Turkey - Third Agricultural Credit Project

 Third agricultural credit project Report No: ; Type: Report/Evaluation Memorandum ; Country: Turkey; Region: Europe And Central Asia; Sector: Agricultural Credit; Major Sector: Agriculture; ProjectID: P008967 November 3, 1995 Turkey: Third Agricultural Credit project (Loan 3090-TU) The Implementation Completion Report (ICR) on the Turkey Third Agricultural Credit project (Loan 3090-TU, approved in FY89) was prepared by the Europe and Central Asia Regional Office. The Borrower prepared an evaluation report, which is summarized in the ICR, and sent brief comments which have been annexed to the ICR. The principal objectives of the project were: (i) to further strengthen the institutional capabilities of the Agricultural Bank (TCZB), and (ii) to increase farm productivity and farmer's incomes through expanded access to seasonal credit and the financing of productive investments at the farm level. Government also committed itself to raising all TCZB onlending rates to positive levels, a failed objective of the predecessor project. The scope of the project was also expanded to include viable units of the Agricultural Credit Cooperatives (TKK). The Bank and the Overseas Economic Development Fund of Japan each provided loans of $250 million to the operation. The "action plan" for institutional reform was implemented as designed, substantially improving TCZB's financial position and managerial and technical competencies. Farm plans supporting the investments were upgraded, TCZB's field staff were trained, farmer repayment rates were maintained above 80 percent, and almost all overdues were collected within two years. The TKK program was also successfully executed, though repayment rates are lower and only half the local units maintained their eligibility for re-finance. Government provided capital transfers to TCZB above the agreed levels. However, Government again failed to meet commitments on interest rate adjustments, arguing that the effects of the Gulf War and continuing inflation forced it to postpone action. The interest rate issue dominated Bank-borrower relations and led in June 1992 to the cancellation of US$70.7 million, the balance of the loan allocated to farm credit. The ICR rates project outcome as satisfactory, giving greater weight to institutional and farm-level impacts than to the borrowers failure to take correct action on interest rates. In the same way, the Operations Evaluation Department (OED) rates project sustainability as likely, whereas the ICR rates sustainability as uncertain, based exclusively on doubts about future progress on interest rate reform. Institutional performance was strong across the board, and is rated as substantial in the ICR and by OED. The ICR is well prepared and a model for future ICRs. It is deficient to the extent that economic rates of return were re-estimated for only three farm models (ranging from 17 percent to 59 percent), and no supporting data is provided. The plan for future operation has three parts: (i) rollover of repayments of TCZB's long-term sub-loans for the same term throughout the repayment period for the Bank Loan; (ii) agreements to maintain or improve the performance of TCZB when measured against the key indicators of net worth, sub-loan recoveries, and other management practices; and (iii) progress towards positive interest rates and full coverage of all lending related costs as soon as feasible. No audit is planned.