in such areas as education, health care, water supply, and rural roads. This impressive record has been punctuated (in 1958, 1970 and most recently in 1977) by severe balance-of-payments crises. The recent crisis has been the product partly of extraneous factors and partly of the Turkish development strategy itself, which paid insufficient attention to the structural weaknesses of the economy and perhaps exacerbated some of them. 4. The emphasis of successive governments on industrialization doubled the sector's share in total output between 1955 and 1977, but resulted in comparative neglect of agricultural development, already hampered by inappro- priate subsidy and pricing policies. Moreover, although some parts of 1/ This Part is identical to that in the President's Reports on the Grain Storage and Thirteenth TSKB Projects.  Turkish industry are efficient, and more have the potential to become so, a strong emphasis so far on sophisticated capital-intensive technology has resulted in high-cost production in certain sectors. Unselective protection against competition from imports has also inhibited the development of an industrial structure well-suited to Turkey's comparative advantages in terms of location, natural resources and labor availability. One important con- sequence of this, has been that Turkey has so far been unable to develop a strong industrial export base, and has relied mainly instead on its tradi- tional agricultural exports (supplemented by workers' remittances) to finance the imports of materials and capital goods needed for its ambitious moderni- zation effort. This pattern of trade has been a fundamental cause of the difficulty which Turkey has periodically experienced in reconciling rapid growth with a viable external payments position. 5. During the world recession of the mid 1970s, unlike many other countries, the average annual real rate of GDP growth in Turkey was 7.2 percent. This includes 1977 when real GDP grew by only 4.4 percent, follow- ing the economic crisis that year and shortages of power, imported inputs and the like. Growth over this period was made possible by rising public sector activity, which provided a stimulus to aggregate demand that more than offset the depressing effect of sluggish exports and the increased outflow of payments for oil and other imports. The growth of output was therefore constrained not by demand, but by supply. Favorable weather and improved inputs led to an average annual rate of growth of agricultural output of about 4.1 percent in the period 1970-77, while industrial output grew at about 9.2 percent--principally as a result of the sustained high level of industrial investment. The general pace of investment in Turkey also did not slacken during the world recession of the mid 1970s. On the contrary, largely as the result of an intensified public investment drive from 1975 onwards, the share of fixed investment in GDP remained around 20 percent during 1973-78. 6. In this period, employment was not at the forefront of development objectives. Unemployment and underemployment were relatively high, totaling about 11 percent of the labor force in 1970 and over 13 percent in 1977. The underlying causes, aggravated by a sharp reduction in the emigration rate since 1973, are a high rate (2.5 percent per annum) of population growth and the adoption of relatively capital-intensive methods of production in the modern sectors of agriculture and industry. The comparatively slow rate of growth of employment has also had an adverse effect on the distribution of income, although basic needs are largely met. The two main causes of this inequality, however, are the large gap between agricultural and non- agricultural labor productivity and the wide dispersion of farmers' incomes. 7. During the mid 1970s, Turkey's external trading position deteriorated markedly due to rapid increases in imports of goods. These tripled in value between 1973 and 1977, reaching $5.8 billion. About half this increase was due to rising world prices, including a four-fold rise in the price of oil, which currently accounts for one third of the import bill. The other half was due to a steep rise in the volume of imports.  8. High import demand has been characteristic of Turkey in the 1970s, and may partly be a "catching up" phenomenon. In 1970, after a decade of strict import rationing, the ratio of imports to GDP was only 7 percent, about half the average for countries of Turkey's size and stage of develop- ment. By 1977, after several years of liberalization of import restrictions, it reached 14 percent. This process was associated with increased imported inputs in agriculture and changes in industrial structure and technology, which rested growth on imported inputs. After 1973, the growth of imports was accelerated by: a fall in the local currency price of imported goods relative to domestic output, due to a rate of inflation which exceeded the international inflation rate by more than the rate of depreciation of the TL against other currencies; an absolute shortage of domestically produced goods; an increase in the share of fixed investment in total expenditure; and a tendency to build up imported stocks in anticipation of devaluation or import restrictions. 9. From 1970 to 1973, rising imports were more or less offset by rapid expansion of exports--particularly manufactured exports such as cotton yarn and fabric, leather products and processed food--and workers' remittances. In value terms, merchandise exports increased from $588.5 million in 1970 to $1,317 million in 1973, or 31 percent per annum. Manufactured exports increased even faster--from $100.3 million in 1970 to $443.4 million in 1973, or by 64 percent per annum. In volume terms, they increased by an average annual rate of 22 percent, a very high rate indeed. The increase in workers' remittances was even more dramatic--up from $273 million in 1970 to $1,183 million in 1973, reaching a peak of $1.4 billion in 1974. Since 1973 however, export performance has been weak and remittances also declined after 1974. The value of exports of goods rose by 33 percent between 1974 and 1977, when it reached $1.8 billion, mainly due to rising world prices; in volume terms, they showed no upward trend. Thus by 1977, merchandise exports were only one-third of the imports. 10. The poor showing of exports between 1974-77, is partly attributable to world recession. This not only affected industrial exports; it also depressed Turkish agricultural exports such as hazelnuts, raisins and tobacco, and industrial raw materials like cotton. The difficulties were aggravated by two other factors: (a) agricultural support prices bore little relation to world prices, and thus failed to provide incentives to farmers to increase production of exportable commodities; and (b) this was compounded by a general neglect of agricultural development, buoyant domestic demand for its produce and ineffective administration of its export sales. More importantly, indus- trial exports, presently only 7 percent of the value of industrial output, were stifled by a more rapid increase of production costs in Turkey than in her trading partners, which was insufficiently offset by periodic small devaluations of the TL. Consequently, exporting, which had been lucrative in the early 1970s, became less profitable, and potentially exportable production was diverted to a booming and profitable domestic market. 11. The current account balance moved from a surplus of $0.5 billion in 1973 to a deficit of $3.5 billion in 1977, because of a rapid deterioration  - 4 - in the trade balance, besides a decline in workers' remittances from a peak of $1.4 billion in 1974 to around $1 billion in 1977. One important cause of this has been the restrictions on immigration imposed by Western European countries in the face of growing domestic unemployment caused by the world recession. The rate at which earnings were remitted also fell substantially. This partly reflected the overvaluation of the TL, which induced workers to hold their savings abroad or remit through unofficial channels. 12. The large current account deficit was not matched by an increased inflow of medium and long-term external capital. Turkey had deliberately kept both foreign private investment and private long-term borrowing to a minimum. The gross inflow from official long-term borrowing during 1970-75 stagnated at about $300 million per annum. Initially, this was due to a manageable need for foreign finance, given the tremendous increase in workers' remittances in the early 1970s. Subsequently, it was because of a lack of experience and initiative on the part of successive governments to develop and tap new sources of external borrowing, when faced with a decline in multilateral and bilateral lending on concessional terms. While in 1976 and 1977, long-term loan commitments rose to over $1 billion per annum, disbursements continued to be slow because most loans were tied to specific projects, whose implementa- tion was slow. Consequently, the overall balance of payments moved from a surplus of $0.9 billion in 1973 to a deficit of $2.4 billion in 1977. It was financed by running down the foreign exchange reserves and by various forms of short-term borrowing, which by the end of 1977 totalled $6.5 billion. 13. An important source of short-term borrowing was the Convertible Lira Accounts (CLAs). It provided nearly $2 billion in 1975 and 1976. These are deposits placed with Turkish banks by foreign commercial banks and non- resident Turks, which were guaranteed until last year against exchange rate risk, by the Central Bank. Another major source of finance was short-term suppliers' credits, partly covered by export credit insurance in the export- ing countries. A swap facility was also established with the Bank for Inter- national Settlements, and a scheme whereby the Dresdner Bank took in time deposits from Turkish workers in Germany, offered high interest rates, and made the proceeds available to Turkey. During 1977 however, foreign banks became reluctant to rollover the outstanding stock of short-term debt, and even more reluctant to make further substantial loans. The Central Bank was driven to delaying foreign exchange transfers on a large scale. The resulting substantial accumulation of arrears, made it even harder to obtain new credits. 