Document of FLE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-2956-TU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON THE PROPOSED LOAN TO THE REPUBLIC OF TURKEY FOR A LABOR INTENSIVE INDUSTRY PROJECT February 11, 1981 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. TURKEY CURRENCY EQUIVALENTS Currency Unit July 1979 Jan. 1980 /1 October 1980 Jan. 31, 1981 US Dollar 1 TL 47.10 /2 TL 70.0 /3 TL 83.50 /3 TL 90.0 TL 1 = US$ 0.02 US$ 0.01 us$ 0.01 US$ 0.01 /1 Since January 1980 the rate is being adjusted for the differential inflation between Turkey and its major trading partners. TL 70/$1 was used for this report. /2 Except for imports of crude oil, petroleum products and fertilizer raw materials, and exports of agricultural products benefitting from official price supports, for which it was TL 35 = US$1.00. /3 Except for imports of fertilizers and insecticides/pesticides, as well as raw materials and inputs for their manufacture, for which the rate was TL 55 - US$1.00, and is TL 70.0 = US$1.00 as from October 1980. FISCAL YEAR Republic of Turkey ; March 1 to February 28 Sinai Yatirim ve Kredi Bankasi A.O. (SYKB) ; January 1 to December 31 ABBREVIATIONS AND ACRONYMS COFACE - Export Credit Guarantee Corporation of France (Compaigne Francaise d'Assurance pour le Commerce Exterior) DESIYAB - State Industry & Labor Investment Bank (Devlet Sanayi ve Isci Yatirim Bankasi) DYB - State Investment Bank (Devlet Yatirim Bankasi) EIB - European Investment Bank Eximbank- Export Import Bank (U.S.A.) MSI - Medium Scale Industry TSKB - Turkish Industrial Development Bank - (Turkiye Sinai Kalkinma Bankasi A.S.) SEE - State Economic Enterprises SIDO - Small Industry Development Organization SMI - Small-Medium Scale Industry SSI - Small Scale Industry SYKB - Sinai Yatirim ve Kredi Bankasi A.O. FOR OFFICIAL USE ONLY TURKEY LABOR INTENSIVE INDUSTRY PROJECT Loan and Project Summary Borrower Republic of Turkey Beneficiary Sinai Yatirim ve Kredi Bankasi (SYKB) Loan Amount US$40 million equivalent in various currencies Terms and Conditions : 15 years including 3 years grace with interest at 9.6 percent. Relending Terms : The Government will relend an estimated $20 million in foreign exchange, to SYKB to finance sub-loans to medium scale enterprises (MSI), for imported equip- ment, at the Bank's interest rate of 9.6 percent per annum. SYKB will on lend with a spread of 5.5 per annum plus taxes and charges with the foreign exchange risk assumed by the sub-borrowers. The remaining estimated $20 million will be relent in Turkish Liras (TL), to finance all sub-loans to small-scale enter- prises (SSI) for both imported and locally produced equipment, and sub-loans for other enterprises to be used for financing domestically manufactured equip- ment. The Government will bear the foreign exchange risk for this part. The interest rate to sub-borrowers for these sub-loans will be the freely established Lira interest rate in the domestic market, currently 30 to 52 percent per annum inclusive of taxes and charges, but excluding varying rebates extended to foster exports, regional development and the like. SYKB will receive a spread of 5.5 percent per annum. The Borrower's relending rate to SYKB will be SYKB's interest rate to the sub-borrowers, less taxes and charges and SYKB's spread. At prevailing rates, it will vary from 20 to 32 percent. SYKB will transfer 0.5 percent per annum from its spread on both types of sub-loans into a Technical Assistance Fund. It will pay a one-time fee of 1.5 percent to commercial banks on those sub-loans screened by their network. The maturity of the Government's loan to SYKB will be based on the aggregate composite amortization schedule of SYKB's individual sub-loans. 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. - ii - The Project The project will provide financial assistance through SYKB to eligible enterprises for labor-intensive sub- projects at a cost per job not exceeding US$15,000. Beneficiaries are expected to be mostly small and medium scale firms (SMI), which offer the greatest potential of generating employment at a relatively low investment cost per job. To further increase the employment impact of the project, one-third of the Bank loan is earmarked for SSI investments, which are generally more labor-intensive than larger firms, with fixed assets after completion of the investment less than $350,000 if new, or $500,000 if for expansion. The project also envisages the provision of technical assistance, through the services of Turkish industrial consultants, to SYKB's sub-borrowers, with SYKB bearing 80 percent of the costs out of the Technical Assistance Fund. It will support sub-projects primarily in 23 priority urban centers, which account for over 75 percent of urban unemployment in Turkey. In addition to promoting direct employment benefits, the project would support the development of domestic capital goods industries by financing the imputed import content of domestically produced machinery. The proposed collaboration between SYKB and commercial banks for identifying potential SSI sub-projects in the smaller urban centers and the proposed technical assistance scheme are novel elements in Turkey. However, in view of SYKB's commitment to the project objectives and its willingness to take special initiatives, the risks associated with these programs are acceptable. Disbursements US$ Million Bank FY 1982 1983 1984 1985 Annual 8.7 12.9 12.6 5.8 Cumulative 8.7 21.6 34.2 40.0 Economic Rate of Return ; Not applicable Appraisal Report No. 3189a-TU dated February 6, 1981 prepared by IDF Division EMENA Region. INTERNATIONAL FiANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TURKEY FOR A LABOR INTENSIVE INDUSTRY PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Turkey for the equivalent of US$40 million to help finance the foreign exchange costs of a Labor Intensive Industry Project. The loan would have a term of 15 years including 3 years of grace, with interest at 9.6 percent per annum. The proceeds of the loan will be relent to Sinai Yatirim ve Kredi Bankasi (hereinafter called SYKB), with repayment set to be substantially in conformity with the aggregate of the sub-project amortization schedules, at an interest rate that will leave SYKB with a gross spread of 5.5 percent, inclusive of fee and commissions payable to participating commercial banks of up to 1.5 percent, on the loan proceeds it onlends to its sub-borrowers. PART I - THE ECONOMY I/ 2. A Special Economic Mission visited Turkey in April/May 1979 to evaluate the Fourth Five-Year Plan (1979-1983). Its report entitled "Turkey; Policies and Prospects for Growth" (No. 2657a-TU dated December 12, 1979) was distributed to the Executive Directors on December 26, 1979 and its Postscript on March 24, 1980. A small mission visited Turkey in May 1980 to update information and Bank analysis of the country's economic prospects. Its findings are reflected below. Annex I contains the Basic Country Data. Development Trends and Policies 3. As the result of a strong commitment to rapid growth and moderni- zation, GDP increased at an average annual rate of 6.4 percent, 6.7 percent and 7.2 percent respectively, during the First Plan (1963-67), Second Plan (1968-1972), and Third Plan (1973-1977) periods. This compares favorably with the experience of 55 "middle income" developing countries, whose GDP growth averaged a little under 6.0 percent per annum between 1960-1978. Moreover, the relatively high growth rate in Turkey was achieved without signif .cant deposits of oil or other important natural resources. 4. Growth was accompanied by significant social changes. Although population grew annually at 2.5 percent, rapid GDP growth allowed substantial advances in per capita income. However, rising income levels were not accom- panied by better income distribution. Although basic needs have been met, significant sectoral and regional inequalities in income continue. 1/ This Part is identical to Part I of the President's Reports on the Structural Adjustment Loan (Supplement) (P-2888-TU), the Bati Raman Enhanced Oil Recovery Field Demonstration Project (P-2886-TU), and the Petroleum Exploration Project (P-2887-TU), all dated October 30, 1980. - 2 - 5. The public sector has played a key role in Turkey's development. Between 1963-1977, its share in total fixed investment fluctuated around 50 percent, and its share of fixed investment in manufacturing increased from 21 to nearly 49 percent. The public sector dominates basic industries. Never- theless, the private sector has emerged as an increasingly important and dynamic element in the economy and is beginning to shift its orientation from consumer goods to intermediate and investment goods, and from the domestic market to exports. Private sector investment increased at nearly 11.5 percent per year in real terms during 1967-1977 compared to an average annual increase of only 4.8 percent between 1963 and 1967. 6. Turkish development between 1963-1977, however, exhibited a number of structural characteristics which are of considerable relevance for future development policy. First, for a country of Turkey's size and per capita income, it has a very low level of exports relative to GDP--about 4 percent in 1977--as against a more or less "normal" import level of around 20 percent for middle income countries; this highlights the vulnerability of the balance of payments and the importance of export development to sustain the needed inflow of foreign exchange resources. Second, while the level of investment relative to GDP increased rapidly and compares favorably with other developing countries, mobilization of domestic savings has lagged; the ratio of domestic savings to GDP, is well below the average for middle income countries; the growing gap between domestic savings and investment led in the mid-1970s to a relatively high level of external borrowing, and domestic inflationary pressures emanating from excess demand and deficit financing. Third, a relatively high proportion of the labor force is still in agriculture, reflec- ting significant disguised unemployment and the need for accelerated job creation in non-agricultural activities; that in industry is low compared to other large middle income countries; furthermore, the relatively inadequate generation of additional employment has become more serious following the near cessation of workers' migration to Europe since 1974. Fourth, despite the growing dynamism of the private sector, the industrial scene is dominated by inefficient State Economic Enterprises (SEEs) which have not been exposed to market forces and serve not only economic but social goals; their growing deficits have imposed an inflationary burden on the budget, while their ambi- tious investment programs