Turkey - Country economic memorandum : sustaining the adjustment program (Vol. 1 of 2) : Main report

Report No. 6516-TU Turkey Country Economic Memorandum Sustaining the Adjustment Program (in Two Volumes) Volume 1: The Main Report June 15, 1987 EM2DA Europe, Middle East and North Africa Region FOR OFFICIAL USE ONLY Doculmen of the Woddicuan this, report has a restricted distribution and may be used by recipients ongy in the p0tforrrince of ther official duties, Its contents may ntot otherwise b~e &stlosed Without world Bank authorization.  CURRENCY EQUIVALENT (Turkish Lira, TL) 1981 TL 111.22 1982 TL 162.55 1983 TL 225.46 1984 TL 366.68 1985 TL 521.98 1986 TL 674.51 1987 First Quarter TL 763.00 FISCAL YEAR March 1 to February 28 - through 1981 March 1 to December 31. 1982 January 1 to December 31 - from 1983 ABBREVIATIONS CBT - Central Bank of Turkey CPI - Consumer Price Index EBF - Extra-Budgetary Fund FhX - Foreign Exchange Deposit MHF - Mass Housing Fund QR - Quantitative Restriction RUSF - Resource Utilization Support Fund SEE - State Economic Enterprise SIS - State Institute of Statistics SPO - State Planning Organization VAT - Value-Added Tax WPI - Wholesale Price Index  FOR OMCIL USE ONLY TURKEY COUNTRY ECONOMIC MEMORANDUM SUSbTAIDNG T1E ADrJUSTMIEN PROGRAM Table of Contents Volume I - Main ReDrt Page No COUNTRY DATA MAP EXECUTIVE SUMMARY (i)-(v) INTRODUCTION Chapter 1: RECENT ECONOMIC DEVELOPMENTS AND ASSESSMENT 1 A. National Accounts and Macro-Balance 1 B. Public Investment 4 C. Public Finance 6 D. Money and Credit 9 E. Inflation 12 F. Balance of Payments 13 G. Foreign Investment 17 H. Employment and Social Issues 17 I. Recent Policy Measures and Assessment 18 Chapter II: EXTERNAL DEBT AND CREDITWORTHINESS 20 A. Development and Structure of Turkey's External Debt 20 B. Commitments and Disbursements 25 C. Debt Service 26 D. Strengthening External Debt Management 28 Chapter III: THE MEDIUM-TERM OUTLOOK - ALTERNATIVE SCENARIOS 30 AND POLICY CHOICES A. Medium-Term Setting 30 B. Approach and Assumptions for the Base and Low Cases 30 C. Other Scenarios 37 D. implications for Stabilization and-Adjustment 38 CHAPTER IV: THE TASK AHEAD--POLICY RECOMMENDATIONS 41 A. Strengthening the Stabilization and Adjustment Programs 41 B. Maintaining External Balance 44 C. Consistency of Internal and External Balances 47 D. External Debt Management Strategy 48 This report is based upon the findings of an economic mission that visited Turkey in July 1986. The mission consisted of Messrs. Jeffrey Balkind (mission chief). Sanjay Dhar, Ruben Lamdany, Shashi Talwar, John Underwood and Ms. Shideh Radian. Messrs. Sweder van Wijnbergen and Jose da Silva Lopes (consultant) participated part-time. The report was discussed with the Government in May 1987 by a mission consisting of Messrs. Balkind and Underwood. This document has a mtricted distribution and may be used by recipients only in the performance of their ofcial duties. Its contents may not otherwise be disbcsed without World Bank authotization.  