Turkey - Second Agricultural Credit Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3593-TU REPORT AND RECONMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$150.4 MILLION TO THE AGRICULTURAL BANK OF TURKEY (TCZB) WITH THE GUARANTEE OF THE REPUBLIC OF TURKEY FOR A SECOND AGRICULTURAL CREDIT PROJECT May 25, 1983 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  TURKEY CURRENCY EQUIVALENTS Currency Unit Jan. 1980 /1 Jan. 1981 January 1982 March 1983 US Dollarl TL 70.0 TL 91.00 TL 127.00 TL 195.00 TL 1 US$ 0.014 US$ 0.011 US$ 0.008 US$ 0.005 /1 Since January 1980, the rate is being adjusted for the differential inflation between Turkey and its major trading partners. TL 182/$l (tbe exchange rate at the time of appraisal) was used for Parts III and IV of this report. FISCAL YEAR Republic of Turkey March I to February 28 (through 1981) - March 1 to December 31 (1982) January 1 to December 31 (from Jan. 1, 1983) TCZB January 1 to December 31 LIST OF ABBREVIATIONS ba - hectare. IAEE - Igdir-Aksu-Eregli-Ercis. IRDF - Interest Rate Differential Fund. SEE - State Economic Enterprise. TCZB - Agricultural Bank of Turkey. TZDK - Agricultural Supply Organization.  FOR OFFICIAL USE ONLY TURKEY SECOND AGRICULTURAL CREDIT PROJECT Borrower: Agricultural Bank of Turkey (TCZB). Guarantor: Republic of Turkey. Amount: US$150.4 million (including capitalized front-end fee). Terms: Seventeen years including four years of grace, with standard variable interest rate. Relending Terms: Medium-term loans to farmers would be for six to twelve years including two to five years of grace, with terms for individual loans decided in accordance with cash flow proJections. Short-term loans would be for one year or less. Interest rates would be established by the Government in accordance with its agreement to achieve and maintain positive real interest rates on an agreed basis. The foreign exchange risk for the credit components would be assumed by the Guarantor. Project Description: The project would finance medium and short-term loans by TCZB during a four-year period for specific programs aimed at increasing agricultural production and raising farmer income in areas where the Government has undertaken to intensify extension and other support services. Itswould also include support for strengthening TCZB's institutional capabilities. Benefits and Risks: The project is expected to increase incomes of some 270,000 farm families and to intensify land use and produce' more stable yields on about 485,000 hectares (ha). It is also expected to assist in strengthening TCZB and foster reforms of the agricultural credit system. The most significant project risk is the uncertainty in the marketing and processing of some crops. Annual cropping pattern reviews would permit adjustments as needed to avoid this risk. There is also a risk that the institution building aspects of the project would not proceed as expected, but provisions for periodic reports and consultations have been designed to reduce this risk to an acceptable level. This document has a restricted distribution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization.  -ii- ---- $Million Equivalent -- Estimated Project Costs: Local Foreign Total On-Farm Development Medium-term Loans 78.6 48.2 126.8 Short-term Loans 20.2 16.0 36.2 Short-term Loans for Second Crops 27.3 22.3 49.6 Short-term Loans for Fallow Reduction 20.8 12.7 33.5 IAEE Irrigation Project Medium-term Loans 13.0 9.8 22.8 Short-term Loans 5.5 3.7 9.2 Short-term Loans for Corum-Cankiri Project 13.8 10.9 24.7 Strengthening of TCZB Training - 0.2 0.2 Equipment 1.1 4.3 5.4 Studies 0.1 0.3 0.4 Total Base Cost 180.4 128.4 308.8 Price Contingencies 32.7 21.6 54.3 Total Project Cost 213.1 /1 150.0 363.1 Front-end Fee - 0.4 0.4 Total Financing Required 213.1 /1 150.4 363.5 Financing Plan: Bank - 150.4 150.4 TCZB 138.0 - 138.0 Sub-borrowers 75.1 75.1 Total 213.1 150.4 363.5 Estimated Bank Disbursements: Bank FY 1984 1985 1986 1987 Annual 21.3 35.1 42.6 51.4 Cumulative 21.3 56.4 99.0 150.4 Economic Rate of Return: 28 percent (medium-term credit components only) /2 Appraisal Report: 4394-TU dated May 25, 1983. /1 Includes $9.0 million equivalent of taxes and duties. /2 For short-term credit components, the lag between investment and returns is less than a year and benefit/cost ratios have been calculated instead of economic rates of return. These ratios vary between 1.7 and 3.2.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE AGRICULTURAL BANK OF TURKEY WITH THE GUARANTEE OF THE REPUBLIC OF TURKEY FOR A SECOND AGRICULTURAL CREDIT PROJECT 1. I submit the following report and recommendation on a proposed loan to the Agricultural Bank of Turkey (TCZB) with the guarantee of the Republic of Turkey for the equivalent of US$150.4 million (including capitalized J front-end fee) to help finance an agricultural credit project. The loan would have a term of 17 years including four years grace at the standard variable interest rate. About $144 million of the proceeds will be on-lent to farmers with repayment for medium-term credit over six to twelve years including two to five years of grace, and for short-term loans in one year or less. Interest rates would be established by the Government in accordance with its agreement to achieve and maintain positive real interest rates (see para 49). The Guarantor would bear the exchange risk on the credit components. PART I - THE ECONOMY 1/ 2. A report entitled "Turkey: Policies and Prospects for Growth" (No. 2657a-TU) and the Postscript thereto, were distributed to the Executive Directors in December 1979 and March 1980, respectively. Updating of economic prospects has since been undertaken through the continuing work on structural adjustment loans (SALs) to Turkey and several special economic missions. The report of a mission to evaluate the investment program and entitled "Turkey: Public Sector Investment Review" (No. 3472-TU) was distributed to the Executive Directors in December 1981. The report of a mission to review Turkey's industrialization and trade strategy entitled "Turkey: Industrialization and Trade Strategy" (No. 3641-TU), was distributed to the Executive Directors in March 1982. The report of a mission to review energy sector policies entitled "Turkey: Issues and Options in the Energy Sector' (No. 3877-TU) was distributed to the Executive Directors in March 1983. Missions to review recent economic developments and analyse the medium-term'- prospects, to study the agricultural sector and the financial system visited Turkey at various times in 1982. Their findings are reflected in this section. 3. Turkey is about as big as France and Germany combined, with a population of around 46 million and an estimated GNP per capita of US$1540. The density of population is low (78 per square kilometer of agricultural land), and about 45 percent live in urban centres. Although population growth is below the median for middle-income countries (2.2 percent per annum), and despite rapid economic growth in the mid-1970s as well as substantial emigration of workers (to Western Europe and more recently, to the Middle 1/ Parts I & II are substantially the same as Parts I & II of the President's Report on the Igdir-Aksu-Eregli-Ercis Irrigation Project (P-3581-TU) dated May 17, 1983.  - 2 - East), the employment situation has deteriorated steadily with an unemployment rate currently about 16 percent. There is, however, little or no absolute poverty, although income distribution is relatively skewed. There are also considerable regional differences and large rural-urban disparities. Recent data indicate a probable worsening in income distribution, especially of wage and salary earners, and a sharp real decline in the minimum wage. Educational enrollments have expanded greatly but the rate of adult literacy remains relative low (60 percent in 1975). Development Strategy Prior to 1980 4. Turkish development strategy during the 1960s and 1970s aimed at rapid growth through high rates of investment with the main emphasis on industrialization. Import substitution was favored over exports, with State Economic Enterprises (SEEs) playing an important role in the industrialization strategy as well as in regional development. These policies, supported by agricultural expansion and growing workers' remittances, helped to bring about a favorable growth record throughout the First and Second Plan periods (1963-72). A continuation of these policies in the face of the various exogenous shocks of the 1970s, including the rise in world oil prices and stagflation in the OECD economies, helped to maintain growth well into the 1970s, but finally proved unsustainable. 5. To maintain its growth momentum in the Third Plan (1973-77), Turkey financed a large part of its investment and import requirements through reserve decumulation and heavy external borrowing, particularly short-term. The rapid GNP growth, averaging around 7.7 percent per year in 1973-76, came to an abrupt halt in mid-1977 as the massive external debt burden led to a sharp deterioration in creditworthiness, severe shortages of imports and disruptions in industrial production with a rise in urban unemployment; GNP growth slowed down sharply to 4.0 percent in 1977 and to a negative figure in 1979. At the same time, domestic inflation accelerated from 24 percent in 1977 to an average of 64 percent in 1979. 6. By the end of 1979, the rate of domestic inflation had reached over 100 percent and had become an issue of critical importance. Although international price increases and domestic cost-push factors influenced the inflationary process, a substantial monetary expansion was the main cause. The monetary imbalances originated mainly from the Government's budget deficits and the huge financing requirements of the SEEs. Political and social unrest aggravated the economic difficulties. It was in these exceptional circumstances that the January 1980 reform measures were adopted. The Government's New Policy Priorities and Actions 7. The Government's program for stabilization and restructuring of the Turkish economy was initiated in January 1980 and is now entering its fourth year. The program has involved policy measures which have effects both in the short- and medium-term. In an effort to stabilize the crisis situation, a series of urgent measures were introduced to restrict domestic demand. These measures included enforcing tight credit ceilings by the Central Bank, reducing the budget deficit through expenditure control and increased taxation, and restraining growth of wages and salaries. Over the medium-term, the program is designed to restore a better balance between the public and private sectors of the economy and achieve sustainable growth. The key elements of this program are: the adoption of a realistic and flexible  - 3 - exchange rate and incentives to encourage producers to export; deregulation of interest rates to reflect market conditions and encourage private savings; the strengthening of public finances through tax reform; measures to improve institutional efficiency in key sectors; a rationalization of the public investment program; and a reform of the SEEs designed to reduce their burden on the budget and improve their efficiency. 8. The adjustment program, which has been supported by the Bank through three structural adjustment loans, involves far-reaching changes affecting all facets of the Turkish economy. It entails substantial changes in attitudes, institutions, and the legal and policy framework, all of which take time and face considerable resistance. In view of the severity of the crisis, and the urgent need to bring down inflation and stabilize the balance of payments as quickly as possible, the Government accepted the need for a temporary sacrifice of growth and social objectives. Drastic structural changes were made in the operation of the exchange rate regime, the tax system, interest rate policy, export strategy, the SEE sector and public investment policy. 9. The implementation of the program is being carried out by a military regime which assumed power in September 1980 following a period of sustained unrest, terrorism and deterioration in the parliamentary process. This Government, like previous military regimes in 1960-61 and 1971-73, has emphasized its commitment to restore civilian rule. A Consultative Assembly was set up to draft a new constitution, which was overwhelmingly endorsed in a nationwide referendum in November 1982. New election and party laws are expected to he promulgated soon, and parliamentary elections are scheduled for October 1983. Effects of the Structural Adjustment Process -- 1980-83 10. The Turkish economy has shown an impressive response to the program launched in 1980, and in many cases actual performance has met or exceeded the Government's own targets. Real GNP, after falling for two consecutive years, expanded by 4.2 percent in 1981 and 4.4 percent in 1982. Growth has been mainly export-led, with less than one quarter of the growth in 1982 due to domestic demand. Demand for consumption increased by 3 percent while fixed investment grew at a modest 4.1 percent (both in real terms) in 1982, and depletion of inventories helped to expand supply. Public investment grew significantly slower than private investment, thus reversing the trend of previous years. However, unemployment continued to grow in 1981 and 1982, as employment opportunities did not increase fast enough to absorb the expansion of the labor force. 11. Through a combination of fiscal, monetary and income policies, the Government has been remarkably successful in reducing the rate of inflation. After peaking at 107 percent in 1980, the annual average rate of increase in the wholesale price index declined to 37 percent in 1981 and around 25 percent in 1982, which was the program target. However, the degree of credit restraint needed to reduce inflation this rapidly, has had a marked effect on liquidity in the economy and has helped to maintain interest rates at high real levels. 12. Commercial hank interest rates which wTere deregulated in July 1980 have increased substantially; with inflation gradually coming down, they are now markedly positive in real terms. As a result, total bank deposits  increased by 72 percent in 1980 over 1979, and in 1981 this trend accelerated, with total deposits growing by 104 percent and time deposits by 263 percent. Growth in deposits slowed somewhat in 1982, and the bankruptcy in late June 1982 of a major non-bank financial institution shook depositor confidence and was followed by a shift of funds into the larger banks. While the Government has averted an immediate crisis in the banking sector, additional actions to reform and strengthen the financial sector as a whole are urgently recuired. The Government is at present preparing a new banking law which aims to strengthen the equity position and management of banks. 