were financed through Central Bank borrowings, since their controlled prices have, until recently not enabled most of them to generate sufficient cash to cover costs or investment expenditures. Fifth, due to the successes achieved since the early sixties through economic planning, there has been an increasing tendency to plan to a micro-level and seek to achieve changes through administrative fiat; however, the economy has reached a stage where such excessive reliance on this becomes counter produc- tive; planning needs to be increasingly geared towards setting a framework in which market forces could secure the desired economic results in both the public and private sectors. The Economic Crisis and Stabilization Efforts 7. These institutional and structural characteristics of the economy made it particularly vulnerable to the sharp increase in import prices (inclu- ding oil) in 1974 and the simultaneous occurence of recession, inflation and - 3 - rising unemployment in the industrial countries. These factors played a key part in the deterioration of the economy. However, the politically weak governments, their policies in response to these factors and their efforts to pursue a high growth policy despite the worsening international environment through increasing reliance on short-term external financing, together created forces that brought about the economic crisis in mid-1977 which is still con- tinuing. The detailed analysis of this crisis, and of Turkey's attempts to stabilize the economy in the short-run up to late 1979, is provided in the abovementioned Special Economic Report and Postscript, as well as in paras. 8 to 15 of the President's Report (dated February 29, 1980) for the Structural Adjustment Loan approved by the Board on March 25, 1980. 8. Despite domestic and international efforts, 1979 was another diffi- cult year for the economy; production stagnated, unemployment increased, inflation accelerated, the balance of payments position remained tight, export performance was poor, severe import rationing continued and the external debt position remained precarious. Policy initiatives taken till then proved inadequate to reverse the tide, as political and economic uncertainties con- tinued to erode the impact of the measures taken. 9. Compared to a growth of 3 percent in 1978, GDP stagnated in 1979. Value added in agriculture increased by 2.5 percent, and in services by about 1 percent, but in industry value added declined by about 2 percent. In agri- culture, further growth was held back by a sizeable decline in production of industrial crops, mainly cotton, and a bad olive crop; the area cultivated declined, due to shortages of fuel and fertilizers. In industry, worsening shortages of imported raw materials and energy, especially oil, led to a decline in production of about 3.5 percent. Production of manufacturing SEEs declined by about 2 percent, and was manifested by decreases of 28 percent in cement production, 9 percent in steel production and 51 percent in certain petroleum production and processing operations. In contrast, the construction and transport sectors grew modestly, but insufficiently to overcome the decline in other sectors. This stagnation was accompanied by unprecedented inflation of about 65 percent in 1979. 10. The overall public sector deficit increased from TL 80 billion in 1978 to TL 132 billion in 1979. It was financed mainly by borrowing from the Central Bank (TL 70 billion). The consolidated budget and the operations of the SEEs were almost equally responsible for the enlarged deficit. The deterioration in the consolidated budget was caused mainly by a sharp increase in transfers to the SEEs, which in 1979 amounted to TL 89 billion. 11. On the external account, there was a marginal decline in the value of recorded exports of goods to $2.3 billion, although in volume terms, exports actually declined by an estimated 17 percent. The value of merchandise imports was about 10 percent higher than the previous year at $5.1 billion; but due to substantial price increases, the volume is estimated to have declined by 19 percent. The current account deficit in 1979 was the same as in 1978, i.e. around $1.7 billion. - 4 - 12. Turkey achieved some success in diversifying the sources, and increasing the level, of M< commitments, including $250 million in project credits from the Saudi Fund. Perhaps the most important arrangement arrived at was the May 1979 OECD sponsored pledging of $1.45 billion in special assis- tance, including about $900 million in M< bilateral credits and export credits, besides $407 million of medium-term credits from commercial banks (finalized in September 1979). However, actual capital inflows were about the same as the previous year (see para. 18 for rescheduling in 1980). 13. Also, throughout 1979, Turkey made a major effort to alleviate the critical burden of external debt through: (a) slowing the growth of shortterm liabilities; (b) debt relief arrangements; and (c) efforts to pursue new sources of credits, especially M< credits. The first debt relief operation, arranged through the OECD Consortium for Turkey in May 1978, involved consoli- dation of $1.14 billion in arrears on guaranteed short-term and bilateral M< debt, as well as amounts due over the thirteen month period May 21, 1978 to June 30, 1979. A second major rescheduling took place in July 1979, involving payments of about $1.02 billion on official bilateral and private guaranteed credits due between July 1, 1979 and June 30, 1980. A third major arrange- ment, finalized in July and August 1979 with commercial banks, rescheduled convertible lira deposits ($2.3 billion), banker's credits ($429 million) and third party reimbursement credits ($300 million). About $317 million in oil debt was also rescheduled. The total amount thus rescheduled was about $5.5 billion. This was perhaps the largest debt rescheduling operation anywhere. Even so, net arrears of about $500 million emerged given the remaining high debt service burden in 1979. January 1980 Structural Adjustment Program and Policy Objectives 14. Against this background, it was quite clear that drastic and painful stabilization measures were not enough to reverse the adverse economic tide. What was needed, was a major program of long-term structural adjustments, if the economy was first to be nursed back to normalcy and then to resume viable growth. Such a bold and far-reaching program of policies to effect structural adjustments in the economy over the medium term was announced on January 25, 1980, accompanied by initial measures to implement adjustments in certain critical areas. These were described and discussed in detail in the Presi- dent's Report (No. P-2725-TU dated February 29, 1980) for the Structural Adjustment Loan. The policy objectives underlying, the program, and the measures it initiated, represent a basic departure from past planning objec- tives. Turkey has undertaken, through it, the essential first steps to foster major structural and institutional changes in the key economic areas. 15. The program's stated goal of "bringing about a major reorientation of the economy" calls for: (i) greater reliance on market mechanisms and forces, by both the public and private sectors; (ii) reduction in the rate of infla- tion; (iii) improved management of the balance of payments and external debts; (iv) policies to encourage the public and private sectors to be efficient and internationally competitive; (v) the implementation of rational exchange rate - 5 - policies and of measures encouraging exports; (vi) domestic resource mobiliza- tion efforts to be substantially augmented through increased tax efforts, realistic SEE pricing, and increased private savings via the banking system and the development of financial markets; (vii) an investment policy aimed at fuller utilization of existing productive capacity and completion of ongoing projects requiring modest inputs, and tailored to scarce resources; and (viii) conditions to stimulate foreign investments in oil, industry and agri- culture. 16. Successful implementation of this program over the medium-term, will require persistence and courageous action on the part of the Government. It will also call for substantial support from the international community, with- out which it is unlikely to succeed. However, if Turkey implements it vigor- ously, and periodically makes critical in-depth reviews as to the impact of the measures and what further modifications and adjustments are needed to achieve the program's economic goals, it will strengthen the basis for Turkey's creditworthiness and re-establish a path of stable economic growth. 17. Following the announcement of this program, the IMF approved a modi- fication of the terms of the July 1979 Standby Arrangement and the release of larger second and third tranches on February 21 and March 24, 1980. In addi- tion, SDR 71.6 million ($93 million) in compensatory financing for export shortfalls was provided on February 21, 1980, together with the modification of the Standby. Together, this resulted in the provision of $301 million (SDR 231.6 million), with the remaining $26 million (SDR 20 million) to be provided in June. However, on June 18, this Standby was cancelled. Instead, the IMF Board approved a new three-year Standby Arrangement involving SDR 1.25 billion ($1.63 billion), with SDR 460 million ($600 million) in the first year, SDR 400 million ($522 million) in the second year and SDR 390 million ($509 million) in the third year. The key conditions of the new Standby are that: (i) exchange rate policy is to be kept more flexible; (ii) the financial position of the public sector is to be improved, mainly as a result of the restructuring of the operational policies of the SEEs; (iii) monetary condi- tions are to be kept extremely tight, as a result of the observance of limits on Central Bank lending; and (iv) interest rates are to be adjusted to reflect market conditions. 