Turkey - Grain Storage Project

Document of The World Bank FILEP y FOR OFFICIAL USE ONLY Report No. P-2593-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 GRAIN STORAGE PROJECT June 13, 1979 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. 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 agricultural exports for which it is TL 35 = US$1.00. FISCAL YEARS Government of Turkey - March 1 to February 28 TMO - January 1 to December 31 TCDD - January 1 to December 31 ABBREVIATIONS ASSR - Agricultural Sector Survey, IBRD Sept. 1977 CLAs - Convertible Lira Accounts CP - IBRD/FAO Cooperative Program FEC - Foreign Exchange Component MA - Ministry of Food, Agriculture, and Livesto SAB - Supreme Auditing Board SEE - State Economic Enterprise SIS - State Institute of Statistics SPO - State Planning Organization TCDD - Turkiye Cumhuriyeti Devlet Demiryollari (Turkish State Railways) TMO - Toprak Mahsulleri Offisi (Soil Products Office) TPC - Total Project Cost FOR OFFICIAL USE ONLY TURKEY GRAIN STORAGE PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Turkey. Beneficiaries: The Soils Products Office (Toprak Mahsulleri Ofisi--TMO) and Turkish State Railways (Turkiye Cumhuriyeti Dev1et Demiryollari--TCDD). Amount: US$85.0 million equivalent in various currencies. Terms: Seventeen years, including four years grace, at 7.9 per- cent per annum. Relending Terms: The Borrower will onlend to TMO and TCDD the equivalent of about $81.8 and $3.0 million respectively for seventeen years, including 4 years of grace, at the same rate of interest as the proposed loan. The Borrower will bear the foreign exchange risk. Project Description: The main objectives of the proposed Project are to con- struct first-phase silos and provide related grain trans- port and handling equipment under TMO's Master Plan for expansion of grain storage capacity; increase TMO's operational capability to market grains; and encourage improvements in agricultural commodity price support policy, input subsidy programs and agricultural land-use policies. The Project includes: (i) construction of 860,000 tons of inland and 50,000 tons of port storage silos; (ii) improvements in two existing port silos; (iii) provision of 300 automatic loading rail hopper wagons; (iv) improve- ments in TMO's management data processing and communica- tions system; (v) training of silo managers and staff; and (vi) a study of Turkey's land-use strategies and the measures required to improve them, particularly as regards the price support and input subsidy programs. The substitution of permanent, covered, vertical storage silos for temporary plastic-covered open storage will facilitate grain handling and reduce spoilage, especially in the humid coastal regions. The Project will substan- tially improve grain handling and transport efficiency and minimize costs, by locating nearly two thirds of the proposed inland storage capacity on the rail network and providing rail-handling equipment. The substitution of automatic-loading grain hopper cars and unit trains for the present ad hoc box-car rail service will reduce costs, 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. - 11 - delays and grain losses. Improvements and expansion of port storage facilities will increase storage turnover rates at the ports, thereby lowering costs and facili- tating exports. The risk of underutilization of silos appears small since even if wheat export surpluses are not maintained, inland silos could be used for feedgrains and port silos for imports or inland storage. Estimated Cost: Local Foreign Total -------- (US$ million) -------- Construction of Inland Silos 33.1 51.6 84.7 Construction of Port Silos 2.6 4.7 7.3 Improvements to Existing Port Silos 0.1 0.4 0.5 Design and Engineering 2.8 3.7 6.5 Manufacture of Rail Hopper Wagons 18.1 2.5 20.6 Technical Assistance (including training, consultants and studies) 0.2 0.5 0.7 Sub-total 56.9 63.4 120.3 Contingencies Physical 5.7 6.3 12.0 Price 58.5 15.3 73.8 Total 121.1 /1 85.0 206.1 Financing Plan: Local Foreign Total -------- (US$ million) -------- Bank 85.0 85.0 Government 0.1 - 0.1 TMO 89.0 - 89.0 TCDD 32.0 - 32.0 Total 121.1 85.0 206.1 Estimated Disbursement: IBRD FY 1980 1981 1982 1983 1984 Annual 3.0 23.0 31.0 21.0 7.0 Cumulative 3.0 26.0 57.0 78.0 85.0 Rate of Return: 21 percent. Appraisal Report: Report No. 2429a-TU dated May 24, 1979 Regional Project Department EMENA /1 Includes $4 million in indirect foreign exchange costs for rail hopper wagons. REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TURKEY FOR A GRAIN STORAGE PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Turkey for the equivalent of US$85 million to help finance the foreign exchange cost of a grain storage project. 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$82 and US$3 million would be on-lent respectively to the Turkish Soils Products Office (TMO) and the Turkish State Railways (TCDD) on the same terms 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 Ports Rehabilitation and Thirteenth TSKB Projects. -2- 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 ha:s 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. - 3 - 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 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 SE' 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 chaot:ic 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. Ultimately, 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 -7- 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 agriculCural sector from 10.5 percent to 16 percent; for small-scale indus- trial enterpris-s 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 premium 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 rMF 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 I-w 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 presented to the Executive Directors this fiscal year will assist ports rehabilitation. Proj- ects 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 production 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 circumstances 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 WHEAT SUB-SECTOR, THE BENEFICIARY, AND GRAIN STORAGE NEEDS Past Wheat Production, Consumption, and Exports 42. Wheat is Turkey's main staple food crop and constitutes about two-thirds of all cereal production. It has long been Government policy to encourage wheat production towards self-sufficiency and ensure supplies to domestic consumers at stable prices. From the late 40's to the late 50's, wheat production increased erratically, but at more than 5 percent per year on average, in response to rapidly expanded plantings (mainly in rainfed areas), despite low and fluctuating productivity that averaged under 1,000 kg/ha. From the late 50's to the early 70's, productivity became more stable and increased gradually, but the average rate of growth of output dropped to about 2 percent because of much slower expansion of wheat acreage. 43. In the 1970's, growth of production has accelerated again, to over 5 percent per year, largely because of increased productivity, which has reached an average of over 1,400 kg/ha. This is attributable to much higher levels of inputs and four consecutive years of favorable weather beginning in 1975. Wheat acreage also has continued to expand at about 1 percent per year. This pattern has resulted since 1975 in production that for the first time has on a sustained basis exceeded domestic demand, estimated to have been annually averaging about 13 million tons. Thus in 1975-78, output averaged well over 15 million tons and enabled Turkey to export wheat for the first time. Such exports reached 1.5 million tons in the 1977-78 crop year. Price Support Policies 44. The continuing rise in production has been encouraged by the Govern- ment's wheat support price program as well as by subsidies on input prices and credit. These have enabled large numbers of farmers to use improved seeds, fertilizers and farm chemicals and to increase the area in wheat through mechanization. The Government's SEE for grain marketing, the Soils Products Office (Toprak Mahsulleri Ofisi--TMO) has had insufficient permanent storage capacity to cope with the resulting surpluses. Large amounts of wheat have had to be stored in the open with only a covering of polyethelene, straw, and soil. At the end of 1977, for instance, some 5 million tons of grain were left in the open, with consequent substantial losses. In addition, the wheat price support program has led to considerable losses for TMO. Buying prices set high enough to encourage production have often been substan- tially higher than international prices at the current exchange rate, thereby hampering exports. Selling prices have been fixed about 10 percent below buying prices to benefit consumers, mainly in the urban areas. 45. Against this background, the Government requested a UNDP-financed FAO study of the price support program, which was completed last year. The study concluded that, while the price support program had increased the level and stability of producers' incomes and encouraged increased production, - 15 - certain undesirable features were also contributing to the problems noted in paragraph 44 and to the already strong inflationary pressure in the economy. For example, the study found that support prices were determined mainly by adding a fixed percentage to the costs of production of each commodity, with little attention paid to the market prospects or the relative price levels between commodities; and support prices have usually been announced so late in the production year that they have only affected the subsequent year's plantings and inputs. As a result, support prices have tended to be increased for those commodities (such as wheat) having relatively high input costs, with the higher prices further encouraging increased use of inputs. The subsidized inputs themselves have thereby not been adequately directed towards the production of crops with comparative (or export) advantage. 