Turkey - Program Loan Project

Document of . The World Bank J -- FOR OFFICIAL USE ONLY Report No. P-2374a-TU REPORT AND RECOMMENDATION OF TIIE PRESIDENT OF THE INTERNATIONAL BANTK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED PROGRAM LOAN TO TFE REPUBLIC OF TURKEY October 19, 1978 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS October 1976 to March 1977 US $1.00 = Turkish Lira (TL) 16.50 TL 1.00 = US $0.061 March 1977 to September 1977 US $1.00 = TL 17.50 TL 1.00 = US $0.057 September 1977 to March 1978 US $1.00 - TL 19.25 TL 1.00 = US $0.052 March 1978 to date US $1.00 = TL 25.00 TL 1.00 US $0.040 FISCAL YEAR March 1 to February 28 ABBREVIATIONS CLA - Convertible Lira Accounts SEE - State Economic Enterprise CMEA - Council for Mutual Economic Assistance IGSAS - Istanbul Gubre Sanayii AS TSKB - Turkiye Sinai Kalkinma Bankasi  FOR OFFICIAL USE ONLY TURKEY - PROGRAM LOAN LOAN SUMMARY Borrower: Republic of Turkey. Amount: US$150 million equivalent in various currencies. Terms: Seventeen years including four years grace, at 7.35 percent per annum. Project Description: 1. Financing of high-priority imports to assist fuller utilization of productive capacity in agriculture and industry as well as to meet the import needs of exporters. For agriculture: plant protection materials and fertilizer raw materials (not less than $40 million). For industry: steel products, tin and tinplate, copper, aluminum, petro- chemicals and other chemicals (up to $60 million); spare parts for manufacturing industries (not less than $20 million). For the import needs of exporters, under a recently established replenishment scheme (not less than $30 million). 2. Private sector firms would receive at least $50 million worth of imports. 3. There are no special project risks, except that Turkish administrative arrangements in respect of import licen- sing, procurement and withdrawal of loan proceeds could slow down disbursements. Estimated Disbursements: US$ Millions Bank FY 1979 1980 Annual: 90.0 60.0 Cumulative: 90.0 150.0 Rate of Return: Not applicable. Appraisal Report: None. This is a combined President's and Staff Appraisal Report. This document ha a restricted distribution and may be usod by recipients only in the performance of their official duties. Its contents may not otherwise be discosed without World Bank authorization.  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED PROGRAM LOAN TO THE REPUBLIC OF TURKEY 1. I submit the following report and recommendation on a proposed program loan to the Republic of Turkey for the equivalent of $150.0 million. The loan would have a term of 17 years, including 4 years of grace, with interest at 7.35 percent per annum. PART I - THE ECONOMY 2. An economic report (No. 1272-TU) entitled "Country Economic Memo- randum - Turkey" dated October 21, 1976, was circulated to the Executive Directors on November 2, 1976. The economic situation subsequently deterio- rated, culminating in a serious balance-of-payments crisis and rapid infla- tion. This section analyzes these developments in the Turkish economy. (A fuller account may be found in the extended economic annex to the Report and Recommendation of the President on the Erdemir Stage II Steel Project, dated June 15, 1978.) It also describes the short and medium-term policy initia- tives of the new Ecevit Government, which assumed power in January 1978, and cautiously assesses future economic prospects. Structure and Performance 3. In most respects, the record of Turkish economic development over the last two decades has been good. As the result of a strong commitment to rapid growth and modernization, real output has grown, on average, by more than 6 percent per annum. Great strides have also been made towards meeting the basic needs of the population in such areas as education, health care, water supply, and rural roads. This impressive economic progress, however, has been punctuated (in 1958, 1970,and most recently in 1977) by severe balance-of-payments crises. The recent crisis has been the product partly of extraneous factors and partly of Turkish development strategy itself, which paid insufficient attention to the structural weaknesses of the economy and perhaps exacerbated some of them. 4. The emphasis which successive governments have laid on industrial- ization has been reflected in a doubling of the share of the industrial sector in total output between 1955 and 1977. It has also resulted in comparative neglect of agricultural development, which has, in addition, been hampered by inappropriate subsid-- and pricing policies. Moreover, although some parts of Turkish industry are efficient, and more have the potential to become so, a strong emphasis so far on sophisticated capital-intensive technology has resulted in high-cost production in certain sectors. Unselective protection against competition from imports has also inhibited the development of an industrial structure well-suited to Turkey's comparative advantages in terms of location, natural resources and labor availability. One important  consequence of this, in the context of a foreign trade strategy which has emphasized import-substitution, has been that Turkey has so far been unable to develop a strong industrial export base, and has relied mainly instead on its traditional agricultural exports (supplemented by workers' remittances) to finance the imports of materials and capital goods needed for its ambitious modernization effort. This pattern of trade has been a fundamental cause of the difficulty which Turkey has periodically experienced in reconciling rapid growth with a viable external payments position. Production and Employment 5. The rate of growth of production in Turkey, unlike that in many other countries, remained fairly high during the recent world recession. The average annual real rate of GDP growth in the period 1970-77 was 7.2 percent. Continued rapid growth was made possible by a rising public sector deficit, which provided a stimulus to aggregate demand that more than offset the depressing effect of sluggish exports and the increased outflow of pay- ments for oil and other imports. As a result, the growth of output was con- strained not by demand, but by supply. Favorable weather and improved inputs led to an average annual rate of growth of agricultural output of about 4.4 percent in the period 1970-77, while industrial output grew at about 10 percent--principally as a result of the sustained high level of industrial investment. The general pace of investment in Turkey did not slacken during the world recession. On the contrary, largely as the result of an intensified public investment drive from 1975 onwards, the share of fixed investment in GDP increased from under 19 percent in the period of the Second Plan (1968-72) to over 20 percent in the period of the Third Plan (1973-77). 6. The favorable performance of Turkish production during the 1970s was not matched by that of employment, which has never been at the forefront of the objectives of successive governments. Unemployment and underemployment were relatively high, and were about 12 percent of the labor force in 1970, and rose to over 13 percent in 1977. The underlying causes of this problem, which has been aggravated by a sharp reduction in the rate of emigration since 1973, are a high rate (2.5 percent per annum) of population growth, and the adoption of relatively capital-intensive methods of production in both the modern sectors of agriculture and industry. The comparatively slow rate of growth of productive employment has had an adverse effect on the distribution of income in Turkey, although basic needs are largely met. The two main causes of this inequality, however, are the large gap between agri- cultural and non-agricultural labor productivity, and the wide dispersion of farmers' incomes. 7. In 1977, the growth rate of real GDP declined to 4.4 percent. This was in part a reflection of a virtually zero growth rate of agricultural output due to bad weather conditions and other sectoral problems. In addition, the growth of non-agricultural output was adversely affected by a decline in the rate of capacity utilization, due to difficulties in effecting the foreign  - 3 - exchange transfers necessary to purchase imported inputs, shortages of elec- tricity, shortages of domestically produced materials of adequate quality, and labor disputes. (See Part III for a fuller discussion of capacity utilization problems.) Balance of Payments 8. The most prominent feature of the balance of payments crisis of 1977 was the large resource gap, which amounted to almost $4 billion, or 9 percent of GDP. But this did not arise overnight; the resource gap had been widening steadily since 1973, when it was only $0.6 billion, or 3 percent of GDP. 9. One aspect of this marked deterioration in Turkey's external trading position was a very rapid increase in imports, which nearly tripled in value between 1973 and 1977, when they reached $5.8 billion. Approximately half this increase was due to rising world prices, including a four-fold rise in the price of oil, which currently accounts for about a quarter of the total import bill. The other half of the increase was due to a steep rise in the volume of imports, which grew at about 15 percent per annum, roughly double the growth rate of real GDP. 10. This high import propensity has been characteristic of Turkey in the 1970s, and may be seen partly as a "catching up" phenomenon. In 1970, after a decade of strict import rationing, the ratio of imports to GDP in Turkey was only 7 percent, about half the average for countries of its size and stage of development. By 1977, after several years of liberalization of import restric- tions, this ratio had reached 14 percent. In concrete terms, this process was associated with a great increase in the use of imported fertilizer in agricul- ture, and changes in industrial structure and technology, which increased the dependence of the rapidly growing industrial sector on imported inputs. After 1973, the rate of growth of imports was accelerated by: a fall in the local currency price of imported goods relative to domestic output due to a rate of inflation in Turkey which exceeded the international inflation rate by more than the rate of depreciation of the Turkish lira against other currencies; absolute shortages of domestically produced goods; an increase in the share of fixed investment in total expenditure; and possibly also a tendency at times to build up imported stocks in anticipation of devaluation. 11. From 1970 to 1973, the rising propensity to import was more or less offset by rapid expansion of exports--particularly manufactured exports such as cotton yarn and fabric, leather products and processed food--and worker's remittances. In value terms, total exports increased from $588.5 million in 1970 to $1,317 million in 1973, or by 31 percent per annum. Manufactured exports increased even faster--from $100.3 million in 1970 to $443.4 million in 1973, or by 64 percent per annum. In volume terms, total exports during 1970-1973 increased by an average annual rate of 22 percent, a very high rate indeed. The increase in worker's remittances was even more dramatic--up from $273 million in 1970 to $1,183 million in 1973, reaching a peak of $1.4 bil- lion in 1974. Since 1973, however, export performance has been weak and remittances also declined. The value of exports rose by 33 percent between  -4- 19/4 and 1977, when it attained $].8 billion, mainly due to rising world prices; in volume terms, exports showed no upward trend. Thus by 1977, merchandise exports were only one-third as large as imports, and the tourism balance was negative. 12. The poor showing of exports between 1974-77 is in part attribut- able to the world recession. This not only affected industrial exports; it also depressed Turkish agricultural exports such as hazelnuts, raisins and industrial raw materials (cotton and tobacco). The difficulties caused by the world recession were enhanced by two other factors: (a) agricultural support prices bore little relation to world prices, and thus failed to provide incentives to farmers to increase production of exportable commodi- ties; (b) this problem was compounded by a general neglect of agricultural development, buoyant domestic demand for agricultural produce, and ineffective administration of agricultural export sales. More importantly, the develop- ment of industrial exports, which at present account for only 7 percent of the value of industrial output, was stifled by a more rapid increase of production costs in Turkey than in her trading partners, which was not sufficiently offset by periodic small devaluations of the lira. As a result, exporting, which had been lucrative for a brief period in the early 1970s, became much less profitable, and potentially exportable production was diverted to the booming and highly profitable domestic market. 