13. While positive real interest rates have provided an incentive to save, they have also meant high borrowing costs. The current real interest rate for non-preferential credits is about 28 percent. These high interest rates, together with the limited availability of credit, have led to considerable liquidity problems for the private business sector, particularly for businesses supplying the domestic market. The banks have taken steps to lower rates on deposits and reduce the tax on interest received by banks with the aim of reducing interest on credit. But the liquidity problem of the private business sector is compounded by under-capitalization which had been encouraged by easy access to cheap bank credit in the past. Tax changes and other measures are under preparation to encourage the corporate sector to raise paid-up capital to levels commensurate with those in other countries. 14. There has been encouraging progress in the fiscal area. The budget deficit was reduced from 4.6 percent of GNP in 1980 to 1.2 percent in 1982. Covernment expenditures as a percentage of GNP declined from 22.6 percent in 1981 to 21.5 percent in 1982, but the impact on the deficit was offset by a slower growth in revenues than programmed. The SEE accounts showed a marked improvement, with net profits climbing to 0.5 percent of GNP in 1982 from 0.1 percent in 1981 and their financing requirements falling from 8.8 percent of GNP in 1981 to 5.7 percent in 1982. Moreover, supplementary appropriations were cancelled. Public sector borrowing requirements dropped from a level of 6.5 percent of GNP in 1981 to 5.2 percent in 1982. 15. On the external account, the flexible exchange rate policy under which the Turkish lira has been adjusted daily since May 1981, together with the new export-oriented policies, led to an unprecedented export growth in 1981 when exports amounted to US$4.7 billion, or 63 percent higher in dollar terms than the 1980 level. Increases were concentrated in manufactured goods which experienced a rise of nearly 120 percent; product groups with the largest increases included textiles, clothing, cement, iron/steel, and non-electrical equipment, with the Middle East becoming an increasingly important market. Exports in 1982 reached US$5.75 billion, about 22 percent increase over 1981, despite a significant decline in export prices, particularly prices of agricultural products. As in the previous year, manufactured exports were the major source of expansion, as exporters continued to make inroads into the Middle East. 16. A new and rapidly growing source of foreign exchange is income earned from construction contracts (with a gross value of around US$11 billion in 1982) in the Middle East and North African countries. These activities are also expected to add to the normal flow of worker remittances, which remained strong throughout 1981, although declining slightly in 1982, reflecting the appreciation of the US dollar vis-a-vis European currencies as well as the impact of the recession in Western Europe.  - 5 - 17. Imports declined in dollar terms by 2.3 percent in 1982 compared to 1981, due mainly to weaker prices of oil and raw material imports, a stronger US dollar, a reduction in stocks and the elimination of a risk premium previously paid by Turkish importers. As a result of these developments, the current account balance showed a significant improvement in 1981 and 1982, with the deficit reduced from 5.6 percent of GNP in 1980 to 3.5 percent in 1981 and about 1.7 percent in 1982, well below program targets. By the end of 1981, outstanding external disbursed debt amounted to US$17.5 billion equivalent or about 30 percent of GNP. Multilateral agencies and official bilateral sources accounted for about two-thirds of the total outstanding. Of the total, only 12 percent constituted short-term debt, a marked contrast to the position in 1978 when short-term debt accounted for half of total outstanding debt. 18. A modest pickup of growth (4.8 percent) is anticipated in 1983 concurrent witb a slowdown of inflation (to about 20 percent), based on a slight recovery in private investment and higher capacity utilization rates. The current account deficit is expected to decrease to US$870 million in 1983 from US$1 billion in 1982, representing a slight fall iD relation to GNP (1.5 percent as against 1.7 percent). These results are based on a 17 percent projected growth in exports, a marginal improvement in workers' remittances, (both predicated on a revival of growth in the industrial economies) and a 13 percent growth in imports (required by the upturn in domestic demand). Medium-term Prospects 19. It is expected that the draft Fifth Five Year Development Plan (1984-1988) will be completed by mid-1983. Projections prepared by the recent Economic Mission indicate the need for a continuation of the stabilization program until 1985, which can be followed by a growth strategy aiming at about 6-6.5 percent per annum GDP growth consistent with a manageable balance of payments. 20. Two basic assumptions on the sustainability of export growth and on fiscal discipline have guided the projections. The continued growth of exports is based on the view that conditions that have made possible the 1981-82 upsurge are not temporary. Specifically, it assumes continuation of a flexible exchange rate policy, export incentives and import liberalization. Secondly, it also assumes that the monetary and fiscal policy restraints will not be relaxed to a point that will revive inflation, thus disrupting the basic shift in development strategy. 21. The projections of key economic variables for the period 1983-1990 are presented in Table below. Merchandise exports are projected to continue to grow at 9.5 percent in real terms into the late 1980s on the basis of a continuation of present policies for export promotion. Such a scenario would also require improvement in the pace of import liberalization in order to reduce the profit bias against exports.  -6- Table 1: Turkey - Projection of Selected Economic Indicators 1981 1982 1983 1985 1990 Average Annual Real Growth Rate Units Actual Estimate Program Projected 1981 1982 1982-85 1985-90 GDP 1980 TL b 4518 4717 4943 5455 7349 4.4 4.4 5.0 6.1 Conaumption 3611 3757 3943 4310 5716 1.9 4.1 4.7 5.8 Fixed Investment 898 924 977 1129 1617 4.2 3.0 4.9 7.4 Exports of Goods Current $ m 4703 5746 6800 9811 21505 79.0 23.0 8.6 9.5 Imports of Goods 8931 8735 9697 12825 27433 10.2 -4.1 7.7 9.1 Trade Balance -4230 -2989 -2897 -3014 -5928 Current Account Balance Current m -2089 -1035 -870 -485 -1757 Ratios Investment/GDP X 24.7 22.3 22.2 22.7 24.0 Savings/GDP X 18.9 19.0 19.4 20.7 21.9 Exports of Goods/GDP 2 8.9 10.5 10.6 11.6 13.5 Current Account Deficit/GDP x -3.5 -1.7 -1.5 -0.8 -1.8 Debt Service Ratio */ S 13.8 24.2 20.6 20.6 18.1 Public Fixed Investment/ 2 60.9 60.6 60.3 57.5 50.0 Total Fixed Investment a/ Total Debt Service including Debt Relief - Exports of Goods and NFS plus Workers' Remittances. Source: State Planning Organization and IBRD Projections. 22. Merchandise imports are projected to grow slowly in real terms through 1984 and then to pick up from 7-8 percent to an average of a little over 9 percent for the 1985-90 period in line with the growth of demand. 23. The current account balance, under these assumptions, would show a decreasing deficit for 1982-85 as stabilization curtails imports while encouraging exports. As growth sets in, the trend would be reversed for the 1985-90 period, and Turkey's current account deficit would increase again. The terminal year 1990 would show a deficit of US$1.8 billion as compared to a 1985 projected deficit of US$485 million. 24. The projected capital account would remain manageable throughout the projection period given the need to restrain the growth of debt and maintain a reasonable debt service ratio. This would permit Turkey to meet the amortization and interest payments arising from the US$9.6 billion of debts rescheduled between 1978-82 and maintain an exchange reserve equivalent to two months' imports. 25. Consistent with this scenario, the projections indicate a GDP growth of 5 percent per annum for 1982-85 (stabilization period), and a higher figure of 6.1 percent per annum for 1985-90 (growth period). Achievement of these growth rates will be necessarily dependent on the growth of the productive sectors, namely agriculture and manufacturing. The achievement of sectoral growth will depend to a large extent on the Government's determination to render the public sector more efficient and to create a more favorable investment climate for the private sector.  - 7 - 26. The medium-term scenario presented above assumes an increasingly important role for private sector investment in line with the policy of rationalizing public sector investment in the manufacturing sector. Accordingly, private investment is expected to grow at an average annual rate of 9.6 percent during 1982-85 and 11 percent during 1985-90. As a corollary, the real growth of public investment will slow down from a higa of 7.8 percent per annum during 1980-82 to a more moderate 5.0 percent during 1982-85 and eventually to 4.4 percent per annum for 1985-90. This is consistent with the framework of achieving the medium-term goal of an equal balance in the ratio of private and public fixed investment by 1990. Creditworthiness 27. At the end of 1978, Turkey faced an overwhelming debt burden of US$7.5 billion in short-term debt and US$6.8 billion of medium- and long-term debt. Turkey was faced with service payment obligations (mostly on short-term debt) of US$5.1 billion (including arrears), or nearly three times the value of merchandise exports in 1977. Following the resolution of the 1978 debt crisis, Turkey pursued a very conservative policy of external borrowing which was restricted almost entirely to long-term borrowing. Much of this was arranged through the OECD Consortium for Turkey and was extended on concessional terms. Also, between 1978-1980 Turkey rescheduled some US$9.6 billion of outstanding obligations through a series of rescheduling arrangements concluded with official and commercial creditors. Approximately US$6.0 billion of short-term debt, including US$2.6 billion in convertible Turkish lira deposits and bankers credits and US$1.2 billion of non-guaranteed suppliers credits, were consolidated into medium-term loans or partially converted into Turkish lira obligations. As a result of the these measures, short-term debt as a percentage of total debt outstanding fell from 51 percent in 1978 to 12.5 percent in 1981. Inflows were mostly from official sources -- major creditors being the OECD countries, the World Bank and the IMF. Of the total debt outstanding at end-1981, 87 percent constituted medium- and long-term debt. Based on the growth scenario outlined earlier, debt outstanding and disbursed as a percent of GDP is projected to rise from 28 percent in 1981 to 31 percent in 1982 and then fall to 29 percent in 1985 and 26 percent in 1990. 28. Debt service obligations are likely to be high over the coming years. Accordingly, the debt service ratio is projected to increase to 24.2 percent in 1982 from about 14 percent in 1981 as a result of a large repayment of previously rescbeduled debt under the earlier OECD agreements. * Projections beyond 1982 show a decline of the debt service ratio to 19.4 percent in 1984, an increase to 20.6 percent in 1985 (again on account of repayments of rescheduled debt), and then a fall to 18.1 percent in 1990. The debt burden should remain manageable, provided current policies are successfully implemented, the export drive is sustained, and Turkey continues to receive further international support from private and official donors. 29. On all aspects of economic analysis, the IMF and the Bank have coordinated closely with each other, and Turkey continues to be in good standing with the IMF. A three-year standby arrangement in an amount equivalent to SDR 1,250 million was approved by the IMF's Board and became effective on June 18, 1980. Under the arrangement, Turkey has thus far made ten purchases totalling SDR 1,060 million. The present standby is to expire on June 17, 1983 and a one year extention is being sought hy the Turkish authorities.  PART II - BANK GROUP OPERATIONS IN TURKEY 30. Through May 31, 1983 the Bank/IDA have lent US$3,939 million to Turkey, througn 71 projects. Agriculture accounts for 18 percent of funds lent, industry and DFCs for 34 percent, power for 13 percent, structural adjustment and program loans for 26 percent, and urban development, transportation, education and tourism for the remaining 9 percent. As of March 31, 1983, IFC commitments to Turkey totalled about US$236 million, of which about US$82 million were still held by IFC. Annex II provides a summary statement of Bank loans, IDA credits and IFC investments as of March 31, 1983, with notes on the status of ongoing projects. 31. The execution of Bank-financed projects in the public sector has been slow, due in part to weak management, limited coordination amongst ministries, staffing problems, and the serious external and domestic financial crisis from 1977 to 1979. There has been notable improvement since September 1980. Nevertheless, problems persist in many cases, reflecting difficulties in staffing the public sector at current salaries, over-centralized bureaucratic structures, and continuing constraints on the availability of local funds. The implementation of private sector projects has generally been more satistactory. Recently, however, the high interest rates for working capital combined with depressed domestic demand and reluctance of investors to take the foreign exchange risk, have led to slow commitments under DFC lending. Disbursements average 53 percent of appraisal estimates (excluding structural adjustment loans) as compared to 55 percent for Tunisia and 45 percent for Morocco. 32. Bank lending is aimed at supporting Turkey's medium-term objectives of redirecting the Turkish economy towards a development path placing more reliance on market forces and adopting a more outward-oriented strategy. These objectives also include increasing domestic savings and reorienting a restrained public investment program to reflect the Government's priorities of completing ongoing projects faster and emphasizing quick-yielding new investments with positive balance of payments impact. The main vehicle for the Bank's operational discussions with the Government has been the structural adjustment lending (SAL) program. Three SALs have so far been approved and a fourth is expected to be ready for Board presentation shortly. 33. Agriculture, industry, transportation and energy will continue to be the key sectors for project lending. In agriculture, projects are expected to emphasize irrigation, credit, and reform of the extension and research services. In industry (including DFCs), the emphasis will be on the promotion of exports, employment, and increasing operational efficiency. Energy projects underway are for power generation based on domestic hydro and lignite resources, as well as enhanced oil recovery and oil and gas exploration. Future projects will emphasize both the oil/gas and coal/lignite sub-sectors. In addition, transportation projects will focus on developing the infrastructure to facilitate exports and improve the efficiency of operations. Projects for industrial training, urban and regional development and public utilities may supplement these efforts.  - 9 - 34. The close macroeconomic and sector dialogue established with the Government in recent years is expected to be pursued. The economic and sector work undertaken recently includes studies of the agricultural and financial sectors. Topics likely to be covered in the future include a review of the next five-year development plan, employment, SEEs, transportation and the agro-industrial subsector. 35. This is the second loan to Turkey to be presented to the Executive Directors this fiscal year. Loans for power transmission, development of the Thrace gas field, and a fourth loan for structural adjustment are also expected to be ready for Board presentation shortly. Other projects being processed include: technical assistance to SEEs, industrial training, agricultural extension, gas utilization and rehabilitation of the paper industry. 36. The Bank Group's share of the estimated total external debt was 9 percent in 1981, and is expected to grow to about 17 percent by 1985; its share of total debt service payments is projected to increase from about 13 percent in 1981 to about 14 percent in 1985. 37. IFC has invested in synthetic yarns, pulp and paper, glass, aluminum, iron and steel products, meat processing, motor bicycle engines, truck manufacture, piston rings and cylinder liners, and tourism. It has also invested in the Turkish Industrial Development Bank (TSKB). New investment opportunities are being pursued. PART III - THE AGRICULTURAL SECTOR 38. While the importance of the agricultural sector in the economy is declining, it still represents about 20 percent of GDP, about half of export earnings and about 60 percent of civilian employment. The growth rates of agricultural GDP and exports are projected to remain below that for the rest of the economy. Nevertheless, agricultural growth has a significant role to play in providing foreign exchange earnings and employment. 39. Turkish agriculture is diverse. Intensive crop cultivation is prevalent in the coastal regions which receive plentiful rainfall or are equipped with irrigation facilities. Mixed (crop and livestock) farming predominates in the eastern and central parts of the country where pastures and meadows form more than half of the agricultural land and crop production is dependant upon rainfall. In these areas much of the land is kept fallow in alternating years. While the livestock production system is largely traditional, dependant on grazing lands and low productivity systems of animal husbandry, it produces about one-third of agricultural GDP. Cereal crops occupy about two-thirds of the cultivated area, fruits and vegetables about 20 percent, industrial crops about six percent, and oil seeds, pulses, and tubers the remaining seven percent. 40. Through the 1970s, Turkey's agricultural policies were inward-looking, stressing food self-sufficiency through subsidized inputs and producer prices. This led to relatively rapid growth of production through the first half of the 1970s, but could not be maintained due to the strain  10 - placed upon the budget and competing demand for resources from the manufacturing sector. An over-valued exchange rate discouraged exporting. Exports in 1979 amounted to less than one percent of production. The foreign exchange crisis in the late seventies led to the adoption of new policies in 1980 featuring maintenance of a realistic exchange rate and reduction of agricultural subsidies. These policies, combined with improved export incentives, led to an increase in agricultural export earnings in 1980 and 1981 at an annual average rate of 29 percent. This trend is expected to continue, although at a less rapid rate, over the next few years. The rate of growth of agricultural production fell initially with the reduction of subsidies, but has rebounded in 1982 due to good weather and an adjustment by farmers to a more market-oriented farming environment. 41. The possibilities for growth through expansion of the cultivable area or of livestock numbers were largely exhausted by the mid-1970s. Growth must now come primarily from increased productivity and changing the crop mixture to reflect better Turkey's comparative advantage. The demands of an export-oriented approach imply a change of emphasis from food self-sufficiency to increased net agricultural contribution to the balance of trade, and thus imports of certain foods in which Turkey does not have comparative advantage must increase if food consumers are not to he penalized. Increased productivity will require expansion in the irrigated area through increased efficiency of the implementing agencies (better planning, increased use of contractors), better extension and research programs, and increased imports of improved seeds and appropriately-sized equipment. Other important issues in the sector include improved sector planning, continued progress in reduction of subsidies, increased availability of credit (particularly for small and medium scale farmers), and reform of agricultural SEEs and marketing agencies. With adequate progress on these issues and continued adherence to policies designed to encourage exports, it should be possible for agricultural sector GDP to grow at about 3 percent per year over the next decade. Agricultural Credit 42. The agricultural credit system in Turkey is divided between an organized sector, which provides both production and term credit on concessional terms, and an unorganized sector whose activities largely consist of sbort-term liquidity advances at high rates of interest or discount. These latter take the form of moneylender loans and advances for the purchase of farm products. Little is known about the informal sector except that it is pervasive and diverse, funds are disbursed quickly, and arrears are few. 43. Over 95 percent of institutional agricultural credit (excluding direct credit from the Central Bank of Turkey to SEEs for support purchases) is provided by or through the Agricultural Bank of Turkey (TCZB), a Government owned Bank having privileged access to various official sources of financing. Pursuant to Government policy, it has been lending these funds at negative real rates of interest. Over the years, TCZB (which dates from Ottoman times) has been vested with a multiplicity of banking and non-banking responsihilities in addition to its main responsibility for providing agricultural credit. TCZB provides a full range of banking services to commercial and manufacturing entities both in Turkey and abroad, and handles all Governmental transactions in nearly half of the country's administrative districts. It has the largest volume of deposits of any Bank in Turkey, the  - 11 - most branches (1050), and employs close to one-quarter of all banking personnel in Turkey. However, TCZB's administrative and financial capabilities have not kept pace with its growth, reducing the efficiency of service provided to its agricultural borrowers. In addition, over the period 1977-1981, loans to sales cooperatives and financing of the Agricultural Supply Agency (TZDK) have averaged about 70 percent of TCZB's agricultural credits, leaving limited funds for provision of credit to farmers, either directly or through credit cooperatives. An average of about 46 percent of TCZB's agricultural credit financing has had to be financed from the Central Bank. Cash flow problems, which stem partially from low interest received and partially from the demands of the sales cooperatives and TZDK, have forced TCZB to institute a number of de facto credit rationing procedures, including an extremely stringent application of creditworthiness criteria, systematic underfinancing of individual farm and agroindustry credit needs, late disbursements, and insistence in much of its project lending that physical equity be fully committed before disbursements commence. These procedures reduce the incentive for agricultural investment and constrain the use of agricultural inputs. 44. Sales cooperatives have utilized on average over one-half of TCZB's total agricultural credit. These cooperatives were intended to act as intermediaries for the price stabilization program, using funds borrowed from TCZB to purchase crops from farmers at the floor price and then selling the crops domestically and abroad. The cooperatives also provide credit to farmers as an inducement to sign contracts to sell their crops to the cooperatives (often at lower prices than offered by merchants). After selling the crops, the cooperatives have an obligation to repay the borrowed funds to TCZB; any loss they make is covered by the Government and any profit - and last year all but one of the 21 sales cooperatives sold their crops at a profit - is supposed to be returned to the farmers. In practice, however, the sales cooperatives have accumulated substantial arrears with TCZB, due in part to the time lag between the buying and selling of the crops, but also due to the large operating costs of these overstaffed entities and to their diversion of funds from profits on sales and the non-repayment of loans to support the investment and operating costs of diverse manufacturing activities. As a result of such non-repayments, the Government in 1982 has written off substantial amounts corresponding to arrears of sales cooperatives. The Government is aware of the problem of these entities and has obtained from the Consultative Assembly the power to reform the legal basis of their operations by decree. Proposals for carrying out such reforms are under preparation and the Government intends further studies to develop measures to make the credit cooperatives financially self-sufficient with their credit obtained on commercial terms. Progress is expected to be monitored in the context of proposed structural adjustment lending. 45. The agricultural credit cooperatives have received about 10 percent of TCZB's agricultural loans. There are close to 2,500 cooperatives with 1.5 million members serving about 40 percent of the farm households in Turkey. This system is one of the few financial institutions operating at the grass roots level and taking an active role in small farmer financing. The credit cooperatives finance their lending operations almost entirely from funds borrowed from TCZB while using their membership dues to cover operating expenses. The credit cooperatives need strengthening through training of their staff, augmentation of their financial resources, deployment of professional managers, and installation of sound financial management  - 12 - practices and systems. The Government has agreed to undertake a study of measures for increasing the effectiveness of the agricultural credit cooperative system (Guarantee Agreement, Section 3.01(a)), including in particular an examination of the feasibility of these coperatives playing a wider role in rural areas in financial intermediation (such as collecting deposits and possibly expanding their lending programs). The study would propose a 5-year development plan for the agriculture credit cooperative system, which may provide the basis for future Bank assistance. The study would be supervised by a steering committee, headed by a representative of the State Planning Office. Consultants would be employed by March 31, 1984. Upon completion (expected March 31, 1985), the results will be furnished to the Bank for its comments. 46. The share of commercial banks in total agricultural credit is insignificant. They are reluctant to provide agricultural loans due to the higher profits obtainable in lending for industry and commerce, the relatively higher transaction costs of lending to agriculture, and their lack of technical expertise. Indirectly, however, the commercial banks provide support to agriculture through their export financing activities. The credit is extended to trading companies which obtain the commodities through middlemen, who occasionally also provide direct credit to farmers. Commercial bank credit to agro-industries also is occasionally used to provide credit to farmers under guaranteed purchase contract arrangements. 47. The Government has had a long-standing policy of providing credit for agriculture at interest rates below those of most other sectors. This has been accomplished, in part, through Central Bank rediscounts (at interest rates of 16 to 18 percent) for agricultural loans provided at interest rates specified by the Government. In addition, the Government provides an eight percent per year interest subsidy on agricultural loans made at preferential interest rates from banks' own resources. This subsidy is provided from an Interest Rate Differential Fund (IRDF) which is in turn financed by a tax collected on commercial loans. In addition, TCZB's average cost of funds is reduced by its large share of Government deposits (one-third of TCZB's total deposits) on which no interest is payable. Due to the above arrangements, TCZB is able to lend to farmers at 20 percent (22 percent for medium- and long-term loans) at a time when it must pay 45 percent on time deposits, and when commercial loans not qualifying for preferential rates under the Government's selective credit policies are made at rates of 70 percent or more. 48. Such heavily subsidized rates have had various detrimental effects. The costs of non-preferential credit are raised considerably by the required payments to the IRDF and by the reserve requirements imposed on deposits which mobilize resources for the Central Bank for subsidizing its selective credits. One-third of these go to agriculture (mainly for support purchases but also for direct credit to farmers). In addition, the maintenance of negative real interest rates has also had a detrimental effect on the agricultural sector. In real terms the assets of TCZB have decreased by about 33 percent over the past five years, reducing the ability of TCZB to meet farmers' borrowing requirements. The effects of the shortage of funds for agricultural credit have been accentuated by Government reforms since 1980 which have reduced the subsidization of agricultural inputs, thus increasing credit requirements. The current short-term agricultural interest rate of 20 percent is negative as compared to the 1982 inflation rate, as measured by the Wholesale Price Index (WPI) of 25 percent. Nevertheless, it should be recognized that by holding  - 13 - the agricultural interest rate relatively constant while inflation rates have been reduced from over 100 percent in 1980 to 25 percent in 1982, the Government has already achieved a substantial decrease in the negative spread. 49. The Government has now agreed (Guarantee Agreement, Section 3.04) to achieve positive real agricultural interest rates on an agreed basis and to maintain such positive rates thereafter. The agreed basis refers to the Statement of Development Policies - 1983 furnished by the Government in connection with a proposed Fourth SAL, which stipulates that by the end of 1984 the minimum preferential interest rate will be at least equal to the rate of inflation. 