46. The FAO study recommends a number of specific reforms including an annual late-summer Government review to define production targets for the coming year for all major agricultural products (including livestock), estab- lish corresponding input and credit needs, and determine a balanced set of support prices to achieve production targets and implement the Government's farm incomes policy. In line with this, a unit has recently been established in the Ministry of Agriculture to undertake production planning studies and make price policy recommendations in the framework of an agricultural land- use strategy. The Place of Wheat in Land-Use Patterns 47. The Bank's Agricultural Sector Survey for Turkey (Report No. 1684-TU) points out that over the past 50 years, Turkey's total crop area has more than tripled, but that now the possibilities for expansion are becoming exhausted. The more recent additions have been largely former grazing lands of much lower productivity. This has led to extensive plowing of steep hillsides, much of it for wheat, severe over-grazing of the remaining grazing lands and destruction of vegetation on large tracts of previously forested land. A study completed in 1974 by TOPRAKSU (the General Directorate of Land and Water Resources of the Ministry of Village Affairs) estimated that more than 17 million ha of the total land area of 78 million ha (of which, in 1975, 28 million ha were cropped and 26 million ha meadow and pasture) were used inappropriately, most seriously in rainfed areas. Incentives have led to wheat being planted on lands better suited for barley; barley in turn has been pushed onto land best left in pasture. An estimated 54 percent of the total land area is subject to severe erosion, of which 17 percent is classified as very severe. Aside from erosion control in the forest regions, afforestation and irrigation, little is being done to correct the misuse of land or to arrest the trend of accelerating erosion. 48. A major effect of land misuse is the loss of potential production and income, the latter affecting particularly the lower-income farmers. The most serious long-term effects are evident in livestock productivity. Increases in feed resources from wheat stubble and fallow have been more than offset by the long-term decline in available grazing land (down 2.3 percent per year since the mid-fifties) and by increased numbers of animals. As a - 16 - result, from 1963 to 1975 the average adult cattle carcass weight declined from 90 kg to 78 kg and the proportion of immature cattle slaughtered increased sharply. 49. The TOPRAKSU study concluded that about 17.4 million ha should be shifted from their present uses (mostly rainfed cropping - 12.4 million ha) to irrigation, grazing, orchards and forests. With such shifts during the next decade, an annual rate of growth of 5 percent in forage production is believed feasible, which, if properly managed as encouraged under Bank-financed livestock projects, could yield an average growth rate of red meat production of more than 5 percent per year. It is estimated that by the withdrawal of marginal wheat land, the area in wheat production could be reduced by about 1.4 million ha, from the 1976 level of 9.2 million ha to the 1962-64 average of about 7.8 million ha. This would still be sufficient acreage through 1987 to meet projected domestic demand in average crop years by wider use of irrigated land or wider diffusion of improved production practices in rainfed areas. 50. As detailed as the TOPRAKSU studies were, however, more analysis is needed.. Some of the land-use recommendations should be reexamined, for example, the targets for land to be irrigated. There is need for study of viable alternatives to the present cropping patterns and farming practices of subsistence farmers and for more information on the costs of present poli- cies in terms of lost future production. There is also need for an evaluation of the effect of Turkey's input subsidy and producer price support programs on land-use patterns and of these programs together with the consumer price sub- sidies on the national budget. The Project provides for such a study, based on agreed terms of reference and to be undertaken by the recently created unit in the Ministry of Agriculture (para 46) assisted by internationally recruited consultants. The study will be started on or before January 31, 1980, and be completed by November 30, 1980. The Government will prepare by September 30, 1981, an action plan to carry out and encourage improvements in the use of agricultural lands and in price support and input subsidy programs and after an exchange of views with the Bank promptly implement the plan (Loan Agreement, Section 3.02). Future Wheat Production 51. Depending on the nature of possible future revisions of the Govern- ment's cereals price support program, land-use strategies and input subsidies, one can probably expect a continued increase in wheat production for several years to come, ranging from modest to substantial. The widely established use of improved seeds, fertilizers and farming machinery in wheat production is spreading to less advanced areas of the country. Wheat is now grown in more irrigated land as well as in favorable dry lands in Thrace, not traditionally a major wheat-producing region. Besides self-sufficiency in wheat, Govern- ment policy is also to keep wheat exports at about 2 to 2.5 million tons p.a. Approximate self-sufficiency and a moderate export surplus provide a plausible range for future production trends and grain storage requirements. Domestic consumption is projected to grow at about 2 percent per year, some- what less than the current estimated 2.6 percent rate of growth of population, - 17 - and a reflection of a propensity to consume less wheat as income rises. On this basis, total consumption is expected to rise from the 1968-77 average of 13 million tons to about 16.8 million tons in 1985. A return to the 1965-74 3-percent growth rate of wheat production, after the more rapid growth in 1975-77, would raise output to 19.4 million tons in 1985, and give an esti- mated export surplus of 2.6 million tons. Future production of cereals other than wheat is less predictable, but they are largely not marketed, and TMO's role is limited. Private Sector Wheat Marketing 52. About 50-60 percent of total cereals production is consumed on the farm or in nearby villages. About one-half of the remainder, mainly wheat, is marketed privately and half by TMO under its legal obligation to buy any quantities offered. TMO's wheat must be milled at an extraction rate of at least 90 percent, and the flour, bread and other end products are sold at controlled prices. Privately-marketed wheat is used for white bread and other high quality bakery products, whose prices are not controlled. Millers obtain most of their free market wheat supplies directly from producers, generally larger farmers who can hold grain on their farms for better prices than those offered by TMO, or farmers who will sell slightly below the TMO price to avoid the usual delay in crowded TMO depots at harvest time. Under the Project, it is assumed. that, despite Turkey's economic difficulties, investment by the private sector in storage grain capacity will keep pace with the growth of wheat production. Accordingly, the proposed project has been designed on the premise that TMO's share of wheat marketing will not rise above its present approximate level of 50 percent of the organized market and 25 percent of total wheat output. The Major Beneficiary--TMO 53. TMO, established in 1938 as an SEE under the Ministry of Food, Agriculture, and Livestock, has the responsibility for public sector cereals marketing. Its essential functions are to: buy from producers any quantities offered at official prices (set annually by the Council of Ministers); store grain for later sales and for national reserve requirements; supply approved users (private flour mills in municipalities at a level of 10 kg per month per head of population, armed forces, etc.); thereafter, sell in the open market for the purpose of stabilizing prices; and, as the sole entity authorized to do so, import or export as may be appropriate. Directed by a Government- appointed Board of Directors, TMO's staff of about 8,000 operate a central office in Ankara, nine regional offices, 220 local buying offices in produc- tion areas and a number of temporary buying points. 54. TMO's marketing operations have been financed by short-term funds from the Central Bank at 1.25 percent interest and by interest-free loans from the Treasury. As a result of Government pricing policy (para. 44), TMO's wheat sales to municipalities have resulted in substantial trading losses in recent years. These losses are reimbursed by the Treasury through subsidies, which totalled over TL 2.1 billion in 1974, declining to TL 118 million in - 18 - 1976 and again rising to about TL 1.4 billion in 1977. TMO's wheat sales on the free market, which form a relatively small share of total sales, have been generally profitable. 55. TMO's authorized capital was increased from TL 600 million to TL 1.4 billion in 1971, but paid-in capital still remains at TL 600 million despite the great increase in TMO's volume of grain trading. New storage under con- struction totalling 530,000 tons is being financed by a long-term loan from the Government. To improve TMO's capital structure and provide adequate initial local resources for project implementation, agreement was reached that the Government will increase TMO's paid-in capital to TL 700 million as a condition of effectiveness, and to TL 1.4 billion by December 31, 1980 (Loan Agreement, Sections 3.04 and 6.01(c)). 56. Grain is normally brought to TMO buying points by farmers for pay- ment on delivery. Since TMO's prices are fixed for the entire season, pro- ducers normally have no interest in delaying delivery after harvest. Virtually all purchasing in a particular area is, therefore, completed within two months, resulting in congestion at TMO delivery points. One of the wheat pricing reforms that the Government and TMO may wish to consider (para. 50) would be a premium for late-season sale by farmers to ease this congestion. Under its obligation to municipalities, TMO sells its wheat to millers, who then sell the flour to bakeries. Like the farmers, the millers tend to time their wheat transactions with TMO to maximize their reliance on TMO storage capacity rather than increase their own. Within the constraints of the Government's wheat pricing program, THO has generally discharged its domestic wheat buying and selling responsibilities effectively, and has also capably arranged large-scale temporary storage for Turkey's sudden wheat surpluses. 