Turkey - Social Risk Mitigation Loan Project

Document of The World Bank Report No: 22510-TU PROJECT APPRAISAL DOCUMENT ON A PROPOSED HYBRID INVESTMENT/ADJUSTMENT LOAN IN THE AMOUNT OF US$500 MILLION TO THE REPUBLIC OF TURKEY FORA SOCIAL RISK MITIGATION PROJECT/LOAN August 17, 2001 Human Development Unit Country Department VI Europe and Central Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective August 6, 2001) Currency Unit = Turkish Lira TL I = US$0.0000007 US$1 = TL 1,350,000 FISCAL YEAR January 1 -- December 31 ABBREVIATIONS AND ACRONYMS ARIP Agricultural Reform Implementation Project NCB National Competitive Bidding BOP Balance of Payments NGOs Non-governmental Organizations CAS Country Assistance Strategy ODTU Middle East Technical University (Orta Dogu Teknik Universitesi) CBOs Community-Based Organizations PCU Project Coordination Unit CCT Conditional Cash Transfer PEIR Public Expenditure and Institutional Review CEM Country Economic Memorandum PFPSAL Programmatic Financial and Public Sector Adjustment Loan CPI Consumer Price Index PMR Project Management Report CQ Consultant Qualification POM Project Operations Manual DIE State Institute of Statistics (Deviet Institutu Estadistika) PPP Purchasing Power Parity DIS Direct Income Support PSBR Public Sector Borrowing Requirement DPT State Planning Organization (Develet Planlama Tisilati) PSR Project Status Report EERL Emergency Earthquake Recovery Loan PSSP Privatization Social Support Project ES Pension Fund (Emekli Sandigi) QCBS Quality and Cost-based Selection EU European Commission RFP Request for Proposals FMS Financial Management System SB Ministry of Health (Saglik Bakanligi) GDP Gross National Product SBD Standard Bidding Documents GPN General Procurement Notice SDIF Savings Deposit Insurance Fund HIES Household Income & Expenditure Survey SDR Special Drawing Right HLFS Household Labor Force Survey SDR Special Drawing Right IBRD International Bank for Reconstruction and Development SEEs State Economic Enterprises IC Individual Consultant SHCEK Social Services and Child Protection Organization ICB International Competitive Bidding SR Social Investment Loan IFC International Finance Cooperation SMEs Small and Medium Enterprises IMF International Monetary Fund SOEs Statement of Expenses IS International Shopping SRMP Social Risk Mitigation Project/Loan ISA International Standard Auditing SSK Social Security Institution (Sosyal Sigortalar Kurumu) IT Information Technology SYDTF Social Solidarity Fund (Sosyal Yardimlasma ye Dayanisma Tesvik Fonu) LCS Least Cost Selection SYDV Social Solidarity Foundation (Sosyal Yardimlacma ye Dayanisma Tesvik Vakfi) LSP Letter of Sector Policy TA Technical Assistance M&E Monitoring and Evaluation TI Turkish Lira MB Central Bank of Turkey (Merkez Bankasi) UNDP United Nations Development Program MIS Management Information System UNICEF United Nations Children's Fund MOF Ministry of Finance VAT Value Added Tax MONE Ministry of National Education (Milli Egitim BakanligN) WBo World Bank Vice President: Johannes F. Linn Country Director: Ajay Chhibber Sector Director: Annette Dixon Sector Manager: Michal Rutkowski Task Team Leader: John Innes TURKEY SOCIAL RISK MITIGATION PROJECT/LOAN CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 20 C. Project Description Summary 1. Project components 23 2. Key policy and institutional reforms supported by the project 25 3. Benefits and target population 29 4. Institutional and implementation arrangements 29 D. Project Rationale 1. Project alternatives considered and reasons for rejection 31 2. Major related projects financed by the Bank and other development agencies 31 3. Lessons learned and reflected in the project design 32 4. Indications of borrower commitment and ownership 33 5. Value added of Bank support in this project 34 E. Summary Project Analysis 1. Economic 34 2. Financial 34 3. Technical 35 4. Institutional 35 5. Environmental 38 6. Social 39 7. Safeguard Policies 40 F. Sustainability and Risks 1. Sustainability 41 2. Critical risks 42 3. Possible controversial aspects 43 G. Main Loan Conditions 1. Effectiveness Condition 44 2. Other 45 H. Readiness for Implementation 45 I. Compliance with Bank Policies 46 Annexes Annex 1: Project Design Summary 47 Annex 2: Detailed Project Description 52 Annex 3: Estimated Project Costs 62 Annex 4: Economic Analysis Summary 63 Annex 5: Financial Summary 74 Annex 6: Procurement and Disbursement Arrangements 76 Annex 7: Project Processing Schedule 99 Annex 8: Documents in the Project File 100 Annex 9: Statement of Loans and Credits 102 Annex 10: Country at a Glance 105 Annex 11: Letter of Sector Policy 107 Annex 12: CCT Issues and International Experience 117 Annex 13: Institutional Assessment 125 MAP(S) IBRD 24903R TURKEY Social Risk Mitigation Project/Loan Project Appraisal Document Europe and Central Asia Region ECSHD Date: August 17, 2001 Team Leader: John A. Innes Country Director: Ajay Chhibber Sector Director: Annette Dixon Project ID: P074408 Sector(s): EP - Primary Education, HC - Primary Health, Including Reproductive Health, Chi, SA - Social Assistance Lending Instrument: Sector Adjustment Loan (SAD) Theme(s): Social Development; Social Protection; Gender And Development; Poverty Reduction Poverty Targeted Intervention: Y Prqram Financing Data [X] Loan [ Credit [ ] Grant [ Guarantee [] Other: For Loans/CreditslOthers: Amount (US$m): 500.0 Proposed Terms (IBRD): Variable Spread & Rate Single Currency Loan (VSCL) Grace period (years): 5 Years to maturity: 15 Commitment fee: 3/4 of 1% Front end fee on Bank loan: 1.00% Financing Plan US$m Source Local Foeign Total BORROWER 135.14 0.32 135.46 IBRD 353.33 146.67 500.00 Total: 488.47 146.99 635.46 Borrower: REPUBLIC OF TURKEY Responsible agency: SOCIAL SOLIDARITY FUND (SYDTF) Address: Karanfil Sokak No. 67, Bakanliklar, Ankara, Turkey Contact Person: Yadigar Gokalp, Project Coordinator Tel: 0-312-424 0701 Fax: 0-312-424 0704 Email: yadigar@mailcity.com Other Agency(ies): SOCIAL SERVICES AND CHILD PROTECTION ORGANIZATION (SHCEK) Address: Necatibey Caddesi No: 11 Ankara, Turkey Contact Person: Mehmet Ozdal, Director General Tel: 0-312-229-3551 Fax: 0-312-231-0650 Email: STATE INSTITUTE OF STATISTICS (DIE) Address: Necatibey Caddesi No. 14, Sihhiye, Ankara, Turkey Contact Person: Nurgul Ogut, Vice President Tel: 0-312-425 2104 Fax: 0-312-417 4225 Email: nurgul ogut@die.gov.tr Estimated disbursements (Bank FYIUS$m): FY 2002 203 2004 - 2005 2006 Annual 105.00 80.00 130.00 100.00 85.00 Cumulative 105.00 185.00 315.00 415.00 500.00 Project implementation period: September 2001 until December 2005 Expected effectiveness date: 09/15/2001 Expected closing date: 06/30/2006 A. Project Development Objective 1. Project development objective: (see Annex 1) The development objective of the Social Risk Mitigation Project/Loan (SRMP), is to mitigate the impact of the recent (February 2001) economic crisis on poor households (social risk mitigation) and to improve their capacity to cope with similar risks in the future (social risk management). The SRMP will achieve these objectives through: (i) an adjustment portion, providing immediate support to the poorest affected by the crisis (social risk mitigation); and (ii) an investment portion, which consists of three components (a) building up the capacity of state institutions providing basic social services and social assistance to the poor (social risk management); (b) implementing a social assistance system (Conditional Cash Transfers - CCT) targeted to the poorest 6 percent of the population conditional on improved use of basic health and education services (social risk mitigation and prevention); and (c) increasing the income generating and employment opportunities of the poor (social risk prevention). The Government of Turkey is thus requesting the support of the World Bank in the form of a hybrid loan of US $500 million for the SRMP to assist in the implementation of these measures. A key goal of the SRMP is to strengthen the social assistance system so that it becomes cost-effective in Turkey and is better targeted to the poorest, and which will provide not only a safety-net for the poor, but also a trampoline to help the poor escape poverty - a system which not only mitigates social risk, but also helps to prevent and manage it. The SRMP will also undergird the Government's overall economic reform program through mitigating social costs for the poorest. 2. Key performance indicators: (see Annex 1) Overall * Poverty indicators - headcount and poverty depth. Distributional indicators disaggregated by welfare level, gender, urban-rural, etc. Adjustment Portion - Rapid Response * Approximately 1.05 million poor children helped back to school in 2001. * Social Solidarity Fund (SYDTF)/Social Solidarity Foundation (SYDV) expenditures of TL 550 trillion in 2001. Investment Portion - Institutional Development * Functioning Management Information System (MIS) for SYDTF/SYDVs and Social Services and Child Protection Organization (SHCEK). * Beneficiary satisfaction with SYDTF programs. * Strong public information campaigns implemented by SYDTF and SHCEK. * Household Income & Expenditure Survey (HIES) undertaken by the State Institute of Statistics (DIE) beginning from 2002 supplemented by annual rapid surveys in statistically and methodologically acceptable years. -2- Investment Portion - CCT * Number of CCT beneficiaries (target 1.10 million). * Net increase in school attendance rates for poor beneficiary population. * Net decrease in school drop-out rates for poor beneficiary population. * Increased vaccination coverage for poor beneficiary population. * Increased usage of health facilities by poor beneficiary population. Investment Portion - Local Initiatives * Number of micro-business started by poor beneficiary population. * Number of income-generating sub-projects by poor beneficiary population. * Number of illiterate adults becoming functionally literate. * Number of unemployed youth trained. * Number of person-days of temporary community employment created. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: R2001-0113;IFC/R2001-0134 Date of latest CAS discussion: July 12, 2001 The updated CAS for Turkey is based on a three-pronged approach: (i) structural policies aimed at correcting the weaknesses underlying the crisis and establishing a sounder basis for disinflation and growth over the medium term; (ii) strong social policies including enhanced social dialogue to achieve price and wage policies consistent with macroeconomic stability, and increased emphasis on the protection of the most vulnerable groups of society; and (iii) fiscal and monetary policies geared towards restoring financial stability and resuming the disinflation process. Maintaining social cohesion is especially important given the political volatility and social stresses of the country. The key elements supported by the SRMP are to: * reduce poverty in Turkey and strengthen the institutional environment for monitoring poverty and taking appropriate policy actions; and * strengthen social protection for vulnerable groups through new social assistance initiatives, including introducing new targeted social assistance programs for groups affected by the crisis. 2. Main sector issues and Government strategy: Macroeconomic Framework Introduction The Government reached agreement with the IMF in May on a new macro-economic framework and policy package, including a detailed program of structural reforms worked out in collaboration with the Bank, in response to the crisis set off by the failure of the exchange rate peg in February 2001. To support the program, the IMF and World Bank are prepared to provide up to US$ 10.0 billion in additional exceptional external financing in 2001. The 6th and 7th -3- reviews of the Stand-by arrangement were completed on May 15, 2001, resulting in the disbursement of SDR 3 billion (US$ 3.9 billion) from the Fund. An augmentation of the Standby amount by SDR 6.36 billion was also approved, bringing total IMF commitments for the program since the Stand-by was approved in December 1999 to SDR 15.0 billion (over US$ 19.0 billion), including the SDR 5.8 billion (US$ 7.5 billion) Supplemental Reserve Facility (SRF) approved in December 2000. The 8th program review was approved on July 12, 2001, resulting in the disbursement of a further SDR 1.20 billion (US$ 1.5 billon). On the same day, the Bank's Board discussed the CAS Progress Report which increases potential support for the program to US$ 6.2 billion, including US$ 1.2 billion on Special Structural Adjustment Loan (SSAL) terms. The Board also approved the US$ 1.1 billion Programmatic Financial and Public Sector Adjustment Loan (PFPSAL) and the US $600.0 million Agriculture Reform Implementation Project (ARIP). The 9th IMF program review was completed on August 3, 2001 and the Fund has disbursed an additional SDR 1.20 billion (US$ 1.5 billion). The Bank has begun preparation of a second Programmatic Financial and Public Sector Adjustment Loan (PFPSAL) which could go to the Board in December 2001. Economic Developments Leading up to the New Program Original Disinflation Program. The Government launched its original disinflation program under near crisis conditions in mid-1999. The program aimed to bring inflation to single digits and set the economy on a stable path of high growth. There were three core pillars: (i) strong fiscal adjustment, including large privatization revenues, designed to put public finances on a sustainable path; (ii) a crawling peg exchange rate anchor designed to lower inflationary expectations and bring down interest rates; and (iii) deep structural reforms aimed at sustaining fiscal adjustment and promoting productivity and growth. Structural reforms were focused on measures to: (a) support privatization, particularly in the telecommunications and energy sectors; (b) address fundamental fiscal weaknesses, notably through pension reform, modernization of agriculture support policies, and reform of public expenditure management including measures to contain the rapid growth of contingent liabilities; and (c) strengthen the financial sector. The initial results were encouraging, however, signs of problems soon appeared which pointed to the underlying macro risks. The current account deficit began to widen rapidly. Throughout the year, inflation outpaced the rate of crawl under the peg. Although CPI inflation fell to a 15-year low of 39 percent by the end of 2000, this exceeded the 25 percent target, leading to real exchange rate appreciation of about 14 percent. The Government did not respond quickly to the widening macro imbalances and clear signs that the economy was overheating. Under the quasi-currency board rules, the Central Bank (MB) refrained from sterilizing the capital inflows which were driving down interest rates to exceptionally low levels below the targeted path. There was little political support for additional fiscal measures when the primary surplus was exceeding the program target. Structural reform implementation slowed perceptibly after mid year. The Government was particularly slow in resolving problem private banks and restructuring the state banks. The structural problems in the banking sector, highlighted in the Country Economic Memorandum circulated to the Board in September 2000, were to play a central role in the coming financial turmoil. -4- From Turmoil to Crisis. Turkey was hit by a first round of financial turmoil in November 2000 brought on by the withdrawal of credit lines to Demir Bank, a key primary dealer of government securities. The November crisis demonstrated the vulnerability of the Turkish banking sector to exchange and interest rate risks, as well as the mismatch between the maturity of assets and liabilities which had built up as a result of past macroeconomic distortions and inadequate banking supervision and enforcement. It also highlighted the importance of growing macroeconomic risks as a relatively isolated incident quickly escalated to a systemic problem. As confidence fell, foreign portfolio investors withdrew funds, banking sector liquidity tightened, and short-term interest rates shot up to over 1,000 percent. Large liquidity injections from the MB did not calm the markets and resulted in a loss of about US$6.5 billion in reserves. This situation put the banking sector under severe stress particularly the state banks which faced steep increases in the costs of financing their chronic liquidity needs. Overall, the balance of risk shifted abruptly from overheating and external imbalance to recession and financial sector crisis. The Government responded with an effort to strengthen its reform program, but this effort fell short and, in late February 2001, Turkey was hit by a full-fledged economic crisis. The fresh turmoil was ignited by the public airing of political tensions. This set off a new wave of turbulence in the financial sector as investors liquidated TL positions and fled to dollars in expectation of a government crisis. By February 21, overnight rates were over 2,000 percent with minimal transaction volumes. The next day, the Government announced the flotation of the Lira, effectively abandoning the original disinflation program. New Macroframework Key Macroeconomic Targets. The principal macroeconomic objectives of the new program are: first, to contain the impact of the collapse of the crawling peg and subsequent devaluation; and second, to resume a path of progressively lower inflation and increasingly sustainable growth. The macroeconomic targets for 2001 have been revised further in the context of the 9th Standby review to take account of the outcome for the first half of the year. Table 1 compares the revised baseline with the initial program projections announced in May. The main elements of the macro-framework are summarized below and discussed in more detail in the following paragraphs: * Based in part on higher-than-expected devaluation of the Lira (about 48 percent to date), the projection for average CPI inflation (Dec-Dec) for the year has been revised upward to 58 percent, compared to the 52.5 percent initially projected; however, inflation is still targeted to fall to about 2 percent per month (seasonally adjusted) by the end of 2001; * Nominal interest rates on government securities, now in the 90 percent range, are projected to average to 91 percent for the year, resulting in average real rates of some 42 percent, substantially above the initial program projection of about 36 percent; * The contraction in GNP for 2001 has been revised downward to minus 5.5 percent, compared to the fall of 3.0 percent initially projected, on the basis of the sharp (4.2 percent) fall in output during the first quarter and the higher-than-expected interest rates; the economy is still expected to recover during the second half of the year on the basis of strong export performance and tourism revenues; -5- * Fiscal performance has been positive, despite the slowdown in the economy; the consolidated public sector, including State Economic Enterprises, remains on track to achieve the targeted primary surplus of 5.5 percent of GNP; * The end-year projection for the public debt to GNP ratio (net of MB net assets) has been revised upward to 87 percent of GNP, compared to 79 percent in the initial program baseline; this is the result of the higher domestic interest rates, higher devaluation and lower growth realized during the first semester; the debt to GNP ratio is still projected to fall rapidly in 2002-03; * The correction in the current account has been sharper than expected on the basis of a very steep decline in imports (19 percent decline in US$ terms for the Jan-May period compared to the same period in 2000) and a solid recovery in exports (9 percent increase in US$ for the Jan-May period); as a result, a current account surplus of about US$ 5 billion is now projected for 2001 compared to the rough balance foreseen under the initial program; however, the target for gross international reserves remains broadly unchanged reflecting continued capital outflows; * Inflation is still projected to fall sharply in 2002-03 and the economy is projected to recover as strongly as in the initial program baseline; however, the actual pace and extent of recovery will depend sensitively on a sustained reduction in interest rates. Table 1: Key Economic Indicators Actual 1/ Original Program 4/ New Baseline 5/ 2001 7/ 200 2001 2002 2003 2001 2002 2003 Outcome to date OUTPUT, INFLATION, INTEREST RATE AND GNP Growth 6.1 -3 5 6 -5.5 5 6 -4.2 (QI) CPI Inflation (Dec-Dec) 39 52.5 20 15 58 20 15 35.5 (Dec-July) Nominal Interest Rate 38 81 41 33 91 41 33 112.5 (Jan-June) Real Interest Rate -8.3 36 20 18 42 21 18 47 (Jan-June) Unemployment Rate 2/ 6.6 >8.5 6 6 >8.5 6 6 8.6 (Q1) PUBLIC SECTOR BUDGET Primary Balance (% GNP) 2.8 5.5 6.5 6.5 5.5 6.5 6.5 Overall Deficit (% GNP) -19 -17 -10 -7 -20 -9 -7 Public Debt (% GNP) 3/ 58 79 71 65 87 74 68 of which net external debt (% GNP) 20 34 28 23 34 27 22 Privatization (S bn) 3.3 3.1 3.5 3.5 3.1 3.5 3.5 2.0 (end-July) EXTERNAL BALANCE Current account balance (% GNP) -4.8 -0.6 -0.9 -0.6 3.0 -0.4 -0.6 Exports (fob, S bn) 31 34 36 39 35 36 39 14 (Jan-May) Tourism ($ bn) 7.6 8.3 8.6 9.1 8.4 8.8 9.3 2.1 (Jan-May) External Debt (% GNP) 57 66 60 57 72 64 60 MB Foreign Exchange Reserves (S bn) 23 21 22 24 21 23 25 17 (end-June) Short-term debt (% MB FX Reserves) 6/ 192 196 182 177 181 160 158 1/ Government figures as adjusted by IMF and WB 2/ Projections for 2001 are based on preliminary figures for the first quarter; projections for 2002-03 are from the DIE. 3/ Includes the government securities issued to recapitalize the SDIF and state 4/ As presented in the CAS Progress Report based on the 6th and 7th IMF program reviews in May / As revised for the 9th IMF program review in August 2001. 6/ Includes medium/long term debt with remaining maturity of less than one year. 7/ Preliminary. Source: Government, IMF and WB estimates. -6- Recent Economic Developments Figure 1: Turkey - Benchmark Bond 220- 200 - 180 160 140 120 - 100 60 60 40 ... ... Interest Rates. The program has not restored confidence to the market as quickly or as effectively as expected. After falling to below 80 percent in late May, interest rates on government bonds increased again in June and July, reaching a peak of 109 percent on the benchmark March 2002 bond on July 12, before subsiding somewhat to the 90 percent range at present (Figure 1). Spreads on Turkish eurobonds have also eased from the highs reached in mid-July. However, current rates on domestic government securities are still well above the initially programmed path. A major source of the problem has been continuing concerns about the Government's commitment to the program. While the Government has implemented an impressive array of reform measures, both macroeconomic and structural, internal debates within the Cabinet have spilled over into public quarrels. Moreover, the Government was late in meeting certain commitments for the 8th program review and the PFPSAL, including appointment of a new professional Board and management team for Turk Telekom and intervention in undercapitalized private banks unable to present credible recapitalization plans. Although the Government eventually met all of its commitments, the perception of internal disagreements and indecision dissipated the expected boost in market confidence. Macroeconomic factors, including market confusion about the Government's policy on intervention in the foreign exchange market and contagion effects from other emerging markets in difficulty, have also played a role in the persistence of high interest rates. Inflation and Growth. The program target of 2 percent monthly inflation (seasonally adjusted) by the end of 2001 remains within reach due to a combination of the sharp slowdown in the economy and the tight demand management policies under the program. While inflation exceeded program targets during the first semester, in part due to somewhat larger than expected devaluation, the outcome for June (3.1 percent for the CPI) was in line with program projections and monthly inflation subsided further in July (2.4 percent for the CPI). For the year as a whole -7- (December to December), the projection for CPI inflation has been increased to 58 percent. However, the objective for the coming 12 months (June 2001 to June 2002) is in the 30-35 percent range. Reaching this goal will depend on the effectiveness of the program's macroeconomic policies in lowering inflationary expectations. On the real side, the Bank has carried out a corporate sector assessment to evaluate the impact of the crisis on the business community. Virtually all indicators point to a steep decline in economic activity since the onset of the crisis. Real GNP declined by 4.2 percent in the first quarter; private sector capacity utilization was a low 66 percent in June 2001, compared to 78 percent a year earlier, and the index of industrial production is similarly depressed. Surveys cite lower domestic demand as the biggest factor and indicate that the majority of firms reduced their workforce in the first quarter, contributing to the sharp increase in the officially recorded unemployment rate to 8.5 percent. Official projections for GNP growth rates for 2001 as a whole have been revised downward to minus 5.5 percent. However, this still assumes a strong recovery during the second semester (with seasonally adjusted quarterly growth rates in the 2-2.5 percent range) which in turn will depend on the behavior of interest rates and continued strong export performance. Similarly, the strong recovery projected under the program in 2002-03 will depend on sustained improvement in the financial markets and in the corporate sector. Fiscal Performance. Fiscal performance is on track to generate the targeted 5.5 percent of GNP primary surplus of the consolidated public sector. Certain expenditures, e.g. wages and salaries, will increase as a result of the higher inflation. Moreover, spending on social assistance by the Social Solidarity Fund will be increased by some TL 125 trillion (about US$ 100 million), relative to the TL 425 trillion envelope agreed under the PFPSAL, as a result of the quick-disbursing component of the SRMP. The increased expenditure will be compensated by a projected modest over-performance on the revenue side due in part to higher than expected revenues from withholding taxes on interest income. It is important to note, however, that revenue on interest income can be expected to decline over time if interest rates fall as projected. Achieving the 6.5 percent of GNP primary surplus targets for 2002-03 will be a serious challenge of the Government's political will and the fiscal outcome will depend critically on the extent and speed of the projected economic recovery. Monetary and Exchange Rate Policy. The Government is undertaking additional measures to clarify and strengthen monetary and exchange rate policies under the program. The authorities intend to introduce inflation targeting as a new nominal anchor for the program in the fourth quarter of 2001. In the interim, base money will remain the main instrument for disinflation and revised targets for base money have been established as part of the 9th program review. The shift to inflation targeting is not without risks and will require careful management. Turkey's attempt to do so in a high inflation environment is largely unprecedented. Pressures emanating from the going fiscal adjustment process and the bank restructuring program will pose further challenges for inflation targeting. With regard to exchange rate policy, the MB will continue to sell foreign exchange to sterilize the inflows from IFIs to the budget. The MB will place all such external support in a special account and the portion used for domestic payments will be sold in pre-announced auctions. The MB may also continue to intervene from time to time to smooth temporary exchange rate fluctuations. However, such intervention will be infrequent and in both directions, consistent with the floating exchange rate regime. These steps aim to reduce market -8- uncertainty about the authorities' exchange rate policy, thereby helping to ease pressure on interest rates, but their effectiveness will depend on credible implementation. External Balances. The correction in the current account has been more rapid and more extensive than initially projected under the program, in large part due to the impact of the recession on demand and the larger-than-expected drop in the Lira. Through May, the current account ran a small surplus of just over US$ 300.0 million, compared to the US$ 4.0 billion deficit registered in 2000. Imports (fob) have fallen sharply and are now projected to reach US$ 42.0 billion for the year, US$ 12.0 billion less than in 2000. The fall in imports is an indicator of the extent of the falloff in domestic demand since the onset of the crisis and the depth of the recession. On the other hand, export performance has been encouraging. For the year, exports (fob) are now projected to exceed US$ 35.0 billion, almost US$ 4.0 billion above the 2000 level. Tourism receipts are projected to reach US$ 8.5 billion for the year, about US$ 1.0 billion higher than in 2000 and a record for Turkey. The current account is projected to return to rough balance in 2002-03 in line with the initial program projections. -9- Table 2 Turkey: External Financing Requirements and (In millions of U.S. dollars) 2000 2001 2001 2002 2003 Outcome (Jan-May) 3/ Gross financing requirements 25,837 12,661 4,845 18,915 21,197 Current account deficit (excl. official transfers) 10,033 -4,526 -243 1,048 1,395 Amortization on debt securities, o/w: 1,747 2,096 852 2,513 4,069 Public sector 1,397 2,093 852 2,370 3,881 Deposit money banks 350 3 0 143 188 Medium and long-term debt amortization, o/w: 13,800 17,334 5,589 13,533 13,406 Public sector 1/ 3,616 5,277 1,299 3,762 3,727 Private sector 7,919 10,600 3,570 8,000 8,000 Deposit money banks 2,265 1,457 720 1,771 1,679 Accumulation of gross reserves 257 -2,243 -1,353 1,820 2,327 Available financing 25,837 12,661 4,845 18,915 21,197 Foreign direct investment (net) 112 3,272 1,609 1,450 1,472 Portfolio flows 2,769 -2,470 -1,966 6,650 6,451 Public sector 7,507 1,500 683 4,700 4,501 Deposit money banks 492 0 0 450 450 Private sector (net) -5,230 -3,970 -2,649 1,500 1,500 Medium and long-term debt financing, o/w: 19,079 12,367 4,256 13,650 13,096 Public sector 1 4,353 5,167 555 4,800 3,896 Private sector 12,824 6,600 3,541 7,250 7,500 Deposit money banks 1,902 600 160 1,600 1,700 Short-term debt (net), o/w: 3,035 -10,963 -3,378 1,356 1,144 Public sector 90 -29 -1 50 50 Private sector 645 -2,465 -791 1,332 919 Deposit money banks 2,300 -8,469 -2,586 -26 175 Official transfers 214 255 76 262 270 Other 2/ -2,677 -3,274 -976 0 0 IMF (net) 3,305 13,473 5,224 -4,453 -1,235 Purchases 3,398 14,594 1,160 0 Repurchases 93 1,121 5,613 1,235 1/ General government. 2/ Errors and omissions. 3/ Estimate based on official BOP data through May 2001. Source: MB, IMF and WB estimates. The gross reserve targets for the program remain broadly unchanged, despite the improved current account balance, reflecting a higher level of capital outflows. The details of the updated external financing plan are given in Table 2. With regard to the initial external financing plan in May (as presented in Annex B 11 of the Turkey CAS Progress Report-Report No. R2001-0113;IFC/R2001-0134), the major changes are for 2001, with private capital inflows in 2002-03 projected to recover to levels adequate to repay the IMF and rebuild reserves as per the initial program. The major revisions for 2001 relative to the initial external financing plan are as follows: * US$ 6.0 billion reduction in gross financing requirements, due essentially to the improved outlook for the current account; - 10- * US$ 2.5 billion increase in net FDI inflows as a result of investment in the 3rd mobile phone network (Is-Tim) and recently announced mergers and purchases of domestic banks by foreign banks; * US$ 1.5 billion increase in net portfolio investment outflows reflecting primarily a reduction in expected new borrowing by the public sector; * US$ 4.0 billion increase in net short-term debt outflows, mainly due to reduced rollover of foreign bank credits to domestic banks; and * US$ 3.0 billion increase in unrecorded outflows, a potential signal of significant capital flight. Program Risks and Mitigating Measures As discussed in the June 2001 CAS Progress Report, the economic program is subject to significant risks which must be mitigated. Among the most important risk factors are sustained political support for the program and macroeconomic vulnerabilities, notably those linked to public debt sustainability and extenal vulnerability. Political risks are heightened by the social pressures arising from the crisis. These pressures contributed to internal debates in June within the Cabinet on the implementation of certain reform measures including the level of wheat support prices, a new wage agreement for public sector workers and legislation reforming the tobacco sector. These debates continued in July over the appointment of the new Board and management for Turk Telekom. Following the resignation of several ministers, the leaders of the coalition parties have renewed their commitment to the program and there is a perception of renewed cohesiveness. Going forward, increased emphasis on the social dimensions will be essential to sustaining political support for what is in the end a painful stabilization and adjustment program. The Bank is playing an important role in helping Turkey mitigate the social risks. The Government's commitment to protect social expenditure under the PFPSAL is a cornerstone of this effort and it will be important for the Government to extend this commitment into 2002-03. The strengthening of the social safety net envisaged under the SRMP is another core element of the Government's strategy for mitigating the social impact of the program. Other elements of the strengthened social policy include the direct income support to farmers under the ARIP and support for workers displaced by privatization under the Privatization Social Support Project (PSSP). Macroeconomic Risks. The macroeconomic framework and targets are ambitious given the extent of the current crisis. Interest rates will need to fall rapidly to ensure market willingness to rollover the public debt in the near term, and the decline in rates will have to be maintained in order to ensure the sustainability of the public debt over the medium term. The actual path of real interest rates will depend critically on the effectiveness of macro-economic policies and the Government's domestic borrowing requirements. A critical factor in achieving the projected levels of nominal and real interest rates is control over inflationary expectations. This must be achieved through a combination of: (i) overall credibility of the program and its political leadership, including sustained commitment to structural reform; (ii) a well coordinated incomes policy to limit inflationary wage adjustments; (iii) tight monetary policy, (iv) strong fiscal adjustment to contain the public deficit; and (v) the large package of exceptional financing from the IFIs to help finance the costs of the bank crisis and limit public sector borrowing in the - 11 - domestic bond market. Actual growth performance will depend sensitively on how successfully this policy package is implemented. Limiting the contraction in GNP for 2001 to the revised projection of minus 5.5 percent hinges on a sharp turnaround in economic activity in the second semester. The actual extent of recovery in 2002-03 will play an important role in the public debt dynamics as will the fiscal outcome. Although difficult, the Government has implemented belt-tightening measures to reach the 5.5 percent of GNP primary surplus target for 2001. Tightening further to 6.5 percent of GNP in 2002-03 will require fundamental structural changes in the public sector. Debt Sustainability. Table 3 presents the evolution of the public debt under the program macro-framework as revised for the 9th Standby review. Under this baseline scenario, all of the key public debt indicators--debt to GNP ratio, interest payments as a share of GNP, domestic debt amortization, and the PSBR--fall rapidly after 2001. As shown in the top right side of the table, this trajectory is a result of the sharp fall in interest rates and strong recovery projected under the program. Another key variable is the average maturity of new Treasury borrowing in the domestic market-which has been steadily shrinking over the past year and is currently in the six month range. In the baseline, the maturity of new borrowing is projected to increase rapidly in concert with the fall in interest rates. If the program objectives of increased market confidence-with the attendant improvements in interest rates and maturity of new borrowing-and restored growth do not materialize, then the debt dynamics will be substantially more difficult. Table 3: Debt Dynamics Public Debt Forecasts (in % of GNP) Macroeconomic Indicators I-New Baseline 1/ Total Net Debt Stock 57.4 86.6 74.1 67.8 Nominal Interest Rate 38.0 91.2 40.6 32.6 Domestic Debt Stock 39.1 52.2 47.1 45.8 CPI Inflation 39.0 58.0 20.1 15.0 Net Interest Payments 21.9 25.8 15.6 13.1 GNP Deflator 52.6 48.5 33.6 14.9 Dom Debt Amortization 12.9 21.3 20.5 18.0 Depreciation 24.8 94.3 16.1 10.0 PSBR 19.1 20.3 9.1 6.6 GNP growth rate 6.1 -5.5 5.0 6.0 1. Program projections as revised for 9th Standby review. Source: IMF and WB estimates. The Government is taking a number of new measures in the context of the 9th review which it hopes will promote rollover of the public debt in the coming months. However, continued implementation of the core structural reform agenda remains key to building the market confidence needed to ensure that the public debt can be rolled over on a sustained basis. The new measures, announced in late July, include: * Payment of up to two-thirds (TL 5 quadrillion) of interest coming due to the state banks until the end of 2001 in new securities bearing market interest rates; the remaining one-third (TL 2.5 quadrillion) will be paid in cash as initially planned; * Restructuring of some TL 14 quadrillion in short-term securities bearing quarterly coupons, purchased by the MB from the state and SDIF banks, into longer-term (2-6 year) - 12 - debt with annual interest payments; * Increase in withholding taxes on repos, short-term deposits, and FX deposits, combined with reductions in the rates on longer-term TL deposits; * Reduction in the levy on foreign credits from 6 percent to 3 percent; * Introduction of remuneration for required bank reserves by the MB; * Increase in the threshold for income tax declarations for income from government securities (corrected for inflation) from TL 5 billion to TL 50 billion. The conversion of short-term government securities purchased by the MB from the state and SDIF banks into long-term debt and the reintroduction, albeit temporarily, of non-cash interest payments to the state banks are significant changes from the initial program strategy agreed in May. These measures may in practice help improve market sentiment by reducing the near-term rollover burden for the Treasury, but they may also complicate the transition to inflation targeting and slow the pace of bank restructuring. The Government is well aware of the latter risk and has adopted contingencies to ensure that state bank liquidity needs are not compromised. More critical to building confidence in the program, the Government is moving ahead with structural reforms including the financial and public sector reforms agreed under the PFPSAL program and the actions to improve the climate for the private sector under the Economic Reform Loan (ERL). Key structural benchmarks for the coming months include the submission to the Parliament of a new public procurement law, resolution of the intervened banks under the SDIF and progress in restructuring of the state banks with the view towards their early privatization, appointment of the new regulatory Board for the energy sector, and adoption of a corporatization plan by the new Turk Telekom Board designed to improve the company's operational performance and prepare it for successful privatization. External Vulnerability. Turkey's external vulnerability is exemplified by the large gross financing requirements of some US$ 18-21 billion projected over 2002-03 (Table 2) which now represent a greater proportion of GNP after the devaluation. The external debt stock at the end of 2000 is estimated to be US$ 114 billion (57 percent of GNP) of which about US$ 29 billion was short-term. With the increase in capital outflows, the stock of external debt is now projected to fall slightly to US$ 113 billion in 2001 (with the short-term debt stock falling sharply to US$ 18 billion). However, as a result of the greater-than-expected devaluation, this will equal 72 percent of GNP, compared to 66 percent in the initial program projections. Strong export performance is projected to keep the debt service ratio to about 45 percent in 2001, in line with the initial program. While improving thereafter, the debt service ratio is projected to remain close to 40 percent through 2003. The increased level of capital outflows projected for 2001 indicates that the program's efforts to encourage private sector involvement (PSI), i.e., "bail in" by private creditors, have had little impact so far. Looking ahead, the extent to which Turkish banks and enterprises will be able to rollover their external obligations will remain an important determinant for the program. Slowing the capital outflow, and then reversing this trend in 2002-03, will be instrumental in relieving pressure on the exchange rate and creating the conditions for a sustained decline in domestic interest rates to sustainable levels. The exceptional financing from the IFIs in 2001 is providing Turkey with needed support at this critical juncture, but a return of investor confidence will be essential to ultimate success of the program. Were the capital account to recover more slowly than expected, Turkey does have the option of requesting the IMF to extend - 13 - the maturity of the maturing SRF resources for an additional year. The large capital outflows in 2001--coming on top of the large inflows under the original disinflation program in 2000--underscore the extent of Turkey's exposure to sudden shifts in the confidence of international financial markets. At the same time, the country is faced with an important opportunity. Most of the projected capital outflow is in the form of short-term debt and portfolio investment. The coverage of short-term debt by official reserves-an important indicator of external vulnerability--actually improves under the revised baseline compared to the initial program projections, although it remains well below desirable levels (Table 1). To the extent that Turkey is able to replace a significant share of the "hot money" outflow with longer term inflows--especially FDI--over the medium term, the country's external vulnerability will be permanently reduced. In this regard, the recently announced investments by foreign banks in Turkey's financial sector is an encouraging sign. Poverty and Social Impact of the Crisis The social impact of the crisis is already being felt as lay-offs, rising prices, and negative economic growth reduce household incomes, and increase the risk of poverty on the poor. The landless poor in rural areas have been affected by a decline in construction and other informal job opportunities, a problem that has also severely affected the urban poor also. Meanwhile the poor with land are beset by increased input costs due to inflation. A full social assessment for the SRMP has been completed (see Annex 14). The main findings are: * Qualitative evidence on withdrawal of children from school. Field visits were undertaken to Eastern Anatolia, Southern Anatolia, Central Anatolia, Istanbul slums, Ankara slums and the Black Sea region. When asked in the absence of officials (and sometimes even in the presence of officials although it is illegal in Turkey to keep a child from school), the poor have replied that because of the crisis