Turkey - Emergency Earthquake Recovery Loan (EERL) Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 22484 IMPLEMENTATION COMPLETION REPORT (SCL-45 180) ONA LOAN IN THE AMOUNT OF US$ 252.53 MILLION TO THE TURKEY FOR A Emergency Earthquake Recovery Loan - EERL 06/28/2001 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective April 30, 2001) Currency Unit = Turkish Lira 1 TL = US$ 0.0000009 USS 1 = 1,163,365 GOVERNMENT FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS BA Beneficiary Assessment BK Bagimsiz Calisanlar Kurunmu (Self-employed Pension Scheme) CAS Country Assistance Strategy CBT Central Bank of Turkey ES Emekli Sandigi (Civil Servants Pension Scheme) EU European Union FSAL Financial Sector Adjustment Loan GNFS Goods and Non-factor Services GNP Gross National Product GOT Government of Turkey ICR Implementation Completion Report IMF International Monetary Fund MEER Marmara Emergency Earthquake Recovery Loan SBA Stand-by Agreement SSF Social Solidarity Fund SSI Social Security Institutions SSK Sosyal Sigortalar Kurumu (Employee Pension Scheme) UT Undersecretariat of Treasury Vice President: Johannes Linn Country Director: Ajay Chhibber Sector Director: Pradeep Mitra Task Manager: Jeanine Braithwaite  TURKEY Emergency Earthquake Recovery Loan - EERL CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings I 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 9 6. Sustainability 9 7. Bank and Borrower Performance 10 8. Lessons Learned 11 9. Partner Comments 12 10. Additional Information 12 Annex 1. Key Performance Indicators/Log Frame Matrix 13 Annex 2. Project Costs and Financing 15 Annex 3. Economic Costs and Benefits 17 Annex 4. Bank Inputs 18 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 19 Annex 6. Ratings of Bank and Borrower Performance 20 Annex 7. List of Supporting Documents 21   Project ID: P068394 Project Name. Emergency Earthquake Recovery Loan - EERL Team Leader: James Parks TL Unit: ECSPE ICR Tvpe: Core ICR Report Date: June 29, 2001 1. Project Data Name: Emergency Earthquake Recovery Loan - EERL L/C/TF Number: SCL-45180 Country/Department: TURKEY Region: Europe and Central Asia Region Sector/subsector: MY - Non-Sector Specific KEY DATES Original Revised/Actual PCD: 09/15/99 EYffective: 11/23/99 12/14/99 Appraisal: 10/08/99 MTR: 05/01/2000 05/12/2000 Approval: 11/16/99 Closing: 12/31/2000 03/31/2001 Borrower/lImplementing Agency: Undersecretariat of Treasury and the Central Bank of the Republic of Turkey Other Partners: STAFF Current At Appraisal Vice President: Johannes Linn Johannes Linn Country Manager: Ajay Chhibber Ajay Chhibber Sector Manager: Pradeep Mitra Pradeep K. Mitra Team Leader at ICR: Jeanine D. Braithwaite James Parks ICR Primaty Auithor: Jeanine D. Braithwaite; Elliott Hurwitz 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainabilitv: L Institutional Development Impact: SU Bank Performance: S Borrow'er Peiformance: S QAG (if available) ICR Qualiti at Entry: S Project at Risk at Any Time: No Introduction On August 17, 1999, a severe earthquake devastated the northwestern area of Turkey bordering on the Marmara Sea. It caused extensive damage to housing, infrastructure, electric power lines, and the country's largest refinery. Although damage to larger firms was limited, many small enterprises were damaged or destroyed, and resultant unemployment was widespread. Around 17,000 people lost their lives, 44,000 were injured, and over 200,000 were made homeless. The social and psychological impact was  enormous. The fiscal demands on the government were huge. The earthquake struck just as Turkey's economy was recovering from a sharp downturn in the wake of the 1998 Russian financial crisis. And the disaster occurred as the Government was beginning to implement essential economic reforms including a macroeconomic stabilization program that required strong fiscal adjustment. The Government and the Bank recognized that if Turkey had to borrow on domestic markets to meet the huge costs of the earthquake, it would be very costly because of extremely high real interest rates, and would crowd out private investment. It would also severely jeopardize the country's hard-won progress in macroeconomic stabilization. The EERL was part of a package of assistance assembled by the Bank and other donors. The EERL supported urgent, short-term needs caused by the earthquake. In addition, to support the Govermnent's medium-term reconstruction and disaster mitigation efforts, the Bank initiated the Marmara Earthquake Emergency Reconstruction Project (US$505 million), and also reprogrammed US$267.3 million of commitments under existing projects. The IMF, EU, and bilateral donors also provided substantial assistance. It should be noted that the EERL had an innovative design in that it was the first disaster relief project in which Bank support for the budget was provided specifically to support social assistance to the affected population. EERL provided compensation for victims in cash, which was much preferred by beneficiaries because they could purchase their own supplies, shelter, etc., rather than receive inappropriate items which they would then need to resell. 3. Assessment of Development Objective and Design, and of Quality at Entry 3.! Original Objective: The original objectives were to: 1. Assist the Government of Turkey to respond quickly and effectively to the impact of the Marmara earthquake which hit on August 17, 1999. 2. Help ensure that the following social protection payments to earthquake victims were made to all eligible beneficiaries: a. "Repair allowance" paid by the Social Solidarity Fund (SSF) b. "Accommodation allowance" paid by the SSF c. Lump-sum death and disability payments made by the SSF, and d. Workplace allowance (for damaged or destroyed workplaces) e. Payments made by the three social insurance funds (SSK, Bag-Kur and ES) for death benefits, survivor pensions and disability pensions which are attributable to the earthquake. 