13. The current account balance moved from a surplus of $0.5 billion in 1973 to a deficit of $3.6 billion in 1977, because of a rapid deterioration in trade balance and a decline in workers' remittances from a peak of $1.4 billion in 1974 to around $1 billion in 1977. One important cause of this decline has been the restrictions on immigration imposed by Western European countries in the face of growing domestic unemployment caused by the world recession. The rate at which foreign earnings were remitted also fell sub- stantially. This was caused in part by changes in the composition of the Turkish emigrant population, including an increase in the proportion of workers allowed to bring their families to join them. In part, it also reflected overvaluation of the lira, which induced migrant workers either to hold their savings abroad or to remit them through unofficial channels. 14. The rapidly rising current account deficit was not matched by an increased inflow of medium and long-term external capital. Turkey has delib- erately kept both foreign private investment and private long-term borrowing to a minimum. The gross inflow from official long-term borrowing during 1970-75 stagnated at about $300 million per annum. Initially, this was due to a manageable need for foreign finance, given the tremendous increase in workers' remittances in the early 1970s. Subsequently, it was because of a lack of experience and initiative on the part of successive governments to develop and tap new sources of external borrowing, when faced with a decline in multilateral and bilateral lending on concessional terms. In 1976 and 1977, long-term loan commitments rose sharply, to over $1 billion per annum. Most of these loans were tied to specific purchases and projects, whose imple- mentation has been slow; thus the level of disbursements increased slowly. Consequently, the overall balance of payments moved from a surplus of $0.9 billion in 1973 to a deficit of $2.4 billion in 1977 and was in part financed by running down the foreign exchange reserves to the tune of $1.5 billion.  - 5 - By the end of 1977, reserves stood at $770 million, equivalent to only one and a half months' imports. A large part of the deficits was financed by various forms of short-term borrowing which by the end of 1977 stood at $6.5 billion. 15. An important source of short-term borrowing was the Convertible Lira Accounts (CLAs), which provided nearly $2 billion, mainly in 1975 and 1976. These are deposits placed with Turkish banks by foreign commercial banks and non-resident Turks, which were guaranteed until recently against exchange rate risk by the Central Bank. Another major source of finance was short-term sup- pliers' credits, partly covered by export credit insurance in the exporter's country. In addition, a swap facility was established with the Bank for International Settlements, and a scheme was implemented whereby the Dresdner Bank takes in time deposits from Turkish workers in Germany, offering high interest rates, and makes the Deutsche Mark proceeds available to the Turkish government, which also pays the interest charges. During 1977, however, foreign lenders became reluctant to roll over the outstanding stock of short- term debt, and even more reluctant to make further substantial loans. The Central Bank was thus driven to delaying foreign exchange transfers on a large scale leading to a substantial accumulation of arrears. This of course made it even harder to obtain credit by conventional means. Resource Mobilization and Monetary Developments 16. The deterioration in the balance of payments position can also be viewed partly as a reflection of inadequate efforts at demand management and domestic resource mobilization, especially in the public sector. The public sector deficit rose steadily from TL 6 billion (2 percent of GDP) in 1973 to TL 77 billion (9 percent of GDP) in 1977. This substantial increase, which occurred despite a creditable tax performance, was mainly due to a deteriora- tion in the financial position of the State Economic Enterprises (SEEs), and in particular of the operational SEEs, which dominate the transport and energy sectors and account for half the output of mining and manufacturing. Succes- sive governments, in an effort to slow inflation, held the price increases of operational SEEs below the rate at which their already high costs were rising, thus transforming a TL 5 billion profit in 1973 into a TL 20 billion loss in 1977. In addition, the scale of SEE investment was greatly escalated, further widening the gap between public sector savings and public sector investment. Moreover, most of the increased public sector deficit was financed by borrow- ing from the Central Bank, since administered ceilings on interest rates made it hard to attract sufficient purchasers for government bonds. As a result, and despite a large decline in the foreign exchange reserves, the money supply increased rapidly, at an average annual rate of about 30 percent between 1974 and 1977. This was paralleled by a high rate of credit expansion to the private sector. 17. The rate of inflation, as measured by the wholesale price index, declined from 30 percent in 1974 to 10 percent in 1975, but rose to 25 per- cent in 1976 and about 35 percent in 1977, and accelerated in early 1978. There are important cost-push influences on the price level in Turkey, includ- ing a powerful labor union movement and a farmer-oriented agricultural price support policy. But the recent trend has been the result principally of  - 6 - excess demand caused by the enlargement of the public sector deficit, financed by borrowing from the Central Bank, together with the private investment boom which it stimulated. The consequent upward pressure on the price level was aggravated in 1977 by a reduction in the growth rate of real output. The Government's Short and Medium-Term Program 18. The evolving solution to the present problems of the Turkish eco- nomy, both in the short and the medium term, contains three salient elements. First, restraint of domestic demand relative to domestic output, through an increase in domestic savings, public and private, relative to domestic invest- ment. Second, measures that directly boost exports substantially and restrain imports, including the maintenance of competitiveness. Third, increased availability of external finance especially through a substantial increase in the level of medium and long-term borrowing. To accomplish this, the outstanding stock of short-term debts is being rescheduled, converting them into medium-term obligations, and strict control is being exercised over future short-term borrowing. Ultimately there will have to be a considerable restructuring of the economy to rectify imbalances in Turkey's current foreign trade pattern. Recent Stabilization Measures and Short-Term Prospec's 19. Certain preliminary steps in the direction of a stabilization policy were belatedly taken by the coalition government of Mr. Demirel towards the end of 1977. But these actions, in most instances, did not go far enough and in any case, came too late. In early 1978, a new government, with a small but working majority in the Parliament, came to power under Mr. Ecevit. It pur- posefully set about taking painful, but essential, economic steps to restore order in the chaotic economic house it inherited and build up the confidence of the international financial community in Turkey's future. It swiftly formulated a comprehensive package of stabilization measures as reflected in the 1978 Budget and the 1978 Annual Program, which formed the basis of a Standby Agreement with the IMF in April. Since then the Ecevit Government has followed up with a series of other measures as discussed below. 20. To raise domestic savings relative to domestic investment, in September 1977 the Demirel government substantially increased a wide range of SEE prices, including air and electricity tariffs as well as the prices of coal, iron and steel. The Ecevit government between March and May, 1978, further increased these and other tariffs and prices, including railroad and shipping tariffs and the prices of non-ferrous metals and petrochemicals. Irrigation charges were also raised. All these together are expected to add TL 23 billion to SEE revenues in a full year. In early September 1978, the Government further increased SEE prices for petroleum and petroleum products and sugar by 80 percent, which is expected to increase revenues by TL 31 billion annually. In addition to these increases, the Government substantially raised the stamp duty on imports, and has proposed to the Parliament, a number of other tax revenue measures, including a large increase in motor vehicle taxes, income and corporation taxes, municipal taxes, and other stamp duties as part of a broader set of measures designed to enhance the efficiency  - 7 - and equity of the fiscal system. It is committed to holding down the growth of current expenditures. Its short-term intention as regards public sector investment, is to concentrate on the completion of existing projects and to cut back on new projects, except in the bottleneck energy and ports sectors, and for exports and such basic imported commodities as steel and fertilizer. In these ways, the present Government intends to achieve a marked reduction in the public sector deficit, and in public sector borrowing from the Central Bank. This, in conjunction with other limits on Central Bank lending agreed with the IMF, should significantly reduce the rate of growth of the money supply and the availability of credit, which in turn will help to restrain investment and consumption. This should help significantly dampen domestic demand, especially of industrial goods, and stimulate manufacturers to turn increasingly to exports, which have been made attractive with several new measures announced by the Government (para 23). To reinforce all this, and to mobilize private savings, most interest rates, including those on government bonds and the repatriated savings of migrant workers, have been increased by about 2 percentage points. 21. The Government's efforts to control the public finances and credit expansion appear to be showing slow, but successful, results. In the first quarter of the current fiscal year, the consolidated budget was in surplus by TL 3 billion, as compared with a deficit of TL 11 billion in the corresponding quarter of last year. In the first six months of 1978, the money supply increased by 4 percent, compared with 12 percent in the corresponding period of last year. In the first seven months of 1978, total Central Bank credit increased by 15 percent as compared with 44 percent in the corresponding period of last year. Central Bank credit to the public sector increased by 22 percent, compared with 69 percent in the corresponding period of last year. This credit expansion is broadly within the parameters of the Standby Agree- ment. However the Government and the IMF propose to review these parameters in November. Despite these efforts, the price level (wholesale price index) rose very rapidly in the first quarter of 1978; but in the second quarter, there was a slowdown. Money wages have also been increasing at an annual rate of 40 to 50 percent. But the Government made a "social contract" with the largest trade union federation in July, whereby wage settlements will be no larger than is necessary to compensate for past price increases. This should help inhibit any wage-propelled acceleration of inflation. 