they are not going to be able to send their children to school in September, illegal or not. So there is an imminent danger of the destruction of human capital. Additionally, Ministry of Health (SB) staff in Ankara and the field report underutilization of preventative care by poor families. * Out-of-pocket school expenditures are larger than anticipated. In Turkey, compulsory education through grade 8 is free of charge. However, at least in Istanbul, some public schools asked for donations during registration in school year 2000-2001 of about TL 20 million per child (nearly US$ 30 at the December 2000 exchange rate). Rural families repeatedly stressed the cost of appropriate clothing for children, particularly shoes and winter coats. * Child labor as a coping device among the poorest families. The poorest families are forced to mobilize all possible members as income earners to contribute to family income, even if they are children. In the Duragan area of Sinop province, families send boys as young as 9 to work for low wages in agriculture. In the major cities, children work in the informal sector, - 14 - and certain cities (including Istanbul, Gaziantep, Diyarbikar) have significant groups of street children. * Changed consumption patterns of food. As a coping strategy to the crisis, many poor families reported drastic changes in their consumption pattern of food, cutting back sharply on meat, fresh fruits, vegetables, and tea. The worse cases reported that they were subsiding almost exclusively on bread. * Profile of extreme poverty. Poor families with many children, are at especial risk of extreme poverty, particularly in rural areas and in poor families where the main breadwinner (the husband) is disabled, dead, or absent for military service. Other groups at risk are single elderly living alone with no social insurance and recent migrants to urban slum areas. Fieldwork undertaken in May 2001 for the Corporate Sector Assessment indicates that: * The initial perception is that the crisis is unprecedented in its severity and impact on industry in comparison to previous crisis due, in part, to the spillover effects of the problems caused by the Russian crisis in 1998-1999, the Marmara earthquake in 1999 and the November 2000 crisis; * Small and medium enterprises(some 65 percent of SMEs surveyed) are laying off workers, while larger firms are using accelerated vacation schedules, shortened work-weeks and other methods to avoid formalized layoffs; and * Both banks and business owners confirm that credit is generally not available, except to the best customers and even then for 90 days or less. Interest rates are very high, in US dollar terms at 15-18 percent. In March 2001, a simulation of the impact of the crisis on the welfare distribution was undertaken, using household data from 1994, to identify the characteristics of the most vulnerable households. This simulation suggested five patterns of likely increased poverty as a result of the February 2001 financial crisis: (i) families with many children (widows with many children are particularly vulnerable and extended families with many children, as well as single-parent families, seem to be the most affected in terms of high rates and high increases in food poverty; (ii) an increase in unemployment disproportionately affect families with many children; (iii) those with moderate levels of education seem more likely to become vulnerable-but still above the food poverty line-while the least educated are those most likely to become food poor; and (iv) the urban population seems more at risk (vulnerable) of slipping into food poverty as they have no access to small food plots to complement meagre cash incomes; and (v) families with reduced income have responded to the crisis by reducing consumption, shifting to lower cost and quality food, postponing purchases of durables, and more worryingly, proposing to keep their children back from school due to the out-of-pocket expenses such as uniform, shoes, books and stationery. - 15- The Government is responding to this situation with a package structural reforms designed to help pull the economy out of recession and restore growth as soon as possible, which is the key to minimizing job loss, and the social and poverty impact of the crisis. Restored confidence in the financial sector will help reverse the on-going credit crunch and generate new resources for economic recovery and job creation. The public sector reforms will help ensure the quality of the fiscal adjustment and improve overall efficiency of social service delivery. Better public expenditure management will increase the availability of resources for social expenditures. Actions to upgrade the operational performance of line ministries and agencies, including increased emphasis on policy formulation and a progressive shift to performance budgeting, will help ensure that these additional resources are used effectively to fight poverty and vulnerability. Action under the program to improve public governance and tackle corruption are likely to benefit the poor disproportionately as shown in numerous international studies. Structural reform of the financial and public sectors is also crucial to avoid future crisis which would likely be devastating for the poor. Protecting Social Expenditures The Government is strengthening Turkey's social protection programs (including through the support of the SRMP) and is committed to protecting social spending under the PFPSAL program. Protecting expenditure on health, education and social protection from the impact of the crises is a key social objective. Otherwise, Turkey's human capital will suffer and the burden of adjustment will fall on vulnerable groups. A supplementary budget for 2001 was approved by Parliament in June which is consistent with the Government's macroeconomic objectives and also ensures adequate expenditure envelopes for health, education and social protection. The budget maintains aggregate spending on education slightly above the average levels of 1998-2000 (as a share of GNP) and programs a significant increase in expenditure on social protection relative to 2000, resulting in part from the launch of the Direct Income Support (DIS) program for farmers. The preliminary outcome for spending on health, education and social protection under the 2001 budget will be monitored in October. Benchmarks for public spending on health, education and social protection have been set at a level above the averages for the 1998-2000 period, reflecting the Government's policy decision to ensure adequate expenditure on social priorities. - 16 - Turkey: Social Expenditures (1998-2001) TL billion 1998 1999 20003/ 2001 1/ Education Expenditures 2,185,156 3,608,721 5,017,843 7,736,875 Health Expenditures 1,479,673 2,567,369 4,359,145 6,379,445 of which health expenditures by SSIs 728,343 1,408,963 2,473,000 3,849,000 Social Protection 3,338,299 5,916,192 8,493,000 13,774,000 a. Social Security Institutions (non-health) 3,254,299 5,660,192 8,123,000 12,849,000 b. SYDTF 84,000 256,000 370,000 425,000/2 c. Direct Income Support - - - 500,000 Total Social Expenditures 7,003,128 12,092,282 17,869,988 27,890,320 in % of GNP 1998 1999 2000 Average 2001 2! 1998-00 Education Expenditures 3.73 4.61 3.98 4.11 4.24 Health Expenditures 2.53 3.28 3.46 3.09 3.50 of which health expenditures by SSIs 1.24 1.80 1.96 2.11 Social Protection 5.70 7.56 6.74 6.67 7.55 a. Social Security Institutions (non-health) 5.56 7.23 6.45 7.04 b. Social Solidarity Fund 0.14 0.33 0.29 0.23 c. Direct Income Support - - - 0.27 Total Social Expenditures 11.97 15.45 14.19 15.29 Source: Treasury, MEB, SB, DPT and World Bank. 1/ Supplementary budget allocations for 2001. 2/ Increased further to TL 550,000 billion due to the SRMP Adjustment Portion (Rapid Response). 3/ Data for 2000 are estimates. Strengthening the social safety-net. Social Insurance. The Government is working to improve the social safety-net, and especially to reform the social security system. The reforms are necessary because the system is insolvent and the level of benefits is not sustainable. The first phase of social security reform consists of modifications to the public pay-as-you-go pension system to stem operating losses, including raising the retirement age for new entrants. The second phase of the social security reform strategy, planned for 2001, focuses on strengthening the organizational underpinnings of the system, extending its coverage, separating the pension system from associated health insurance and unemployment schemes, and eliminating accumulated arrears. The third phase is to introduce a framework for supplementary individual pension schemes. These reforms will bring forward a more targeted and sustainable social security system for old-age, but will only insure against one kind of risk - that of inadequate savings in old-age. The existing severance payment system which covers both public and private enterprises continues to operate and is being strengthened by the Bank-financed PSSP. The unemployment insurance program, introduced as part of the reform of the public pension system in August 1999, will begin to make payments to the enrolled unemployed in early 2002 and thus is not addressed by the SRMP. The Government is moving quickly to expand targeted social assistance to those - 17- groups most affected by the crisis. This support will include programs to protect vulnerable families (such as assistance with food, medicine and social services) supported directly by the SRMP. Limitations of Social Insurance. Social insurance (pensions and disability) are tied to an individual having a job in the formal sector. With the exception of the Bag-Kur social insurance plan for the self-employed, the whole social security system is linked to holding a formal job (including the newly-introduced unemployment insurance). Such a system runs the distinct risk of excluding those without a connection to the formal labor market. In the 1994 Living Standards Assessment, it was demonstrated that households headed by seasonal or casual workers (workers without a labor contract) were at high risk of poverty and economic vulnerability, and that approximately one out of four workers in Turkey are casual employees. Turkey's social protection system lacks a benefit that would be targeted to these vulnerable groups. A comprehensive social safety-net helps to insure against the risks of unemployment and poverty. Unfortunately, there are several large gaps in the social safety-net in Turkey. Turkey has only recently adopted unemployment benefits, but due to the period of required contributions, people will not be able to draw unemployment benefits until 2002. So, those who become jobless as a result of the economic crisis or reforms will not have unemployment insurance to support them while they search for other jobs. Social assistance is not comprehensive in Turkey but rather ad hoc, patchy, limited and underfunded. Turkey's existing Social Assistance is quite limited. Turkey does not have a poverty benefit--a cash transfer that is targeted to the vulnerable--which could be used to help those negatively affected by the reform. Social assistance in Turkey is limited to ad hoc assistance in kind channeled through the 931 SYDVs, and limited programs for the elderly and disabled under Law 2022, as well as institutional care for children and the elderly administered by SHCEK. Turkey has no other cash transfers that could help the vulnerable, unlike many neighboring countries of Western and Eastern Europe, which have universal child allowances. The 1994 Living Standards Assessment for Turkey found that the presence of children in a household does increase the risk of poverty substantially. Children under 10 years old have the highest poverty risk among all age groups. CCT would fill this gap by providing an incentive to poor parents to keep their children in school and for pre-school children to be regularly taken to health clinics, as well as providing limited income support to the poorest households. Using the Social Safety-net to Protect Human Capital Turkey's social indicators do not compare favorably with other middle income countries (see Selected Social Indicators - Country Comparison below). In particular, infant and maternal mortality in Turkey is quite high for a middle-income country and female literacy is noticeably lower than the comparator countries (except for Tunisia). Life expectancy at birth is equal to Tunisia and lower than the other countries. These facts point out the importance of interventions in health and education, especially education of women. The Bank has been working in partnership with Turkey on the supply side of these interventions, with several projects in education (including basic education) and health. However, to date, there have been limited - 18 - efforts on the demand side, mostly in the form of public information campaigns, which have not had much effect on these social indicators. The SRMP will help to fill this gap on the demand side by creating an incentive for poor households to keep their children in school and monitored by the health system--the conditional cash transfers. CCT are an important tool in the country's arsenal for improving these social indicators, since better education (particularly female education) has been linked to improved health indicators for mothers and children and higher household income. Selected Social Indicators - Country Comparison Indicator Turkey-, Chile Colombia Mexico Poland Hungary_ Mala%sia Tunisia ELI Population Gro%th io.i 6 2 '0 S N Lire ExpectancN at Birth 6915 4?-~ 15 0 ]1 '2 5 u1%i Infant Mlorialii% Rate 8 1 4 11 1 13 (per 1,000 li%e birthso Nlaiernal .Mortalit) ,li I Ii 14 171) NA (per 100.00 li%e births) 1 Literacs Rate (*.of adult populafionj ___. Female Lhueraci Rate 0. 5 C; SS xIi Ir i6 It GNP per Capita 1ISS) 2,9OW 4.-,P) 2.r."'I . u -'. I., k' 4 10 3.66:' 2. 1. 50 N N 1/ 1998 data 2/1999 Sources: World Development Indicators, 2000; WHO World Health Report 1999; Turkey Demographic and Health Survey, 1998 (Hacettepe University, Institute of Population Studies); Turkey Human Development Report, 1997 (UNDP) Government Actions The Government of Turkey has undertaken several key actions to strengthen the institutional basis for the SRMP and to prepare to implement the SRMP. These actions have been completed in advance of the Board presentation of the SRMP, in accordance with the negotiated commitment of the Government as follows: * Transfer of TL40 million by Treasury to SYDTF for the procurement of school attendance packages * Letter of Sector Policy (LSP) signed. * Project Operational Manual (POM) approved by Government. * Draft legislation submitted to Parliament strengthening the SYDTF and organizational structure and SYDV reporting practices, and enabling the SYDTF and SYDVs to work more effectively with NGOs. * SYDTF issued circular (on the SRMP) to the SYDVs and signed a Participating Agency Agreement for the investment portion with SHCEK and DIE. * Implementation Agreement for the adjustment portion signed by the Treasury and CBT. - 19 - 3. Sector issues to be addressed by the project and strategic choices: Poverty Reduction. The SRMP seeks to alleviate poverty in two ways--combatting the transient deterioration of living standards resulting from the crisis for the most vulnerable groups (the "safety-net") and expanding opportunities for the poor to escape from poverty (the "trampoline"). The World Bank's Living Standards Assessment (2000 - based upon 1994 data) found that absolute food poverty in Turkey was relatively low at less than 6 percent of the population. The absolute poor are the target group for the quick-disbursing and CCT components of the SRMP. However, the Living Standards Assessment found that about 36 percent of the population were economically vulnerable. This is the target group for the local initiatives component, which seeks to lift people out of poverty through income-generating activities,adult literacy, and youth employment. Poverty Monitoring. Turkey lacks reliable household data on the impact of the February financial crisis. The DIE cancelled the 2001 household income and expenditure survey for methodological reasons and the previous survey was conducted in 1994. To fill this critical gap in knowledge, the World Bank is co-financing a household survey partly from its operational budget, with the remainder of the support from the Government of Japan (PHRD Grant). This household survey is being conducted by local consultants drawing on the Middle East Technical University (ODTU) with technical assistance from the World Bank. The household survey will provide the data necessary for these key indicators: (i) poverty levels and household consumption; (ii) profile of poverty; (iii) access to health and educational services by the poor and non-poor; (iv) poverty correlates which will be combined into a scoring formula that will be used in SRMP components; (v) extensive information on health indicators, and (vi) limited information on labor and unemployment (DIE has a regular program of labor force surveys). Additionally, the institutional strengthening component of the SRMP provides for financing of two additional household surveys over the next four years with interviews and data entry conducted by consultants to the State Institute of Statistics (DIE). Finally, a rigorous impact evaluation of the conditional cash transfers (CCT) component of the SRMP will be conducted, including a baseline and follow-up survey. Targeting criteria for the CCT and Local Initiatives component will be updated to take into account these new sources of statistical information and to ensure that as the poverty profile changes, the targeting criteria will be adjusted. Social Policies. Stronger social policies are a linchpin of the program to help deal with social hardships. It is important for social cohesion that the Government moves towards addressing the impact of the February financial crisis on the most vulnerable. The SRMP provides a multi-faceted vehicle for the Government to address the crisis both quickly, through the Rapid Response component, and more lastingly, by building strong social assistance institutions and by expanding the range of available interventions to encompass CCT and increased local initiatives including income-generating activities and adult literacy through the other components of the SRMP. Social Services. In 2001, spending on immunization/vaccination programs will be increased in real terms within the overall budget ceiling. The Government intends to protect - 20 - public expenditure on education, as well as increase the public health budget while reducing waste within the overall health budget. Moving beyond 2001, the Government sees the need to develop social services for vulnerable and at-risk population groups including abandoned children/orphans, unemployed youth, illiterate adults, disabled, abused woman, and the elderly. SHCEK will take the lead role in these areas. The SRMP will strengthen such social services through the Local Initiatives component, and also increasing the poor's utilization of basic health and education on services through the CCT. Danger of Disinvestment in Human Capital. Preliminary indications from the forthcoming Social Assessment and task team field visits confirm that there is a looming danger of disinvestment in the human capital of children in poor households as a result of the financial crisis. CCT are an important tool to combat this danger, by giving parents an incentive to keep their children in school and attended regularly at health clinics by covering part of the out-of-pocket costs incurred. Strategic Choices a. Unified operation or separate operations. The SRMP is designed as an integrated operation, combining four strongly inter-related components instead of having four separate operations, namely focusing on: (i) adjustment (Rapid Response); (ii) technical assistance (TA) (Institutional Development component); (iii) CCT operation; and (iv) a social fund (Local Initiatives component). There were two major considerations for making the SRMP into an integrated operation. One concern was timing and logistics. The Government wants to move as rapidly as possible to mitigate the effects of the financial crisis and to take the opportunity at the same time to strengthen the social safety-net. Trying to prepare four separate operations simultaneously would have overtaxed both the Government and the Bank task teams. A second most important issue was the concern that the Rapid Response component (including its conditionality) not be divorced from the overall strengthening of the social safety-net which is necessary so that Turkey will be better able to cope with possible economic downturns in the future. b. Use of an existing institution or building a new institution. When designing the SRMP, various alternatives for the institutional placement of the SRMP were considered. The basic choice was between working with an existing institution, the SYDTF, or creating an entirely new institution such as a extra-governmental social fund. There are strong arguments against creating a completely new institution: time, ownership, and past track record. It takes significant time and effort to build a new government agency, and the SRMP was prepared in a very tight time frame. Next, ownership is best created by working with existing agencies. Third, the SYDTF has a strong track record both in micro-projects and social assistance provision across the country, and with cash payments in the Marmara earthquake region. c. Supply-side interventions. Given the need to maintain the poor's access to health and education services in the aftermath of the February financial crisis, supply-side interventions such as increasing places in school or staffing at health clinics were considered. However, Turkey has several Bank-financed projects in both health and education that are working on reducing - 21 - supply-side constraints. Expanding these supply-side efforts would probably not increase utilization by the poor enough, since the poor face constraints on their income which affects their demand for and ability to use social services. What Turkey lacks is an incentive to the poor so that they will use the available services. This demand-side incentive is provided in the SRMP's CCT component. d. Workfare (temporary community employment). Given that Turkey lacks a poverty or welfare benefit, a basic choice was between protecting the human capital of the poor by conditional cash transfers or creating a large-scale workfare program, whereby able-bodied adults are employed in temporary public works at low wages. The SRMP does provide scope for workfare/temporary community employment initiatives under the Local Initiatives component and the Turkish government appreciates this window for increasing local temporary community employment efforts. However, a full-scale workfare program instead of the SRMP was not viewed as practical or as responding as directly to the impact of the crisis on children. The rural areas are also highly vulnerable to the effects of the crisis, but it would be quite difficult to run public works programs outside of the urban areas. Additionally, the Turkish experience with local public works programs through the SYDVs suggest that it would be quite difficult to scale up programs significantly. It would be difficult to target workfare well in terms of keeping the wage offered low enough, since Turkish law mandates the payment of the minimum wage and social taxes but actually, wages in the informal sector are much lower than the minimum wage. It would require legislative action to offer a workfare wage lower than the minimum wage which might be quite difficult to achieve from a political economy perspective. Existing temporary community employment programs (as in the earthquake zone) have built up the expectations of beneficiaries who have been extremely frustrated when the temporary employment has ended, and have demanded ongoing employment creating a political economy problem. Finally, workfare does not reach the poorest of the poor, who are not able-bodied or work-able. For these reasons, it was considered best to keep workfare (temporary community employment) as an option in the SRMP through the Local Initiatives component, but not to press forward for a large-scale workfare program at the present time. e. Targeting. The SRMP uses two different kinds of targeting for delivering its two major assistance components--the existing community-based targeting mechanism of the SYDV for the adjustment portion (Rapid Response) and a new targeting mechanism, a proxy-means test scoring formula for CCT and Local Initiatives. For the adjustment portion, it was not possible to use geographical targeting because the affected population is distributed across the country, and is not exclusively rural (such as in Mexico where geographical targeting to rural areas is used). In Turkey, even the best-off areas such as Istanbul have large pockets of poverty in urban slum communities (gecekondu). For the CCT and Local Initiatives, a proxy-means test scoring formula was adopted that would give adequate weight to location as part of the score. However, for the CCT, both Government and SRMP loan resources are limited, and it would not be possible to provide CCT to all the rural population. Some way to discriminate between the extreme poor and not-so-extremely poor is required such as afforded by a scoring formula. The team was able to work with the 1994 data to develop a scoring formula, and as part of this operation, a household survey of 4,000 households is being fielded to generate the data necessary to assess poverty in Turkey and to devise a more current scoring formula. The same scoring formula with a different - 22 - eligibility level will be used as part of the selection criteria for individuals applying for Local Initiatives micro-grants. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The SRMP as a hybrid loan has an adjustment portion (Rapid Response) and an investment portion, with three strongly complementary components: * Adjustment Portion - Rapid Response (US$ 100.0 million, of which the Bank Loan is equal to US$100.0 million): The adjustment portion of the SRMP will provide quick-disbursing budget support against the Bank's standard negative list. The TL equivalent funds will be used to support key programs of the SYDTF targeted to the poorest households in a single disbursement, inter alia: (i) school attendance packs (uniforms, shoes, stationery, textbooks ); (ii) pharmaceuticals and medical supplies the poor people who are not able to pay for health expenses; and (iii) expansion of existing social assistance programs (including family food and heating support) to meet the increased real needs generated by the crisis. The Government has signed a Letter of Sector Policy (LSP - Annex 11) on August 15, 2001 on social risk mitigation, social assistance and poverty reduction. Conditions for the Tranche Release of the adjustment portion of the Loan would be: (i) satisfactory macroeconomic framework, as measured on the basis of indicators agreed between the Bank and the Government of Turkey; and (ii) satisfactory progress in the carrying out of the program as defined in the LSP. Treasury has already transferred an amount of TL 40 million to the SYDTF for the procurement of school attendance packages for poor children which need to be distributed by the beginning of the school year on September 11, 2001. * Institutional Development (US$ 36.61 million, of which Bank US$ 30.48 million): The SRMP would strengthen the institutional capacity of key government agencies to improve the coverage and targeting of the social safety-net for the poor. Key elements include strengthening: (i) policy research, monitoring and evaluation (M&E) capacities; (ii) MIS & Information Technology (IT) development; (iii) staff development and training; and (iv) public information campaigns for both SHCEK and the SYDTF/SYDVs. The capacity of DIE to monitor poverty through more frequent HIES will be developed and to undertake poverty mapping based upon the Census. This component will also support the Project Coordination Unit (PCU) within the SYDTF, which will oversee the implementation of the SRMP, including the financing of all the Financial Management System (FMS), per-audit, documentary reviews and operational reviews, M&E studies, and beneficiary assessments. This would include the provision of TA, training, computer and other equipment for the MIS to the SYDTF, SYDVs, SHCEK and the DIE. - 23 - * Conditional Cash Transfers - CCT ( US$ 360.00 million, of which Bank US$ 260.0 million): The SRMP would finance the introduction through the SYDTF/SYDVs of an expanded social safety-net targeted to the poorest 6 percent of families linked to certain positive behavioral changes such as keeping children in school and ensuring children receive adequate immunization coverage in a timely manner, basic health care and nutrition (including resolving micro-nutrient deficiencies). This would require the introduction of an improved and systematic targeting system using "points" for household characteristics linked to poverty. The loan would finance education grants (paid twice in a school term or four times during the 9 month academic year) and health/nutrition grants (paid quarterly) to the mothers (or other eligible recipients) of children who are eligible in accordance with criteria set forth in the Project Operations Manual (POM). Government presentation to the Bank of a POM, satisfactory to the Bank has been completed. All subsequent changes to the POM must be agreed with the Bank, and all procedures and conditions set forth in the POM must be followed during project implementation. The CCT is a highly targeted social assistance transfer to families with children, requiring positive family behavioral change with respect to health and education. * Local Initiatives (US$ 133.85 million, of which Bank USS 104.53 million): The SRMP would strengthen and finance key programs of the SYDTF/SYDVs as proposed by provinces, districts, and local community demand, designed to provide enhanced sustainable employment opportunities for the poor, thereby reducing poverty. Such programs are: (i) income-generating sub-projects (which will receive improved technical assessment and M&E under the SRMP); (ii) employability training (including adult literacy - especially for women-through mass media such as TV, local radio and local newspapers), technical and life skills training for unemployed youth - including how to get a job, start a small business); (iii) temporary community employment which will support workfare activities linked to the rehabilitation of local infrastructure and community assets; and (iv) expansion of cost-effective social services for children, youth, disabled and the elderly (including through SHCEK and NGOs). Indicative- Bank- . Jof Component Sector -osts % of 'fliancirm ________________ _______ (IS$&) Total. 0.~M Adjustment - Rapid Response 100.00 15.7 100.00 20.0 1. Institutional Development 36.61 5.8 30.48 6.1 II. CCT 360.00 56.7 260.00 52.0 III. Local Initiatives 133.85 21.1 104.52 20.9 Total Project Costs 630.46 99.2 495.00 99.0 Front-end fee 5.00 0.8 5.00 1.0 Total Financing Required 635.46 100.0 500.00 100.0 - 24 - The SRMP structure is summarized in the table below: Social Risk Mitigation Project Rapid Response Institutional CCT Local (Adjustment Development Initiatives Component) School SYDTF Application of Income Attendance & SHCEK DIE Targeting Generating Support SYDTVs Mechanism Sub-projecs Health r--- --- -- - Education Employability Support Research & Benefits Training MIS & IT MIS & IT Poverty Monitoring Incremental -- Health Social Social Research Research Sta Benefits Services Assistance Monitoring & Monitoring & Development Development Evaluation Evaluation and Training Staff Staff Public Development- Development Information and Training and Training L Public Public Information Information 2. Key policy and institutional reforms supported by the project: A number of key policy reforms are being sought: (i) Establishment of an affordable safety-net which reinforces positive health and education behaviors. CCT are transfers which are conditioned on recipient behavior for continued receipt. The behaviors required are school attendance for school-age children and well baby/health clinic visits for children below school age. The idea behind CCT is that the poor are often forced to pull their children out of school to work or look after younger siblings when the household is faced with an economic crisis. This is clearly a looming danger for Turkey, based on the team's findings from fieldwork and the Social Assessment. Withdrawing children from school often leads to a permanent reduction in the human capital of the children who do not typically return to school after the crisis, and a perpetuation of the cycle of poverty across generations. CCT will provide an incentive to the poor to: (i) keep their children in school and work on the demand side of education by covering the out-of-pocket expenses (school books, uniforms, stationary and textbooks) that often preclude the poor from sending their children to school; and (ii) obtain adequate pre-natal care, basic health and nutrition services (including immunization, growth monitoring and resolving micro-nutrient deficiencies). CCT will be targeted to the poor by proxy means tests. In Turkey, a large informal sector means that income-testing would be too expensive and difficult, so a scoring formula based on a proxy means test will be used. - 25 - CCT are an important mechanism to protecting and developing the human capital of the vulnerable. CCT are an important tool in the battle against the inter-generational transfer of poverty, since children who fail to complete basic education today become the poor of tomorrow. The CCT would need to be carefully monitored and evaluated to determine whether it is achieving its objectives and determine the duration of the program. A full review of the CCT would be undertaken with the Bank on December 31, 2003, as part of the mid-term review of the SRMP, and follow-up actions agreed with the Bank. The operation of the CCT will also be reviewed as part of the Annual Program review discussed below. The level of the benefits for the Rapid Response component will be determined by the SYDTF and SYDVs, based on their standard parameters for this type of in-kind social assistance already in place. For the CCT component, there is a difference between the benefit for education and that for health. Health benefits will be US $6 per child, paid quarterly, for a total of US$ 72 per year. For education, a sliding scale will be used for each subsequent child, beginning at US $8 per child and decreasing monotonically with each subsequent child. Education benefits will be paid twice per term or 4 times during the 9 month academic year, totalling US$ 72 per child for the first child in each family. These amounts are comparable to the benefits paid in CCT programs in Latin America, and also corresponds to a significant share (but less than 100 percent) of out-of-pocket expenditures. (ii) Improved targeting of social assistance to increase efficiency of public resources use. Virtually all of the SYDV in Turkey identify the needy and select them for assistance by the deliberations of a local committee, which is headed by the Kaymakam at the District level and by the Governor or Vice-Governor at the Provincial level. While local officials may have access to local knowledge about the applicants, they lack training in social work and social assessment, and their decisions are vulnerable to accusations of favoritism, even if none occurred. Many countries have found the use of a scoring formula to lead to outcomes that are more equitable and efficient than the decisions of local committees. Turkey has experience with scoring formulas--in Van province, the SYDV uses a scoring formula developed by the local SHCEK Directors, and the SYDTF uses a scoring formula for the allocation of scholarships. Turkey will use reliable household data from a socio-econo.nic survey to develop a national scoring formula. A major advantage of a scoring formula is that it can be used to rank households according to their level of poverty, and different social assistance programs can use different cut-off points for eligibility. This would make it possible to target CCT and other food and social assistance to the most needy, while targeting other programs such as income generation and training to those vulnerable, but not as destitute. In this way, scarce public sector resources for social assistance will make the maximum impact on poverty reduction. - 26 - (iii) Strengthening the institutional framework for social risk mitigation, management and prevention. The existing SYDTF, SYDVs, and SHCEK will be strengthened under the SRMP to perform their increased and modernized role to strengthen the social safety-net linked to the development of the market economy--including enhanced technical staff skills, improved financial management & auditing, MIS, M&E and linkages with civic society. This is predicated upon an improved organizational framework law for the SYDTF and SYDVs. The Government has submitted to Parliament legislation, satisfactory to the Bank, strengthening the SYDTF and SYDV structures to perform their long-term social risk mitigation, management and prevention role and enabling them to work with and contract NGOs more easily. Enactment of this law is a condition of disbursement for the CCT and Local Initiatives components. The institutional strengthening of the SYDTF and SYDVs will include the implementation of the key agreed recommendations of the operational review undertaken by consultants in the context of the Emergency Earthquake Recovery Loan (EERL), inter alia, requiring formal financial reporting arrangements of the SYDVs to the STDTF, and the development and implementation of an integrated MIS. The SRMP will finance the high priority investment needs of these institutions through the Institutional Development component. The Government and the Bank will review annually, by November 30 each year, commencing 2001, progress in social protection policy and reforms and the adequacy of the budgetary allocations for such purposes (Annual Program), making recommendations to further enhance the SRMP program to strengthen social risk mitigation, management and prevention, based upon a report to be received by the Bank from the Government by October 30 each year during project implementation. Following such review, the Government will formally adopt the agreed Annual Program by January 31. (iv) Promotion of employability of the poor. It would be both inappropriate and unaffordable to rely on a passive social assistance system. The CCT system must be supplemented by an active program aimed at helping to improve the employability of the poor (basic skills related to market demands, literacy, numeracy, interviewing and job-search skills, coping-with-life-skills). The very limited temporary community employment activities undertaken by the SYDVs will be expanded to provide an employment safety-net to the able-bodied poor in areas where this can be organized. Additional support for starting small-businesses and other income generating activities for the poor will be provided. Local temporary community employment programs will be supported. All these activities need to be relevant to the market demands and of high technical quality and thus the Government will work ever more closely with the private sector, especially chambers of commerce and industry and NGOs at the local level. These activities will be supported under the Local Initiatives component of the SRMP. - 27 - (v) Adequate poverty monitoring and dissemination as the basis for policy establishment. Poverty policy design, M&E, has been handicapped by the lack of an adequate HIES (the last having been undertaken in 1994, and that for 2001 having been cancelled in light of prevailed macro economic circumstances and technical reasons). The Government will field two household surveys during the SRMP, financed by the SRMP and the Government. Turkey adopted the European Union Acquis in a legal declaration signed by the Council of Ministers and the President of Turkey on March 19, 2001. The Official Gazette published (March 24, 2001) the 500-page National Program for the Adoption of the Acquis, of which 49 pages pertain to the Acquis on statistical information. The Government confirmed that this Presidential action has the force of law in Turkey and establishes a clear and unequivocal basis for future actions for statistics. The EU Acquis on statistics provides for open data access. The Government affirms that this Presidential Action is sufficient to establish the principles of open data access in Turkey and thus has satisfied the Bank requirements under the SRMP. Support for the continued quantitative monitoring and evaluation of poverty in Turkey through regular rapid surveys will be provided through the Institutional Development component of the SRMP. (vi) Civic society involvement and empowerment of the poor. Increasingly, governments are realizing that the most effective approach to social policy and economic reform is to build partnerships with civic society, including key stakeholders such as NGOs, community-based organizations (CBOs), trade unions, and local officials. These actions will over time give a stronger voice to the poor and thereby empower them more. There was an outpouring of support for earthquake victims from NGOs, CBOs, civil society, and even private individuals. NGOs are active in providing social assistance to the needy, and in child welfare activities but often in a sporadic uncoordinated manner with the responsible state agency. The Government is in the process of adopting draft legislation, which will then be submitted to Parliament, to enable the SYDTF and SYDVs to work more effectively among themselves and with the Government, and will encourage NGOs in their endeavors to grow and become more professional. The Government has submitted to Parliament draft legislation, satisfactory to the Bank, enabling the SYDTF and SYD V structures to work with and contract NGOs more easily. Enactment of this law is a condition of disbursement for the CCT and Local Initiatives components. Civic society will be actively involved in the Local Initiatives component of the SRMP as service providers; as members cf the Executive Committee; and civic society representatives will sit on the SRMP Advisory Committee. - 28 - 3. Benefits and target population: The SRMP has several different target groups for the differing components of the operation. For the adjustment portion, the target group consists of the poorest of the poor who have already been identified by local community committees of the SDYTV, following the logic that the poorest of the poor are the most vulnerable to the effects of crisis. A second target group are children in those households with expenditures under the absolute food poverty line--some six to eight percent of the population. The CCT component will be focussed on this group and the beneficiaries will be identified by a proxy-means test scoring formula developed from household data. The third target group is the economically vulnerable--according to the Living Standards Assessment, the consumption of approximately 36 percent of the Turkish population is low enough such that this population is at significant risk to slide into absolute poverty. This group is the target group for the Local Initiatives component, since the income-generating activities are not suitable for the poorest of the poor (who may not have the basic skills to develop small income-generating activities), but are highly relevant to those employed casually in the informal sector, for enhancing their income-generating potential. Groups will be identified by different mechanisms. In the case of the target group for the adjustment portion, the targeting mechanism will be the existing SYDV local committees which decide eligibility on a case-by-case basis. For the CCT and Local Initiatives components, the target group will be identified by using the proxy-means test scoring formula, but the eligibility cut-offs will be different for the different groups. More stringent criteria (a lower score) will be used to differentiate the absolute poor (for the CCT component), while the economically vulnerable will qualify under criteria which are still related to poverty, but not as stringent as the absolute poor (for the Local Initiatives component). 