57. Until 1974, Turkey was importing wheat in most years, and TMO handled all import operations up to delivery to millers. In 1976, TMO began to export and delivered 2.5 million tons in 18 months up to the end of 1978; based on existing stocks and another bumper crop in 1978, export shipments on a comparable scale are expected to continue in 1979. However, as a result of the Government's wheat pricing policies and TMO's inexperience in exports, Turkey has thus far had to accept selling prices well below those obtained by established exporting countries, and some of Turkey's wheat exports have incurred losses. Sales terms should improve as a result of the storage and transport designs proposed under the project, which will enable TMO to attain stricter standards of quality and more regular and punctual deliveries. Wheat pricing policy reforms (para. 50) are also expected to abet exports. For the period of the proposed Project (through 1985), it has been assumed that TMO will export around 2.5 million tons annually. TMO Grain Storage Requirements 58. The above background on TMO's role in wheat transactions can be summarized as follows: - 19 - Sales Crop Year Purchases Domestic Export Year-End Stock -------------------------- ('000 tons)-------------------------- 1974/75 793 1,675 - 327 1975/76 2,468 1,071 1 1,638 1976/77 3,129 1,489 125 3,088 1977/78 3,589 1,800 est. 1,500 est. 3,377 est. In contrast with TMO's estimated 1977-78 year-end wheat stocks of over 3.3 million tons, TMO's existing permanent storage capacity totals only 1.6 mil- lion tons. Thus at least about 1.7 million tons of wheat has had to be held over to the 1978-79 crop year in open-air temporary storage. During the 1977-78 crop marketing year TMO had to handle over 6.5 million tons of wheat (carryover stocks plus new purchases), most of it stored in the open-air for extended periods before being sold. TMO's permanent storage capacity is expected to rise slightly by the end of 1979 when 500,000 tons of obsolete capacity are scheduled to be replaced by 530,000 tons of horizontal warehouses now under construction. In view of anticipated total wheat production in 1985 of 19.4 million tons, and a TMO marketing share not exceeding about 25 percent, TMO's purchases that year are projected at 4.5 million tons. Of this, 2.0 million tons would be for domestic sale and 2.5 million tons for export. Alternatively, should wheat production in 1985 only reach the projected domestic consumption level of 16.8 million tons (output exceeded 16 million tons in both 1976 and 1977), TMO purchases are still likely to be at least 4 million tons. 59. To enable TMO to effectively manage annual wheat marketings of between 4 and 4.5 million tons by 1985, the estimated requirement for per- manent grain storage capacity is 3.6 million tons. This represents a need for 2 million tons of new capacity and would still leave much grain in open storage in the dry interior of Anatolia. The proposed project will meet nearly half of that requirement in a first-phase program to provide 860,000 tons of inland silos and 50,000 tons of port silos. A second stage project, tentatively envisaged around FY82, would take account of any changes in projected requirements that might result from revised wheat pricing policies and the land-use study. The proposed project was analyzed in a simulation model to determine its sensitivity to variations in future production, con- sumption, TMO purchases and sales and their effect on storage utilization, losses, exports, and imports. A brief description of the model and a summary of the results are contained in the SAR. The results of the model analysis indicate that, without the Project, the amount of grain in open storage and resulting losses would grow at an extremely rapid rate; the need for addi- tional storage is evident. With the Project, using the baseline estimate of wheat production (19.4 million tons by 1985), turnover rates of 1 to 1.7 for inland silos (depending on type and location), and port turnover capability of 8, there is less than a one-percent chance that the port facilities will not be used at their maximum capacity. If the wheat production growth rate is projected more conservatively at 2.2 percent per annum (the average for 1962-74), there is still less than a one percent chance that the project storage will not be fully utilized. - 20 - Transportation of TMO Wheat 60. Between 1975 and 1977, the share of TMO wheat shipped by road to the main consuming centers and export harbors increased to more than 50 per- cent of the total. The share of rail declined from 39 percent to 31 percent and that of coastal shipping increased from 12 percent to 15 percent. This pattern reflects several factors. First, a significant proportion of wheat is grown in the interior at considerable distances from rail lines and is purchased and stored by TMO at locations served only by road. Second, the Turkish State Railways (TCDD) are only able to offer box-cars for wheat transport, and that too in inadequate numbers, which results in costly handling, delays and high wheat loss rates. Third, TMO's wheat-stock information system and communications network with field offices is inade- quate; TCDD and TMO have not succeeded in working out effective procedures for planning the availability, loading and movement of box-cars; and unit trains have only just begun to be experimented with. Fourth, TCDD's freight rates for wheat on more congested routes have been more than 50 percent higher than on routes with spare capacity, and there appears to have been little tapering of rates for longer hauls. In 1978, TCDD's average wheat transport revenue (based on box-cars) was TL 0.63 per ton-km, with an average economic cost of TL 0.72 per ton-km, compared to trucking rates, which do taper, of TL 0.6-0.8 per ton-km for hauls over 600 km. Thus, the normally expected cost advantage of rail over road for long-distance bulk haulage (e.g., Konya wheat areas to Izmir port) has been greatly reduced and perhaps offset by the flexibility, convenience, and entrepreneurship of private truck transport. 61. Despite these circumstances, there is potential for increasing the overall cost-effectiveness and economy of TMO's wheat transport through upgrading and expanding the use of rail service. The proposed Project pro- vides for the manufacture of 300 hopper wagons, each with a net capacity of 60 tons, to be used exclusively for grain transport. It is estimated that with improved planning and management, supported by an improved communications system provided under the Project, block or unit trains can be run on the four or five main long distance grain routes at an economic cost of TL 0.46 per ton-km. This would be made possible by special operating procedures to be agreed on between TMO and TCDD (TMO Project Agreement, Section 2.08; TCDD Project Agreement, Section 2.04) aimed at reducing TCDD's average wagon turnaround time from 8.5 to 4 days. This represents an annual grain-haul capacity of 1.5 million tons, compared to TCDD's box-car haulage of 1.6 million tons in 1977. PART IV - THE PROJECT Project History 62. A UNDP project, executed by FAO in 1975-76, produced a Master Plan for the grain storage needs of TMO up to 1980. The Master Plan initially recommended the construction of 1.7 million tons of storage and the expansion - 21 - of the silos at the port of Izmir to 55,000 tons. The Government expressed interest in Bank financing for such facilities, and an FAO/IBRD Cooperative Program (CP) mission visited Turkey in October 1976. By then, however, TMO's storage problem had become so acute that the Government itself financed con- struction of an initial 530,000 tons of capacity. In late 1977, the Govern- ment and TMO expressed renewed interest in Bank financing for TMO's additional storage requirements. A CP mission visited Turkey during May 1978. Its report in August 1978 formed the basis of the appraisal by the Bank in October 1978. Negotiations were held in Washington, D.C. in April 1978 with a delega- tion, which was led by Mr. Alaeddin Yoruk, Financial Counselor of the Turkish Embassy. The Project: 63. The proposed Project is designed to gradually improve TMO's capacity to store and market grains domestically and for export, besides fostering the introduction of institutional improvements in the wheat subsector, including an assessment of Turkey's agricultural subsidy program and land-use strategy to encourage more rational production goals. It includes the following components: (a) construction of 860,000 tons of inland and 50,000 tons of port storage facilities; (b) improvements of silos at two existing ports; (c) improvement in grain transport by the provision of 300 rail hopper wagons; (d) engineering design and construction supervision over all grain storage facilities; (e) improvement in TMO's processing of key management data, communications between offices, and training of silo managers and staff; and (f) A study of Turkey's land-use strategies with special reference to wheat and other food grains and the effects of the agricul- tural price and input subsidy programs. The details, provided in the Loan and Project Summary and in the Staff Appraisal Report entitled "Turkey Grain Storage Project" (2429a-TU) dated May 24, 1979 and distributed separately to the Executive Directors, are summarized below. 64. Inland Silos. Thirty-six inland grain silos ranging from 20,000 to 60,000 tons capacity would be built in seven regions; tonnages have been allocated on the basis of a computer analysis of stock movement projections among these regions. Agreement was reached that the silos will be built according to the types and locations indicated in the Loan Agreement, - 22 - Schedule 2. Included are thirty inland silos of 20,000 tone, five of 40,000 tons, and one of 60,000 tons. Of these, twenty-one silos totalling 660,000 tons will have rail loading facilities. All the silos will be vertical with reinforced concrete construction (TMO Project Agreement, Section 2.05(a)); their costs are comparable to those of horizontal warehouses when operating costs and storage losses are taken into account. In vertical silos, separat- ing, blending, treating, and monitoring of grain varieties is easier; gravity flow makes handling simpler; aeration and dust control are facilitated; and less ground space is required for the same amount of storage capacity. 65. Port Silos. Since the Government plans only a moderate wheat export trade, only 50,000 tons of additional port storage capacity is proposed under the project--two new silos at Tekirdag and Iskenderun--together with minor improvements to two existing port silos at Haydarpasa (Istanbul) and Izmir. With the increase in back-up inland silos along the railways, the provision of grain rail hopper wagons, and improvement of TMO communications, overall port silo turnover should easily reach 8, compared to an average of 5.5 at grain export ports in 1977-78. This should allow existing port silos and those provided under the Project to adequately handle projected grain exports. 