Turkey - Technical Assistance for Treasury Data Project

Dtcumtof GA/ S 77- 7 The World Bank FOR OFFICIAL USE ONLY MICROFICHE COPY Report No. P- 5715-TU Type: (PR) LEWIS, B. / X32974 / H5 106/ ECICO MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$9.2 MILLION TO THE REPUBLIC OF TURKEY FOR THE TREASURY DATA SYSTEMS PROJECT MAY 4, 1992 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURMENCY AND p UiVALENT UNITS Currency Unit = Turkish Lira (TL) US$ 1.00 - TL 4,100 (average, 1991) ABBREVIATIONS AND ACRONYMS BIS - Bank for International Settlements CFA - Chartered Financial Analyst CPA - Chartered Public Accountant EC - European Community EFTA - European Free Trade Association EIC - Economic Information Center GDBE - General Directorate of Banking and Exchange GDEER - General Directorate for External Economic Relations GDERA - General Directorate for Economic Research and Assessment GDPF - General Directorate of Public Finance GNP - Gross National Product GOT - Government of Turkey GTZ - Deutsche Gesellschaft fuer Technische Zusammenarbeit (GTZ) GmbH (Official German Channel) ICa - International Competitive Bidding LAN - Local Area Network OECD - Organization for Economic Co-operation and Development PSBR - Public Sector Borrowing Requirement SAL - Structural Adjustment Loan SIS - State Institute of Statistics SPO - State Planning Organization UNDP - United Nations Development Program TURyEY - ISCAL YEmR January 1 - December 31  FOR OMCAL USX ONLY REPUBLIC OF TURXEY TREASURY DATA SYSTSMS PROJECT LOAN AND PROJECT 8UMMARY a Republic of Turkey BENEFICIARXNSS Undersecretariat of the Treasury and Foreign Trade (UTFT); public and private sector users of UTFT data lnd information. ANCUNT: US$9.2 million equivalent Ts^NSs 17 years, including 5 years of grace at the Bank's standard variable interest rate. FINNING-PLANt GOT $18.9 million IBRD S 9.2 million (including $ 0.9 million in Total $28.1 million retroactive financing) ECONOMIC RATE OF RETURN: Not Applicable STAFF APPRAISAL REPORTs Not Applicable This document has a restricted distribution and may be used by recipients only in the perfomsance of their official duties. Its contents may not otherwise be disclosed without World Bank authoi:- k.s,  NENOEANDWI AND RECONMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EMECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TURREY FOR A TREASURY DATA SYSTE1S PROJECT 1. The following memorandum and recommendation on a proposed loan to the Republic of Turkey in the amount of US$9.2 million equivalent is submitted for approval. The loan would assist the Government in its efforts to improve information, systems, and processes related to macroeconomic management, and would have a term of 17 years including 5 years of grace at the Bank's standard variable interegt rate. 2. Backoround. Macroeconomic management in Turkey is the responsibility of four main institutions: Ministry of Finance amd Customs (tax policy and administration); State Planning Organization (public sector investment program); Central Bank; and Treasury (Undersecretariat of Treasury and Foreign Trade). The main tasks of Treasury are defined as policy formulation and implementation in the fields oft (a) treasury management; (b) foreign trade policy; (c) state economic enterprise portfolio management; (d) financial sector regulation; (e) international capital flows; and (f) incentive policy. In addition, Treasury has a broad responsibility for supporting economic policy design and implementation, in general. 3. Since its establishment in 1983 as a separate undersecretariat, Treasury has sought to fulfill its role mainly by helping to coordinate the Government's stabilization-cum-adjustment programs of that decade. In the 19908, it is expected that Treasury will play a critical role in assisting the Government to manage the economy in a complex and rapidly changing international environment. According to the new Government's Economic Program, the first task will be to reduce the public sector deficit through a program that minimizes short-run output losses and creates the basis for sustainable long-term growth. Even with a stabilization program in place, the Government is likely to be faced with a set of challenges in international economic relations, emanating from institutional changes in the European Community (EC), guropean Free Trade Association (EFTA), Central and Eastern Europe and the former Soviet Republics. For both tasks, the capability of Treasury to provide accurate and timely information, and quantitative economic analysis will be essential for efficient policy design. 