18. In addition, Germany took the lead in organizing the provision of sizeable external assistance, as well as a further debt relief operation. In meetings under OECD auspices in March and April, $1.16 billion of bilateral aid was pledged, with much more rapid disbursements than in 1979. The Bank also supported OECD's and IMF's efforts through a $200 million Structural Adjustment Loan in March 1980. Furthermore, about $2.5 billion in service payments to OECD countries on public and publicly-guaranteed debts falling due prior to June 1983 were rescheduled, again under OECD auspices, in July 1980. This included all arrears up to June 30, 1980, payments due prior to June 1983 on debt not previously rescheduled, and payments due up to June 1981 on debt already rescheduled in 1978 or 1979. Ninety percent of these sums were rescheduled over 8 to 10 years, including 4 to 5 years of grace. With these developments, Turkey secured debt relief estimated at $1.1 billion in 1980 and - 6 - another $0.8 billion in 1981, with smaller amounts thereafter. The only size- able new commitment in recent months has been a $250 million cash loan on 15 year low-interest terms from Saudi Arabia, of which $100 million has been dis- bursed, with another $100 million scheduled for December and the balance for March 1981. Turkey has approached leading commercial banks to secure a softening of the terms of the August 1979 rescheduling agreement. After con- siderable delay due to wariness on the part of banks both of a new reschedu- ling and, to some extent, of extending new credit to Turkey, a modest syndi- cated loan is under discussion. The Government will try to reduce to the extent possible the current and prospective large net outflow of funds to the commercial banks. Economic Developments in 1980 and Outlook for 1981 19. As expected, the initial impact of the January 1980 package has been to exacerbate many of the economic pressures. Uncertainty about the course of future policies and about the timing and pace of economic recovery, as well as tight monetary conditions aimed at reducing aggregate demand, have slowed investments and economic growth. Devaluation and the removal of price con- trols on both private business and SEEs, while necessary to alleviate allo- cative distortions in the economy, contributed to a large initial upsurge in the rate of inflation. Also as expected, the financial rehabilitation of the SEEs and their reorientation to market conditions has only begun, and will require more fundamental changes than price liberalization alone over the medium term. Budgetary transfers to the SEEs to cover remaining operating subsidies and investment expenditures have continued to rise. The budget position as a whole continues to be weak. It is still too early to say whether the initial adjustment phase is over. However, preliminary data suggest that the worst may be past. Inflation has come down sharply, and indeed more rapidly than expected (next paragraph); the impact of higher import prices (especially for oil) has been alleviated (though so far only for 1980) by a commensurate increase in capital inflows; and 1980 saw a very modest resumption of economic growth. 20. For the full year, GDP growth is likely to be between zero and 2 per- cent, with growth in agriculture of about 2.5 percent, but stagnation in industry. Public investment has continued to fall in real terms for lack of financial resources, and private investment remains depressed. Unemployment is still rising, and real disposable incomes are falling. As mentioned above, inflation--which averaged over 100 percent on an annual basis in early 1980--has since slowed considerably, and expectations are that over the remainder of the year it will be about 2 percent per month. The fiscal and monetary situation remains difficult. There has been a substantial increase in Government expenditures over previous forecasts, in line with inflation. However, there is evidence of tax revenues lagging behind inflation, and sub- stantial arrears have built up in tax collection. SEE operations will show a small profit this year after several years of mounting deficits. However, to finance their investments and debt repayments, budgetary transfers to SEEs will rise again to TL 138 billion. As a result, the budget deficit is likely to be TL 155 billion in spite of a further accumulation of Government arrears vis-a-vis the private sector. Pressures have therefore built up to expand Central Bank credit, which is strictly limited under the IMF Standby Arrange- ment. Nevertheless, the first discussions under the Standby were satisfac- torily concluded at the end of August, and the second drawing was made avail- able on schedule on September 29. However, IMF Board agreed to a small increase in the ceilings on Central Bank net domestic assets and credit to the public sector to accommodate crop purchases by the Soil Products Office (particularly of wheat) without impinging on the availability of financing for the private sector, especially for exports. 21. The balance of payments position remains quite tight. Over the first eight months of 1980, the value of merchandise exports was only 6 percent higher than in the corresponding period of 1979. However, taking into account the seasonal rise in agricultural exports, the end of various labor disputes in industry, and the rising trend in production, and provided markets recently established in the Middle East are not long disrupted by the Iran-Iraq war, the Government projects exports of $2.8 billion for the year as a whole, com- pared to $2.3 billion last year. While the value of merchandise imports is expected to be considerably higher than in 1979--$6.7 billion (including $3.2 billion for oil) as against $5.1 billion, the volume increase will be negli- gible due to increases in import prices, especially for oil. As a result, fairly severe import rationing continues. Workers' remittances have increased strongly this summer and should reach $1.8 billion for the year as a whole. Even so, it is estimated that the current account deficit will increase from $1.7 billion in 1978 and 1979 to $3.1 billion in 1980. Capital inflows will also be higher than last year, with gross public M< disbursements expected to be about $2.2 billion, given the Government's concerted effort to disburse the pipeline of OECD sponsored external assistance pledged in May 1979 and April 1980. Moreover, the massive July rescheduling (para. 18) has eased the external debt position considerably. 22. The outlook for 1981 is slightly more promising, although the balance of payments position is likely to remain extremely difficult. It is too early to predict the impact the Iran-Iraq war may have, given that these two countries normally provide nearly 55 percent of Turkey's oil imports on favor- able terms. Assuming the impact can be mitigated, the growth rate of real GDP is projected to be about 3 percent, with value added in agriculture and industry growing on the order of 3 and 4 percent respectively. Investment is likely to grow only by about 1 percent, after real falls in recent years. The Government hopes to reduce the rate of inflation substantially again. The external position is expected to remain tight. Exports should grow by about 20 percent to $3.4 billion, and imports by about 16 percent to $7.8 billion, in nominal terms. As in 1980, the volume increase in imports is likely to be negligible due to increases in import prices, especially for oil, and hence import rationing will have to continue. With only a modest rise in service receipts and workers' remittances, the current account deficit in 1981 is expected to be $3.6 billion, or $500 million more than in 1980. Turkey has already begun to make preparations to meet the very large financing gap in 1981, and hopes to secure considerably higher capital inflows than in 1980, particularly gross public M< disbursements which need to be around $3.5 billion. Apart from the Bank, IMF and commercial bank loans arranged or being processed, the Government intends to seek further special aid from OECD members in 1981. -8- Turkey's Medium-Term Economic Prospects 23. The international oil situation, following the substantial end-1979 price increases, has a major impact on future prospects. Even if Turkey allows only a marginal increase in oil imports during 1980-1985 to sustain a gradual resumption of growth, the oil import bill is estimated to increase from $3.2 billion in 1980 to $6.1 billion by 1985; as a percentage of merchan- dise exports and non-factor services, this is equivalent to about 83 percent in 1980 and is likely to remain at about 70 percent until 1985. The pressure this will exert on Turkey's already difficult balance of payments position is obvious. The projected current account deficit as a percent of GNP in current dollars increased from 3 percent in 1979 to about 8 percent in 1980 and is projected to remain at or above 5 percent until 1984. Considering the limita- tion on available external assistance and given the need for continued sound external debt management, Turkey can sustain the projected annual current account deficits of the order of $3-3.5 billion annually in the short run, given further quick-disbursing assistance in 1981; the deficits are projected to decline to a sustainable $2.5 billion annually in the next few years. 24. Taking into account international inflation and the substantial obli- gations for debt amortization, despite the July 1980 debt rescheduling, this situation necessitates a large and sharply increasing annual average gross inflow of foreign capital, rising to $4 to 5 billion during the next five years. Such major inflows of foreign capital can only be sustained on the basis of prudent external debt management. In any case, debt service obliga- tions are likely to remain high over the coming 5 years. In 1979, total debt service payments were 26 percent of exports of goods, non-factor services and workers' remittances after rescheduling payments. The ratio is projected to rise to around 45 percent in 1984, taking account of the July 1980 debt rescheduling. This, however, should represent the culmination of the finan- cial consequences of the present crisis and the debt burden should remain manageable, provided the structural adjustment policies are successfully implemented and the export drive is sustained. 25. Given the accumulation of economic problems of the last three years, the political difficulties, the significantly increased cost of oil imports, and the difficulty of significantly increasing the net inflow of capital, Bank projections suggest that GDP growth in real terms may average around 4 percent p.a. with a real growth of exports about 9 percent p.a. during 1980-1985. These growth rates appear attainable, assuming continuation of appropriate economic measures (including those announced in January 1980), and taking into account the low export base and present underutilization of capacity. 