66. Grain from the surplus-producing Thrace area is stored at the Marmara sea port of Tekirdag, where it is currently processed through outmoded silos. Under the Project, an export silo will be built at the present loca- tion of TMO's facilities. If a proposed new port about two miles away, where a much larger installation would be appropriate, is built, the proposed proj- ect silo will be used for loading coasters and barges. The proposed 30,000- ton silo will receive grain through two hydraulic truck dumpers and will load grain out through a belt conveyor to a gallery above a Government-owned jetty. The Government will ensure that the jetty will be able to support the gallery before the silo is actually built (Loan Agreement, Section 3.03). The present silo at Iskenderun on the Mediterranean Sea has a capacity of 20,000 tons and is used for loading grain into ships berthed at an adjacent jetty operated by the TCDD. An additional silo of 20,000 tons will be provided to increase the available stocks (surge capacity) to expedite loading out whenever TMO is allowed use of the jetty. Future port plans for Iskenderun include a new port elevator; if this comes into being, the proposed silo will be used for loading coastal vessels. In Haydarpasa and Izmir, manual truck unloading will be replaced by hydraulic truck dumps and related equipment at existing silos. 67. Rail Hopper Wagons. Assuming turnaround time of 3 to 5 days and the operation of unit trains, it is estimated that about 650 fast-loading 60-ton grain rail hopper wagons will be needed to service the requirements of TMO by 1985. The Project provides finance for 300 wagons as a first tranche. The wagons will be manufactured, owned, operated and maintained by TCDD. The design of the wagons and procedures for their efficient and exclusive use satisfactory to the Bank will be agreed on between TMO and TCDD (TCDD Project Agreement, Sections 2.02, 2.04, and 2.07). At least 150 wagons will be put into operation by TCDD not later than December 31, 1980, and the balance in the following 12 months (TCDD Project Agreement, Section 2.03). - 23 - 68. TKO Organizational Improvements and Training. TMO's basic organiza- tional structure is satisfactory for carrying out the project. TMO's staff is also generally satisfactory, both in its educational background and its professional experience. However, to support more efficient use of silos and transport of wheat, TMO needs improvement of its communications system. The Project provides for acquisition of equipment to modernize TMO's computer and telex communications system to improve stock management, together with short-term consultant services to help design and set up the system and organize training of TMO personnel. 69. Training programs are also provided for grain marketing, including quality control, transport, processing, and export, and in silo management and operations. Instruction will be provided by TMO staff supplemented by international consultants on specific topics. The training program will be prepared by TMO and agreed with the Bank (TMO Project Agreement, Section 2.07). 70. Study. An evaluation of Turkey's land-use strategies and the effect thereon and on the national budget of farm price support and input subsidy programs will be carried out under the responsibility of the Ministry of Food, Agriculture, and Livestock (para 50). Project Cost and Financing 71. The estimated total cost is $206 million equivalent (including physical contingency of US$12 million and price contingency of US$74 million). Of this, about $85 million, or 41 percent is in direct foreign exchange, which will be fully covered by the proposed loan. Indirect foreign exchange costs (for rail hopper wagons) total $4 million. Aside from US$0.2 million, which will be used by the Ministry of Agriculture for the Study, a total of $81.8 million of the Bank's loan will be onlent to TMO and $3.0 million to TCDD at an interest rate no less than that of the Bank loan (Loan Agreement, Section 3.01(c)). In addition to its own contribution of $0.1 million equiv- alent to the Study and the equity payments of TL 0.8 billion (para 55), the Government will provide the balance of the funds required by TMO and TCDD in the form of loans at interest rates no less than that charged on the Bank loan (Loan Agreement, Section 3.01(b)). Project Implementation 72. TMO will implement the construction of new silos and improvements to existing port silos as well as improvements to the TMO organization itself. Consultants totalling about 400 man-months at an estimated cost of $10,000 per month will be employed in accordance with Bank guidelines, on terms and condi- tions satisfactory to the Bank, for the detailed design and engineering of all the grain storage facilities, preparation of the technical aspects of bid requests and contract awards, and supervision of silo construction (TMO Proj- ect Agreement, Section 2.02). Internationally recruited consultants will also be retained for improvement of TMO's data processing and communications system (TMO Project Agreement, Section 2.02). Engineering study and design and the contract award process will take about 15 months and the subsequent actual construction, about 3 years; altogether, about 4-1/2 years. The 300 hopper - 24 - wagons will be built during the first 2 years of the Project (para. 67). TCDD will build the wagons in their workshops. The shops are efficient and produce rolling stock of satisfactory quality (over 1,000 wagons in 1977) at prices similar to those of imported wagons (after allowing for insurance and freight) from USA and India and at a higher cost (20 percent) than those from France and Germany. Overall, the Project should be completed in 5 years. 73. TMO will keep detailed records of grain movements at Project silos and operating costs to help measure benefits of new and rehabilitated silos (TMO Project Agreement, Section 4.01). These data will also help assess a possible second storage project. The formats for reports to the Bank have been agreed on between the Bank and TMO. Procurement and Disbursements 74. Contracts for the construction of new and improvement of existing silos will be awarded through international competitive bidding (ICB) on a turn-key basis. Whenever possible, contracts will be grouped in order to attract foreign competition; pre-qualification of bidders will be required. No bid requests can be made by TMO in respect of inland and port silos unless TMO has a clear ownership title or a valid lease of not less than 50 years usufruct on the land on which a silo would be built. Turkish law prohibits the purchase of finished railway wagons; however, imported parts for manufac- ture of hopper wagons in TCDD workshops will be bulked as much as practicable and will be procured through ICB (TCDD Project Agreement, Procurement Schedule, Para A.3). The proposed loan will be disbursed on account of the various Project components as follows: design and engineering, improvements to TMO organization--100 percent of foreign expenditures; inland and port silos--50 percent of total expenditures; improvements to port silos--70 percent of total expenditures; study--100 percent of total expenditures; and manufacture of rail hopper wagons--100 percent of foreign expenditures on parts imported by TCDD. The proposed loan would be disbursed in five years. Benefits and Risks 75. Loss and deterioration of grain will be substantially reduced, as average stocks in open storage under the Project will be limited to an esti- mated 2-3 million tons in 1985, compared to about six million tons without the Project. Operating costs will be reduced by the introduction of direct- loading grain rail hopper wagons, which will eliminate the need for contract labor in loading and unloading operations. Project construction will provide an estimated 3,100 man-years of unskilled employment over about four years. However, the Project's automated storage and handling operations will, during the first ten years of operations, result in an estimated net decrease of 1,800 man-years in annual unskilled labor requirements. Since much of the labor contracted for open storage and handling operations is part time, at least twice this number of persons could be affected. Skilled labor require- ments for silo operations will rise an estimated 150-200 man-years. Without the Project, TMO's export capability would remain below the average normal exportable surplus, TM0 thereby losing or deferring foreign exchange earnings and incurring higher total storage costs. Under the Project, wheat exports will yield added foreign exchange earnings estimated at $14 million per year. The internal economic rate of return is estimated at 21 percent. A 20 percent - 25 - devaluation against the U.S. dollar, holding all costs and benefits at con- stant 1978 price levels, would increase investment costs by about 8 percent, and the benefit stream by about twice that level, raising the rate of return by about 1 percent. 76. The risk of underutilization of Project storage capacity appears small. A deliberately cautious approach has been adopted in respect of port storage on the assumption that existing capacity should be adequate to handle projected exports if turnover could be raised to a plausibly moderate level; other components of the Project are designed to ensure that this can be achieved. Even in the unlikely event that Turkey failed to maintain any export capability, the risk of underutilization of Project silos would be low: total inland capacity with the Project (assuming elimination of obsolete storage) would still be only 2.5 million tons, and Project port silos could be used either for imports or to supplement inland storage capacity. The majority of the inland silos are designated for areas with large net produc- tion surpluses which would continue to require storage and redistribution to deficit regions even if there were no net national exportable surplus. Other key silos are designed to provide holding storage to meet demand in large urban centers nearby. Should the Government's agricultural incentives be redirected from wheat production towards greater priority for livestock, there would be a compensating storage requirement for feedgrains. PART V - LEGAL INSTRUMENTS AND AUTHORITY 77. The draft Loan Agreement between the Republic of Turkey and the Bank, the draft Project Agreements between the Bank and TMO and TCDD, and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed separately to the Executive Directors. Special conditions of effectiveness would be the authorization and ratification of the execution of the Project Agreements; and payment to TMO of TL 100 million of equity (Loan Agreement, Section 6.01). 78. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 79. 1. recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments June 13, 1979 Washington, D.C. - 26- ANNEX I Page 1 of 6 TABLE 3A TURKET - SOCIAL INDICATORS DATA SHEET TUREYuTNCz GROUPS (AJUSTO AV9MG9$ LAND AREA...LT AR 1. R-) S 1) 1 TOTAL 780.6 AGRICULTURAL 558.4 MOST RECENT GEOGRAPHIC INCOME INCOME 1960 L 1970 L ESTIMATE L REGION Lc GROUP L GROUP e 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. 