50. Agricultural lending operations of TCZB are governed by Agricultural Credit Guidelines issued in 1979. These Guidelines are generally satisfactory. However, the interpretation and application of the Guidelines vary widely from one branch to another, and farmers complain regarding insufficient loan amounts to cover credit needs, stringent security requirements, delays in loan approvals and disbursements, and poor customer service. The overall scarcity of loanable funds, low interest rates, and lack of adequate supervision of branches lie at the root of these problems. The Branch Managers frequently have to ration credit among large numbers of applicants and tend to give loans to as many farmers as possible but in the process are unable to meet the full requirements of each farmer. They also tend to favor those farmers who can provide ample security and are perceived to be most creditworthy. In this situation, the small and medium farmers tend to get discouraged. 51. The organization of TCZB is centralized, with inadequate delegation of decision-making authority, both within the head office in Ankara and between the head office and the 1,050 branches. This problem is compounded by poor communications among the various units of TCZB, overlapping jurisdictions, and voluminous paperwork requirements. Regional directorates exist but are ineffective. Supervision of the branches and communications between the head office and the branches need to be significantly improved. While accounting and auditing procedures are acceptable, there is a pressing need for automation of the accounting systems, introduction of functional cost accounting systems, and improvement in management information systems. The First Agricultural Credit and Agroindustries Project (Loan 1248-TU) included funds for a study by international consultants of ways to improve TCZB's organization and lending, financial and accounting systems. Touche Ross and Company completed a series of ten specific studies in June 1981 and based on this report, Hacattepe University (Ankara, Turkey) at TCZB's request prepared a development and application plan to be pursued by TCZB. Arising from these reports TCZB has formulated a detailed Action Plan and schedule for improving TCZB's organization and lending policies and procedures, which has been approved by its Board of Directors. TCZB has agreed (Loan Agreement, Section 3.04) to implement the Action Plan, submit periodic reports, and consult with the Bank on progress in its implementation. Key areas of intended improvement involve: (i) delegation of increased responsibilities to Regional Directorates, so as to decentralize decision-making, improve branch supervision and reduce delays resulting from required approvals from the head office;  - 14 - (ii) review of the organizational structure of TCZB's head office to improve efficiency, increase delegation of responsibility, and reduce overlapping jurisdictions; (iii) development of a staff training program; (iv) improving conformity between the official and actual lending criteria so as to improve access of small and medium scale farmers to loans; (v) introduction of improved planning and budgeting procedures; and (vi) studies to improve systems and procedures and accounting methods. Finance is included under the proposed loan for staff training and consultant services. In addition to the reforms included in the Action Plan, a banking reform decree to be issued in the near future is expected to increase from TL 2 million to TL 20 million the size of loan requiring Board of Directors' approval. The Government has agreed to take action by December 31, 1983 to permit TCZB to increase substantially the minimum loan amount requiring Board of Directors' approval (Guarantee Agreement, Section 3.07(b)), which action is needed to facilitate TCZB decentralization. 52. The financial condition of TCZB is satisfactory with the exception of arrears of sales cooperatives. The quality of the lending portfolio of TCZB appears to be good. The collection ratios are in excess of 80 percent, the overdues in excess of two years are declining and the resources cover the overdues over two years. The arrears of sales cooperatives are a special case. TCZB lends to sales cooperatives at Government directive. When the arrears occur TCZB does not file legal proceedings, but goes to Government to seek reimbursement. In the past the Government has reimbursed TCZB for the arrears. However, this arrangement is informal, The Government has agreed (Guarantee Agreement, Section 3.05) that it would compensate TCZB on an annual basis for losses arising from its loans to sales cooperatives. Performance Under Other Agricultural Credit Lending 53. A Bank loan of $63 million 1/ was approved to TCZB in 1975 for the Agricultural Credit and Agro-industries Project (Loan 1248-TU). The project objectives were to raise farm production through loans to farmers, establish new and improve existing agroindustries, and provide consultant services and vehicles. Except for $27 million of Bank loan proceeds earmarked for agroindustrial credit and some small amounts for technical assistance, all the 1/ $8.7 million of the loan was cancelled at the Borrower's request due to (i) a Government program for cattle fattening credit at subsidized rates which made a non-subsidized component for the same purposes redundant, and (ii) a UNDP grant for training, replacing a similar component in the loan.  - 15 - other categories have been fully disbursed in a satisfactory manner. The main problem with the agroindustrial component is that borrowers have been unwilling to assume the foreign exchange risk. Discussions are continuing on the possibility of the Government arranging a suitable foreign exchange risk insurance scheme. The completion date has been extended from September 30, 1981 to June 30, 1984. TCZB's performance under the project has been satisfactory and there are no outstanding issues. TCZB has also been used as the channel for credit components under five livestock and two fruit and vegetable projects. The performance under these components has been satisfactory. PART IV - THE PROJECT 54. The proposed project was identified by a Bank mission in June 1980; another mission visited Turkey in September 1981 to disc'iss project preparation. The project was prepared by TCZB with assistance from the Ministry of Agriculture and the FAO/IBRD Cooperative Program. The project was appraised in November 1982. A Staff Appraisal Report entitled "Turkey - Second Agricultural Credit Project" (No.4394-TU dated May 25, 1983) is being distributed separately to the Executive Directors. The key features of the proposed project are listed in the Loan and Project Summary and in Annex III. Negotiations took place in Washington in April/May 1983, with a delegation headed by Mr. Tunc Bilget, Chief Financial and Economic Counselor of the Turkish Embassy in Washington, and including representatives of Treasury, TCZB, State Planning Office, and the Ministry of Agriculture. Project Objectives and Loan Features 55. The proposed project is designed to increase agricultural production and raise productivity and income of farmers. It would assist TCZB's efforts towards organizational and procedural reform (para 51), foster rationalization of interest rate policy (para 49), and initiate an investigation of ways to improve the agricultural credit cooperative system and to broaden the rural financial markets (para 45). 56. The proposed project would finance loans by TCZB over a four-year period (1983-86) for specific programs aimed at increasing agricultural production and raising farmer income in areas where the Government has undertaken to intensify extension and other support services. In addition, TCZB's program for improving its organization and procedures under an agreed Action Plan would be assisted through the provision of consultants, staff training, and equipment. Project Components 57. On-farm development loans. Under this component about 6,500 medium-term loans to farmers for livestock production and fattening, broiler and egg production, orchard establishment, and purchase of farm machinery, and about 70,000 short-term loans for working capital needs would be provided in 10 provinces in which the Government intends to embark on a program to improve  - 16 - its extension services. An extension project is being prepared by the Government and is expected to be ready for appraisal this year. The existing extension staff and TCZB staff in these provinces are expected to be sufficient to carry out this component under TCZB's supervised credit program, which was implemented successfully under the First Agricultural Credit Project (Loan 1248-TU). However, when the proposed extension project is effective, the credit provided under this component would complement the extension program in assisting to intensify production. The ten provinces are in areas where rainfed agriculture predominates. The medium-term loans would finance purchase of machinery and equipment, construction of farm buildings, initial livestock requirements, planting materials, permanent working capital requirements and start-up expenses. The short-term loans would finance expenditures for seed, fertilizer, animal feed, and other operating expenditures related to crop and livestock production. Loans for livestock would be eligible for financing only in those provinces where similar financing from ongoing Bank-financed livestock projects (Loans 1265-TU, 1586-TU, and 1862-TU) is not available or fully utilized (Loan Agreement, Annex 1 to Schedule 2). In provinces where such available credit has been fully utilized, the lending procedures under the earlier livestock loans would be maintained. 58. Second Crop and Fallow Reduction Schemes. Since possibilities of growth through expansion of cultivated area have been largely exhausted, increased priority must be given to intensifying land use. In rainfed production areas much of the land is left fallow in alternating years, mainly for reasons of moisture conservation. Crop rotations and planting schedules have been developed for replacing traditional fallow following wheat and barley with pulses (chick peas, lentils) and fodders. It is estimated that three million ha in Turkey receive sufficient rainfall to permit replacing fallow by continuous cropping. The potential for introducing these new rotations through improved extension combined with short-term credit has been tested successfully under the Corum-Cankiri Rural Development Project (1130-TU). The Government has planned a program for expanding the fallow reduction program in 12 additional provinces. Under the fallow reduction component of the project, short-term loans would be provided to about 50,000 farmers to cover about 80 percent of the production costs for growing the new crops on about 265,000 ha of land currently left fallow in alternating years. Similarly the Government has introduced a Second Crop Scheme based on possibilities for a marked increase in multiple cropping identified for about 380,000 ha in irrigated areas with long growing seasons in the south and south-east. These areas are normally planted in wheat or barley and cotton in alternating years. A Government research program has identified and tested varieties of maize, soybeans, peanuts, sesame and other crops which can be successfully grown between the grain and cotton rotations under the two year cycle. This program was tested on a pilot basis in 1981 and 1982 with strong farmer interest. During the project period it is expected that an additional 220,000 ha in 15 provinces would be planted with second crops. Under the project short-term loans would be provided to 60,000 farmers for the purchase of seed, fertilizer, and other inputs. TCZB has agreed (Loan Agreement, Section 3.05) to ensure that adequate credit would be made available to qualified borrowers under its normal agro-industries program for purchasing drying and processing equipment needed to handle the incremental output of these schemes.  - 17 - 59. IAEE Irrigation and Corum-Cankiri Components. The Igdir-Aksu-Eregli-Ercis (IAEE) Irrigation component is designed to meet the medium- and short-term credit needs of about 25,000 farmers expected to benefit from four on-going irrigation projects, designed to provide improved irrigation on about 113,000 ha. Proposals for a separate Bank loan to assist in accelerating irrigation development in these areas have been circulated to the Executive Directors (Report No.4299-TU dated May 13, 1983). This component of the proposed Second Agricultural Credit Project would complement the irrigation investments by assisting the beneficiary farmers to make on-farm investments for machinery, greenhouses, and orchard establishment and to purchase the increased inputs appropriate for irrigated production. The Corum-Cankiri component would continue the progress achieved under the Corum-Cankiri Rural Development Project (Loan 1130-TU) in intensifying crop production and reduction of fallow. Since all funds for short-term credit under Loan 1130-TU are expected to be fully disbursed by fall 1983, this component would permit continuation of progress by providing incremental short-term credit to 60,000 farmers in the area covered by Loan 1130-TU. 60. Strengthening of TCZB. About 35 man-months of consultants' services would be financed to assist TCZB's organization and procedure improvement program (para 51), inter alia through participation in TCZB's studies of its accounting systems and its overall systems and procedures. In addition, about 130 of TCZB's management, administrative and technical staff members would benefit from overseas training programs approved by the Bank. Funds would also be provided for vehicles, micro-computer systems, calculators and photo copying machines. Cost Estimates and Financing 61. The estimated total cost of the proposed project is $363.1 million including an estimated $9.0 million in taxes and duties. The foreign exchange cost of the project, both direct and indirect, is $150 million. The above estimates include about 18 percent price escalation. (While local costs are expected to increase at a faster rate, the floating Turkish lira automatically accommodates the difference between local and foreign inflation.) The proposed Bank loan of $150.4 million would finance the estimated foreign exchange costs of the project (about 41 percent of total costs) plus the front-end fee. TCZB, as the borrower, would contribute about $138.0 million or about 38 percent of total project cost. The remaining 21 percent would be contributed by the sub-borrowers. Consultant costs are estimated to average about $10,000 per man-month (including salary, costs, fees, international travel and subsistence). Fellowship costs are estimated to average about $1,100 per man-month. Project Implementation 62. The project would be administered by the Encouragement and Development Loans Division of TCZB through TCZB branches located in the provinces covered under the