3. Assist the Govemment to keep its economic reform program on track. In the course of the EERL, another objective emerged (although the objectives were not formally revised). This new objective was to improve the capacity of Turkish institutions--especially the SSF--to respond to future emergency situations by providing cash benefits. This goal emerged as the project team identified ways improvements could be made in the capacity of Turkish institutions to handle a natural disaster such as the Marmara earthquake. -2 -  Assessment of Objectives The objectives were clear and were directly linked to alleviating the suffering caused by the earthquake and assisting the government to take initial steps toward recovery. The objectives were realistic, although there was clearly a risk that agencies would not be able to respond quickly enough, or with adequate assistance, to mitigate the suffering. The provision of Bank funding supported the government's efforts to keep its economic reform program on track by alleviating the government's need to turn to domestic capital markets for additional funding, an action that certainly would have had harmful effects on the macroeconomic environment. The project was quick-disbursing, intended to assist Turkey to respond rapidly and effectively to the needs created by the disaster. The loan provided financing for incremental private sector import needs against a positive list of imports' resulting from the quake and for budgetary expenditures related to the recovery effort (including social protection needs.) Loan disbursement was made against documentation of allowances paid. The EERL provided immediate support for short-term spending needs while other, medium-term reconstruction and disaster mitigation efforts such as the MEER project got underway. EERL provided compensation for victims in cash. According to the beneficiary assessment, beneficiaries very much preferred cash support to in-kind support. This was because cash support allowed recipients to purchase their own supplies, shelter, etc. In-kind support often consisted of goods that didn't fully meet beneficiaries' needs, and thus needed to be resold, with attendant additional effort and lower return. 3.2 Revised Objective: The objectives were not formally revised, although as noted a new objective emerged during implementation. 3.3 Original Components: BALANCE OF PAYMENTS SUPPORT: US$ 252,500,000 CONSULTANT SERVICES FOR IMPLEMENTATION US$ 30,000 3.4 Revised Components: The components were not revised. 3.5 Quality at Entry: Quality at entry was satisfactory. The EERL was prepared very quickly, as appropriate for an emergency project. Following the earthquake on August 17, 1999, EERL was appraised on October 10, approved by the Board on November 11, and made effective on December 14. Because of the provision for retroactive financing, the loan was able to disburse US$ 99.5 million in December, 1999, at a time when it was most needed (Figure 1 below illustrates the disbursement profile). While of course the project could not have been foreseen by the CAS, EERL strongly supported the goal of keeping the government's reform program on track. Because lending to address the urgent situation resulting from the earthquake exceeded the "High Case" amount, Bank management approved an increase in the lending envelope of US$750 million to accommodate new emergency lending. -3 -  The EERL was prepared in accordance with key lessons learned from earlier disaster recovery operations including the 1998 earthquake and flood recovery project in Turkey, Hurricane Mitch in Central America, and the events in Macedonia and Albania following the Kosovo crisis. The lessons of these operations are that successful emergency recovery projects: * require early Bank involvement in defining a recovery strategy * necessitate streamlined implementation arrangements * require flexible design * should pave the way for dealing with longer-term structural reforms * should be simple and not burdened with conditionality In addition, to maximize the integrity and accountability of the EERL, the project included provisions to undertake two independent assessments of efficacy and efficiency: (1) an Operational Review, conducted by a private accounting firm, assessing: (a) the adequacy of procedures and systems used in project implementation, and, (b) the efficiency and effectiveness of the results; and a Beneficiary Assessment, undertaken by Istanbul University Department of Anthropology, with the technical cooperation of the World Bank, which investigated how people were coping with the aftermath of the earthquake and how successful the allowances and benefits were in reaching their intended target populations. It should also be noted that the field agency selected by the government to implement the bulk of the project, the Social Solidarity Fund (SSF), was well qualified to perform the duties required. SSF had a nationwide network of 900 offices, and an effective framework for the distribution of funds throughout the country. When the disaster struck, SSF rapidly mobilized a large number of temporary workers from all over the country, as well as computers and other resources and systems needed to rapidly disburse project funds, while maintaining accountability. According to the Operational Review, "staff working in local offices managed to overcome problems with the lack of accurate information and difficult working conditions." The positive list included construction materials; construction equipment and industrial machinery; spare parts, raw materials, and intermediate goods for industry and services; medical supplies and equipment; petroleum products and coal; water and land transport vehicles. Implementing agencies were the Public Finance General Directorate of the Undersecretariat of the Treasury, and the Central Bank of Turkey. Field agencies were the SSF and the three social insurance funds mentioned above. 4. Achievement of Objective and Outputs 4.1 Ouitcomelachiei ement of objective: Introduction The EERL was satisfactory in achieving its objectives. In very difficult circumstances, field agencies did a very good job of quickly setting up field offices, hiring temporary staff, processing applications expeditiously, and assuring that applicants received their benefits, with minimal errors. Objective 1-Assist Government to Respond Quickly and Effectively The EERL was satisfactory in assisting the government to respond expeditiously to the catastrophe. Bank support for project expenditures was rapid. As shown in Figure 1, 41 percent of total project funds had been disbursed by the end of December, 60 percent by the end of January, and 80 percent by the end of - 4 -  March. Quick action by the Bank undoubtedly made a major contribution to the government's ability to respond quickly to the disaster with social protection payments. For SSF, which disbursed around 98 percent of the funds expended, applications for benefits were submitted locally and were reviewed by an existing structure of a Local Approval Committee comprised of senior govermment officials and prominent citizens. Actual payments were then made by Vakifbank, the payment agent, based on locally-provided payment orders. Transfers of funds to the payment agent were then made through SSF headquarters in Ankara. Figure 1-EERL Disbursement EERL Disbursement Cumulative disbursement by end of month 300 250 Z