14. The deterioration in the balance of payments position can also be viewed partly as a reflection of inadequate efforts at demand management and domestic resource mobilization, especially in the public sector. The public sector deficit rose steadily from TL 6 billion (2 percent of GDP) in 1973 to TL 77 billion (9 percent of GDP) in 1977. This occurred despite a creditable tax performance and was mainly due to a deterioration in the financial position of the State Economic Enterprises (SEEs), and in particular of the operational SEEs which dominate the transport and energy sectors and  - 5 - account for half the output of mining and manufacturing. Successive govern- ments, in an effort to slow inflation, held the price increases of operational SEEs below the rate at which their already high costs were rising, thus transforming a TL 5 billion profit in 1973 into a TL 20 billion loss in 1977. The scale of SEE investment was also greatly escalated, further widening the gap between public sector savings and public sector investment. Most of the increased deficit was financed by borrowing from the Central Bank, since administered ceilings on interest rates made it hard to attract sufficient purchasers for government bonds. As a result, and despite a large decline in the foreign exchange reserves, the money supply increased rapidly, at an average annual rate of about 30 percent between 1974 and 1977. 15. The rate of inflation (as measured by the wholesale price index) declined from 30 percent in 1974 to 10 percent in 1975, but rose to 24 percent in 1977. Besides cost-push influences on the price level (including a power- ful labor union movement and a farmer-oriented agricultural price support policy), the recent trend also results from excess demand caused by the enlargement of the public sector deficits and the private investment boom. Recent Economic Programs and Performance 16. Tentative stabilization measures to stem the resulting economic crisis, taken by the coalition government of Mr. Demirel towards the end of 1977, did not go far enough and came too late. In early 1978, a new govern- ment, with a small but working majority, came to power under Mr. Ecevit. It purposefully set about taking painful, but essential, steps to restore order in the chaotic economic house it inherited and build up the confidence of the international financial community in Turkey's future. It swiftly formulated a package of stabilization measures as part of the 1978 Budget and Annual Program. This formed the basis of a Standby Agreement with the IMF in April, 1978. In summary, the short and medium term remedies applied by the Govern- ment to solve the economic crisis contain four salient elements. First, restraint of domestic demand relative to output, through increases in public and private savings relative to domestic investment. Second, measures that directly boost exports substantially, including the maintenance of competi- tiveness, or that restrain imports. Third, sustained efforts to obtain a substantial increase in medium and long-term external loans. Fourth, pari passu with the rescheduling of the outstanding stock of short-term debts, conversion of these debts into medium-term obligations, and exercise of strict control over future short-term borrowing. UIltimately, considerable restructuring of the economy to rectify imbalances in Turkey's current foreign trade pattern, will be entailed. 17. To raise domestic savings relative to domestic investment, the Ecevit government, between March and May 1978, increased a wide range of SEE prices and tariffs. In early September 1978, SEE prices for petroleum, petroleum products and sugar were increased by 80 percent. All price in- creases together were expected to add TL 54 billion to SEE revenues in a full year. The Government also substantially raised the stamp duty on  - 6 - imports, and proposed to the Parliament, a number of other tax revenue mea- sures, including a large increase in motor vehicle, income, corporation and municipal taxes, as part of a broader set of measures designed to enhance the efficiency and equity of the fiscal system. To control public sector expendi- tures, especially investment, it decided to concentrate on the completion of existing projects and cut back on new projects, except in the bottleneck energy and ports sectors, and for exports and such basic imported commodities as steel and fertilizers. In these ways, the Government aimed to markedly reduce public sector deficits and public sector borrowing from the Central Bank. In conjunction with other limits on Central Bank lending agreed with the IMF, these were expected to reduce the rate of growth of the money supply and the availability of credit, so as to restrain investment and consumption. To mobilize private savings, most interest rates, including those on govern- ment bonds and the repatriated savings of migrant workers were increased. 18. Despite the stringency of these politically difficult stabilisation measures, the results were mixed. The consolidated budget deficit in 1978 is officially estimated at about TL 34 billion, compared with TL 48 billion in 1977. But the rate of growth of the money supply in 1978 was 37 percent, roughly the same as in 1977. Moreover, the price level rose very sharply in 1978, even at the end of the year, the rate of inflation was around 50 percent per annum. Money wages also increased at an annual rate of over 50 percent, despite the Government's "social contract" with the largest trade union federation in July 1978. 19. To discourage imports and stimulate exports further, the TL was devalued against the dollar three times between September 1977 and March 1978, by a total of about 50 percent. In addition, it drifted downwards with the dollar against other currencies. The effect of this devaluation on imports was augmented by the increase in stamp duty in 1978 and in the short term, also by government's decisions to reduce imports of investment goods and give priority to imports of materials and spares needed to maintain, as far as possible, output from existing installed capacity. This, together with the shortage of foreign exchange, resulted in a drop in merchandise imports from $5.8 billion in 1977 to about $4.6 billion in 1978. This compares with the $5 billion figure envisaged under the April 1978 Standby Agreement. 20. As regards exports, the effects of the devaluations were partly offset by a reduction in April 1978 of export rebates. In July 1978, these rebates were increased again. As an additional financial incentive, the Government accorded priority in the allocation of foreign exchange for the purchase of imported inputs for export production and that of essential goods for domestic sale. Exporters have also been given special permission to finance their import requirements through acceptance credits. The degree of priority accorded to exporters in the allocation of domestic credit through the banking system was increased, as were the interest rate rebates on domestic borrowing by exporters. An inter-ministerial Export Coordination Committee set up to resolve the problems faced by exporters, has succeeded in simplifying some export licensing and registration procedures. Export targets  have been set for SEEs and Agricultural Sales Cooperatives. The Government took prompt steps to earn foreign exchange by disposing of large existing stocks of exportable commodities, notably wheat. It also took steps to: restrain domestic demand through its fiscal, monetary and price policies, help prevent diversion of potential export goods for domestic use, and improve competitiveness through exchange rate adjustments. In response, the value of exports rose by 28 percent in 1978 to around $2.25 billion. But this was below the $2.6 billion anticipated in the Standby Agreement. 21. With these developments in foreign trade and a marginal decrease in worker remittances over the 1977 level, current account deficit dropped markedly to an estimated $1.7 billion in 1978. This compares favorably to $3.5 billion in 1977 and the $1.8 billion deficit anticipated in the Standby Agreement. This substantial reduction, achieved mainly by severe curbing of imports, and vigorous efforts to raise fresh medium and long-term funds along with the rescheduling of existing debt (para. 23) led to an improved balance of payments position. Nevertheless, the overall 1978 deficit is estimated at about $900 million, some $150 million more than that envisaged in the Standby Agreement. On a net basis, it was financed by $180 million in IMF drawings (para. 22), $340 million in petroleum and Eurodollar loans, $145 million from the Dresdner Bank scheme and the remaining $235 million from various commer- cial banking sources. 22. The Standby Agreement provided for the immediate withdrawal of about $89 million in compensatory financing. In addition, since the Witteveen Facility was not in operation, Turkey was eligible to draw up to 150 percent of its quota, amounting to about $360 million, under the Exceptional Circum- stances clause. This entitled Turkey to withdraw $60 million in May 1978. A further drawing of $48 million was made in September, following renewed discussions between the Government and the IMF concerning short-term economic developments and prospects. Further discussions with the IMF to revise the stabilization package in light of developments since April, prior to the release of the remaining tranches of about $252 million, took place in December. 