22. To discourage imports, and stimulate exports further, the Turkish lira has been devalued against the dollar three times since March 1977, by a total of about 50 percent. In addition, it has drifted downwards with the dollar against other currencies. The effect of the devaluation on imports will be augmented by the increase in stamp duty, and in the short term, also by government decisions to reduce imports of investment goods (by over 40 percent in 1978) and give priority to imports of materials and spare parts needed to maintain as far as possible, output from existing installed capacity. In this fashion, the Government's intention was to reduce merchandise imports from $5.8 billion in 1977 to $5.0 billion in 1978. (For further details see para 27.)  - 8 - 23. As regards exports, the effects of the recent devaluations were ini- tially partly offset by a reduction of export rebates. In July 1978, these rebates were increased again. As an additional financial incentive, the Gov- ernment has already begun, in various ways, to give priority to exporters in the allocation of foreign exchange for the purchase of imported inputs both for export production, and up to a prescribed limit, for the production of essential goods for domestic sale. Exporters have also been given special permaission to finance their import requirements through acceptance credits. The degree of priority accorded to exporters in the allocation of domestic credit through the banking system has been increased and the interest rate rebates on domestic borrowing by exporters have been increased. This has also served as an incentive of particular importance in the current credit squeeze. An inter-ministerial Export Coordination Committee has been set up, to examine and resolve some of the problems faced by exporters. Its efforts have already led to some simplifications of export licensing and registration procedures, and to a decision to provide exporters with certain locally produced inputs, including cotton, at world prices. Export targets have been set for SEEs and Agricultural Sales Cooperatives, and the government has taken prompt steps to dispose of large existing stocks of exportable commodities, notably wheat. Further, as part of its short-term stabilization program, the Government has already taken steps to: (a) restrain domestic demand through its fiscal, monetary and price policies which should help prevent diversion of potential export goods for domestic use; and (b) improve competitiveness through exchange rate adjustments. All these are clearly demonstrative of the Gov- ernment's policy to make export-promotion the keystone in its efforts to restore Turkish creditworthiness. As a result of these efforts and policy measures, in the first seven months of 1978 value of exports increased by 12 percent, as compared with the same period in 1977. For the full year, in 1978 exports are expected to total about $2.1 billion as compared with $1.75 billion in 1977, representing about 12 percent increase in the volume. 24. As regards external financial assistance, the IMF Standby Agreement provided for the immediate withdrawal of about $89 million equivalent in com- pensatory financing. In addition, since the Witteveen facility is not in operation, Turkey was eligible to draw up to 150 percent of its quota, which amounts to about $360 million under the Exceptional Circumstances clause. This entitled Turkey to withdraw $60 million in May 1978. A further drawing of $48 million was made in September, following renewed discussions between the Government and the IMF concerning short-term economic developments and prospects. As a measure of the Government's determination to restore inter- national confidence in the Turkish economy, it has recently decided to discuss with the IMF the fine tuning of the stabilization package in November with a view to improving further on its targets and achievements, prior to the release of the remaining tranches of about $252 million. 25. The Standby Agreement also put Turkey in a much better position to cope with its large stock of short-term debt, estimated at $6.5 billion at the end of 1977. The exchange rate guarantee on new CLAs with a maturity under one year has been removed, which should stem new inflow of these short-term deposits. Active negotiations are in progress with a consortium of commercial banks, to consolidate about $2.5 billion of outstanding short-term liabilities,  including most of the CLAs, arrears on CLAs, and banker's credits, into obligations with a maturity of about six years, including three years of grace, at an interest rate somewhat above LIBOR. In view of the complexities involved, including the reconciliation of the interests of as many as 220 banking institutions who hold CLAs, the progress of this large rescheduling has been understandably slow. It is however expected that mutually satis- factory rescheduling of this amount will be finalized in the near future. To complement this, the Government also recently secured, from the members of the OECD Consortium for Turkey, a rescheduling of service payments due up to June 1979, on public bilateral debt and private debt guaranteed by bila- teral export financing agencies. According to estimates made by the Consor- tium Secretariat, approximately $950 million in interest and principal payments falling due between January 1977 and June 1979 would be resched- uled. The terms are two years' grace followed by four years to repay for short maturities, and three years grace with five years repayment for longer- term maturities. Interest rates for all maturities are to be negotiated bilaterally. These bilateral negotiations are in progress with all OECD creditor countries, and have been completed with some of them. However, nearly $1 billion of unguaranteed trade debts still remain to be resched- uled. The Government tabled proposals at the last Consortium meeting in June to resolve this matter, which is under the members' consideration. These various restructuring and rescheduling arrangements will substantially ease the debt servicing burden in 1978 and 1979, although of course they will tend to cause a subsequent bulge in debt service payments in the early 1980s. 26. In addition, the Government has pursued other potential sources of medium and long-term external finance, including new sources in the Middle East. In response to this initiative, Germany signed in 1978 program credits of $75 million and project credits of $65 million; Libya provided a program credit of $100 million, and another $300 million spread over five years, to finance oil imports; Iran provided a short-term credit of about $135 million for oil imports; trade agreements of about $320 million have been signed with Romania and Bulgaria) envisaging a positive trade balance; and, finally, a trade protocol has been signed with the U.S.S.R. Another indication of Turkey's change of direction in seeking external financing vigorously, is the engagement for the first time of a group of internationally-reputed invest- ment firms to assist in the rescheduling exercises as well as for tapping new sources of private capital in Europe and the United States. Preparations are far advanced towards the completion of borrowing arrangements for several hundred million dollars, from some of the same commercial banks concluding the rescheduling arrangements for the $2.5 billion of short-term debts. 27. In March 1978, the new Ecevit Government developed a balance of payments outlook for 1978, based on economic stabilization measures and the anticipated inflow of foreign funds, on which the IMF's Standby Agreement was predicated. However, it now appears that the levels of exports, imports and workers' remittances will be lower than those envisaged at that time (see Balance of Payments Summary below). While 1978 exports are likely to be some 20 percent above the 1977 level and should total $2.1 billion, they will still be below the $2.6 billion level envisaged at the time of the Standby Agreement.  - 10 - Similarly, workers' remittances have not shown the resurgence anticipated at that time, and are likely to amount to $800 million in 1978. Considering the projected inflows of capital, including the expected disbursements of medium- term funds from existing commitments (mostly project credits) and assuming that part of the new comercial bank credits now being arranged will be forth- coming before the end of 1978, it is estimated that 1978 imports can reach a maximum of only $4.4 billion, rather than $5 billion anticipated at the time of the Standby Agreement. Should new credits not materialize up to the anticipated levels, then this would be inevitably reflected in a lower level of imports in 1978. The balance of payments in 1979 is necessarily harder to project. However, based on cautiously optimistic assumptions concerning exports and workers' remittances, and reasonable expectations of the capital inflow, realization of a volume of imports 4 percent higher than in 1978, would entail a foreign exchange gap of $1 billion. The situation is sum- marized in the table below: BALANCE OF PAYMENTS SUMMARY (In current US$ millions) Actual Annual Program- ProjectiOn/. Items 1977 1978 1978 1979 Exports of Goods and NFS 2557 3380 3000 3515 of which: Goods 1755 2550 2100 2500 Imports of Goods and NFS 6488 5475 4915 5426 of which: Goods 5796 5000 4400 4900 Workers' Remittances 982 1300 800 1100 Others (net) -616 -655 -785 -1039 Current Account Balance -3565 -1450 -1900 -1850 Foreign Private Capital (net) 168 175 155 300 Public Medium and Long-Term Capital (net) 288 465 480 640 Commercial Credits and Arrears (net) 2907 810 975 810 Others (net) 202 - 290 100 /1 Source: State Planning Organization, Annual Program 1978. /2 See Annex I-B, page 4. Medium-Term Policies and Prospects 28. The Third Five Year Plan period ended in 1977. Preparation of the Fourth Plan was suspended for one year in view of the economic crisis, and now the Plan will accordingly cover the years 1979 through 1983. The Fourth Plan Strategy document was approved by the Council of Ministers in mid-August after a month of intensive discussion and revision. The Plan itself should be final- ized by late 1978 and submitted to Parliament thereafter.  - 11 - 29. The most important feature of the strategy, which is in sharp con- trast to all three previous Plans, is the strong emphasis on the balance of payments, and in particular on the promotion of exports. This aspect of the strategy is amplified in a letter from the Finance Minister, contained in Annex I-A and discussed below in paras 30-34. 30. The Government's objective as stated in that letter, is to increase the volume of merchandise exports by a factor of almost two and a half between 1979 and 1983. This implies a real growth rate averaging around 18 percent per annum during the Plan period. This is expected by the Government to be achieved broadly, in the following manner. The volume of agricultural exports is expected to grow at an annual rate of 5 percent, and of mineral exports is expected to decrease. Most of the increase in exports, however, is expected to come from manufactured products, whose volume is expected to grow at an average annual rate of over 30 percent starting from an expected level of $650 million in 1978. About 40 percent of the planned increase in manufactured exports is expected to come from food and beverages, textiles and clothing, and leather products; another 40 percent from intermediate goods such as rubber and plastics, products, chemicals, cement, glass and ceramics, and basic metals; the remaining 20 percent is expected to consist of consumer durables, capital goods, and other products of the metal-working industries. 31. To achieve these export targets, several measures of the type listed in the letter of the Minister of Finance, are under active consideration. In recognition of the need to make exports both profitable and competitive on world markets, the Government intends to pursue a more rational exchange rate policy than its predecessors, including a more rapid response to differences between the rates of inflation in Turkey and in her trading partners. An export promotion scheme and an export promotion agency are being considered. In addition, it intends to study the effects on export incentives of the existing system of protection with a view to making appropriate changes when the balance of payments situation permits, and to bring the relative support prices of different agricultural commodities more closely into line with rela- tive world prices. There will also be a drive to increase invisible exports, particularly earnings from transportation, tourism, and civil engineering contracts abroad. 