project. This Division of TCZB, which currently manages the credit components of five World Bank assisted projects in the agriculture sector, is satisfactorily staffed and well experienced in management of on-lending operations in Bank assisted projects. The applicants (individual farmers or credit cooperatives) for loans under the On-farm  - 18 - Development and Irrigation Schemes components would submit their loan applications to the nearest TCZB branch. TCZB staff would appraise the loan applications, with the advice and assistance of staff of the Ministry of Agriculture extension service. TCZB branches in the provinces where these components would be implemented are considered to be adequately staffed to handle these components. However, TCZB would periodically review the adequacy of its technical staff for carrying out these components and has agreed to ensure (Loan Agreement, Section 3.03(a)) that such staffing is adequate at all times. The Second Crop and Fallow Reduction Schemes are special Government programs which would be administered under the provision of special decrees. These decrees are satisfactory to the Bank. The General Directorate of Agricultural Affairs in the Ministry of Agriculture would have the lead responsibility for implementation of these schemes. The Ministry would select the participating farmers and organize provision of extension services, suitable seeds and other required inputs. The Ministry would annually review, together with TCZB, the market prospects, processing facilities, and economic justification for the crops to be supported under the schemes (Guarantee Agreement, Section 3.02(a)) and determine, with the approval of the Bank, the crops and the target areas eligible for financing under the project during the next cropping season (Loan Agreement, Annex 2 to Schedule 2, para A 4). The participating farmers would apply for loans to the extension service staff and/or TCZB branch. TCZB would determine the creditworthiness of the applicants approved by the extension service, and if satisfactory, approve the loan. The Government has agreed (Guarantee Agreement, Section 3.02) to provide adequate staff support for implementation of the schemes, continue its applied research program to improve the technology package for these schemes, and ensure availability of sufficient fertilizer and improved seeds for recommended crop varieties. Arrangements similar to those currently being used successfully for provision of short-term loans to farmers under the Corum-Cankiri project would be continued for that component. Signing of a Protocol satisfactory to the Bank setting forth respective roles of TCZB and the Ministry of Agriculture in implementation of the project (as described above) would be a condition of loan effectiveness (Loan Agreement, Section 6.01(a)). On-Lending Terms, Conditions, and Criteria 63. Each applicant for a medium-term loan would have to submit a Farm Development Plan with the loan application. TCZB technical staff or extension service staff would assist the loan applicants in preparing the Farm Development Plan. Each applicant for a short-term loan would submit a Production Plan showing the cropping pattern and input requirements or expected production of livestock activities. The Farm Development Plans and Production Plans would be analyzed to ensure that the subloans are within the borrowers' repayment capacity, based upon projected income and total expenses including living expenses. The sub-borrowers would be required to contribute a minimum of 20 percent (10 percent for small farmers) of estimated investment and/or production costs taking into account price contingencies estimated for the duration of investment. The short-term loan amounts would be based upon standard per hectare production costs for various crops or per animal established by the Ministry of Agriculture and TCZB. Interest rates would be in accordance with the Government's agreement to achieve and maintain positive real interest rates (para 49). The expected cash flow of the proposed farm plans would be the main consideration in approval of the subloans, rather than availability of security. For medium-term loans which involve land  - 19 - improvement, a mortgage of sub-borrowers' land would be obtained. For all subloans the machinery, equipment, crops, and animals and materials financed would be hypothecated to TCZB as security up to the amount of the loan, and mortgage of sub-borrowers' land would not be necessary. Repayment for medium-term loans would be over six to twelve years, including two to five years of grace, with individual terms decided in accordance with projected cash flow under the Farm Development Plan. Short-term loans would have maximum repayment periods of one year. TCZB would roll-over Bank funds in its financing program, provided the sub-loans are made for purposes and in areas covered under the project (Loan Agreement, Section 4.03), The Guarantor would bear the exchange risk. In return, the difference between the interest rate on the Bank loan and the on-lending interest rate to farmers, after allowing for a 3.5 percent spread for TCZB, would go to the Government. Signing of a Subsidiary Agreement to this effect, satisfactory to the Bank, would be a condition of effectiveness (Loan Agreement, Section 6.01(b)). TCZB requires the sub-borrowers to utilize the credits for the purpose for which they are provided and would disburse loans, to the extent practicable, through direct payment to suppliers of inputs and materials. TCZB staff would periodically visit sub-borrowers' farms to supervise medium-term loans. Short-term loans would be supervised through periodic field visits by TCZB staff to a sample of farms to ascertain any common problems and initiate remedies. Extension service staff would also be in regular touch with the farmers and would advise TCZB about any general implementation problems. The above procedures are set forth in Annex 2 to Schedule 2 to the Loan Agreement. Procurement and Disbursement 64. Except for the TCZB strengthening component, the machinery, equipment, inputs, and services which would be financed from the loan proceeds will be purchased through commercial channels over a 4-year period by thousands of farmers located in 29 provinces. Private dealers in Turkey sell and service a variety of tractors and farm equipment, most of which is assembled in Turkey from imported components under licensing arrangements with foreign manufacturers. These dealers provide farmers a choice of farm machinery at competitive prices. The vehicles under the TCZB strengthening component (estimated $5 million equivalent) would be procured through international competitive bidding in accordance with Bank guidelines. Other equipment for TCZB, estimated to cost about $400,000 equivalent, would be procured either through local procedures or through limited international bidding on the basis of at least three offers. The Bank loan would be disbursed against (i) 50 percent of medium-term loans; (ii) 50 percent of incremental short-term loans; (iii) 100 percent of foreign expenditure and local expenditure ex-factory and 60 percent of other local expenditure for vehicles and equipment; (iv) 100 percent of foreign expenditure for overseas training; and (v) 100 percent of expenditure for consultants. Disbursements for subloans would be based upon statements of expenditures, since a large number of small subloans would be involved. Accounts and Audits 65. TCZB would establish a clearly identified account for transactions relating to this project and would ensure that all loans made under the project are readily identifiable. In previous Bank-assisted projects, TCZB has maintained such accounts satisfactorily. An independent external audit of  - 20 - TCZB's operations is carried out annually by the Board of Sworn Bank Examiners. The Bank has received regular audit reports in the past under the First Agriculture Credit Project (Loan 1248-TU) and under the credit components of other agricultural loans. The above audit arrangements would be continued under this proposed project and TCZB would submit its annual financial statements, audited by the above-mentioned independent auditors, together with separate audited statements of project transactions, within six months of the close of the fiscal year (Loan Agreement, Section 4.02). Benefits and Risks 66. The main project benefits would be improved agricultural productivity and higher farm incomes. The project is expected to increase incomes of some 270,000 farmers and to intensify land use and produce more stable yields on an area of 485,000 ha. The project investments would help farmers to increase their output of industrial crops, cereals, animal feed, beef, chicken and sheep meat, vegetables, fruits and eggs. A large part of the production would augment the country's capacity to export, particularly cereals, pulses and livestock. The production of other cereals and certain industrial crops will help to meet the domestic demand and decrease imports. Non-quantifiable benefits include the strengthening of TCZB and the demonstration effects of the Second Crop and Fallow Reduction Schemes. The estimated economic rate of return for the medium-term credit components averages 28 percent. For the short-term credit components the lag between investment and returns is less than a year and benefit/cost ratios have been calculated instead of economic rates of return. These ratios vary from 1.7 for the fallow reduction component to 3.2 for the Corum-Cankiri component. 67. The most significant risk for the project lies in the uncertainty in the marketing and processing of some crops in the fallow reduction and second crop programs. The arrangements (para 62) for annual reviews of the cropping patterns in light of marketing developments and processing capacity should permit adjustments as necessary to cover this risk. In addition, there is a risk that the institution building aspects of the project may not proceed as well as expected. However, the provision for periodic reports and consultations (para 51) would contribute to reducing this risk to an acceptable level. PART V - LEGAL INSTRUNENTS AND AUTHORITY 68. The draft Loan Agreement between the Bank and TCZB and the draft Guarantee Agreement between the Republic of Turkey and the Bank and the report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. The special features of the Loan Agreement are referred to in the text and listed in Section III of Annex III. Special conditions of loan effectiveness would be (i) signing of a protocol setting forth the roles of TCZB and the Ministry of Agriculture in project implementation (para 62); and (ii) signing of a Subsidiary Agreement between the Government and TCZB (para 63). 69. I am satisfied the proposed loan would comply with the Articles of Agreement of the Bank.  - 21 - PART VI - RECOMMENDATION 70. I recommend that the Executive Directors apoprove the proposed loan. A.W.Clausen President by Ernest Stern Attachment May 25, 1983 Washington D.C. f  -22- ANNEX 1 TABLE 3A !&e i of 5 TURKEY - SOCIAL INDICATORS DATA SHEET TURKEY REFERENCE GROUPS (WEIGHTED AV5LRAGES AREA (THOUSAND SQ.- MOST RECENT ESTIMATE)- TOTAL 780.6 MOST RECENT MIDDLE INCOME INDUSTRIALIZED AGRICULTURAL 377.4 1960 /b 1970 Lb ESTIMATE lb EUROPE MARKET ECONOMIES GNP PER CAPITA (US$) 320.0 580.0 1470.0 2323.9 10328.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 249.6 488.4 770.9 2107.4 7277.7 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 27509.0 35321.0 44858.0 URBAN POPULATION (PERCENT OF TOTAL) 29.7 38.4 47.4 47.9 78.0 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 67.1 STATIONARY POPULATION (MILLIONS) 108.5 YEAR STATIONARY POPULATION IS REACHED 2075 POPULATION DENSITY PER SQ. KM. 35.2 45.2 56.2 83.3 138.6 PER SQ. KM. AGRICULTURAL LAND 73.9 92.0 116.2 155.4 509.7 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 41.2 41.0 39.0 31.1 22.7 15-64 YRS. 55.2 54.3 56.5 61.2 65.7 65 YRS. AND ABOVE 3.5 4.7 4.5 7.7 11.6 POPULATION GROWTH RATE (PERCENT) TOTAL 2.8 2.5 2.4 1.6 0.8 URBAN 6.1 5.1 4.5 3.5 1.4 CRUDE BIRTH RATE (PER THOUSAND) 42.8 38.3 32.2 23.6 14.5 CRUDE DEATH RATE (PER THOUSAND) 15.6 12.7 9.6 9.2 9.3 GROSS REPRODUCTION RATE 3.1 2.7 2.1 1.6 0.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 65.6 66.6/c USERS (PERCENT OF MARRIED WOMEN) 5.3/d 8.2 38.0/i- FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71=100) 96.0 100.0 110.0 116.0 111.1 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 115.1 110.5 115.8/f 125.1 130.8 PROTEINS (GRAMS PER DAY) 85.1 80.2 82.7/f 92.7 97.1 OF WHICH ANIMAL AND PULSE 25.0 22.9 24.9/f 35.9 61.3 CHILD (AGES 1-4) MORTALITY RATE 50.0 31.2 21.0 9.2 0.5 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 50.5 56.6 61.8 67.6 73.8 INFANT MORTALITY RATE (PER THOUSAND) 189.5 147.5 122.6 65.1 11.3 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 52.0 75.0/g URBAN .. 51.0 70. O/g RURAL .. 53.0 80.0/i .. ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. URBAN .. .. 20.0/g RURAL .. .. POPULATION PER PHYSICIAN 2799.6 2227.6 1762.5/f 1105.4 620.7 POPULATION PER NURSING PERSON 7492.4/d 1883.8 922.6/f 634.4 246.9 POPULATION PER HOSPITAL BED TOTAL 600.5/h 490.3 503.6/f 286.8 122.0 URBAN 340.8/E 313.4 311.07! 192.0 140.6 RURAL 5098.5/h 5912.2 ADMISSIONS PER HOSPITAL BED .. 20.2 22.3/f 20.0 17.7 HOUS ING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.7/i 5.9 URBAN .. .. RURAL .. .. AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.4/i 2.2 URBAN 2.0/i 1.9 .. RURAL 2.7/i .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 29.0 41.1 57.O/j URBAN .. 78.2 .. RURAL 2.0 18.0 ..  -23- ANNEX 1 Page 2 of 5 TABLE 3A TURKEY- SOCIAL INDICATORS DATA SHEET TLUREY REFERENCE GROUPS (WEIGHTED AVRAGES - MOST RECENT ESTIMATE)- MOST RECENT MIDDLE INCOME INDUSTRIALIZED 1960 lb 1970 /b ESTIMATE /b EUROPE MARXET ECONOMIES EDUCATICN ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 75.0 110.0 105.0 102.4 101.7 MALE 90.0 124.0 115.0 107.1 103.9 FEMALE 58.0 94.0 96.0 99.0 103.6 SECONDARY: TOTAL 14.0 27.0 34.0 60.2 88.4 MALE 20.0 38.0 46.0 66.4 83.4 FEMALE 8.0 15.0 22.0 54.0 84.2 VOCATIONAL ENROL. (C OF SECONDARY) 17.7 13.7 17.5/f 31.6 18.2 PUPIL-TEACHER RATIO PRIMARY 45.8 37.8 29.6/f 25.8 20.3 SECONDARY 19.3 27.6 22.8 22.2 16.1 ADULT LITERACY RATE (PERCENT) 38.0 51.3 60.3/l 75.9 98.9 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 1.7 3.9 11.5/3 51.0 338.4 RADIO RECEIVERS PER THOUSAND POPULATION 49.1 87.7 97.6 157.2 1021.7 TV RECEIVERS PER THOL'SAND POPULATION 0.0 1.8 70.7 123.7 403.6 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 51.3 41.0 88.5 112.3 331.2 CINEMA ANNUAL ATTENDANCE PER CAPITA 1.1 6.7 1.9 4.0 3.6 LABOR IORCE TOTAL LABOR FORCE (THOUSANDS) 13782.1 15828.8 19400.5 FEMALE (PERCENT) 40.2 37.0 36.4 36.6 36.0 AGRICULrURE (PERCENT) 78.5 67.7 53.5 38.7 6.2 INDUSTRY (PERCENT) 11.5 12.1 12.8 25.9 37.8 PARTICIPATION RATE (PERCENT) TOTAL 50-. 44.8 43.2 44.5 45.4 .MALE 58.7 55.7 54.3 56.3 58.9 FEMALE 41.2 33.6 31.9 32.8 32.4 ECONOMIC DEPENDENCY RATIO 0.9 1.0 1.0 0.9 0.8 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 33.0/d 32.8/k HIGHEST 20 PERCENT OF HOUSEROLDS 61.07Th 60.67k 56.5/e .