4. Today, Treasury faces a number of constraints on its institutional performance. First, Treasury's data management and information technology is obsolete and inadequate to support the information-intensive nature of its work. Second, policy formulation is weakened by sianificant data problems related to timeliness, definitional consistency, time-series availability, accounting practices and formatting. These data problems impose a high tax on staff time, and divert scarce resources from economic analysis. Third, changes in information technology and in Treasury's role create a need for continuous investment in human capital, particularly in: (a) database design; (b) computer systems management; (c) analytic and modelling techniques; (d) international accounting and auditing practices; (a) financial management; and (f) international trade.  -2- 5. proieCt OhiegtLIe. The proposed Project seeks to upgrade the technology, informat lon, and analytic resources essential to Treasury's future role in macroeconomic management. Specifically, the Project aims to: (a) improve Treasury's monitoring and policy design functions; (b) provide timely and efficient access for Treasury staff to a consistent, centralized data source; (c) enable Treasury both to contribute to and draw upon the databanks of multilateral Lnstitutions and other agencies; (d) ensure that organizational procedures support efficient data processing and analysis; and (e) support the development of a comple_entary institutional framework for investment in human capital. An additional Project objective is to improve the availability and reliability of economic data that Treasury provides to other agencies, the private sector, and multilateral organizations. 6. Proiect Descrintion. The Project will support Treasury investment in: * A Data Xanaoement System that: (a) provides an appropriate technology environment for macroeconomic data analysis; and (b) contains centralized databases to support this work (para. 7); and * Institution - Building initiatives that include: (a) training in selected economic, financial and technical subjects (para. 9); (b) consultant assistance for special studies and economic model building (para. 10); (c) management and training consultancy support (para. 11)1 and (d) establishment of Treasury's library and of an Economic Information Center (BIC) open to the public (para. 12). Funding for these activities will not be available from UNDP. A small complementary grant may be provided by official German channels (GTZ). 7. The Data Maaaoemeat System will create an advanced analytic environment for Treasury, based on the central collection of and decentralized access to economic data, managed on a mainframe computer where data integrity, consistency and security can be effectively controlled. System development is based on physical lnvestments in, and consultant assistance for: * a mainframe computer facility where the economic databases will be stored and managed; * the design, creation and maintenance of economic databases to support analytic work essential to Treasury"s role in economic management (paras. 2-4)1 * personal workstations that will serve as the primary data analysis facility; * local area networks and remote communications capabilities that wills (a) facilitate data sharing and communication, thereby enabling coordinated analysis of data by Treasury teams and  -3- between Treasury and other public agencies; a d (b) provide additional network services including electronic mail and software sharing, and * technical training for the Data Processing Center staff in operating the new system, and in providing end-user support to Treasury professional staff. The proposed system will overcome many of the existing technology and data constraints on Treasury and thereby provide an improved basis for the design, implementation and monitoring of macroeconomic policies and programs. 8. Successful implementation of the Data Management System depends ons (a) the availability of professional staff with advanced analytic skills; (b) the introduction of modelling tools and carrying out of studies that support Treasury's role in economic management; and (c) organizational processes that facilitate efficient data-sharing and data management. The Institution-l Develoyment Component of the proposed Project has been designed to enable complementary investments in these three areas, and also to support public sector information dissemination objectives by establishing a library and the RIC within Treasury. 9. To strengthen the analytic capability of Treasury, a Professional trainina proaram will support skills development in: (a) macroeconomic modelling; (b) international trade; (c) liability management; (d) accounting and auditing; and (e) selected topics in finance, statistics and related areas. For selected staff, the program will include certification for chartered financial analysts and public accountants. The program will provide local and international training opportunities; and, in addition, Treasury intends to negotiate in-house training assignments with related international institutions (public and private). In the selection of suitable candidates, attention would be paid to the career development of Treasury's most promising staff, with special attention to the development of promising female staff, currently under-represented in the professional streams. The Project would also provide consultancy services within Treasury which would build upon training provided under the project and strengthen the longer-term framework for human resource development. 