32. The Government appreciates that careful monitoring of export per- formance is of paramount importance to ensure that policy changes are promptly made and administrative measures speedily taken as needed to achieve export targets, especially since several different ministries and agencies will be involved in implementing the export promotion drive. To this end, the State Planning Organization will submit quarterly reports to the High Planning Council, which will analyze actual export performance in relation to the targets established in the Plan and in the Annual Programs, and will contain recommendations for changes in policy in the event of significant shortfalls. The High Planning Council, after discussion of these reports, will in turn make recommendations to the government. A summary of each report, along with decisions taken on new policy measures, will be provided quarterly for informa- tion to the Bank during the first eighteen months following the effectiveness of the proposed program loan. The Government will also exchange views with  - 12 - the Bank on these reports and follow-up action (Loan Agreenment, Section 3.07). Further, Turkey and the Bank have agreed to have a mutually satisfactory exchange of views on the policies and measures introduced to meet the overall objectives and targets of its export drive, and on possible modifications to these policies and measures which may be needed to facilitate the achievement of the objectives and the targets, before further withdrawals are made from the loan account after April 30, 1979 (Loan Agreement, Schedule 1, para 2(e)). 33. This export thrust is one of the cornerstones of the Government's medium-term development strategy, whose success will be crucial to the resto- ration and maintenance of Turkey's creditworthiness in the medium-term future. The export targets of the Fourth Plan as stated in the letter of the Minister of Finance are probably over-optimistic. Nonetheless, there is room for a cautious prognosis that Turkey should be able to sustain a real growth in exports of around 12 percent per annum between 1979-83. In this connection, the following factors should be taken into account: (a) the relatively low base and the current underutilization of the existing capacity; (b) the policy and administrative measures which the Government has already undertaken (paras. 20-23) have contributed to a shift of goods from the domestic to export channels and are likely to result in exports in 1978 totalling $2.1 billion, or 20 percent higher in current value and 12 percent higher in real terms than in 1977; (c) the continuation of these measures, and as siated in para. 2, page 2 of the letter of the Minister of Finance, the Government's intention to pursue a rational exchange rate policy which responds more rapidly to differences in the rate of inflation in Turkey and her trading partners; (d) the Government's investment policy, in line with its strategy to stress exports, aimed at enabling Turkey to generate exportable output in the manufacturing sector; and (e) Turkish policies, measures and drive, enabled Turkish exports to grow at about 22 percent annually in real terms between 1970 and 1973, although the export base at the time was lower than at present. A foundation for the anticipated export growth during 1979-83 is expected to be provided by sustained growth of Turkey's traditional agricultural exports, facilitated by reform of the price support system, and supplemented by more rapid expansion of non-traditional agricultural exports, including wheat and vegetables. The various measures to improve and maintain the relative profit- ability of exporting are expected to have pronounced effect on the growth of industrial exports. The dominant role in industrial export expansion should however be expected to be played by the traditional light manufacturing sectors, particularly food and beverages, and textiles and clothing, where Turkey can be immediately competitive and does not face important bottlenecks of technology and scale. The impact of demand constraints as a result of existing protectionist measures in industrialized countries, which have as yet not seriously affected traditional Turkish industrial exports, is expected to be offset partly by a realignment of light manufacturing production towards sectors (such as leather and fashion goods, carpets and wood products) in which trade restrictions are less significant, and partly by a reorientation towards new markets, including Eastern Europe and the Middle East. Moreover, and provided that the scope of protectionist measures does not significantly widen, a contribution of modest, but increasing significance to the Turkish export drive can be expected from chemicals, plastics, fabricated metal compo- nents, and certain sorts of capital goods, including transportation equipment and spare parts.  - 13 - 34. The other targets, as stated in the Fourth Plan Strategy document, include an average annual real GDP growth rate of 8 percent, based on a 5 percent growth rate in agriculture and a 12 percent growth rate in industry. The unemployment rate is expected to remain unchanged. Real fixed investment is expected to grow at an average annual rate of 12 percent; 44 percent will be allocated to industry, 44 percent to the service sector, and 12 percent to agriculture. Gross domestic savings are expected to rise from 16 to 21 per- cent of GDP during the Plan period, implying a marginal savings ratio of 35 percent. The main contributor to this rapid growth of savings is expected to be the public sector, whose revenues are expected to increase in real terms at an average annual rate of 13 percent, as compared with a real growth rate of 9 percent for public consumption. 35. If the export drive is successful and imports are appropriately restrained, and assuming modest growth of workers' remittances, it should be possible, despite an increasing burden of interest charges on rescheduled debts to keep the balance of payments current account deficit to below $2.0 billion dollars per year during the Plan period. To finance these deficits, and to meet the need to amortize considerable amounts of existing debt, it will also be necessary for the government to continue its efforts to achieve a much higher level of medium and long-term borrowing than in the past, as regards both commitments and disbursements. But this depends on the assess- ment of Turkey's creditworthiness, which in turn hinges on a successful export effort. 36. The extensive short-term borrowing of the past three years has greatly increased Turkey's external debt, has adversely affected its pre- viously rather attractive maturity structure, and has caused a sharp rise in debt service payments. At the end of 1977, the country's total external indebtedness amounted to approximately $11.2 billion, of which $0.5 billion was private unguaranteed medium and long-term debt, and $4.2 billion was public or publicly guaranteed medium and long-term debt. Of this, about one- third was held by international organizations, mainly the Bank ($0.7 billion, plus $0.6 billion committed but undisbursed) and the European Investment Bank; and about one-half by foreign governments and government agencies, notably those of the United States, West Germany, Canada and the Soviet Union. 37. The remaining $6.5 billion of Turkey's total external debt at the end of 1977 consisted of short-term liabilities of various sorts. If the consolidation arrangements currently under negotiation with the consortium of commercial banks and creditor countries are successful, about $3.6 billion of this will be converted into medium and long-term debt. These consolidation arrangements consist of: (a) about $2.5 billion to be rescheduled by commer- cial banks (para. 25); (b) guaranteed suppliers credits of about $400 million under the terms of the OECD sponsored agreement of May 1978 (para. 25); (c) another $100 million of short-term credits to be refinanced by CMEA countries; (d) refinancing of $350 million of oil credit owed to Iraq for which agreement was recently concluded; and (e) possible commercial refinancing of another $250 million.  - 14 - 38. The external debt management initiatives of the Government already finalized, or well on their way to finalization, should help restore a more attractive maturity structure to the Turkish external debt by transforming a good portion of the short-term liabilities into medium-term obligations. How- ever, a relatively high but manageable debt service ratio over the medium-term must be anticipated as a result of the large short-term debts acquired in the last 2 to 3 years and the terms finalized or likely to be finalized for the above-mentioned reschedulings. In 1977, debt service payments, including interest on short-term debt, amounted to 20.2 percent of exports of goods and non-factor services plus workers' remittances. In 1978, after making allowance for the rescheduled service payments, this ratio is likely to rise to around 28 percent. In subsequent years it will increase further, since Turkey will have to take on new borrowings to maintain sound economic growth. Taking this and the expected terms of the rescheduling into account, the debt service ratio is likely to peak in the early 1980s at a high level of about 40 percent. This, however, should represent the culmination of the financial consequences of the present crisis, and should be manageable before the ratio declines thereafter, provided the export drive is sustained. Thus although the balance of payments situation will remain tight in the medium-term future, given sound economic and fiscal policies and careful debt management which the new Government shows determination to pursue, Turkey continues to have a substantial borrowing capacity for medium and long-term funds, and remains creditworthy for Bank financing. PART II - BANK GROUP OPERATIONS IN TURKEY 39. Prior to 1970, Bank assistance to Turkey was small and intermittent. The 1970 stabilization program, and the consequent improvement in the economic position of Turkey, especially in the balance of payments, enabled Bank Group lending to be established at a higher level on a continuing basis. To date, the Bank and IDA have lent $1,661 million to Turkey through 52 lending opera- tions (or 46 projects, since both loans and credits were provided for some projects), including 14 IDA credits totalling $178 million. Sixteen of these operations have been in agriculture and rural development, including multi- purpose projects, nineteen in industry including DFCs, ten in power, and the rest in urban development, transportation, education and tourism. Agriculture and rural development account for 28 percent of the funds lent, industry and DFCs for about 37 percent and power for about 21 percent. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of August 31, 1978, with notes on the execution of ongoing projects. 40. Implementation of projects has been satisfactory in the private sec- tor, but much less so in the public sector where significant delays resulted from political uncertainty, limited coordination among agencies, staffing problems and related administrative delays. Disbursements have consequently been slower than expected. To improve this situation, the Government and the Bank in June 1975 initiated joint reviews to identify and resolve key bottle- necks impeding satisfactory project implementation. So far, six such reviews have taken place up to the end of 1977. The results have been mixed, with  - 15 - improvements having occurred in administrative areas, e.g., training programs and speeding-up of disbursement actions, but with modest impact on key policy problems, whose resolution has been considerably delayed or prevented up to now by frequent changes in previous coalition governments. Loan disbursements as of August 31, 1978, amounted to about 69 percent of appraisal estimates. 