26. The recent political changes do not change these expectations regar- ding economic developments. The military government which assumed power on September 12 is determined to pursue the program of structural adjustments announced in January 1980, as well as economic policies and commitments agreed with the Bank, IMF and members of the OECD Consortium for Turkey. Indeed, two days after the takeover, both the Bank and the IMF were officially informed of this decision. A civilian Cabinet, responsible to the military's new National - 9 - Security Council, has been named, with the principal architect of the recent economic policy reforms, Mr. Ozal, assuming the position of Deputy Prime Minister for economic affairs. Its program confirms the commitment to con- tinue implementing the January 1980 program, and the intention to introduce those portions of it which have been blocked hitherto by deadlock in Parliament. PART II - BANK GROUP OPERATIONS IN TURKEY 27. A large lending program for Turkey was begun following the intro- duction of its 1970 Stabilization Program. To date, the Bank/IDA have lent $2,735 million, through 63 projects. Agriculture accounts for 22 percent of funds lent, industry and DFCs for 35 percent, power for 13 percent and urban development, transportation, education and tourism for the rest. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of December 31, 1980, with notes on the execution of ongoing projects. 28. Since mid-1975 the implementation of private sector projects has been satisfactory. Political uncertainty, limited coordination amongst ministries and staffing problems resulted in uneven and delayed project implementation in the public sector. Therefore, a system of joint project reviews between Turkey and the Bank was instituted in June 1975. This resulted in distinct, but modest, improvements up to end 1977. The situation was again reviewed with the Government in March 1978, and further discussed with the then Prime Minister in April 1978. Subsequently, Turkey established a new high-level coordination team. This team set up procedures for monitoring and achieving realistic implementation and disbursement targets. As of June 1980, disburse- ments increased to 70 percent of appraisal estimates against 51 percent in June 1975. The encouraging progress allows cautious optimism that performance can be gradually improved further, provided it is not eroded by new factors, including shortages of resources. 29. Bank lending is aimed at supporting the economic policies initiated in January 1980, especially: (a) the pursuit of an export oriented develop- ment strategy; and (b) domestic economic policies aimed at establishing macro-economic balance, increasing domestic savings, restraining public investment and reorienting it to reflect the priorities implicit in the present situation - especially completion of ongoing projects, emphasis on quick-yielding new investments, and balance of payments impact. The Bank has discussed with the Government how its overall lending can best contribute to the latter's medium-term objectives, without projects being handicapped by past policy and institutional obstacles. A series of proposed structural adjustment loans are envisaged, at the Government's request, to support its program of structural adjustments to be implemented in the medium-term, through specific detailed measures and policy actions during the period that may be covered by each such loan. Agriculture, industry and energy will be the key sectors for project lending. In agriculture, projects emphasize live- stock, exports, and rural development; in industry (including DFCs), the emphasis is on promotion of exports and employment, and the gradual - 10 - strengthening of the SEEs. Energy projects underway are in power generation based on domestic hydro and lignite resources; future projects will emphasize the oil/gas sub-sector, coal/lignite and mini-hydro developments. Projects for urban development and public utilities supplement these efforts. We propose to maintain a close macroeconomic and sector dialogue with Turkey. The economic and sector work planned over the next several months includes special studies of the public investment program, of industrialization and foreign trade strategy, and of the energy sector, and completion of sector memoranda on agriculture and industry. In addition, the progress made in fostering structural adjustment will be monitored in the context of each future structural adjustment loan. 30. A supplement to the first Structural Adjustment Loan, the Bati Raman Enhanced Oil Recovery Field Demonstration and the Petroleum Exploration Projects were approved by the Executive Directors in November 1980. Besides this, other projects likely to be presented this fiscal year include loans for fruits and vegetables, industrial finance, fertilizer industry rehabilitation, and a second structural adjustment loan. Projects being processed for later consideration include; rural development, seed production, sewerage develop- ment in Istanbul, paper and cement modernization and promotion of export oriented industries. 31. The Bank Group's share of the estimated total external debt (including short-term obligations) was 8.0 percent in 1979, and is expected to grow to 10.0 percent by 1981 and 12.5 percent by 1985. Its share of service payments is projected to fall slightly from 8.8 percent in 1979 to 6.4 percent in 1981, thereafter increasing to 7.6 percent by 1985. 32. IFC has invested in synthetic yarns, pulp and paper, glass, aluminum, iron and steel products, motor bicycle engines, piston rings and cylinder liners, and tourism. It has also invested in the Turkish Industrial Develop- ment Bank (Turkiye Sinai Kalkinma Bankasi--TSKB). As of December 31, 1980, gross IFC commitments totalled about $212 million, of which $91 million were still held by IFC. New investment opportunities are being pursued. PART III - EMPLOYMENT AND SECTORAL BACKGROUND Growing Unemployment Problem 33. Despite the impressive growth in GDP achieved by Turkey during 1962-77, the economy failed to generate adequate employment opportunities, especially in the industrial sector, to absorb the increasing labor supply. The resulting rise in unemployment has been further exacerbated in recent years. Unemployment in urban areas, which began to increase rapidly after 1973 when external migration slowed down and has since worsened further due to deteriorating economic conditions, has become a major social issue. 34. While the total working age group has increased during 1962-78 at roughly the same annual rate as total population (2.5 percent), the growth in the total labor force (estimated at 16.1 million in 1978) at 1.6 percent per - 11 - annum, has been much slower. Despite this trend, the economy has created far fewer jobs than required to absorb this growth. Total employment grew from 12.6 million in 1962 to 14.7 million in 1977 or by only one percent per annum. The difference between the growth rates of total employment and total labor force has been particularly large during the Second (1968-72) and Third Plan (1973-77) periods. This disparity did not result in a rapid rise in unemployment during the Second Plan period, mainly because of the rising emigration of workers abroad; from a negligible amount in 1962, the number of workers employed abroad had grown to over 800,000 prior to the mid-seventies, or about 16 percent of total non-agricultural employment. However, since then, emigration abroad has declined sharply, and employment abroad as a percentage of total non-agricultural employment fell to below 13 percent in 1979. Although the relevant statistical series on employment are of limited coverage and reliability, it is apparent that the unemployment rate has increased substantially in the last five years as a result of reduced external migration, worsening economic conditions and sluggish growth of productive employment opportunities. Non-agricultural employment rose by only 134,000 in 1978, compared with 196,000 in 1977. Total unemployment is estimated to have exceeded 2.8 million or about 20 percent of the labor force in 1979. Urbanization Trends and Urban Unemployment 35. Industrialization in Turkey is geographically concentrated, with 75 percent of manufacturing enterprises located in four major urban centers. This has contributed to increased migration into urban areas. Urban popu- lation increased from 18 percent in 1950, to 45 percent in 1975. The seven largest urban centers (over 250,000 population) increased their share in national population from 35 percent to 41 percent between 1965-75. These deep-seated urbanization trends can be expected to persist. With a projected annual growth of 4.5 percent in urban population during the next decade, 75 percent of Turkey's population might be urban residents towards the turn of this century. This clear trend, coupled with the slow growth of employment opportunities outside agriculture, has resulted in increasingly visible unemployment in urban centers. Registrations in employment exchanges, although of limited coverage, indicate that unemployment in the 67 provinces of Turkey increased by about 18 percent, on an average, during 1970-77. The increase was particularly sharp in the East and Southeast regions, followed by the Mediterranean and Black Sea regions. To promote regionally balanced development, which could help stem the tide of urban migration, the Government has provided incentives to industry to locate in less developed regions. Under past DFC loans, the Bank has also tried to assist in that direction. But the results so far have been rather modest. Turkish Development Strategy and Employment Growth 36. Until recently, Turkish development planning focussed primarily on rapid growth, and import substitution and modernization through industrial development, with employment generation expected as a fallout from rapid growth and concommitant high rates of investment. In addition, Turkey's import of sophisticated technology in implementing this strategy has - 12 - channelled a relatively large part of investment to sectors and sub-sectors with high incremental capital/labor ratios. It took an investment of TL 267,000 (or about $23,400 in 1976 prices) to create an additional job in industry during the First Plan; by the Third Plan period, it took TL 572,000 (or about $50,000 in 1980 prices). Consequently, although manufacturing received 27 percent of total investment during 1968-78, its share of total employment increased from 7.1 percent to only 11 percent. 37. Apart from these factors, economic policy, until recently, also tended to favor capital against labor, through overvalued exchange rates, subsidy on imported capital equipment such as customs duty exemptions or deferrals, relatively low interest rates and various forms of tax relief for investors. Institutional factors reinforced this policy bias towards capital intensity. Due to a highly unionized labor force, significant fringe payments and substantial social security contributions add to direct wage costs in the organized sector, besides loss of production from strikes. 