Statement by Joaquim Carvalho at the Board meeting of September 4, 1997

International Bank for Reconstruction and Development 87162 International Development Association International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS97-348 September 3, 1997 Board Meeting of September 4, 1997 Statement by Joaquim Carvalho Turkey: Country Assistance Strategy We support the proposed Country Assistance Strategy before us today as we think it is designed in such a way as to suit the changing economic situation in Turkey. Given the protracted period of economic imbalances and apparent lack of popular support for the reform programs, we believe that consensus building is crucial for the success of Turkey's development strategy. All economic indicators, particularly the fiscal deficit, inflation, the rate of exchange and current account deficit, remain out of control. The social indicators are also not very encouraging. The quality of education and health services is low, rural poverty is pervasive and gender inequality is clearly evident. Furthermore, there is significant price distortion, particularly in the agriculture sector, while state-owned enterprises remain a major drain on the budget and a real constraint to the development of the economy. The financial sector is also in need of considerable reform. In this regard, we are pleased to note the Turkish authorities' cognizance of the severe shortcomings of the economy and their readiness to take the measures necessary to put it back on the right track. On the social development front, we concur with the high priority given to the education sector with the objective of increasing compulsory basic education from five to eight years, while also improving the quality of education. In this connection, we believe that more emphasis should be put on the education of girls as their enrollment rate is disproportionately low relative to that of boys. On poverty reduction, a lot remains to be done, particularly with respect to reducing regional disparities in economic and social development. We note with satisfaction that the proposed CAS takes all the above factors into consideration under the two sets of proposed adjustment scenarios. However, we believe that the authorities should endeavor to adopt the strong adjustment scenario which suggests a comprehensive treatment of all the economy's constraints, as articulated in paragraph 3.6. Adopting this scenario will entail putting in place appropriate mechanisms to protect the vulnerable groups in the society who may be adversely affected by the reforms. In this respect, we support the proposed increase in administrative resources allocated to poverty reduction and social development. 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.  2 In view of the deficiency in economic management we endorse the proposed strategy for strengthening the consensus for reform among the different interest groups and enhancing institutional capacity building of the different public entities. We also support the proposal to delegate the monitoring of portfolio performance to the Resident Mission. With respect to the lending scenarios and the triggers associated with them, we have no difficulty with the proposed levels and conditionalities. We welcome the active role of IFC in the country in catalyzing investment from both foreign and domestic investors. MIGA, through its guarantee and advisory services has also been active in promoting private investment opportunities. We hope that the Bank Group will continue to play an important role in Turkey while concentrating its activities in areas in which it has a comparative advantage. The success of this country assistance strategy depends to a large extent on government ownership and public acceptance of the reform process. We wish the Turkish authorities well in their efforts to canvas popular support for their programs. Finally, we would like to urge staff to continue to maintain an active dialogue with the Turkish authorities while encouraging government commitment and ownership of the envisaged reforms.