4. Institutional and implementation arrangements: The SRMP would be managed by the SYDTF, which has created a small PCU with satisfactory staff to perform the following functions: project management, procurement, financial management & disbursement, MIS, monitoring and evaluation (M&E). Participating Agency Agreements, satisfactory to the Bank, have been signed by the SYDTF, SHCEK and DIE prior to Board outlining the commitments of all parties to implement the SRMP effectively. For the adjustment portion, an Implementation Agreement between the Treasury and MB has been signed. In the case of the SYDVs, their participation in the SRMP are governed on the basis of circulars (accepted as satisfactory to the Bank) issued by the SYDTF which are legally binding and obligate the SYDVs to implement the SRMP in accordance with the POM and the Loan Agreement. Advisory Committee: The Advisory Committee, chaired by the Minister of State responsible for the SYDTF will include members who are representatives from the Participating Agencies and related institutions, and civic society. The committee will be responsible for providing the SYDTF guidance and recommendations regularly. The Advisory Committee shall be responsible for periodically assessing the overall Project implementation and problems, based on information provided by the PCU and other sources, and shall provide the SYDTF written recommendations and advice regarding future Project activities. - 29 - The Executive Committee for the Local Initiatives project would be comprised of the Project Coordinator for the SRMP, the Secretary General of the SYDTF, the M&E specialists, a member of SHCEK, and members of at least three national NGOs. The Executive Committee shall be responsible for evaluating proposals for Sub-projects and Performance Grants, and making recommendations to the SYDTF, and for reviewing and reporting to the SYDTF the status of Sub-projects and Performance Grants under implementation. The PCU, physically located within the SYDTF, will be in charge of project management, administration and concrete implementation, functioning as service-provider to the various implementing agencies. The PCU will work as a specialized organizational unit of the SYDTF, staffed with staff from the Fund (counterpart members) and local consultants for the activities where the SYDTF lacks, at present, experience: both fiduciary (disbursement, procurement, project accounting and reporting) and pertinent to SYDTF's core functions (for instance targeting, M&E and public information). The SYDTF will furnish through the PCU: (i) Quarterly PMRs commencing on January 31, 2002; and (ii) will hold a mid-term project review with Bank by December 31, 2003, based upon a report received by November 30, 2003 The implementation of the SRMP will be in accordance with the POM which is currently being finalized. The POM hass been approved by the Government and submitted to the Bank. The POM can be modified only in agreement with the Bank The PCU team will involve representatives from the SHCEK and the DIE (to ease communication and facilitate coordination between the SYDTF and the two agencies) and will comprise a procurement person, an accountant, a disbursement person, an information technology expert, a monitoring and evaluation expert, a reporting and communication expert, and two support staff. All PCU team members have already been appointed with TORs and CVs acceptable to the Bank. Job descriptions for the local consultants (Procurement Specialist, FMS Specialist, MIS Specialist, IT Advisor, and Communication Specialist), to be hired for the life of the project and who will be preferably experienced in Bank-financed projects, were reviewed and approved by the Bank. These consultants would be hired within the next two months. It is expected that the SYDTF will improve its capacity by the support of these qualified professional individual consultants and that a financial management system satisfactory to the Bank will be maintained and strengthened by the Fund throughout project implementation. All fiduciary functions (disbursement, procurement, accounting and reporting) will be centralized at the PCU level. To that extent, the PCU must be provided appropriate resources and appropriate training in project management and administration for the PCU members. The S YDTF has managed efficiently and effectively the emergency response to the August 1999 earthquake, proving itself as the most suitable vehicle to administer assistance transfers in a fast and sufficiently controlled way. However, it has not performed project management and administration functions for which, at present, there is no capacity in place. The SYDTF written policies and procedures will be reinforced through the circulars, satisfactory to the Bank, which will govern SRMP implementation. - 30 - D. Project Rationale 1. Project alternatives considered and reasons for rejection: Various lending instruments were considered to support the Government program and objectives before the hybrid option was finally adopted * SIL: Although a SIL would provide the necessary investment resources, it would not be able to respond to the crisis needs in a timely manner. * TA Loan: TA needs only form a small part of the overall financing requirements and thus such an approach was not found to be relevant. * Adjustment Loan: An adjustment loan would be appropriate for both the quick response and legal framework improvement requirements. However, such an approach would not address the key institution-building and investment requirements of the SRMP. Having separate adjustment and investment loans would be an option, but the risk of the two elements losing coherence was considered high. An integrated approach of a combined adjustment component as a rapid response to the crisis combined with the longer-term institution-building and investment components was thus adopted. A hybrid loan was chosen, despite the increased complexity in loan processing. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project (PSR) Ratings (Bank-financed projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Poverty Reduction/Social Assistance Marmara Earthquake S S Emergency Recovery. Privatization Social Support U S Project. Public Sector Management/Govemance Public Financial Management. S S Emergency Earthquake S S Recovery. Economic Reform. S S Public Expenditure and Institutional Review (Non-lending). Anti-corruption TA (Non-lending). Programmatic Financial and Public Sector Adjustment.. - 31 - Education/Employment Employment and Training (completed). Basic Education I. U HS Health Health I (completed). Primary Health Care Services (completed). Health II. S S Other development agencies Education/Employment EU - Modernization of Vocational Training. EU - Support to Basic Education Reform. UNICEF - Early Childhood Development and Education Project. Health EU - Program of Reproductive Health in Turkey. UNICEF - Mother and Child Health and Nutrition. UNICEF - Adolescent Health and Development. NGO/Civic Participation UNDP - Local Agenda 21. UNICEF - Local Capacity Building and Area-Based Management. UNDP - Governance Program in Turkey. UNDP - Gender Program. Social Assistance UNICEF - Children in Need of Special Protection Project. Community Development UNDP - Southeast Anatolia (GAP) Sustainable Development Program. IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The SRMP draws extensively upon the experience obtained through the implementation of the Bank's Turkish portfolio (Turkey). The design has been based upon the lessons learnt and experience gained from and other projects in Turkey, as well as social protection projects more widely (global). It is totally consistent with the ECA and Bank-wide Social Protection Strategy (strategy). The main lessons learnt (with source in parentheses) incorporated into the SRMP are summarized below: - 32 - * Comprehensive social mitigation approach: There are great synergies to be obtained by linking social protection with the health and education sectors as part of an overall social mitigation strategy (strategy). The SRMP explicitly links social assistance provision with health and education under the CCT, thereby developing important synergies and strengthening demand for basic health and education services by the poor. * Policy implementation is as important as design: Even the best policy design can be undone by poor implementation (Turkey, global). The SRMP combines TA for policy design, together with the strengthening of M&E and resources for program implementation in a coherent and integrated manner. * Strong national ownership: Projects will only be implemented effectively if there is strong national ownership (Turkey, global). The project components build exactly on the strengths of the SYDTF, SYDVs, SHCEK and DIE, and have their strongest endorsement. Provincial and District administrations and NGOs are also highly supportive. * Involve stakeholders: Stakeholders views and inputs must be incorporated constantly into the project design if it is to respond to the real needs of the proposed beneficiaries (global, Turkey). The project includes a number of beneficiary assessment to monitor stakeholders interests and perceptions. Communities will be able to make sub-project proposals under the Local Initiatives component. All stakeholders are represented on the SRMP Advisory Committee. * Centrality of M&E: M&E of social protection programs and projects has been inadequate (global, strategy) in many lending operations within social protection globally and in Turkey. Institutionalizing M&E across the entire range of the activities of the SYDTF, SYDVs and SHCEK is central to, and one of the areas of real value-added, of the SRMP for Turkey. * Coordinated informatics: Informatics systems must be able to communicate with one another with a user-friendly interface and should only be introduced after existing manual informations systems and processes have been streamlined (global, Turkey). Special attention is being given to ensure that the informatics systems of the SYDTF, SYDVs and SHCEK will all inter-connect effectively, and will have a user-friendly interface. 4. Indications of borrower commitment and ownership: The borrower has a very high level of ownership of the SRMP as evidenced by: (i) undertakings made in the LSP, including strengthening the legislative basis for the SYDTF; (ii) increased allocation of budgetary funds for 2001 to the SYDTF to mitigate the impact of the February 2001 crisis on the poor (including the already completed transfer of TL 40 trillion to the SYDTF for the purchase of back-to-school packs for the poorest 1.05 million children; (iii) establishment of the PCU for the SRMP including staffing, office space, furniture and equipment; (iv) high level of counterpart funding agreed; and (v) willingness to engage all stakeholders in project governance through the SRMP Advisory Committee. The LSP commits the Government to working towards the passage of key pieces of legislation to strengthen Turkey's social safety-net. - 33 - 5. Value added of Bank support in this project: The February 2001 crisis has made the Government more aware both of the need to mitigate the immediate negative impacts on the poor, and also to address long-term issues of poverty and social exclusion. The Bank is able to contribute to both of these needs in a major way. In terms of the rapid response to the crisis, the Bank is able to provide additional financial resources and guidance on the key programs which would help mitigate the negative impacts of the crisis on the poor (support to poor families in basic education, health, heating and food consumption as well as strengthening the legal framework for the social safety-net). Over the longer-term, the Bank is: (i) providing guidance on improvements in government structures to help the poor (SYDTF, SYDVs, SHCEK and DIE) including a stronger voice for the poor themselves; (ii) building up the institutional capacity of these same institutions, including the introduction of regular HIES to monitor poverty; (iii) supporting the introduction of an affordable, highly targeted social safety-net (the CCT) which will lead to improved health and education outcomes for the poor, through both policy advice and finance; and (iv) improving the quality of income generating and employability training activities under the Local Initiatives component by bringing in best practice from social funds globally, improving procedures and criteria, including the essential elements of the Government's economic reform program. The Most recent poverty profile in Turkey is presented. A summary of the employment, unemployment and under-employment is provided. and increasing their financial resources available for such sub-projects thereby increasing their impact on the poor. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): (D Cost benefit NPV=US$ million; ERR = % (see Annex 4) O Cost effectiveness * Other (specify) Annex 4 presents detailed analysis of: (i) the poverty profile in Turkey; and (iii) recent trends in employment, unemployment and under-employment. An assessment of the allocation formula for the distribution of funds from the SYDTF to the 931 SYDVs was undertaken. The formula is appropriate, fair, simple and transparent as it distributes funds based on population weighted by a poverty index developed by the DIE with a further uplift factor of 50 percent for the Eastern and South-Eastern Anatolian regions. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) The key financial issues being addressed are: (i) the sustainable revenue base for the SYDTF, including the need to avoid the accumulation of arrears in the transfer of revenues from the Treasury and maintaining a stable withholding rate by the Treasury on the earmarked revenues; and (ii) the FMS for the SYDTF and SYDV to ensure an open, transparent and accountable management of funds. The first issue is being addressed through the LSP (see Annex 11) with commitments from the Treasury to ensure domestic financing to the SYDTF of TL 550 trillion in 2001. The second issue is being addressed through the Institutional - 34 - Development component which includes developing the FMS and computerized MIS for the SYDTF, SYDVs and SHCEK. A cash-flow statement of the SYDTF for 1999-2001 is included in Annex 5. The SYDTF has managed to balance expenditures and revenues fairly closely in recent years. Fiscal Impact: The fiscal impact of the Turkish Government's counterpart contributions to the SRMP is minimal. For the US$ 100 million adjustment portion, there is no net fiscal impact since the Bank is financing this component at 100 percent. For the CCT, while counterpart funding is expected to be forthcoming from the Turkish Government, the amount of net increase in fiscal expenditures is quite low--only US$ 100 million over the life of the project, or less than 0.12 percent of GDP. Overall, the total net increment to Turkish fiscal expenditure over the first 3 years of the project only amounts to less than 0.15 percent of GDP. If the Government decides to continue the CCT at the level proposed under the SRMP, this would amount to public expenditures of some 0.17 percent of GDP annually from 2005 onwards, but could be increased or reduced according to the priority given to the CCT. 3. Technical: A number of key technical issues are being addressed: * Policy development, M&E - through TA and training under the Institutional Development component. * Staff skills - through in-service training under the Institutional Development component. * Public information - through the design and implementation of improved public information campaigns using appropriate messages, media and languages for the targeted population groups under the Institutional Development component. * CCT - through the creation of a highly targeted social safety-net leading to improved human capital behavior by the targeted population groups (i.e. the extreme poor) under the CCT component. * Income generating sub-projects for the poor - through TA leading to improved evaluation, supervision and technical inputs under the Local Initiatives component. * Employability training for the poor - through improved design and implementation, making the training more relevant for the needs of the market economy with the enhanced involvement of the private sector and NGOs under the Local Initiatives component. * Temporary community employment - expending the capacity of SYDVs to manage such programs in a measured and effective manner. 4. Institutional: The SRMP requires the active participation of a variety of central government agencies (SYDTF, SHCEK, DIE, MEB, and SB) together with the 931 SYDVs and the respective district administrations headed by the Kaymakam. NGOs and the private sector will play an increasingly important role in the Local Initiatives component. They will participate as members of the - 35 - Advisory Committee of the SRMP and as members of the Executive Committee of the Local Initiatives Component. This would ensure the effective implementation of the SRMP, through meaningful representation of all key stakeholders and participants. Detailed institutional analysis of the key agencies (SYDTF, the SYDVs and SHCEK) is provided in Annex 13. The SYDTF is an extra-budgetary fund established by Law No. 3294 dated May 29, 1986. The SYDTF is administered by a Committee comprising Under-secretary of the Prime Ministry, Under-secretary of Ministry of Interior, Undersecretary of SB, the General Directorate of Foundations and the General Director of the SHCEK, under the chairmanship of a State Minister appointed by the Prime Minister. All of the decisions made at the Committee meetings enter into effect after approval and ratification by the Prime Minister. The SYDTF does not have its own administrative capacity and most of its staff members are seconded and paid from ministries or other agencies. This is being changed 4.1 Executing agencies: The SYDTF is responsible for the overall implementation of the SRMP and has established an adequately locally staffed PCU. The SYDTF will transfer funds to the 931 SYDVs, which will manage and disburse funds under the adjustment portion, CCT and Local Initiatives components, under the guidance and direct supervision of the SYDTF. The SYDTF, DIE and SHCEK will each implement their respective sub-components of the Institutional Development component, with technical support from the PCU. The SYDVs are legal entities established at the provincial/sub-provincial level, managed by their own local Committee, enjoying some delegated decision-making in carrying out their activities. For effective coordination and monitoring by the SYDTF on the activities carried out by the SYDVs under the umbrella of the SRMP, the SYDTF will send the SYDVs circulars (satisfactory to the Bank), spelling out respective roles and responsibilities and empowering the SYDTF with authority to implement specific actions in case of less than satisfactory participation or performance by the SYDVs. The introduction of standardized procedures and reporting formats will be needed, which will be one of the outcomes of the establishment of a common, unified financial and management information system (financed under the Institutional Development component of the project). What proved to be an extremely successful response and spontaneous mobilization under the earthquake emergency needs, under the SRMP will be systematized and documented, in order to become an efficient, sustainable and transparent social safety-net and an effective system of social services and assistance. Given the accelerated project preparation, it is estimated that it would take until the latter part of 2001 to establish a satisfactory FMS, adequate to support project implementation, will take (including human resources, software, hardware, policies and procedures). This will be documented in the Financial Management Manual (which which be incorporated in the POM) which together with a positive certification by a Bank FMS staff of these arrangements, will be conditions of disbursement for the CCT and Local Initiatives components. - 36 - 4.2 Project management: The PCU will coordinate the SRMP. Office space has already been made available and equipment and furniture is in the process of being procured (using SYDTF own resources). A PCU comprising 10 existing staff of the SYDTF (financed as a Government counterpart) will form the core of the PCU. All these 10 key staff have been appointed with TORs and qualifications satisfactory to the Bank. These staff will be complemented by short-term specialized consultants on procurement, FMS, MIS and M&E financed under the SRMP. In addition, liaison officers will be appointed by both the DIE and SHCEK to ensure coordination of their respective sub-components with the SYDTF PCU. 4.3 Procurement issues: The SYDTF has experience in managing cash payments funded from a Bank loan (the EERL), but has had no experience in traditional Bank procurement. Training, funded under the loan, will be provided to the PCU procurement staff, complemented by frequent advice and support from the Bank's procurement specialists in the Ankara office. The procurement review has been completed and the agreed procurement upgrading action-plan is included in Annex 6. 4.4 Financial management issues: The PCU has an accountant who will be assisted through hiring a local consultant with adequate qualifications. The FMS for the SYDTF will be completely upgraded under the Institutional Development component to enable clear tracking of funds and improved accounting. The FMS review has been completed and is summarized in Annex 6. The SYDTF is subject to government regulations on accounting (Uniform Code of Accounts) and record-keeping; however, the Fund is not required to produce financial statements, given its nature of extra-budgetary fund and tax-exemption status. The SYDTF is subject to annual audits by the Prime Ministry Supreme Audit Board. The SYDTF's existing accounting unit is not prepared and adequately staffed to cope with the increased workload originated by the project. The existing FMS is inadequate to support project accounting/reporting functions (following government accounting classifications and conventions). It is not supported by the needed internal controls; hence the need (among other fiduciary areas, where adequate resources and skills are lacking) for the establishment of a PCU through which specialized information systems and adequate professional expertise will be made available to the SYDTF. Given the lack of financial management capacity at the PCU, establishment of basic financial management arrangements, satisfactory to the Bank is a Condition of Loan Effectiveness. Disbursement of each investment component of the loan will be subject to an FMS certification of the financial management systems for that particular component and an action plan for the certification has been prepared and included in Annex 6. The risks in this operation are considered substantial both from the financial control perspective and reputational risk perspective. Therefore, beside the standard audit requirements to - 37 - be applied in respect of both the adjustment and the investment parts of the project, a number of measures have been agreed to minimize the risks identified in the various activities. These activities are: (a) documentary reviews in respect of the adjustment portion by a governmental audit body; (b) pre-audits of payments under CCT carried out by a governmental audit body on a systematic basis; and (c) an operational review for the whole SRMP carried out at the end of the first year of implementation by the Treasury Controller,s with the assistance of an independent, private sector accounting/consulting firm. The further strengthening of a satisfactory FMS, and its maintenance over the life of the SRMP, will be monitored by the Bank during supervision and throughout project implementation which will be ensured by the availability of a FMS staff in the Bank's Ankara Office. 5. Environmental: Environmental Category: F (Financial Intermediary Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. There are no significant environmental issues. The project is rated as an FI and therefore, an Environmental Management Plan is not required for the SRMP. However, the social assessments will include an area assessment for each community/locality eligible for under the Local Initiatives component. The assessments would include mapping of the district from a social and environmental perspective. Each sub-project identified by communities as a priority need will be evaluated and assessed for its environmental impact by consultants recruited by the PCU for this purpose. The Ministry of Environment has limited regional capacity to monitor compliance with regulations and therefore the PCU will need to recruit consultants to be able to carry out this task. TORs are being developed and included in the POM for this purpose. The approach for the TORs and for the monitoring will be used against the criteria described in the operations manual on a case-by-case basis for each sub-project. The SYDVs and the PCU will be responsible for evaluating each subproject proposal for its viability against several different criteria, including an environmental viability of the sub-project. This capacity for identifying and supporting environmentally sound sub-projects will be strengthened in all of the participating SYDVs and through training and technical assistance. The POM details the mechanisms and institutional arrangements for: environmental screening at the time of grant application, environmental evaluation at the time of sub-project appraisal, and monitoring compliance during sub-project implementation. The POM defines the cases in which no environmental review is needed, and those in which either an environmental review, a limited impact assessment or a full impact assessment (financed by the loan) is needed. It would also provide guidance on how to prepare an Environmental Management Plan when mitigation measures are needed, and identify possible monitoring indicators to be used by the project implementing unit for M&E. However, subprojects financed under the Local Initiatives component are expected to be very small interventions in infrastructure repair with no harmful afTects to the environment. 5.2 What are the main features of the EMP and are they adequate? n/a 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: n/a - 38 - 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? n/a 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? n/a 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. A Social Assessment was undertaken. This included both stakeholders analysis and beneficiary assessment. The objectives were to: (i) understand the impact of the fiscal crisis on different social groups, mainly the poor and those vulnerable to poverty as a result of the crisis; (ii) evaluate the institutions in charge of service delivery to the poor and their programs; and (iii) provide information on strengthening and improving the services targeted to the poor. There are a number of key social issues which are specifically of the concern of the social assessment. They include: (i) gender, (ii) regional disparities, (iii) youth, and (iv) access and exclusion. The social assessment which includes both beneficiary and stakeholders assessment explore these social issues in-depth. For example, with respect to gender, the main issues are the access of young poor girls to education and the barriers to their equal participation; with respect to regional disparities are the cultural and communication differences which may effect access and result in exclusion. 6.2 Participatory Approach: How are key stakeholders participating in the project? The involvement of key stakeholders at all levels is essential for the success of the SRMP. The development of a responsive social assistance system, one of the main objectives of the SRMP, means understanding the diverse needs of the beneficiaries which is central to the long-term success of the SRMP. To this end, stakeholders at all levels were consulted including: (i) Government institutions in charge of social service delivery SYDTF, SYDV, SHCEK, DIE, MEB, and SB; and (ii) NGOs working with the poor; and (iii) members of poor communities themselves. The views of all these stakeholders were taken into account for the preparation of the SRMP. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? In order to achieve its objectives, the SRMP requires enhanced participation of civic society (NGOs, trade unions and the private sector) as well as the involved Government agencies (Treasury, SYDTF, SHCEK, DIE, SOP, MEB, and SB) to ensure improved relevance and quality of the activities financed. The Advisory Committee for the SRMP chaired by the Minister responsible for the SYDTF includes several NGOs. In relation to NGOs and civic society, the - 39 - responsible for the SYDTF includes several NGOs. In relation to NGOs and civic society, the SYDTF is developing a simple accreditation process as encapsulated in the new SYDTF law enabling the SYDTF and SYDVs to contract NGOs as service providers. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? A program of Beneficiary assessment is included in the SRMP to undertake M&E on the social development outcomes of the project. The results will be disseminated and discussed in the Advisory Committee, and corrective actions if required taken. 6.5 How will the project monitor performance in terms of social development outcomes? M&E arrangements will monitor SRMP outcomes on both the institutions involved as well as the impact it has on the beneficiaries (see Annex 1). To enable a systematic M&E during the life of the project a number of studies are completed or are underway. A household survey has been commissioned to understand the poverty level among the beneficiaries of the project in order to best reach them. In addition, a Social Assessment has been piloted in poor urban areas ( gecekondus in Istanbul) and poor rural areas (Van) using Bank budget funds. This will be followed by a more comprehensive social assessment covering the country financed under the SRMP. These two studies will be used as part of the baseline analysis for further M&E. 7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? olicy Applicability Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes 0 No Natural habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes @ No Forestry (OP 4.36, GP 4.36) 0 Yes a No Pest Management (OP 4.09) 0 Yes 0 No Cultural Property (OPN 11.03) 0 Yes @ No Indigenous Peoples (OD 4.20) 0 Yes 0 No Involuntary Resettlement (OD 4.30) 0 Yes S No Safety of Dams (OP 4.37, BP 4.37) 0 Yes 0 No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes * No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. Environmental screening will be undertaken for all sub-projects under the Local Initiatives component. Environmental screening criteria are included in the POM. - 40 - F. Sustainability and Risks 1. Sustainability: This hybrid operation consists of two portions: adjustment portion (Rapid Response) which is by definition not intended to be sustainable, and the other portion (investment element) which by definition needs to be sustainable. The investment portion includes three components, all of which are sustainable in the medium-term: Institutional Development, CCT, and Local Initiatives. For the Rapid Response (adjustment portion), the intention is to assist the Government with its immediate efforts to relieve the effects of the financial crisis on the most vulnerable--notably families with children, who were found to be the most vulnerable to the negative impact of the crisis. A special focus of the rapid response component is to assist children in poor families to partially offset the expenses associated with the return to school in September 2001. Other groups that would be assisted in this component are the poor holding health Green Cards, other eligible poor people including disabled to purchase pharmaceuticals and medical supplies, and those worst-affected by the crisis with assistance in kind and in cash. As a crisis intervention, these activities are by their nature one-off and do not require being sustained over the medium-term. Institutional Development by its nature is sustainable, since the goal of it is to create capacity in Turkish institutions to facilitate reforms of the social safety-net and to become more efficient and effective in so doing. By investing now in MIS technology, improving policy establishment, M&E, and setting up a targeting mechanism and scoring formula, the institutional strengthening efforts will lead to improved efficiency and lower operating costs, thus enhancing sustainability. One of the objectives of public information campaigns is to solicit more voluntary financing of SYDTF/SYDV and SHCEK programs from the general public and the business commumty. On the CCT, the Bank will provide the majority of financing of these transfers under the CCT component of the investment portion of the SRMP for its first three years. However, the Government will also contribute counterpart funding to these transfers, on an increasing basis, rising to full payment beyond 2004 if the Government decides to continue the CCT. Initially, the CCT will be tightly targeted to the bottom 8 percent of the population by using a scoring formula, so overall costs will be contained at around 0.17 percent of GDP. Sustainability of expenditures on CCT will be greatly facilitated by the use of the scoring formula, which would enable the Government to contract or expand CCT as economic conditions and budgetary resources permit. As part of the institutional strengthening component, M&E capacity will be developed in the SYDTF and other institutions so that a comprehensive evaluation of CCT can be undertaken during the SRMP. If CCT are as successful in Turkey as they have proved to be in Mexico and Colombia, it is possible that the Government could continue CCT beyond the life on the SRMP as an important contributor to the social safety net in Turkey. Owing to the flexible nature of the targeting mechanism, the Government could rapidly scale the CCT up or down, depending on need and availability of budgetary resources. In the event that the Government decides not to sustain CCT beyond the life of the SRMP, the exit strategy would be for the Government to rely - 41 - on other SYDTF activities such as workfare/temporary community employment (included under the Local Initiatives component) or other social assistance in kind, relying on the institutional strengthening of the SYDTF/SYDVs created under the SRMP. The Local Initiatives component is an expansion of the existing SYDTF programs, including income-generating and micro-grant programs, which cover their own costs and so are sustainable, and over time will contribute to general tax revenues. Other local initiative activities include investments in human capital, such as literacy, which have an economic pay-off and positive externalities for Turkey. Stringent criteria are being applied to the community social services sub-projects to ensure that they are cost-effective and that recurrent cost financing is available. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective The Government fails to undertake S The current PFPSAL program commits the counter-cyclical social spending. Government to this. Treasury fails to transfer sufficient S The Treasury is committed to doing so under the resources to the SYDTF in a timely LSP. manner. LSP is not implemented fully. M Constant monitoring by the Bank. Absolute poor are not fully aware of S Effective public information campaigns will be opportunities offered under the SRMP. supported under the SRMP. Parliament fails to enact Legislation M Disbursement will not start before enactment of concerning the SYDTF before the law. disbursement. From Components to Outputs SYDVs have insufficient implementation M The Institutional Development component will capability. strengthen SYDVs implementation capacity progressively over the life of the SRMP. Targeting mechanism fails to work. M The targeting mechanism will be subject to regular M&E and corrective action. High level of inclusion errors. S Stricter targeting will be enforced. High level of social exclusion. S Beneficiary assessments will be used to monitor and correct any such problems. Government allocates insufficient S The Loan Agreement will bind the Government counterpart finance to the SRMP. to this. Quality/availability of basic education M Bank education sector operations are working services is inadequate. on raising quality and effectiveness. -42 - Quality/availability of primary health care S Bank health sector operations are working on services is inadequate. raising quality and effectiveness. Overall Risk Rating S The SRMP is an operation with s stantial-risk but a high pay-off which will require strong Bank supervision and hence budget for this purpose. Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects: Macroeconomic situation: Turkey is experiencing significant volatility in its domestic markets, with particularly sharp increases in interest (up to 96 percent) rates and a depreciation in the exchange rate (to TL 1,500,000 per US$) experienced on July 17, 2001. The IMF has undertaken the ninth program review. However, some correction in these rates has already occurred and the recent financial review and tranche release by the IMF and the PFPSAL from the World Bank have prompted some short-term stability. The short term outlook continues to be extremely uncertain and unsettled. In addition, there is concern that this situation compromises Turkey's ability to go into the international bond market; domestic debt is increasing sharply at a rate of some 3 percent of GNP per month right now. The external environment continues to worsen with non-oil commodity prices declining, debt increasing rapidly. However, it is precisely, in a crisis such as this is, when the macroeconomic situation is most difficult, that social protection is most needed and the risk to the poorest warrants mitigating. Choice of a Hybrid Operation: The Bank has had mixed experience with hybrid operations. However, the hybrid nature of the SRMP operation is as an important way to link short-term interventions with a medium-term policy reform, and the current crisis was seen as opening a window for both immediate response to the crisis and medium-term establishment of important interventions previously lacking in social protection in Turkey. Given the importance of mitigating the social risks of the project, the provision of school supplies to poor children supported under the quick-disbursing component constitutes an important confidence-building measure for the Government and should be supported by the Bank. The SRMP is innovative, in that it combines elements both of the safety net (CCT) and the trampoline (Local Initiatives component). The SRMP seeks to fill in significant gaps in Turkey's social safety-net, and is part of a concerted Bank effort on mitigating the social impacts of the crisis, including the PSSP (severance pay for laid-off workers) and the ARIP (income support to farmers) as well as health, education and social security operations. The SRMP was envisioned as part of the CAS - update high case program, with only US$ 100 million in a the adjustment portion (thus a low leakage risk) and US$ 400 million in investment activities. If the macroeconomic situation changed sharply so that Turkey was no longer in the CAS high case, the investment portion would still go forward. The macroeconomic situation in Turkey would continue to be monitored closely, especially in the context of the next IMF review in September. In addition, the World Bank would prepare a contingency plan before the end of September 2001. -43 - Design & Implementation Issues: Implementation of a complex operation such as the SRMP is difficult and close supervision and monitoring are critical to success and issues of sustainability. The SRMP faces high risks and adequate fiduciary controls must be put into place to mitigate them. Special attention would be given to ensuring adequate Bank resources for supervision. Targeting: There are three possible controversial aspects of the targeting design under the SRMP: (i) reaction of the non-poor; (ii) regional disparities; and (iii) female education. * Reaction of the Non-poor: Since the CCT component of the SRMP will include payments in cash to poor families who keep their children in school and visit health clinics, there is the possibility of some backlash among the non-poor. The non-poor may resent the provision of cash to the poor, and there could be some hostile reactions to the program. In particular, the fieldwork and forthcoming Social Assessment noted that the distribution of income in the remote villages tends to be only a few relatively well-off villagers and very many poor villagers. The few relatively-well off villagers may feel entitled to the CCT as well under the idea that "here in our village we are all poor." * Regional Disparities: Since the SRMP will make a special effort to better target the poorest, there is the chance that the emerging patterns of beneficiaries under the SRMP will include large numbers of people from specific regions of the country. This may raise questions of disproportionate representation of certain regions, as being a majority of SRMP beneficiaries. * Female Education: A major focus of the CCT is towards keeping children in school. In the Eastern Anatolian and many other rural regions and gecekondus in Turkey, there is a diversity of cultural/traditional attitudes towards the education of girls. In such families, there may be a conflict between the CCT incentive towards sending girls to school and the countervailing traditional attitudes. Choice of Implementing Agency: The Bank has prior experience with SYDTF as an implementing agency under the EERL. Its performance was positively evaluated. SYDTF's ability to manage financial and procurement aspects and its ability to adequately target, monitor and evaluate are all issues addressed under the SRMP project design under the Institutional Development component. In addition, the SYDTF will benefit institutionally from the new legislation on its reorganization and improved collaboration with NGOs. G. Main Loan Conditions 1. Effectiveness Condition * Basic financial management arrangements, satisfactory to the Bank, have been adopted by the SYDTF (PCU). - 44 - 2. Other [classify according to covenant types used in the Legal Agreements.] All conditions to be fulfilled satisfactory to the Bank: Adjustment Portion - Tranche Release * Satisfactory macroeconomic performance. * Satisfactory progress in carrying out the Program (of the LSP). Disbursement (for the CCT and Local Initiatives components) * Bank FMS certifies that adequate financial management arrangements for the respective components have been adopted (including that MIS and project accounting software have been installed, Financial Management Manual has been adopted by the SYDTF and proper staff have been hired). * A law has been enacted strengthening the SYDTF organizational structure and reporting practices and enabling the SYDTF and SYDVs to work more effectively with NGOs Dated Covenants * By December 31, 2001, ensure that the SYDTF receives sufficient domestic finance to undertake agreed cumulative expenditures of TL 550 trillion. * By December 31, 2003, undertake a mid-term review of the SRMP, including a full review of the CCT, with the Bank, and agree upon any necessary modifications, based upon a report received by the Bank by November 30, 2003. Ongoing Covenants * Implementation of all procedures and conditions set forth in the POM, and all changes in the POM must be approved by the Bank. * Prepare SRMP PMRs quarterly, starting January 31, 2002. * Every year by October 30, provide a report on Turkey's social protection reform program and the contribution of the SRMP towards the agreed objectives and specific project activities (Annual Program), review the Annual Program with the Bank by November 30, and formally adopt the program by January 31 of the following year. H. Readiness for Implementation [ 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. 