23. Since April 1978, Turkey has taken steps to cope with its large stock of short-term debt ($6.5 billion at the end of 1977). The exchange rate guarantee on new CLAs with a maturity under one year was removed, stemming new inflows of these deposits. It also secured, from the members of the OECD Consortium for Turkey, a rescheduling of approximately $1.2 billion in interest and principal payments falling due between January 1977 and June 1979, on public bilateral debt and private debt guaranteed by bilateral export finan- cing agencies. The terms were 2 years grace followed by 4 years to repay for short maturities, and 3 years grace with 5 years repayment for longer-term maturities; the interest rates were to be negotiated bilaterally. Bilateral agreements have now been signed with all countries concerned. However, nearly $1 billion of unguaranteed trade debts remain to be rescheduled. Finally, negotiations have been completed with some 220 commercial banks involved, to consolidate about $3.0 billion of outstanding short-term liabilities (includ- ing most of the CLAs, arrears on CLAs, reimbursement credits and banker's credits) into obligations with a maturity of 7 years, including 3 years of  - 8 - grace, at an interest rate 1.75 percent above LIBOR. In view of the complexi- ties and numbers of banks involved, progress on this was slow. But reschedul- ing agreements are ready and are expected to be signed after the ongoing discussions with the IMF have been completed. While all these efforts have eased the debt servicing burden for 1978 and 1979, it will cause a substantial bulge in debt service payments in the early 80s. 24. Concurrently, the Government pursued new sources of medium and long-term external finance, including the Middle East. In response to this initiative: Germany provided program credits of $75 million and project credits of $72 million; the US, Austria and Belgium provided program loans totalling $70 million; Libya provided a program credit of $100 million and another $300 million spread over five years to finance oil imports; Iran provided a short-term credit of $150 million for oil imports; an agreement was also signed with the Saudi Fund for $250 million in project aid; Austria, Norway and Finland provided project credits; trade agreements were signed with Romania, Bulgaria and U.S.S.R. Another indication of Turkey's change of direction in seeking external financing vigorously, is the engagement for the first time of internationally-reputed investment firms to assist in the rescheduling exercises and the tapping of new sources of private capital in Europe and U.S. As a first step, in conjunction with the commercial bank rescheduling, a fresh loan of about $400 million is expected to be provided by a group of banks, with disbursement contingent on a new Standby Agreement. 25. The discussions begun in December 1978 between Turkey and IMF on a revised stabilization program were interrupted because of difficulties in reaching agreement on certain important policy issues. They have since been resumed (see para 27). The discussions focussed on the need to continue the austerity measures initiated in early 1978 and to strengthen efforts to cope with excessive monetary growth, sagging SEE finances and the high inflation rate. It is evident that progress in these areas is complementary to stricter control of imports, tight control over short-term borrowings and the growth of arrears, and the continuation of foreign trade policies and measures directed to improve the balance of payments position further. 26. Against this background, adopting the pattern followed in early 1978, the Government announced its revised stabilization program in mid-March 1979 and amplified it further in early April. To improve the financial position of SEEs, increased prices of sugar (34 percent), iron and steel (41 percent), cement (63 percent), gasoline (84 percent), fuel oil (80 percent), diesel fuel (82 percent) and kerosene (110 percent), were announced. These prices are now well above their imported costs at the current rate of exchange. The Government estimates that these increases will together, yield an addi- tional TL 80 billion in the current Turkish fiscal year and significantly reduce the SEE deficits, despite inflation in costs and wages (although the latter will be restrained by new limits on the growth of SEE employment). To ensure more effective mobilization and allocation of fiscal resources, interest rates for both deposits and lending have been substantially augmented. For time deposits, increased rates range from 12 percent for deposits between 6-12 months, to 24 percent for those between 3-4 years; in addition, the  - 9 - repatriated savings of migrant workers will receive an interest premium of 10 percentage points (15 points for deposits above 3 years). The interest rate for medium and long-term loans have been considerably increased: in the agricultural sector from 10.5 percent to 16 percent; for small-scale indus- trial enterprises from 10.5 percent to 16 percent; and for general lending in industrial and other sectors from 16 to 20 percent. There is no ceiling in respect of loans extended by development and investment banks using funds acquired through the domestic bond issues of at least 5 years maturity. However, interest rate rebates have been increased for export oriented enter- prises, and for those established in the poorer areas of Turkey. 27. To improve the balance of payments, a number of steps were taken. The TL was devalued against the US Dollar by about 6 percent to TL 26.5 = US$1. Pari passu, a multiple exchange rate regime was introduced for the first time, under which a more favorable exchange rate with a prermium of 40 percent (TL 37.1 = US$1) became applicable for foreign tourists, workers' remittances and repatriated savings. This favorable rate carried an addi- tional premium, bringing the effective rate to TL 47.1, if transactions took place up to May 9, and to TL 42.1 for those made between May 10 and June 9, 1979. In addition, a significant development was the creation of an officially sanctioned, but still limited, parallel market in respect of manufactured and mineral exports. Specifically, Turkish industrial exporters could retain 50 percent of their foreign exchange earnings and either use this to finance their own import requirements or transfer it to other industrialists, at whatever price it fetched. All these measures announced in April appear to go in the desirable direction, although it was clear that further adjustments in the exchange regime would need to be introduced in due course to correct the over-valuation of the official exchange rate. In mid-April, the Managing Director of the IMF met the Turkish Finance Minister in Zurich and agreed that discussions on a revised standby agreement should resume as soon as possible. An IMF mission visited Turkey during late April and mid-May for this purpose. The discussions concentrated upon the current developments and the salient elements of the economic policies that could become the basis for a standby agreement. While no formal agreement was possible, an understanding was reached that the negotiations should be adjourned for a short while, to allow the OECD-sponsored pledging session to take place, and the talks should be resumed thereafter. A successful pledging session took place in Paris on May 30, 1979. The pledges were made, subject to an early agreement on a new Standby Agreement between Turkey and the IMF, the negotiations for which resumed in Paris on May 31. The various member governments pledged a total of $661 million as special aid, and $245 million as special export credit aid to Turkey, and are considering further rescheduling of the official bilateral debt and guaranteed export credits to ease the debt servicing burden in coming years. In addition, an early agreement with the IMF would also trigger the provision of new fresh commercial bank loans of $400 million (para. 24), besides an agreement for the rescheduling of the outstanding short-term liabilities owed to the commercial banks by Turkey. On June 11, Turkey again revised the multiple exchange rate system introduced in April and devalued the TL further to TL 47.1 = US$1, with a rate of TL 35 = US$1 for oil and fertil- izer imports and traditional agricultural exports. Other complementary measures are expected.  - 10 - 28. For 1979, pending agreement with the IMF, the projections of the balance of payment can only be tentative. However, based on cautiously optimistic assumptions concerning exports, worker remittances and capital inflows, and taking into account the recent increases in international oil prices, the realization of a volume of imports similar to that achieved in 1978 would entail a foreign exchange gap of about $1.5 billion. Medium-Term Policies and Prospects 29. The Fourth Plan was approved by the Turkish Parliament in November 1978. Its important feature is the strong emphasis on the balance of payments and in particular, on the promotion of exports. The export thrust is one of the cornerstones of Government's medium-term development strategy, whose success will be crucial to the restoration and maintenance of Turkey's credit- worthiness in the medium-term future. 30. The Government's objective is to increase the volume of merchandise exports by a factor of almost two and a half between 1978 and 1983. This implies a real export growth rate averaging around 18 percent per annum during the Plan period. This is expected to be achieved broadly, in the following manner. The volume of agricultural exports is expected to grow at an annual rate of 6 percent, and that of manufactured products by an average annual rate of over 30 percent starting from about $700 million in 1978. About 40 percent of the latter is expected to come from food and beverages, textiles and clothing, and leather products; another 40 percent from intermediate goods such as rubber and plastics products, chemicals, cement, glass and ceramics, and basic metals; the remaining 20 percent is expected to consist of consumer durables, capital goods, and other products of the metal-working industries. 