38. Although capital intensity in the private sector increased relatively faster than in the public sector, on average, it is still only two-thirds of that in State Economid Enterprises (SEEs). The lower capital intensity of the private sector is in part due to its greater involvement in light and non-process industries, and in part to the predominance of small and medium scale industrial enterprises which have a relatively lower capital intensity compared to large scale enterprises in the public sector. Detailed and comparable statistics on the distribution of capital intensity by size of establishment within individual industrial sub-sectors is lacking. Neverthe- less, a comparison of the investment cost per job for 542 projects granted Certificates of Encouragement 1/ between January 1979 and June 1980, two-thirds of which were new projects, shows that the average investment cost per job for projects below TL 40 million is roughly one-half that of projects between TL 80 million and TL 160 million. Furthermore, the average investment cost per job for the small and medium scale group, i.e. below TL 160 million investment, is TL 1.06 million ($15,100) which is less than one-third the average investment cost per job (TL 3.28 million or $46,800, in January 1980 prices) of the larger projects. This attests to the significantly greater labor intensity of the SMI group. 39. Recently, the Government has increasingly become concerned with the rising unemployment. The recent liberalization of the interest rate regime, emphasis on exports and the adoption of a more flexible exchange rate policy should help remove the bias towards capital intensity in agriculture and industry and help employment creation. Furthermore, during the identification and preparation of the proposed project, the Bank prepared a sub-sector report 1/ Certificates of Encouragement are given to projects in less developed regions, in specified priority sectors, or with an export undertaking, and entitle investors to investment incentives such as interest rebates, exemption from transactions tax on interest, and exemption or deferral of customs duties. - 13 - entitled "Turkey - Prospects for Small-Medium Scale Industry Development and Employment Generation" (Report No. 2913-TU). The report makes a number of specific recommendations to foster the efficient development of labor intensive SMI. The Government has already implemented a key recommendation, to provide eligible SMI with the same incentives as are available to large firms under the Certificate of Encouragement and has also agreed to assume the foreign exchange risk for smaller borrowers under the proposed project. In order to encourage the Government to adopt an overall developmental policy towards SMI, we will pursue a dialogue with the Government on the other key recommendations. Prospects for Employment Generation 40. The future level of unemployment depends on the growth rates of labor supply and employment opportunities. Labor supply is projected to increase by 330,000 per year over the next five years. It is unlikely that employment growth in the medium-term will be able to keep pace. In agriculture, if past trends in mechanization and other deep-seated factors persist, there may not be a significant increase in sectoral employment. Similarly, employment growth in the services sector has declined in recent years, although this sector is expected to create some 175,000 new jobs annually over the next five years. Besides, employment in that sector includes informal urban sector employment, much of it of a marginal nature. With the industrial sector projected to absorb some 85,000 workers per year, it is likely that the number of job seekers will increase by about 70,000 annually over and above the existing stock of unemployed. 41. The industrial sector will, therefore, have to assume a greater responsibility for creating productive employment than hitherto considered necessary. Given the limited availability of investment funds, one of the most effective means of accomplishing this objective is a concerted effort to foster relatively more labor-intensive, and efficient industries. Small and medium scale labor and skill intensive enterprises have considerable growth potential in a wide range of activites (para. 43). The expansion of this segment of industry, therefore, offers a significant potential for creating permanent jobs in urban areas with relatively low investment . This provides the rationale for the proposed project. Structure of Industry and Financial Setting 42. Small-scale enterprises (SSI), i.e., establishments with less than 50 workers and medium-scale enterprises (MSI), i.e., establishments employing 50-200 workers, are predominant in Turkish manufacturing. Of about 175,000 establishments in the private sector in 1970, only 487 (or 0.3 percent) employed 200 or more workers and 4,322 (or 2.5 percent) between 10 and 199. Of the remaining 170,000 establishments employing less than 10 workers, comprising the so called unorganized sector, 162,000 employed 4 or less workers. While employment in large manufacturing enterprises grew at an annual average rate of 5.6 percent during 1970-77, it grew at 8 percent in the small and medium scale enterprises (SMI). As a result, the SMI group increased its share of total employment from 31 percent to 35 percent. - 14 - Including the large unorganized sector, it currently accounts for 55 percent of total employment in manufacturing. In the SMI segment, employment growth has been particularly high in basic metals, metal products and leather goods. 43. Future growth of SMI depends on increasing adoption of modern effi- cient production processes, specialized production, improved product designs and quality, modern management, and closer linkages with larger manufacturing firms either as sub-contractors or ancillaries for the provision of parts, components and sub-assemblies or with large scale trading establishments serving either the national or export markets. These goals can be achieved primarily through well-conceived and properly tailored financial and technical assistance programs, including skill upgrading and accelerated training; and through structural changes (e.g. cooperative arrangements and consolidation of smaller enterprises), export orientation, and adaptation of new processes. Sub-sectors with a high growth potential in SMI comprise foundry, engineering (fabricated metal products, electrical and non-electrical machinery, transport equipment, and professional and scientific equipment), food processing, ready-made garments, footwear and leather products, wood-based and furniture, plastics, and construction materials. 44. Roughly 50 percent of private fixed investment in manufacturing is financed by intermediaries, another 40 percent out of internally generated funds and the balance, through bond issues and direct foreign financing. Among the intermediaries, commercial banks account for an estimated 35 percent of total fixed investment, mostly through short-term loans which are periodi- cally rolled over. Since 1972, commercial banks have increased medium-term lending to the private sector in response to Central Bank directives and incentives. Amongst development banks, Turkiye Sinai Kalkinma Bankasi (TSKB) provided 6.5 percent of total private fixed investments mostly in foreign exchange, and Sinai Yatirim ve Kredi Bankasi (SYKB) provided about 1.5 percent mostly in local currency. The other important sources of long-term industrial finance are the new State Industry and Labor Investment Bank (DESIYAB) designed to mobilize the savings of migrant workers for investment parti- cularly in less developed regions, and the public sector Halk Bank which finances small industry and artisans. 45. While well established large enterprises have access to investment finance from institutional sources, SMIs generally lack such access. However, the true dimensions of the extent and severity of this situation are hard to ascertain, since many small scale enterprises (SSIs) are reluctant to approach the banking institutions. Both SYKB and TSKB have so far met only a small part of the total long-term financial requirements of the SMI segment. The proposed project will partially fill this financing gap, by encouraging SYKB to increase its lending to the SMI segment of industry. 46. With the deregulation of the interest rate regime in July 1980, commercial banks now collectively determine base interest rates on lira deposits and loans periodically. The current effective interest rate after taking into account various taxes and charges, varies from 30 to 48 percent on medium-term TL loans and about 52 percent on long-term TL loans. With projected declining rates of inflation (estimated at 85 percent in 1981, 60 - 15 - percent in 1982, 40 percent in 1983 and 20 percent thereafter), these interest rates are expected to be positive in real terms over the life of the loan. The effective rate on foreign currency loans, after taking into account the intermediary's cost of foreign funds, its spread, taxes and charges, but excluding rebates ranging from 3.2 to 5.1 percent, varies between 16 percent and 20 percent with the borrower assuming the full foreign exchange risk. This is satisfactory in relation to the prevailing interest rates in inter- national capital markets for similar loans. The Intermediary - SYKB 47. SYKB, established in 1963 by five major commercial banks, is playing an increasingly important role in financing Turkey's private industrial sector. Its paid-in share capital is TL 400 million, of which Is Bankasi, Turkey's largest commercial bank, holds 60 percent. The balance is held equally by the other four founding banks. SYKB has an excellent management team. The staff of 44 is competent and the turnover is low. SYKB has prepared a phased plan to increase its professional staff in line with its projected needs. SYKB has agreed that, beginning from July 1, 1981, it will review its staffing plan annually with the Bank, make such modifications as necessary, and thereafter implement the agreed plan (Project Agreement, Section 2.01(b)). SYKB's Board has adopted a comprehensive policy statement in January 1979, which ensures sound lending and financial operations. The Bank made its first loan to SYKB in connection with the Private Sector Textiles Project (Ln. 1755-TU) in September 1979. 48. Though SYKB directly finances only around 1.5 percent of total private fixed investment, it plays a much greater role in collaboration with commercial banks and other financial institutions. Its loan approvals more than tripled between 1976 and mid-1980, to reach TL 1.6 billion, mainly in local currency. With the availability of new foreign currency resources, SYKB is also becoming an important source of foreign currency loans. More than half of its loan approvals were between TL 10 million and TL 75 million in size. Its development orientation is reflected in its increased lending to projects located in less developed regions, which rose from 27 percent in 1976 to 40 percent in 1979. It is estimated that about 15,000 jobs would be created by projects which received loans from SYKB for fixed capital invest- ments during the 1977-79 period, with an average cost per job of $41,000 in 1978 and $21,000 in 1979. SYKB's own contribution to these projects was 7.2 percent in 1978 and 20.2 percent in 1979. The main beneficiaries of SYKB's loans so far have been textiles (21.2 percent), metal products (16 percent), iron, steel and other products, electrical machinery and appliances. 