0 1. b) Not applicable. -45 - 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. Z 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. O 4. The following items are lacking and are discussed under loan conditions (Section G): Intensive work has started on the procurement documentation for the first year's activities. I. Compliance with Bank Policies 2 1. This project complies with all applicable Bank policies. O 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. John A. Innes Annette Dixon Ajay Chhibber Team Leader Sector Director Country Director -46 - Annex 1: Project Design Summary TURKEY: Social Risk Mitigation Project/Loan Key PerformancGe oioig&Eauto Hierarchy of Objectives Indicators IIoioa vlain Critical Assumptions Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Reduction of poverty and 1. Poverty indicators - HIES and Poverty Stability and soundness of improvement of poor headcount and poverty depth. Assessments. economic, social and labor household's capacity to cope 2. Qualitative household Qualitative assessments of market conditions and with economic crises, behavioral indicators. households. policies. Strengthen capacity of the 3. Two Household surveys DIE HIES data-sets. Stability of Government and public sector to monitor and undertaken during SMRP public sector management reduce poverty. Operational audit of 4. Poverty analyses completed Government agencies strategy. and disseminated. involved in poverty reduction. Project Development Outcome I Impact Project reports: (from Objective to Goal) Objective: Indicators: To mitigate the impact of the recent economic crisis on poor households. Adjustment Portion 1. LSP is implemented. SRMP mid-term review. Government will ensure Rapid Response - providing 2.counter-cyclical social immediate support to the expenditures of TL 550 poorest affected by the crisis expendit o T 5o lse (social risk mitigation). tronn0 far Beneficiary assessments. Treasury transfers all progams.revenues to SYDTF in a Impact evaluation studies. timely manner. FMS reports. SYDVs spend funds as programmed. Investment Portion. High level of inclusion of To improve the capacity ofo poor households to cope with vouleraiendg. po similar crises in the future propulatin e groupsein (social risk management andras tre prevention) (F) Institutional 1. Poverty monitoring system Project reports, including Development - building up established, distributional indicators the capacity of state broken down by welfare level, institutions providing basic 2. More cost-effective social gender, urban-rural, etc. similarearises inEthenfuture social services and social programs. assistance to the poor (social Operational audit, developed. risk management). Trained staff remain within institutions. (o) CCT - implementing a For poor children (SRMP Scoring formula calculated, social assistance system beneficiaties) disaggregated periodically revised. -47 - targeted to the poorest by welfare level, gender, population conditional on urban-rural, etc.: MEB reports. All SYDVs fully improved use of basic health computerized with an and education services (social 1. Increase in average years of Analysis of household intergated MIS for risk mitigation and schooling in low-income surveys. beneficiary eligibility and prevention). population. record-keeping. * Improved education Impact evaluation studies. attainments (Grades 2. Increase in school 1-11). attendance rates. * Improved health 3. Decreased infant mortality. SB reports. conditions of young children (ages 0-6). Analysis of household surveys. Impact evaluation studies. (III) Local Initiatives - 1. Income of SRMP SYDTF and SYDV reports. Sub-projects are chosen and increasing the income beneficiaries increased. implemented effectively. generating and employment Analysis of household surveys opportunities of the poor 2. Adult illiteracy decreases in Absolute poor are aware of (social risk prevention). SRMP areas. Impact evaluations. opportunities offered under the SRMP. 3. Youth unemployment Beneficiary assessments. decreases in SRMP areas. Social services are financially sustainable. 4. Increased number of social services expanded in SRMP areas. - 48 - Key Performance Hierarchy of Objectives I Indicators Monitoring & Evaluation Critical Assumptions Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: Rapid Response SYDVs have sufficient 1. School Packages acquired 1. Number of poor children Project reports. implementation capability. and distributed. benefiting (target 1.05 million). Documentary review. Targeting mechanism works. 2. Pharmaceutical and medical supplies support. 2. Number of people Operational audit. Low level of inclusion errors. benefiting from 3. Social assistance. pharmaceuticals and medical Low level of social exclusion. supplies. 3. Number of people benefiting from: - food support; - heating support; and - other social assistance. (I) Institutional Development 1. Integrated MIS established. Project reports. Government allocates 1. SYDTF/SYDVs 2. Number of staff trained, sufficient budget to SRMP activities. 3. Research, policy-making Procurement undertaken and M&E functions efcety developed,.fiiety 4. Public Information Appropriate technical skills Campaign undertaken, are available. Project reports. 2. SHCEK 5. Integrated MIS established. 6. Number of staff trained. 7. Research, policy making and M&E functions strengthened. 8. Public Information EU acquis on open data access Campaign undertaken. Hos ed implemented. 3.overnmentsemlocates 9. Two household surveys undertaken. Web-site operational. 10. Number of staff trained. 11. Unit-level data disseminated. (1I) CCT. 1. Increase in succession rates Mid-term review. Quality of education is .from basic to secondary adequate (motivated teachers, 1. Higherrates of chomleavalability ftlearnin attendance and enrollment by education. Impact ct studies. 2. Reduction in school Joint (the borrower & the materials, etc.) thoehlden from-out low-n Bank) annual review at one of oou the semi-annual supervision -49 - 3. Increase in enrollment rates mission. by poor households. Back-ground data to be recorded in the Project's MIS.Attendance and enrollment rates of students to be reported to SRMP by the MEB. 2. Increased frequency visits 4. Increased vaccination Statistics on the use of Quality of prmary health care to primary health care coverage, primary health care facilities services are adequate facilities by pregnant & 5. Increased weight/height of to be reported to the Project by (supplies, staff). lactating women, and young young children. the SB. Supply-side provisions children from low-income huefold4 (accessibility to schools and Statistics Project reports. primary health care services) are adequate. The net-value of benefits is a large enough incentive for poor households to adopt desirable behaviors. 3. Application of a scoring 6. Targeting effectiveness. Scoring formula is well formula targeting mechanism. developed and disseminated. (III) Local Initiatives 1. Number of new sub-project SYTDF staff skills are 1. Income Generation. types undertaken. upgraded to provide adequate 2. Number of M&E. income-generating MIS and FMS are in place. sub-projects. Effective public information 3. Number of beneficiaries campaign. self employed or employed, 6 Private sector actively months after the assistance engaged in employability finished has increased. training. 4. Types of micro businesses Effective targeting set up and operating 6 months after assistance finished has increased. 5. Number of NGOs as service providers. 2. Employability Training. 6. Number of illiterate adults trained to be functionally literate. 7. Number of youth receiving employability training. 8.Number of NGOs as service providers. - 50 - 3. Temporary Community 9. Number of temporary Employment. community employment sub-projects. 10. Number of person-days of temporary employment short-term jobs created. 11. Number of NGOs as service providers. 4. Community Social 12. Number of community Services. services project established. 13. Number of new model services established. 14. Number of NGOs as service providers. Project Components / Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) Adjustment Portion - Rapid US$ 100.00 million 1. Progress reports. 1. Parliamentary ratification Response 2. Disbursement reports. oftheloan. 2. Timely hiring of consultants. Investment Portion. Project reports Staff trained and consultants I. Institutional Development US$ 36.61 million hired MIS in place Technical Assitance completed II. CCT US$ 360.00 million Project Reports Staff trained, POM adopted Impact Evaluation MIS in place Household Survey Analysis Techncial Assistance completed III. Local Initiatives US$ 133.85 million Project Reports Staff trained Household Survey Analysis Procedures overhauled according to POM - 51 - Annex 2: Detailed Project Description TURKEY: Social Risk Mitigation Project/Loan By Component: Project Component I - US$100.00 million Adjustment Portion: Rapid Response (Bank loan financing of US$100.0 million): The aim of the adjustment portion is to bring immediate relief to vulnerable groups through existing channels, since it is not possible within a short time to prepare new delivery mechanisms (which will be developed subsequently under the investment component of the loan). This component would finance Turkey's public and private sector import requirements of the balance of payments (BOP) against a negative list. The Government will use the TL counterpart of the loan funds to finance priority actions for immediate relief to vulnerable groups suffering from the impact of the February 2001 economic crisis. The TL counterpart spending consists of three SYDTF program expenditures targeted to the poorest families through existing mechanisms of the SYDTF and its affiliated 931 SYDVs: * School attendance package (shoes, uniforms, books, stationery for the poorest 1.05 million children); * Pharmaceuticals & medical supplies for poor Green Card holders (eligibility criteria and further details on the Green Card program in Annex 13) and other eligible poor people, including the disabled; and * Local social assistance in cash and kind (including family food and heating support) to those worst affected by the crisis. It is critical that an additional budgetary allocation be made for increasing the SYDTF's budget for 2001 by the US$ 100 million equivalent to cover the cost of the increased spending on these rapid response measures for school attendance, pharmaceuticals, and local social assistance. Treasury has already transferred TL 40 trillion to the SYDTF for the procurement of the school attendance packages for the poorest 1.05 million children to the SYDTF as an advance against the disbursement of the adjustment portion due to the urgency to procure the packages by early September for distribution prior to the commencement of the school year on September 11. 2001. In order to finance adequately the key programs of the SYDTF to the poorest for the rest of the year 2001, Treasury will ensure that the SYDTF receives sufficient domestic financing to cover cumulative agreed expenditures of TL 550 trillion (including the counterpart funding from the adjustment portion of the SRMP) by December 31, 2001. These expenditures would be tracked through the arrangements outlined in Annex 6 and would be subject to an ex post operational review. The projected expenditures of the SYDTF for the second half of 2001 are projected at TL 381 trillion (including an estimated TL 125 trillion from the adjustment portion of the SRMP). This is a substantial increase over the first half-year's expenditures of TL 169 trillion expenditure. Projections of SYDTF expenditures for the last 6 months of 2001, as approved by the Bank, are shown below by program: - 52 - PROJECTION SYDTF EXPENSES JULY-DECEMBER 2001 (TL trillion) CATEGORY JUL AUG SEP OCT NOV DEC TOTAL 1. MONTHLY TRANSFER TO SYDTVs 10.0 10.0 10.0 10.0 10.0 10.0 60.0 2. INVESTMENT PROJECTS 1.0 1.0 1.0 1.0 1.0 1.0 6.0 3. MEDICATION SUPPORT 1.0 1.0 1.0 1.0 1.0 1.0 6.0 4. INCOME GENERATION SUB-PROJECTS 1.0 1.0 2.0 2.0 3.0 3.0 12.0 5. EDUCATION SUPPORT /a 0.0 40.0 20.0 20.0 0.0 0.0 80.0 6. FOOD FOR TRANSPORTED STUDENTS 0.0 0.0 10.0 10.0 10.0 10.0 40.0 7. NATURAL DISASTER SUPPORT /b 3.0 3.0 3.0 3.0 3.0 3.0 18.0 8. FAMILY FOOD SUPPORT 0.0 0.0 10.0 0.0 10.0 0.0 20.0 9. FAMILY HEATING SUPPORT 0.0 0.0 10.0 15.0 15.0 0.0 40.0 10. OTHER SOCIAL SUPPORT /c 1.0 1.0 1.0 2.0 2.0 2.0 9.0 11. MINISTRY OF HEALTH /d 6.0 6.0 6.0 8.0 8.0 8.0 42.0 12. HIGHER EDUCATION SCHOLARSHIP 0.0 0.0 0.0 0.0 0.0 22.0 22.0 13. Contingency 0.0 0.0 0.0 0.0 0.0 26.0 26.0 TOTAL 23.0 63.0 74.0 72.0 63.0 86.0 381.0 Notes a. School attendance packages - books, clothing, stationery. b. Aksehir and Cankiri earthquake victims; Hatay flood. c. Soup-kitchens, dormitories, terrorism victims etc. d. Payment for Green-card holders treatment and pharmaceuticals within MOH facilities. Project Component 2 - US$36.61 million Investment Portion - Component I: Institutional Development (Bank loan financing of US$ 30.48 million): The institutional development components will build up the capacity of the main institutions which protect the poor, provide social assistance and services and poverty information in Turkey: (a) the SYDTF and the affiliated 931 SYDVs; (b) SHCEK; and (c) DIE. (i) SYDTF/SYDVs. This sub-component will strengthen four main functions of the SYDTF/SYDVs: (a) MIS & IT; (b) Policy, Research, M&E; (c) Staff Development & Training; and (d) Public Information. (a) MIS & IT. The SYDTF and SYDVs are responsible for implementing the US$ 360 million CCT Program (see CCT Component below), which would serve more than a million poor beneficiaries. The type of transaction to be processed within the program would include: (i) beneficiary registration and application of the formula-based targeting mechanism; (ii) tracking of compliance with behavioral conditions, e.g. school attendance, health clinic visits by the beneficiaries; (iii) compilation of the compliance data, and calculation of the amount of payment to be made to each household; (iv) issuance of payment authorization; (v) transfer of - 53 - funds from SYDTF to SYDVs, and then to the financial institution or entity responsible for making payments to the beneficiaries; and (v) verification of payments. In addition, financial records must be organized and presented in accordance with the requirements of the Government and the Bank's FMS to ensure accountability. Obviously the CCT's success will depend on, among others, high capacity and high speed information processing systems. The SYDTF very successfully made and tracked payments to the SYDV for earthquake benefits financed by the Emergency Earthquake Recovery Loan (EERL). However, the computational power of SYDTF and SYDVs require further comprehensive upgrading to handle the CCT program. Currently, approximately 70 percent of the 931 SYDVs are equipped with at least one PC. About 150 SYDVs are running a stand-alone database application software called "Datasoft", which keeps data on beneficiary profiles and records of benefit provisions. There is no system to share information electronically across among the SYDTF and SYDVs. Beneficiary level information (beneficiary profile, benefit provision records) are kept at the SYDV level, and not transmitted to the SYDTF. Communications between SYDTF and SYDV are in the form of physical documents, rather than electronic communications. SYDTF currently runs 4 independent networks for each of: (i) Scholarship Program (Windows 2000 network running a database application based on Visual FoxPro), (ii) Health Program (software written in COBOL running on CTOS/OPS), (iii) Project-based Assistance Program (Windows98 Peer-to-Peer network consisting of 5 PC with no client-server application or special database applications to the program) and (iv) Social Assistance Program (same configurations as Project-based Assistance Program). The SRMP will finance the development of an integrated MIS for both the SYDTF central office and the SYDVs, including hardware, network infrastructure, software development and staff training. A study of SYDTF's hardware and infrastructure requirements was recently completed by a consulting firm. The study does not, however, take into account the CCT because it was contracted before the Government of Turkey and the Bank started the discussions about the SRMP. The SRMP will require additional studies, system design, development, installation and staff training. In addition, the system will include a Bank-compliant financial management system (FMS) and an upgraded module for managing SYDTF's financing for the activities of the SYDVs according to a well developed formula, which uses population, inverse of GNP per capita and an uplift factor of 50 percent for Eastern and South-Eastern Anatolia. Furthermore, the system will be designed to allow transparent information integration with the systems of other social programs, most importantly those under SHCEK, in order to reduce duplication of efforts and increase the impact of social programs as a whole. (b) Policy, Research, M&E: Currently the SYDTF does not have a policy unit. Research, M&E functions are also undeveloped. Additional staff with adequate qualifications will be hired for this purpose, together with some internal staff re-assignments. This sub-component will provide the SYDTF with TA, training, a program of studies (including beneficiary assessments) and office equipment to develop these functions. -54- The costs of the PCU for the SRMP including project management, procurement, financial management & disbursement, MIS, and M&E functions are included in this sub-component. The Bank loan will finance the costs of TA, operational reviews for the SRMP, furniture and equipment, as well as the incremental operating costs for the PCU. PCU ORGANIZATIONAL CHART COORDINATOR (1) Financial Managment Procurment Specialist (1) Specialist (1) 1 Secretary 3: Technical Staff. Secretaries 4 Contributed by SSF and local Consultants (2) X Recruited on the basis of needs for Community Development, Monitoring etc INSTITUTIONAL PROGRAMS & PROJECTS - . : TECHNICAL (c) Staff Development & Training. The SYDTF does not have an adequate human resources policy. Currently there are some 67 SYDTF staff, of which about half are seconded from other government agencies. The secondment period can be quite long-one staff member had been seconded for 10 years. There are no written procedures or clear definition of roles and responsibilities for the SYDTF staff. A comprehensive human resources policy including salary review, performance appraisal, staff training, and a career development component will be developed under the SRMP. The SYDTF has drafted a new organizational law which strengthen the structure, linkages with the SYDVs and facilitatee greater collaboration with NGOs. There are several areas where the skills mix of the SYDTF and SYDV could be improved. The SYDTF does not have staff with expertise in agricultural and income-generating sub-projects, which makes it difficult for the SYDTF to properly evaluate the proposals of the SYDV for funding of sub-projects in their districts. The SYDTF also does not have trained social workers to help assess the role that SYDTF plays in the provision of social assistance. This lack of trained social workers is especially acute in the SYDVs, which are currently responsible for facilitating the allocation of social assistance to applicants. Provision is made to hire up to 200 social workers per year on short-term contracts, with generic contracts and TORs satisfactory to the Bank, to strengthen the SYDVs in project implementation and management of programs such as the CCT. A training program for existing SYDV staff is urgently needed to supplement their skills, and additionally, would be required in any case for the CCT - hence the focus of the SRMP on in-service training in -55 - project management, management skills, social work and employment/income generation issues. The SRMP will finance the costs of trainers, training venues and materials for this purpose. (d) Public Information. Public information activities are highly undeveloped within the SYDTF. The SRMP will finance public opinion research as the basis for designing sound well targeted public information campaigns to various client groups and stakeholders. Public information campaign costs will be financed by both the Bank and the Government (from SYDTF own resources) with implementation over 4 years, with a special focus on the CCT and Local Initiatives. (ii) SHCEK. This sub-component will stregthen four main functions of SHCEK: (a) MIS & IT; (b) Policy, Research, M&E; (c) Staff Development & Training; and (d) Public Information. (a) MIS & IT. Only four years ago, SHCEK was equipped with only one 486 PC. Today, a major IT improvement project is underway in SHCEK funded from the Government budget amounting to US$ 1.8 million which provides for the development of the MIS software, electrical cabling and computers for the SHCEK central and provincial offices. SHCEK also recently launched a WEB site (http://www.shcek.gov.tr), and installed a powerful Oracle-based database management system running on UNIX-based workstations in its headquarter office in Ankara. The IT/MIS department is staffed with 8 professionals. The SRMP will finance the extension of this system to the 516 service delivery centers of SHCEK including community centers, child-care institutions and homes for the elderly, shelters for abused women and rehabilitation centers for the disabled. This will facilitate the development of a completely integrated MIS by providing Local Area Networked-PCs for administrative purposes, and beneficiary use as well as Internet connection. In addition, the system will be designed to interface seamlessly with the systems of the SYDTF and SYDVs, as well as other social programs. (b) Policy, Research, M&E: The research, policy-making M&E functions of SHCEK will be strengthened under the SRMP. Additional staff with adequate qualifications will be hired for this purpose (funded by SHCEK). This sub-component will provide TA, training, a program of studies (including beneficiary assessments) and office equipment to develop these functions. (c) Staff Development & Training. Skills of SHCEK staff will be upgraded through a program of in-service training on mangement, communication, social work , language skills, targeting and other key issues. The SRMP will finance the costs of trainers, training venues and materials for this purpose. (d) Public Information. Public information activities are highly undeveloped within SHCEK. The SRMP will finance public opinion research as the basis for designing sound well targeted public information campaigns to various client groups and stakeholders. Public information campaign costs will be financed by both the Bank and the Government and implemented over the 4 year period of the SRMP, targeted to various audiences including: (i) beneficiaries (to - 56 - make them more aware of their rights and responsibilities); (ii) the general public to make them more aware of services available; and (iii) the international community, to make them aware of Turkey's progress in these fields. (iii) DIE. Previously, Turkey did not have a program of regular household surveys capable of providing the basis for poverty monitoring, evaluation and policy-making. However, Turkey has adopted the EU Acquis on Statistics in March 2001 that stipulates such a program and also has convened an Advisory Council to work out the necessary methodology. This sub-component will finance the TA necessary to develop a program of household surveys in Turkey, including the training of DIE staff in the new methodology, while the recurrent cost of the two household surveys during the SRMP project perioed would be covered primarily by the DIE budget with co-financing from the Bank. The Bank will finance non-salary requirements, such as the printing, incremental field survey and transportation costs and the hiring of temporary local consultants to conduct the interviews as well as incremental IT needs for at least two household surveys. Under this component, the Bank would also finance the expertise needed on the IT level for DIE to package its statistical data for distribution, and for enhancing the DIE website so that users could download other DIE data directly, as well as dissemination through printed materials. Finally, this component includes financing for incremental IT and technical assistance needs for the DIE to analyze the 2000 population Census. The Census analysis is important, because it will enable DIE to combine Census data with household data (with technical assistance from the Bank) to produce a poverty map for Turkey. Project Component 3 - US$ 360.00 million Investment Portion - Component II: CCT (Bank loan financing of US$ 260.00 million): CCT are transfers which are conditioned on recipient behavior for continued receipt. The behaviors required are school attendance for school-age children and well baby/health clinic visits for children below school age. The idea behind CCT is that the poor are often forced to pull their children out of school to work or look after younger siblings when the household is faced with an economic crisis. Withdrawing children from school often leads to a permanent reduction in the human capital of the children who do not typically return to school after the crisis, and a perpetuation of the cycle of poverty across generations. CCT are an important mechanism to protecting and developing the human capital of the vulnerable. CCT are an important tool in the battle against the inter-generational transfer of poverty, since children who fail to complete basic education today become the poor of tomorrow. Given that families with children are found to be at high risk for increased poverty and vulnerability from the February financial crisis, CCT are a recommended policy intervention. CCT are transfers which are conditioned on client behavior for continued receipt. The behaviors usually required are school attendance for school-age children and well baby/health clinic visits for children below school age. The idea behind CCT is that the poor are often forced to pull their children out of school to work or look after younger siblings when the household is faced with an economic crisis. This often leads to a permanent reduction in the human capital of the children who do not typically return to school after the crisis, and a perpetuation of the cycle of poverty across generations. The loan will finance education and health/nutrition grants to the mothers of children who are eligible in accordance with criteria set forth in the POM. The Bank will finance - 57 - these grants on a declining basis through the end of 2004, whereupon the Government will take over the full financing responsibility for CCT if it decides to continue the program. This decision of the Government's will be informed by the results of a comprehensive review of CCT to be conducted by end-2003 and a formal impact evaluation (also financed under this component). CCT provide an incentive to the poor to: (i) keep their children in school and work on the demand side of education by covering the out-of-pocket expenses (school books, uniforms, fees) that often preclude the poor from sending their children to school; and (ii) obtain adequate pre-natal care, basic health and nutrition services (including immunization, growth monitoring and resolving micro-nutrient deficiencies). CCT are typically targeted to the poor by proxy means tests or income tests. In Turkey, a large informal sector means that income-testing would be too expensive and difficult, so a scoring formula based on a proxy means test is recommended. CCT are an important mechanism to protecting the human capital of the vulnerable. Mechanisms to Verify the Compliance with the Behavioral Requirements. Compliance with behavioral requirements must be monitored, recorded and verified. In Turkey, school attendance and health clinic visit records are well kept even in the poorest regions, although computerization of record keeping is limited. Thus, it can be expected that existing school systems and health care systems can assume the first-hand role to verify the compliance with the behavioral requirements. Reducing exclusion. Using a scoring formula would help bring more objectivity in the criteria used to allocate social assistance and thus reduce the scope for possible discretion and inclusion of the non-poor. To minimize exclusion of the poorest, the scoring formula will be combined with policies which: * Help the poorest to formulate a demand for assistance. This will be done through (i) public information campaigns, including local dialects, on the type of programs available, the eligibility criteria, and the rights of the applicants to appeal, and the benefits of the behavioral changes (e.g. on promoting immunization etc.); (ii) house visits by females who speak local dialects; (iii) and adult literacy campaigns to help applicants to feel more confident in approaching authorities for assistance. In this way both the Institutional Development and Local Initiatives components will support the CCT through public information campaigns and adult literacy programs respectively. * Bring human safeguards to the scoring formula. This can be done first by allowing the applicant to have its case reexamined by a local Appeals Committee in case of a disagreement with the scoring formula. The committee could composed by the current members of the SYDV Advisory Committee plus a social worker. Second, exclusion could be minimized by having the same Appeals Committee systematically reviewing those cases for which the scoring formula does not provide a clear cut-off. For instance, a range for the scoring will be defined within which each application will be automatically reexamined. The System to Uniquely Identify Individuals and Households. Because a CCT program transfers benefits to a household based on specific attributes and behaviors of the - 58 - household members, it is important that households and individuals can be uniquely identified and cross-referenced. Futher development of implementation mechanisms, including a sound FMS and MIS, will mean that the CCT will start in mid-2002. The Government has made key decisions about the CCT: * the amount of Government co-financing for the grants over the period 2002-2004--US$ 100 million; * one national benefit rather than regionally differentiated benefits; * the level of the benefit (which will be up to US$ 8 per child per 9 months of the school year for the education grant and $6 per child per month for the health/nutrition grants); * the scale for the education grant for additional children in the same family; * the method of payment (through the banking system); and * the age limits for the grants (children under 6 for health/nutrition grants, children 6 and above provided that they are enrolled in grades 1-11 for education grants). Further details on the CCT and the experience in other countries are provided in Annex 12 of this PAD, while operational guidelines are laid out in the POM. Project Component 4 - US$133.85 million Investment Portion - Component III: Local Initiatives (Bank loan financing of US$ 104.52 million): The SRMP will strengthen and finance key programs of the SYDTF/SYDVs as proposed by Provinces, Districts and local communities designed to provide enhanced sustainable employment opportunities for the poor, thereby reducing poverty. Such programs are: (i) micro-grants for income-generating sub-projects (requiring improved technical assessment, M&E); (ii) employability training (including adult literacy - especially for women) and unemployed youth (technical and life skills - including how to get a job, start a small business); (iii) temporary community employment; and (iv) expansion of cost-effective community social services. This component will function in a social fund mode and would involve participation in implementation of projects and technical assistance by possible service providers, including NGOs, based on clearly defined terms of references; selection and performance criteria. Detailed implementation arrangements are spelt out in the POM. (i) Income-generating sub-projects: The Local Initiatives component will expand the provision of micro-grants (Performance Grants) for income generating activities to communities, villages and groups of beneficiaries (currently undertaken by the projects and investments units of the SYDTF). The Local Initiatives sub-projects would differ from the current SYDTF practices - 59 - by introducing clearly set and periodically revised procedures and systems for identification, appraisal, implementation and M&E of these grants. In addition, the Local Initiatives would expand the types of projects eligible for micro grants by emphasizing the selection criteria and targeting of beneficiaries rather than pushing a set menu of project options as is currently practiced by the SYDTF. The SRMP would strengthen the ongoing program of income-generating sub-projects through: * improved sub-project analysis based on explicit criteria that take into account economic, technical, financial and social aspects. SYDTF is developing such criteria, as well as in-house capability to (i) apply them to sub-project proposals; and (ii) improve implementation of sub-projects, with contracted TA from public and private institutions. * enhanced monitoring capability to ensure that sub-project implementation proceeds as planned and funds are spent as intended, monitoring and evaluation would be built into each phase of sub project implementation and disbursements to subprojects would be made upon receipt of satisfactory monitoring reports; and * expanded evaluation capability, to determine the impact of the project on beneficiaries and to draw lessons that can feed back into the project analysis and monitoring phases. * improved beneficiary targeting: In addition to applying the new scoring formuala based on the household survey conducted by local consultants drawing on ODTU expertise, the eligible beneficiaries would be those whose profiles match the findings of Social Assessment: persons without access to family resources; or to land or other property and assets; unemployed without social security benefits; persons who are not employed in the formal sector; female headed households (falling in any of the these categories); vulnerable children (orphans, street children, disabled children); and persons do not have access to social assistance from any government source. Special attention would be paid to designing appropriate outreach mechanisms for reaching the poor whose cultural norms may reduce their access to the project. Sub-project analysis, preparation and monitoing functions will be performed at Provincial/District levels (SYDV), which will report to the center (SYDTF). The center will have sub-project approval and general monitoring functions. The sub-projects will be targeted to the poor using the CCT scoring formula, but raising the eligibility level to cover the poorest 36 percent. Specific beneficiaries would then be selected according to their capacity to be successful in an income-generation sub-project according to criteria being developed. The range of potential sub-projects which could be supported by micro-grants under this component is quite large including food-processing, fruit and flower production, weaving, metal-work, carpentry, small green-houses, animal husbandry, transport and service development including minor retail activities. The limit per beneficiary would be US$ 1,000; with beneficiaries encouraged to form small producer's associations. - 60 - (b) Employability Training: The quality and quanitity of employability training including adult literacy (especially for women) and for unemployed youth (technical and life skills--including how to get a job, start a small business) will be expanded under the SRMP. The existing programs of SHCEK and other agencies will be improved by involving the private sector (including chambers of commerce and industry) and NGOs to enhance quality and relevance. Proposals for such training programs including clearly spelt-out target groups, beneficiaries, costs and quality controls (including involvement of the private sector and NGOs where relevant) will be submitted by SYDVs to the SYDTF. Average costs per sub-project are not expected to exceed US$ 10,000 (with many significantly smaller), although a ceiling of US$ 25,000 has been established. The Loan will finance the cost of trainers, materials, venues and equipment. (c) Temporary Community Employment: The Local Initiatives component would include in its menu, those activities which would create short term daily wage employment through community works such as the cleaning and repair of existing channels for irrigation, water supply to households, sewerage; garbage collection; cleaning and repair of parks, roads, street lights; repair of existing sidewalks, and whitewashing/painting of schools, clinics, etc. These would typically be proposed and executed by SYDVs with a ceiling per sub-project of US$ 50,000. (d) Community services: The SHCEK network of community centers and social services will be expanded as they serve an important role in facilitating the integration of migrants from rural areas into the urban environment. Any expansion of community centers will be commensurate with the SHCEK's capacity to adequately staff and finance the operations of such services. A crucial element for support for community centers expansion is that they ensure the insertion of beneficiaries as productive participants in the economy and deal with the direct needs of vulnerable groups such as poor children, youth-at-risk, unemployed, and the elderly. Priority will be given to sub-projects which: (a) generate models which can be replicated elsewhere; (b) demonstrate more cost-effective ways of delivering social services; and (c) enhance the sustainability of service provision. Average costs per sub-project are not expected to exceed US$50,000, although a ceiling of US$100,000 has been established. - 61 - Annex 3: Estimated Project Costs TURKEY: Social Risk Mitigation Project/Loan Local Foreign Total Project Cost By Component US Smillion US $million US Smillion 1. Rapid Response 0.00 100.00 100.00 2. Institutional Development 21.90 14.71 36.61 3. CCT 360.00 0.00 360.00 4. Local Initiatives 106.57 27.28 133.85 5. Front-End Fee 0.00 5.00 5.00 Total Baseline Cost 488.47 146.99 635.46 Physical Contingencies 0.00 0.00 0.00 Price Contingencies 0.00 0.00 0.00 Total Project Costs 488.47 146.99 635.46 Front-end fee 0.00 0.00 Total Financing Required 488.47 146.99 635.46 Identifiable taxes and duties are 0 (US$m) and the total project cost, net of taxes. is 635.46 (US$m). Therefore, the project cost sharing ratio is 78.68% of total project cost net of taxes. - 62 - Annex 4 TURKEY: Social Risk Mitigation Project/Loan Economic Analysis Summary Introduction: Key background economic information pertinent to the SRMP is presented in this Annex in the following sections: I. Poverty, Inequality & Social Assistance in Turkey; II. Employment, Unemployment & Under-employment; and III. SYDTF Allocation Formulae. I. Poverty, Inequality, and Social Assistance Absolute poverty is low but economic vulnerability is widespread Absolute poverty in Turkey is low based on an international standard. Hence, internationally comparable "One-Dollar-a-Day" purchasing power parity (PPP) at 1985 prices line, there is an extremely low incidence of poverty. Only 2.5 percent of the population have monthly consumption below this level (Table 1). This puts Turkey in the range of countries with small incidence of absolute deprivation. Absolute poverty based on a country-specific minimum food basket is also low. Although the minimum food allowances adopted in Turkey are relatively high by international standards, only 5.7 percent of households and 7.2 percent of the population can be considered poor in an absolute sense, i.e. have total monthly consumption below the cost of the minimum food basket. The cost of the minimum food basket in 1994 was about US$ 36 per month per equivalent adult. However, unlike absolute poverty, economic vulnerability is a widespread problem. A substantial number of households (31 percent) and an important fraction of the population (36 percent) have consumption below the economic vulnerability line (equal to the food line plus an allowance for non-food items) - approximately equivalent to twice the level of the minimum food basket or about US$ 190 per household per month. Table 1. Poverty Incidence in Turkey Under Different Methodologies, 1994 Methodology Poverty line Poverty incidence Absolute poverty, One-Dollar-a-Day per capita at 1985 PPP 2.5 percent (international standards) prices Absolute poverty Local cost of minimum food basket /a 7.3 percent Economic vulnerability Local cost of basic needs basket /a 36.3 percent One-half of national median income Relative income poverty 15.7 percent Source: Team calculations from 1994 HIES. a Consumption per equivalent adult; economies of scale. - 63 - The comparison of the 1987 and 1994 HIES results suggests that during this period there was a reduction of about 2.3 percentage points in the overall incidence of economic vulnerability (from 38.5 to 36.2 percent of the population). However, the relatively rapid growth of the population meant that despite the drop in incidence, there was an actual increase in the number of economically vulnerable persons, which grew by more than one million. Progress in reducing absolute povertywas more pronounced and actually lead to a reduction in the total number of the poor in Turkey. Although the direction of change is unmistakable, it is also important to note that the magnitude of decline in poverty is not dramatic. Most households that left poverty between 1987 and 1994, would still be categorized as economically vulnerable in 1994. However, since 1994 was a crisis year, the comparison may underestimate the true decrease in poverty that has occurred since 1987. Unfortunately, the 1994 HIES data are the latest available that document household expenditures and incomes in detail. The main factor contributing to the reduction in poverty was the large population shift between urban and rural areas. As the population in the relatively less poor urban areas has expanded with migration flows, poverty in rural areas has fallen dramatically and hence total poverty has also declined. Demographic changes (lowering of fertility rates among the poor) also contributed to reducing the number of poor in the country as a whole. Almost a quarter of the overall reduction of poverty was due to these "structural" factors. The other big contributor to the drop in poverty was the increase in literacy rates among heads of households-by itself this accounted for almost one-half of the measured reduction in economic vulnerability and poverty between 1987 and 1994. Income inequality in Turkey is high Turkey is a country with large and entrenched inequalities. Income differentials across regions and social groups are wide and persistent. When measured by the Gini coefficient, inequality in Turkey is close to the levels observed in some highly unequal countries such as Peru or Russia (Table 2). Table 2. Glni Coefficients for Income and Consumption per capita Income Consumption expenditures Chile (1994) 0.51 Peru (1994) 0.45 Costa Rica (1996) 0.47 Philippines (1994) 0.43 Russia (1995)* 0.47 Ecuador (1994) 0.43 Turkey (1994) 0.45 Turkey (1994) 0.41 Bolivia (1990) 0.42 Tunisia (1990) 0.40 Bulgaria (1995) 0.38 Morocco (1991) 0.39 Italy (1995)* 0.35 Portugal (1990) 0.32 Source: WDI, 1998 (World Bank); Turkey: Calculations based on primary DIE HIES data adjusted for inflation. A significant share of total inequality in Turkey is