31. Preliminary Bank projections suggest that the share of unprocessed agricultural and mined products in total exports is likely to be higher than envisaged in the Plan, and that the overall export target, though ambitious, is feasible, provided that the present widespread commitment to export growth continues to be translated into appropriate policies. In addition, the Government intends to study the effects on export incentives of the existing system of protection, with a view to making appropriate changes when the balance of payments situation permits; and it has already begun to bring the relative support prices of different agricultural commodities more closely into line with relative world prices. There will also be a drive to increase invisible exports, particularly earnings from transportation, tourism and civil engineering contracts abroad. 32. The other Plan targets include an average annual real GDP growth rate of 8 percent, which seems overly optimistic, especially in view of the 3-4 percent growth rate achieved in 1978, and the prospect of a similar performance in 1979. Efforts not to allow unemployment to increase over the 1977 level, is now - for the first time in any Plan - a specific development objective. Real fixed investment is expected to grow at an average annual rate of 12 percent (27 percent allocated to industry, 27 percent to energy  - 11 - and transportation and 12 percent to agriculture). Gross domestic savings are expected to rise from 16 to 22 percent of GNP, implying a marginal savings ratio of 35 percent, which seems over-optimistic in view of the experience of the last two Plan periods, in which the realised marginal savings ratio was only 12 percent, largely due to poor savings performance in the public sector. Significantly, in the Fourth Plan, the main contributor to the rapid growth of savings is expected to be the public sector, whose reve- nues are expected to increase in real terms at an average annual rate of 12 percent, compared with a real growth rate of 9 percent for public consumption. Possible Outlook for the Future 33. If the export drive is successful and imports are appropriately restrained, and assuming significant growth of workers' remittances as a result of the recent exchange rate changes and interest rates for remittances, it should be possible, despite the increasing burden of interest charges on rescheduled debts, to keep the balance of payments current account deficit to an average of about $1.5 billion dollars per year during the Plan period. To finance such deficits and amortize the considerable external debt, it will also be necessary for Turkey to continue its efforts to achieve a much higher level of medium and long-term borrowing than in the past, both in commitment and disbursement terms. But this depends on the assessment of Turkey's creditworthiness, which in turn hinges on a successful export effort and careful debt management. 34. The extensive short-term borrowing of 1975-77 greatly increased Turkey's external debt, adversely affected its previously rather attractive maturity structure, and caused a sharp rise in debt service payments. At the end of 1978, total external indebtedness amounted to approximately $13 billion. Of this, $5.5 billion was medium and long-term debt. About one- fourth of it was held by international organizations, mainly the Bank ($836 million, plus $842 million committed but undisbursed) and the European Invest- ment Bank; and about one-half by foreign governments and government agencies, notably those of the United States, Germany, Canada and the Soviet Union. The remaining $7.5 billion consisted of short-term liabilities of various sorts. If the consolidation arrangements finalized with the commercial banks and creditor countries are fully implemented, about $4.1 billion of short-term debt will be converted into medium and long-term debt. To summarize, these consolidations consist of: (a) about $3.0 billion to be rescheduled by commercial banks (para. 23); (b) guaranteed suppliers credits of about $700 million under the terms of the OECD sponsored agreement of May 1978 (para. 23); (c) another $100 million of short-term credits to be refinanced by CMEA countries; and (d) refinancing of $350 million of oil credit owed to Iraq. 35. Turkey's debt management initiatives should help restore a more attractive maturity structure to the external debt, by transforming a good portion of the short-term liabilities into medium-term obligations. However, a relatively high debt service ratio over the medium-term must be anticipated as a result of the large short-term debts and the rather hard terms available  - 12 - to Turkey. In 1977, debt service payments, including interest on short-term debt, amounted to 20.2 percent of exports of goods, non-factor services and workers' remittances. In 1978, after making allowance for the rescheduled service payments, this ratio is estimated to have risen to around 25 percent. In subsequent years it will increase further, since Turkey has to take on new borrowings to maintain sound economic growth. Taking these factors into account, the debt service ratio is likely to peak in the early 1980s to a high level of about 40 percent, before it begins to decline. This, however, should represent the culmination of the financial consequences of the present crisis and should be manageable, provided the export drive is sustained. Thus, although the balance of payments situation will remain tight in the medium- term future, given sound economic and fiscal policies and careful debt man- agement which the present Government shows determination to pursue, Turkey continues to have a substantial capacity to service long-term borrowing, and remains creditworthy for such financing. PART II - BANK GROUP OPERATIONS IN TURKEY 36. Prior to 1970, Bank Group assistance was limited and intermittent. However, the success of Turkey's 1970 stabilization program, permitted larger and continuing lending. To date, the Bank/IDA have lent $1,814 million for 54 projects. Agriculture accounts for 28 percent of the funds lent, indus- try and DFCs for 37 percent, power for 21 percent and urban development, transportation, education and tourism for the rest. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of April 30, 1979, with notes on the execution of ongoing projects. 37. Implementation of private sector projects has been satisfactory. But in the public sector, political uncertainty, limited coordination among agencies and staffing problems have resulted in uneven and delayed project implementation. Therefore, a system of joint project reviews between Turkey and the Bank was instituted in June 1975. Since up to end 1977, these resulted in modest improvements, the situation was reviewed with the new Ecevit Govern- ment in March 1978, and further discussed during my visit in April 1978. Subsequently, Turkey established a new high-level coordination team for Bank projects. This team set up procedures for monitoring and achieving realistic implementation and disbursement targets, and reviewed possible changes in sector policy covenants which because of Turkish laws and practices con- strained effective project performance. As of January 31, 1979, disbursements increased to 72 percent of appraisal estimates against 51 percent in June 1975. The encouraging progress and constructive cooperation which has now become manifest allow cautious optimism that performance will gradually improve further, permitting expansion of the Bank's lending. 38. Bank lending is now aimed at supporting Turkey's efforts to improve its: (a) capacity to earn or save foreign exchange, through promotion of industrial and agro-industrial exports; (b) income distribution, employment  - 13 - opportunities and living standards, through rural and urban development; (c) lagging public sector savings, through the encouragement of improved manage- ment and financing of the investments of key SEEs; and (d) infrastructure posing bottlenecks for development. The Bank has begun discussions with the Government on how its lending can best contribute to the new Plan's objectives, especially export promotion, without being handicapped by past policy and institutional obstacles. Meanwhile, agriculture and industry remain the key sectors for lending. In agriculture, projects emphasize livestock, rural development, agricultural credit and exports; in industry (including DFCs), the emphasis is on promotion of exports and employment, as also the gradual strengthening of the SEEs. Projects for urban development, public utilities and transportation supplement these efforts. 39. A Program Loan and the Bati Raman Enhanced Oil Recovery Engineering loan were approved in November 1978. The other project being pre-ented to the Executive Directors this fiscal year will assist with grain storage. Projects being processed for the next two years include the second fruit and vegetable, Erzurum rural development, the fifth livestock, a thirteenth loan operation for TSKB, private and public sector textiles rationalization, and fertilizer pro- duction projects, besides those for alleviation of air pollution in Ankara (an engineering loan), transport and sewerage development in Istanbul, secondary oil recovery and employment. In addition, the exceptional economic circum- stances being faced by Turkey, require further support for the financing of critical imports. The early conclusion of a new Standby Arrangement with the IMF and its effective implementation, and the creditable performance under the first program loan, would enable us to consider a second program loan in FY80. 40. At the end of 1978, the Bank Group's share of Turkey's medium and long-term external debt (outstanding and disbursed) was 15 percent. Its share of estimated total external debt (including short-term obligations) was about 7 percent. The gradual conversion of much of the short-term debt into medium and long-term debt, will cause the Bank's share of medium and long-term debt to fall sharply to around 10 percent by 1980. Thereafter, assuming the cur- rently projected increase in Bank lending, the share would increase. The Bank's share of service payments on medium and long-term debt is expected to follow a similar path, dropping from 12 percent in 1977 to about 8 percent in 1980, but rising thereafter. 