41. A comprehensive analysis of the main sector policy constraints which lay at the root of inadequate project implementation was carried out with the new Government in March 1978, and further discussed during my meetings with the Prime Minister and other key ministers in April 1978. It is anticipated that the new coordination mechanism for Bank projects being established in Turkey following these discussions, will be able to take effective steps to improve implementation of on-going projects, accelerate disbursements further, and thus provide a sound basis for expanding the Bank's future contribution to Turkey's development. Disbursement targets and changes in (or reasonable interpretations of) those loan covenants which are difficult to implement, given the country's laws and practices, were reviewed in June 1978 with the new Turkish coordination team. This team is also setting up monitoring proce- dures for achieving disbursement and implementation targets. The preparation work and analysis done by this team prior to the June discussions were thorough and realistic, unlike the past. They provide clear room for hope that the new Government will be gradually able to achieve improvements in performance. The sector policy perspectives outlined by the new Government, the actions already initiated since coming to power, followed by efforts on the part of the admin- istration and by Cabinet decisions to remove some of the bottlenecks, give room for cautious optimism that project performance will take a turn for the better and strengthen the Bank's activities in Turkey. 42. Bank lending has so far been mainly directed at supporting Turkish efforts to improve: (a) income distribution and the level of living stand- ards, through rural development efforts, urban planning, and increased employ- ment and income opportunities; (b) the long-term capacity to earn or save foreign exchange, through promotion of industrial and agro-industrial exports and tourism; (c) lagging public sector saving, through the encouragement of improved management and financing of the investments and operations of key SEEs; and (d) institution-building in key public services, through selective assistance for infrastructure. In the light of the Government's program, which will be progressively refined as the Fourth Five Year Plan (1979-83) takes shape by the end of this year, it will be necessary for the Bank to review jointly with the Turkish authorities how best its lending and technical assistance can meet the above objectives, without facing the policy and insti- tutional obstacles encountered in the past. Pending the outcome of this review, which will be carried out in the coming months, it is proposed to continue to devote the Bank's development efforts to certain key sectors, of which agriculture and industry are the most important. In agriculture, emphasis is being put on rural development, strengthening of agricultural credit mechanisms, and development of export-oriented production activities like fruits and vegetables, and livestock products. In industry (including DFCs), promotion of exports and employment, together with the gradual strength- ening of the SEEs are the key tasks; hence this sector will also receive significant support. This program is supplemented by projects in power, urban development and transportation.  - 16 - 43. Other loan proposals being processed for presentation to the Execu- tive Directors in this fiscal year, include Port Rehabilitation, a Second IGSAS Fertilizer project in Central Anatolia, a Grain Storage project and an engineering loan for a pilot secondary oil recovery project. Projects under preparation, which should materialize in early FY80 and thereafter, include in agriculture: rural development in Erzurum, fruit and vegetable exports, seed production and livestock development; in industry: further assistance to TSKB - including for exports and small scale industry, and modernization of the private and public sector textile production; in urban development: sites and services, as also sewerage development in Istanbul; and in power: hydro- electric facilities in Cukurova. 44. At the end of 1977, the Bank Group's share of Turkey's medium and long-term external debt (outstanding and disbursed) was 15 percent; its share of Turkey's estimated total external debt (including short-term obli- gations) was about 6.3 percent. The expected conversion of a large part of this short-term debt into medium and long-term debt will cause the Bank's share of medium and long-term debt to fall sharply, to around 10 percent by 1980. Thereafter, assuming the currently projected increase in Bank lending, the share would increase. The Bank's share of service payments on medium and long-term debt is expected to follow a similar path, dropping from 11.7 percent in 1977 to about 8 percent in 1980, but rising thereafter, 45. IFC has invested in the production of synthetic yarns, pulp and paper, glass, aluminum, iron and steel products, and tourism, and has an investment in the largest private development finance company, TSKB. As of August 31, 1978, gross IFC commitments totalled $158 million, of which $74 million were still held by IFC. In September, IFC lent $2.15 million to help finance the production of motor bicycle engines. The Corporation is currently investigating additional investment opportunities in the industrial sector, including piston rings and cylinder liners, glass, and possibly aluminium products. PART III - THE CASE FOR PROGRAM LENDING Macro-Economic Considerations: 46. At present, Turkey is suffering from an acute shortage of foreign exchange. The underlying reasons for this are partly external, and include the oil price rise, and the depth and persistence of the international reces- sion, which has affected the levels of exports and workers' remittances. But the present situation is also the result of past errors of economic policy, with regard both to short-term issues such as demand management and to some longer-term issues of development strategy. The combination of external and internal factors over several years has produced a balance of payments crisis of exceptional severity. It will inevitably take some time to rectify, espe- cially if intolerable dislocation of the domestic economy is to be avoided. Foreign exchange reserves are very low. Even with optimal external and internal economic policies, there are physical and financial limits to the  - 17 - speed with which exports (especially industrial exports) and workers' remit- tances can be expanded in the short term, particularly in the present climate of slow growth and increasing protectionism in developed countries. Thus to maintain essential imports, Turkey must continue to rely on external borrowing. 47. If supplementary finance does not become available to meet the foreign exchange needs, imports will be further reduced. The alternative would be a substantial build-up of payments arrears, which would jeopardize both the beneficial impact of the careful arrangements being negotiated to restructure the large stock of outstanding short-term debt, as well as the country's otherwise promising development prospects. 48. In such a case, therefore, the main burden of adjustment will fall on imports. The immediate consequence of further import cuts, however, would be a further fall in the already low level of capacity utilization, and the national output, especially in 1979. This would impinge on the recovery of the economy and its capacity to service debts in the immediate years ahead. In Lhis connection, it might be noted that until the end of 1977, and in part also in the early months of 1978, domestic production was reasonably well insulated from the effects of the foreign exchange shortage by the depletion of imported stocks, the Government's policy of focussing import restrictions on investment goods, and substantial recourse by the private sector to accept- ance credit financing and unofficial channels of funds through cash against goods scheme. Since late 1977, however, all but the most essential imports have been suspended; the value of imports in the first seven months of 1978 was 22 percent below the corresponding period of 1977; and imported stocks are now largely exhausted. 49. This situation would also make an adequate supply of exportable commodities unlikely, despite improved export incentives and Government policy of restraining domestic demand. As discussed below, industrial production has already begun to slow down, especially in the chemical and mechanical engineering sectors (see Annex IV for a more detailed discussion), and will decline further if the present situation continues. In addition, there is the danger of a decline in agricultural output next year, as a consequence of reduced application of fertilizer and plant protection materials. Should it be possible to achieve the import levels summarized in para 27, then a GDP growth rate of about 3 percent in 1979 might be feasible. This modest growth outlook is in sharp contrast with nearly 8 percent growth of recent years, and in sum reflects the serious, though belated, adjustment of the Turkish economy to the balance of payments constraints. Sectoral Considerations 1/: A. Industry: 50. Recent Performance and Present Situation. In 1977 total industrial production is estimated to have grown by about 3 percent as compared with the 1/ Background on the industrial and agricultural sectors is contained in Annex IV.  - 18 -- average annual growth rate of about 10 percent for 1973-77. This decline in the industrial growth rate reflected a decline in the utilization of installed capacities. The Turkish Industrialists' and Businessmen's Association has estimated average capacity utilization for a large sample of firms in private industry in and around Istanbul at 83 percent in 1976 and only 56 percent at the end of 1977. Even allowing for some differences in the bases for the two estimates, the deterioration was substantial, and increased in the first half of 1978. 51. The latter part of 1977 was a difficult time for many industries. Production was adversely affected by shortages of electric power in the main industrial centers. Engineering industries in particular were affected by labor disputes which resulted in prolonged shutdowns. Releases of foreign exchange for the import of industrial inputs and spare parts were severely restricted already in the earlier part of the year, although existing stocks, acceptance credits and use of unofficial channels afforded some relief. In some cases, particularly those involving close contact with foreign firms, imports of essential inputs in 1977 were maintained through short-term sup- plier credits or bank borrowings, and there may even have been some stock piling in anticipation of devaluation. In the first quarter of 1978, however, following the inability of the Central Bank to provide foreign exchange for honoring these short-term commitments, supplies of raw materials on credit were suspended. By late April 1978, shortages of imported inputs began to adversely affect output in many enterprises. In some cases, e.g. Petkim's caprolactam, synthetic rubber, carbon black and polystyrene units, and several producers of plant protection chemicals, operations had ceased entirely on account of exhaustion of stocks of essential raw materials; and many other chemical industries were reporting curtailment of output because of shortage of critical inputs and spare parts needed for essential maintenance of machinery and equipment. The difficulties of general engineering industries and metal fabricators were also especially notable. More severe shortfalls were anticipated for the second half of 1978, by which time imported steel stocks would have been exhausted. Affected manufacturers expected to have to shut down progressively unless corrective action was taken in the meantime. Imports of industrial needs are running substantially below 1977 levels, and there is urgent need for replenishment. Details of import needs in the high-priority steel, copper, aluminum, petrochemical and other chemical industries are provided in Annex V. 52. Implications for Export Performance and Prospects. The above situation has important implications inter alia for export performance. Manufactured exports declined by about 2 percent in 1977; and an improvement in 1978 is being hampered by production problems as well as marketing diffi- culties. Following the March 1978 devaluation, and despite a small net reduction of tax rebates on exports, the effective exchange rates for export of most manufactures improved by 20-21 percent. To take advantage of export opportunities, production must grow sufficiently beyond essential domestic needs to allow for proper service to export markets; but before this could happen, inflation eroded a large part of the improvement in export profit margins.  - 19 - 53. The overall position of manufacturing industries in the second half of 1978 has some favorable aspects for exporting. There is now widespread recognition among manufacturers and traders of the need to "earn their import requirements" through exports, and there is clearer recognition that marginal costs provide the appropriate benchmarks for export pricing, especially when there is an obvious link between exports and higher levels of capacity utili- zation. The Government, on its part, has linked import entitlements for certain categories of inputs to export performance (see Part IV). B. Agriculture: 54. The shortage of foreign exchange had a limited impact on the use of modern inputs to date, because of the existence of previously imported stocks. Given adequate foreign exchange, fertilizer consumption in 1978 is planned to total 1,523,000 tons of plant nutrients which would be worth about US$470 million at international prices. Use of plant protection materials in 1978 is planned to total almost 74,000 tons, which would be worth US$70 million at import prices. Domestic sources of supply have grown substantially since the early 1960's. The fertilizer industry supplied over 40 percent of total con- sumption in 1977, and the plant protection products industry met about half the national demand. Capacity utilization levels are low in both industries, averaging around 50 percent. In fertilizers, apart from the shortage of imported materials and spares, important reasons have been power shortages, mechanical breakdowns, and personnel problems. In plant protection, lack of foreign exchange is the principal factor. There would be economic advantage in increasing capacity utilization to the extent possible. Much more impor- tant, however, is the need to meet the input requirements of the agricultural sector, through import of either raw materials (for the domestic industries) or finished products. Reduction in the supply of fertilizers and plant protection products could significantly affect total agricultural output in the crop year 1978/79 and thereafter, and especially the production of cotton, tobacco, hazelnuts, citrus and other fruits, which are major sources of foreign exchange earnings. Details of import needs for fertilizers and plant protection materials are given in Annex V, Part B. Summary 55. The proposed loan should be seen as one of a series of measures which include the rescheduling of private debts, the provision of new medium- and long-term private capital and the use of IMF resources. These additional resources would help Turkey to partly overcome its external financing problem without altering the course of the much needed adjustments in the economy, in the following directions: (a) Help fill the large foreign exchange gap, especially in 1979. Program lending would increase Turkey's immediate ability to import essential items and introduce essential liquidity in the economy, thus mitigating what threatens to be a major loss of output from existing industrial and agricultural capacity and employment.  - 20 - (b) Support the planned major increase in exports through util- ization of existing capacity, by enabling exporters to obtain their import requirements. (c) Assist Turkey in persuading other potential lenders of medium and long-term funds to provide additional funds. (d) Contribute to the Government's efforts to maintain per capita output and employment at levels such as to make it politically possible for it to carry through its stabilization program and implement its medium-term policies. These reasons have already led Germany and Libya to provide program loans to Turkey this year. 56. As mentioned earlier, the Fourth Development Plan is currently in the final stages of preparation, based on the approved Strategy Document. It has been agreed that a Bank mission to review and discuss the Plan in depth, will take place in early 1979. The restoration of the balance of payments equilibrium through vigorous promotion of exports, will be the cornerstone of the Plan. Thus, the medium-term rationale for the proposed program loan, is the Government's action program to expand exports as a fundamental strategy of Turkey's next Development Plan. PART IV - THE PROGRAM LOAN Loan History 57. The proposed loan responds to a Government request for urgent assis- tance made to a high level Bank operational mission in March 1978 and reiter- ated to me in mid-April 1978 during my visit to Turkey. The Government's loan proposal and supporting analyses were appraised in late April/early May. The Government's proposed targets, policies, strategy and measures for realizing its envisaged export drive, which forms the cornerstone of its medium-term strategy during the next Plan period (1979-83) and is critical to the recovery of the economy, were discussed with a Bank mission in Ankara in August 1978. Negotiations were held in October with a delegation headed by Mr. Guven, Chief Economic and Financial Counsellor in the Turkish Embassy in Washington. Loan Amount and Allocation 58. The proposed loan of $150 million will finance a small portion of Turkey's import needs in late 1978, and in 1979. This implies coverage of only about 1.6 percent of Turkey's total merchandise imports in 1978 and 1979 and around 8 percent of the imports of eligible items. There will thus be no displacement of alternative financing on acceptable terms available to Turkey, either generally or for the eligible commodities. The Loan Summary and the supplementary loan data (Annex III) provide relevant details.  - 21 - 59. Commodities have been selected, and allocations proposed, on the basis of the following criteria: high direct and indirect multiplier effects on utilization of installed capacity in the user sectors; direct or indirect export impact; a balance between public and private sector beneficiaries; acceptable methods of procurement; and rapid loan disbursements. 60. These criteria were applied to lists of high-priority commodities suggested by the Government from within the already-restricted total import program for 1978. The Bank reviewed available input-output and other statis- tical data as well as the direct import requirements for exported goods. Specific information from a sample of significant suppliers of important materials for further agricultural/industrial processing and from potential exporters was also evaluated. In the absence of sufficiently detailed data, the selection was necessarily based in good part on information regarding recent performance and short-term prospects for capacity utilization and exports. The proposed loan allocations as between various commodities, and the rationale for their inclusion under the proposed loan, are explained in detail in Annex V. 61. The proposed loan will aim to provide quick-disbursing assistance to help maintain and, where possible, increase capacity utilization in industries producing basic and critical requirements of both the agricultural and manu- facturing sectors. For agriculture, the loan will finance finished plant protection chemicals and their raw materials and fertilizer raw materials (not less than $40 million). It will also finance spare parts for manufacturing industries and for crop spraying aircraft (not less than $20 million), which might otherwise receive insufficient financing. In industry, the eligible commodities are steel, tin and tinplate, copper, aluminum, petrochemicals and other chemicals (up to $60 million). In addition, there is a provision (Loan Agreement Section 2.02(a)) that no less than $50 million of the proceeds of the loan will be used for direct imports by private firms, to help ensure public-private sector balance in access to the loan funds. 62. These allocations take account of production projections, the cur- rent stock situation and import pipeline, and the possible availability of external financing to cover part of the demand for these imported items. It should also be noted that, while the provision of foreign exchange will help achieve some increase in capacity utilization over present rates, it will not lead to full utilization of installed capacity in most cases, because of the existence of other problems--besides lack of sufficient foreign exchange-- which will necessarily take some time to alleviate. These problems include the critical shortage of power, labor disputes, management capacity and the like, which can only be rectified gradually. 63. In light of the serious balance of payments situation, high priority is being given to commodities having significant direct or indirect export impact. Many of the commodities proposed for financing are essential inputs-- direct and indirect--for most of Turkey's agricultural and industrial export items. However, in view of the restricted and diverse nature of the direct import requirements of exportable goods, there are clear limits to the amounts  - 22 - that can be specifically indicated as being for direct inputs for goods which would enhance export earnings. Nevertheless, since one of the objectives of this loan is also to support the Government's policy to substantially increase exports, as one of the basic elements of its medium-term development policy, the proposed loan, in addition to providing a short-run export impact through financing the import of specific commodities, and calling for the reports and reviews on export policy and performance referred to in paras. 32-33 above, will also support a mechanism aimed specifically at expanding exports in the longer run, as discussed in paras 64-66 below. 64. As far back as 1970, the Government created an Export Promotion For- eign Exchange Fund to be used for the specific purpose of financing imports of recurrent goods and materials needed by Turkish manufacturers for the production of export goods. The resources allocated to this Fund have been determined by specific administrative decision from time to time. However, in times of foreign exchange shortage such as the one Turkey has recently been experiencing, the Government has not allocated sufficient foreign exchange to it. The system for financing imports for export production has, therefore, not worked effectively when it has been most needed to serve as an additional critical stimulus to Turkish manufacturers to produce increasingly for export markets. The Government therefore decided in April 1978 that 25 percent of the receipts from exports of manufactured and mineral products should be allo- cated to this Fund (which is operated by the Central Bank of Turkey), to finance the import requirements of all manufacturers of export goods, up to 25 percent of the FOB export value of the goods they export. With a view to reducing the procedural delays involved in implementation of this deci- sion, however, the Government further decided in July 1978, that all such exporters may retain 25 percent of their foreign exchange earnings received after November 19, 1977, in designated accounts in authorized commercial banks, and use these retained monies to import the necessary inputs for the production of their goods as well as spare parts for their manufacturing equipment. Conceptually, therefore, the foreign exchange thus retained by Turkish exporters in such authorized accounts, serves as allotments for imports they would otherwise have received out of the above-mentioned Fund. 65. Pari passu with this July 1978 decision, the Government also cir- cularized an additional incentive arrangement. Under this, Turkish manufac- turers who have export orders in hand, or are willing to guarantee export of their goods of a specific value, are to be allowed to arrange for credits abroad in order to finance their import needs, up to 50 percent of the value of the export orders in hand or 50 percent of their guaranteed commitment to export a specific value. They are to be allowed to do this, subject to the conditions that they will (a) repay out of their export earnings the external credits they might have arranged; and (b) settle such credits within one year from the date of the import of their production inputs. At the same time, the Government recognized that under the present economic circumstances it would not be easy for Turkish manufacturers to secure foreign exchange