- 43.0 LOWEST 20 PERCENT OF HOUSEHOLDS 4.2T 2.97V 3.57 .. 5.5 LOWEST 40 PERCENT OF HOUSEHOLDS 1o.672 9.47i 11.557 .. 16.5 POVERTY TARGET GROUPS ESTDIATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 342.0 RURAL .. .. 270.0 ESTIMATED REIATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. R'JRAL .. .. 220.0 406.6 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. RURAL .. Not available Not applicable. MOTES /a The group averages for each indicator are population-weighted arithmetic means. 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 Est'rmate, between 1978 and 1980. /c 1974; /d 1963; /e 1973; /f 1977; /j 1976; /h 1962; /1 1965; ,1 1975; k 1968. May, 1982  -24- ANNEX 1 Puc, of 5 DEFINITIOSfl OP SOCIAL INDtCAThRS Notes: Although tho data ote drovn Ero= s.u.res genoeally judged ohe tat uthrlitati-e and reliable, It abeuld also be noted that they ay tt be inter- nationally comparable b c.aua of tha lack of standardized defeicitons and concepts used by different onaotrieo in nollestieg tha data. The d ta re, sne- thele,. oseful to desriba ordera of e itud,. indicate tae-da, cad oharaccerite cer-tin -ajar differetnae bet.aena cou..nts. . n The -eferencr groups ant (i) tho s:00 c.o.ney group of the aubJece co--tcy and (2) aucontry group vith -usohas higbher average income tha. the country group of the subject country (oncept foE 'ib Incope Oil toporter" group obero "fiddlo I.cone North Afii- aod Middle lat" is choren becaase of arrnger _ocia-oul ueI l affi" i ,es). ln the roferen g eup data ebe th. Pa eu var population veightnd seiths tic e.tos for each indiostor and cho-e only hen eajarity of the oouo rie in a getup has data for thut indicator. Si-ce hnec-teage of .o.ntri .eaotog the iodioators depeeds en tho availability of dots and is cot unffoea ooucion nast be .euris-d in rlatiog coeragos of Ino indioator to another. Th.e. a-aragea are only ateful 10 comparing the value of one indiocatr at a tine 0rotg ahe accntry sod rofrosuce groups. AREA (chous. nd rq.kt.) fopulation ene hospital hed - total. s-ban, ond rort1 - Population (total. Total - Tonal cuefoen area ct prisiog laud cena cod iolaod waters; 1979 data. urban, and earal) divided by their rospecti-e noeber of hospital beda Agricultural - intinato uf agoitultur.l area used tonpurarily or per.natttly available in public and pri,stn general and spetialieed hospital and re- for cropc, pascue-e, Iaote and kitchen garden 00 to lie fallow: 1979 dots. habili stiot Hcentrs. Nepitolsure sett blish-ests peesanantly etaffed by as lean.t ..e physLiaa. Eatabliahltmet providing prinoipally ca.cao- GNP PER CAPITA (USf) - CNP per capita ostimatZet as trotet narhet prians. cal- dial cart are not icluded. aral hospitals, hbtevr, irclude health culated by -sa - onversioc sathod an World lank htclI (1978-80 aslaf; 1960, and sadi1 .a enter noat peroanontly staffed hy a physieias (hot by 1970, and 19t1 deco. sedilal au.Latoet. i sldife.eno. e;edhio ffer itie-r i-st ats'r- danion od pro-idn linliod ran ge of medical facilities. Poe stetie- ENERGY CONSUi8PTION PER CAPITA - Anaual concu-pniov of coeroial energy (toal icoal pueroa.a urban . oapitels includa WHOe pricipal/genee-l hoapiteIs. and lignite., pecrolc=, otural gas and hydro-, nuclear cd gaotcarmal clec- and rural boapitaln, local or raral hospitals and -edioal and metereity oricit,y io kilogrt=s of coal OqulcOlent pat capita; 1960, 1970, and 1979 centers. Specialieed hospisals are intcded only under total. dota. _dsin per Cuenltd- Total number of adeisos et or dsbre frue hoepinilte divided by the camber of beds. POPULATION AND VITAL STATISTICS Total Population Mid-Yoar (thouuandu) - An of July 1; 1960, 1970, ad 1989 hOUSING dano. Aoeeaea clan of heohld (parsons per Ih...ebeld) - otl rehe, aa tonal- Urban Populution (percent of tutal) - Ratio of urban to total population; Aioshl oni odf agroSup oPf Indilduals vho share living quarters difforant definitinon of urbae areat my affect coep.rability of data and their main tam. 9 boardee or lodger say or say not be inluded in omons countries; 1960. 1970, and 198 data. th bIue.hold for anattinical purposes. Populatiun yrujncetkca AceracE nu=ber of Persna per oom - tonal. uobao. aed rural -1avrage no= Pnpulation in year 2099 - Current populacion youject boa ore based on 1980 ber of persons per room it all urhae. and rural occupied conventional tonal populanioctby age and se- and theie martaliaY und fertility rates. dellings, respectively. Dvellitgs e- lode too-pesaenenn struonunes and Projection yarareters for sarcality rante ucprIto of three lovelus aun- uocctupied parts. ing lift atetonancy ct birth increasing oItb ccuncry' pen capita Ittnon Acces. to 6l.cttt-icy (Percent of deellicos) - total, urban. atd ural - level, add fenale life expeccuncy natilizinc at 77.5 years. Tha para- Conventi ocal dwllings mith elactlicity in living quartera as percentage mtanrs for fertility rant olso harp three le-1s aIu...nc decline io of total. urba, and roeal dvellings re-pe-tiv-ly. fertility accooding to inccr hovel ard paIc fouily planning peror=aace. loch oouetry is then ausignrd nun of hele cite ci mbinanicta of =orctlity EDUuATION acd fertilicy crendn for projottlec purposes. Adjusted nn...ll1nnt Ratie Staticdary poyniacica - Ic u stationuty popuatit there is Io 9000th ciou Poitany uchool - totul, tale and fenale - bt.e. total, mle and female the birth race in equal to the death race, ad also the age atruct.re re- enrollsan of ol agea at the pritary level as percentagos of veapectie mienn c.nsta-n. This iu achieved only after forcollty rareu declicaenC priocay achool-age popu,lation; nortally itcludes children aged 6-11 the ryplacesant level of unil t Ierepdoductton rate, oh- aech g reneacion years but adjusted foe differeet lengthn of primary ed-ation; for of -onne replacen icseif -actly. The acaciouary population situ man countries ith unoiersal education evellsant .ay exceed 1DD percent entlaced oD che baiu of the projected charsct-rlisics of the fopulata.o uInue stca pupils are bolos or aboe thne official school age. In the year 2900, and the eate of decliIe of fertility rate to replace- Secondary school - total, mle and female - Co=yuted as ab- .e; s.ecndary te. nt levul. education requires at leant fear peavs of apprvevd primary lentesonict; Year tat ion.ry ppulation is rooced - The year ehen ctainuary population pevidea general, vocatioal, or teacher training insrauctions for pupiln nian vill be rechod. utuatly ot 12 to 17 peara of ago; correspondence =coures are g.enrally P3p9latioo Density tocluded. Per nq. kd. - Mid-yeur pupulattoc per squae kilomreetr (100 hectares) of Vocatio-al enrellsnn (percent of uecondory) - Vocational tsin.. onina total area; 1960, 1970 and 1979 data. ioclude terhnial industrial. or other programs shih operate independ- Pop sq. he. agricultural land - Compyutd ao aboce for agricultur-l laud I_tly or on departsants of seondary toatitutlos only; 19690 1970 and 1979 daca. Pupil-neuthe. h atio - prtiary, and secondary - Total utudeots enrolled in Popalution Ado Structur- (peruceot - Children (9-14 yers). vorking-age (15- primary and secondary levels divided by cumbert of teachers tc the 69 yearn),. and retired (65 yearn a.d over) as percentages of mid-year pupu- correspondoin levels. laion; 199,0 1970. acd 1980 data. Adult literacy rate fpetcent) - Literate adults (able to read and spite) Population Ivonc,h ane - total - Annual grouth cee of total pid- a a percentage of total adult population aged 15 years and over. year populatioc for 1950-60, 1960-7, and 1970-t0. Popalatloc Gr-th lace fpoc_oo-ura - 1oca groethran ot urban Pop- CONScigyTIlN latioca for 1950-60. 1960-70. and 1970-80. Paseenger Cars (er thousand populationc - Passenger tars co=prise mer Crude Bilth Rtte (p2r thousand) - APnual liv births per th.ouand of id-year care tracing losI than eight pernon; rxcludas ambulanoes hearaes ar populatcio; 1960. 1970, and 1990 data. otlhpary vehicles. Crude Death late (per thouuopd) - Annual deaths per thousacd of oid-year ladio Receirers (per thouuaod population) - All types of receivers for radio population; 1960, 197 989 data. boadcasts to genreal pblic per thousand of population; excludea on- Gr.ss Reproduction lte-a Averaga colber of daughtermac mo= vill bear cn licensed racelvero It countries and in yoars s-ec cegintranlo of radio her cormal repraducei-e period if the eupeci-cen- yreont age-specillc fer- sets man in effect; data for .r.acn years say not be comparable since oility rateu; unually fivc-year avrage endifg in 1960, 1979O and 190. =ets countrieu abolished lice_aiog. FPoily ylueoits-Accnycorn Actul (hbounuIds) - Aucual oo=ber of Iconpooct TV Reoei-vru (per thousand populatiot) - TV receivera ton broadcaut no of biotb-centrol devices ceder ausyices of catiotal fa=ily planning program. general Psblic per thiosand population; encludes unlic nned TV recei-rr Paly Plancin -Ulers (percenctof marrIed enmeo - Percentage of married ocountrtesand iI yearn vhec regtstration of TV stes eas in effect. oren of child-h=arnlg age (19-hi ye-ra) thu lut birtt-coutrol deciceoco Ntvspaper Circulation (per nheuuaod ropulanion) - Shoes the average cir- all married cot an sa age group. cauatioc of 'daily g.enerl intereat newpaper". deficed asa periiocal publioatior devoted primarily to recordiug genaerl nets, It is cotsidered FOOD AND NTIIIN to be "daily" if it appeeas at laast feur clns a veek. Index of Food Prodaction pen Capita (1969-71-10f) - loden of per ctpita acnual Cinema APnual Actendance per Capita per fear - lased on the oseber of pnoductiun of all food cor=odities. Preducdioc e-cluden nerd aPd feed aII tickets told dorIng the year including admissioos no drive-ic caiemas is on_caledar year basin. losocadliou cover primtary goods (e.g. sugarcane and robile units instead of augar) ehich are edible and contoin nutrientn (e.g. coffee aod tea are excluded). Aggoegare productioc of each cu..try Ia bhaed ou LABcR PORCE uPter capi -ret g rlofdcaorprIiercelghtu; 1961-65, 1970. and 1980 data. Toc- Labor Porce (th u.aands - tEo nndcally active- ptruoes, tao tding Per cayt. scpplc of clre perro of requireot) -Cooputed f run ard fIro.. and unemployed hue.. enldkcgbunsvnuadn, 0. energypeqoivalent of oIt food nopplles available In country per capita covering popuatoien of oil ages. LefiI.loIonI io vatiouu couptries ore per day. Available supplies co-prise dcaestic produ-tioc, i=portu leon 00t comparable; 1960, 1970 and 1989 data. exprts, and changea de sourk. coy suppliea ettlode acimal feea seeda Femle (percent) - Fesale labor ferce aa perceetage of otal labor fence. quau iteu used nd ldI losses In dis-ribution. Reuire- Agricolture (percent) - Labor force i faig, forestry- hueing amd saunatsern estimated by FAG baaed 00 physiological needs for norml acti- fiuhing as perreotoEg of total labor force; 196, 1970 and 1980 data. viey and health conidering oc-irtoeneil cecperenur, hcdy oeights, ae lndustry (rerrcent - Labor foece in =iniog, contruction scfacosrieg andy_e dictribution of popalation, and alloning 10 percent for vsteet and elect ria,ty, aer aed gao us percenesge of total labor force; household level; 1961-65, 1970 and 1977 data. 1960, 1979 and 1980 data. Per cap ita aupply of proteic (grans per day) - Pronein coneon of per capita Participation Rat (peroene) - otal, sale., and feale - Participation or cacaopply of food per day. Net epply of turd is dafinad as above. he- aotivity rates ore c=pated as total male, ond iemale labor cone as quIroanoos for eli co-otrien esrabliuhed by USDA provide for .i-tacuc perceetages of onal, male aod female population of all aget r-spectively; allowance of 61 gra=m of total protein per day aed 20 gra= of animal add 1960, 19709 asd 1980 dunn. Theta are bated n ILO's paricipation rates pulse protein. of shlub 19 gramu ohouli he animal potrln. These statd- noflacileg age-sen uceocoune of ths populatipp and long tica trend. A ardu are leer than thon cf 75 gra- of total preteoi and 23 graIs of fev eati=tes are fros mationl sources. ani al pr.oein at an-acrage fcr hb -crld, proposed by FAO In cth thrd Econo=ic Dependency Ratio - Ratio of pupalation -uder 15 and 65 and nver nold Food onn,y; 196140. 1970 and 1977 dana. to the total lbor force. Per capita protint up_ply fr.c animal and pul-s -Protei cupply of food de- riced fro.u auimta and pulses io grant par day; 196145. 1970 and 1977 data. INCOME DlST3IBUTION Child (aueo 1-4) Deach Outo (per rhoutand) - Ancual deaths per thousaad In Percetntag of Private Ipcote (both in cash add kind) - Received by riohe-t asge geop 1-4 year., tc chiidrec ih this ase group; for mast developing taun- 5 P?eceont rh tbsAO 20 percent. p-o-est 20 peronnt. ved poreest 40 percent ories data derived from life tables; 1960. 1970 aPd 1980 data. of h-ouarhlds. StIbLTH POVERYT TARGET GROUPS Lilt Expec tanc at Birth (years) - verage c-aber of years of life re=inieg The fello-ig o.staia-es are very appr-nt-ane -aeaures of penerty h-vel, cc biitb; 199, 1979 und 1960 data. aed should be interpreted vith consid-bable goutiod. tPfaot agersality ateer - ihausand) - -Ana de.athn of ifacrt under .oe year EAt ted AbP olote Povert y i e1ncas Level 9US per copita - urbar end rural - ad age pee tbausud I lice itha; 1960, 1.979 aad 1980O data. Aaleeln poverty incas leel is that hcr`s lvel beot ehiol a minima Acets. to Safe ga_er (perc.nt of popalationf - total urbam and rural - No=- eutritieaplly adequate diet plus essertlal man-feed require=tats is not ber of people (total. cebh, aed rural) vith leasonahie access no safe affordable. wter supply (iteludos treated surf.ace maters ot .ntreated bt -oaentnnioanrd Estimated lalive Poverty tineoa Level (90 per oupira) - urbas and renal - san ruoh as ahat fees prota.etd berble.1 aPrings.Iad saitopy salle) as sR- - rotiv povrty tecas eeli t-tido anarge pr ait. Percest sag of their re-pe-ti-e population.sI.cno rbat area s E apliu pesnl Lnout of abs ..-try. Urbao level is derivd fre the rural foentaio or oeandpest located not mere ehan 20D mtaers from a bouty be level vith djatuent fle higher cost of livisg is _rhe= areas. considered as beie vithin reouctablt at=et of thot ha 0' rura areas tad Popalatert al abselato (Penrtv meet Level (peteet - urban re...mbla maoso old imely that the hossfa or memer of the hatarhld an Ins Proeto ouale ffe(rben Andrue) cb ra.bsalat do set bats no upend a dpsproporthanane paec of the day In feenbihg the family's mater needs. AdoVesoa rOnenra Diseosal feroet of noealanien7 - totea utb nb and rural - Nutber at people (natal. utbun, and eural) serd by emornta dispessl as perenetages of their respective prpualaiosu. laareaa disposal spY Lipelde the sellantdms aed dispsa. 1,ewit on sdiot treatee. of bta -eesa and .s..e-t ter by eoate-bore spatAsa ro tbe oat of pit peivima mad ii- tae istealletr iO. Papulaies pr quylafit - Pepalatian divided by ..ber sf praetisig physi- Emaine an.d SYi.1 Dbant Diiion eis.- qeslifind One a sadies sasl a ,,innlt lve.- ta ebogelys. eM Penjsnins Dep-esme Pee.laesti ter Nrmasia Peeso - Peopuet Ia dividnd by eamber af preatieirS May 1962 male ard female geeduatesersee. assistant nuras., peantiel .1 ses and enursing asaihiaries.  