explained by differences in endowments, geography and opportunities faced in the labor market. Two critical variables, education and - 64 - employment status, each explain between a fifth and a quarter of all observed inequality. Rural/urban differences explain more than 10 percent of the total inequality in the country. Regional factors explain another 11 percent. Social Assistance Groups outside the defined benefit social insurance mechanisms in Turkey are served by several programs, but the total amount of assistance is relatively small. The programs are uncoordinated or, at best, loosely coordinated. The most important of them are the following: * The SYDTF allocates resources to 931 regional affiliate foundations in every district, and provides assistance to needy people, chosen at the discretion of the foundations. Benefits in-kind include food, clothing, heating, medicine, and a variety of small business/self-employment activities. The share of cash assistance in total SYDTF program has increased considerably in the late 1990s. Education grants and scholarship programs, and disaster related social assistance have also gained importance -now the largest program of social assistance in Turkey. * The Old Age and Disability Assistance Scheme is administered by the Pension Fund (ES) and local authorities. This was established in 1977 under Law 2022, and provides benefits for those over 65 and those more than 40 percent disabled. From 343,250 beneficiaries in 1977, it had grown to have 908,619 beneficiaries by September 1998, with 81 percent of them receiving old age support and the remaining 19 percent being compensated for their disabilities. * Green Card scheme, begun in 1992-for health care to those with monthly income less than one-third of the minimum wage. Possible beneficiaries include some in the rural population, employees unregistered with any social security system or the urban unemployed. In 1998, there were 7.8 million cardholders, has subsequently risen to some 12 million by 2001. While the SYDTF is the largest supplier of social assistance, most of its support is provided not as cash transfers but in kind support for health care and fuel consumption needs. The only consolidated source of information for this is a 1996 study by the DIE, which reported that only 20.3 percent of support was for periodic payments; 19.6 percent was for educational assistance; 13.2 percent was for food and clothing; and 12.2 percent was for heating fuel. Clearly, the best covered of the groups are the elderly and the disabled, while the worse off are those of working age, and the unemployed. The elderly are covered either under the three main social insurance schemes, or under the Law 2022, SHCEK and Green Card programs, with other discretionary assistance also possible from the SYDTF and other foundations. The unemployed, on the other hand, are not covered by any defined benefit schemes, and have to rely on being identified and assisted by social workers who administer the discretionary schemes. This situation is bound to improve once the newly-adopted unemployment insurance scheme becomes active. However, the new scheme will apply only to workers within the SSK system, and will thus not reach unemployed workers from the informal or agricultural sectors. The existing categorization also excludes the "working poor", who are the least eligible for Government - 65 - transfers. These failings point to the need to introduce a more systematic, means tested social assistance program aimed at the poor-independent of age, employment status, or disability supported under the CCT Fiscal costs of the social assistance programs. These social assistance schemes, while providing relatively insignificant assistance to families, do have a budgetary impact, but one that is much smaller than that of the social insurance system. The SYDTF is the largest program of social assistance in Turkey, with disbursements of about 0.29 percent of GNP in 2000 - up sharply from previous years. The Old Age and Disability Assistance program, administered by the ES and local authorities, had disbursements of 0.06 percent of GNP in 1999, as did the Green Card scheme. The SHCEK, which is funded by allocations from the State budget and a share of revenues from municipalities, provincial administrations, etc.,disbursed some 0.05 percent of GNP in 1999. Table 3. Size of Social Assistance Programs in Turkey: Share of Allocated Funds in GNP Year 2022 SYDTF Green- SHCEK Total Public Inflation Scheme Card Expenditure on Compensation Social Assistance Payments of SSK 1993 0.12 0.11 0.03 0.05 0.31 1.05 1994 0.09 0.14 0.06 0.04 0.33 1.22 1995 0.06 0.08 0.08 0.04 0.26 1.26 1996 0.05 0.06 0.07 0.04 0.22 0.77 1997 0.06 0.11 0.07 0.05 0.29 0.44 1998 0.06 0.15 0.06 0.04 0.32 0.29 1999 0.09 0.20 0.06 0.05 0.40 0.21 Source: Sak (1999) There are perceptible overlaps between the coverage of the various social assistance schemes, thus making the set of social assistance schemes relatively inefficient at achieving its goals at minimum cost. Since the disbursements are mostly discretionary, there is no centralized coordination among the schemes, as a result of which some individuals may get disbursements from all schemes, or from none. As an example, Table 4 examines the eligibility for social assistance of five selected groups that are not covered by public social insurance. In the table, "yes" denotes that a member of the group is covered by the corresponding social assistance scheme, "no" that it is not. "Possible" denotes that it is feasible for a member of the group to receive support, given the discretionary powers of the operators of the scheme. This, for example, is particularly the case for the SYDTF, which has no strict regulations to dispense funds, but depends on the judgement of the kaymakam. The kaymakam's office also determines who benefits from the Green-Card health care scheme, under fairly loose eligibility criteria. Only SHCEK has a defined group of beneficiaries (the elderly and poor children), and is staffed by qualified social workers, who are required to be graduates of the School of Social Services of Hacettepe University. Moreover, in the absence of a unique personal identifier system, it is - 66 - theoretically possible to receive benefits from one of the three public social security systems, and also get one or more of the social assistance benefits. Table 4. Target Groups of Social Assistance Programs in Turkey Participant 2022 SYDTF Green- SHCEK Other (private Scheme Card foundations etc.) Children (0-20 years No Possible Yes Yes Possible of age) Elderly (65+) Yes Possible Yes Yes, from Possible 60+ Women (before 65) No Possible Yes Yes Possible Disabled Yes Possible Yes Yes Possible Unemployed No Possible Yes Yes Possible Source: Sak (1999) Private and local government sources of social assistance are not adequate to fully compensate for the gaps in the public program. There are additional schemes operated by municipalities, who provide social assistance services including healthcare, kitchens for the poor, subsidized bread and basic food, and operate residential centers for the elderly and the children. Some of these services are also provided by special provincial administrations and village administrations. II. Employment, Unemployment & Under-employment (Results Of Household Labor Force Survey (HLFS) 2000 and First Quarter of 2001, DIE) HLFS BASIC INDICATORS: 2000 Geographical Regions Turkey Marmara Aegean Mediterra Central Black East SouthEast nean Anatolia Sea Anatolia Anatolia Population 15 & 44,76 12,734 6,402 5,675 7,684 5,397 327 3,656 above millons 5 Employment millions 20,578 5,546 2,911 2,329 3,318 3,223 1,602 1,,649 Emp.Ratio percent 46 43. 45.5 41 43.2 59.7 49.8 45.1 Employment 49.2 47.5 49.4 45.2 45.2 62.1 51.4 48.5 Participation Ratio - 67 - percent Unemployment (000) 1,451 507 251 234 153 129 52 125 Unemp Ratio percent 6.6 8.4 7.9 9.1 4.4 3.8 3.1 7.1 Educated Youngsters 21.7 18.1 23 30.2 20.8 21.9 19.1 23.7 (1) Under- Emp. Ratio 7 5.7 5.3 10.5 5.4 4.4 14.7 10.4 percent Educated Youngsters 6.8 4.1 4.3 6.3 10. 7.4 23.5 8.2 (1) (1) Within age group 15-24, individual with high school or higher education. LABOR PARTICIPATION Turkey. Labor participation ratio for Turkey is 49.2 percent (73.1 percent for male and 25.5 percent for female). This ratio is 44.1 percent in urban areas (70.7 percent for male and 17.2 percent for female) and 57.4 percent in rural areas (77.0 percent for male and 38.6 percent for female). Please see Tables 5. Geographical Areas. The labor participation ratio according to regions is the highest in Black Sea region with 62.1 percent and the lowest in Mediterranean and Central Anatolia regions with 45.2 percent. Labor participation ratio for males is the highest in Black Sea region with 77.9 percent and the lowest is in Central Anatolia Region with 69.1 percent. For female, this ratio is the highest in Black Sea Region with 46.6 percent and the lowest in Mediterranean Region with 19.1 percent. EMPLOYMENT Turkey. According to year HLFS 2000, the total employment in Turkey is 20.588 million of which 15.223 million are male and 5.355 million are female. When the people employed in 2000 are classified on the basis of four sectors that are agriculture, industry, construction and services, the shares of the sectors are 34.9 percent, 18.1 percent, 6.5 percent and 40.5 percent for agriculture, industry, construction and services, respectively. 7,187,000 people are employed in agriculture sector in Turkey. 51.9 percent of these (3,733,000 people) are unpaid family workers. 69.6 percent of unpaid family workers in agriculture (2,597,000 people) are female. Please see Tables 6. Geographical Regions. 27 percent of employed in Turkey reside in Marmara Region, 16.1 percent in Central Anatolia Region. When the employed people in regions are classified on the basis of four main sectors (agriculture, industry, construction and services) the regions with the highest agriculture employment are East Anatolia with 61.1 percent and Black Sea with 56.9 - 68 - percent. In industry, the regions with the highest employment are Marmara and Aegean with 31.4 percent and 24.4 percent, respectively. In the construction sector, the highest employment is in Mediterranean Region with 8.1 percent and South Eastern Anatolia with 7.9 percent. In services sector, the highest employment is in Marmara Region with 50.8 percent and Mediterranean Region with 49.6 percent. 62.8 percent (1,152,000 people) of 1,835,000 people employed in agriculture sector in Black Sea Region are unpaid family workers. 71.2 percent (820,000 people) of unpaid family workers in agriculture are female. The employment ratio in the regions are realized as 59.7 percent in Black Sea Region, 49.8 percent in East Anatolia Region, 45.5 percent in Aegean Region, 45.1 percent in South Eastern Anatolia Region, 43.6 percent in Marmara Region, 43.2 percent in Central Anatolia Region and 41 percent in Mediterranean Region. UNEMPLOYMENT Turkey. The number of unemployed people in Turkey is estimated to be 1,451,000 and the ratio of unemployment as 6.6 percent. The unemployment ratio does not differ on the basis of gender in Turkey. However, in urban areas, the unemployment ratio is 8.9 percent (7.9 percent for male and 13.1 percent for female). This ratio is 3.7 percent in rural areas (4.7 percent for male and 1.9 percent for female). The unemployment ratio for educated youngsters in Turkey is 21.70 percent. Among educated youngsters, unemployment ratio in urban areas is 22.4 percent (19.8 percent for male, 25.9 percent for female). In rural areas, unemployment ratio for educated youngsters is 19.9 percent (18.9 percent for male, 23.4 percent for female). Geographical Regions. Mediterranean Region has the highest unemployment ratio with 9.1 percent, and the Eastern Anatolia Region has the lowest with 3.1 percent. The unemployment ratio on the basis of gender in regions illustrate that the unemployment ratio for female in Marmara, Aegean and Mediterranean Region is higher whereas the same ratio is higher in Central Anatolia, Black Sea, East Anatolia and South East Anatolia Regions for male. The highest unemployment ratio in urban areas is 11.2 percent in Mediterranean Region. The highest unemployment ratio in rural areas is 7.7 percent in Marmara Region. Mediterranean Region has the highest unemployment ratio for educated youngsters with 30.2 percent (29.1 percent in urban areas, 34.9 percent in rural areas). Marmara Region has the lowest unemployment ratio with 18.1 percent (17.1 percent in urban areas) and this ratio is 10.3 percent in rural areas of Central Anatolia Region. UNDER-EMPLOYMENT Turkey. The ratio of under-employment in workforce is 7 percent in 2000. According to HLFS results of 2000, ratio of under-employment within labor force is 7.4 percent in urban areas, 6.5 percent in rural areas. This ratio of under-employment amongst educated youngsters within the labor force is 6.8 percent. With regard to the ratio based on gender, in urban areas, it is 8 percent for male, 5 percent for female, and in rural areas, it is 9.1 percent for male, and 1.5 percent for female. The ratio for educated youngsters under-employed within the workforce is 6.8 percent in Turkey, 5.5 percent in urban areas and 10.9 percent in rural areas. With regard to the gender, the ratio becomes areas 6.5 percent for male and 3.9 percent for female in urban areas, and 12.6 percent for male, 4.3 percent for female in rural areas. Please see Tables 5. - 69 - Geographical Regions. The highest under-employment ratio within labor force is in East Anatolia Region is 14.7 percent. This ratio is 15.5 in urban areas of this Region and 14.4 percent in rural areas. Under-employment ratio on the basis of gender in rural and urban areas of regions illustrate that in urban areas, East Anatolia with 16.5 percent for male and South East Anatolia with 8.8 percent for female have the leading places. The highest ratio of under-employed educated youngsters is 23.5 percent in Eastern Anatolia Region (18.4 percent in urban areas and 32.3 percent in rural areas). UNEMPLOYMENT IN THE FIRST QUARTER OF 2001 The results of the HLFS for the first quarter of 2001 were released by the DIE on June 4, 2001. Figures confirmed a widely anticipated increase in unemployment. A 32.4 percent increase in the number of jobless occurred between the last quarter of 2000 and the first quarter of 2001, meaning 8.6 percent of the work force, or 1,809,000, are unemployed. While the figure shows a deterioration in employment, it is little worse than the 8.3 percent unemployment figure posted for the first quarter of 2000. The estimated figure for "educated youth" stands at 23.7 percent. The number of unemployed in the fourth quarter of 2000 was 1,366,000 and it is increased to 1,809,000 in the first quarter of 2001. - 70 - TABLE 5 - STATUS OF LABOR FORCE IN POPULATION FOR 2000 THOUSAND PEOPLE, 15+AGE POPULATION AND STATUS OF LABOR National Urban Rural TURKEY TOTAL 1. CIVIL POPULATION ('000) 64,059 39,051 25,008 2. POPULATION AT THE AGE OF 15 AND + ('000) 44,765 27,675 17,091 3. STATUS OF LABOR FORCE ('000) 22,029 12,213 9,816 3.1. Employed 20,578 11,128 9,450 3.1.1. Under-employed 1,541 907 634 3.2. Unemployed 1,451 1,085 366 4. UNEMPLOYED ('000) 22,736 15,461 7,275 4.1. Searching for job since last three months 640 444 196 4.2. Not searching jobs but ready to start work 458 271 178 4.2.1. With no hope to find job 139 83 47 4.2.2. Other 319 188 131 4.3. Seasonal Workers 584 85 499 5. RATIO OF PARTICIPATION TO THE WORK FORCE (%) 49.2 44.1 57.4 6. UNEMPLOYMENT RATIO (%) 6.6 8.9 3.7 6.1. Ratio of Educated Youth (%) 21.7 22.4 19.9 7. RATIO OF UNDER-EMPLOYED IN LABOR FORCE (%) 7 7.4 6.5 7.1. Ratio of Educated Youth (%) 6.8 5.5 10.9 MALE 1. CIVIL POPULATION ('000) 32,179 19,726 12,453 2. POPULATION AT THE AGE OF 15 AND + ('000) 22,310 13,933 8,378 3. STATUS OF LABOR FORCE ('000) 16,298 9,849 6,449 3.1. Employed 15,223 9,075 6,148 3.1.1. Under-employed 1,372 788 584 3.2. Unemployed 1,075 774 301 4. UNEMPLOYED ('000) 6,012 4,084 1,929 4.1. Searching for job since last three months 444 286 158 4.2. Not searching jobs but ready to start work 236 137 100 4.2.1. With no hope to find job 83 48 35 4.2.2. Other 153 89 65 4.3. Seasonal Workers 266 48 219 5. RATIO OF PARTICIPATION TO THE WORK FORCE (%) 73.1 70.7 77 6. UNEMPLOYMENT RATIO (%) 6.6 7.9 4.7 6.1. Ratio of Educated Youth (%) 19.5 19.8 18.9 7. RATIO OF UNDER-EMPLOYED IN LABOR FORCE (%) 8.4 8 9.1 7.1. Ratio of Educated Youth (%) 8.6 6.5 12.6 FEMALE 1. CIVIL POPULATION ('000) 31,880 19,324 12,556 2. POPULATION AT THE AGE OF 15 AND + ('000) 22,455 13,742 8,713 3. STATUS OF LABOR FORCE ('000) 5,731 2,364 3,367 3.1. Employed 5,355 2,053 3,302 3.1.1. Under-employed 170 119 51 3.2. Unemployed 376 311 65 4. UNEMPLOYED ('000) 16,724 11,378 5,346 4.1. Searching for job since last three months 196 158 38 4.2. Not searching jobs but ready to start work 212 134 78 4.2.1. With no hope to find job 47 35 12 4.2.2. Other 165 99 66 4.3. Seasonal Workers 318 38 280 5. RATIO OF PARTICIPATION TO THE WORK FORCE (%) 25.5 17.2 38.6 6. UNEMPLOYMENT RATIO (%) 6.6 13.1 1.9 6.1. Ratio of Educated Youth (%) 25.5 25.9 23.4 7. RATIO OF UNDER-EMPLOYED IN LABOR FORCE (%) 3 5 1.5 7.1. Ratio of Educated Youth (%) 3.8 3.9 4.3 Resource: HLFS, Ankara, SIS Note: Educated Youth : Age group between 15-24 WR secondar school and higher education The figures may not result in the sum due to rounding up TABLE 6 - STATUS AT WORK ACCORDING TO THE ECONOMIC ACTIVITY IN 2000 THOUSAND PEOPLE, 15+AGE MALE+FEMALE STATUS AT WORK National Urban Rural 1. Total 20,578 11,128 9,450 a) Wage or Salary Earners 10,127 7,962 2,165 b) Employers and Self-employed 6,198 2,672 3,528 c) Non-wage Family Workers 4,253 495 3,758 2. Agriculture, Hunting, Forestry, Fishery 7.187 448 6,789 a) Wage or Salary Earners 394 106 287 b) Employers and Self-employed 3,061 201 2,860 c) Non-wage Family Workers 3,733 141 3,593 3. Non-agricultural Activities 13,391 10,680 2,711 a) Wage or Salary Earners 9,733 7,856 1,878 b) Employers and Self-employed 3,137 2,471 668 c) Non-wage Family Workers 520 354 165 Total (Percentages) 100 100 100 a) Wage or Salary Earners 49.2 71.5 22.9 b) Employers and Self-employed 30.1 24 37.3 c) Non-wage Family Workers 20.7 4.4 39.8 ECONOMIC ACTIVITIES Total 20,578 11,128 9,450 Agriculture 7,187 448 6,739 Industry 3.733 3,081 652 Construction 1,329 872 458 Services 8,330 6,728 1,601 Total (Percentages) 100 100 100 Agriculture 34.9 4 71.3 Industry 18.1 27.7 6.9 Construction 6.5 7.8 4.8 Services 40.5 60.5 16.9 Resource: HLFS, Ankara, SIS Note: The figures may not result in the sum due to rounding up - 72- III. SYDTF Allocation Formulae The SYDTF uses robust formulae for the allocation of the general and heating social assistance support to the 931 SYDVs and are heavily redistributive and progressive. General Social Assistance: For each district the coefficient is the product of : population (A) multiplied by the inverse of GDP per capita (B) multiplied by a regional coefficient (C). Where: (A) is the latest population census figure from DIE. (B) is taken from DIE statistics, inverted and normalized to a factor of 1 (richest districts) to 10 (poorest districts). (C) is 1.5 for all Eastern and South-Eastern Anatolian districts and 1.0 for the rest of the country. The value of the products ABC is added up for the entire country and a coefficient to 8 decimal places obtained. Actual transfers to a particular SYDV are subject to a minimum of TL 1.5 billion per month. Heating Support: A very similar formula is used for heating support except that the regional coefficient is replaced by a heating coefficient determined by the Meteorological Office (with higher values for colder regions). Heating support, of course is only provided in the Winter season. - 73 - Annex 5: Financial Summary TURKEY: Social Risk Mitigation Project/Loan Turkey Social Risk Mitigation Project Components by Financiers (US$ '000) IBRD The Government Total Amount % Amount % Amount % 1. Rapid Response 100,000.0 100.0 - - 100,000.0 15.7 2. Institutional Development 30,476.3 83.3 6,130.9 16.7 36,607.2 5.8 3. CCT 260,000.0 72.2 100,000.0 27.8 360,000.0 56.7 4. Local Initiatives 104,523.8 78.1 29,329.2 21.9 133,853.0 21.1 5. Front-End Fee 5,000.0 100.0 - - 5,000.0 0.8 Total 500,000.1 78.7 135,460.1 21.3 635,460.2 100.0 Turkey Social Risk Mitigation Project % % Total Components Project Cost Sur (US$ '000) Foreign Base Local Foreign Total Exchange Costs 1. Rapid Response - 100,000.0 100,000.0 100 16 2. Institutional Development 21,896.8 14,710.4 36,607.2 40 6 3. CCT 360,000.0 - 360,000.0 - 57 4. Local Initiatives 106,572.3 27,280.7 133,853.0 20 21 5. Front-End Fee - 5,000.0 5,000.0 100 1 Total PROJECT COSTS 488,469.1 146,991.1 635,460.2 23 100 Turkey Social Risk Mitigation Project Project Components by Year (US$ '000) Totals Including Contingencies 2001 2002 2003 2004 2005 Total 1. Rapid Response 100,000.0 - - - - 100,000.0 2. Institutional Development 428.4 14,960.9 12,616.3 4,813.8 3,787.8 36,607.2 3. CCT - 40,000.0 200,000.0 120,000.0 - 360,000.0 4. Local Initiatives - 23,035.0 32,371.0 35,097.0 43,350.0 133,853.0 5. Front-End Fee 5,000.0 - - - - 5000.0 Total PROJECT COSTS 105,428.4 77,995.9 244,987.3 159,910.8 47,137.8 635,460.2 - 74 - SYDTF INCOME & EXPENDITURES 1998-2001(TL trilion) 1998 1999 2000 2001 REVENUES actual actual actual projection Other Funds 96,646 145,762 225,111 213,869 Income and Corporate Tax 26,261 258,341 159,781 283,558 Traffic Fines 2,911 32,460 22,804 57,168 Advertisement Revenue 0 254 254 871 Radio/TV 0 313 2,086 2,786 Petroleum Consumption Tax 43 229 0 0 Previous Years Revenues 0 505 7,795 0 Other Revenues 2,813 17,114 102,050 2,777 SRMP World Bank 0 0 0 125,000 Total Revenue (Gross) 128,674 454,978 519,881 686,029 Revenue Deduction Budget (40% withholding) 1/ 38,042 173,492 167,439 136,290 Other Funds 4,731 83,641 9,700 0 Total Revenue (Net) 85,901 197,845 342,742 549,739 Expenditures Monthly Transfer to SYDVs 7,984 14,013 21,760 60,000 Investment Projects 2,855 9,842 4,597 6,000 Income Generating Sub-projects 8,586 7,977 7,726 12,000 Medication Support 2,465 4,356 10,207 6,000 Education Support 3,929 2,123 3,057 80,000 Food for the Transported Students 8,456 18,764 28,578 40,000 Family Heating Support 4,096 2,116 5,843 40,000 Family Food Support 5,399 5,954 7,496 20,000 Natural Disaster Support 9,484 72,042 206,173 18,000 Other Social Support 4,055 4,065 5,609 9,000 University Scholarships (MEB) 12,154 17,194 27,583 22,000 Green Card Holders (SB) 9,095 19,273 31,939 42,000 May-June Actual Expensditures 0 0 0 148,877 June Expenditures 0 0 0 20,000 Contingency 0 0 0 26,000 Total Expenditures (Net) 78,558 177,719 360,568 549,877 Fund Balance 7,343 20,126 17,826) 138 1/ The earmarked revenues of the SYDTF are subject to a variable withholding by the Treasury. In recent years this has been 40 percent. - 75 - Annex 6: Procurement and Disbursement Arrangements TURKEY: Social Risk Mitigation Project/Loan Procurement General: Bank-financed Goods contracts under the project will be procured in accordance with the World Bank Guidelines: Procurement under IBRD Loans and IDA Credits, published January 1995, and revised in January and August 1996, September 1997 and January 1999 (henceforth referred to as Procurement Guidelines), Bank-financed contracts for Consulting Services required for the Project will be awarded following the World Bank Guidelines: Selection and Employment of Consultants by World Bank Borrowers, dated January 1997, revised in September 1997 and January 1999 (henceforth referred to as Consultant Guidelines). Project activities and procurement contracts not financed by the Bank will be procured in accordance with the national regulations of the borrower and/or the procurement regulations of the co-financing institutions. The project inputs, estimated costs and procurement methods are summarized in Table A. The Procurement Plan is shown in Table Al. Other procurement information, including prior review thresholds for Bank-financed procurement contracts, and a summary assessment of the procurement capacity of the coordinating and implementing agencies and the Bank's review processes are presented in Tables B 1 and B2. For procurement under the Loan, the Borrower would use the Bank's latest Standard Bidding Documents (SBD), Standard Form of Consulting Contracts and Requests for Proposals (RFP), and Standard Bid Evaluation Report Forms. Notification of Business Opportunities: A General Procurement Notice (GPN) will be published in the Development Business announcing works, goods and consultant services to be procured, and inviting interested eligible suppliers, contractors and consultants to express interest and to request any complementary information from the Borrower. The GPN will be updated annually thereafter for all outstanding procurement under International Competitive Bidding (ICB) procedures, and consulting assignments by Shortlist. Specific Procurement Notices will be published in accordance with the procurement plan. The local advertisement procedure would be repeated for all bidding packages. The local advertisements would be in the English language and at the option of the Borrower, also in the Turkish language. For consultant services contracts above US$ 200,000, Requests for Expressions of Interest will be advertised in the Development Business and in national newspaper (in the national and English languages). Procurement Arrangements: Procurement under the SRMP includes the contracting of goods, consultant services, training and local initiatives sub-projects during the 4.25 year implementation period. The project (total cost US$ 635.46 million including taxes) is financed by a Loan of US$ 500.00 million and the Turkish Government with a contribution of US$ 135.46 million. Procurement procedures are described in the succeeding paragraphs. The procurement arrangements under the SRMP are primarily based on the Bank appraisal of the existing procurement management capability of the SYDTF, including the PCU. A capacity assessment of the implementing agency has been carried out as per separate report in the project file. A Procurement Action Plan has been developed, which provides a menu of actions and - 76 - recommendations to build procurement capacity in the PCU. Government entities are not eligible to participate in the World Bank financed contracts unless they meet the criteria under World Bank Guidelines that they are legally, managerially and financially autonomous, and operate under commercial Law. Procurement will be under the responsibility of the PCU, formed within the SYDTF. The PCU will be responsible for project implementation including coordination, procurement, disbursement, maintaining the project accounts and overall coordination of implementation by other agencies such as SHCEK and DIE. However, the procurements under Local Initiatives Component will be implemented by the communities, not by the PCU. The Project Coordinator has been appointed full-time with TOR and qualifications satisfactory to the Bank. Under her management, a team comprised of one procurement specialist, two financial management specialists, one IT specialist, one M&E specialist and two support staff, will be working for the implementation of the project. In addition to these staff of the full-time individual consultants in various disciplines (i.e. one procurement specialist, one financial management specialist, one IT specialist, one reporting/communication specialist) will be hired to strengthen the PCU with TOR and qualifications satisfactory to the Bank. Procurement Arrangements:The SRMP has two portions, Adjustment and Investment (the latter with three components): * Adjustment Portion: Rapid Response. There is no procurement in accordance with the Bank's procedures. Disbursement will be made against imports, following negative list procedures. * Investment Portion: * Component I: Institutional Development. The Bank's procurement policies and procedures will apply. * Component II: CCT. There is no procurement in accordance with the Bank's procedures, because these grants will be distributed according to detailed procedures and conditions set forth in the POM. * Component III: Local Initiatives. The Bank's simplified procurement policies and procedures for community participation investments will apply. These policies and procedures are set forth in the POM. Bank-Financed Procurement: Bank financed expenditure items under Institutional Development Component will be procured as follows: Goods (a) International Competitive Bidding (ICB). Goods consisting of computer hardware and software and related office equipment which are estimated to cost more than US$ 100,000 equivalent per package, will be procured using ICB procedures in accordance with the Bank's Procurement Guidelines. - 77 - (b) International Shopping (IS). Procedures for IS will be used for procurement of small quantities of readily available off-the-shelf items, such as basic office equipment estimated to cost less than US$ 100,000 equivalent per contract, up to an aggregate value estimated at US$ 400,000 equivalent. International shopping procedures will be based on comparing price quotations obtained from at least three suppliers from two different source countries, in accordance with Bank Procurement Guidelines. (c) National Shopping (NS). Miscellaneous small quantities of furniture, goods and equipment for the dispersed project institutions, of readily available off-the shelf item which do not exceed US$ 50,000 per contract, may be purchased on the basis of prudent NS. NS procedures will be based on a comparison of written price quotations obtained from at least three local suppliers, in accordance with Bank Procurement Guidelines. The aggregate value of NS contracts is estimated at US$ 200,000 equivalent. Consulting Services and Training (a) Quality and Cost-based Selection (QCBS). QCBS procedures will be used for the selection of institutions and/or consultant firms that will carry out public opinion research, M&E and other research activities. The total aggregate value of contracts procured under QCBS is estimated at about US$ 9.759 million equivalent. (b) Quality-based Selection (QBS). QBS procedures will be used for the selection of institutions and/or consultant firms that will carry out training programs under the project. The total aggregate value of contracts procured under QBS is estimated at about US$ 2.82 million equivalent. (c) Consultant Qualifications (CQ) CQ procedures will be used for the selection of institutions and/or consultant firms that will carry out dispersed/small training programs under the project and for beneficiary assessments. The contracts will be less than US$ 100,000. The total aggregate value of contracts procured under CQ is estimated at about US$ 2.31 million equivalent. (d) Individual Consultants (IC). Individual consultants would be recruited for specific skill areas/expertise which would be needed for short periods of time at scattered intervals, and which would be impractical to package with the assignments for consulting firms described above. The required social workers for the SYDVs, specialized technical consultants for the Local Initiatives component and specialists for the PCU will be hired under IC arrangements. The total aggregate value of contracts procured under IC is estimated at about US$ 2.94 million equivalent. (e) Least Cost Selection (LCS). The consultant services for the annual financial audit of the project financial statements and accounts will be procured in accordance with the LCS procedures in accordance with the Bank Consultant Guidelines. - 78 - (f) Procurement of Training Services: The PCU will prepare a detailed Annual Training Program in consultation with the related organization under the SRMP implementation. The Annual Training Program will contain time schedule for workshops, training, in-service training, including detailed information on the content, itinerary, location, number of beneficiaries, cost estimates for each activity etc. The proposed Annual Training Program will be submitted to the Bank for review and clearance before starting implementation. After the Bank's clearance, the program shall be implemented in accordance with the agreed procedures i.e. QCBS, QBS, CQ. The status of Annual Training Program will be included as part of the Quarterly PMRs and will be updated and/or modified as may be mutually agreed between the PCU and the Bank. Procurement of Sub-projects under the Local Initiatives Component: In accordance with paragraph 3.15 of the Bank's Procurement Guidelines, the simplified procurement procedures for community participation will be applied. The Procurement rules for this component are set forth in details in the POM. In general procurement will be undertaken using the Bank's simplified procurement methods for Community Participation in accordance with the Bank's Procurement Guidelines. * Income Generating Sub-projects; each sub-project for goods, works and services estimated to cost less than or equal to US$ 10,000 will be procured competitively from domestic sources. * Employability Training; each sub-project for goods and services estimated to cost less than or equal to US$ 10,000 will be procured competitively from domestic sources. * Temporary Community Employment; each sub-project for goods and works estimated to cost less than or equal to US$ 50,000 will be procured through National Shopping (NS) and/or Minor Works (MW) procedures as mentioned below. * Community Social Services; each sub-project for goods and works estimated to cost less than or equal to US$ 100,000 will be procured through National Shopping (NS), International Shopping (IS) and/or Minor Works (MW) procedures as mentioned above. Minor Works (MW). Small construction works of sub-projects under Local Initiatives Component estimated to cost less than US$ 50,000 per contract will be procured through MW based on at least three quotations obtained from qualified domestic contractors in response to written requests. As the sub-projects are developed by the communities, the need for contractors, suppliers and consultants shall be advertised every 6 months in local (village or district level) and/or provincial newspapers. If no such papers exist, the notice board of the community would be used for the purpose of advertisement. The applicants shall be registered at the community level and, for procurements under National Shopping, Minor Works, Consultants Qualifications, quotations shall be asked from these applicants. - 79 - Review by the Bank of Procurement Decisions Scheduling of Procurement. Procurement of goods and services for the project will be carried out in accordance with the agreed procurement plan (Table Al), which will be updated as necessary and included in the progress reports for Bank review and approval. The Bank will review the procurement arrangements proposed by the Borrower, including contract packaging, applicable procedures, and the scheduling of the procurement processes, for its conformity with Bank Procurement and Consultant Guidelines, the proposed implementation program and disbursement schedule. The following procurement action and documentation would be subject to Prior Review by the Bank. (a) Goods: Equipment, Furniture and Materials: Prior review of bidding document package (including, inter alia, Invitation to Bid, Instructions to Bidders and Bid Data Sheet, General and Special Conditions of Contract, Bid Forms, Schedule of Requirements, Technical Specifications), Bid Evaluation Reports; Recommendations of Contract award and draft Contract will be conducted for: (i) all ICB tenders (contracts above US$ 100,000); (ii) the first three contracts awarded through IS; and (iii) first three contracts awarded through NS; and (v) first three contracts awarded through MW procedures. (b) Consultant Services, including Training: Prior review of procurement documents and actions will be conducted for: (i) QCBS, QBS and LCS. Prior review of (1) short listing criteria for consulting assignments, (2) Consultants Short Lists (three to six consultants per assignment); (3) complete Request for Proposal (RFP) package (including Invitation, Information to Consultants and Data Sheet, General and Special Conditions of Contract, Technical Proposal standard forms, Financial Proposal standard forms, and draft Contract Agreement); (4) Terms of Reference, including description of services, consultants' reporting requirements, and required qualifications of consultants' key personnel; (5) Technical and Financial Evaluation Reports (including official minutes) and Recommendations for contract award; and (6) Negotiated Contract. (iii) IC contracts of US$ 25,000 and above and for contracts with firms US$ 100,000 and above: (1) short listing criteria for consulting assignments, (2) Consultants Short Lists (three to six consultants per assignment); (3) Technical and Financial Proposal, and draft Contract Agreement); (4) Terms of Reference, including description of services, consultants' reporting requirements, and required qualifications of consultants' key personnel; (5) Technical and Financial Evaluation Reports and Recommendations for contract award; and (6) Negotiated Contract. (iv) IC contracts below US$ 25,000 and for contracts with Firms below US$ 100,000: (1) criteria for short listing consultants; and (2) Terms of Reference; - 80 - (v) CQ consultant contracts: Prior review of : (1) short listing criteria for consulting assignment, (2) Consultants Short List (three to six consultants); (3) Request for Proposal package (including Invitation, Information to Consultants and Data Sheet, General and Special Conditions of Contract, Technical Proposal standard forms, Financial Proposal standard forms, and draft Contract Agreement); (4) Terms of Reference, including description of services, consultants' reporting requirements, and required qualifications of consultants' key personnel; (5) Technical Evaluation Report; (6) Minutes of contract negotiation and recommendation for contract award; and (6) Negotiated Contract. Post-Review. Those contracts below the Bank's prior review threshold, are subject to the Bank's ex-post review in accordance with Bank Procurement and Consultant Guidelines. Periodic ex-post review by the Bank of procurement contracts will be undertaken during regular supervision missions and will involve about 1 in 10 contracts for IC services and an average of I in 5 contracts for other procurement. (c) Procurement review for Local Initiatives Component: Procurements under Local Initiatives Component shall be subject to the Bank's post review and this review shall be carried out together with the financial post audits. Action Plan for strengthening the PCU Capacity to Implement Project Procurement The following actions need to be taken in the order below; * The procurement file containing the up-to-date procurement documents such as guidelines, templates of procurement notices, standard bidding documents for the procurement of goods under ICB, IS and NS methods, standard request for proposal document for the consultants services, standard consultants contracts for large and small assignments and for time based and lump-sum payments, evaluation report formats have been prepared in hard copy and in electronic version on diskettes and provided to the PCU staff before the Loan Negotiations. The PCU shall translate into Turkish the related documents for NCB and MW which will be handled in Turkish. * The PAS will organize a one-day procurement familiarization seminar for the PCU staff including the individual consultants and any other staff who will be potentially involved in different aspects such as technical, financial, legal aspects of the project. This seminar will serve to both introduction of Bank's procurement procedures and updating their previous knowledge. The seminar will be scheduled during the Project Launch Workshop to be held in September 2001. * As mentioned above, SYDTF will hire an experienced procurement consultant for the life of the project before the effectiveness of the Loan. The procurement consultant will have at least 5 years experience in Bank financed projects and shall work very closely with the procurement staff of the PCU mainly for the preparation of bidding documents for the procurements to be carried out in the first year of the new project. The TOR and the CV of the procurement consultant shall be reviewed and approved by the Bank before signing the contract. - 81 - * Although the procurement person had a one week seminar on Bank procurement, he should attend additional more intensive training especially in the procurement of goods and consultants services. However, his main handicap is his lack of English language. Therefore, the procurement team should be supported with some other staff who speaks English. The procurement staff shall attend intensive procurement training offered by Bank or by ILO in Turin during the early implementation of the SRMP. * Each Bank Supervision Mission shall include the PAS assigned to this project to assist the PCU staff for updating the procurement plan and resolving pending procurement issues to overcome delays. Procurement methods (Table A) Turkey - Social Risk Mitigation Project Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Procureme nt Method Expenditure Category ICB NC B Other Total Cost A. Adjustm ent - - 100.000 100.000 (100.000) (100.000) B. Conditional Cash Transfer - - 360.000 360.000 (260.000) (260.000) C. Sub-projects (Local Initiatives) - - 127.480 127.480 (104.539) (104.539) D. Goods 17.192 0.568aV 17.760 (14.570) (0.483) (15.053) E. Consulting Services 12.757 12.757 (10.748) (10.748) F. Training 5.145c 5.145 (4.360) (4.360) G. Increm ental Operating Costs 9.519 9.519 ________________________________ _______ _______ (0.300) (0.300) H Front End Fee 5.000 5.000 (5.000) (5.000) TOTAL 17.192 620.469 637.661 (14.570) (485.430) (500.000) Figures in paranthesis are the amounts to be financed by the Bank Loan. The am ounts that exceed these figures will be financed by the Borrower. a/ Includes :IS contracts - US$ 0.400 NS Contracts - US$ 0.168 b/ Includes: QCBS Contracts - US$ 7.399 QBS Contracts - US$ 1.286 CQ Contracts - US$ 1.062 Individual Cons. - US$ 2.935 Financial Audit with cost of US$0.075 to be financed by the Borrower is included in I c/ Includes: QCBS Contracts - US$ 2.360 QBS Contracts - US$ 1.534 CQ Contracts - US$ 1.251 d/ No other donor financing, so Non-Bank Financed (NBF) column is deleted. - 82 - TABLE Al: PROCUREMENT PLAN FOR SOCIAL RISK MITIGATION PROJECT (INSTITUTIONAL DEVELOPMENT COMPONENT) 1 2 3 4 5 6 7 (c) Cont Description T Number of Estimated Cost Procure Prequal/SL (BD/RFP) Bid Cont- Contract -ract Y slices/ (US$ 000) ment 1.Invitation 1.Invitation ract Com- No P items/ Method GPN/SPNI 1. Prepa- GPN/SPNILoc Signing pletion E sub- Local ration al packages 2.Opening 2.Opening 3. Eval. & 3. Eval. & Recom. Rec.Award Total BF NBF (d) (a) (b) 1. Design of CS 2 507 430 77 QCBS Sep. Nov. 2001 Dec. 2001 Mar. Aug. 2002 computer network 2001 Jan. 2002 2002 system (including Feb. 2002 application software) for SYDTF and SHCEK 2. Establishment of G 1 6,407 5,430 977 ICB Sep. 2001 Jul. 2002 Aug. 2002 Dec. Oct. 2003 computer network Oct. 2002 2002 system (hardware, Nov. 2002 software etc.) for SYDTF and SYDVs 3. Office Equipment G 3 826 700 126 ICB Sep. 2001 Nov. 2001 Dec. 2001 Mar. Jun. 2003 for SYDTF and Jan. 2002 2002 SYDVs Feb. 2002 4. Policy and CS Multiple 696 590 106 QBS Sep. 2001 Nov. 2001 Dec. 2001 Mar. Dec. 2005 Research Studies Jan. 2002 2002 for SYDTF and Feb. 2002 beneficiary assessment - - 5. Monitoring and CS Multiple 590 500 90 QBS Sep. 2001 Nov. 2001 Dec. 2001 Mar. Dec. 2005 Evaluation Jan. 2002 2002 Services for Feb. 2002 SYDTF 6. Development CS Multiple 2,251 1,908 343 IC Sep. 2001 Nov. 2001 Dec. 2001 Feb. Dec. 2005 Consultants for Jan. 2002 2002 PCU and SYDVs 7. In-Service training CS Multiple 944 800 144 CQ Sep. 2001 Oct. 2001 Nov. 2002 Mar. Dec. 2003 for SYDTF Jan. 2002 2002 Feb. 2002 8. Public Opinion CS 1 296 250 45 QCBS Sep. 2001 Oct. 2001 Nov. 2001 Mar. Jun. 2002 Research for Jan. 2002 2002 SYDTF Feb. 2002 9. Public Information CS 1 1,475 1,250 225 QCBS Sep. 2001 Oct. 2001 Nov. 2002 Mar. Dec. 2003 Campaign for Jan. 2002 2002 SYDTF Feb. 2002 10. Office Equipment G Multiple 118 100 18 NS Sep. 2001 Oct. 2001 Oct. 2001 Nov. Dec. 2003 for PCU Nov. 2001 2001 11. PCU Consultants CS Multiple 590 500 90 IC Aug. 2001 Aug. 2001 Sep.2001 Sep. Dec. 2005 2001 12. Accounting G 1 50 43 7 NS Aug. 2001 Sep. 2001 Sep. 2001 Oct. Nov. 2001 - 83 - Software Oct. 2001 2001 13. Operational CS 1 236 200 36 QCBS Sep. 2001 Aug. 2002 Sep. 2002 Jan. Dec. 2004 Review Nov. 2002 2003 Dec. 2002 14. Establishment of G 1 9,959 8,440 1,519 ICB Sep. 2001 Jun. 2002 Jul. 2002 Oct. Oct. 2003 computer network Sep. 2002 2002 system (hardware, Oct. 2002 software etc.) for SHCEK 15. Needs Assessment CS Multiple 826 700 126 QCBS Sep. 2001 Nov. 2001 Dec. 2001 Mar. Dec. 2005 studies for SHCEK Jan. 2002 2002 Feb. 2002 16. Beneficiary CS Multiple 678 575 103 CQ. Sep. 2001 Nov. 2001 Dec. 2001 Mar. Dec. 2005 Assessment Jan. 2002 2002 Studies for Feb. 2002 SHCEK 17. M&E Consultants CS 1 94 80 14 IC Sep. 2001 Nov. 2001 Dec. 2001 Feb. Dec. 2005 for SHCEK Jan. 2002 2002 18. In-services training CS Multiple 1,534 1,300 234 QBS Sep. 2001 Oct. 2001 Nov. 2001 Feb. Dec. 2003 for SHCEK Dec. 2001 2002 Jan. 2002 19. Language Training CS 2 236 200 36 CQ Sep. 2001 Oct. 2001 Nov. 2002 Feb. Dec. 2003 for SHCEK Dec. 2002 2002 Jan. 2002 20. Public Opinion CS 1 295 250 45 QCBS Sep. 2001 Oct. 2001 Nov. 2001 Feb. Jun. 2002 Research for Dec. 2001 2002 SHCEK Jan. 2002 , 21. Public Information CS 1 1,475 1,250 225 QCBS Sep. 2001 Aug. 2002 Sep. 2002 Feb. Dec. 2003 Campaign for Nov. 2002 2003 SHCEK Jan. 2002 22. Computer Training CS Multiple 2,360 2,000 360 QCBS Sep. 2001 Nov. 2001 Dec. 2001 Mar. Dec. 2002 for SYDTF, Jan. 2002 2002 SYDVs and Feb. 2002 SHCEK staff 23. Household Surveys CS 1 1,699 1,440 259 QCBS Sep. 2001 Oct. 2001 Nov. 2001 Jan. Dec. 2004 (DIE) Dec. 2001 2002 _ _ Jan. 2002 24. Training of DIE CS 1 71 60 11 CQ Sep. 2001 Oct. 2001 Nov. 2001 Jan. Dec. 2004 staff and in-service Dec. 2001 2002 training for HEIS Jan. 2002 25. IT Equipment for G 2 200 170 30 IS Sep. 2001 Oct. 2001 Oct. 2001 Nov. Dec. 2001 DIE Nov. 2001 2001 26. Training and CS Multiple 384 325 59 CQ Sep. 2001 Nov. 2001 Dec. 2001 Mar. Dec. 2004 Consulting Jan. 2002 2002 Services for DIE Feb. 2002 Census Analysis 27. IT Equipment for G 2 200 170 30 IS Sep. 2001 Oct. 2001 Nov. 2001 Jan. Jul. 2002 Census Analysis I Dec. 2001 2002 28. Baseline Survey CS 1 236 200 36 QCBS Sep. 2001 Oct. 2001 Nov. 2001 Mar. Dec. 2002 for Evaluation of Jan. 2002 2002 CCT Feb. 2002 29. Outcome Survey CS 1 236 200 36 QCBS Sep. 2001 Oct. 2003 Nov. 2003 Mar. Dec. 2004 for Evaluation of Jan. 2004 2004 CCT Feb. 2004 30. Analysis for CS 1 118 100 18 QCBS Sep. 2001 Aug. 2004 Sep. 2004 Jan. Mar. 2005 Evaluation of CCT Nov. 2004 2005 ________ _________Dec. 2004 TOTAL 35,587 30,161 5,426 - 84 - (a): The Total Costs are inclusive of 18% local taxes (VAT). (b): NBF: Non-Bank-Finance is the Government's contribution in terms of local taxes (VAT) which is 18% of the contract price. (c): The minimum bidding time as per the Bank's Procurement and Consultants' Guidelines shall be allowed. The PCU wishes to apply tight schedule to be able to achieve the implementation plan. (d): For "multiple" number of items/sub-packages; the activity dates represent the initiation of the first contract and the activity will continue throughout the implementation of the project as required. Prior review thresholds (Table B) Table Bl: Summary of Procurement Activities Turkey - Social Risk Mitigation Project Table Bl: Consultant Selection Arrangements (US$ million equivalent) Procurement Method Expenditure Category QCBS QBS CQ IC Total A. Consulting Firms 9.759 2.820 2.313 - 14.892 (8.270) (2.390) (1.960) - (12.620) B. Individual Consultants 2.935 2.935 - - - (2.488) (2.488) TOTAL 9.759 2.820 2.313 2.935 17.827 (8.270) (2.390) (1.960) (2.488) (15.108) Figures in paranthesis are the amounts to be financed by the Bank Loan. QCBS: Quality and Cost Based Selection QBS: Quality Based Selection CQ: Selection Based on Consultants' Qualifications IC: Individual Consultants (per Section V of Consultants Guidelines) - 85 - Table B2: Thresholds for Procurement Methods and Prior Review % of Loan Goods/Works ICB IS/NS Amount subject to prior review IS: Less than Procurement Above $100,000 $100,000; Thresholds NS: Less than $50,000 $ 14.57 million IS: $ 400,000 Aggregates NS: $ 200,000 All contracts IS: first 3 contracts Prior Review NS: first 3 contracts 90% Consultants QCBS QBS CQ Individual Aggregates $ 9.759 million $ 2.820 million $ 2.313 million $ 2.935 million All consultant All consultant All consultant All contracts Prior Review contracts contracts contracts above $25,000 One in ten contracts for Individual Consultants contracts and one in five contracts Ex-post Review for other procurements shall be subject to post review which will be carried out Iperiodically during supervision missions. The capacity of the implementing agency to conduct procurements has been assessed. The overall procurement assessment is high-risk. The following action plan is recommended as a result of this assessment. 