49. SYKB projects that its foreign currency loan commitments will increase from $19 million in 1981 to $38 million in 1984. This includes prospective approvals for sub-loans under the proposed project. However, its local currency loan commitments are expected to grow from about TL 960 million in 1981 to about TL 1.3 billion in 1984, which represents a decline in real terms, due to resource constraints. Despite the current sluggishness in private industrial investment, in view of its large project pipeline, ($33 million in foreign currency and TL 1.1 billion in local currency as of June 1980) SYKB should be able to meet these relatively modest targets. - 16 - 50. SYKB's uncommitted foreign currency resources as of December 31, 1979, were US$22.2 million. With new commitments obtained in 1980 of $14.5 million from the European Investment Bank and the proposed Bank loan, SYKB still has a resource gap of about $47 million in foreign currency, mainly in 1983 and 1984, to meet its projected lending operations. SYKB plans to mobilize additional funds from existing and new foreign sources; but the outcome of this effort does not affect its ability to undertake the proposed project. Its progress in mobilizing foreign resources will be monitored during project supervision. SYKB plans to meet its projected TL needs for 1980-84 through internal generation, loans and equity investments from its shareholding banks, and from the Central Bank's rediscount facility. 51. SYKB has maintained adequate net profits between 1976-79 and they are projected to increase in future, rising from TL 105 million in 1979 to TL 178 million in 1982, and TL 274 million in 1984 in current terms. SYKB's liquidity position and debt service coverage are expected to remain satisfactory. SYKB's loan portfolio is sound and diversified. Only 3.6 percent of the total loan portfolio on June 30, 1980, was affected by arrears of more than three months. Moreover, to meet bad and doubtful loans SYKB will retain at least 5 percent of its net annual income up to a maximum of 2 percent of its loan and equity portfolio (Project Agreement, Section 3.10). While this is satisfactory for the present, in view of its increasing exposure in the SSI sector, SYKB has agreed to review periodically its provision policy and make appropriate modifications. 52. SYKB increased its paid-in capital to TL 400 million in 1979, and subsequently converted an additional TL 187 million of shareholding banks' loans into quasi-equity, to maintain the debt-equity limit of 7;1 stipulated under the Textile Project. SYKB's financial projections indicate that it will exceed the agreed debt-equity ratio of 7:1 by end 1981. Consequently, it has requested the Bank to relax the present limit. In view of its efficient management, prudent financial policies, sound loan portfolio, low arrears, adequate liquidity, and satisfactory debt service coverage, it was agreed to increase the debt-equity limit to 9:1 (Project Agreement, Section 3.05). However, in view of its implications for attracting and remunerating equity, understandings were reached that SYKB will undertake a study of the factors and policies affecting its resource mobilization, spread, profitability, and financial position. The study will come up with recommendations to ensure an adequate return to shareholders and a reasonable financial structure for SYKB. The Bank's Role in Industrial Finance 53. The Bank's operations in the industrial sector have supported private industry through TSKB, and recently also through SYKB, and public sector enterprises both through direct assistance and through the Devlet Yatirim Bankasi (DYB), the State Investment Bank. Besides promoting efficient investment in the private and public sectors and improvement of SEEs, the Bank in recent years has sought to reach broader economic goals of regional development, export-promotion and employment generation. In line with this approach, TSKB increased its lending to projects in less-developed regions as well as those which are export-oriented, and TSKB and SYKB have assisted private sector export-oriented textile projects. The Bank's operations in the - 17 - industrial sector have been reviewed by the Operations Evaluation Department in its report entitled "Sector Operations Review: Industries and DFCs Programs in Turkey" (Report No. 3077 dated July 18, 1980). The issues raised in this report are being addressed in the proposed project and in the Bank's future lending program for Turkey. 54. The January 1980 economic program favors an enlarged role for the private sector in developing manufacturing industry. The private sector is expected to take the lead in increasing exports and creating jobs. The Bank supports these initiatives. To emphasize the orientation towards exports, the prospective lending program includes loans to private sector DFCs, to further strengthen the export capability of private enterprises. This should have a favorable impact on employment growth, since most export growth is likely to occur in sub-sectors with low capital-labor ratios. However, the proposed project is the first Bank project that focuses exclusively on alleviating unemployment in selected urban areas, by fostering labor-intensive enter- prises. This is expected to be followed by future projects with similar objectives, possibly including other intermediaries. Future assistance to the public sector is likely to be concentrated on rehabilitation, modernization and expansion of public enterprises in priority sectors. PART IV - THE PROJECT Project History 55. In response to the Government's growing concern to restrain increasing unemployment, the proposed project was identified by a Bank mission in December 1978. It was appraised in June/July 1980. Negotiations were held in Washington in January 1981, with a Turkish delegation headed by the Chief Economic Counselor of the Embassy and including representatives of the Govern- ment and SYKB. Project Objectives and Description 56. The Project's major objective is to foster employment in urban centers, through the development of labor-intensive industrial enterprises, mostly small and medium-scale (SMI). To make a tangible impact on urban centers with high unemployment levels, private labor-intensive industrial investment will be supported primarily in the three metropolitan cities of Istanbul, Ankara and Izmir and twenty other regional urban centers, which account for 75 percent of total urban unemployment. This support to SMI should also contribute to the efficient and balanced development of the industrial sector. To ensure reaching the project's major objective, it also includes the provision of financial and technical assistance to eligible enterprises through SYKB. The details are summarized in the Loan and Project Summary and amplified in the report entitled "Labor Intensive Industry Project" dated February 6, 1981, distributed separately to the Executive Directors. - 18 - Eligibility Criterion 57. To maximize employment generation, only sub-projects with an invest- ment cost per job created of not more than US$15,000 in December 1980 prices, excluding land and buildings, will be eligible for financing out of the proceeds of the proposed Bank loan (Loan Agreement, Section 2.02(d)). The proposed limit is based on a review of the capital intensity of investment projects granted Certificates of Encouragement by the Government during the past 18 months, as well as sub-projects financed during recent years by TSKB, SYKB and the Halk Bank. To induce SYKB to lend to SSI, as well as to achieve a better regional distribution of employment generated by the project, a third of the Bank loan has been earmarked specifically for SSI sub-projects (Project Agreement Section 2.05). For this purpose, SSI is defined as those enterprises with fixed assets, excluding land and buildings, after completion of the Investment Project not exceeding $350,000 in 1980 prices in the case of new enterprises, and not exceeding $500,000, in the case of expansion sub-projects (Loan Agreement, Section 1.02(k)). While no limit has been proposed on the size of sub-projects for the remaining two-thirds of the loan, in view of the low stipulated investment cost per job criterion, it is expected that this part of the loan will support medium scale enterprises with fixed assets not exceeding US$2.0 million equivalent. Overall, it is anticipated that the average cost per job for the aggregate of sub-projects financed through the proposed loan will be about $12,000 in 1980 prices, excluding land and buildings. This represents a significant reduction over the currently estimated average cost per job in the manufacturing sector of $50,000 in 1980 prices (paras. 