credits abroad. The circular therefore indicates that if manufacturers find it difficult to obtain such credits, then the Government would provide to them foreign exchange conversion authorizations from the above-mentioned Export  - 23 - Promotion Foreign Exchange Fund for necessary imports of the production inputs. As in the case of credits, such authorizations from this Fund would be available to finance imports up to 50 percent of the value of export orders in hand or 50 percent of manufacturers' guaranteed commitments to export. Repayment to the Fund out of export earnings would be within one year. 66. A Turkish manufacturer may use either the 25 percent or the 50 percent scheme, or a combination of the two schemes depending on the circum- stances. In practice, it is expected that manufacturers whose exports have an import content of 25 percent or less, will use the automatic 25 percent retention scheme. Manufacturers whose exports have an import content between 25 and 50 percent, will probably also cover the first 25 percent of their import content from the 25 percent retention scheme and the balance from the 50 percent scheme. However., if they wish, the latter may rely exclusively on the 50 percent scheme to cover all of their import costs. To assist the Government in overcoming the bottleneck of inadequate resources for the 50 percent scheme, the proposed loan provides (Loan Agreement Schedule 1) that at least $30 million will be allocated to finance imports of essential inputs of manufacturers of export goods under the scheme. The Bank will disburse for those imports in the same manner as it will for other eligible imports listed in Annex V, page 1. To maintain the level of resources available within the scheme, the Government agreed to a replenishment arrangement. Replenishment will be achieved by prompt allocation to the scheme of foreign exchange earnings resulting from exports made under the scheme in amounts equal to the import financing provided under the scheme (Loan Agreement, Section 3.04). Licensing and Loan Administration Arrangements 67. General. Turkey has a comprehensive system of import licensing, administered by the Ministry of Commerce with advice from the Chambers of Commerce and Industry (to which all firms belong), and substantive approval of a large proportion of import applications by other Ministries, mainly the Ministry of Industry. The most distinctive features of the system are that a significant proportion of imports is free from restrictions in normal times, where Turkish production cannot meet the demand; and positive lists ensure that only essential items are imported. Nearly all imports not financed by project credits, are grouped into three Lists. The Liberalized I list com- prises items non-competitive with Turkish production, and they are licensed freely. The Liberalized II list comprises items competing with domestic pro- duction, and approval is required from the responsible Ministry. The propor- tion falling under these two liberalized lists increased up to 1977, but liberalization is being reversed in 1978 under the impact of the foreign exchange shortage and a change in the composition of imports. The third list, i.e. the Quota list has four major sub-allocations: investment requirements of public and private sector firms (not financed by project credits); inter- mediate inputs for manufacturing; and components for assembly industries. Applications for items in this List are made semi-annually. The licensing system also includes two special sections (under the Liberalized II and Quota lists) providing for the import needs of exporters. The stages of the import licensing process are relatively numerous, but well understood in Turkey.  - 24 - Under normal conditions, the time required for typical transactions is not excessive, except under the Quota list with its semi-annual cycle. Details on the import licensing system are provided in Annex VI. 68. Until the 1977 foreign exchange crisis, an import license from the Ministry of Commerce was sufficient for a successful application for approval of a foreign exchange transfer by the Central Bank. However, in the course of this crisis, Ministry of Finance approval of specific transfers has become the effective foreign exchange allocation device, although the Ministry of Commerce continues to issue import licenses. The Ministry of Finance has had to give overwhelming weight to short-term considerations. Since May 1978, the restrictions on transfers have been eased slightly with the inflow of new external funds, but a return to normal is bound to be influenced by the avail- ability of funds and may not affect all categories of imports equally. 69. Proposed Arrangements. The Ministry of Commerce, along with the Ministries of Agriculture, Industry and Finance, and the Central Bank will be involved in handling the proposed loan. To ensure the needed coordination, the Government has established and will maintain a coordinating committee, grouping these agencies under the chairmanship of the Ministry of Commerce (Loan Agreement> Section 3.03 (a)). The items proposed for financing (except for tin, tinplate and spare parts) are all included in the Liberalized II list. Applications for import licenses will receive substantive approval --om the Ministries of Agriculture or Industry, based on two major criteria: (i) approval of imports to the extent Turkish production cannot meet domes- tic demand, and {ii) equitable allocation of licenses among firms, whether public or private, taking into account installed capacity, recent perfor- wance and export potential. To ensure rapid loan disbursement, the Government has agreed that with the assistance of the coordinating committee properly empowered, it will cause the appropriate agencies to promptly approve import licenses, promptly allocate and transfer the needed foreign exchange to finance eligible items and expedite their actual importations (Loan Agreement, Section 3.03). 70. Public-Private Sector Balance. In line with the criteria employed in selecting commodities, most eligible imported inputs are currently used by both public and private sector firms. Goods produced with these inputs are sold to firms in both sectors. The Chambers of Commerce and Industry, to which all private firms belong, provide substantive advice on allocation to the import licensing authorities. As mentioned above, these authorities generally apply equitable criteria in allocation. Nevertheless, as noted above in para 61, under the proposed loan the Government will undertake to maintain equitable licensing as between public and private sector firms (Loan Agreement, Section 3.03(a)), and to establish a clear benchmark for monitoring during loan disbursement, agreement was reached that not less than $50 million of the loan proceeds will be used for direct imports by private firms (Loan Agreement, Section 2.02(a))* This allocation will not involve any distortion of normal patterns of imports of the eligible commodities.  - 25 - Procurement 71. Imports will be made directly by actual users, except in those cases (nearly all steel products and certain petrochemicals) where import by certain State Economic Enterprises, for domestic sale to both public and private sector enterprises, is prescribed by law (Annex V). 72. Bulk imports by public sector enterprises costing $1 million equivalent or more will be procured on the basis of international competitive bidding procedures consistent with Bank Guidelines. Imports contracted by public sector enterprises for industry and agriculture and costing between $250,000 and $1 million equivalent, and other import contracts costing over $250,000 will be procured on the basis of competitive evaluation of at least three offers from major suppliers in Bank member countries and Switzerland. Contracts for $250,000 or less will be awarded under normal procurement procedures of the public and private sectors. Spare parts will be procured on the basis of either competing offers, or negotiation, depending on the number of potential suppliers and the need for compatibility with existing equipment. These sets of procurement procedures are intended to permit rapid disbursement in support of the loan's objectives, and still help somewhat widen the procurement sources of some Turkish firms that are closely tied to traditional suppliers, and therefore give Turkey the benefit of the access to suppliers who might be able to supply the inputs more competitively. Further, to speed loan withdrawals, the Bank in the case of contracts of $1 million equivalent or more, will receive a description of the advertising and tender- ing procedures as well as of the contracts only after they are awarded, and in other cases will only receive copies of the contracts after their award. Disbursement 73. The Central Bank's Consortium Section, which has had experience in handling previous program loans for OECD Consortium countries, will handle disbursements under the proposed loan. Two of its eight professional staff will be earmarked to work on the loan, and no expansion of its total staffing will be necessary. The Central Bank will issue the necessary regulations to importers' commercial banks, aggregate withdrawal applications, and forward them to the Bank. To simplify disbursement procedures, a minimum contract size of $5,000 has been set. Turkey will be reimbursed out of the loan for payments for eligible imports (including imports for exports) made after loan signing. The Central Bank will certify that financing for them is not being provided from other external sources. The loan is expected to be disbursed within one year of the date of effectiveness. Counterpart Funds 74. The Central Bank will establish a special account for the loan. The Government will use the counterpart funds deposited in the account to help finance the local currency portion of capital expenditures on development proj- ects included in its investment budget.  - 26 - Project Risks 75. There are no special project risks, except that Turkish administra- tive arrangements in respect of import licensing and procurement could slow applications for disbursements. The project therefore includes the main- tenance of a committee grouping the Ministries involved and the Central Bank to ensure smooth and rapid import licensing, foreign exchange allocations and transfers (para 69). Procurement arrangements are in line with Bank policy for program loans and also aim at speeding transactions. With these provi- sions, the risks of slow disbursement have been reduced to an acceptable level. PART V - LEGAL INSTRUMENTS AND AUTHORITY 76. The draft Loan 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. Features of special interest are referred to in appro- priate paragraphs of this report, and summarized in Annex III. 77. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 78. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments October 19, 1978 Washington, D.C.  