1. The procurement file containing all of the up-to-date Bank's procurement documents such as guidelines, SBDs, RFP etc. is to be provided to PCU both in hard copy and electronically before the Loan Effectiveness. 2. The PAS shall organize one day procurement familiarization seminar for the PCU staff during the Project Launch Workshop. 3. PCU shall hire an experienced procurement consultant before the Loan effectiveness. 4. PCU procurement staff shall attend the intensive procurement training offered by ILO Turin during the early implementation of the project. Country Procurement Assessment Report or Country Are the bidding documents for the procurement Procurement Strategy Paper status: The CPAR is finalized actions of the first year ready by negotiations in June 2001. YES NO X Estimated date of Estimated date Indicate if there is Domestic Preference for Goods Domestic Project Launch of publication of procurement Yes X No Preference for Workshop General subject to Works, if September 2001 Procurement mandatory SPN applicable Notice in Development Yes No X 09/16/2001 Business Yes X No Explain briefly the Procurement Monitoring System: Procurement implementation progress will be monitored through progress reports and supervision missions. Each supervision mission will include the project procurement specialist for updating the procurement plan and conducting post review. Co-financing: None Indicate name of Procurement Staff or Bank's staff part of Task Team responsible for the procurement in the Project: Elmas Arisoy (ECCTR) Explain briefly the expected role of the Field Office in procurement: There are two procurement specialists in the Country Office. -86 - Disbursement Allocation of loan proceeds (Table C) Disbursement Allocation of loan proceeds (Table C) The proceeds of the Loan would be disbursed in accordance with the guidelines provided in the Bank "Disbursement Handbook". The procurement and disbursement arrangements are based on the Bank's appraisal of the procurement and financial management capability of the implementing ministry and its institutions, as well as the experience and lessons learned from ongoing Bank operations in the HD sector in Turkey. Loan funds are expected to be fully disbursed within nineteen (19) quarters after the expected effectiveness date of September 15, 2001. The Project Completion Date is December 31, 2005 with a Credit Closing Date of June 30, 2006. The disbursement categories and amounts and percentages to be financed under each category are presented in Table C, as follows: Table C: Allocation of Loan Proceeds Expenditure Category Amount in US$ Financing Percentage 1. Adjustment - (Rapid Response) 100,000,000 100% 2. Education Grants and 260,000,000 100% up to December 31, 2002; Health/Nutrition Grants (CCT) 80% for up to December 31, 2003; and 60% thereafter 3. Performance Grants and Sub- 100,000,000 82% of disbursed amounts projects (Local Initiatives) 4. Goods 15,000,000 100% of foreign expenditures; 100% of local expenditures (ex-factory cost); and 82% of local expenditures for other items procured locally 5. Consultants' Services, including 15,000,000 82 % Training 6. Incremental Operating Costs 300,000 82% 7. Front-end fee 5,000,000 8. Unallocated 4,700,000 Total 500,000,000 Use of statements of expenditures (SOEs): Disbursements will be made on the basis of Statements of Expenditure (SOE) for contracts for the CCT, local institutions sub-projects, goods, consultant services, training, accordance in with the table below. Supporting documents for expenditures financed on basis of SOEs will be retained by PCU for at least one year after disbursement and made available for review by Bank representatives and external auditors. Disbursement for the Rapid Response - 87 - component will be undertaken as a single disbursement to the CBT upon Loan Effectiveness. All applications to withdraw from the loan will be made in accordance with guidelines set out in the Bank's disbursement handbook. All applications to withdraw will be fully documented, except those for training and contracts not subject to prior review, as shown above, for which reimbursement may be made against certified statements of expenditures SOEs. Project accounts will be subject to an independent audit for each fiscal year, in accordance with auditing standards acceptable to the Bank. SOE Thresholds: * Goods: contracts costing less than US$ 100,000 equivalent * Consulting services - firms: contracts costing less than US$ 100,000 * Consulting services - individuals: contracts costing less then US$ 50,000 equivalent * Training: all contracts Administration of Disbursement: The PCU will be responsible for the maintenance of a centrally managed financial management system (FMS), including records and accounts, for the preparation of financial statements in a format acceptable to the Bank, adequate to reflect the operations, resources and expenditures of all withdrawal applications in accordance with Bank's guidelines. Special account: In order to facilitate Loan disbursement, the Government will establish a Special Account in the CBT on terms and conditions satisfactory to the Bank to cover the Banks share of expenditures. The Authorized Allocation for the Special Account would be US$ 15,000,000. However, during the initial stage of implementation, an amount limited to US$ 5,000,000 will be deposited in the Special Account. When the aggregated amount of disbursement reaches US$ 15,000,000, the amount deposited in the Special Account will be increased to the full authorized allocation of US$ 15,000,000. The minimum amount of each application should be 20 percent of the authorized allocation. Applications for replenishment of the Special Account would be submitted monthly, or whenever one-third of the amount has been withdrawn, whichever occurs earlier. Traditional Disbursement Procedures. The disbursement under the loan will be made in accordance with traditional disbursement procedures as explained in Disbursement Handbook. Financial Management Institutional and Implementation Arrangements: Fiduciary Considerations The SYDTF is an extra-budgetary fund established by Law No. 3294 dated May 29, 1986. The SYDTF is administered by a Committee comprising Undersecretary of Prime Ministry, Undersecretary of Ministry of Interior, Undersecretary of SB, the General Directorate of SYDTF and the General Director of the SHCEK, under the chairmanship of a State Minister appointed by - 88 - the Prime Minister. All of the decisions made at the Committee meetings enter into effect after approval and ratification by the Prime Minister. The SYDTF does not have its own administrative capacity and most of its staff members are seconded and paid from ministries or other agencies. The SYDTF is subject to government regulations on accounting (Uniform Code of Accounts) and record-keeping. However, the SYDTF is not required to produce financial statements, given its nature of extra-budgetary fund and tax-exemption status. The SYDTF is subject to annual audits by the Prime Ministry Supreme Audit Board. The SYDTF's existing accounting unit is not prepared and adequately staffed to cope with the increased workload resulting from the project and the existing financial management system is inadequate to support project accounting/reporting functions (following Government accounting classifications and conventions) and not supported by the needed internal controls; hence the need (among other fiduciary areas, where adequate resources and skills are lacking) for the establishment of a PCU through which specialized information systems and adequate professional expertise will be made available to the SYDTF. The PCU will be in charge of project management, administration and concrete implementation, functioning as service-provider to the various implementing agencies. The PCU will work as a specialized organizational unit of the SYDTF, with staff from the SYDTF (counterpart members) and local consultants for the activities where the SYDTF lacks experience, at present: both fiduciary (disbursement, procurement, project accounting and reporting) and core functions (targeting, M&E and public information). The PCU consists of eight SYDTF staff (already appointed with TOR and CVs satisfactory to the Bank) and local consultants, namely, a procurement specialist, an accountant, a disbursement, IT expert, a M&E expert, a reporting and communication expert and two support staff who will be financed under the SRMP. It will include a liason person each from the SHCEK and the DIE to facilitate coordination with those institutions. Job descriptions for the local consultants, were reviewed and approved by the Bank and hiring is underway. Appointment of the FMS consultant, along with a functioning FMS, is a Condition of Effectiveness. The SYDTF will improve its capacity by the support of these qualified professional individual consultants. An FMS satisfactory to the Bank will be maintained and strengthened by the SYDTF throughout project implementation. All fiduciary functions (disbursement, procurement, accounting and reporting) will be centralized at the PCU level. Thus, the PCU must be not only appropriately resourced, but the PCU members will need appropriate training in project management and administration. The SYDTF managed efficiently and effectively the emergency response to the August 1999 Marmara earthquake, proving itself as the most suitable vehicle to administer assistance transfers in a fast controlled manner. However, it did not perform project management and administration functions for which, at present, there is no capacity in place. Furthermore, the SYDTF lacks written policies and procedures governing its functions and regulating its relations with the SYDVs. - 89 - The SYDVs are separate autonomous legal entities established at the provincial/district level, managed by their own local Committee, enjoying relative latitude in decision-making and (given their legal status) exercising some independence in carrying out their activities. For effective coordination and monitoring by the SYDTF of the SRMP activities carried out by the SYDVs, the SYDTF will send out a legally binding circular (satisfactory to the Bank) to all 931 SYDVs biding them to the POM and the SRMP Loan Agreement prior to Board. This circular will spell out respective roles and responsibilities and empowering the SYDTF with authority to implement specific actions in case of less than satisfactory participation or performance by the SYDVs. The introduction of standardized procedures and reporting formats will be needed, which will be one of the outcomes of the establishment of a common, unified FMS (financed under the Institutional Development component of the SRMP). The excellent performance of the SYDTF/SYDV under Marmara earthquake emergency will be systematized and documented under the SRMP, in order to become an efficient, sustainable and transparent social safety-net and an effective system of social services and assistance catering to the poorest. In consideration of the accelerated project preparation schedule, it will take an estimated in two months from appraisal (July 2001) to establish a satisfactory FMS, - including human resources, software, hardware, policies and procedures documented in the POM - . A satisfactory certification by the Bank FMS of this system is a Condition of Disbursement for the CCT and Local Initiatives components. Adjustment Portion: Rapid Response The adjustment portion of the SRMP will be disbursed in a single tranche based upon completion of the tranche release conditions. For this portion, the PCU will have accounting and reporting responsibilities, and the reporting will be in the form of a quarterly progress report. Consistent with the nature of this operation, implementation arrangements for the adjustment portion of the loan will be simplified (for instance in terms of financial reporting and auditing requirements). However, to ensure transparency and sound governance, the arrangements governing the transfer of funds among the implementing institutions and the associated supporting documentation and reporting obligations would be spelled out in an Implementation Agreement to be entered by Treasury and the MB. Each of the 931 SYDVs will maintain a distinct bank account for the four different types of assistance (school attendance support, pharmaceuticals, heating and food assistance). This is needed since the SYDTF will have to prepare quarterly progress reports to the Bank based upon monthly data. The availability of bank statements for the various SYDVs and type of assistance would allow the SYDTF to do so, even in the absence of timely, regular and accurate reporting from the SYDVs. A generalized lack of 'reporting culture' is observable in the SYDVs, customarily used to receiving funds from the SYDTF but not reporting back on the basis of standardized formats and/or at regular intervals. The PCU has prepared reporting templates containing the minimum information to be provided by the SYDVs, which have been reviewed and approved by the Bank. The PCU will consolidate those records and prepare a summarized quarterly progress report with monthly data. - 90 - Applications will be screened and decided upon by the SYDVs based on the criteria currently in use and forwarded to SYDTF on a monthly basis for disbursement. Assistance will be provided to applicants either in cash or in kind. In the latter case, the SYDVs will have to disclose, or quantify, the monetary equivalent of the benefits provided in their report to the SYDTF. Since records and supporting documentation for the transfers will be retained at the single SYDV level (the SYDTF will only receive a summarized report with attached the list of applicants/beneficiary and the bank statement), limited compliance audits (basically, documentary reviews) will be conducted by a governmental audit body across the SYDVs to ascertain that: (i) proper authorization and fund transfer mechanisms are in place; (ii) adequate filing procedures are observed (allowing opportune audit trail); and (iii) meaningful budgets and complete summary reporting, supporting the next-period disbursement request, are prepared by the SYDVs and sent to the SYDTF. The diagram presented below summarizes the flow of funds, relating supporting documentation, reporting lines and documentary reviews for the adjustment portion of the SRMP. - 91 - Chart 1 Flow ofFunds 긷 - 92 - a~ OF ~ OF FUNDS AND DOM~ATU~~M IN COMK~ Z3 AND 4 G~ Med~ 01 Of 15^ Flnum Eco~ Ra~ GOT ADIV~ 7, 1 - k 8~ (12) ha R~ - 13,131s~ 14 ReM .............. E TREASURY -------- ------------------------ I I A~ AWP&d; CONTROLLERS (3) DW~ (10)Audb-9 Consullants SOCKL (7) WKI S~ EM SOLl~ FUND --------------------------------- C.k~ 4MOL- - ------ =X 4) ~POSWRepb~ Dr Tämn of De& Myg ef.o Govenv~ AUMDM ~ Ac=« Tr~Account Dr~ P~ SERVICE PROVII3ERS WSTITUnONAL CONDniONAL (1) c ~am (NGO% DEVELOPMENT CASH (6) , (1)(aShM~ kx#vk~ MIXTIVE SYDTV,% BfflEICLARIES SOCLAL HEMIH Mun~ SOUDARITY CUNCSAND 0~ SCHOMS (1) BENERCIARIES >Flwd~ -93- Investment Portion For the implementation of the investment components, the detailed, specific financial management arrangements and flow of funds and applicable controls for each component are described below. The PCU will establish a financial management system meeting Bank requirements. The system will entail adequate staffing (in terms of number and skills), will be supported by a suitable accounting software and will be assisted by an adequate control environment and a combination of ex-ante and ex-post external audit arrangements. All the elements described will be documented in a Financial Management Manual, which will be an integral part of the POM, which is a condition of disbursement for the CCT and Local Initiatives components. The POM will document, inter alia: (i) organization and management structure of project implementation; (ii) job description for PCU team members; and (iii) operational procedures to be followed; and (v) project management reporting and external reporting classifications, formats and frequency, PMRs, procurement reports, audit reports, etc. The diagram presented above summarizes the flow of funds, relating supporting documentation, reporting lines, ex-ante audits (for the CCT) and external auditing arrangements for the investment components of the SRMP. (I) Institutional Development Component The SYDTF and SYDVs needs have been identified in the institutional assessment (see Annex 13) and supported by the results of the operational review conducted by an international accounting and consulting firm (PriceWaterhouseCoopers, PWC) under the EERL. The institutional strengthening of the SYDTF and the SYDVs will involve the implementation of the key agreed recommendations of the operational review conducted by the consultants in the context of the EERL (which have been accepted by the SYDTF and the Government) requiring, inter alia, the introduction of unified procedures, the development of formal financial reporting arrangements between the SYDTF and the SYDVs and the establishment of an integrated MIS. The SYDTF needs a complete overhaul of its information system, especially in respect of tools for networking and interfacing with the SYDVs, primarily the creation of a unified data-base and real-time data sharing. In this respect, detailed functional and technical specifications are already available (prepared by PWC). These specifications, with small adaptations, will form the basis for the (RFP) for the new MIS. The project accounting software and related equipment for the PCU will be financed under this component, with the initial assistance of the PHRD. All beneficiaries will be required to introduce a maintain a fixed asset register for the equipment financed by Loan proceeds. -94- (II) CCT Component The CCT will be implemented by relying on existing networking arrangements and procedures envisaged under the Rapid Response component, thereby avoiding placing an enormous administrative burden on the SYDTF. Thus the CCT would use a decentralized approach, whereby the SYDTF would provide (monthly) periodic allocations to the SYDV. The SYDV would then arrange payments, maintain records and prepare summary reports for the PCU, administer the payments through a bank with which the SYDTF will enter into a contractual arrangement. To strengthen the accountability and transparency of the whole process, pre-audits of CCT will be conducted by a governmental audit body under TOR already agreed with the Bank. The pre-audits, although conducted in a systematic way, would be not generalized: in consideration of the large number of micro-payments involved, the risk that this safeguard measure slows down implementation of the CCT program must be avoided. The pre-audits would rather represent a verification of the transparency and correctness of payments' administration, conducted by an independent third party, covering a representative random sample of transactions, and carried out on a rotational basis throughout all SYDVs. The purpose of the pre-audits would, in fact, be to provide reassurance to all stakeholders that the whole process is adequately controlled; in this respect, auditors would: (i) review the information prepared by the SYDVs on the claims/payable benefits for the given period under examination; and (ii) would cross-reference the compiled requests with the list of beneficiaries and the single payment advises (for the beneficiary) and payment orders (for the bank), in order to ascertain the reliability of the mechanisms supporting cash releases. The verification would also extend to the adequacy of the accounting records maintained and supporting documentation filed in respect of the transactions under examination. Based on the positive results of the pre-audit, the SYDV would make funds available to the beneficiaries, sending payment instructions to the relevant commercial bank(s). (III) Local Initiatives Component The process entails SYDVs, municipalities, communities, NGOs etc. presenting their sub-project proposals to the SYDTF for screening and approval. The sub-project cycle would also involve the support of Service Providers (for instance Associations, NGOs, etc. already experienced in the management of the relevant sub-project activities) that would support sub-projects' execution, contribute to monitoring and evaluation on behalf of the SYDTF and also function as an intermediate layer, between the SYDV and the beneficiaries, when this might be useful. The administration of sub-project financing entails disbursement in several installment based on specific triggers linked to measurable physical progress. An integrated MIS, financed under the Institutional Development component, will be introduced within the SYDTF/SYDVs, which would strengthen the institutions' targeting and M&E capabilities and facilitate scrutiny and oversight functions under the project. It is believed that the elements of self-control generally embedded in the Local Initiatives (due to the collective control exercised over sub-projects execution and the use of related resources by the investing - 95 - groups or community) is another element positively contributing to the establishment of an adequate control environment for this component's activities. Control Environment Project accounting/reporting policies and procedures, as well as administrative routines will be documented in the Financial Management Manual (which will include the accounting software user's manual), representing an integral part of the POM. The PCU staffing should ensure adequate division of labor, segregation of duties and clear reporting lines. The acceptance by the Bank of the POM is a Board condition. No project funds will be transferred directly to the beneficiaries or any other implementing agency outside the project's documented framework. All implementing agencies (SYDVs, SHCEK and DIE) will enter into Participating Agency Agreements spelling out roles and responsibilities of all parties to the agreement. All payments for goods and services procured under the project, as well all Special Account draw-downs for the Rapid Response component (for which the MB is in charge of disbursement) as well as withdrawal applications for the non-adjustment components will have the joint signature of the SYDTF General Secretary and the PCU Coordinator, or their delegated representatives. Budgetary control represents the primary financial control safeguard, by way of preparation by the PCU of a consolidated work plan for the project, to be approved by the Advisory Board, the Treasury and the Bank. However, in consideration of the demand-driven nature of several programs financed under the project, the preparation of accurate estimates might prove difficult and will require strict cooperation with SYDVs and other implementers and the need, for the PCU, to refine its planning and forecasting, as well as its M&E capabilities. For this reason, PMR-based disbursement is not recommended. Disbursement will be made in accordance with traditional disbursement procedures throughout the life of the project. Auditing Arrangements Consolidated annual project financial statements for the investment components will be audited by the Treasury Controllers in accordance with International Standards on Auditing (ISA) and under TOR already cleared by the Bank. An appropriate Government audit body will carry out documentary reviews of the activities under the Rapid Response component and pre-audit of payments - on a selective but systematic basis - under the CCT under TOR already cleared by the Bank. At the conclusion of the first year of project implementation (end of year 2002), an operational review of the activities carried out under the project (financed by Loan proceeds) will be conducted by the Treasury Controllers together with an independent, private sector accounting/consulting firm under TOR already cleared by the Bank. - 96 - Risks and Mitigation Strategies The risks in this operation are considered substantial both from the financial control perspective and reputational risk perspective. Besides the standard audit requirements to be applied in respect of both the adjustment and the investment portions of the SRMP, a number of measures have been agreed to minimize the risks identified in the various activities, which are summarized below: * Documentary reviews in respect of the adjustment component (Rapid Response) by a Governmental audit body; * Pre-audits of payments under the CCT, carried out by a Governmental audit body on a selective, but systematic basis; and * Operational review for the whole project, carried out at the end of the first year of implementation by the Treasury Controllers together with an independent, private sector accounting/consulting firm. Action Plan The SRMP will be subject to a detailed review and re-assessment of its adequacy to support project activities, to be conducted by the project FMS. The graduation of the system from inadequate to satisfactory, as required by OP/BP 10.02 and the Financial Management Initiative, is a condition of disbursement for the CCT and Local Initiatives components. To achieve this, the Bank and the Borrower agreed upon the details of a time-bound action plan specifying the steps necessary for the development of a financial management system meeting Bank's minimum fiduciary requirements prior to the first disbursement under the investment components. The further strengthening of the system and the maintenance of a satisfactory FMS throughout the life of the SRMP will be monitored by the Bank during supervision (this will be ensured by the availability of an FMS staff in the Bank's Ankara Office. Action Responsible Deadline Party Implementation Agreement signed for the adjustment portion Treasury, MB Board Date SYDTV screening criteria for the adjustment portion agreed SYDTF-PCU August 9, 2001 by the Bank PMU Finance Manager consultant starts work SYDTF-PCU September 1, 2001 Procedures manual for the adjustment portion covering SYDTF-PCU Board Date implementation arrangements, including FMS arrangements documented Project accounting software installed and tested SYDTF- PCU September 15, 2001 Engagement with appropriate terms of reference signed with SYDTF- PCU September 30, 2001 a governmental audit body for the documentary review - 97 - under RRC Bank FMS certifies FM arrangements and systems for the Bank Board Date adjustment portion Bank FMS certifies FM system for institutional development; Bank Effectiveness Conditional Cash Transfers and Loal Initiatives components. Special Account audit report Treasury January 31, 2002 First annual project report completed by SYDTF/PMU SYDTF-PCU/ January 31, 2002 Treasury Bank FMS certifies FM system for CCT and Local Initiatives Bank Prior to initial components disbursement for those components (in early 2002) Operational Review for the first year of project Treasury/ October 30, 2002 implementation Bank SYDTF-PCU - 98 - Annex 7: Project Processing Schedule TURKEY: Social Risk Mitigation Project/Loan Project Schedule Plannped -Actual Time taken to prepare the project (months) 2 2 First Bank mission (identification) 05/08/2001 05/08/2001 Appraisal mission departure 07/28/2001 07/23/2001 Negotiations 07/31/2001 08/03/2001 Planned Date of Effectiveness 09/15/2001 Prepared by: SYDTF, SHCEK and DIE with Bank assistance. Preparation assistance: PHRD. Bank staff who worked on the project included: Name Speciality John Innes Team Leader Jeanine Braithwaite Co-Team Leader Hideki Mori MIS/IT & CCT POM Helen Shahriari Social Assessment Maniza Naqvi Social Fund Specialist Alexandre Kolev CCT - Socio-economic Aspects Roberto Tarallo FMS Seda Aroymak FMS - Ankara Ferda Sahmali HD Operations Officer - Education/Social Protection Ibrahim Akcayoglu HD Operations Officer - Health Nedim Jaganjac Health Sector Linkages Marit Granheim Education Sector Linkages Elmas Arisoy PAS Dilek Barlas/Gennady Pilch Lawyers Rohit Mehta Disbursement Officer Nadejda Mochinova Program Assistant - 99 - Annex 8: Documents in the Project File* TURKEY: Social Risk Mitigation Project/Loan A. Project Implementation Plan August 1, 2001. B. Bank Staff Assessments 1. Emergency Earthquake Recovery Loan, Turkey, October 27, 1999. 2. Economic Reform Loan, Turkey, March 20, 2000. 3. Programmatic Financial and Public Sector Adjustment Loan (PFPSAL), Turkey, June 20, 2001. 4. Beneficiary Assessment Report (EERL), Turkey, April 2000. 5. Turkey Economic Reforms, Living Standards and Social Welfare Study, April 1999, Poverty Reduction and Economic Management Unit, Europe and Central Asia Region. C. Other Government 1. Prime Ministry General Directorate of Social Services and Child Protection Institution, 2001 Fiscal Year Budget, Presentation of State Minister Mr. Hasan Gemici to TBMM Plan and Budget Commission, November 2000, Ankara. 2. Gaziantep Social Solidarity and Assistance Foundation Implementation Regulations ,Gaziantep SYDV, Gaziantep, 2000. 3. Research on Shanty town, General Directorate of Social Planning Department of Research, Alpar I., Dr. Yener S., Nisan 1993. 4. A General Evaluation of TKV-SDC Programme for the 1st Phase, I. Village Level Work, Development Foundation of Turkey, January 1998. 5. Social Solidarity and Assistance Incentive Funds Support to Information Systems 6. 8th Five Year Development Plan, Social Services and Assistance Private Specialization Commission Report, DPT, Ankara 2001. Other 1. Socialization of Social Assistance Services: Van Social Solidarity and Assistance Foundation - 100- Sample. Demur N. H., 100. Yil University Social Science Institute, Department of Sociology, Van, 2001. 2. Common Country Assessment (CCA). Turkey 2000, UN. 3. The United Nations Development Assistance Framework 2001-2005, Turkey, UNDAF 4. "Measuring the Quality of Life Across District Centers in Turkey." Akder H., ODTU, Department of Economics, Ankara, 1993. 5. Human Development Report, Turkey, 2000, UNDP. 6. Supporting Women Owned Businesses in Turkey: A Discussion of Needs, Problems, Opportunity, and Strategies, Development Alternatives, Inc. and the Strategic Research Foundation, November 1995. 7. Convention on the Rights of the Child (CRC) Relevant Laws and Legislation of the Republic of Turkey, Social Services and Child Protection Agency and United Nations Children's Fund, June 2000. 8. Strong Family Strong Society, Department for Protection of Integrity of Families, Alpay F., May 2001. 9. Adana Socio-Economic Report, Development Alliance Foundation, Nisan 2000. 10. Turkey Foundations and Associations, Baloglu Z., Ocak 2000. 11. Government of Turkey - UNICEF Programme of Cooperation, 2001 - 2005, May 29, 2000, UNICEF. 12. "The State of Children and Women Turkey", Assoc. Prof. Dr. Hancioglu A., Assist. Prof. Dr. Koc I., Assist. Prof. Dr. Dayioglu M., Turkey, June 2000, UNICEF. *Including electronic files - 101 - Annex 9: Statement of Loans and Credits TURKEY: Social Risk Mitigation ProjectlLoan May-2001 Difference between expected Original Amount in US$ Millions and actual disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm ReVd P070286 2002 ARJP 600.00 0.00 0.00 0.00 600.00 0.00 0.00 P070561 2002 PFPSALI 1100.00 0.00 0.00 0.00 7.15 -1092.85 0.00 P069894 2001 PRIV SOC SUPPRT 250.00 0.00 0.00 0.00 239.50 15.33 0.00 P044175 2000 BIODIVINTRL RES MGMT (GEF) 0.00 0.00 8.19 0.00 7.35 1.13 0.00 P065188 2000 EFIL 252.53 0.00 0.00 0.00 174.10 -78.24 0.00 P068368 2000 MARMARA EARTHQUAKE EMERGENCY 505.00 0.00 0.00 0.00 342.66 279.33 0.00 P068792 2000 RECON. 759.60 0.00 0.00 0.00 375.00 375.00 0.00 P058877 1999 ERL 369.00 0.00 0.00 0.00 176.24 146.91 114.57 P009073 1999 EMGY FLOOD RECOVERY 155.00 0.00 0.00 0.00 127.22 -5.44 0.00 PD48851 1999 INDUSTRIAL TECH 4.00 0.00 0.00 0.00 3.31 3.31 0.00 P048852 1998 COMMODITIES.MKT.DEV. 270 00 0.00 0.00 0.00 264.10 213.44 -0.85 P009089 1998 NATL TRNSM GRID 300.00 0.00 0.00 0.00 150.07 150,07 0.00 P008985 1996 BASIC ED 1 13.10 0.00 0.00 0.00 11.42 7.49 0.33 P009072 1998 CESME W.S. & SEWER. 20.00 0.00 0.00 0.00 9.87 8.39 3.04 P038091 1996 PRIV. OF IRRIGATION 250.00 0.00 0.00 0.00 71.76 88.23 0.00 P035759 1996 ROAD IMPR. & SAFETY 62.00 0.00 0.00 5.00 32.00 37.00 23.87 P009093 1995 PUBLIC FINAN. MGT. 100.00 0.00 0.00 14.86 42.52 36.96 3.02 P009076 1995 ANTALYA WATER SUPPLY 15000 0.00 0.00 0.00 72.97 97.63 26.91 P009023 1993 HEALTH II 77.00 0.00 5.10 0.00 18.95 29.49 7.58 E ANATOLIA WATERSHED Total: 5237.23 0.00 13.29 19.86 2726.18 313.17 178.47 - 102 - TURKEY STATEMENT OF IFC's Held and Disbursed Portfolio May-2001 In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1990/93 Conrad 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997/98 Demir Leasing 3.89 0.00 0.00 0.00 3.89 0.00 0.00 0.00 0/94/96 Demirbank 7.50 0.00 0.00 7.50 7.50 0.00 0.00 7.50 1989 Edirne 1.13 0.00 0.00 0.00 1.13 0.00 0.00 0.00 1993/96 Eldor 3.00 0.00 0.00 0.00 3.00 0.00 0.00 0.00 1988/93/96 Elginkan 8.49 0.00 0.00 0.52 8.49 0.00 0.00 0.52 1995 Entek 24.00 0.00 0.00 23.19 24.00 0.00 0.00 23.19 1997/98 Finans Leasing 3.89 0.00 0.00 0.00 3.89 0.00 0.00 0.00 1992/99 Finansbank 10.00 0.00 0.00 35.00 10.00 0.00 0.00 35.00 1994/98/00 Garanti Leasing 2.55 0.00 0.00 16.19 2.55 0.00 0.00 16.19 1994/95/96 Global Security 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1999 Gumussuyu Kap 4.00 0.00 2.64 0.00 4.00 0.00 2.64 0.00 1998 Indorama Iplik 10.00 0.66 0.00 0.00 10.00 0.66 0.00 0.00 1998/00 Ipek Paper 0.00 0.00 0.00 15.00 0.00 0.00 0.00 15.00 2000 Isiklar Ambalaj 0.00 0.00 10.00 0.00 0.00 0.00 9.50 0.00 1990 Kepez Elektrik 11.34 0.00 0.00 0.00 11.34 0.00 0.00 0.00 1988/90 Kiris 8.26 0.00 0.00 0.00 8.26 0.00 0.00 0.00 1996 Kocbank 5.71 0.00 0.00 0.00 5.71 0.00 0.00 0.00 1996 Koclease 6.43 0.00 0.00 0.00 6.43 0.00 0.00 0.00 1992/97 Korfezbank 9.00 0.00 0.00 13.00 9.00 0.00 0.00 13.00 1990/92 Koy-Tur 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1991 Kula 4.53 0.00 0.00 0.00 4.53 0.00 0.00 0.00 1993/96 Medya 0.00 0.00 4.99 0.00 0.00 0.00 4.99 0.00 1998 Modem Karton 20.00 0.00 0.00 10.00 20.00 0.00 0.00 10.00 1991 NASCO 10.18 0.00 0.00 3.55 10.18 0.00 0.00 3.55 1998 Ottoman 18.18 0.00 0.00 72.73 18.18 0.00 0.00 72.73 1997 Oyak Bank 8.33 0.00 0.00 5.00 8.33 0.00 0.00 5.00 1998 Pasabahce-Schott 11.83 0.00 0.00 11.83 11.83 0.00 0.00 11.83 1983/94/98 Pinar ET 10.21 0.00 0.00 0.00 10.21 0.00 0.00 0.00 1994/00 Pinar SUT 14.47 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0/97 Rant Leasing 1.78 0.00 0.00 0.00 1.78 0.00 0.00 0.00 1999 SAKoSa 21.90 0.00 0.00 21.42 21.90 0.00 0.00 21.42 1986/90 Silkar Turizm 3.34 0.00 0.00 3.80 3.34 0.00 0.00 3.80 1993/96 Sise Ve Cam 6.30 0.00 0.00 8.40 6.30 0.00 0.00 8.40 1998 Soktas 10.85 0.00 0.00 0.00 10.85 0.00 0.00 0.00 1996 TCRA 0.00 0.10 0.00 0.00 0.00 0.05 0.00 0.00 TDD 0.60 0.00 0.00 0.00 0.60 0.00 0.00 0.00 1995 TEB Finansal 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 1999 Toprak Leasing 1.78 0.00 0.00 0.00 1.78 0.00 0.00 0.00 1997 Trakya Cam 0.00 1.18 0.00 0.00 0.00 1.18 0.00 0.00 1979/82/83/89/91/96/ Turk Ekon Bank 15.00 0.00 0.00 20.00 15.00 0.00 0.00 20.00 99 Turkiye Garanti 14.55 0.00 0.00 69.09 14.55 0.00 0.00 69.09 1995/99 Unye Cement 19.74 0.00 0.00 0.00 19.74 0.00 0.00 0.00 1993/98 Uzel 20.00 0.00 0.00 15.00 11.37 0.00 0.00 8.53 1999 1999 Total Portfolio: 481.75 7.60 21.63 398.74 448.65 7.55 21.13 392.27 -103- Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 2000 Pinar Sea 4.00 0.00 0.00 0.00 2001 Akbank 20.00 0.00 0.00 80.00 2001 Arcelik III 20.00 0.00 0.00 100.00 2000 BICT 20.00 5.00 0.00 0.00 1999 CBS Group Restr 5.80 0.00 0.00 0.00 1999 Ege Seramik 18.00 0.00 5.00 0.00 2000 Erbakir 5.00 5.00 0.00 0.00 Total Pending Commitment 92.80 10.00 5.00 180.00 -104- Annex 10: Country at a Glance TURKEY: Social Risk Mitigation Project/Loan Europe & Lower- POVERTY and SOCIAL Central middle- Turkey Asia Income Development diamond* 1999 Population, mid-year (millions) 64.3 475 2,094 Life expectancy GNP per capita (Atlas method, US$) 2.900 2.150 1,200 GNP (Atlas method, US$ billions) 186.6 1,022 2.513 Average annual growth, 1993-99 Population (%) 1.5 0.1 1.1 Labor force (%) 2.6 0.6 1.2 GNP . Gross per *primary Most recent estimate (latest year available, 1993-99) capita .' enrollment Poverty (% of oopulation below national poverty line) Urban population (% of total population) 74 67 43 Life expectancy at birth (vears) 69 69 69 Infant mortality (per 1,000 live births) 38 22 33 Child malnutrition (% of children under 5) 10 8 15 Access to safe water Access to improved water source (% of population) .. .. 86 Illiteracy (% of population age 15+) 15 3 16 Gross primary enrollment (% of school-age population) 107 100 114 Turkey Male 111 101 114 Lower-middle-income group Female 104 99 116 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1979 1989 1998 1999 Economic ratios* GDP (US$ billions) 91.7 107.1 201.2 185.7 Gross domestic investment/GDP 14.1 23.5 24.2 23.3 Exports of goods and services/GDP 3.1 16.2 24.3 23.2 Trade Gross domestic savinnslGDP 11.5 21.9 20.6 19.6 Gross national savings/GDP 14.4 26.6 25.9 23.5 Current account balancelGDP -1.5 0.9 1.0 -0.7 Domestic Interest Davments/GDP 0.3 2.5 1.7 2.4 Savi Investment Total debt/GDP 17.4 38.8 48.2 54.8 ngs Total debt servicelexports 28.7 32.4 26.5 34.8 Present value of debt/GDP .. .. 49.9 Present value of debt/exports .. .. 160.9 Indebtedness 1979-89 1989-99 1998 1999 1999-03 (average annual growth) GOP 5.0 4.0 3.1 -5.1 5.5 - Turkey GNP per capita 2.4 2.5 2.3 -7.8 4.1 Lower-middle-income group Exports of goods and services .. 11.0 12.0 -7.0 5.9 STRUCTURE of the ECONOMY 1979 1989 1998 1999 Growth of Investment and GOP (%) (%6 of GDP) 45 Agriculture 27.9 17.4 18.5 15.8 Industry 23.8 32.8 25.0 24.3 20 Manufacturing 16.0 21.4 15.5 14.6 Services 48.3 49.8 56.5 60.0 295 096 97 98 Private consumption 77.0 68.8 66.7 65.2 -so General government consumption 11.5 9.3 12.7 15.2 *GDI GDP Imports of aoods and services 5.7 17.8 27.9 26.9 (average annual growth) 1979-89 1989-99 1998 1999 Growth of exports and imports (%) Agriculture 1.1 1.6 9.3 -5.2 40 Industry 7.3 4.5 1.8 -6.7 20 Manufacturing 7.5 5.4 1.0 -6.0 Services 4.0 4.0 3.1 -3.9 o Private consumption .. 4.0 0.1 -3.9 '20 General government consumption .. 4.0 7.8 6.5 Gross domestic investment .. 4.6 -1.4 -9.5 -40 Imports of aoods and services .. 11.1 2.3 -3.7 Esports imports Gross national product 4.9 4.1 3.9 -6.4 Note: 1999 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing. the diamond will be incomplete. - 105- Turkey PRICES and GOVERNMENT FINANCE 1979 1989 1998 1999 Inflation (%) Domestic pricesis (% chanqe) Consumer prices .. 63.0 83.7 63.5 '00 Implicit GDP deflator 75.8 75.7 75.7 56.2 so Government finance (% of GDP, includes current grants) 0 Current revenue .. 21.5 24.6 25.4 94 95 96 97 98 9 Current budget balance .. 4.2 -5.7 -14.4 GDP defator CPI Overall surplus/deficit .. -5.2 -13.4 -23.4 TRADE (US$ millions) 1979 1989 1998 1999 Export and Import levels (US$ mill.) Total exports (fob) 2,261 11,780 31,221 29,326 80,000 Textiles 428 3,911 10,510 9,830 Processed agricultural products 1,081 1,971 2,141 1,840 4D Manufactures 1,732 10,437 23,873 23,755 Total imports (cif) 5,069 15,792 45,921 40,693 Food 85 890 510 444 20.ooo Fuel and energy 1,817 3,406 4,501 5,376 Capital goods 1,403 3,953 11,033 9,062 93 94 95 96 97 98 99 Export price index (1995=100) .. 85 87 82 Import price index (1995=100) .. 90 86 84 I Exports W Imports Terms of trade (1995=100) .. 