52.2 POPULATION DENSITY PER SQ. IN. 35.0 46.0 54.0 81.4 50.8 27.6 PER SQ. X1. AGRICULTURAL LAND 52.0 65.0 76.0 135.2 93.3 116.4 POPULATION ACE 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 GROWTE RATE (PERCENT) TOTAL 3.0 2.5 2.5 0.8 2.5 1.6 URBAN 5.1 j 4.9 L 4.2 2.2 .4.7 3.4 CRUDE BIRTH 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 REQUIRENENTS) 110.0 112.0 113.0 127.4 105.3 110.4 PROTEINS (GRAMS PER DAT) 78.0 78.0 75.7 92.8 63.0 77.7 OF WICH ANIMAL AND PULSE .. 22.0 L& 24.7 39.3 21.7 22.2 CHILD (AGES 1-4) MORTALITY RATE 16.0 & 14.7 1 . 1.6 8.0 1.9 HEALTH LIFE EXPECTANCY AT BIRTH (TEARS) 49.3 54.4 56.9 68.9 57.2 63.0 INFANT NRTALITY RATE (PER THOUSAND) 187.0 J 153.0 l . 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 *.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 1 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 1 490.0 460.0 178.0 493.9 275.4 URBAN 190.0 1 200.0 210.0 70.0 229.6 129.9 5URAL . 890.0 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. RURAL 1.0 2.7 1.0 ACCESS TO ELECTRICITY (PERCENT OF DVELLInGS) TOTAL 29.0 40.0 57.0 57.5 64.1 59.2 URBAN 99.0 67.8 79.0 RURAL 2.0 182 34.1 12.5 ANNEX 1 - 27 - Page 2 of 6 TABLE 3A TURKEY - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES TURKEY /a - MOST RECENT ESTIMATE) SAME SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 /b ESTIMATE lb REGION /c GROUP /d GROUP /e EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 75.0 109.0 104.0 108.0 99.8 97.6 FEMALE 58.0 94.0 94.0 99.5 93.3 87.4 SECNDARY: TOTAL 14.0 28.0 30.0 62.8 33.8 47.8 FEMALE 8.0 16.0 18.0 63.6 29.8 42.6 VOCATIONAL (PERCENT OF SECONDARY) 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 / 55.5 m .. 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 INTEREST") 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 (THCUSANDS) 13000.0 / 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 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT 0' HOUSEHOLDS 33.0 / 32.8 2 28.0 31.9 23.6 20.2 HIGHEST 20 PERCENT OF HOUSEHOLDS 61.0 lh 60.6 /p 56.0 59.7 52.3 47.9 LOWEST 20 PERCENT O' HOUSEHOLDS 4.2 /h 2.9 /p 3.5 4.0 4.3 3.2 LOWEST 40 PERCENT O' HOUSEHOLDS 10.6 h 9.4 / 11.5 12.9 13.1 13.7 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POAERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. .. 191.9 RURAL ** ** 162.0 194.9 193.1 157.9 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ 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 ($55L-1135 per capita, 1976); le Upper Middle Income ($1L36-21500 per capita, 1976); /f 1955-60; /& 1965-70; lb 1963; i 1967-68; / Based on sample survey estimates of 9,703 households; might be underestimated; 1k 1967; /1 1962; m Six years and above; or 1965; Ln 1977; Li 1968. May 1978 - 28 -ANNEX I Page 3 of 6 DEFINITIONS OF SOCIAL INDICATORS I d: The ad'sted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country ir each group. Coverage of countries among the indicators depends on availability of data and is not uniform. Due to lack of data, group averages for Capital Surplus Oil Exporters and indicators of access to water and excreta disposal, housing, income distribution and poverty are simple population-weighted geometric means without the exclusion of extreme values. LAND AREA (thousand sq. km) Population oar hespita, bed - total, urban. and rural - Population (total. Total - Total surface area comprising land area and inland waters. urban, and rural) divided by their respective number of hospital beds Agricultural - Most recent estimate of agricultural area used temporarily available in public and private general and specialized hospital und re- or permanently for crops, pastures, narket and kitchen gardens or to habilitation centers. Hospitals are establishments permanently staffed by lie fallow. at least one physician. Establishnents providing principally custodial care are not included. Rural hospitals, however, include health sod medi- LNP PER CAPITA (US$) - GNP per capita estimates at current market prices, cal centers nor pernently staffed by a physician (but by a nedical as- calculated by same conversion method as World Bank Atlas (1975-77 basis); sistant, nurse, midwife, etc.) which offer in-patient accommodation sod 1960, 1970, and 1977 data. provide a limited range of medical facilities. Admissons2pr hospital bed - Tonal number of admissions to or discharges ENERGY CONSUMPTION PER CAPITA - Annual consumption of commercial energy ospitals divided by the number of beds. (coal and lignite, petroleum, natural gas and hydro-, nuclear and geo- ihermal electricity) in kilograms of coal equivalent per capita. NOUSING Average sIne of bousehold (persons 2er household) - totl ura, Hn r"re 1- POPULATION AND VITAL STATISTICS ..K1sae2vn uatr FOPULATIN AM VITALSTATISICS a ousehod consists of a group of individuals who shr tivo,uatr Total population, mid-year (millions) - As of July 1; if not available, and their maim meals. A boarder or lodger may or nay not be included in average of two end-year estimates; 1960, 1970, and 1977 data. the household for statistical purposes. Statistical definitions of bos- irban population (percent of total) - Ratio of urban to total popula- hold vary. tion; different definitions of urban areas may affect comparability Average number of persons Per room - total, urban, and rural - Average nun- of data among countries. hem oC pereons per room to all, urban, and rural occupied conventional Population density dwellings, respectively. Dwellings exclude non-permanent structures end Per sq. km. - Mid-year population per square kilometer (100 hectares) unoccupied parts. of total area. Access to electricity (percent of dwellings) - total, urban, and rura- - Per sq. km. agriculture land - Computed as above for agricultural land Conventional dwellings with electricity in living quarters an percentage only. of total, urban, and rural dwellings respectively. PoEulation age structure (pereent) - Children (0-14 years), working-age (15-64 years), and retired (65 years and over) as percentages of mid- EDUCATION year population. Adjusted enrollment ratios Population growth rate (percent) - total, and urban - Compound annual Primary school - total, and female - Total anc female enrollment of all ages growth rates of total and urban mid-year populations for 1950-60, at the primary level as percentages of respectively pnimary school-age 1960-70, and 1970-75. populations; nomally includes children agec 6-11 pears but adjusted for Crude birth rate (per thousand) - Annual live births per thousand of different lengths of primary education; for countries with universal d- mid-year population; ten-year arithmetic averages ending in 1960 and cation enrollment may exceed lO0 percent since song pupils are below or 1970 and five-year average ending in 1975 for most recent estimate. above the official school age. Crude death rate (per thousand) - Annual deaths per thousand of mid- Secondary school - total, and femala - Computed as above; seondary oduca- year population; ten-year arithmetic averages ending in 1960 and 1970 non requires at least four years of approved primary instruction; pro- and five-year average ending in 1975 for most recent estimate. vides general vocational, or teacher training instructions for pupils mross reproduction rate - Average number of daughters a woman will bear usually of 12 to 17 years of age; correspondence courses are generally in her normal reproductive period if she experiences present age- excluded. specific fertility rates; usually five-year averages ending in 1960, Vocational enrollment (percent of secondary) - Vocational insronutions in- 1970, and 1975. dude technical, industrial, or other programs which operatr independenl' Family planning - acceptors, annual (thousands) - Annual number of or as departments of secondary institutions. acceptors of birth-control devices under auspices of national family Pupil-teacher ratio - prinary, and secondary - Total students enrolled in planning program. primary and secondary levels divided by numbers of teachers in the core- Family planning - users (percent of married women) - Percentage of spending levels. married women of child-bearing age (15-44 years) who use birth-control Adult literacy rate (percent) - Literate adults (able to read and write) as devices to all married women in same age group. a percentage of total adult population aged 15 years and over. FOOD AND NUTRITION CONSLMPTION Index of food production per capita (1970-100) - Index number of per Passenger cars (per thousand population) - Passenger cars comprise notor cars capita annual production of all food commodities. seating less than eight persons; excludes ambulances, hearses and military Per capita supply of calories (percent of requirements) - Computed from vehicles. energy equivalent of net food supplies available in country per capita Radio receivers (per thousand population) - All types of receivers for radio per day. Available supplies comprise domestic production, imports less broadcasts to general public per thoasand of population; excludes unlicensed exports, and changes in stock. Net supplies exclude animal feed, seeds, receivers in countries end in years when registration of radio sets was in quantities used in food processing, and losses in distribution. Re- effect; data far recent years may not he comparable since most quirements were estimated by FA0 based on physiological needs for nor- abolished licensing. mal activity and health considering environmental temperature, body TV receivers (per thousand population) - TV receivers for broadcast no general weights, age and sex distributions of population, and allowing 10 per- public per thousand population; excludes unlicensed TV receivers in noun- cent for waste at household level. tries and in yearn when registration of TV sets was in effect. Per capita supply of protein (grams per day) - Protein content of per Newspaper ciroulation (per thousand population) - Shows the average cirola- capita net supply of food per day. Net supply of food is defined as lion of "daily general interest newspaper", defined as a periodical publi- above. Requirements for all countries established by USDA provide for ostion devoted primarily no reording general news. t in considered no a minimum allowance of 60 grams of total protein per day and 20 grams be "daily" if it appears at least four tines a week. of animal and pulse protein, of which 10 grams should be animal protein. Cinema annual attendance per capita per year - Based on tie number of tickets These standards are lower than those of 75 grams of total protein and sold during the pear, including admissions to drive-in cinemas and mobile 23 grams of animal protein as an average for the world, proposed by units. FAC in the Third World Food Survey. Per capita protein supply from animal and pulse - Protein supply of food EMPLOYMENT derived from animals and pulses in grams per day. Total labor force (thousands) - Economically arrive persons, 'opcitog armed Child (ages 1-4) mortality rate (per thousand) - Annual