ANNEX I-A Page 1 of 5 T. C. MALtYE BAKANLIGI ANKARA HAZMIIT : DBPD Sayi : 56908/47490 Konu August 23rd, 1978 Dear Mr. McNamara, The Government of Turkey, in order to maintain a rapid pace of economic development, while avoiding the type of balance of payments problems encountered recently, has decided to place a much greater emphasai on export promotion In the Fourth Five Year Plan (FFYP) than in earlier plans. The implications of this change of emphasis are discussed at length in the Fourth Plan Outline Strategy, a copy of which has been provided to the bank, and will be spelt out even more fully in the Plan itself, which is expected to be submitted to Parliament in October. In this letter I hope to provide a concise statement of the Government's main targets and policy intentions. Specifically, the target for 1983, the last year of the FFYP, is that merchandise exports will attain a level of more than $ 5 billion in 1978 prices, representing an average annual growth over the Plan period of more than 15 percent in real terms. This should be compared with the real annual export growth of around 6 percent during 1970-1977. The principal feature of the export drive is expected to be an average real increase of over 30 percent per annum in exports of manufactured goods, whose share in total exports is expected to rise from 32 percent to 62 percent over the Plan period. Agricultural exports are expected to increase in real terms at about 5 percent annually. In the first two or three years of the Plan period, the planned increase in manufactured exports will be brought about mainly through fuller use of existing capacity in the food, textiles, leather products, wood products, and road vehicles industries; and through diversion from domestic use of the products of the cement, ceramics and glass industries as a result of slack demand in the construction sector. In addition, during 1978 and 1979 new factories presently under construction will go into production in the food and beverage, wood products, and  ANNEX I-A rage PT ox DO leather products industries. In the latter part of the Plan period, manufactured exports, particularly in the machinery, electrical equipment and transportation equipment sectors, will further increase as a result of the completion of new export-oriented investment projects. The Government believes that this high export growth rate is feasible given the initially low level of Turkish exports but it recognises that achievement of this target will require vigorous implementation of appropriate policy measures and careful monitoring of performance throughout the Plan period. To achieve the planned export targets, the Government intends to make exporting more profitable than selling in the domestic market. This will require measures to ensure that Turkish exports are cost and price-competitive in world markets, and an appropriate response to divergencies between the rates of inflation in Turkey and in her trading partners. It will also require that protection of the domestic market through duties and quantitative restrictions on imports be maintained at a level such that domestic sales are not made unduly profitable relative to exports. In addition, the Government intends to maintain and develop the various financial incentives it presently provides to exporters to the extent consistent with prudent management of the public finances and with the General Agreement on Tariffs and Trade. In addition to the export encouragement measures contained in the stabilisation program introduced earlier this year, the Government has recently implemented a number of measures to promote exports. Export rebates have been increased. A scheme has been implemented whereby exporters and their domestic suppliers are to be given priority access to scarce foreign exchange for the purchase of imported inputs both for export production and to a limited extent for production for the domestic market. An Export Coordination Committee, composed of representatives of several ministries, has been established to speed up necessary administrative decisions, to examine the problems of exporting sectors, and to recommend appropriate measures. As a result of this Committee's work, there has already been a simplification of export licensing and registration procedures, and a decision has been taken to provide exporters with locally produced inputs such as cotton, leather, and grain at world prices. Exporters have been granted special permission to finance their purchases of imported inputs through acceptance credits. Interest rate rebates on various types of domestic borrowing by exports have been increased, as has the degree of priority accorded to exporters in the  ANNEX I-A Page 3 of -5 allocation of domestic credit. The export targets of State Economic Enterprises and Agricultural Sales Cooperatives are now set in advance, and a successful effort is being made to export the existing large stocks of certain agricultural commodities, particularly wheat. The Government intends to introduce additional measures to stimulate exports to whatever extent appears necessary, in the light of further experience, to achieve the planned export targets. The main measures presently planned or under consideration are discussed below. (a) To achieve the planned increase in agricultural exports, the Government will bring agricultural support prices more closely into line with world prices, thus providing a stronger incentive to farmers to produce exportable commodities. More generally, the Government intends to continue its policy of stimulating agricultural production through increased use of modern inputs and techniques, including irrigation, through better education and extension services, and through support to cooperatives. In addition, the Government recognises the need for investment and planning to eliminate present storage and transportation bottlenecks, for financial support of market research to identify promising non-traditional export crops, and for financial support of export-oriented production and marketing projects in the agricultural sector. (b) Administrative procedures will be further simplified. A study on the bureaucratic delays arising in the implementation of the Temporary Import Regime has been completed with the participation of the Ministries of Customs, Commerce, Finance and Industry. Based on its findings an official decree is due to be published, which would simplify the procedures related to temporary importation of goods and their re-exportation, and abolish the guarantee deposits required for temporary imports. (c) Control of standards and product quality will be improved. (d) Export insurance schemes which will cover both the creditor and producer are being studied and will be put into effect as soon as possible. (e) A Foreign Trade Institution will be set up which will collect information, undertake market research and act as a means of communication for both public and private sectors.  ANNEX I-A (f) State Economic Enterprises will become more active in increasing exports, Siizerbank for example, has already been asked to try to meet all export orders; in cases where it does not produce the necessary items, it will cooperate with the private sector to fill the order. (g) Attempts will be made to diversify the commodities exported and the markets to which Turkey exports with a special emphasis on meeting the needs of neighbouring countries in the Middle East. (h) Long term trade agreements will be sought and investment and production will be planned accordingly. Mi) Domestic and foreign investments aimed at exports will be given special facilities. Foreign credit, private foreign capital and foreign technology will be encouraged for the purposes of export expansion. (j) Special incentives will be provided for large scale projects which intend to achieve more than a certain level of exports. (k) To protect exporters from exchange risks, the Central Bank, under a forthcoming decree, will convert foreign exchange earnings either at the rate prevailing at the time of actual conversion or at the rate prevailing at the time of export registration, whichever is the more favourable to the exporter. Since several different ministries and agencies will be involved in implementing the export promotion strategy, overall responsibility will be with the High Planning Council for coordinating their various efforts, and for ensuring that the planned export targets are achieved. The Council is chaired by the Prime Minister, whose members include three Ministers chosen by the Council of Ministers, normally the Minister of Finance and two others concerned with economic matters, and the head of the State Planning Organisation. The State Planning Organisation is required to submit quarterly reports to the High Planning Council on the implementation of the Plan. These reports will include an account of actual export performance in relation to the targets established in the Plan and in the Annual Programs, an evaluation of existing export-oriented policy measures and of the effectiveness of their implementation, and recomendations concerning changes in policy measures. These reports and recommendations will be discussed by the High Planning Council. The High Planning Council will in turn recommend policy changes to the Government where these appear necessary to achieve export targets. A summary of the quarterly reports along with the decisions taken on new policy measures will be provided quarterly for information to the World Bank during the first eighteen months following the effectiveness of the Program Loan.  ANNEX I-A Page 5 of 5 In this letter it is clearly not possible to spell out every detail of the Government's strategy to increase Turkey's foreign exchange earning capacity. But the paragraphs above, I hope, give a fairly concrete impression of the seriousness of the Government in pursuing a vigorous export promotion policy, and of the broad targets and the types of measures which the Government intends to pursue. With this strategy, we believe that Turkey will be able to achieve high rates of economic growth without encountering serious balance of payments problems. And in this task we look forward to a continuation and extension of our close and valuable relationship with the World Bank. With personal regards. Yours Sincerely, (Sgd) Ziya MtEZZINOGLU Minister of Finance  TABLE 3A TURKEY - SOCIAL INDICATORS DATA SHEET Page 1 of 4 LAND AREA (THOU KM2) --------------- TURKEY REFERENCE COUNTRIES (1970) TOTAL 780.6 MOST RECENT AGRIC. 558.4 1960 1970 ESTIMATE COLOMBIA IRAN ITALY GNP PER CAPITA (US$) 270.0* 500.0*4 111I0.01*//l 350,0* 670.0* 1910.0* POPULATION AND VITAL STATISTICS ________ ______________________ POPULATION (MID-YR. MILLION) 27.8 35.6 42.2 20.6 29.0 53.7 POPULATION DENSITY PER SQUARE KM. 35.0 46.0 53.0 18.0 18.0 178.0 PER So. KM. AGRICULTURAL LAND 52.0 65.o 74.0 93.0 107.0 266.0 VITAL STATISTICS CRUDE BIRTH RATE (/THOU. AV) 44.8 40.6 39.4 44.3/a 45.9 18.6 CRUDE DEATH RATE (/THOU.AV) 16.9 14.4 12.5 11.0 18.5 9.7 INFANT MORTALITY RATE (/THOU) 187O/ab 153.0/a 70-0/b 140.0 29.6 LIFE EXPECTANCY AT BIRTH CYRS) 49.3 54.4 56.9 58.5 48.8 71.9 GROSS REPRODUCTION RATE 2.9 2.6/b.C 2.3 3.2 3.4 1.3 POPULATION GROWTH RATE (%) TOTAL 3.0 2.5 2.5 2.9 3.1 O.B URBAN 5.1/a 4.g/d 4.2 5.5C 4.8 0.8 URBAN POPULATION (X OF TOTAL) 31.9 38.7 42.6 60.3 41.0 51.5 AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 41.3 41.7 41.7 46.6 46.0/a 24.4 15 TO 64 YEARS 55.2 54.0 53.9 50.4 s0.07ia 65.2 65 YEARS AND OVER 3.5 4.3 4.4 3.0 4.0Of 10.4 AGE DEPENDENCY RATIO 0.8 0.9 0.8 1.0 1.0/a 0.5 ECONOMIC DEPENDENCY RATIO 1.0 1.1/ 1.2 /a I.6/d l. 9/ 0.9/a FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) .. .. ,. 306.9 662.4 USERS (% OF MARRIED WOMEN) 5.3 8.2 *- *- 10.0 EMPLOYMENT TOTAL LABOR FORCE (THOUSAND) 13000.0/C 4000.0 /f 6400.0/b 6200.0 8700.0 19600.0 LABOR FORCE IN AGRICULTURE (C) 71.7 63.4 52.5/c E 39.0 43.0 19.0 UNEMPLOYED (x OF LABOR FORCE) 9.7/d 11.9/& 13.37T 7.0 2.1 3.1 INCOME DISTRIBUTION X OF PRIVATE INCOME REC D BY- HIGHEST S~. OF HOUSEHOLDS 33.o/e f 32. sA 28.0/e 3i.9 / 29.7 /b HIGHEST 20% OF HOUSEHOLDS 610 t 606 T 56.:4i 60.1 i7e 54.47 . LOWEST 20% OF HOUSEHOLDS 4.27e. 2: 7 Ir 3.5 /e 4.0 LOWEST 40% OF HOUSE .JLDS 10. 3.5/e 10.1 [ e 12.77. 10.- 1 1. 5e1: e i: DISTRIBUTION Of LAND OWNERSHIP ,_________________-_________-- .X OWNED BY TOP 10% OF OWNERS .. 39.0 /l .* X OWNED BY SMALLEST 10% OWNERS . 0 7T HEALTH AND NUTRITION POPULATION PER PHYSICIAN 3220.0 Z 2250.0 1880.0 2110.0 3300.0 5s0.0 POPULATION PER NURSING PERSON 3260.0/b 1770. Oj 1140.0 /f .. 3230.0 470.0/b POPULATION PER HOSPITAL BED 650.0 500.0 470.0 430.0 780.0 90.0- PER CAPITA SUPPLY OF - CALORIES (C OF REQUIREMENTS) 110.0 112.0 113.0 92.0 90.0 126.0 PROTEIN (GRAMS PER DAY) 753 78.0 76.0 51.0 53.0 100.0 -OF WHICH ANIMAL AND PULSE .. 22.0/k 24.7 29.0/f 14.0/c 42.0 DEATH RATE W/THOU) AGES 1-4 16.0/e 14i4.7/ . 8.4 *- 1.0 EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 75.0 109.0 108.0 100.0 83.0 110.0 SECONDARY SCHOOL 14.0 28.0 30.0 23.0 26.0 60.0 YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) 11.0 11.0 11.0 11.0 12.0 13.0 VOCATIONAL ENROLLMENT (S OF SECONDARY) 18.0 14.0 15.0 20.0 3.0 26.o ADULT LITERACY RATE (x) 40.0/i 55a.o/ .. 73.0 ,. 97.0 HOUSING PERSONS PER ROOM (URBAN) 2.0 1.9 .. .. 2.2/a,d OCCUPIED DWELLINGS WITHOUT PIPED WATER (C) 81.0 66.0 52.0 .. 87.0/a,e ACCESS TO ELECTRICItY (% OF ALL DWELLINGS) 29.0 40.0 57.0 ., 25.0/a RURAL DWELLINGS CONNECTED TO ELECTRICITY CX) 2.0 18.0 .. .. 4.0/a CONSUMPTION RADIO RECEIVERS (PER THOU POP) 49.0 89.0 107.0 105.0 93.0 218.0 PASSENGER CARS (PER THOU POP) 2.0 4.0 8.0 11.0 10.0 190.0 ELECTRICITY (KWH/YR PER CAP) 102.0 247.0 400.0 414.0 246.0 2262.0 NEWSPRINT (KG/YR PER CAP) 0.8 0.7 2.3 2.7 0.4 5.3