36 and 38), including that under the SMI component of the TSKB loan (Loan No. 1748-TU) provided in 1979. Technical Assistance for SMI 58. To help resolve complex technical, management and marketing problems encountered by potential sub-borrowers, SYKB has agreed to establish a Tech- nical Assistance Fund to finance the costs of technical assistance for its sub-borrowers in general, and especially for labor-intensive SMI enterprises financed under the Project. The Fund will provide grant assistance of 80 percent of technical assistance costs, but not exceeding 2 percent of the Sub-loan amount. It will be financed out of SYKB's gross spread, by an annual charge of one-half percent on the outstanding Sub-loan amounts. The Fund is expected to receive $200,000 per annum, when the loan is fully disbursed. However, to set the scheme in motion, SYKB will make an initial contribution to the Fund of $25,000 by July 1, 1981, and $25,000 by January 1, 1982 on an interest free basis, to be recovered as income accrues to the Fund. The Fund will finance the following activities: (i) Turkish consultant services to sub-borrowers in technical, management and marketing matters relating to project preparation, implementation and operation; (ii) training staff of enterprises financed in specific areas relating to their operations; (iii) training SYKB's staff; and (iv) financing special sttdies related to SYKB's objectives and operations through Turkish consultants. At least two-thirds of the amount in the Fund will be utilized for technical assistance to SYKB's sub-borrowers (Project Agreement, Section 2.12(c)). Sub-borrowers will be responsible for selecting consultants. However, to assist - 19 - sub-borrowers to identify and obtain needed assistance, SYKB will prepare and periodically update a roster of qualified consultants, classified by specialization. It will assign a sufficient number of qualified and experienced staff to supervise its technical assistance activities (Project Agreement, Section 2.13). The technical assistance provided through the Fund will complement the technical assistance to be provided by the Government through its own institutional framework. To monitor the effectiveness of the technical assistance program, SYKB will evaluate the operations of each beneficiary enterprise six months after the implementation of such assistance (para. 62) (Project Agreement, Section 2.15). Cooperation with Commercial Banks 59. SYKB does not have a branch network. This has not been necessary in the past, as large clients approached SYKB on their own. However, to reach potential SMI sub-borrowers, particularly SSI sub-borrowers, in smaller urban centers, it will utilize the services of the branches of certain commercial banks. These commercial banks will primarily act as agents of SYKB, and identify, screen and channel potential borrowers to SYKB, besides assisting in loan administration. However, SYKB will appraise, approve and supervise all sub-projects and take the credit risk. The working arrangements with the commercial banks, defining the scope of their assistance to SYKB, and the fees to be paid to them (a one time commission of 1.5 percent of the sub-loan), have been formalized in a protocol satisfactory to the Bank. The conclusion of such a protocol either with Is Bank, the largest commercial bank in Turkey, or with any two of the other commercial banks, is a condition of loan effec- tiveness (Project Agreement, Section 2.14 and Loan Agreement, Section 5.01(b)). In addition, SYKB has also agreed to give priority to labor-intensive sub-projects in twenty-three urban centers by providing appro- priate technical assistance to potential sub-borrowers and equity capital if needed (Project Agreement, Section 2.06 and Schedule). Relending Terms 60. The proposed loan will be made to the Government. The Government will onlend an estimated $20 million in foreign exchange to SYKB to finance sub-loans other than to small scale enterprises (SSI), for imported equipment at 9.6 percent per annum. SYKB will onlend with a spread of 5.5 percent per annum plus taxes and charges with the foreign exchange risk assumed by the sub-borrowers. The remaining estimated $20 million will be relent in Turkish Liras, to finance all SSI sub-loans for both imported and locally produced equipment and those portions of other sub-loans to be used for financing domestically manufactured equipment. For this part of the Bank loan, the interest rate for sub-borrowers will be the prevailing interest rate in the domestic market for similar loans (para. 46). The rate charged to SYKB will be the sub-borrowers' rate, less taxes, charges and a gross spread of 5.5 percent per annum, with the Government taking the foreign exchange risk. The maturity of the Government's loan to SYKB will be based on the aggregate composite amortization schedule of SYKB's individual sub-loans. The execution of a satisfactory Subsidiary Loan Agreement between the Government and SYKB is a condition of loan effectiveness (Loan Agreement, Section 5.01 (a)). - 20 - Other Loan Features 61. Spread: SYKB will receive a gross spread of 5.5 percent on its sub-loans, inclusive of fees and commissions. Since SYKB will contribute half a percent per annum from its spread and commission to the Technical Assistance Fund, and will also pay a one-time fee of 1.5 percent to commercial banks, its net spread will be slightly below 5 percent. This is considered reasonable, considering the administrative and other costs of lending to SMI. 62. Supervision, Monitoring and Evaluation; SYKB supervises its sub-projects through regular visits but does not prepare standardized super- vision reports; however special problems are recorded. Also, borrowers are not required to submit periodic operational reports to SYKB. To strengthen its supervision system, SYKB has agreed to develop a more formal systematic project supervision program. This program will include a comprehensive evaluation of the operations of each enterprise receiving a technical assistance grant (para. 58). It will submit details of such a supervision program by July 1, 1981 for Bank approval and implement the same promptly thereafter (Project Agreement, Section 2.15(a)). Further, to thoroughly evaluate the cooperative arrangement with the commercial banks and the tech- nical assitance program being tried out for the first time, and to obtain insights for improving the design of future Bank projects in this area, SYKB will carry out a comprehensive study not later than June 30, 1983, under terms of reference satisfactory to the Bank, on the following aspects; (i) the functioning of the cooperative arrangement with the commercial banks for promoting and financing SMI projects; (ii) the impact of the technical assistance program on the efficiency of beneficiary enterprises and the appropriateness of the overall design of this program; and (iii) any other major aspect affecting project execution (Project Agreement, Section 2.15(b)). 63. Free Limit: The free limit for sub-loans will be $750,000, the same as that agreed with SYKB under the Textile Project (Loan Agreement, Section 2.02(b)). However, to ensure sound project appraisal, SYKB will submit for the Bank's approval the first five SSI sub-loans and the first five loans to other borrowers, irrespective of the free limit (Project Agreement Section 2.02(c)). To monitor sub-projects below the free limit, SYKB will also furnish for the Bank's ex-post review 10 percent of its appraisal reports for SSI sub-projects and 25 percent of other sub-projects below the free limit, selected by the Bank from the list of SYKB's sub-loan approvals (Project Agreement, Section 2.02(e)). Economic Rate of Return (ERR) 64. SYKB will compute the economic rate of return in accordance with a methodology satisfactory to the Bank for all sub-projects it finances, whose total aggregate cost exceeds $750,000 equivalent, and ensure that it will normally be 15 percent or more (Project Agreement, Sections 2.02(b) and 2.10). The final date for sub-project submission by SYKB to the Bank will be December 31, 1983 (Project Agreement, Section 2.02(f)). - 21 - Disbursement and Procurement 65. The proposed loan would be disbursed at 100 percent of foreign expenditures for imported machinery and equipment and at 40 percent of local expenditures for domestically produced equipment, representing the imputed foreign exchange content of such locally produced machinery. The latter percentage has been determined on the basis of a review of a representative sample of domestically produced machinery and equipment to be financed by SYKB in typical sub-projects. Sub-borrowers will be required to obtain at least three bids from suppliers in different countries for imported equipment, and to undertake adequate domestic shopping for purchase of locally manufactured equipment, in accordance with SYKB's procurement procedures, which are considered satisfactory. The loan is expected to be fully committed by June 30, 1984 and fully disbursed by December 31, 1985. Project Benefits and Risks 66. The project is expected to support the creation of about 5,000 industrial jobs in 23 urban centers with high unemployment levels, at an average cost per job of about $12,000, i.e. one-fourth of that currently prevailing in that sector. Further, by fostering the growth of labor inten- sive enterprises in sub-sectors where Turkey has considerable export poten- tial, the project would assist the Government's efforts to promote exports and to restructure the industrial sector. The technical assistance component would help strengthen the development of domestic consulting firms and contri- bute towards the improvement of Turkish industrial efficiency. While the project's contribution in actually relieving the growing urban unemployment problem in the country is modest, the project is a pilot operation that focuses exclusively on alleviating this problem and is expected to provide a possible model for future replication. In addition, it will provide a focus for the Bank's dialogue with the Government on an overall strategy and policy framework for fostering the development of labor intensive industry. The SMI sector report prepared in the context of project preparation provides the general background for this dialogue. As the project will be evaluated after about two years (para. 62), it will provide valuable insights for improving the design of future Bank projects with similar objectives in Turkey. 67. In the short term, the economic problems which Turkey faces, could affect the demand for funds from industrial enterprises and delay disburse- ments. Without a branch network, and as SYKB is only beginning to lend to SSI, its success in lending to SSI, particularly in the secondary urban centers, depends on the smooth functioning of the proposed collaboration with commercial banks. In addition, the proposed technical assistance scheme to help SMI is new and its efficacy remains to be established in practice. However, since SYKB, an established institution with a good record, is committed to the project's objectives and has agreed to take special initiatives in these areas, these risks are acceptable. - 22 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 68. The draft Loan Agreement between the Republic of Turkey and the Bank, the draft Project Agreement between SYKB and the Bank, and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles are being distributed to the Executive Directors separately. 69. Special conditions of loan effectiveness are: (i) the execution of a Subsidiary Loan Agreement between the Republic of Turkey and SYKB (Loan Agreement, Section 5.01(a)) and (ii) the execution of a protocol satisfactory to the Bank between SYKB and the commercial banks for assisting SYKB in identifying potential SSI and SMI sub-borrowers (Loan Agreement, Section 5.01(b)). Other features of special interest are reflected in paragraphs 57 to 64 of this Report and listed in Section III of Annex III. 70. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATIONS 71. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments February 11, 1981 Washington, D.C. -23 - ANNEX I Page 1 of 6 Page I TABLE 3A TURKEY - SOCIAL INDICATORS DATA SHEET TURKEY REFERENCE GROUPS (WEIGHTED AVE4AGES LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE TOTAL 780.6 MOST RECENT MIDDLE ISCOHE INDUSTRIALffED AGRICULTURAL 553.8 1960 /b 1970 /b ESTIATE /b EUROPE COUNTRIES GNP PER CAPITA (US$) 290.0 520.0 1200.0 2381.1 8104.