41. IFC has invested in the production of synthetic yarns, pulp and paper, glass, aluminum, iron and steel products, motor bicycle engines, piston rings and cylinder liners, and tourism. It has also invested in TSKB. As of April 30, 1979, gross IFC commitments totalled $206 million, of which $105 million were still held by IFC. In March 1979, IFC approved a $31 million loan (of which $11 million for a participant) and $4 million equity investment in an export-oriented glass project. Additional investment opportunities are being pursued.  - 14 - PART III - THE PORTS SUB-SECTOR AND ITS INSTITUTIONAL NEEDS Introduction 42. Turkey's 7,300 km coastline is served by over 75 public or private ports. The ten major public ports, which handle a substantial portion of its foreign trade and shipping, are included for rehabilitation under the proposed project. They are: Trabzon and Samsun on the Black Sea, the two Istanbul ports of Salipazari (on the European side) and Haydarpasa (on the Asian side), Derince and Bandirma on the Marmara Sea, Izmir on the Aegean Sea and Antalya, Mersin and Iskenderun on the Mediterranean (Map 13702). Besides these, some 30 smaller public or municipal ports serve domestic trade and shipping needs, while 35 specialized ports are owned by industrial complexes to handle their own needs. Over 90 percent of Turkey's foreign trade and 10 percent of its domestic trade is served by ships, which use various Turkish ports. In 1977, cargo traffic totalled 37 million tons, consisting of 20 million tons of oil, 10 million tons of dry bulk cargo and 7 million tons of general cargo. Of this, public (including municipal) ports handled 35 percent of the oil, 45 percent of the dry bulk and 90 percent of the general cargo. Of these public ports, the ten major ones included in the project handled 30 percent of the oil, 38 percent of the dry bulk, and about 85 percent of the general cargo. Since most of Turkey's high value imports and exports are included in the "general cargo" category, the public ports of Turkey - especially the ten project ports - are crucial to its foreign trade. 43. The sustained growth in Turkey's foreign trade in this decade, has imposed a heavy burden on its port facilities, especially on the 10 project ports. The total tonnage handled grew from about 12 million tons in 1970 to a peak of 16 million tons in 1977, while port capacity declined due to deteriorating equipment. Although the total cargo handled in 1978, registered a decline to 14 million tons due to import restrictions resulting from the country's severe economic crisis, it is clear that as the economy gradually recovers in the next two to three years, the foreign trade volume will pass the 1977 peak and impose further strain on the country's port capacity. The proposed project has been appraised using projections of Turkey's foreign trade somewhat more conservative than the most recent Bank assessment (see paragraph 31 above). These projections assume: (a) the volume of imports will reach the level attained in 1977 only in 1982 and thereafter increase by 8 percent per annum up to 1985; and (b) the average annual growth of exports in real terms will be about 12 percent between 1978 and 1985, instead of the 18 percent foreseen by the Plan. On this basis, it is estimated that the total cargo handled at the 10 project ports would increase to 17.6 million tons in 1981 and 23.8 million tons in 1985. Of this, general cargo traffic should increase from 4.8 million tons in 1978 to 5.8 million tons in 1981, and nearly 8 million tons in 1985. 44. Turkish ports, including the project ports, are equipped with essen- tially obsolete equipment. The situation is aggravated by inefficient operat- ing methods. The ports are therefore hard put to meet even current needs effectively. Moreover, in 1976/1977, when general cargo traffic reached its  - 15 - peak, Turkey had to pay heavy demmurage charges, amounting in 1976 to some $10 million in the two Istanbul ports alone. Even under the extreme assump- tion that the growth rates of cargo will be only one-half of those summarized in paragraph 43 above, the present port facilities (including the project ports) could present a serious bottleneck to development, without rehabilita- tion and renewal. In addition, there is a need to improve coordination of port administration (especially in regions like Istanbul where there are more than one port), planning and financial arrangements. Specific steps in these areas are discussed in succeeding paragraphs in the context of the ten project ports, because of the preponderant role these ports play in the subsector. In this context, the Government and the Bank both recognize that a project to rehabilitate and modernize these ports physically, will be of greater relevance if it also focusses on correcting some of the institutional needs of the subsector in the near-term, while laying a sound basis for initiating longer-term improvements. Port Operational Bottlenecks 45. The present operating problems in the project ports stem largely from: (i) a severe shortage of modern cargo-handling equipment and floating craft, compounded on inadequate maintenance, partly due to a lack of spare parts; (ii) insufficient and inadequately maintained open and covered storage areas, with usable storage areas restricted by an accumulation of old and abandoned cargo not cleared through customs; and (iii) relatively untrained port labor and outdated port management techniques. The productivity of existing equipment is low (about 50 percent), about one-half of the existing shore equipment has a nominal lifting capacity of only 1 to 3 tons but has been down-rated to about 1.5 tons and cargo is improperly handled and stored with a high incidence of cargo damage. The efficient movement of cargo is further hampered by the improper use of vehicle and equipment lanes for stor- age purposes. The cargo throughput is, therefore, only about 300-450 tons per shipday, about 50 percent of generally accepted international standards. 46. The project directly addresses these problems. In addition, a recent decree permits the removal of cargo considered abandoned in port storage areas or not cleared through customs within two months of arrival. Once fully implemented, this new policy is expected to greatly alleviate the constraints on storage capacity. To expedite implementation of this decree in the project ports, agreement was reached that the Project Coordination Committee (described in para 64) will be responsible for ensuring the removal of old cargo from the project ports within a reasonable time period. To monitor removal and identify problems, TCDD and DB, the port operating agen- cies, will prepare for the Committee, by June 30, 1979 lists of the six month old cargo in their ports and a timetable for their removal (Loan Agreement, Schedule 4 Part IA). 47. Lack of consistent and reliable port statistics and operating infor- mation hinders effective management and makes it difficult to identify ineffi- ciencies and take corrective action. DB and TCDD have therefore agreed that by January 1, 1980, they will commence compiling port operational statistics  - 16 - on a uniform basis and, in consultation with the Bank, establish adequate efficiency indicators to monitor improvements in operations. By the same date, the Ministry of Transportation will begin to compile and analyze port statistics on a national basis. To ensure that data collection commences as agreed, the units will be established and staffed appropriately by September 30, 1979 (Loan Agreement, Section 3.10 and Project Agreement, Section 2.08). Port Organization and Management 48. The administration of various ports in Turkey is split among several agencies. The administration of public ports handling general cargo is divided between two SEEs: TCDD administers the ports of Haydarpasa (Istanbul), Derince, Samsun, Mersin, Iskenderun, and Bandirma; while DB administers Antalya, Salipazari (Istanbul), Izmir, Trabzon and six other smaller ports. The situation is aggravated by the fact that the primary activities of TCDD and DB are not ports, but respectively, railways and passenger shipping/ship- yards. This division of responsibility between DB and TCDD and the dilution of attention to ports within each of the organizations, results in a lack of coordination in port operations. It particularly hampers the efficient util- ization of resources of neighboring ports, coordination of ship unloading and loading schedules, standardization of equipment and pooling of spare parts. The problem is particularly severe in Istanbul, where the two major ports flanking the Bosporus, are run, one by TCDD and the other by DB. Construction of major port investments are largely carried out by a third organization, the Ministry of Public Works. 49. Under the proposed project a number of interim measures are pro- vided, to improve coordination within the existing framework. Agreement has been reached on the following measures: (i) the standardization of equipment and spare parts initiated by the project, will be extended by January 1, 1981, to all new port equipment; (ii) common DB/TCDD training programs initiated under the project will be continued; (iii) the introduction by January 1, 1982, of common costing and accounting procedures for DB and TCDD ports; and (iv) administrative arrangements, satisfactory to the Bank, will be introduced by January 1, 1981 to coordinate port operations for the two Istanbul ports (Loan Agreement, Section 3.06(c) and Project Agreement, Section 4.02). 