deaths per thous- forces and unemployed hut exciudino housewives, students, etc. Defln- and in age group 1-4,years, to children in this age group. tions in various countries are iot comparable. Pemale (percent) - P emale labor force as percentage of totsl labor force. HEALTH Agriculture (percent) - Labor fac In farming, forestry, hunting and fishing Life expectancy at birth (years) - Average number of years of life as percennage of total labor force. remaining at birth; usually five-year averages ending in 1960, 1970, Industry (percent) - Labor force in miming, construction, manufacturong sod und 1975. electricity, 'ator and gas as percentage of total labor force. Infant mortality rate (per thousand) - Annual deaths of infants under Participation rate (percent) - total, male, and female - Total, nal, und one year of age per thousand live birhts. emale labor force as percentages of their respective p.p.ati Access to safe water (percent of population) - total, urban, and rural - Ehese are IL's adjusted participation rare, reflecting Number of people (total, urban, and rural) with reasonable access to strcture of the populic. nd loop tine trend. safe water supply (includes treated surface waters or untreated but Economic dependenc racio - Ratio of ?cpu2atior.under 15 a il over tc uncontaminated water such as that from protected boreholes, springs, rho labcr Circe in age group ci 15-b- years. and sanitary wells) as percentages of their respective populations. In an urban area a public fountain or standposE located not more INCOME DISTRIBUTION than 200 meters from a house may be considered as being within rea- Percentage of private income (both in rash and kind) received bv crea0 sonable access of that house. In rural areas reasonable access would percent, richest 20 percent, poorest 20 percent, and pecrst - p,carL imply that the housewife or members of the household do not have to . us.h.tda. spend a disproportionate part of the day in fetching the family's water needs. POVERTY TAi,L- GiOPS Access to exereta disposal (percent of population) - total, urban, and Estinatei bsolute-p-vrty incom level (US$ per zapit,) ac. reral - Nombor of people (total, urban, and rural) served by excreta Absolut poverts iooe level is that incone level bclow s -a T disposal as percentages of their respective populations. Excreta nutritional'y adequate diet plus essential not-food requirement. up disposal may include the collection and disposal, with or without ffordabl. treatment, of human excreta and waste-water by water-borne s-stems isisared relat-e poverty incme Lere pr ) - un .rd tacor or the use of pit privies and similar installations. Rolative poverty income level is that income level less t] Population per physician - Population divided by number of practicing per capita personal income of the coattrv. physicians qualified from a medical school at university level. isrinated_populion below_poverty income level kyerueot5 1jr-_Lcc Population per nursing person - Population divided by number of Percent Of population (urban and rural) who arc either "eicu- practicing male and female graduate nurses, practical nurses, and "celative poor uiohever is greater. usistant purees. Economic and Social Data Pita . Ecalesic Aonal ysisnd Projciall ictd - 29 - MIIE I TURKEY - SCO~IC DEVWPHMENT DATA SXEET Pase 4 of 6 .Actual ot. Prolott6d Growth Rate# Shar. o GDP A. NT7A &BP 1976 1977 1978 1979 1980 7077 770 1. Gro. Domstic Produ.t 423.5 514.1 607.7 659.0 688.0 720.3 740.7 769.0 7.2 3.8 100.0 2. Gain from T.rs of Trade 6.9 4.5 .-5.4 0.0 -0.7 -6.2 -13.4 -19.6 0.0 3. Gro. D~ometic Ito. 430.4 518.6 602.3 659.0 687.3 714.1 727.3 749.4 6.9 2.9 100,0 4. Export4 (G • NFS) 21.8 36.9 29.6 35.0 32.0 47.4 53.0 61.4 5.6 24.3 3 5. Importe (G + NFS) 31.4 50.2 81-2. 82.8 96.7 81.3 77.3 75.6 17.4 9 12.6 6. R46ourte Blanci -9.6 -13.3 .51.6 .47.8 -64.7 -33.9 -24.3 -14.2 7.3 7. Instmant 79.5 97.3 145.8 156.7 163.8 146.3 146.3 146.3 10.9 -3.7 23.8 8. Con.uption 353.6 430.1 513.5 550.1 588.8 607.9 618.7 636.9 7.6 2.7 83.5 9. Domic S-ai." 76.8 S8.5 88.8 108.9 98.5 106.2 122.0 132.1 3.6 10.3 16.5 l0. N.tional iv;ns 83.2 114.7 104.5 119.9 107.1 109.5 125.0 134.1 3.7 7.8 18.2 B. SECTOR OUTPUT Sha* of Total ocpt 1. Agrc.ula 27.1 22.6 23.4 23.2 22.1 23.3 23.0 22.0 4.1 3.6 2. IOdustry> 22.8 25.2 25.0 25.2 25.8 24.3 24.8 25.4 9.2 3.2 3. Oth.r 50.1 52.1 51.6 51.5 52.2 52.4 52.2 52.6 7.9 4.0 C. PRICES (1976 - 100) 1. Export Pzice. 57.4 66.6 96.1 100.0 102.3 85.7 83.4 84.2 8.6 -6.3 2. I-port Price. 43.2 63.3 113.1 100.0 104.2 95.4 103.7 111.9 13.4 2.4 3. T.rs of Tr.d. . .332.9 110.4 85.0 100.0 98.2 89.8 80.4 75.2 -4.2 -8.5 4. DP Defl.tor 34.4 57.5 85.4 100.0 124.1 186.2 260.7 338.9 20.0 39.8 5. Avera-~ Ex.hang Rata ($1.1>0 - TL) 11.5 14.1 14.4 16.1 18.0 24.3 Pemrit of GDP D. PUBLIC FINANCE 1. Cenax4 Governt Røven=* 19.9 19.7 20.5 21.4 22.4 21.5 2. Central Govarnemat Exp*ndttur. 22.5 22.0 22.8 24.1 27.4 24.1 3. Public Setor D*ftcit;/ N.A. 2.1 6.1 8.1 9.0 K.A. 1970-77 / E07. E. SELECTED INDICATORS F. .AæR F010C ICOR 2.9 Civilian Labor Forc. (6illione) 13.8 15.7 16.2 m-port Elaticity 2.4 e~l-oyaet and Ud.remployemæt (L of CLr) 1.O 12.3 13.5 Averain D~oeti. Savig Rat. 15.4 Ctvill"n EMploym-nt (million.) 13.1 14.7 14.7 Marginal omstic Saving Rat. 7.7 of which (M) Ive..rtmen/GDP 21.1 omport./®P 1U.4 Asriculturg 67.1 64.5 61.8 Indu*try?/ 10.6 11.5 12.6 Oth.r 22.3 24.0 25.6 1/ Totale may not add up bcauaoft rounding ørrors. 2/ Borrowing requLrem,nt of central governmant, stat* economc enterprie.m, and othar public authoritiea. / Icludes mining, manubacturing, alectricity, gas, rater vork., exlude cnstruction. 1977-80 rogarded s unr.pre.antative tranetional y.ar.. E PIIA May a, 1979 - 30 - TURKEY - BALANCE OF PAYMENTS ANNe I (Million US Dollars Page 5 of 6 Actual Est. Projected 1970 1973 1974 1975 1976 1977 1 7 1979 1980 A. SUMMARY OF BALANCE OF PAYMENTS 1. Exports of Goods and NFS 754 1799 2123 2152 2742 2556 3258 3545 4146 2. Imports of Goods and NFS -1096 -2391 -4183 -5219 -5735 -6436 -5164 -5338 -5633 3. Resource Balance -342 -592 -2060 -3067 -2993 -3880 -1906 -1793 -1487 4. Interest (net) I/ -47 -59 -102 -124 -217 -500 -678 -744 -920 5. Profits -33 -35 -71 -36 -83 -116 -58 -89 -94 6. Workers' Remittances 273 1183 1426 1312 983 982 975 1090 1180 7. Net Factor Service Income 193 1089 1253 1152 683 366 239 257 166 8. Transfers (net) 91 18 27 23 15 12 14 25 30 9. Current Account Balance -58 515 -780 -1892 -2295 -3502 -1653 -1511 -1291 10. Direct Foreign Investment 58 27 88 153 27 67 40 150 175 11. Imports with Waiver 34 50 58 98 136 102 100 102 104 12. Public M and LT (gross 2/ 271 376 330 386 491 502 650 1639 1775 13. Amortisation of Public M and LT 1/ 2/ -146 -72 -126 -117 -119 -214 -387 -511 -674 14. Public M and LT (net) 125 304 204 269 372 288 263 1128 1101 15. IMF (net) 48 -11 - 243 148 - 180 150 -100 16. Short Term (net) 3/ 18 -224 -80 916 1806 2972 730 - - 17. Capital not included elsewhere 4/ -39 67 79 -204 -306 -478 540 -19 61 18 Charge in Reserves (- - increase) -186 -728 431 417 112 551 -200 - -50 B. M and LT LOAN COMMITMENTS ,/ 506 547 577 721 1461 1076 1368 Public bector 487 491 327 615 1374 1076 1368 1. Bank Group 40 135 228 158 237 144 358 2. Other Multilateral 132 100 135 40 55 3 63 3. Governments: Market Economies 154 218 145 178 180 301 375 4. Governments: Centrally Planned Economies 114 4 - 3 295 216 343 5. Suppliers 47 3 - 45 161 160 53 6. Financial Institutions - 32 19 191 423 251 177 7. Other - - - - 24 - . Private Sector 19 56 50 106 87 na. n.a. C. AVERAGE TERMS OF M and LT LOAN COMMITMENTS 1 1. Grant Element (%) 36.4 39.0 29.7 15.4 14.3 14.0 n.a. 2. Interest (%) 3.6 4.7 5.9 7.3 7.2 7.4 n.a. 3. Maturity (yrs.) 18.0 25.6 22.9 13.4 12.6 12.7 n.a. 4. Grace (yrs.) 4.6 7.0 5.6 3.9 3.8 4.6 n.a. /I Net of debt relief. /2 Up to and including 1978 these figures are Government estimates, which are not consistent with Bank DRS data. / Up to and including 1978 mainly convertible Lira Accounts, Acceptance Credits, Commercial and Oil arrears, Bankers' Credits, Reimbursement Credits, Overdrafts, and Dresdner Bank Scheme deposits. /4 Mainly errors and omissions up to and including 1978; in 1979 and 1980 represents net private M and LT borrowing. /5 Public and publicly guaranteed external debt only. EMENA CPIIA May 8, 1979 - 31 - ANNEX I Page 6 of 6 TURKEY - EXTERNAL DEBT AND CREDITWORTHINESS Actual- Estimate 1970 1973 1975 1976 1977 1978 A. DUTSTANDING DEBT (Million US Dollars) 1. Public M and LT (Diibursed) 1/ 1854 2869 3176 3585 4314 4928 2. Private M and LT (dl.sbursed) 1/ 42 115 160 253 479 557 3. Short Term 2/ n.a. n.a. 1388 3342 6539 7469 4. Total Outstanding D:sbursed Debt 1896 2a/ 2984 2a/ 4724 7180 11332 12954 5. Undisbursed Public M and LT 1/ 840 1101 1608 2427 2787 2972 B. DEBT SERVICE (Million US Dollars) 1. Interest on all Debt (net of relief) 3/ -47 -59 -124 -217 -500 -678 2. Amortisation of M and LT Debt (net of relief) 3/ -146 -72 -117 -119 -214 -387 3. Total Debt Service Payments -193 -131 -241 -336 -714 -1065 C. DEBT BURDEN 1. Debt Service Ratio 4/ 18.8 4.4 7.0 9.0 20.2 25.2 2. Total Outstanding Disbursed Debt/GDP 4&/ 15.0 14.3 13.1 17.5 23.9 24.1 0. TERMS 1. Interest on all Debt 5/ 1 Total Outstanding Disbursed Debt 2.5 2.0 2.6 3.0 .4.4 5.2 2. Total Debt Service 5/ I Total Outstanding Disbursed Debt 10.2 4.4 5.1 4.7 6.3 8.2 E. ZXPOSURE 1. Bank Group DOD/Total Outstanding Disbursed Debt 7.2 8.5 9.1 7.7 6.1 6.5 2. Bank Group Debt Service/Total Debt Service 3.2 14.9 13.5 13.4 9.1 6.6 F. COMPOSITION OF TOTAL OUTSTANDING DISBURSED DEBT (Million US Dollars) 1977L- 19_7______ L. Medium & Long-Term Debt 479.3 42.3 5485 42.4 a. Public M ^nd LT (i) Bank Group .693 6.1 836 6.5 (11) uther Multilateral 502 4.4 558 '..3 (iii) Governments 2469 21.8 2907 22.. Uiv) Suppliers 133 1*; 131 1.U (v) Financial institutions 483 4.3 464 %. (vi) Other 34 0.0 32 0.2 Total 4314 38.1 4928 38.1 b. Private M and IT (Total) 471 4.2 557 4.3 2. Short Term (1) Convertible Lira Accounts 2267 20.0 2860 22.1 (ii) Suppliers' Credits/Comnercial and Oil Arrears 1858 16.4 1675 12.9 (iii) Acceptance Credits 710 6.3 862 6.7 (iv) banKers Credits, Reimbursement Credits, Overdrafts 828 7.3 924 7.1 (v) Dresdner Bank 173 1.5 363 2.8 (vi) IMP 409 3.6 622 4.8 (vii) Other 294 2.6 163 1.3 Total 6539 57.7 7469 57.6 3. Total Outstanding Disbursed Debt 11332 100.0 12954 100.0 Bank DRS data. /2 Based on Turkish Central Bank estimates. /2a Excluding short-term. /3 Based on Turkish Balance of Payments data. i4 Total debt service (line 83) divided by exports of goods and non-factor services plus workers' remittances. 