94 101 98 BALANCE of PAYMENTS (US$ millions) 1979 1989 1998 1999 Current account balance to GDP 1%) Exports of goods and services 2,969 17,612 52,037 44,548 2 Imports of goods and services 5,182 18,464 55,299 48,726 Resource balance -2,213 -852 -3,262 -4,178 Net income -1,009 -1,745 -481 -2,361 o8 Net current transfers 1,810 3,558 5,727 5,175 Current account balance -1,412 961 1,984 -1,364 -2 Financing items (nel 1,300 1,801 -1,537 6,570 Changes in net reserves 112 -2,762 -447 -5,206 - Memo: Reserves including gold (US$ millions) .. 9,283 29,499 34,128 Conversion rate (DEC, local/USS) 31.1 2,122 259,627 416,686 EXTERNAL DEBT and RESOURCE FLOWS 1979 1989 1998 1999 (US$ millions) Composition of 1999 debt (US$ mill.) Total debt outstanding and disbursed 15,929 41,577 96,906 101,781 IBRD 890 5,869 3,304 2,902 ::107 890 IDA 190 162 112 107 A: 2,902 D:3,783 Total debt service 1,340 7,092 16,513 18,316 G: 23,472 E: B,237 IBRD 105 1,010 924 845 IDA 3 6 7 7 Composition of net resource flows Official grants 52 95 37 80 Official creditors 964 -555 -118 -760 Private creditors 3,068 1,631 -153 -3,269 Foreign direct investment 75 663 573 138 Portfolio equity 0 56 2,888 -1,727 F: 62,390 World Bank program Commitments 306 604 956 1,165 A - IBRD E - Bilateral Disbursements 280 419 271 384 B - IDA D - Other multilateral F - Pnvate Principal repayments 36 506 684 616 C - IMF G - Short-term Net flows 244 -87 -414 -232 Interest payments 72 510 246 236 Net transfers 172 -597 -660 -468 Development Economics - 106 - Additional Annex 11 TURKEY: Social Risk Mitigation Project/Loan, Letter of Sector Policy REPUBLIC OF TURKEY PRIME MINISTRY THE UNDERSECRETARIAT OF TREASURY Ref. B.02.1.HM.0,DE1.0i.04.198-86432 Ankara, 15 August 2001 Mr. James D. Wolfensohn President The World Bank 1818 H Street NW Washington, DC 20433 USA Dear Mr. Wolfensohn, Letter of Sector Policy on Social Risk Mitigation, Social Assistance and Poverty Reduction This Letter of Sector Policy (LSP) sets out the main features of Turkey's proposed reforms for social risk mitigation, social assistance and poverty reduction policy. This proposed reform program is significant, and will lead Turkey to a new phase in its social risk mitigation, social assistance and poverty reduction policy - one that is more in line with Turkey's neighbors In the European Union (EU) and best practice globally. Social and Poverty Impact of the Crisis and Reform Program. The social impact of the recent economic crisis is already being felt as lay-offt, rising prices, and negative growth reduce household incomes and place a growing risk of poverty and vulnerability on people already at the lower end of the Income scale. Industry's initial perception is that the crisis is unprecedented In its severity In comparison to previous crisis due, in part, to the spillover effects of the problems caused by the Russian crisis in 1998-1999 and earthquakes in 1999 and the November 2000 crisis. Unemployment has risen from 6.6 percent In 2000 and is projected to increase to around 8-5 percent as a result of the crisis. This has provided a renewed impetus to the Government to strengthen our social safety-net and improve our policies. In March 2001, a simulation of the impact of the crisis on the welfare distribution was done using household data from 1994, to identify the characteristics of the most vulnerable households, This simulation suggested five patterns of likely increased poverty as a result of the recent financial crisis: (i) families with many children and extended families with many children, as well as single-parent famiies, seem to be the most affected in terms of high rates and high increases in poverty; (H) an increase in unemployment would disproportionately affect families with many children; (iii) those with middle education seem more likely to become vulnerable - but still above the poverty - 107 - line - while the least educated are those most likely to become poor; (v) the three regions of Anatolia have the highest rates of vulnerability and poverty but not always the highest increases in those characteristics; and (v) the urban population seems more at risk for vulnerability but there is not much difference between urban and rural households in terms of the risk of poverty. Overall Reftm Program. The financial and public sector reforms that would be supported by the World Bank, IMF and the international community, will have Important social benefits and will support the Governments poverty reduction efforts. These structural reforms are designed to help pull the economy out of recession and restore growth as soon as possible which is the key to minimizing job loss, and the social and poverty impact of the crisis. Restored confidence in the financial sector will help reverse the on-going credit crunch and generate new resources for economic recovery and job creation. The public sector reforms will help ensure the quality of the fiscal adjustment and improve overall efficiency of social service delivery, Better public expenditure management will Increase the availability of resources for social expenditures. Actions to upgrade the operational performance of line ministries and agencies, including increased emphasis on policy formulation and a progressive shift to performance budgeting, will help ensure that these additional resources are used effectively to fight poverty and vulnerability. The program features institutional and policy measures to improve the operational performance of line ministries and agencies including those responsible for basic social services. Action under the program to improve public governance and tackle corruption are likely to benefit the poor disproportionately as shown in numerous international studies. Structural reform of the financial and public sectors is also crucial to avoid future crisis which would likely be devastating for the poor. Thus the Government's overall reform program is based on a three- pronged strategy: (1) structural policies aimed at correcting the weaknesses underlying the crisis and establishing a sounder basis for disinflation and growth over the medium term; (ii) strong social policies including enhanced social dialogue to achieve price and wage policies consistent with macroeconomic stability, and increased emphasis on the protection of the most vulnerable groups of society; and (ill) fiscal and monetary policies geared towards restoring financial stability and resuming the disinflation process. It Is very well understood that a productive and strong private sector is needed to be a strong and reputable state in the 21st century. In the same way, in order to have a sound free market economy. it is important to have a strong state providing social support to the needy and undertaking regulatory supervision. A strong economy will be created by a functioning private sector, an effective state, and a broad social solidarity. This Is our target, what we are longing for, and indeed it is what Turkey deserves. Maintaining social cohesion is especially important given the political volatility and social stresses of the country. Meeting the fiscal cost of programs to support social cohesion and protect vulnerable groups within the overall fiscal adjustment will be a challenge. - 108- Protecting Publt Oxpenditure In the Social Sectors. The Government Is strengthening Turkey's social protection programs and is committed to protecting soclat spending. Protecting expenditure on health, education and social protection from the Impact of the crises is a key social objectve. Otherwle, Turkey's human capital wll suffer and the burden of adjustment will fall on vulnerable groups. A supplementary budget for 2001 was approved by Parliament in June which Is consistent with the GovemmerWs macroeconomic objectives and also ensures adequate expenditure envelopes for health, education and social protection. The budget maintains aggregate spending on education sAghtly above the average levels of 1998-2000 (as a share of GNP) and progras a significant increase in expenditure on social protection relative to 2000 resulting In part from the launch of the Direct Income Support (13S) program for farmers. Overall public spending on health is also projected to remain above the 1998-2000 average level. Savings are expected to come from efficiency gains In healh expenditures for civil servants under the administrative reform of the social security system, but part of these savings are being channeled into increased expenditure on preventive and primary cae. The preliminary outcome for spending on health, education and social protection under the 2001 budget wil be monitored in October, Benchmarks for public spending on health, educaftn and social protection as shares of GNP agreed with the Bank have been estabished for the program. These benchmarks have been set at a level somewhat above the averages for the 1998-2000 period. reflecting the Governments policy decision to ensure adequate expenditure on social priorities. Significant deviations from the program benchmarks will be disacused with the Bank with the aim of determining appropriate corrective action. The Government is committed to allocating satisfactory expenditure envelopes for social programs in the 2002 budget Social PolIaes. Stronger social policies are a linchpin of the program to help deal with social hardships. There are four aspects to this: (i) Improved soc4al dialogue. In April, a law was adopted to formalize the role of the Economic and Social Council. Henceforth, the Council, which brings together the Government, labor unions and employees under the charmanship of the Prime Minister, will hold regular and frequent meetings. A central function of the Council is to enable an intensive dialogue on wages and prices with employers and trade unions to take place (ii) Incomes policy. While the purchasing power of civil servants will be protected against erosion by inflation, real wages for public sector workers are expected to be reduced taking into account the real increases accorded in 199W-2000. Agreement on an income package was reached between the Government and the labor unions in May 2001. (iii) Social protection. Efforts to strengthen the social Insurance system will continue. The existing severance payment system which - 109 - covers both public and private enterprises continues to operate. The unemployment insurance program, introduced as part of the reform of the public pension system in August 1999, will begin to make payments to the enrolled unemployed in early 2002. Structural reform of the pension system continues to progress with the adoption in April of legislation for the third voluntary pension pillar (private pensions). The Government intends to move quickly to expand targeted social assistance to those groups most affected by the crisis. This support could include programs to protect vulnerable families (such as assistance with food. medicine and social services). The DIS program to farmers, supported by the SanIes Agricultural Reform Implementation Project (ARIP) will be initiated in 2001, as part of the agricultural reform. It will also help farmers - especially small farmers - deal with the crisis. The ongoing Privatization Social Support Project (PSSP) will provide enhanced social protection to workers laid off as a result of privatization and enterprise restructuring. (iv) Social services. Spending on immunization/vaccination programs will be increased in real terms within the overall budget ceiling. The Government intends to protect public expenditure on education, as well as increase the public health budget while reducing waste within the overall health budget, as noted in the table above. However, the reform program also envisions an expansion of existing in- kind transfers as a way to cushion the social impact of the recent financial crisis. The goal of the reform program is to improve social assistance system in Turkey that is targeted to the poorest, and which will provide not only a "safety-netr for the poor, but also a "trampoline" to help the poor escape poverty. Social Risk Mitigation. A key element of strengthening these social policies, complementing the support of the PSSP, ARIP and the Programmatic Financial & Public Sector Adjustment Loan (PFPSAL) I, is developing stronger social risk mitigation, management and prevention measures, The principal measures are: (1) institutional strengthening - strengthening the institutional basis and capacity of those agencies involved in social risk mitigation in order to improve social risk mitigation, management and prevention policies over the medium to long-term; (ii) conditional cash transfers (CCT) - Introducing COT. a highly targeted social assistance transfer to families with children, requiring positive family behavioral change with respect to health and education, which resonates with the EU policy of child allowances; and (iii) local initiatives - expanding the active element of Turkey's social safety-net through Increased support to income-generating, youth employability, adult literacy and tumporary community employment related social infrastructure network, as driven by local community demand. Turkey requests the support of the World Bank in the form of a hybrid loan of US $500 million for the Social Risk Mitigation Project/Loan (SRMP), to assist in the Implementation of these reforms including the development of the new -110- CCT social assistance system In Turkey. The SRMP will consist of two portions: (i) an adjustment portion of US$ 100 million to provide immediate social assistance in kind to the most vulnerable groups affected by the crisis - thereby mitigating immediate social risks; and (i) an investment portion of US$ 400 million to provide for the protection of the human capital of poor children and to convey technical assstance and institutional strengthning, including the management infotnation system and related hardware needs, covering three components of dh SRMP - Institutional development, the CCT and local initiatives. I. Social Risk Magaten-immediata Response to the Crisis The aim of the adjustment portion is to bring immediate relief to vulnerable groups through existing channels, since it is not possible within a short time to prepare new delivery mechanisms (which will be developed subsequently under the investment portion of the loan). This portion would finance Turkey's public and private sector import requirements of the balance of payments (BOP). The Government will use the Turish Ura (TL) counterpart of the loan funds to finance priority actions for immediate relief to vulnerable groups suffering from the impact of the recent economic crisis. This portion will finance up-front balance of payments support to bolster Turkey's international reserves, as well as budgetary support to help fund spending priorities for vulnerable groups. It is proposed that the TL counterpart spending consist of three areas of expenditures targeted to the poorest families through existing mechanisms of the Social Solidarity Fund (SYDTF) and its amliated Social Solidarity Foundations (SYDVs) which could be made rapidly: * school attendance packages - required before September 11 - the start of the school year * pharmaceutleals & medical supplies for poor "green-cardw holders and poor nongreen-card holders including the disabled; and * social assistance in cash and kind to those worst affected by the crisis. The SYDTF has indicated That it could rapidly move the US$ 100 million through its existing channels and existing selection mechanism (local committees) for bweniciarew, sailar to its very successful performance in delivering cash benefits under the Emergency Earthquake Recovery Loan. The SYDTP identified these three areas as ones in which it could rapidly scale up existing programs and in which the need is greatest following the recent economic cdsis. The SYDTF does have sotoe temporary community employment programs in a few SYDVs. bWt these temporary community employment programs are limited both in scope and number, and could not be expanded quickly. Although the resources for the adjustment portion would be for budgetary support and Balance of Payment (SOP) financing, it is critical that an additional -111 - budgetary allocation be made for increasing the SYDTF's budget by the US$ 100 million equivalent to cover the cost of the increased spending on the emergency measures for back-to-school, medicine, and local social assistance. To this end, Treasury has already transferred sufficient funds for the procurement of the school attendance packages for approximately 1.05 million children to the SYDTF (estimated at TL 40 trillion). Moreover, Treasury will ensure that the SYDTF receives sufficient domestic finance to undertake agreed cumulative expenditures of TL 550 trillion (including the TL equivalent of the SRMP adjustment portion) by December 31. 2001, subject to: (a) disbursement of the adjustment portion of the $RMP before December 31, 2001; and (b) any justifiable fiscal revisions necessitated by Govemment's economic program or economic and financial circumstances. The projected expenditures of the SYDTF for the second half of 2001 are estimated at TL 381 trillon (Including an estimated TL 125 trillIon from the SRMP financing) a substantial increase over the first half-year's expenditures of TL 160 trillion expenditures, making total expenditures for the year of TL 550 trillion. The use of a tracking mechanism to follow the flow-of-funds from the Bank loan through counterpart equivalent/deposit account to the SYDVs would be required. This is exactly the same existing mechanism already used successfully in the Emergency Earthquake Recovery Loan (EERL). II. Social Risk Mitigation, Management & Prevention-Medum & Long-term Social Insurance: The Government of Turkey has been working to improve its social safety-net, and especially to reform the social security system. The reforms are necessary because the system was insolvent In the past and the level of benefits was not sustainable. The first phase of social security reform consists of modifications to the public pay-as-you-go pension system to stem operating losses, including raising the retirement age for new entrants. The second phase of the social security reform strategy, planned for 2002, focuses on strengthening the organizational underpinnings of the system. extending its coverage, separating the pension system from associated health Insurance and unemployment schemes, and eliminating accumulated arrears. The third phase is to introduce a framework for supplementary individual pension schemes. These reforms will bring forward a more targeted and sustainable social security system for old-age, but will only insure against one kind of risk - that of insufficient savings in old-age. A comprehensive social safety-net helps to insure against the risks of unemployment and poverty. Unfortunately, there are several large gaps in the social safety-net in Turkey. Turkey has only recently adopted unemployment benefits, but due to the period of required contributions, people wiff not be able to draw unemployment benefits until 2002. So, those who become jobless as a result of the recent financial crisis will not have unemployment insurance to support them while they search for other jobs. -112- Nood for Social Assidence: The Turkish social safety-net consists of social Insurance (pensions and disability) which are tied to an individual having a job in the formal sector. With the exception of the Bag-Kur social insurance plan for the self-employed, the whole social security system is linked to holding a formal Job (including the nowly-introduoed unemployment Insurance). Such a system runs the distinct risk of excluding those without a connection to the formal labor market Households headed by seasonal or casual workers (workers without a labor contract) are at high risk of poverty and economic vulnerability. Turkey's soclal protection system lacks a benefit that would be targeted to these vulnerable groups. Turkey's existing Social AsWlatance is quite limited. Turkey does not have a poverty benefit-a cash transfer that is targeted to the vulnerable-which could be used to help those negatively affected by the reform. Social assistance in Turkey is limited to ad hoc assistance in cash and in kind channeled through the 931 SYOVO, and limited programs for the elderly and disabled under Law 2022, as well as institutional care for children and the elderly administered by SHCEK. Turkey has no other cash transfers that could help the vulnerable, unlike many neighboring countries of Western and Eastern Europe, which have universal child allowances. CCT would help to address the inadequacy in Turkey's social assistance system by providing an incentive to poor children to stay in school and for pre-school children to be regularly taken to health clinics. This letter lays out a vision for social assistance in Turkey and the required strategy of the evolution and further development of the social protection system in Turkey. Key components of this vision include *0 CCT; * Equitable and efficient identification and selection of beneficiaries; * Enhanced Legal Basis for the SYDTF and SYDVs; * Institutional strengthening; * Promotion of employability and micro-businesses amongst the poor, * Further developments in Social Insurance; * Poverty monitoring; * Sharing of information; and * Civic society involvement. CCT CCT are transfers which are conditioned on dlient behavior for continued receipt. The behaviorm usually required are school attendance for school-age children and well baby/health clinic visits for children below school age. The idea behind conditional cash transfers Is that the poor are oftn forced to pull their children out of school to work or look after younger siblings when the household is faced with an economic crisis. This often leads to a permanent reduction in -113- the human capital of the children who do not typically return to school after the crisis, and a perpetuation of the cycle of poverty across generations. CCT provide an incentive to the poor to: (i) keep their children in school and work on the demand side of education by covering the out-of-pocket expenses that often preclude the poor from sending their children to school; and (i) obtain adequate pre-natal care, basic health and nutrition services (including immunization, growth monitoring and resolving micro-nutrient deficiencies). OCT are typically targeted to the poor by proxy means tests or income tests, In Turkey, a large informal sector means that income-testing would be too expensive and difficult, so a sooting formula based on a proxy means test is recommended. CCT are an important mechanism to protecting the human capital of the vulnerable. CCT are an important tool in the battle against the inter-generational transfer of poverty, since children who fail to complete basic education today become the poor of tomorrow. Due to need for detailed preparation, the CCT would need to be carefully monitored and evaluated to determine whether it Is achieving its objectives and determine the duration of the program. A full review would be undertaken before December 31. 2003. Identification and selection of beneficiaries. Virtually all of the SYDVs in Turkey identify the needy and select them for assistance by the deliberations of a local committee, which is headed by the Kaymakam (District Govemor) at the district level and by the Governor or Vice- Governor at the provincial level. While local officials may have access to local knowledge about the applicants, they lack training in social work and social assessment. Many countries have found the use of a scoring formula to lead to outcomes that are more equitable and efficient than the decisions of local committees. Turkey has limited experience with scoring formulas. Turkey will need up-to-date household data from a socio-economic survey to develop a national scoring formula. A major advantage of a scoring formula is that it can be used to rank households according to their level of poverty, and different social assistance programs can use different cut-off points for eligibility. This would make it possible to target CCT and other food and social assistance to the most needy, while targeting other programs such as income generation and training to those not as vulnerable. Enhanced Legal Basis for SYDTF and SYDV*. Legislation is expected to be enacted by December 31,2001 to strengthen the SYDTF organizational structure and reporting practices and enabling the SYDTF and SYDVa to work more effectively with NGOs. The Government will submit this legislation to Parliament by the Board presentation of the SRMP. - 114- Institutional strengthening. The existing (SYDTF. SYDVs. SHCEK), and any future organizations, need to be strengthened to perform their increased and moderned role linked tc the developments of the market economy - iinding enhanced technical stafo skills, improved financial management & auditing, Management Information System, Monitoring and Evaluation and linkages with civic society. The institutional strengthening of the SYDTF and SYDVs wilt include the implementation of the key agreed recommendations of the operational review undertaken by consultants in the context of the EERL, Inter alia, requiring formal financial reporting arrangements of the SYOVs to the SYDTF, and the development and implementation of an Integrated management Information system. The SRMP will finance the high priority investment needs of these institutions through the Institutional Strengthening component. Promotion of employability ard uicro-businews. A passive social assistance system is not sufficient and must be supplemented by an active program aimed at helping to improve the employability of the poor (basic skills - related to market demands, literacy, numeracy, interviewing and job-search skills, coping-with-life-skills). Additional support for starting micro-businesses and other income generating activities for the poor will be provided. All these activities need to be relevant to the market demands and of high technical quality and thus the Govemment proposes to work ever more closely with the private sector. especially chambers of commerce and industry at the loca level. These activities will be supported under the Local Initiatives component of the SRMP, Poverty Monitoring. A series of activities are being undertaken to monitor and evaluate the impact of the crisis on household welfare. However, this has not been facilitated due to the lack of an up-to-date Household Inocome and Expenditure Survey. The Government will establish more frequent affordable surveys to be undertaken by the State Institute of Statistics and supported through the SRMP. Information sharing. The development of a scoring formula and understanding about which groups are suffering most from the Impact of the crisis requires up-to-date household Information. Turkey has adopted a National Program for the Adoption of the EU Aoquis by a legal declaration signed by the Council of Ministers and the President of Turkey on March 19, 2001. The EU Acquis include requirements on open data access for statistical information, and the national program includes extremely detailed plans for harmonizing Turkish statistical data with the EU standards, including open data access. As a part of this commitment to open data access, the Government will make data from the next -115- Household Income and Expenditute Survey available on the unit record level as soon as the survey is conducted and the data cleaned and processed. Support for the continued quantitative monitoring and evaluation of poverty in Turkey through household surveys will be provided through the institutional strengthening component of the SRMP. Civic society involvement. increasingly, governments are realizng that the most effecdve approach to social policy and conOMi refWOrM is to build partnerships with civic society, including key stakeholders such as non-governmental organizations (NGOs), community-based organizations (CO8s), trade unions, and local officials. There was an outpouring of support for earthquake victims from NGOs, CBOs, civil society, and even private individuals. NGOs are active in providing social assistance to the needy, and in child welfare activities. The Government is preparing legislation to enable the SYDTF and SYDVs to work more effectively with Government and will encourage NGOs in their endeavors to grow and become more professional. Civic society will be actively involved in the Local Initiatives component of the SRMP and civic society representatives will sit on the SRMP Advisory Board. Conclusion: The SRMP provides us with an unprecedented opportunity to invest in the future of our children, and to provide both a safety-net and a trampoline to help mitigate poverty and to give the poor opportunities to escape from poverty. Through our efforts to create a modern social assistance system in Turkey, we will harmonize our domestic policy with the social policy of the EU, which will further our candidacy. Our partnership with the World Bank in these efforts will assist us Ir) the mitigation of poverty in our country, and will help us towards the realization of our shared dream of a world without poverty. Sincerely yours, Ke al Dervis Hasan Gwicl State Minister Stif Minister - 116- Additional Annex 12 TURKEY: Social Risk Mitigation Project CCT Issues and International Experience Targeting Issues for the CCT. Most governments can not afford to provide universal social benefits because of the very high cost of universal benefits. Most countries choose to target their assistance to the poor or poorest, on grounds of equity and because of the fiscal constraints. Several methods have been used internationally to target benefits to the poor. Self-targeting. Self-targeting is when a government provides a benefit that is so low that only the poor are interested in receiving the benefit. Positive examples include a food subsidy for a low-quality food product that only the poor consume, or a public works program where the wage is kept so low (lower than the minimum wage) that only the poor are willing to work for it. Negative examples include the creation of difficult bureaucratic procedures that require so much time and difficulties that only the desperate will try to obtain the benefit. Geographic targeting. Combining population census with socio-economic survey data allows the construction of a poverty map. The poverty map can be used to target poor localities. For example, in the CCT program Progesa in Mexico, a poverty map is used to select the poorest villages in rural areas and the individuals are selected based on a proxy means test. Every child in the village then receives the CCT as long as the conditions are met. Expert evaluation. In some countries, social workers or other informed local sources such as teachers, decide who is poor enough to be eligible for social assistance. In Jamaica social workers currently decide who benefits from the Poor Relief program, but Jamaica is seeking to reform its safety net by adopting a scoring formula (see below) which will free social workers from home inspection and allow them to provide social services and counseling to clients. Income-testing. In the USA and several European countries, income-testing is used to verify household income and eligibility for social assistance. Income-testing is cost-efficient only when there is a culture of tax declarations for both individuals and companies and computer systems which can verify and check the income declaration. For example, in the USA, social assistance applicants must provide their most recent tax declaration and their social security (identification) number. Computer checks are then run on the identification number to verify the declared income. Income-testing does not work well in countries where there are large informal or subsistence agricultural sectors, since it is very difficult to verify informal income. Sending an inspector to the home of each applicant is extremely expensive administratively is normally only done for a random sample of applicants or in special cases where there is evidence of fraud. Scoring formula. Scoring formula (also called proxy means-testing or combined indicator targeting) is a technique whereby the household's living standards are estimated based on a series of indicators that are found to be correlated with poverty in that country. The indicators are typically things like the number of children and elderly in the household, the housing material and amenities (such as water and electricity), number of rooms, and often, consumer -117- durable goods (refrigerators, cars) and in agricultural areas, household holdings of livestock and land. Such scoring formula have been widely used in Latin America (including Chile, Colombia), a province of Russia and in other former Soviet Union countries, and are being developed for Ghana and Jamaica, among other countries. Scoring formula are best derived from quantitative household survey data, and can be differentiated by urban/rural or major geo-economic zones of a country (such as East and West in Turkey). Turkey has experience with scoring formula--in Van province, the SYDV uses a scoring formula developed by the Director of SHCEK, and the SYDTF uses a scoring formula for the allocation of scholarships. The SRMP includes several sources of survey information that will be used to devise and regularly update a scoring formula for targeting the CCT and Local Initiatives. First, the World Bank is co-financing a household survey partly from its operational budget, with the remainder of the support from the Government of Japan (PHRD Grant). This household survey is being conducted by local consultants drawing on the Middle East Technical University (ODTU) with technical assistance from the World Bank. The household survey will provide the data necessary for these key indicators: (i) poverty levels and household consumption; (ii) profile of poverty; (iii) access to health and educational services by the poor and non-poor; (iv) poverty correlates which will be combined into a scoring formula that will be used in SRMP components; (v) extensive information on health indicators; and (vi) limited information on labor and unemployment (DIE has a regular program of labor force surveys). Additionally, the institutional strengthening component of the SRMP provides for financing of two additional household surveys over the next four years with interviews and data entry conducted by consultants to the State Institute of Statistics (DIE). Finally, a rigorous impact evaluation of the conditional cash transfers (CCT) component of the SRMP will be conducted, including a baseline and follow-up survey. Targeting criteria for the CCT and Local Initiatives component will be updated to take into account these new sources of statistical information and to ensure that as the poverty profile changes, the targeting criteria will be adjusted. SYDV Selection criteria and health. The lack of clear-cut selection criteria by the SYDVs impedes their effectiveness. The SYDTF does provide social assistance quickly (soup kitchens, health services for a limited number of cases lacking Green Cards (health benefits cards), elderly; poor families in disaster situations or at special occasions). However, the targeting and selection criteria for assistance are discretionary rather than according to pre-set, well defined criteria and target groups such as would be provided by a scoring formula. Even for the Green Card for health services, the targeting is not very clear since to some extent the selection criteria for who has Green Cards can be arbitrary. The use of a scoring formula would be a way to move away from arbitrary decisions and bring more objectivity in the selection process. International Experience with CCT. There is significant experience with CCT in several countries, particularly in Latin America. -118- Conditional Cash Transfers Definitions and Experience Cash payments given to poor households who fulfill a set of conditions - usually a standard number of preventive care visits for children under five and enrollment and good attendance for school-aged children. Large programs of this nature have been established and evaluated in Mexico and Brasilia (school portion only) and new programs have been or are about to be launched in Honduras, Nicaragua, other parts of Brazil, Ecuador, Colombia, and Jamaica. The programs are targeted to poor families, usually with a proxy means test, and sometimes (Mexico, Colombia, Nicaragua) restricted to poor districts identified with a poverty map. Mexico's Progresa program increased primary enrollment rates by about one percentage point (base of 90 percent for boys and 94 percent for girls) and secondary rates by 8 percent for girls (base of 67 percent) and 5 percent for boys (base of 73 percent). Prenatal care in the first tri-mester rose 8 percent, the incidence of disease among children under five was reduced by 12 percent. Preliminary evidence shows that Brasilia's Bolsa Escola program participants have lower dropout rates than non-participants (0.4 versus 5.6 percent), higher promotion rates (80 versus 70 percent) are more likely to enter school at the right age and have similar learning outcomes. Pros and Cons *Tie together short run assistance and long run human capital formation to help break the intergenerational cycle of poverty. *Ensure families are proactive in seeking their own welfare. *Add a demand side tool to help obtain desired health and education sector outcomes. *May address gender issues by giving greater incentives to girls and/or by making mothers the recipients of the cash.Most poor children already get primary education and many get health care and secondary education. Usually exclude poor families without children in the right age range. Require good physical access and quality of services to ensure human capital development. Proxy Means Tests Definitions and Experience Proxy means test use a handful of easily observable characteristics about a household to calculate a score that indicates how well off the household is. Entry into various programs or the benefit levels are decided based on the household's score. The indicators and weights in the scoring formula are the result of a sophisticated statistical analysis of national household survey data. The indicators include location and quality of housing, ownership of durable goods, features of household demographics, human capital and sometimes labor force activity. Pros and Cons *Verifiable, may allay concerns over politicization or randomness of benefit assignment (especially among program administrators). *Single targeting system may be used for several programs, which maximizes return for fixed overhead. *Uses easy to observe variables strongly correlated with poverty in market economies.May seem mysterious or arbitrary to some (especially among clients and critics). -119- Sophisticated system, requires moderate to high levels and quality of information, technology and staffing. Not sensitive to quick changes in welfare, as experienced in a crisis or in some transition countries. Conditional Cash Transfers with Proxy Means Tests Bottom Lines *A new and increasingly popular element in safety nets programs. eBest suited to settings where poverty is chronic and human capital outcomes low despite efforts to provide extensive and good quality services. *Require significant administrative capacity for targeting, for verifying that conditions are met, to get transfers to individuals and to coordinate among the several agencies (ministries of welfare, health, education, planning, local government) and many local agents of each (clinics, schools, municipalities, banks) . Sources: Grosh (2001); Legovini and Regalia (2000); Sedlacek, Ilahi, and Gustafsson-Wright (2000) Exclusion. A non-negligible share of the poorest population may actually be excluded from any kind of social assistance due to a lack of demand for services. The reasons might be a combination of factors: * The lack of information on the availability of social assistance programs among the poorest both in rural and urban areas. * The reluctance of low-educated male heads of households to apply for any outside assistance. * Within the household, the difficulty of women in traditional families to make their voices heard to ask for assistance. * The reluctance of women to address their needs to officials sometimes sent to villages to identify the needy. * The cumbersome procedures that the beneficiaries have to go through for an assistance which is not large in scope and not continuous; * In some remote rural areas, the difficult access to a SYDV and the cost involved in travel which can exceed the benefit. * Language difficulty to communicate with officials. * Informal transactions that are made to avoid paying taxes on the sales of durables are not officially registered so that the poor who have sold informally some durables (cars, etc..) may not be eligible because they cannot prove the transaction. * Another concern for exclusion is the discretionary nature of assistance allocation, especially with respect to projects and boarding school scholarships. Connections seem to play a role in being included in the projects as well as in the allocation of boarding school places. * Difficulty to obtain official documents for those who have migrated. For some of the residents of the gecekondus in major cities who have migrated from other parts of the country, the process to apply for Green Cards and other benefits is difficult and costly due to the requirement that they have to prove that they do not own anything in their villages of origin. - 120- Required Behaviors of Individuals. Detailed specifications behavioral requirements are critical in the success of a CCT program. In Colombia, a student can be absent from school up to 4 days in any given month in order for the household to which s/he belongs to qualify for the benefit payment for the month. No unexcused exceptions are permitted, but a doctor's note is accepted for an excused absence, which is also the case proposed for Jamaica. Furthermore, in Ecuador, it was proposed to revoke the child's eligibility permanently once the child has failed to meet attendance requirements for 3 consecutive payment cycles. Considerations Regarding Supply-side Constraints. Sometimes certain local conditions do not allow beneficiaries to fulfill their behavioral requirements, which may be met under different circumstances. If for example, a local health post or clinic is not adequately equipped nor staffed, does it make sense to make benefit payments to the periodic visit to such a health post? Requiring the beneficiaries to visit a better equipped and staffed but distant health post, but such a requirement could increase the costs to the beneficiaries, and make them less responsive to the CCT program. Value of Benefits. Determination of the value of benefits requires careful considerations, including the following. First, a CCT program may require a built-in mechanism/procedure to frequently adjust the value of benefits, taking into account the effect of inflation. Second, the value of benefits needs to be attractive-enough for low-income households to adopt and maintain positive behaviors, and at the same time, low enough for better-off populations to refrain from making illicit solicitation of benefit payments. Third, the benefit values may need to be differentiated depending on the attributes of household members, the behaviors to be encouraged, and particular cultural as well as local circumstances. For example, the out-of-pocket costs of attending schools would be higher for older children. Therefore, "one-size fits all" benefit system may be over-kill for younger children while being insufficient for older children. Likewise, where cultural biases exist against girls' education, perhaps the program should provide a premium to those households that ensure girls' school attendance. Where supply-side constraints exist, the program could also provide a premium to compensate higher costs of accessing services. While differentiation of the value of benefits may be desirable under certain circumstances, it also adds complexities to the program management and could raise administrative overhead. Thus, upon consideration of a particular scheme of differentiation, its advantages and disadvantages