50. As a long-term solution, the Government is currently considering creating new port institutional arrangements. A first draft proposal by the Ministry of Transportation tentatively envisaged a national authority respon- sible for: (i) the operation of all ports, (ii) the establishment, as needed, of separate administrative entities under the aegis of that authority to operate individual ports or groups of ports, (iii) setting of port tariffs, with approval of the Ministry of Transportation, and (iv) coordinating port planning on a national basis. While the proposal is in harmony with the interim measures referred to in paragraph 49, and has the virtue of creating an organization solely concerned with ports, the draft proposal is tentative and several major issues remain unresolved, including: the legal status of the organization - particularly whether it should be a semi autonomous govern- ment department or an SEE, the degree of local financial and administrative autonomy, and the scope of its responsibilities. Moreover it is not clear  - 17 - that a national authority, as against regional or local authorities, is the appropriate solution in Turkey given the geographical dispersion of the ports and the problems experienced with other centralized agencies. 51. In view of the importance of this critical institutional step, it is prudent that Turkey move on this matter with measured pace and deliberation to ensure the new institutions are established on a basis that are sound and workable in the Turkish environment. During negotiations, possible approaches to the new institution were discussed and an understanding was reached on a timetable for reaching a solution. Revised proposals for the new institutional arrangements for ports, reflecting the views of all concerned ministries will be submitted, for an exchange of views, to the Bank by the Ministry of Tran- sportation before March 31, 1980. They will thereafter be promptly finalized or presented to Parliament, if required. Agreement was reached that within 18 months after finalization of the legal steps for establishing .he new port arrangements, the Government will prepare a comprehensive implementation plan and, thereafter, take steps to establish and make them fully operational within a total of 36 months from approval of the proposals (Loan Agreement, Section 3.06(a) and (b)). The proposed project includes about 12 man/months of technical assistance for the preparation of this plan. Port Finance 52. Port revenues are comprised of: (i) tariffs charged by DB and TCDD for port services, such tariffs constituting about 56 percent of total port revenues; and (ii) an additional dock due expressed as a 5 percent ad valorem duty on imports, recovered on all goods handled at their ports. Overall, DB and TCDD port revenues would be more than sufficient to cover their port opera- tions and that small part of port investment which they undertake from their own funds, if these revenues were to be made available for the port functions of these two organizations. Major new port investments are normally financed by the Government through the Ministry of Public Works budget. However, since part of the port revenues are diverted to help cover losses incurred on DB's and TCDD's other activities, DB and TCDD ports operations do not presently have sufficient funds to adequately cover maintenance and upkeep. 53. To ensure adequate cash allocations from current revenues to cover the current costs of DB and TCDD port operations, agreement was reached that TCDD and DB will allow their port departments to retain from port revenues, funds sufficient to cover their operating expenses (including adequate maintenance), debt service, and a reasonable annual portion of their future capital expenditures. Until the new cost related tariffs, described below, are introduced, the latter will be at least the current level of investment expenditures financed from their own sources, about $1 million equivalent each for DB and TCDD. In the short run, additional investment funds will not be needed in these organizations and because of the overall deficits in these organizations, it is unrealistic to expect major adjustments until port costs have been reviewed and new port tariffs introduced. Because the Government controls the tariffs of DB's and TCDD's other activities as well, agreement was also reached that the Government will take all the necessary steps to  - 18 - enable DB and TCDD to meet these cash requirements, including, if necessary, by interim increases in port tariffs (Loan Agreement, Section 4.04 and Project Agreement, Section 2.09(b)). 54. The dock due, while belonging to the ports and presently providing about 44 percent of port revenues is not directly related to any particular service rendered by the ports, either to cargo or to ships. The result is that port users, such as foreign ship owners, are not paying their fair share of the cost of port services, and importers are encouraged to use other forms of transport on which the dues are not charged. It was initially introduced more than 40 years ago to enable the ports to balance their budgets. Later, with the increasing overall activities of the two organizations, the duty was increased and has been utilized by them in large measure, to finance deficits in their non-port operations and reduce the amount of the Government budget subsidies they would otherwise require. It is thus desirable to review the structure of port tariffs, their relation to the cost of port services and the role of the dock dues. 55. The key long-term financial reform is the proposed establishment of port tariffs related to actual port costs. To prepare for such cost-related tariffs, the project provides for 16 man months of technical assistance to help carry out a detailed study of port costs and present port tariffs and dock dues, leading to proposals for an appropriate tariff structure. Another study will prepare for the revaluation of port assets. Agreement was reached that the studies will be completed by October 31, 1980 (Loan Agreement, Schedule 4, Part IIC(d)). In addition, assurances were obtained that revalued assets will be introduced into DB and TCDD financial statements, at least on a pro forma basis, by the end of 1981 and will be updated at least every three years thereafter (Loan Agreement, Section 3.08). 56. Agreement was also reached that before January 1, 1982, port tariffs related to port costs will be introduced, sufficient to generate port revenues covering the project ports cash requirements referred to in paragraph 53 and a larger share of the investment needs: i.e. a 35 percent portion of their future average annual capital expenditures including not only the relatively small investments of DB and TCDD, but also the much larger investments in these ports now financed by the Government. In the event tariffs are insuffi- cient to meet the criteria alone, a portion of the ad valorem dock duty may continue to be assigned for this purpose (Loan Agreement, Section 3.09). Port Investment Planning 57. Responsibility for port planning and investment is also fragmented among several Ministries and agencies. The State Planning Organization and the Ministry of Finance decide overall priorities and investment allocation. The Ministry of Transportation has broad statutory responsibility for the sector, and within it, the Transport Coordination Agency (TCA) has built up considerable technical experience in transport planning and research. But TCA lacks the authority to effectively coordinate sector planning. The Ministry  - 19 - of Public Works through its Directorate for Harbor Construction (LI), is responsible for execution of major new port investments. In practice, it also influences ports investment decisions. However, neither TCA nor the other operating agencies have sufficient staff to conduct sub-sector and project planning and feasibility studies of major port investment proposals. 58. Planning in the ports subsector has therefore suffered from a lack of national perspective and inadequate economic analysis of investments. The Government has currently under consideration a number of major port invest- ments, for which priorities cannot be established without a proper national framework. This is particularly true in the Istanbul Metropolitan Region which accounts for a large share of shipping traffic and where the existing two ports are a major factor in urban congestion. Turkey's ports investment program for the Fourth Five Year Plan concentrates on rehabilitation and com- pletion of ongoing investments. In addition to the proposed project, these include the completion of on-going berth construction in Izmir, Mersin and Haydarpasa (the Asian side of Istanbul). Subsequent ports investments have not yet been selected, in part due to the recognition of the need for proper planning. 59. The proposed project therefore includes technical assistance for a ports planning effort in three phases, to assess future port capacity requirements up to the year 2000, prepare a national port master plan in- cluding a special study of the Istanbul/Marmara region and undertake prelim- inary engineering of a new port. Agreement was reached that the Government will not initiate new port projects costing in excess of $10 million equiva- lent, outside of the investments already included in the Fourth Plan, before reviewing with the Bank the results of the master plan study, expected to be completed by mid-1981 (Loan Agreement, Section 3.07). Assurances were also obtained that TCA will be provided with sufficient staff by January 1, 1982, to enable them to continue to update the master plan (Loan Agreement, Section 3.06(c) (iii)). Pending the results of these studies, the proposed project provides for critical investments needed to operate existing infrastructure, replace essential equipment and meet in the immediate future the expected traffic growth and prevent the congestion which would otherwise beset port operations from about 1981. PART IV - THE PROJECT Project History 60. The proposed project was prepared by the Transport Coordination Agency (TCA), the Turkish Maritime Bank (DB) and the Turkish State Railways (TCDD), with guidance provided by Bank missions in January, May and September 1977. The project was appraised in May 1978. Negotiations were held in Washington in March 1979 with a Turkish delegation headed by Alledin Yoruk, Acting Economic Counselor, Turkish Embassy, and included representatives of the Treasury, TCA, DB, TCDD and the Directorate for Harbor Construction (LI).  - 20 - Project Objectives and Description 61. The main objectives of the project are to: (i) rehabilitate and modernize the said ten major public ports to substantially increase their efficiency by replacing old and obsolete equipment and providing critically needed training in modern cargo handling and port management; (ii) facilitate improved financial and operational management of DB and TCDD ports in the interim until long-term institutional improvements are fostered and completed in Turkey; and (iii) strengthen and complete ongoing ports planning activities to provide a sound basis for future ports investment decisions. 62. The main components are: (i) provision of cargo-handling equipment and floating craft for the project ports - including tugboats and harbor service boats, a 200 ton capacity floating crane and spare parts for new equipment and for the rehabilitation of existing equipment; (ii) paving and surfacing of open storage areas, general ports rehabilitation, construction of storage sheds, and dredging of harbor areas; (iii) construction and equipping of a 300 ton lifting-capacity slipway in Iskenderun and a 100 ton slipway in Antalya for repair of floating craft; (iv) training for ports managerial and operational staff, including stevedores and equipment operators; and (v) carrying out of a ports sub-sector planning study in three phases (para. 60). Details of the project are summarized in the attached Loan and Project Summary. A Staff Report entitled "Turkey Ports Rehabilitation Project (No. 2227c-TU), dated April 12, 1979 is being distributed separately. Project Cost and Financing 63. The total project cost (including an average 50 percent price and 4 percent physical contingency on base costs) is estimated at about $155 million. Of this, $75.0 million, or about 48 percent, is in foreign exchange. The Bank loan will finance 100 percent of the foreign exchange cost. All local costs will be met by the Government, since DB and TCDD presently have no funds to finance the investments for their respective project ports. The Government will onlend about $50.8 million to TCDD and $20.8 million to DB on the same terms as the Bank loan. TCDD and DB will bear the foreign exchange risk on the subsidiary loans. The Government will retain about $3.4 million for TCA technical assistance and LI equipment. The funds are being channelled through the Government, rather than lent directly to DB and TCDD because of the involvement of several agencies and the need for coordination. The signing of two subsidiary loan agreements, satisfactory to the Bank, between the Government and TCDD and DB respectively, will be a condition of loan effectiveness (Loan Agreement, Section 6.01). The Government has requested funds from UNDP to finance an additional $1 million of technical assistance for project training. Project Implementation 64. With the exception of the planning component, for which TCA will be responsible, project implementation will be the responsibility of TCDD and DB, assisted as necessary by the Directorate of Harbor Construction (LI) in the  - 21 - Ministry of Public Works. A Project Coordinating Committee will be estab- lished by the Ministry of Transportation chaired by the Ministry's Under- secretary or Deputy Undersecretary, to coordinate project execution. It will include at least one senior representative at the level of Deputy General Director of TCDD, DB, TCA and LI. A Project Secretariat will be established within TCA and staffed on a full time basis, with a training coordinator, ports engineer and other support personnel as may be required. It will support the Committee. The TCA representative to the Committee will serve as Secretary to the Committee. Three technical working groups under the Committee will deal with equipment procurement, civil works and training. Assurances were obtained that the Committee will be established by June 30, 1979 and the Project Secretariat by August 31, 1979 (Loan Agreement, Schedule 4 Part I A and B). The Committee will meet at least once every 3 months, or whenever critical matters affecting project implementation require high-level attention, as determined by the Committee Secretary. Execution of project components will be carried out by the concerned Government agencies as des- cribed below. 65. To expedite and coordinate equipment purchases, DB and TCDD will each have certain procurement responsibilities on behalf of both agencies. DB will procure all propulsion, navigational and auxiliary equipment for the floating craft, hydrographic and communications equipment, and related spare parts, transferring to TCDD the equipment destined for use in its ports and to LI the hydrographic equipment. TCDD will procure all mobile cranes, shore cranes, slipways equipment, forklifts, tractors, trailers, generators, and related spare parts, transferring to DB that portion scheduled for use in DB-operated ports. DB, which has adequate capacity for the purpose, will construct the floating craft in its shipyards under contract to TCDD and LI. To ensure appropriate standardization, specifications for the above equipment will be prepared with the assistance of an existing joint DB-TCDD technical procurement working group (Loan Agreement, Schedule 4 Part II A). Procurement arrangements, including preparation of specifications, tendering documents, and bid evaluation will be further assisted through the services of an expa- triate procurement/cargo handling expert to be financed with UNDP support. Assurances were obtained that this expert will be appointed before June 30, 1979 (Loan Agreement, Section 3.02(a)). 66. The civil works component will be implemented as follows: (i) con- struction of the two slipways and storage facilities, paving, surfacing, and other general port rehabilitation activities will be carried out by TCDD and DB for their respective ports with the assistance of LI as needed in prepara- tion of specifications and tender documents; and (ii) dredging will be carried out by LI on force account following the usual Government practice, but with overall responsibility for its execution remaining with TCDD and DB. 67. A ports training program, prepared by a ports training specialist financed by UNDP, to meet the individual needs of the project ports, has been reviewed by the bank. It is acceptable. It will be implemented by DB and TCDD, who will each appoint a training specialist. Overall coordination will be provided by the training coordinator in the Project Secretariat. The two training specialists will be appointed by January 1, 1980, and Lhe train- ing program is expected to get underway by early 1980. The training will  - 22 - emphasize port management and modern cargo handling. Practical courses will be provided at existing centralized training facilities. The training program is expected to be partly financed by the UNDP, which will provide financing for up to 120 man-months of fellowships abroad and 85 man-months of specialist assistance for training in Turkey. Assurances were obtained that these arrangements will be completed before January 1, 1980 (Loan Agreement, Section 3.02(c)). In addition, the project provides equipment for the training program on 60 man-months of training abroad in harbor design. 68. Phase I and II of the ports planning component will be implemented by TCA with the assistance of consultants to be financed under the loan, and appointed under terms and conditions satisfactory to the Bank (Loan Agreement Section 3.02(b)). A timetable and draft terms of reference for carrying out Phase I and II were discussed and informally agreed during negotiations. As presently proposed, Phases I and II will be completed by mid-1981. Assurances were also obtained that before August 31, 1979 the Government will establish a steering committee for the studies which will include the State Planning Organization, Ministry of Public Works, Ministry of Communications, the Master Planning Bureau in Istanbul, the Istanbul Municipality, DB and TCDD (Loan Agreement Schedule 4 Part II C(c)). The Phase III preliminary engineering and economic feasibility study of the port site recommended by the Phase II study is also expected to be carried out by a consulting firm. A total of 120 man- months of technical assistance is being provided for the three phases of the ports planning study. Altogether, 160 man-months of technical assistance are provided under the project at an estimated average cost of $7,000 per man-month. Procurement and Disbursement 69. Equipment, including the equipment for the floating craft, will be procured under international competitive bidding in accordance with Bank guidelines. It will be tendered in separate packages for each equipment category to ensure standardization, with the exception that for small equip- ment items under contracts up to $25,000, but not to exceed $500,000 in total each, may be procured by DB and TCDD under local competitive bidding proce- dures acceptable to the Bank. Domestic manufacturers will be allowed a preferential margin under ICB of 15 percent of the CIF landed price of com- peting imports or the prevailing level of customs duties, whichever is lower. The large 300-ton slipway will be tendered on the basis of international competitive bidding under the Bank's guidelines. Dredging work, costing $2 million (of which $0.8 million is foreign exchange) will be carried out by force account by LI. Other civil works, costing about $18 million (of which about $5 million is foreign exchange), will be tendered according to local competitive procedures acceptable to the Bank. These work items are unlikely to attract foreign contractors, since the work is spread over 10 different ports, cannot be carried out on a continuous basis because of ongoing port operations, is largely labor-intensive with a large percentage of local costs, and cannot be satisfactorily combined into large enough contracts. 