71a At market prices. /5 Net of debt relief. /6 As of December 31 for respective years. FNENA CPIIA may 8, 1979 - 32 - FA AN r, A STATUS OF BANK GROUP OPERATIONS IN TURKEY STATEMTj F 7AK I,C' S AJ D IDi CREDITS (As of April 30, 1979) Loan and Credit (Less Cancellations US$M) Number Year Borrower Purpose Bank IDA Undisbursed Sixteen loans and ten credits fully disbursed 297.0 127.2 748--TU 1971 Republic of Turkey Education 13.5 3.9 762-TU 1971 Republic of Turkey Fruit and Vegetable 10.0 1.2 257-TU 1971 Republic of Turkey Fruit and Vegetable 15.0 0.1 281-TU 1972 Republic of Turkey Irrigation Rehabilitation 18.0 0.8 817-TU 1972 Repiiblic of Turkey Steel Mill Expansion 76.0 0.3 844-TU 1972 Republic of Turkey Istanbul Water Supply 37.0 9.7 324-TU 1972 Republic of Turkey Istanbul Urban Development 2.3 0.7 330-TU 1972 Republic of Turkey Livestock II 16.0 1.5 883-TU 1973 Republic of Turkey Ceyhan Aslantas 44.0 24.1 892-TU 1973 Republic of Turkey Istanbul Power District 14.0 1.5 893-TU 1973 Turkish Suate Railway Railway Project 46.7- 9.3 957-TU 1974 Republic of Turkey Antalya Forestry 40.0 5.1 1023-TU 1974 TEK/TKI Elbistan Power 148.0 69.9 L024-TU 1974 DYB Industry 40.0 3.3 1078-TU 19?5 TSKB Industry 65.0 2.3 L130-TU 1975 Republic of Turkey Rural Development 75.0 p1.9 :248--TU 1976 Agriculture Bank of Turkey (TCZB) Agriculture Credit 54.3 38.8 1258-TU 1976 State Pulp and Paper Industry (SEKA) Newsprint 70.0 23.4 1265-TU 1976 Republic of Turkey Livestock III 21.5 17.9 1194-TU 1976 TEX Power Transmission II 56.0 37.2 1310-TU 1976 Republic of Turkey Tourism 26.0 24.4 1379-TU 1977 DYB Industry 70.0 68.0 1430-TU 1977 TSKB Industry 74.0 42.0 1585-TU 1978 Republic of Turkey Northern Forestry 86.0 85.4 1586-TU 1978 Republic of Turkey Livestock IV 24.0 24.0 1606-TU 1978 Republic of Turkey Erdemir Steel Stage IIA/ 95.0 95.0 1627-TU 1978 Republic of Turkey Program Loan 150.0 118.2 S-13-TU 1978 Republic of Turkey Oil Recovery 2.5 2.2 Total 1635.5 178.5 762.1 of which has been repaid 157.1 4.7 Total now outstandina 1478.4 173.8 Amount sold 3.6 of which has been repaid 3.6 - 0 - - 0 - ToLel now held by Bank and IDAb/ 1478.4 173.8 Total undisbursed 759.0 3.1 762.1 a/ Not yet effective b/ Prior to exchange adjustments ANNSEX II - 33 - Page 2 of 8 STATUS OF BANK 7POU? 0P?RATrCYONS IN TUPKEY STATEMENT OF IFC INVESTMENTS (As of April 30, 1979) Fiscal Amount in US$ Million Year Oblizbr Type of Business Loan Equity Total 1964 TSKB DFC - 0.92 0.92 1966 SIFA3 I .Nylon Yarn 0.90 0.47 1.37 1967 TSKB II DFC - 0.34 0.34 1969 TSKB III DFC - 0.41 0.41 1969 SIFA3 II Nylon Yarn 1.50 0.43 1.93 1970 Viking I Pulp and Paper 2.50 0.62 3.12 1970 ACS Glass' 10.00 1.58 11.58 1971 NASAS Aluminum 7.00 1.37 8.37 1971 SIFAS III Nylon Yarn - 0.75 - 0.75 1971 Viking II Pulp and Paper - 0.05 0.05 1972 SIFAS IV Nylon Yarn - 0.52 0.52 1972 TSKB IV DFC - 0.43 0.43 1973 TSKB V DFC 10.00 - 10.00 1973 Akdeniz Tourism 0.33 - 0.27 0.60 1974 Boru8an Steel Pipes 3.60 0.44 4.04 1974 AKSA Textiles 10.00 - 10.00 1975 Kartaltepe Textiles 1.30 - 1.30 1975 Sasa Nylon Yarn 15.00 - 15.00 1975 Aslan Cement 10.60 - 10.60 1975 DOKTAS Steel 7.50 1.37 8.87 1975 TSKB DEC 25.00 1.22 26.22 1976 NASAS Aluminum 1.58 - 1.58 1976 TSKB DFC 25.00 - 25.00 1976 Asil Celik Steel 12.00 2.18 14.18 1977 Borusan Steel Pipes - 0.16 0.16 1978 DOKTAS Steel - 0.27 0.27 1979 Ege Mosan Engines.for Mopeds 2.15 - 2.15 1979 ISAS Motor Vehicles & Accessories 8.00 1.40 9.40 1979 Asil Celik Steel - 1.80 1.80 1r2rc7ya Cam Ia3ss 30.96 4.00 34.96 Total Gross Commitments 185.67 20.27 20594 Less Cancellations, Terminations, Exchange Adjustments, Repayments and Sales 97.98 2.99 100.97 Total Commitments now held by IFC 87.69 17.28 104.97 Total Undisbursed 41.59 5.84 47.43 - 34 - ANNEX II Page 3 of 8 C. PROJECTS IN EXECUTION 1/ Ln. No. 748 Education Project: US$13.5 million loan of June 9, 1971. Effec- tive Date: September 29, 1971. Closing Date: March 31, 1980. The project was substantially delayed due mainly to initial diffi- culties in providing the project unit with adequate qualified staff and authority commensurate with its responsibilities. However, implementation is now proceeding well, with equipment procurement progressing satisfactorily. Training of teachers for technician schools, adult training centers and practical trade schools has made considerable progress. The Management Training Institute has been established on an interim basis pending passage of legislation formally establishing it, and its instructors are undergoing training. Sixty-seven local advisory committees for vocational and technical education have been established, one in each province. Ln. and Cr. Nos. 762/257 Fruit and Vegetable Export Project: US$10 million loan and US$15 million credit of June 22, 1971. Effective Date: May 19, 1972. Closing Date: June 30, 1979. The project is nearing completion, with three of its four com- ponents, including refrigerated trailer and towing units, marketing facili- ties and a roll-on roll-off ferryship, fully implemented. A fourth component, comprising credit and technical assistance for citrus development, underwent initial start-up delays, but is now well established and being implemented satisfactorily. Cr. No. 281 Irrigation Rehabilitation Project: US$18 million credit of January 25, 1972. Effective Date: April 27, 1972. Closing Date: April 30, 1979. Construction of irrigation and drainage channels and on-farm works at Silifke and Tokat is nearly complete, but on-farm works are still behind schedule at Koprucay because of the extremely short annual work season. Arrangements to ensure use of remaining credit funds before the revised closing date were made by the implementing agencies, and project works not completed by the closing date will be carried out using Government funds. Agreements to reimburse have been issued for several letters of credit repre- senting remaining funds under the IDA credit, which are expected to be with- drawn by mid-June. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution and in particular, to report any prob- lems which are being encountered and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. - 35 - ANNEX II Page 4 of 8 Ln. No. 817 Steel Mill Expansion Project: US$76 million loan of April 28, 1972. Effective Date: August 4, 1972. Closing Date: June 30, 1979. The project started commercial production at the end of the year, three years behind the original schedule, due to delays in beginning procure- ment stemming largely from inefficient management. Ln. No. 844 Istanbul Water Supply Project: US$37 million loan of June 30, 1972. Effective Date: January 4, 1973. Closing Date: December 31, 1979. Project construction was delayed about 2-1/2 years due mainly to problems in the use of ICB procurement procedures and inefficient management. However, construction moved swiftly in 1977 and the two major water resources development programs are expected to be completed by end-1978. Substantial improvements to the distribution system are required, however, to enable full utilization to be made of the new water sources. Although a tariff increase was implemented in March 1978, this was insufficient to enable ISI to generate sufficient funds for future ongoing investment in the distribution system, and the Government has been requested to explore ways to resolve the lack of ade- quate local and foreign currency. Cr. No. 324 Istanbul Urban Development Project: US$2.3 million credit of June 30, 1972. Effective Date: January 4, 1973. Closing Date: June 30, 1980. Consultants have completed Phase I of the general urban planning and urban transport/land use modelling studies as well as studies on wastewater and bus/traffic engineering and control. Terms of reference for Phase II studies have been agreed and consultants' proposals sought. Cr. No. 330 Second Livestock Project: US$16 million credit of September 28, 1972. Effective Date: January 5, 1973. Closing Date: June 30, 1980. The Fattening Subproject is progressing satisfactorily and all funds have been committed. The Village Livestock Development Subproject, after resolution of initial difficulties in recruitment of technicians and gaining farmer confidence, is now progressing rapidly, with 95 percent of the funds committed. The project is expected to be completed on schedule. Ln. and Cr. Nos. 883/360, Ceyhan Aslantas Multipurpose Project: US$44 million loan and IS$30 million credit of March 22, 1973. Effective Date: March 20, 1974. Closing Date: December 31, 1981. Construction of diversion tunnels has met with difficult rock condi- tions and several cave-ins, but diversion has now been completed with revised tunnelling methods, about two years behind the appraisal estimate. After some initial delays, progress in construction of the irrigation works has been - 36 - ANNEX II Page 5 of 8 satisfactory, and the system was ready to deliver water to about 36,500 ha, nearly one-third of the projects target. On-farm works were progressing satisfactorily although farm drainage was behind schedule. However, construc- tion of feeder roads has progressed faster than initially estimated. Although a permanent director has been appointed, the extension consultant has resigned and is now being replaced. Full-time subject matter specialists have been hired and recruitment of field staff is continuing. Ln. No. 892 Istanbul Power Distribution Project: US$14.0 million loan of May 25, 1973. Effective Date: September 28, 1973. Closing Date: December 31, 1979. The project has been delayed by about four years mainly by slow pro- curement action; however, this is now almost completed. Local costs have increased by nearly 300 percent over appraisal estimates, and foreign costs by 26 percent. Consultant studies of the Istanbul power market and of the proposed reorganization of the company's electricity and transport services have been completed; a study of its gas operations is under review. IETT's tariffs were raised twice following the countrywide tariff adjustments made in September 1977; additional steps are planned by the Government to help cover the increased project costs and revitalize the company's finances. Ln. No. 893 Turkish State Railways: US$47 million loan of May 25, 1973. Effective Date: August 28, 1973. Closing Date: June 30, 1980. After initial delays, physical progress, including track renewals, rolling stock, and locomotive production, the latter financed by the European Investment Bank, is satisfactory. Nearly 80 percent of the loan has been disbursed and procurement actions have been or are in the process of being completed for use of the remaining loan funds, although project completion will only be in mid-1980. Despite two tariff increases since the loan was made, the Railways have continued to fall short of the financial targets in the revised Plan of Action agreed with the Bank in mid-1975. However, it is hoped that further increases in passenger fares and freight tariffs averaging 70 to 80 percent, which became effective earlier this year, will improve the Railways' financial situation. While the dieselization program is making satisfactory