Page No. VOLUMAE I - Annexes and Statstical Appendix Annex 1: The Savings-Investment Equilibrium Annex 2: Money and Credit Policies Annex 3: Performance of and Prospects for Direct Foreign Investment Annex 4: External Debt Approval Process Statistical Appendix Lit of Text Tables and Fltues Volume I 1.1 Growth of GDP by Sector, 1980-86 1 1.2 Turkey--Macro-Economic Balances, 1980-86 3 1.3 Public Fixed Investment, 1984-86 4 1.4 Public Sector Balance, 1981-86 7 1.5 Public Sector Borrowing Requirements, 1983-86 8 1.6 Monetary Aggregates, 1981-86 9 1.7 Stock of Credit Outstanding, 1980-86 10 1.8 Wholesale and Consumer Price Indices 12 1.9 Current Account, Selected Items 13 1.10 Non-Resident Foreign Exchange Inflows 16 1.11 Turkey-Key Economic Variables, 1980-86 19 2.1 Turkey-Externul Debt, 1984-86 20 2.2 Turkey's Gross External Liabilities, 1981-86 22 2.3 Turkey-Composition of Debt by Borrower, 1981-85 23 2.4 Creditor Composition of Turkey's External Debt, 1981-85 24 2.5 Turkey-External Debt Service, 1984-90 27 3.1 Projection Assumptions, Base Case, 1986-95 32 3.2 Balance of Payments and External Debt Projections, Base Case, 1986-95 34 3.3 Low Case, Assumptions and Projections, 1986-95 37 Volume II Annex 1, Table 1 - National Savings - Trends, 1972-86 Table 2 - Comparison of Savings and Investment Ratios in Selected Countries table 3 - Investment, Savings and External Balance Annex 2, Table 1 - Monetary Aggregates Table 2 - Reserve Money Annex 3, Table 1 - Foreign Investment Approvals ancrRealizations Table 2 - Sectoral Breakdown of Companies with Foreign Capital Participation Annex 4, Table 1 - Major State Economic Enterprises, Outstanding External Debt as of June 30, 1986 Figure 1 - Application Process for External Borrowing, Turkey  1S15 w-ailS Podatis ".4 aitin fPs I i 3 Sy pp capita GM a itis kV, n7 A. owes if be"s leuueti Pabt IL Ir" M 4.. II pa ce Ire twret price MO (ft Cad price Mt 5%5 1973 11O 114 HI 191. IW*3 139 SIP tin 15911. km S.tit Prnitt e.g. 100.0 100.0 1c00 10. l0co 100. 6.7 4.5 4.1 . 0.0 bt rackt ta 9. 10.1 L7 4.5 7.4 9.5 6. 0. * 4.5 15. ILS ovistotV 30. 24.1 21.4 I?7 17.4 1U 1.9 4.9 2.4 2 7.7 1is . 22.4 23. 24 31.9 32.7 3. 3. 4.4 5. 6.1 L.t 1e tiib --u teritvi 14.4 15.4 201 23. 2L3 2L0 50.5 3.4 L2 5.5 9. temps M. 42. 44.3 4L50 42. 41.3 LI 4.9 5. 3. L. fewo . Mae -1.4 -2.L -1 -4.4 - L3. - - * - - arIs o f1 6.3 7.3 5.7 17.3 13t 154 0 .2 -0.2 7.0 15.3 1.0 5oets if Ws 7.7 10. 13.3 21.9 22.4 I9.4 9.4 0.2 55.4 9.1 52.5 ota Ruitae 101.4 14.3 53.5 104.4 50. 5L3. 7.1 4.1 3.7 4.4 10.9 Total Ce tios 14.5 U.S 3.2 3L3 5.9 79.0 6.3 4.0 3.7 3.0 9.4 Priest Cu_tim 14.2 71.3 7S 74. 713.2 702 6.4 3.4 4.0 .0 9.7 Pillc Ceptn 52. 52.5 12.4 . L6 L5 L5 L3 7.5 2.4 3.2 L bee Semtic Istmt 14.9 59.0 21.9 1. 21.1 24.3 11.0 4.3 1.4 9.4 55.2 fldil Istet 14.5 23.1 20.0 17.4 20.2 23.4 10. 3.3 3.2 12.5 13.8 ves ii t 0.4 -1.0 1.9 1.5 0. 1.2 21.2 24.5 t67 -23.1 51.4 arm hustic smog 13.5 14.2 I3.L :4.2 19.1 2.2 9.9 2.1 9.4 52.7 2.0 :t Factw ltes bI 0.4 -0.6 -2.0 -2.t -2.5 -2.1 21.1 14.5 a.e. i.&. tt Aurrantl Truf 1.2 4.0 3.3 4.3 LS 1.4 29.2 0.8 7.1 e.g *.e. krm ltiis Ivet 5.5 21.4 57 15.4 20.4 22.0