ANNEX 1 - 25 - Page 4 of 5 TURXEY - COUNTRY DATA Population: 45.5 million (1981) GNP Per Capita: US$1540 (1981) Amount Average Annual Increase (x) Share of GDP at Market Prices (%) (million US$ (at constant 1980 prices) (at current prices) Indicator at current prices) 1981 1965-70 1970-75 1975-80 1965 1970 1975 1980 NATIONAL ACCOUNTS Gross domestic product /a 57,655 6.6 7.5 2.8 100.0 100.0 100.0 100.0 Agriculture 11,903 3.1 4.4 2.7 30.7 26.4 26.2 21.4 Industry /b 14,218 9.5 9.5 2.8 16.6 17.2 18.0 28.6 Services 28,130 8.2 8.0 3.7 42.9 46.5 46.0 44.3 Consumption 46,717 5.8 7.0 2.7 84.6 82 8 85.2 81.8 Gross investment 14,392 11.7 12.9 0.6 16.7 20.1 23.3 26.4 Exports of goods and NFS 6,372 7.9 7.3 4.4 6.1 5.8 6.1 7.1 Imports of goods and NFS 9,826 11.2 13.8 -3.1 7.4 8.7 14.5 15.2 Gross national savings 12,317 11.6 11.9 2.4 15.8 18.8 18.1 18.3 Average Annual Increase CE) Composition of Merchandise Trade C%) (at constant 1980 prices) (at current prices) 1972-75 1975-80 1972 1975 1980 MERCHANDISE TRADE /c Merchandise exports 4,703 -6.1 2.8 l0O.G 100.0 100.0 Primary 2,413 -6.3 4.0 72.6 64.1 64.0 Industrial products 2,290 -5.8 0.9 27.4 35.9 36.0 Merchandise imports 8,933 11.2 1.2 100.0 100.0 100.0 Agriculture and livestock 125 27.9 -23.8 2.2 4.3 0.7 Mining and quarrying 221 17.4 6.8 1.2 1.6 1.8 Petroleum 3,878 5.4 11.0 9.9 17.1 48.8 Machinery and equipment 1,996 14.0 -12.1 45.0 35.6 18.2 Other industrial products 2,713 9.9 4.5 41.7 41.4 30.5 1977 1978 1979 1980 1981 PRICES AND TERMS OF TRADE GDP deflator (1980 - 100) 20.2 29.0 49.4 100.0 141.9 Exchange rate 18.0 24.3 31.1 76.0 111.2 Export price index 63.8 63.0 78.2 100.0 99.3 Import price index 61.2 61.2 71.9 100.0 109.3 Terms of trade index 104.3 102.9 108.8 100.0 90.6 As % of GDP (at current prices) 1965 1970 1975 1980 PUBLIC FINANCE Current revenue 15.0 22.6 22.0 19.8 Current expenditure 10.0 11.8 12.6 11.5 Surplus (+) or deficit C-) -2.0 -2.3 -0.4 -4.8 Investment expenditure 4.7 5.7 4.2 3.9 ( Transfers 5.0 7.5 5.5 9.2 Foreign financing 1.8 1.6 0.3 0.2 1965-70 1970-75 1975-80 OTHER INDICATORS GNP growth rate (X) 6.8 7.7 2.6 GNP per capita growth rate (x) 4.1 5.0 0.3 ICOR 2.9 2.9 5.7 Marginal savings rate CE) 28.2 19.5 30.8 Import elasticity 1.7 1.8 -1.3 /a At market prices; components are expressed at factor cost and will not add due to exclusion of net indirect taxes and subsidies. 7T Includes mining and quarrying, manufacturing, and electricity, gas, and water. /c In accordance with Turkish Government's specifications, which are not compatible with SITC's. EM2DA 2/22/83 (01841)  ANNEX I -26- Page 5 of 5 TURREY - BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT /a (million US at current prices) Population: 45.5 million (1981) GNP Per Capita: US1540 (1981) Actual Estimate Projected 1970 1977 1978 1979 1980 1981 1982 i983 1984 1985 1986 BALANCE OF PAYMENTS Net exports of goods S NFS 342 3880 1984 2442 4658 3476 -2021 1960 -1788 -1771 -1956 Exports of goods & NFS 754 2556 3075 3247 4102 6416 7620 8894 10613 12523 14545 Imports of goods & NFS 1096 6436 5059 5689 8760 9892 9641 .0853 12402 14293 16501 Workers' rerittances 273 982 983 1694 2071 2490 2187 2350 2450 2622 2779 Net transfers 91 12 - - - - - - - - - Current account balance -58 -3572 -1741 -1771 -3207 -2089 -1035 -870 -693 -485 -602 Direct private investment 92 169 147 200 148 129 125 127 131 144 158 Public MHLT (gross) /b 271 997 1017 4321 2354 2188 2076 1690 1593 1487 1671 A-torization on M&LT /b -146 -234 -336 -414 -434 -545 -1230 1105 -1258 -1783 -2040 Public M6LT (net) /b 125 763 681 3907 1920 1643 846 585 335 -296 -369 Other capital /c 27 2074 1061 -2410 1642 983 264 130 29 924 1151 Change in reserves (- increase) -186 566 -148 74 -503 -667 -200 28 199 -288 -339 International reserves 612 726 874 800 1303 1970 2076 2049 1850 2138 2477 Reserves as months of imports 7 1 2 2 2 2 2 2 2 2 2 Ac tual 1972 1977 1978 1979 1980 1981 GROSS DISBURSEMENTS Gross disbursements of M6LT loans 372 759 857 4198 /d 2279 2116 Official grants - - - 300 Concessional 261 193 228 588 812 522 Bilateral 139 100 129 406 749 499 IDA 4 19 8 3 - - Other multilateral 118 74 91 179 63 23 Non-concessional 111 566 629 3610 /d 1466 1294 Official export credits 1 47 133 250 288 355 IBRD 25 146 165 277 313 454 Other multilateral 27 5 35 15 150 162 Private /d 58 368 296 3068 /d 715 323 EXTERNAL DEBT Debt oustatnding and disbursed 2450 4293 6322 10942 13415 13804 Official 2273 3657 5489 7189 8281 8906 IBRD 92 512 648 890 1158 1546 IDA 99 181 188 190 189 188 Other 2082 2964 4653 6109 6934 7172 Private 177 636 833 3753 /e 5134 4898 Debt outstanding including undisbursed 3560 7128 9879 14620 16807 17093 DEBT SERVICE Total debt service /e 224 363 428 627 1001 1168 Payments 161 196 264 403 405 510 Interest 63 167 164 224 596 658 Total debt service as 2 exports of goods t NFS t workers' remittances 11.8 10.3 10.6 12.7 16.2 13.1 Total debt service as I GNP 1.3 0.8 0.9 0.9 1.7 2.0 Average interest rate on new loans (3) 4.4 7.7 6.9 11.3 6.5 7.9 Official 4.5 7.7 5.6 3.5 5.5 5.3 Private 6.8 7.8 8.2 13.6 10.6 15.4 Average maturity of new loans (years) 22.1 11.6 13.3 11.1 17.4 15.0 Official 26.0 12.7 15.2 25.1 16.6 16.3 Private 11.0 9.2 7.6 7.1 6.4 4.5 BANK GROUP EXPOSURE (0) IBRD DOD/total DOD 3.7 11.9 10.2 8.1 8.6 11.2 IBRD disbursements/total gross disbursements 6.7 19.1 16.4 6.5 13.7 25.0 IBRD debt service/total debt service /e 5.1 17.2 19.2 16.8 13.3 14.0 IDA DOD/total DOD 3.9 4.2 3.0 1.7 1.4 1.4 IDA disbursements/total gross disbursements 1.1 2.5 0.9 0.1 - - IDA debt service/total debt service /e 0.4 0.6 0.5 0.4 0.3 0.2 As 2 of Debt Outstanding at End of Most Recent Year (1981) TERMS STRUCTURE Maturity structure of debt outstanding (x) Maturities due within 5 years 37.4 Maturities due within 10 years 76.4 Interest structure of debt outstanding (2) Interest due within first year 6.5 /a All entries on external debt are defined as in the Bank's Debtor Reporting System (only public and private guaranteed d.bt). 7Th Includes private guaranteed and non-guaranteed debt, debt relief, and grants. /c Includes errors and emissions, and for projected years it includes net IMF, short-term, and unidentified capital inflow-. 7i Includes 32,638 million of consolidated short-term debt. /e Takes account of debt relief due to debt rescheduling, and excludes interest on short-term debt and private non-guarant,ed. EM2DA 2/22/83 (01841)  -27- ANNEX II Page 1 of 9 STATUS OF BANK GROUP OPERATIONS IN TURKEY STATEMENT OF BANK LOANS AND IDA CREDITS (As of March 31, 1983) Loan Amount ($ millions) Number Year Borrower Purpose Bank IDA Undisbursed Thirty-three loans and fourteen credits fully disbursed 1493.0 177.4 883-TU 1973 Republic of Turkey Ceyhan Aslantas 44.0 8.5 1023-TU 1974 TEK/TKI Elbistan Power 148.0 6.8 1130-TU 1975 Republic of Turkey Rural Development 75.0 18.7 1248-TU 1976 Agriculture Bank of Turkey (TCZB) Agriculture Credit 54.3 26.8 1258-TU 1976 State Pulp and Paper Industry (SEKA) Newsprint 70.0 1.6 1265-TU 1976 Republic of Turkey Livestock III 21.5 6.1 1310-TU 1976 Republic of Turkey Tourism 26.0 15.1 1379-TU 1977 DYB Industry 70.0 7.0 1585-TU 1978 Republic of Turkey Northern Forestry 86.0 50.8 1586-TU 1978 Republic of Turkey Livestock IV 24.0 18.2 1606-TU 1978 Republic of Turkey Erdemir Steel Stare II 95.0 34.2 1741-TU 1979 Republic of Turkey Ports Rehabilitation 75.0 37.0 1742-TU 1979 Republic of Turkey Grain Storage 85.0 81.5 1748-TU 1979 TSKB Industry 60.0 16.6 1754-TU 1979 TSKB Private Sector Textiles 65.0 39.5 1755-TU 1979 SYKB Private Sector Textiles 15.0 10.8 S-15-TU 1979 Republic of Turkey Ankara Air Pollution Control 6.0 5.1 1844-TU 1980 Republic of Turkey Karakaya Hydropower 120.0 95.7 1847-TU 1980 Republic of Turkey Sumerbank Cotton Textiles 83.0 75.2 1862-TU 1980 Republic of Turkey Livestock V 51.0 47.2 1916-TU 1980 Republic of Turkey Petroleum Exploration 25.0 23.0 1917-TU 1980 Republic of Turkey Oil Recovery 62.0 47.1 1952-TU 1981 Republic of Turkey Labor Intensive Industry 40.0 36.2 1967-TU 1981 Republic of Turkey Second Fruit and Vegetables 40.0 39.5 1985-TU 1981 Republic of Turkey Fertilizer Industry Rehabilitation 110.0 100.3 1998-TU 1981 Republic of Turkey State Industrial Enterprise Finance 70.0 65.2 2093-TU 1982 TSKB Export-Oriented Industries 100.0 99.8 2094-TU 1982 Republic of Turkey Erzurum Rural Development 40.0 38.2 2131-TU 1982 Republic of Turkey Second Fertilizer Rehabilitation 44.1 44.1 2137-TU 1982 Republic of Turkey Highway 71.1 69.8 2158-TU 1982 Republic of Turkey Third Structural Adjustment 304.5 104.5 2159-TU 1982 TSKI Istanbul Sewarage 88.1 86.4 Total 3761.6 177.4 1356.5 of which has been repaid 386.2 8.1 Total now outstanding 3375.4 169.3 Amount sold 3.6 of which has been repaid 3.6 - 0 - - 0 - Total now held by Bank and IDA /a 3375.4 169.3 Total undisbursed 1356.5 - 0 - 1356.5 /a Prior to exchange adjustments.  ANNEX II -28- Page 2 of 9 STATUS OF BANK GROUP OPERATIONS IN TURKEY STATEMENT OF IFC INVESTMENTS (As of March 31, 1983) Fiscal Amount ($ Millions) Year Obligor Type of Business Loan Equity Total 1964 TSKB DFC - 0.92 0.92 1966 SIFAS 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 SIFAS II Nylon Yarn 1.50 0.43 1.93 1970 Viking I Pulp and Paper 2.50 0.67 3.17 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 - 0.12 0.12 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 Borusan Steel Pipes 3.60 0.43 4.03 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 DFC 25.00 1.23 26.23 1976 NASAS Aluminum 1.58 - 1.58 1976 TSKB DFC 25.00 - 25.00 1976 Asil Celik Steel 12.00 2.20 14.20 1977 Borusan Steel Pipes - 0.06 0.06 1978 DOKTAS Steel - 0.09 0.09 1979 Ege Mosan Engines for Mopeds 2.15 - 2.15 1979 ISAS Motor Vehicles & Accessories 8.85 0.45 9.30 1979 Asil Celik Steel - 1.80 1.80 1979 Trakya Cam Glass 33.15 2.84 35.99 1980 TSKB DFC - 1.09 1.09 1980/82 ISAS Motor Vehicles & Accessories - 1.20 1.20 1980 MENSA Textiles and Fibers 4.0 4.0 1981 Kirklareli Cam Sanayii A.S. Glass Tableware 13.09 - 13.09 1982 M.A.N. Motors Motor Vehicles & Accessories 9.07 - 9.07 1982 TSKB DFC - 0.35 0.35 Total Gross Commitments 214.87 20.64 235.51 Less Cancellations, Terminations, Exchange Adjustments, Repayments and Sales 144.80 8.30 153.10 Total Commitments now held by IFC 70.07 12.34 82.41 Total Undisbursed 10.41 0.07 10.48  -29- ANNEX II Page 3 of 9 C. STATUS OF PROJECTS IN EXECUTION AS OF March 31, 1983 1/ Ln. and Cr. Nos. 883/360 - Ceyhan Aslantas Multipurpose Project: US$44 million loan and US$30 million credit of March 22, 1973. Effective Date: March 20, 1974. Closing Date; December 31,1983. The project is expected to be substantially completed by the current Closing Date of December 31, 1983. As of March 31, 1983, about $35.5 million has been disbursed of this $44 million loan. Ln. No. 1023 - Elbistan Lignite Mine and Power Project: US$148 million loan of June 28, 1974. Effective Date: June 1, 1976. Closing Date: June 30, 1983. Progress nas been made on the power component in line with the measures recommended in February 1982. The civil works contracts have been renegotiated and additional contractors brought in. TEK has delegated site management to STEAG, a German project management firm. The main contractor, Foster Wheeler (FW), has revised the work plan taking into account the use of erection personnel being made available by the main equipment suppliers. The revised work plan concentrates maximum effort in completing Unit No. 1 by end 1984. Units No. 2, No.3 and No. 4 would follow at one year intervals. With the arrangements made through the US EXIM Bank, and the proposed reallocation of an additional US$6.8 million from the IBRD loan, financing for the FW contract through end 1983 is assured. Social infrastructure and salary problems persist. The contract for operation and training for the mining component expires in July 1983. Decision on renewal has not been taken. The contract for mine consulting is continuing. TKI has not negotiated frame contracts for mine equipment maintenance. Maintenance of mine equipment is inadequate. TKI's ability to mine lignite in sufficient quantities to adequately supply the power station (17.6 million tons/a) will be assessed in connection with the appraisal of a supplemental loan tentatively scheduled for September 1983. Ln. No. 1130 - Corum-Cankiri Rural Development: US$75 million loan of June 23, 1975. Effective Date: January 22, 1976. Closing Date: June 30, 1984. Satisfactory progress is being maintained except for delayed payment to contractors by DSI. The Bank has agreed to the Government's request for reallocation of proceeds so as to provide additional funds for short-term credit, which is expected to be sufficient to cover needs until a proposed second agricultural credit project, now scheduled for Board consideration in June 1983, becomes effective. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems 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.  -30-- ANNEX II Page 4 of 9 Ln. No. 1248 - Agricultural Credit and Agro-industries: US$54.3 million loan of May 5, 1976. Effective Date: May 11, 1977. Closing Date: June 30, 1984. The supervised credit and ferryship components are fully disbursed and the study of TCZB organization and operations has been completed. Due to reluctance of sub-borrowers to assume foreign exchange risk and availability of other sources of credit without this risk, only 11 percent of the agro-industries component has been disbursed. The Government is considering proposals for dealing with this issue. Ln. No. 1258 - Balikesir Newsprint: US$70 million loan of May 21, 1976. A Effective Date: October 15, 1976. Closing Date; December 31, 1982. Although the Closing Date has not been extended, accounts are being kept open pending settlement of final payments. As of March 31, 1983, $68.4 million, or 98 percent of the total loan amount, has been disbursed. A project completion report is under preparation. Ln. No. 1265 - Livestock III: US$21.5 million loan of May 26, 1976. Effective Date: February 25, 1977. Closing Date: March 31, 1984. The Closing Date has been extended to March 31, 1984 to allow for utilization of the remaining $6.8 million of undisbursed loan funds. Project implementation has been satisfactory. However, the increased availability of locally bred offspring of imported cattle at considerably cheaper prices than for comparable directly imported cattle, has caused a serious reduction in the demand for sub-loans. The Bank is currently considering a request from the Government for restructuring all three ongoing livestock projects to include financing for the foreign exchange component of loans for sheep and beef fattening in addition to dairying; locally bred improved cattle and sheep, as well as imported ones; and farm machinery and equipment, livestock housing, pasture and forage production, feeds and other inputs in addition to livestock. Ln. No. 1310 - South Antalya Tourism Infrastructure: US$26 million loan of July 9, 1976. Effective Date: March 1, 1978. Closing Date: December 31, 1983. Project implementation is about two years behind schedule due to initial difficulties relating to land acquisition and project organization. At present most project works are either completed or under advanced implementation. The Closing Date has been extended for the first time by one year to December 31, 1983. As of March 31, 1983, $10.8 million, or 42 percent of the total loan amount, has been disbursed. Ln. No. 1379 DYB (State Investment Bank of Turkey): US$70 million loan of March 23, 1977. Effective Date: July 21, 1977. Closing Date: December, 31, 1982. The Closing Date for this loan has not been extended, but the accounts are being kept open for settlement of final payments. As of March 31, 1983, the undisbursed balance of this loan is $7.0 million.  -31- ANNEX II Page 5 of 9 Ln. No. 1585 - Northern Forestry: US$86.0 million loan of June 5, 1978. Effective Date: October 30, 1978. Closing Date; March 31, 1986. Overall physical achievements are about 60 percent of targets. Local funding, which is almost totally dependent on timber sales, has been inadequate due to a depression in the construction industry. Although equipment procurement is still behind schedule, proposals for foreign equipment procurement have been agreed, providing for initiation of remaining procurement in 1983/84 with completion of disbursement expected by early 1986. A management consultant to assist the project implementation is expected in Ankara shortly. Ln. No. 1586 - Livestock IV: US$24.0 million loan of June 5, 1978. Effective Date: October 31, 1978. Closing Date: June 30, 1985. Implementation of the supervised credit program is extremely slow due in part to the increased availability of locally bred offspring of imported cattle at considerably cheaper prices than for directly imported cattle. A Government request for restructuring of all three ongoing livestock projects (see Loan No. 1265) is under consideration. Ln. No. 1606 - Erdemir Stage II Steel: US$95.0 million loan of June 30, 1978. Effective Date: July 30, 1979. Closing Date: June 30, 1983. Inflation and the devaluation of the Turkish Lira have caused serious financial problems for the company. Proposals to tackle the situation are being considered by the company and the Government in consultation with the Bank. Implementation of the main components of the original project is one year behind schedule with additional delays now expected on some non-critical support facilities and several additional items recommended by consultants to improve productivity, quality, and efficiency. A financial plan prepared by the company is being reviewed. Extension of the Closing Date to permit utilization of the remaining loan funds is dependent upon development of a satisfactory financial plan. Ln. No. 1741 - Ports Rehabilitation: US$75 million of July 2, 1979. Effective Date: January 22, 1980. Closing Date: June 30, 1983. Cumulative loan disbursements of $38.0 million up to March 31,1983 were only about 51 percent of the total loan amount due to initial delays in tendering, awarding contracts, appointing consultants for port planning study, and finalizing specifications of a 250-ton floating crane. Physical implementation is now progressing satisfactorily. Extension of the Closing Date is under consideration. Ln. No. 1742 - Grain Storage: US$85 million of July 2, 1979. Effective Date: January 21, 1980. Closing Date: June 30, 1985. Prequalification procedures for silo construction contractors are in progress. The Government is currently examining the merits of possible adjustments in the project contents to take account of changes in relative prices and cost increases due to previous delays.  -32- ANNEX II Page 6 of 9 Ln, No. 1748 - TSKB XIII (Industrial Development Bank of Turkey): US$60 million of July 12, 1979. Effective Date: October 25, 1979. Closing Date: September 30, 1983. Delays in committing this loan have resulted due to sub-borrowers' reluctance to bear foreign exchange risk and cancellation of loan contracts because of financial distress caused by high interest rates and shortage of local currency. These financial problems which are endemic in the Turkish private sector have prevented TSKB's serious arrears position from improving. The current Closing Date of September 30, 1983 is not likely to be extended. As of March 31, 1983, about $43.4 million has been disbursed. Lns. Nos. 1754 and 1755 - TSKB (US$65 million) and SYKB (US$15 million) Private Sector Textiles loans of September 17, 1979. Effective Date: February 29, 1980. Closing Date: December 31, 1984. A lower than anticipated level of commitments (about $38 million or 55 percent of forecasts) still prevails due to depressed conditions in the textile industry and the sub-borrowers' reluctance to assume foreign exchange risk. Local consultancy service has been reorganized on schedule, as a private sector joint venture without further need of the Bank's financial support. Ln. No. S-15 - Ankara Air Pollution Engineering: US$6 million loan of December 12, 1979. Effective Date: April 4, 1980. Closing Date: December 31, 1983. Out of the five components of this project, only two (Seyitomer Plant and Air Pollution Monitoring Equipment) have so far been partly implemented, representing US$0.9 million or 15 percent of the total loan amount. The test results from the MTA pilot plant showed that investment in a larger scale pilot plant would not be warranted. The Alternative Technology Study will not be executed since no feasible processes exist for coke or hot briquetting manufacture based on Turkish lignite. The Gas Production Study will be implemented, but the cost for the study might be significantly higher than the appraisal estimate. Revision of the cost estimates and extension of the present Closing Date are under consideration. Ln. No. 1844 - Karakaya Hydropower; US$120 million loan of May 21, 1980. Effective Date: August 15, 1980. Closing Date: December 31, 1988. Implementation after initial delays is now satisfactory. The cash generation covenant was not met for 1982, and is not likely to be met for 1983. This matter is now being pursued with the Government.  -33- ANNEX II Page 7 of 9 Ln. No. 1847 - Sumerbank Textiles Modernization and Rationalization: US$83 million loan of May 28, 1980. Effective Date: February 27, 1981. Closing Date: June 30, 1984. After initial delays of about one year due to delayed loan effectiveness and staffing problems of the project implementation unit, project implementation is now progressing satisfactorily and the costs are within appraisal estimates. The reorganization plan for the Cotton Textile Division was approved by the Sumerbank Board in March 1982. Recruitment of competent personnel for the Cotton Textile Division and the project implementation unit has been hampered by salary limitations on State Economic Enterprises. The situation is expected to improve after the passage of the SEE reform decree. Ln. No. 1862 - Livestock V: US$51 million loan of June 6, 1980. Effective Date: October 22, 1980. Closing Date: June 30, 1987. Progress on the credit component for livestock development, with the exception of boilers, is extremely slow. The Government has decided not to implement the meat processing component due to changes in its investment priorities, and a request has been received to reallocate the funds. Implementation of the animal health and breeding components is reasonably satisfactory. A Government proposal for increasing the types of livestock credit eligible for financing (see Loan No. 1265) is under consideration. Ln. No. 1916 - Petroleum Exploration Project: US$25 million loan of November 24, 1980. Effective Date: June 30, 1981. Closing Date: December 31, 1984. Project implementation is slow due to delay in contracting consulting services and initiating technical studies. Acceptable drilling locations have not yet been identified in southeast Turkey. The Bank has recently approved the Government's request to extend the scope of the loan to include the Thrace basin, which has been found to have a highly attractive potential for hydrocarbon exploration, and to reallocate a portion of the proceeds of the loan to finance computer equipment for higher quality seismic data processing needed for the Thrace program. Progress in separation of TPAO's import-related operations is also behind schedule because of its relation to the broader issues under consideration in the SEE reform legislation. Energy audits for five major industries are currently in progress. Ln. No. 1917 - Bati Raman Enhanced Oil Recovery Field Demonstration Project: US$62 million loan of November 24, 1980. Effective Date: June 30, 1981. Closing Date; December 31, 1984. The project is about one year behind schedule due to initial delays in equipment procurement and delivery. Bids for the enhanced recovery studies for other fields are under review, and the studies are expected to start shortly. The fracturing of the Hamitabat gas field has been completed successfully and has demonstrated the feasibility of full commercial development of the field. Progress in separation of TPAO's import-related operations has also been delayed because of its relation to the broader issues under consideration for the SEE reform legislation.  -34- ANNEX II Page 8 of 9 Ln. No. 1952 - Labor Intensive Industry Project: US$40 million loan of March 13, 1981. Effective Date: June 12, 1981. Closing Date: June 30, 1986. A poor investment climate still continues to hamper loan utilization. As of January 31, 1983, subloans totalling $16.8 million had been approved by SYKB. Ln. No. 1967 - Second Fruit and Vegetable Project: US$40 million loan of April 6, 1981. Effective Date: August 1981. Closing Date: June 30, 1986. Project implementation is proceeding more slowly than projected, but should improve as a result of experience gained to date: all consultants have been engaged and are in place. Three of the four Regional Marketing Corporations will become operational as soon as TCZB's contribution is received in early May 1983. Ln. No. 1985 - Fertilizer Rationalization and Energy Saving Project: US$110 million loan of May 15, 1981. Effective Date: August 28, 1981. Closing Date; December 31, 1986. The project components of AZOT and IGSAS are progressing satisfactorily. GUBRE, one of the three beneficiaries, has not yet signed a contract with an engineering company for project implementation because of changes proposed in the scope of the project by GUBRE management to further improve its economic viability. Ln. No. 1998 - State Industrial Enterprise Finance Project: US$70 million loan of June 3, 1981. Effective Date: August 27, 1981. Closing Date: December 31, 1986. Project implementation is proceeding satisfactorily. The Bank is considering the Government's request for an extension of the deadline for completion of a study of DYB's future role. Ln. No. 2093 - Export-Oriented Industries Project: US$100 million loan of March 5, 1982. Effective Date: May 28, 1982. Closing Date: June 30, 1987. Although the special task force for dealing with problem projects is now functioning relatively effectively, prolonged low capacity utilization rates in industry and high interest rates make a substantial improvement in arrears unlikely in the near future. Demand for direct foreign exchange fixed asset financing has been declining due to reduced private sector investment demand as a result of current economic conditions and the unwillingness of sub-borrowers to bear foreign exchange risk. The technical assistance program for potential exporters has been proceeding on schedule.  -35- ANNEX II Page 9 of 9 Ln. No. 2094 - Erzurum Rural Development Project: US$40 million loan of March 5, 1982. Effective Date: November 24, 1982. Closing Date: June 30, 1987. Since the loan became effective in November 1982, implementation has been on schedule for the irrigation, soil conservation, new roads, plant protection, and veterinary services components. However, progress is slow with extension services and recruitment of consultants, and it has proved difficult to recruit and retain a project manager in Erzurum. Ln. No. 2131 - Second Fertilizer Rationalization Project: US$44.1 million loan of May 13, 1982. Effective Date: April 13, 1983. Closing Date: June 30, 1987. This loan became effective in April 1983. The Government has requested cancellation of Part A of the project which relates to GUBRE, one of the four beneficiary fertilizer manufacturing companies of the project, which is no longer interested in proceeding with its portion of the project. The total loan amount will accordingly be reduced from $44.1 million to $38 million to reflect this cancellation. The other project components are making satisfactory progress. Ln. No. 2137 - Highway Rehabilitation Project: US$71.1 million loan of May 13, 1982. Effective Date: August 13, 1982. Closing Date: June 30, 1987. Progress continues to be good. All civil works and procurement contracts have been bid and feasibility studies have been completed for all the remaining road sections included in the loan. Ln. No. 2158 - Structural Adjustment Loan III: US$304.5 million loan of May 28, 1982. Effective Date: July 16, 1982. Closing Date: December 15, 1983. This loan became effective in July 1982. The first tranche of the loan has been fully disbursed. Release of the second tranche has been authorized. Ln. No. 2159 - Istanbul Sewerage Project; US$88.1 million loan of May 28, 1982. Effectuve Date: January 24, 1983. Closing Date: December 31, 1988. This loan became effective in January 1983.  -36- ANNEX III Page 1 of 2 TURKEY - SECOND AGRICULTURAL CREDIT PROJECT SUPPLEMENTARY PROJECT DATA SHEET Timetable of Key Events (a) Time taken by Government to 13 months (September 1981 prepare project: through October 1982) (b) Agency which prepared the Agricultural Bank of Turkey project: (TCZB) and the Ministry of Agriculture. (c) Project first identified: July 1980 for project concept, September 1981 for specific components. (d) Date of Bank Appraisal Mission: November 1982. (e) Negotiations completed: April/May 1983. (f) Planned date of effectiveness: September 1983. II. Special Bank Implementation Actions None. 1II. Special Conditions A. Special Conditions of Effectiveness (i) Signing of protocol setting forth roles of TCZB and the Ministry of Agriculture in project implementation (para 62); and (ii) Signing of subsidiary Agreement betwe.en the Government and TCZB (para 63).  -37- ANNEX III Page 2 of 2 B. Other Main Conditions (i) achievement and maintenance of positive real agricultural interest rates by the end of 1984 (para 49); (ii) TCZB to implement an Action Plan for improving its organization, lending policies and procedures (para 51); (iii) Government to compensate TCZB for losses arising from loans to sales cooperatives (para 52); and (iv) Annual review of crops and areas eligible for financing under the Second Crop and Fallow Reduction Schemes, and support of these schemes through provision of adequate extension support, continuation of applied research programs, and availability of improved seeds and fertilizer (para 58); and (v) Government to undertake study of credit cooperatives (para 45).  I  . r SI : : : r \ , ;