70. The proposed loan, expected to be fully disbursed by June 30, 1983, will finance: 100 percent of the foreign expenditures for equipment; 100 percent of local expenditures ex-factory if locally manufactured; 60 percent  - 23 - of local expenditure, if locally procured off shelf; 32 percent of the total cost of the civil works, except the slipway; 100 percent of the foreign expenditures for the slipway; 80 percent of the total cost of consultants and 100 percent of the foreign cost of fellowships. Disbursements for force account dredging will be against statements of expenditure, with documentation retained for Bank review. Retroactive financing has been provided for up to $500,000 of expenditures after April 1, 1979 for spare parts urgently needed to rehabilitate existing equipment. Financial Projections 71. The main financial proposals for the project are described in para- graphs 52 thru 56. The port operations of both TCDD and DB are expected to show surpluses until about 1982, when the new cost related tariffs are expected to be introduced. However, the parent organizations are likely to remain in deficit, and the proposed arrangements for assuring sufficient cash for port operations will be required until that time. The Government may of course wish to raise port tariffs before 1982 to relieve the cash needs of the parent organization. Projections beyond 1982 indicate that without the planned tariff increase, DB port operations would run an annual deficit of about $3 to $4 million annually until 1985, while TCDD ports would show a surplus of about $30 to $40 million. Their combined operations would therefore be profitable. The difference in operating results is due to DB's higher wage costs, its handling of a relatively larger portion of more labor intensive general cargo and its additional pilotage services. In connection with the proposed new ports institutional arrangements (see paragraph 51), the Government is trying to harmonize wage policies between the two organizations. The financial projections would be different after the new authority comes into existence, but in absence of knowledge of the probable timing of its existence and its likely financial structure, no meaningful projections can be made. To meet the proposed tariff covenant, port tariffs are expected to need to be in- creased by about at least 25 percent for DB ports in 1982, if the present ad valorem dock dues are fully retained. If these dock dues are phased out after the tariff studies, tariffs would need to increase by about 50 percent for the TCDD ports and about 100 percent for the DB ports. Project Benefits and Risks 72. The proposed project, even under conservative assumptions concerning export growth, has a high economic rate of return of about 37 percent, a result of providing critically needed additional investments enabling better utilization of substantial existing infrastructure. The main quantifiable benefits accruing to Turkey include savings from reduced ship-service and ship waiting time, due to improved port productivity; reduced cargo damage arising from the introduction of improved handling methods and more reliable equipment; and freight savings due to the use of a heavy lift floating crane in place of special heavy-lift ships. The economic rate of return from investments in each of the ten ports ranges from about 15 to 62 percent, reflecting varying port traffic and the uneven incidence of port congestion. Intangible benefits include facilitating exports and strengthening port institutions.  - 24 - 73. The core of the project, the rehabilitation of ten major ports, is generally free from any significant risk, although projected increases in port productivity, which depend in part on the success of the institutional, managerial and training improvements, and port traffic, which depends on revived economic activity, may not fully materialize. Nevertheless, sensi- tivity analysis indicates that even in the extreme case where general-cargo traffic growth and port productivity improvements are reduced by one half, the resulting economic rate of return remains a satisfactory 20 percent. The institution building features are longer term and depend, in part, on parliamentary or general policy action. PART V - LEGAL INSTRUMENTS AND AUTHORITY 74. The draft Loan Agreement between the Republic of Turkey and the Bank, the draft Project Agreement among the Bank and TCDD and DB, and the report of the Committee provided for in Article II, Section 4 (iii) of the Articles of Agreement are being distributed separately to the Executive Direc- tors. Features of special interest are referred to in appropriate paragraphs of this report and summarized in Annex III. 75. Special conditions of effectiveness include the execution of Sub- sidiary Loan Agreements between the Government and DB, and the Government and TCDD, on terms and conditions satisfactory to the Bank (Loan Agreement, Section 6.01). 76. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATIONS 77. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments June 13, 1979 Washington, D.C.  - 25 - ANNEX I TABLE 3A Page I of 6 TURKEY - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES TURKEY /A LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE) TOTAL 780.6 SAME SAME NEXT HIGHER AGRICULTURAL 558.4 MOST RCENT GEOGRAPHIC INCOME INCOME 1960 Lb 1970 /b ESTIMATE /b REGION Ic GROUP /d GROUP Le GNP PER CAPITA (US$) 280.0 510.0 1110.0 1898.8 867.2 1796.4 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 245.0 479.0 630.0 1869.3 578.3 1525.0 POPULATION AND VITAL STATISTICS TOTAL POPULATION, MID-YEAR (MILLIONS) 27.8 35.6 42.2 URBAN POPULATION (PERCENT OF TOTAL) 31.9 38.7 42.6 43.0 46.2 52.2 POPULATION DENSITY PER SQ. KM. 35.0 46.0 54.0 81.4 50.8 27.6 PER SQ. KM. AGRICULTURAL LAND 52.0 65.0 76.0 135.2 93.3 116.4 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 41.3 41.7 41.7 26.2 42.9 34.8 15-64 YRS. 55.2 54.0 53.9 63.4 53.5 56.0 65 YRs. AND ABOVE 3.5 4.3 4.4 9.9 3.5 5.7 POPULATION GROWrH RATE (PERCENT) TOTAL 3.0 2.5 2.5 0.8 2.5 1.6 URBAN 5.1 /f 4.9 j 4.2 2.2 4.7 3.4 CRUDE BIRT8 RATE (PER THOUSAND) 44.8 40.6 39.4 19.2 37.8 27.0 CRUDE DEATH RATE (PER THOUSAND) 16.9 14.4 12.5 9.0 10.8 9.9 GROSS REPRODUCTION RATE 2.9 2.6 2.3 1.3 2.5 1.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 65.6 66.6 USERS (PERCENT OF MARRIED WOMEN) 5.3 8.2 38.0 38.0 20.0 19.3 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1970-100) 91.5 100.0 111.2 113.7 107.3 103.8 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 110.0 112.0 113.0 127.4 105.3 110.4 PROTEINS (GRAMS PER DAY) 78.0 78.0 75.7 92.8 63.0 77.7 OF WHICH ANIMAL AND PULSE .. 22.0 s 24.7 39.3 21.7 22.2 CHILD (AGES 1-4) MORTALITY RATE 16.0 lh 14.7 L .. 1.6 8.0 1.9 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 49.3 54.4 56.9 68.9 57.2 63.0 INFANT MORTALITY RATE (PER THOUSAND) 187.0 lf.1 153.0 k .. 34.5 53.9 38.2 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 52.0 68.0 68.3 56.8 67.7 URBAN .. 51.0 74.0 74.3 79.0 83.5 RURAL *- 53.0 64.0 64.4 31.8 41.5 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. ., 8.0 94.0 30.9 70.3 URBAN .. .. 13.0 94.0 45.4 90.7 RURAL .. .. 5.0 93.0 16.1 38.3 POPULATION PER PHYSICIAN 3000.0 /L 2250.0 1830.0 686.5 2706.8 1310.8 POPULATION PER NURSING PERSON 3260.0 1880.0 1520.0 339.0 1462.0 849.2 POPULATION PER HOSPITAL BED TOTAL 590.0 L1 490.0 460.0 178.0 493.9 275.4 URBAN 190.0 LI 200.0 210.0 70.0 229.6 129.9 RURAL .. 5890.0 5750.0 1770.0 2947.9 965.9 ADMISSIONS PER HOSPITAL BED .. 20.0 20.0 15.3 22.1 18.9 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.7 5.9 .. .. 5.2 3.9 URBAN .. .. .. .. 5.0 RURAL .. .. .. .. 5.4 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. 2.2 .. 0.9 2.0 0.9 URBAN 2.0 1.9 .. 0.8 1.5 0.8 RURAL .. .. .. 1.0 2.7 1.0 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 29.0 40.0 57.0 57.5 64.1 59.2 URBAN .. .. .. 99.0 67.8 79.0 RURAL 2.0 18.0 .. .. 34.1 12.5  -26- ANNEX I Page 2 of 6 TABLE 3A TURKEY - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES TURKEY /a - MOST RECENT ESTIMATE) SAHE SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 Lb 1970 /b EST7KATE /b REGION /c GROUP /d GROUP /e EDUCATION ADJUSTED ENROLLMENT RATIOS PRIARY: TOTAL 75.0 109.0 104.0 108.0 99.8 97.6 FEMALL 58.0 94.0 94.0 99.5 93.3 87.4 SECONDARY: TOTAL 14.0 28.0 30.0 62.8 33.8 47.8 FEHALE 8.0 16.0 18.0 63.6 29.8 42.6 VOCATIONAL (PERCENT OF SEOONDARY) 18.0 14.0 15.0 28.2 12.8 22.7 PUPIL-TEACHER RATIO PRIMARY 46.0 38.0 34.0 24.9 34.9 25.4 SECONDARY 19.0 28.0 27.0 17.3 22.2 24.9 ADULT LITERACY RATE (PERCENT) 40.0 /m 55.5 /n *- 88.3 71.8 96.3 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 2.0 4.0 8.0 90.4 12.4 32.3 RADIO RECEIVERS PER THOUSAND POPULATION 49.0 89.0 107.0 199.0 104.5 201.9 TV RECEIVERS PER THOUSAND POPULATION .. 3.0 12.0 132.5 28.1 97.7 NEWSPAPER ('DAILY GENERAL INTER1ST") CIRCULATION PER THOUSAND POPULATION 51.0 41.0 .. 97.1 45.2 70.9 CINEMA ANNUAL ATTENDANCE PER CAPITA 1.1 6.7 .. 6.6 4.6 4.4 EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) 13000.0 ln 14500.0 16400.0 /o FEMALE (PERCENT) 40.2 37.2 37.3 32.4 25.7 17.4 AGRICULTURE (PERCENT) 71.7 63.4 52.5 /o 32.8 46.2 38.4 INDUSTRY (PERCENT) 10.5 12.1 .. PARTICIPATION RATE (PERCENT) TOTAL 50.1 44.3 42.8 39.1 33.8 33.7 MALE 58.7 54.9 53.2 56.7 48.1 50.8 FEMALE 41.2 33.4 32.1 29.7 17.3 12.6 ECONOMIC DEPENDENCY RATIO 1.0 1.1 1.2 0.9 1.4 1.4 INCOKE DISTRIBUTION PERCENT OP PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 33.0 /h 32.8 La 28.0 31.9 23.6 20.2 HIGHEST 20 PERCENT OF HOUSEHOLDS 61.0 /h 60.6 jn 56.0 59.7 52.3 47.9 LOWEST 20 PERCENT OF HOUSEHOLDS 4.2 /h 2.9 /p 3.5 4.0 4.3 3.2 LOWEST 40 PERCENT OF HOUSEHOLDS 10.6 /h 9.4 /p 11.5 12.9 13.1 13.7 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. .. 191.9 RUIIAL .. .. 162.0 194.9 193.1 157.9 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 291.0 295.1 319.8 448.8 RURAL .. .. 218.0 309.2 197.7 313.1 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 18.0 18.2 19.8 23.2 RURAL .. .. 25.0 24.2 35.1 54.5 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means. excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1973 and 1977. /c Europe; /d Intermediate Middle Income ($551-1135 per capita, 1976); /e Upper Middle Income (S1136-2500 per capita, 1976); /f 1955-60; /g 1965-70; /h 1963; /i 1967-68; L