need to be carefully analyzed. Fourth, the value of the benefit should have a strong relationship with the actual out-of-pocket costs of schooling and health-care (including transportation, school books, uniforms, etc.). Additionally, benefits should have some relevance to a poverty line, expressed as a percentage of the local poverty line. - 121 - Taking into account these considerations as well as the available envelope of Government and World Bank resources, the benefit levels have been set as follows: * For education benefits, not to exceed $8 per child. Second and subsequent children will recieve smaller benefits on a sliding scale. Payment will be made twice a term, or four times during the 9 month academic year, totaling US $72 per year. * For health benefits, $6 per child per month, payments to be made quarterly, totaling US $72 per year. Form of Payment. A CCT program makes cash payments to its beneficiaries. One way to do this is to wire money to the beneficiary's bank account. Concerns were raised with respect to the accessibility of bank networks to rural households. Unfortunately, alternative forms of payments--cash voucher, check, and food stamps--do not address the accessibility problem better than wiring money through bank networks, and thus the Government of Turkey has decided that CCT payments will be made through banks. Given that the members of rural households visit city centers at least approximately once every month to go to markets, obtaining the cash at a bank does not seem to be more burdensome than the alternatives. At times, the question of whether to pay in cash is raised. However, vouchers or food stamps do not keep recipients from misusing the benefit. Food stamps can be easily traded in the secondary market, and would not deter the recipients from undesirable consumptions significantly more effectively than cash. Furthermore, these alternatives are more administratively cumbersome and could be more costly, as they need to be printed and delivered. Consequently, wire transfer appears to be the most preferable form of payment. Cash as an Incentive. In many countries, the World Bank has asked the poor about their preferences for assistance, and the overwhelming preference of the poor is to be helped with cash payments, not food or other items in kind, because of the flexibility of cash. For CCT, it is important that the benefit be paid in cash to serve as incentive to parents to send their children to school. Sometimes, people are concerned about cash payments, since the recipients might spend benefit payments for undesirable purposes like tobacco consumption. It is important to understand that if a poor recipient is going to spend on tobacco consumption, it is likely that such a person will already have kept his child from school to save money for tobacco, and may even have sent the child out to work in the informal sector. Household Representative Authorized to Receive Benefit Payments. CCT programs typically designate the mother as the person who is authorized to receive benefit payments on behalf of the household. In many countries of Latin America and Africa, the payment is made to the mother, not to the father, since research clearly shows that women are much more likely to spend cash assistance on food or the needs of the children. While payment to the mother may be difficult in some regions where the tradition is for the father to do the shopping in town and to control finances, the principle of payment to mothers would also help to empower women there, particularly the younger ones. Even if the mother simply handed the cash to her husband, designating the mother as the household representatives would make meaningful impact on household behaviors of, if not present generation, the next generation by officially recognizing the - 122 - important role of women. For such households without mothers, it is important to specify who will receive the benefit payments on behalf of the household under what circumstances. Payment Cycle. One of the design challenges of a CCT program is to define the payment cycle, illustrated by the loop in the right side of Figure 1. Each of the steps represented by the boxes, diamonds and arrows in the figure consists of a large number of sub-steps, each of which needs to be defined very clearly. In principle, the shorter the payment cycle is, the greater will be the CCT program's impact on the behaviors of the beneficiaries. This is because the beneficiaries will see the linkage between the cause (e.g. school attendance/non-attendance) and the effect (payment/non-payment) more clearly. Begin Make the first payment to the beneficiary eYes - - - Potential Beneficiaries Apply Verify the benefciarys Apphiution of for the Program compliance with the nngfoml defined behavioral Should the beneficiary conditions during the ay in the progranr perod NoIDoes the apylicant Appehal -No- meet poverty-based o elig bility te ria H as the beneficiary Take approph i a complied it t actins ts defined ci No Yatin stsbenerignt.i conditins'o No YesY Yes Calculate the bnefht Remove the beneficiary No --- Is the beneficiary still amount, and make a froin the program eligible' Is the applicant Doeis the applicant payment to the< c. a ?meet program specific bnhtr consieredeligble?eligibility criteria? No YsYes Is it the time to re- certify the berieficiary"s teRegister the applicant eligibility? Re-evailuate tho Reject as the beneficiary and - 4eeiirseiiiiyi Aplcatcalculate benefittym C tthe rga amoun t - - Yes - 123- Project Operational Manual. The Bank requires the borrower to prepare a Project Operational Manual (POM) for the project to be financed by a Bank investment loan. A POM is a major document, detailing, among others: (i) management structure of project implementation; (ii) terms of reference of key personnel; (iii) project implementation plan and time table (physical, financial and procurement); (iv) operational procedures to be followed; (v) internal and external reporting arrangements and formats (including progress reports, financial reports, audit reports and procurement reports). It is important to note that the Bank requires the borrower to follow Bank guidelines for procurement and financial management. Any deviation from the guidelines need to be fully described in the POM, and approved by the Bank's regional procurement advisor and the financial management specialists before the loan becomes effective. - 124 - Additional Annex 13 TURKEY: Social Risk Mitigation Project Institutional Assessment I. SYDTF Background The SYDTF was legally established in May 1986 under Law 3294. "The purpose of this Act is to assist citizens in absolute poverty and need and (other)persons that have been admitted to or have entered Turkey in any way, to ensure fair distribution of income by taking measures for strengthening social justice, to promote private social assistance and solidarity" (Article 1, amended 16 June, 1989). The SYDTF is an extra budgetary fund, financed by earmarked taxes and administered by a State Minister. It works in coordination with 931 regional SYDVs, which are responsible for fulfilling all the requirements of the law in order to have funding resources to implement the different services and activities benefiting the needy. The volume of funds transferred by SYDVs is far greater than that under the Social Assistance for the Elderly and the Disabled (Law 2022). Administrative Board The SYDTF Board comprises a Prime Minister Undersecretary, an Interior Ministry Undersecretary, a SB Undersecretary, General Director of SHCEK and the General Director of SYDVs under the chairmanship of a State Minister appointed by the Prime Minister. All the decisions made at Board meetings enter into effect after the ratification and approval by the Prime Minister. The Board is the highest level to which applications for approval of Program Services can be made; Investments, Scholarships, Social Assistance. Health Assistance to Green Card holders does not require Board approval and is signed off by the Directors on behalf of the State Minister. Benefits in kind include: food, clothing, fuel, medicine and a variety of small productive projects (greenhouses, fruit cultivation, bee-keeping, handicrafts, carpet weaving). The cash benefits are grants and scholarship programs, and emergency related assistance. The processes and procedures have been built up throughout the years in a non-systematic way through short-term planning. The procedures for the appraisal of requests at the SYDTF are essentially limited to checking the completeness of the required documents to present them to the Board for revision and approval. The decisions on project approval by the the Board are based on the assessment of projects by staff whose expertise are in areas other than development or poverty alleviation. In -125- addition, there is insufficient technical criteria used for assessing projects, therefore the main emphasis in proposal asssements is placed on the budget and availability of funding as the main points of consideration. Therefore, there is a need for developing procedures and criteria for proper assessments of proposals as well as extensive training of staff. Since the SYDTF does not have its own budget for operational costs, it has very little opportunity for doing this. In addition, since the SYDTF does not have its own budget for operational costs, if there is a need for furniture, computers, etc. a request is presented by the Ankara SYDV to the SYDTF Board for approval. Once the request is approved, the Ankara SYDV obtains the equipment and then physically transfers it to the SYDTF central office. SYDVs The SYDVs have been established in provinces and districts as legal entities. The SYDV Committee is chaired by the Governor of the provinces, and in the districts by the Kaymakam (District Governor). The municipal mayor, the provincial head of finance, the provincial director of social services, the health official and three private citizens make up the committee. Each SYDV is independent and has freedom in the decision-making process for granting social assistance and for income-generating sub-projects. The process of granting an income-generating sub-project begins with the applicant's filling out an application form and obtaining the necessary documentation. Next, the SYDV Board considers the application and the members of the Board either approve or reject the requests at their discretion. There is no unified systematic criteria to evaluate the requests for sub-projects by the SYDVs. Afterwards the application forms are sent to the SYDTF where, according to the type of requests, they are distributed among the different departments. The SYDTF departments appraise the proposal based on the completeness of the documentation without any systematic technical appraisal. The requests are then presented to the SYDV Board. Funds are transferred to all the SYDVs on a monthly basis, at the start of the winter season for fuel, at the start of the school year for education, and before the Ramadan holidays for foodstuffs and clothing. Revenues of the SYDTF and SYDVs According to Article 4 of Act no. 3294 the Fund's revenues consist of: * Amounts to be transferred from established funds or those to be established by laws and decrees pursuant to a decree issued by the Council of Ministers provided that such amounts shall not be higher than 10 percent of total funds thereof, less withholding of 40 percent by the Treasury (abolished). * An additional amount of 4 percent to be paid by taxpayers liable to pay income and corporation income taxes, less withholding of 40 percent by the Treasury. * An amount corresponding to 5 percent of proceeds obtained from sale of forestry properties (abolished). * 50 percent of proceeds from traffic fines. * 30 percent of proceeds obtained by the Turkish Radio and Television Organization (TRT) - 126 - from advertisements (abolished). * 15 percent of proceeds obtained by the Radio Television High Council (RTUK) from advertisements. * 0.02 percent of proceeds from fuel oil consumption tax (abolished). * Funds to be allocated from the budget. * All kinds of donations. * Other revenues. Allocation of Resources The Board chaired by the State Minister meets on average 5 times a year, and all the applications from the SYDVs, which have been sent to the SYDTF offices for revision and have complete documentation, are considered for approval of funding. The process established under Law 3294 gives total discretionary power first to the regional authorities and then to the Board. Resources are allocated regionally at the beginning of each year on the basis of population and socio-economic indicators. At the present moment there is no systematic methodology for targeting and allocation of resources, to ensure that the most needy will be the final beneficiaries. Two key problems are: * The absence of well established selection criteria and a centralized database, such as an MIS, allow for an individual to receive duplicative support from the SYDTF; and * The lack of a M&E system to measure impact and improve procedures. Disbursements The current budget is supported by an off-budget mechanism which gives the SYDTF flexibility for the allocation of resources according to its components. The resources are transferred on a monthly basis to the 931 regional SYDVs for their regular activities through the state banking system according to the formula in Annex 6. The Resources Department is limited to processing the disbursements to the SYDVs. It does not have authority to supervise and audit the final payments to the beneficiaries. All the requests presented in the official forms are supported by basic documentation, (letters) which describe the problem that will be solved if the money is granted. In some cases (productive projects), it is stated that the amount of money received should be paid back in cash, but no monitoring is undertaken by the SYDTF to check if this money is ever repaid. Targeting The Law defines the targeted group of citizens as those who are poor and in need of help, who are not connected to the Social Security System, and who can become productive if helped with education and training. SYDVs apply individual criteria, not consistent with one another, based on their knowledge of the inhabitants of the province or district. Exclusive reliance on local knowledge leaves open the scope for criticism of favoritism. There is an obvious need to have a systematized targeting methodology to limit the discretion that the current procedures have. - 127 - Management and Organizational Structure The current SYDTF Organizational structure is as follows: * State Minister * Board of the Fund * Secretary-Generals' Office * Assistant Secretary-Generals' Office SYDTF DEPARTMENTS The SYDTF has the following departments: * Project Programs * Health Programs * Social Assistance * Scholarship Programs * Investments * Earthquake * Registration Department * Data Processing Research and Statistics * Resource Management * Implementation Follow-up and Appraisal * External Relations * Personnel and Communication Department Function Monthly Staffing Monthly and Board Disbursements yearly Approval in (May 2001) applications each meeting received Project Income generating US$ 770,000 8 Persons: 200 per month 240 per Programs projects;greenhouse I from Zirat Bank meeting s, carpet weaving, 1 MOF 2,400 annually beehives etc. 1 Min of Interior (1,200 yearly) 1 Halk Bank 2 from Prime Ministry 1 from an SYDV Health Health (95 percent to US$ 4,500,000 8 Persons: 2,500 per month 2,500 Programs Green Card holders 3 PMs office; 30,000 per year. and direct approval of 1 General Army other one time 1 Emlag Bank payments of social 2 MEB /disaster assistance 1 MOF Social 25 percent shelter; US$ 4,500 8 Persons: 250-300 300-400 per Assistance 50 percent 2 MEB per month meeting. Dormitories, lunches, 3 PM office - 128- soup kitchens; I Zirat Bank 25 percent child 1 Social Security centers Retirment 1 Meteorology Directorate Scholarship US$ 4,500,000 8 Persons: 90,000 in 1999 Direct Decision Programs 1 MOF usually 120, 000 making 4 PM office received 40,000 1 MEB approved 1999 1 Ministry Interior usually 1 State Ports and 55-75,000 Airports approved Investments Construction of US$ 450,000 2 Persons: 30 applications Per Board Dormitories, soup 1 PM's office monthly meeting 25 kitchens, rehab. 1 Min. of Justice. 260-300 annual 25 approved centers. Recently Procurement: 30 per month M&E auditing. applications per month Earthquakes US$ 18,000,000 4 Persons: Direct decision making Registration Receives, registers, 6 persons: 26,000 documents Department keeps copies 5 from PM's office received in year distributes documents. I state railways. 2000. 70 percent Mails outgoing health related. correspondence Resource Review of 931 Bank US$45,000,000 5 persons: Management statements. 1 PM office Transmittal of request 1 Zirat Bank to release funds from 1 MOF SYDTF account to I State Railways SYDV accounts. 1 Ministry of Justice Monthly and Periodic disbursements External & Represent SYDTF 5 persons: NGO at conferences and PM's office Relations meetings. Learn experience from NGOs. Recommend strategic changes for SYDTF. Staff Law 3294 restricts the SYDTF's functions essentially to a funding mechanism. The SYDTF can only fund state organizations i.e. the 931 affiliated SYDVs. The SYDTF does not have its own administrative capacity and most of its 67 staff members are seconded and paid from other organizations. A number of staff including the Directors are from the Prime Minister's office, while other staff members are from Zirat and Halk Banks; MEB; SB; Ministries of Justice and Finance; State Railways, and Airport and Ports; General Director of SHCEK and Undersecretary of the Prime Ministry. - 129- Training It is not current SYDTF policy to have staff trained in a systematic way, and there is no budget for training. The only training that SYDTF staff receive internally comes from the computer specialist who prepares basic training for staff who do not have any computer skills. The development of a training plan for the PCU and the SYDTF should be part of the yearly SYDTF plan of activities in order to: * Disseminate best practices, frameworks, and new knowledge * Practice skills and receive professional feedback * Network, share, reflect and encourage * Be driven by ongoing feedback that is received and analyzed. Procedures The SYDTF has developed procedures and processes that are followed by memory, or they are transferred from one staff to the next. There are no written procedures, nor technical guides or manuals for new staff to learn from or for managers to revise and improve procedures. Improvements in SYDTF operations and operations are suggested in the following areas: * Focus on the process of identification of needs and the means for addressing beneficiary needs. * Network and share a database system of potential beneficiaries, with other government and non- government organizations. * Cross-check assistance to beneficiaries, how much, by whom, what criteria. * Systematically monitor and evaluate assistance and impact. * Build organizational capacity at the beneficiary level through the creation of cooperative and associations: Creation of capacity at the beneficiary level to move out of poverty and create sustainable income generating opportunities. * Extend the organization's abilities for outreach beyond urban and peri-urban areas. * Avoid duplication of services among the various public and private sector social assistance organizations. * Avoid abuse of system through better selection criteria, cross-checking, and monitoring and evaluation. * Provide assistance based on a clear definition of the poor and a selection criteria set down in the operations manual, and not based on the discretion of administrative and political authorities. * The role of municipalities in social assistance should be expanded. Currently municipalities have their own resources to provide social assistance, and do not have resources from State social assistance programs. Discussions with Government and social assistance organizations indicate that there is a need to rationalize this assistance through definition of poverty, selection criteria, targeting, monitoring and evaluation, financial management, mechanisms, coordination with other organizations, and an avoidance of overlapping of functions and overlapping of assistance to the -130- same beneficiaries. II. SHCEK Background SHCEK is a General Directorate with budget and public legal entity, established under the Law 2828 promulgated in 1983. It is the only public agency providing services to vulnerable groups such as poor children, the young, the disabled, the aged and families in need of protection, care and assistance. Turkey has a long tradition of providing assistance to those in need. During the Ottoman era, social assistance organisations were founded to protect the rights of the widows and orphans and to ensure the subsistence of other people in need of assistance. The most important among such organisations were the foundations (Vakiflar). The Vakiflars had a significant social impact during the Ottoman era and provided assistance to the economic and socially disadvantaged. Such people in need were provided with food, shelter, clothing and education. Hospitals, orphanages, soup houses, religious institutions and care houses were established by Vakfilars. On June 15th, 1921, the social assistance commission of the Grand National Assembly was founded. After the foundation of Republic the social services were generally performed by public institutions and agencies. The Civil Law promulgated in 1926 set forth regulations affecting the social services for children. At least 9 laws affecting the social services for children have been promulgated since then; * In 1949, the first law on "Children in Need of Protection" was promulgated. * In 1957, the 1949 law was annulled and the second law on "Children in Need of Protection" was promulgated. * In 1959, the law number 7355 on the "Establishment of Social Services Institute" was adopted. That law was based on the need for the training of social services professionals in social services schools. * In 1963 "Social Services General Directorate" was founded within the Ministry of Health and Social Services pursuant to the Law number 225. * New constitution of Turkish Republic adopted in 1982 included detailed provisions on social services, and resulted in the promulgation of the Social Services and Child Protection Agency Law in 1983. * In 1988, the additional Law number 3413 was promulgated as an addition to the Social Services and Child Protection Agency Law to provide employment opportunities for the children having left training institutions after reaching 18 years of age, in public agencies and institutions. The Prime Ministry instead of the Ministry of Health and Social Services was designated as in charge of Social Services. SHCEK is responsible for providing service to the aged, the disabled, the women and all individuals of the society who need protection and support. SHCEK currently provides 24 hours service to more than 30,000 infants, children, young people, the aged and the disabled; and more - 131 - than 75,000 citizens during daytime with its 364 social service facilite (97 Training Institutions, 77 Children's Homes, 50 Rest Homes for the Aged, 48 Care and Rehabilitation Centres, 36 Community Centres, 16 Nurseries and Daycare Centres, 6 Mutual Support Centres for the Aged, 7 Shelters for Women, 7 Youth Homes, 16 Children and Youth Centres and 1 Adult Counselling Center). Services For Children and Families Children and Young People in Need ofProtection: According to the SHCEK Law 2828, the children in need of protection are defined as the children whose physical, spiritual or moral development or personal security is in danger; who do not have a father or a mother or neither; or whose parents are not known; or have been abandoned, neglected or abused by their parents; or whose parents are in prison. SHCEK is designated as responsible for executing the services for such children. However, SHCEK faces difficulties in providing such services especially during the periods of crisis when national incomes deteriorate more. This problem becomes even more severe due to the fact that approximately 35 percent of the population is not included in social insurance programs, that there is high unemployment and the social services and social assistance programs do not cover a sufficient number of people. SHCEK generally provides care services only to the children in need of protection for whom it is not possible to live with their own families or a foster family and who cannot be adopted. Among the 18,000 children under the care of SHCEK, 5.5 percent are abandoned children and another 7.2 percent are those whose parents died. The majority (87.3 percent) however do have a living parent who is still in contact. SHCEK provided services to the children in need of protection and families through aid in cash and in kind, children's homes, training institutions, foster family and adoption service and children and youth centres for street children. In 2001, 7 Children's Homes and 5 Training institutions are planned to be opened. Since healthy development of the children under protection can be ensured in institutions where one-to-one relations can be established and which are organised in a manner similar to the family environment, the works concerning furnishing the existing children's homes in a manner similar to family environment will be continued and the new institutions will be constructed and furnished with lower capacities. The young people who are under protection in the SHCEK's institutions and who are enrolled in the last year of high school or who have graduated from high school are sent to University Entrance Examination Preparation Courses to prepare for the university entrance test and to improve their performance. UN Convention on the Rights of the Child: SCHEK is responsible for monitoring and coordinating the implementation of the Convention on the Rights of the Child which became a national legal instrument after being published in the Official Gazette in 1995. Adoption Services Adoption services occupy an important place among the models of services provided to the children in need of protection. A person must be a minimum of 35 years of age and must have no children in order to be able to adopt a child. In accordance with article 21 of the UN Convention on the Rights of the Child, the child is allowed to benefit from adoption - 132- services in accordance with the prime interests of the child. The children under the care and protection of the SHCEK, who are suitable for adoption, are adopted by the parents whose applications are accepted by the court verdict after the investigation carried out by the social workers. Since the adoption requests involve mainly healthy children of 0-1 age group, about 450 children meeting these criteria are adopted every year. Foster Family Services Foster family services are executed by the Provincial Social Services Directorates. The best place for the care and protection of the children is a family environment. In Western societies, 75 percent of the children in need of protection are cared by foster families. In Turkey, on the other hand, this rate has not reached even to 2 percent despite all efforts. There have been various attempts to develop and improve the efficiency of foster family services. The number of children cared by foster families is 395 as of the end of 1999, while 93 more children were placed with foster families during the first nine months of 2000. Currently 470 children are under care of foster families of which 110 of those children are cared by volunteering families while 370 are cared for a fee. All of the applicants were contacted by mail or by social work experts in three months' period. However, it has been understood that this sensitivity was caused by the earthquake and the families wanted to adopt or care for children who had experienced the earthquake, but not other children. The families applying to serve as foster families are paid a monthly amount of TL 35 - 80 million, depending on the age and education of the child. The sums paid for disabled children are increased by two times depending on the disability and age of the child. In addition, education and medical expenses and allowances of the children cared by foster families are paid by SHCEK. Street Children/ Working Children: In recent years, the number of children living and working in the streets has been observed to increase quickly. The causes which force children to live and work in the streets are economic and social factors such as rapid and uneven urbanisation, increasing squatter development, inequality in income distribution, migration form the rural areas to the cities, etc. For this purpose, children and their families are provided with guidance, counseling, training and rehabilitation services by the Children and Youth Directorates as an attempt to solve the problems of children that live and work in the streets. The identity details, educational conditions, working conditions of the children and their reasons to live and work in the street are investigated through the "Street Studies" conducted by the professionals working at the Children and Youth Centres and the children are encouraged to visit the centres. The families who are contacted during the street studies are informed about the dangers of the streets for the children and told that it is a crime to force the children to work. The professionals working at the centers conduct personal studies concerning the psychosocial, educational and family conditions of each child. The families who force their children to work in the streets because of economic deprivation are examined social assistnace food, clothing, stationary are provided to the families within the scope of social assistance, the psycho-social development of the child and the necessity of play, education and social activities are emphasized and the families are encouraged to send their children to these centres. Providing therapy to the children with health problems and performing medical care against the risk of contagious diseases posed by the streets are among other services supplied. - 133- The efforts to contribute to the solution of the problem of children living/working in the streets are continuing in Bursa, Batman, Van and Malatya. The Istanbul Ayvansaray Children and Youth Centre provides day service to working children; 20 Children and Youth Centres are planned to be in service by the end of 2001. Centers with specialized staff and technical equipment are planned to be established or children with problems such as drug addiction, prostitution or children running away from home for the first time. The scope of the studies oriented towards the problem group and their families are planned to be expanded and the studies conducted together with the families are planned to be focused on. Job and professional qualification programs are intended to support the families who force their children to work in the street for economic reasons. Nursery and Daycare Centre Services: A total of 1,252 children benefit from the services of 16 Nursery and Daycare Centers were the children of working parents are cared. In 2000, 5 nurseries were closed because of working under-capacity for a long time. Supporting the Youth in Society: Public agencies and institutions are obliged to allocate one per thousand of the existing vacant posts every year to the children under the care and protection of SHCEK. As of October 2000, the number of children placed at jobs was 1,826, with 4,552 children are waiting to be placed in employment. Women's Shelters: Women's Guesthouses have assumed significant functions in reaching the target of preventing and gradually eliminating violence against women. In the Women's Shelters, professional studies are conducted to examine the situations of women, their disagreements with their families or spouses and solutions for their problems. Such efforts include providing the psychological support, counselling, legal guidance, taking measures to help them to be self-sufficient, prepare them have a job preventing the recurrence of violence, ensuring healthy family relationships for their children to grow up in, and monitoring their conditions. A total of 2,414 women and 2,083 children have benefited from the services of the Women's Shelters from their first opening to September 2000, and 390 women have been placed in employment. Work is ongoing to open a new women's Shelters in Istanbul. This would provide services to additional 500 women and 300 children in 2001. Protection and Preventive Services Community Centers: The General Directorate, in addition to institutional services, since 1993 operates Community Centers which provide protective, preventive, therapeutic and rehabilitative services. Community Centers are institutions aimed primarily for disadvantage regions. As of October 2000, there were 24 Community Centres in gecekondus and 12 in South and Eastern Anatolian cities, now there is atotal of 44. As of October 2000, 75.000 women, young people and children have benefited from the services of the Community Centers. The Community Centers aim to increase the rate of literacy, increasing the participation in education process at every level, develop productive skills especially among women, provide opportunities of employment to generate more income, increase the consciousness of the society to act in an organised manner, reduce the domestic work load of the women, and rising the status of women -134 - through programs to develop their knowledge and skills in various fields. The Early Childhood Support Project, which was commenced in the 1990s and continued in 2000, was implemented among the groups of 15 children in primary schools. During this program which was implemented on half-day basis, food was distributed to the children every day and aid in kind (clothing, educational stationery, etc.) were provided to the children and families. The program was implemented in 13 provinces, namely in Istanbul and Izmir, Igdir, Diyarbakir, Batman, Agri, Siirt, Sirnak, Bing6l, Mus, Van, Hakkari and Mardin in Eastern and South-Eastern Anatolia for 10,000 children. Aid in Kind and in Cash Services: In recent years, the services of aid in kind and in cash which are protective-preventive and supportive in nature have gained gradually more importance among the service policies of the General Directorate of SHCEK. On the other hand, the services of aid in kind and in cash by the SHCEK lead to more efficient service with fewer resources, which enable the individuals to continue their lives within their own family union. The following groups are given priority in benefiting from the services of aid in kind and in cash: (a) children placed under protection and cared by the SHCEK, but who can be cared by their own families if economic support is provided; (b) children who are chosen for protection and to be placed at the SHCEK due to the economic poverty of their families; (c) disabled children and young people under the care of their families due to the lack of sufficient institutional support; and (d) children for whom a protection order is requested due to the economic poverty of their families. Services for the Disabled SHCEK has started serious attempts to provide solutions to the problems of disabled individuals, to ensure care and rehabilitation by developing and implementing modern models. The aim is to and dispersing the rehabilitation services to ensure that the disabled can live productive and independent lives in the society. Successful initiatives are continued to make the disabled individuals under protection happy and productive through activities including toy workshops, greenhouses, mushroom cultivation, ceramics, packaging industry, agricultural rehabilitation and animal husbandry. SHCEK provides services to the disabled citizens including therapy, care and rehabilitation, training for the families of the disabled individuals, guidance and counselling, institutional counselling and social aid. The SHCEK provides services to the disabled in 51 day and night rehabilitation centres. The 3,318 disabled individuals benefited as of September 2000. An "Independent Living Home" project was implemented for the disabled individuals, who have achieved basic living skills, sufficiently equipped for independent life and gained professional qualifications through the rehabilitation programs provided by the centers. Within the scope of "Independent Living Home" project, an "Independent Living Unit" was established in 1999 for the disabled individuals under care in the Saray Rehabilitation Centre (Ankara), who have developed self-care skills. -135- Services for the Aged Approximately 7.1 percent of Turkey's population is over 60 years old. This group expected to exceed 15 percent of the population by 2010. Since the importance of the services to be provided to the aged increases. SHCEK provides the aged with nursing homes. The number of nursing homes for the aged is 50 as of October 2000 and the total capacity is 5,397. IV. The Health System in Turkey Health services in the public sector in Turkey are mainly provided by the Ministry of Health (SB), the social insurance institution, known as the Sosyal Sigortalar Kurumu (SSK), and the University hospitals. Other ministries (like Defense, Education, and Transport), local governments and some state economic enterprises also provide health services, but their capacity is quite limited. The SB is the sole provider ofpreventive services, provided in health centers, health posts, mother and child health and family planning centers, tuberculosis dispensaries, malaria and cancer control centers. In addition, the SB implements several special preventive health programs that provide reproductive health services, family planning services, public health education, immunization, control of diarrheal diseases, control of acute respiratory infections, etc. The SB is the major provider of maternal health care services, provided through health posts, health centers and hospitals. All preventive and first contact services provided by the SB are free of charge to all users. The SB also provides laboratory based preventive services through the Refik Saydam Hygiene Center. The private sector consists mostly of public physicians who are allowed to work in their private practices in the afternoons and provide a significant share of outpatient care. Though exact data is not available, the private sector appears to be an important source of care in large urban areas and in the Western part of the country. Health Coverage The population can be divided into two main groups: people who have some sort of health coverage, comprising about 87 percent of the total population, and people who do not have any sort of health coverage, comprising the remaining 13 percent (i.e. 7.5 million). Those who have any sort of coverage can be categorized as: (i) White-collar worker (civil servants and their dependents, members of Emekli Sandigi); (ii) Blue-collar workers (members of Social Security Agency); (iii) Self-employed entrepreneurs and small artisans (members of Bag-Kur); and (iv) those of the rural and urban poor covered by the Green Card scheme. This leaves a big subgroup comprising over 13 percent of Turkey's population that is not covered either by any health insurance program or by the Green Card program. There is a provision under Code 3294: Law on Incentive to Social Aid and Solidarity Fund under which the state can pay for health expenditures of those are not insured, are unable to get a green card and - 136 - cannot afford to pay for their health care, but the allocations and use of the SYDTF resources is far from adequate to address the healthcare needs of this population. Enacted under Law 3816 of 1992, the Green Card Program provides free health care services to its beneficiaries. Managed by the SB and financed via general taxes, the Green Card program is seen as a transitional solution that would prevail until the General Health Insurance System is brought into application. To qualify for the Green Card, an individual should be a Turkish citizen, not be covered by any social security system, and have a monthly income of less than one-third of the minimum wage amount (excluding taxes and social security premiums) as determined by Code 1475. Clearly, there is a pressing need for some insurance system that will expand coverage and extend health care to 8.6 million people who are not eligible for obtaining Green Card. Effect of the Crisis to Utilization of Health Services It is a common belief that the current crisis did not affect utilization of health services and that it remains low for poor and those that do not have health insurance. However, it is expected that if crisis persists, long term effects will especially affect utilization of both preventive and curative services by the poor. Registration and Reliability of Health Data Government continues to rely on the existing reported data for utilization of services as well as for immunization coverage. In general, the reported data do not include children that are not registered and therefore actual figures do not always correspond with reported figures. In addition, there are no data on utilization of services and immunization coverage per different socio-economic groups which would enable better targeting. These issues are being covered under the socio-economic survey in preparation for the SRMP and an immunization study under the Bank-assisted Health II project. According to some reports, there is a significant number of children under five whose births are not registered with authorities. Opinions for magnitude of this problem are divided. Issue of non registration might have effect on estimating number of beneficiaries, calculating coverage rates, planning services and setting priorities. Suggestions For Effective Implementation of CCT To date, much effort has been made to strengthen supply side of provision of health services. Health education and health promotion activities had important but also limited impact to creating demand for preventive health services. It is highly recommended by SB that information campaign on the availability of CCT should be combined with health promotion and health education programs. SB believes that in addition to incentives created by conditional cash transfers, the awareness of benefit of preventive health services are more important in the long run and would complement strengthening the demand. Verification process for compliance with conditionalities has to be transparent and auditable to prevent false certification and abuse of the system. Experience from other countries - 137 - shows that introduction of individual health cards was an effective way to preserve data on immunization, growth monitoring and prenatal care. The introduction and procedure of distribution of individual health cards has to be defined in such way to avoid duplication and potential abuse but also to be affordable and to be accessible for poor. In addition to introducing individual health cards on auditable register of visits to health centers for each individual with description of services provided should be established. Those changes and introduction of individual health cards, and register would require additional training for health staff both in administrative issues related to implementation of this program but also in explaining the set of criteria that would be established as conditionalities. Regardless of the fact that criteria for obtaining the green card appear to be fairly well defined to target the poor, the process of registration, issue of land and property ownership and lack of verification system, etc. seems to contribute to wide abuse of this system. Therefore, eligibility for Green Card appears be inappropriate for targeting criteria for CCT. - 138- IBRD 24903R GEORGIA z . l(ARMENIA» GREECE c_ _ -- - - - - - -- - rJ -1~ - - - - - - -.r - - - - .t-** -y- F i; Ni - - TURKEY LE CTED TC-:.NIS af ID ,ILG (:lECA PIT AL S rJATIONL C-PITK.L EDLNTERRANEAN SEA -mAJOR RDA DS PRO'1NCE BOUNDARIES -IE -- INTERNATIONAL BOUNDARIES MARCH 1994