10. To support the introduction of analytical frameworks that would permit Treasury to quantify the impact of policy on key economic variables, the Project will finance the development of modellino tools and studies for: * consolidating financial accounts of the public sector to support more effective design of fiscal policies and programs, as well as monitoring of fiscal developments; * analyzing state economic enterprise performance to support design of financial and reform programs (including privatization);  4 - * analysing financial sector flow-of-funds to monitor impact of public sector deficit financing on financial markets and key macroeconomic variables; * strengthening consistency of macroeconomic programming; and * analyzing the impact on the government budget of trade tax consolidation and reduction (in line with planned harmonization with EC and EFTA by 1996). These tools will ultimately provide the analytic base essintial for Treasury'e role in economic policy design ane implementation. 11. The Project would also support Treasury efforts to ensure that organizaticonal structures and procedures maxim.Lze efficient use of the new technology and information flows. The General Directorate for Economic Research and Assessment (GDEmA), which will have the main responsibility for Project administration, has already reorganized and staffed in line with its future work-program. other changes have been made within other directorates as well. However, further adjustments may be required to ensure coherence and take full advantage of the now data system and modelling tools. The Project would therefore provide management consultancy support to Treasury on these issues. 12. Finally, having improved the reliability of Treasury data and strengthened its institutional capacity, the Project encourages the dissemination and sharing of data and research activities by financing equipment for the establishment in Treasury of a library and an Economic Information Center open to the public. Under the proposed project, the legislative arrangements necessary for the establishment of the RIC have been submitted to Parliament, and principles governing its operations would be agreed with the Bank. 13. Proiect Costs and Financing. Total Project costs are estimated to be equivalent to $28.1 million, of which foreign exchange costs are estimated at $18.4 million. The Bank loan will finance $9.2 million, or about 50% of foreign exchange and 38% of total project costs, net of taxes ($3.5 million). The Government would finance the balance. Retroactive financing for early project start-up to a maximum of $0.9 million equivalent (since March 1, 1992), would be provided by the Bank loan. Treasury is the main beneficiary. The breakdown of Costs and Financing Plan is shown in Schedule A. Details on Procurement, Disbursements, and the Disbursement Schedule are given in Schedule B. A timetable of Key Processing Events and the Status of Bank operations in Turkey are given in Schedules C and D respectively. Details of the project and its administration are given in the attached Technical Annex.  14. Past Bak inperince. Past Dank support of technical assistance (TA) of the type provided under this project, in Turkey, has been limited.l/ The SAL program of the 1980's foresaw the provision of TA targeted att (i) developing a debt monitorlng system for Turkey; and (iiL) supportlng specLfic state-owned enterprlsos (SON's) ln theLr move towards autonomy. ImplmentatLon of the debt monitoring system was successful. A review of the posLtive implementation experlence of the SAL program, however, indicated that lt would have benefltted further from greatert (i) focus on debt-management, in addition to monitoring; (Li) accessibility, to policy makers and to the Bank, of data relevant to the design of the program; and (LLL) rellability and consistency of national account statistics. Implementation of the TA support to 80t's was less satisfactory due tos (i) regulatory changes in the SOE sector; and (ii) dispersed project implementation responsibilities. These lessons have been incorporated in the deslgn of the proposed project, specifically in the project's Data Management System (para. 7) and Institutional Development (paras. 