progress, other measures to improve operational efficiency, such as appropriate manpower planning, have not been given sufficient attention. Ln. No. 957 Antalya/Akdeniz Forest Utilization Project: US$40 million loan of January 28, 1974. Effective Date: May 26, 1976. Closing Date: June 30, 1980. Following the approval by the Executive Directors of needed changes in the agreements arising from relocation of the pulp and paper mill, the loan was declared effective. Construction at the new site is underway, and the project is expected to be completed by mid-1981, two years behind the revised schedule. Some cases of sub-standard civil works construction have occurred, but a corrective program and strengthened supervision by SEKA have produced some improvement. The cost overruns were to be met by the Government and - 37 - ANNEX II Page 6 of 8 the State Investment Bank. The Government has recently been unable to authorize the foreign exchange transfers needed to permit continued procure- ment for the industrial part of the project, except for certain critically needed items, aid is seeking additional external financing. Local currency payments for the Akdeniz establishment are also behind schedule, resulting in a high debt-equity ratio. Ln. No. 1023 Elbistan Lignite Mine and Power Project: US$148 million loan of June 28, 1974. Effective Date: June 1, 1976. Closing Date: July 30, 1982. Engineering and contracting are proceeding, but project implementa- tion has been delayed by critical problems, including insufficient staff, inefficient management, inadequate coordination among various agencies and unsatisfactory performance of civil contractors. Following Bank and co-lender reviews of the situation with the Turkish authorities in early 1977, the reme- dial measures initiated by Turkey have resulted in some improvement of project coordination and physical aspects of project implementation. Financing, both domestic and foreign, remains a serious problem. The Government is reviewing possible actions to overcome these and other remaining implementation problems. Ln. No. 1024 DYB (State Investment Bank of Turkey): US$40 million loan of June 28, 1974. Effective Date: September 30, 1974. Closing Date: December 31, 1979. The loan was fully committed in February 1977, with eleven sub- projects approved by the Bank. Project implementation is satisfactory. Ln. No. 1078 TSKB (Industrial Development Bank of Turkey): US$65 million loan of January 22, 1974. Effective Date: April 24, 1975. Closing Date: December 31, 1979. The loan is fully committed and project implementation is satis- factory. Disbursements are nearly complete, although somewhat behind original appraisal estimates, as a result of difficulties with a few subprojects. Ln. No. 1130 Corum-Cankiri Rural Development: US$75 million loan of June 23, 1975. Effective Date: January 2, 1976. Closing Date: December 31, 1981. The project is progressing satisfactorily. The project extension service and credit components are operating successfully and consultants are being engaged. Corum dam has been completed. Kumbaba pumping station and the associated irrigation networks are nearly completed. Construction of the remaining village centers will be delayed until 1979 while a plan for the use and maintenance of the centers already built is being drawn up. Other civil works are well underway. Ln. No. 1194 Second TEK Power Transmission Project: US$56 million loan of June 14, 1976. Effective Date: April 21, 1978. Closing Date: December 31, 1979. Procurement action is complete, somewhat behind schedule, and almost the entire loan is committed. Some deliveries have also been delayed because - 38 - ANNEX II Page 7 of 8 of foreign exchange shortages, but this situation is expected to improve, and overall project implementation and the rate of disbursement should also improve in the coming period. Ln. No. 1248 Agricultural Credit and Agroindustries: US$54.2 million loan of May 5, 1976. Effective Date: May 11, 1977. Closing Date: September 30, 1981. The ferryship component has been implemented, and the two roll-on and roll-off ships purchased under this project and the Fruit and Vegetable Export project, are now operating a regularly scheduled service between ports in Turkey and two ports in Italy. Selection of agro-industries sub-loans has been delayed, but some have recently been approved. The Agricultural Bank (TCZB) has introduced improved lending procedures for its ongoing supervised credit program, and this component is being implemented satisfactorily. Terms of reference for consultants to carry out the study of TCZB's structure and procedures are being finalized after considerable delay. At the Borrower's request, a cattle-fattening component of the Project, and US$7.7 million of the original Loan amount of $63 million, allocated for this purpose, were cancelled on May 5, 1977. Also, as provided for in the Loan Agreement, $1.04 million for training was cancelled on December 22, 1977, following approval of UNDP funds for this purpose. Ln. No. 1258 Balikesir Newsprint: US$70 million loan of May 21, 1976. Effective Date: October 15, 1976. Closing Date: December 31, 1980. The project is now proceeding satisfactorily, but due to delays in civil works and procurement is expected to start production in mid-1980, eighteen months behind the appraisal schedule. Erection of machinery and equipment is expected to begin in early 1979 and trial runs about one year later. Ln. No. 1265 Livestock III: US$21.5 million loan of May 26, 1976. Effective Date: February 25, 1977. Closing Date: March 31, 1982. After a slower than anticipated start-up, project implementation is now satisfactory. Project area offices have been established and are virtually fully staffed, with all three consultants on post. Preparation of farm devel- opment plans has been slower than expected; however, substantial numbers of sub-loan applications have been approved and include a higher proportion than expected of small farmers. Ln. No. 1310 South Antalya Tourism Infrastructure: US$26 million loan of July 9, 1976. Effective Date: March 1, 1978. Closing Date: December 31, 1982. Implementation of most project components is satisfactory, with progress being made in preparation of specifications and project design work. The Project Unit has now been established in the Project Area and appointment of key staff is being accelerated. - 39 - ANNEX II Page 8 of 8 Ln. No. 1379 DYB (State Investment Bank of Turkey): US$70 million loan of March 23, 1977. Effective Date: July 21, 1977. Closing Date: March 31, 1981. Almost half of the loan has been committed, and the remainder is expected to be committed by mid-1979. DYB has experienced management changes and still has severe staff constraints, which it has in part overcome by recruitment of additional junior staff. It hopes improved contract terms will enable it to fill more senior positions as needed. Ln. No. 1430 TSKB XII (Industrial Development Bank of Turkey): US$74.0 million loan of June 3, 1977. Effective Date: August 29, 1977. Closing Date: June 30, 1981. Progress is satisfactory and two-thirds of the loan has been com- mitted. In 1977 and 1978, TSKB essentially reached an agreed target by allo- cating 39 percent of its resources to projects in less developed regions, and exceeded another in its assistance to small and medium-scale labor-intensive enterprises. TSKB has so far been unable to raise resources in international capital markets as expected because of Turkey's economic difficulties, but the interest of several financing sources is anticipated once conditions permit renewed efforts. Ln. No. 1585 Northern Forestry: US$86.0 million loan of June 5 1978. Effective Date: October 30, 1978. Closing Date: March 31, 1986. Project implementation has begun and procurement is underway. Ln. No. 1586 Livestock IV: US$24.0 million loan of June 5, 1978. Effective Date: October 31, 1978. Closing Date: June 30, 1985. Recruitment of technical specialists for the project and selection of consultants for the milk industry study are underway. Ln. No. 1606 Erdemir Stage II Steel: US$95.0 million loan of June 30, 1978. Closing Da:e: June 30, 1983. This loan is not yet effective. Ln. No. 1627 Import Program: US$150.0 million of November 8, 1978. Effective Date: November 16, 1978. Closing Date: June 30, 1980. In accordance with Schedule 1 of the Loan Agreement a satisfactory review of Turkey's export policies and performance was made by the Bank in April and a determination made to continue disbursements after April 30. As of June 6, disbursements totalled $53.9 million. Ln. No. S-13 Bati Raman Engineering: US$2.5 million of November 30, 1978. Effective Date: February 27, 1979. Closing Date: February 29, 1980. This loan has just become effective. Consultants have been appointed for the comparative feasibility study, which is under way. - 40 - ANNEX III SUPPLEMENTARY PROJECT DATA SHEET Section I - Timetable of Key Events (a) Time taken to prepare the project: 1975-1978 (b) Agencies which prepared the project: FAO/IBRD CP (c) Date of first Bank mission to consider the project: October, 1976 (d) Departure of Appraisal mission: October, 1978 (e) Date of completion of negotiations: May, 1979 (f) Planned date of effectiveness: Ninety days after signing Section II - Special Bank Implementation Actions None. Section III - Special Conditions (a) Government to increase TMO's paid-in capital to TL 0.7 billion as a condition of effectiveness and to TL 1.4 billion by December 31, 1980 (para 55 and Loan Agreement, Sections 3.04 and 6.01(c)). (b) Engineering, design and supervision of silo construction to be done by consultants to be hired under Bank guidelines and terms of reference satisfactory to the Bank (para 72 and TMO Project Agreement, Section 2.02). (c) A study to evaluate the effect of input subsidy and producer price support programs on land-use patterns and of these programs together with the consumer price subsidies on the national budget, to be carried out by the Ministry of Agriculture with the assistance of consultants recruited internationally under Bank guidelines and terms of reference satisfactory to the Bank, and the preparation and initiation thereafter of an implementing action plan (para 50 and Loan Agreement, Section 3.02 and Schedule 2, Part D). (d) TCDD and TMO to agree on procedures satisfactory to the Bank for the efficient and exclusive use of the hopper wagons by TCDD for grain transport (para 61 and TCDD Project Agreement, Section 2.04; TMO Project Agreement, Section 2.08). (e) TCDD procurement of imported materials needed for manufacture of hopper wagons to be in bulk as much as practicable and under ICB in accordance with Bank guidelines (para 74 and TCDD Project Agreement, Procurement Schedule, Para A.3). IBRD 14195R 馳勵一斗平計一么 〕＿、斗排無州籥珍妒一不可州 〔一一一