8-12) components. In addition, project ownership by the main beneficiarie is strong, as evidenced by the contribution of the various directorates withln Treasury to project preparation and design, and by the appointment of ODERA as project administrator, wLth a centralized coordination function. lS. Rationale for 8ank Involvement. The Bank has recently begun to work with the Government on developing an Informatice Sector Strategy, which, inter alla, addresses public sector database requirements and related institutional issues. The Project is an early product of that dialogue, and would serve as a model on which to build public sector informatLcs activities. The data-processing center at Treasury already possesses a critical mass of technical expertise, and can play an important role in the public sector Information system. In addition, the Bank has an obvious strong interest in supporting Government efforts to improve macroeconomic management capabillty, given its Lnvolvement in structural and sectoral adjustment, and its macroeconomic dialogue with the Government. Treasury's data represent a significant share of macroeconomic data essential for effective macroeconomlc management. Pinally, the Bank can transfer its experience in economiz database design and management, thereby accolerating the realization of Project beneflts. 16. Aoreed Actions. During negotiations, agreement was reached on: (a) review of annual work programs with Treasury (para. 19 below); (b) implementation of training program (para. 9); (c) terms of reference (including composition and responsibilities of study groups) and timetable for the development of analytic studies and modelling tools (para. 10); (d) terms of reference and timing of the appointment of the management consultants (para. 11) and training consultants (para. 9), and terms of reference of the consultants for data specification and database deslgn (para. 7); J/ TA provided (tn. 2400-TU) was complementary to SAL IV-V. A full review of the SAL program of the 1980's (SAL I-V) is contained in: Turkey Structural Adjustment Loans IV and V (Loans 2321-TU. and 2441-TU) and Overview of SAL. 1-V (PPAR, Report No. 7205, April 1988).  -6- (a) timetable for development of action plans based on the work of the management and training consultants; (f) framework for the establishment and operation of the EIC (para. 12)t and (g) all goods and services required under the project would be procured in accordance with Bank guidelines. 17. Appointment of the technical consultants required for the data management system (para. 7), in accordance with Bank guidelines, is a special condition of effectiveness of the proposed loan. 18. Benefits. First, Treasury will have the technology, information and analytic resources necessary to support its role in macroeconomic policy design, monitoring and implementation. Second, by encouraging information sharing, the Project will help to improve policy formulation and implementation and reduce the scope for uneconomic investment in both the public and private sectors. Third, successful project implementation could have a broader positive impact within Treasury through eventual extension of the system to management information uses, and institutionalization of a human resource development program. Finally, within the context of continuing public sector Lnvestments in information technology, the Project is expected to have a significant impact on other institutions in Turkey through its demonstration effect. 19. Risks. The major risk is that the critical institution-building components might lag behind investment in the computer hardware and software. Measures to minimize this risk include: (a) selection by Treasury mant-ement of the Directorate of Research and Economic Assessment as the project administrator; (b) quarterly meetings of all Treasury General Directorates to review progress, and to assess institution-wide needs for project support, and contributions to project implementation; and (c) formulation of annual work- programs by Treasury to be agreed with the Bank, and revised on a semi-annual basis. such work program reviews, combined with technical design elements of the data management system, would also serve to minimize risks related to changes in technology. 20. Recomendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank, aid recommend that the Executive Directors approve it. Lewis T. Preston President Attachments Washington# D.C. May 4, 1992  7 SCHEDULEA RuBIC OP TU TREASURY DATA SOSTEMS PROJECT Estimated Cost8 ana Pina~nc1ne Plan Estimated Coxsta1' IQQUL M19 TOTAL --- (US$ Million) - Technical Assistance 0.3 1.0 1.3 Professional and Technical Training - 1.2 1.2 Equipment 1.8 9.8 11.6 Software 0.6 3.5 4.0 Building Ext 3.0 - 3.0 Wiring/LAN and Bldg. Rod. 0.3 0.8 1.1 Maintenance 2.8 - 2.8 studies and Advisory services 0.05 1.0 1.0 TOTAL BABS COSTS (Jan. 1992) 8.811/ 17.3 26.1 Price & Physical Contingencies 0.9 1.1 2.0 TOTAL PROJECT COSTS 9.7 18.4 28.1 FlAancipo Plan LOCAL FORRGX9 TOTAL S-----US$ Million)-