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 245.0 479.0 798.0 1641.4 7021.1 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (MILLIONS) 27.5 35.3 43.1 UkRBAN POPULATION (PERCENT OF TOTAL) 29.7 38.4 45.6 53.9 76.0 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 65.0 STATIONARY POPULATION (hILLIONS) 100.0 YEAR STATIONARY POPULATION IS REACHED 2075 POPULATION DENSITY PER SQ. KM. 35.0 45.0 55.0 77.2 142.8 PER SQ. AO. AGRICULTURAL LAND 51.0 64.0 78.0 129.5 523.3 POPULATION AGE STRUCTMRE (PERCENT) 0-14 YRS. 41.3 41.7 39.1 30.6 23.5 15-64 YRS;. 55.2 54.0 56.4 61.1 65.1 65 YRS. AND ABOVE 3.5 4.3 4.5 8.2 11.4 POPULATION GROWTH RATE (PERCENT) TOTAL 2.8 2.5 2.5 1.6 0.7 URBAN 5.1/c 5.1 4.8 3.3 1.3 CRUDE BIRTH RATE (PER THOUSAND) 44.0 38.0 32.0 22.8 13.8 CRUDE DEATH RATE (PER THOUSAND) 17.0 12.0 10.0 8.9 9.1 GROSS REPRODUCTION RATE 2.9 2.6 2.1 1.5 0.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 65.6 66.6 USERS (PERCENT OF MARRIED WOMEN) 5.3 8.2 38.0 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 96.0 100.0 110.0 113.1 110.8 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 110.0 110.0 115.0 125.3 131.6 PROTEINS (GRAMS PER DAY) 81.0 80.0 82.0 91.0 98.0 OF WHICH ANIMAL AND PULSE 24.0 26.0 24.0 39.6 62.1 CHILD (AGES 1-4) MORTALITY RATE 24.0 16.0 10.0 4.3 0.8 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 51.0 57.0 61.0 67.8 73.5 INFANT MORTALITY RATE (PER THOUSAND) 187.0/c 153.0/d 118.0 55.9 13.2 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 52.0 75.0 URBAN .. 51.0 70.0 RURAL .. 53.0 80.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. URBAN .. .. 19.5. RURAL .. .. POPULATION PER PHYSICIAN 3000.01 2250.0 1772.0 1030.1 624.8 POPULATION PER NURSING PERSON .. 1880.0 1403.0 929.4 218.9 POPULATION PER HOSPITAL BED TOTAL 590.0/e 490.0 506.0 289.7 121.2 URBAN 190.0 200.0 RURAL .. 5890.0 ADhISSIONS PEk HOSPITAL BED .. 20.0 20.0 17.0 17.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.7 5.9 URBAN .. .. RURAL .. .. AVERAGE N1UMBER OF PERSONS PER ROOM TOTAL .. 2.2 URBAN 2.0 1.9 RURAL .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 29.0 40.0 57.0 URBAR .. .. RURAL 2.0 18.0 ANNEX I - 24 - Page 2 of 6 Pane 2 TABLE 3A TURKEY - SOCIAL INDICATORS DATA SHEET TURXEY REFERNCE GROUPs (WEIGHETD AV ZAOs - TNST RECENT ESTIMATE2 A MOST RUCENT MIDDLE INCOKE INDUSTRIALIZED 1960 fb 1970 fb ESTIMUAT /b EUROPE COUmNIES EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 75.0 109.0 98.0 105.9 100.1 MALE 90.0 124.0 106.0 109.3 102.2 FEMALE 58.0 94.0 90.0 103.0 102.3 SECONDARY: TOTAL 14.0 28.0 43.0 64.0 87.1 MALE 20.0 39.0 59.0 71.1 84.4 FEIALE 8.0 16.0 27.0 56.9 84.3 VOCATIONAL ENROL. (S OF SECONDARY) 18.0 14.0 15.0 28.8 19.0 PUPIL-TEACHER RATIO PRIXARY 46.0 38.0 34.0 29.4 21.3 SECONDARY 19.0 28.0 27.0 26.1 16.4 ADULT LITERACY RATE (PERCENT) 38.0 55.5/f 60.0 .. 98.9 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 2.0 4.0 11.5 84.6 339.9 RADIO RECEIVERS PER THOUSAND POPULATION 49.0 89.0 103.0 192.2 932.9 TV RECEIVERS PER THOUSAND POPULATION .. 1.8 43.0 118.5 354.8 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 51.0 *- *- 93.0 327.4 CINEMA ANNUAL ATTENDANCE PER CAPITA 1.1 6.7 .. 5.7 3.3 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 13782.1 15829.6 18858.8 FEMALE (PERCENT) 40.2 37.2 36.0 30.4 36.1 AGRICULTURE (PERCENT) 78.5 67.7 60.0 37.0 7.6 INDUSTRY (PERCENT) 10.5 12.1 14.0 29.3 38.8 PARTICIPATION RATE (PERCENT) TOTAL 50.1 44.3 42.8 40.9 44.6 MALE 58.7 54.9 53.2 55.9 58.1 FEhALE 41.2 33.4 32.1 26.2 31.7 ECONOMIC DEPENDENCY RATIO 0.9 1.0 1.0 1.0 0.8 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 33.Oft 32.8 .. HIGHEST 20 PERCENT OF HOUSENOLDS 61.O/z 60.6/ .. LOWEST 20 PERCENT OF HOUSEhOLDS 4.2ft 2.9h . LOWEST 40 PERCENT OF HOUSENOLDS 10. 6f 9.4/h POVERTY TARGET GROUPS EsT7nATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 342.0 RURAL .. .. 270.0 ESTIMATED RELATIVE POVERTY INCCME LEVEL (USS PER CAPITA) URRAN .. .. RURAL .. .. 220.0 385.8 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. RURAL .. .. hot available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic macna. Coverage of countries ong the indicators depends on availability of data and is not uniform. Jb Uuiea otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1978. /c 1955-60; Id 1967; le 1962; /f Six years and over; ft 1963, fL 1968. April, 1980 - 25 -M~~~~ANEX I - ~~~~~~Page 3 of 6 OEtPIItfOlPSf OP SOCIAL INDIICATORS ut.:. tihog tht data are draw trot sources gootr-lly judged the most *uthbottativ . d -tiablo, it should alto be noted tht they may tot be intr- tatttuli cmpral beas,o .helc of ttaodarTignd deltitauio aud t-ucpte used by differen coutries in -ollecting the date. The data at.,on- thslet,usfultodecio rder of i.giud,tdiceto teds, etC oharsotoolon orntoi -aJ.r differecoe between coun.trie.. Thertreo .oup are .1I the seccoygopu the suhjeotbll coutry sa (2)a otoY group with som -ha bigerh reag incom thao the c-ur group ofth stjcootr~ otet o "aptl urlo il topoter"goP whrr "ldln I-om booth Africa sod Middle .ta"is ch.s'- b.ca... of soos el-rluuofinicre-) . Ic tOo oerotur g. roup data the --orago to poPelatiro weigthcd arithmetic meat too nath inditctt and ht-e onlywena iruat htl I the cototie it a groop hat det f-o that itdicaro. Sinor tho. covrag r:f otuers eg etc indiat.ro depode "I the .vI'll,"lito of dote -ifi.tt -tO o, _toiuo too brcootad to relating -veags of oa ir~diutor to arohe.- Thes. soags r oh sfu t cpaiog toe -atue of ton iodicu...o ats.tite omou __ ooy end rofeoscogrops LAND hOlA (thoussod sq.k..) tutultion pot kortaztaul d octto irtas by numor t p- rctgpy ool-Totu1 turfacr trot ouptIog o aooa eat itland wacor. ctac uat Pr o amd-oa acuo a cattoroccy ito. Aartcultu-1 - intimate of arrlua rco used temporar ily or pera- tly P lco 0 uso P.Erse -Pptaiocdoded tnuber of praciticia too crops, posture., tarkta od kitobon gardeen or to lio f ullo; 1977 data, mal aot tenal graauate nut ts potita1 nurses sa d ..asiatant nurea. Pnouotit oo Oocial td -totl. rha. a rural - Pnpolation fotol.l MP ~Ptt CuPTIu(US$) - MGNPercoc ecae at c.piront mk prima. cal- ob.enouu)dvedytsirapci tob-r of boepitol beds c .lco Tb .....on .ritc method ac hand ktokAtlas (1976-78 butts); 1960, avilobl in Pohito and peitoat eteral and speota.ltod htett an or 1970,ad 197 deco. hshilit.taioennar. ge-pitsla son eatbiishmeta permnetlylstaffed by at lomot ear pbysicia. iEnablihf.ets providing potnoipally owetdial ENERGY CONt09PTIlON Ptt CAPITA -.doA-- cootuPti-t of.t..roaenrgy (00.1 taco so eat inclodd. Rera1 hospItals, boaTe, include tItb ad medical and Iigco por Ia. aue tan and hdro-, nuclear and wobenl elac- tencoos not peeaetcy staffed by e hyftici but by a medical assistant. gotty t, Icores f ol eqia tpor caPita; 96. 19t,md 1978tos.mdi,ec)whbafr npion condioadprida data, ~~~~~~~~~~~~~~limited rageof meital farilittem. For atatisnic purpreas ocher hopi- POPL'LATION AND VITAL STATISTICS ~~~~~tale iJ.ud WHO.a principal general ac. pculod -. hospitals, and -Iea T.t.1 P.p.l.-... Kid- (.illi ... A. f J.1y;boepi tolo .or. or rural. hnpitalo and mediral od _raToior tonteo. loalPouatot KdYea alit)-A fJl ;1960, 1970, and 1978 Admtiulona oa Mtoyitol ted - Tota uthor cf adi.iosto to or diecharget doto. 'i p' tal 1 1 b,t .. opltd from honpitala diidod by the eumbe ni beds. doffeoantdo ir.otioto f'orb_ ...aretmaaffetcprbil.ity of deta HOUSING etog outre;1961. 1970, and 1978 dato. i. heae e of tonuol ... uo h0 ouoldld-toal ueb,,, and rura- Pooclotiot Prulerolons A hounhold -ot-ie- I..f a grop tf indiridaewh str Miigqater Porlatot o oer201 -Curentpoplutot pojottot ae bse or198 ed chor main meal. A boarder or lodger may or my te ho includedi total ppulattot ty ago and sea and their ortality ard f-ottltty rot- ohs house.hold for atscieticut pot1 s trojectiocpeaetr for- . mtly rasro cemprite of chroc levels --ec dvrrsge nuberofocrn peuom-ed rben and rura -heaam toc11 eopcttc atbithit imto with -outor t pr cpita i-cm tar of po-onprrn.I 1 ro.an ua ouidtnatta 1evol. and f-1al life enpactc scahbiliting at 77.1 yas -tPrs ollna rnentmy Onlmg nldo.eae-pemotn tatuotsd eatore f or fertility oete a1ec hove tiree lo-r eneJtg dtide to. umoocpted parts fethility according to i.ore 10-1 and psac fatily pleating psoformasce .. Actees no tiecrot (rat of dwnIllto -. total. urhe, and rurlI teh outry is thee senigmod oeo thos rita oomhsi-onn of merosicy C-nvetionel dwtllg with ele..triotty in 1iolog qoatet.T at p-e..etags sod f-otility tr-ds f- or prjtcr pu_pse. ..f total, rbat, end rural dwelltgo -spsctttoy. Siotionary occulatt- - in a tttaypupulatit thorn is no growh sinor the birth raco is equal cc the dastb, rato, and olo the age ntruur EDCAIO mlta co..scaut. OTta to ochee-d orby atta fertility recen decin to Adlunted 1 inoin gattoa tho roplacsmet lav..lIof omit ne eprocfotiot rate. then ant BTeatc Piay athci_ tet... mal an, d fatoy - Gross toal 1ml ead femalo of_omo ropl.... iteolt esatly. Tho a.tatonry ptpulatcn teensa nrolmet of ci ogee at rhe Priar level as prentosee tf esepsoti- satinutod go the haste of the proJeccadchroestit- of theppaato primar scol-g pa ie_om; _armlp Imoludes thlldo... aged 6-il it the yea r 200C, and the 0000 of d-cline of fortiltsy rte. to olee peers beta- a fr. diffreat I.sgtha of primary edu..stian; for lootetatotry potalacion is rahed - Th. year ha stationary pepoletict darn some puilsco o or shoest th ofica athoo l ao. tier han best reac.hed. hoodar schoo - tol atedfml opted as ab-t sacodery Poculatict le..ait, oducti.. requi-o ec Iseet four years tf aPpov-d poimos ttstoootitn; Per Qt. Mn. id-your ppoltiut pet square hilemter (10 b ftre) povidno genera. ottatienal, or neaoec -rtinginsrecos opupim totl ata-usull 12 to 17 p-nonfOae crnpendeace cor saT. generall Per so h. a-gricoltural Iaod - Computtd us ahb-t agrcinuallad anouded only, cocatiomal enrollmen~~~~~~~1 t foercet of noodery) - Vo-titonl insthotuiata Poyulanio hoe Strctuos I P.rtrt) - Children (h-lu yosre), uohiog-ags 115 icuetttol ootil oote ogaawihoeaeidpt h4 y.tarn( and recirod (65 years andsola p_or trgee of mid-year popt- dently or es do. omt.o..oodr tas-totenf late;lh, 90 ad179Sdana,po1-tea..her rai. -e. mr. sod sned er - tota scdene enrolled to Puultig bot ae eoet - to-o - Annual groth aroa. of teed mid- primary and ..e..ndary -tls 'dttdad bynubrs of stotht ig the rt.r p.p-.flcties for 195D-hi, 1960-70, at 19 C- 7t. ceronspending leo.la, ruoulat iot ro~tho Rata (percet) - urbot - Ata-e1 growh rates of urb-n popo- Adult.1itnoocy ra,f( .tsir c)u-tlItrt ado1e fabie ot cad med write) latottce too 190--hI, 1060-7_. and 19711-76P. a pr naeo tgna adultP pplatien aged 15 years and ever. Cruir Siocr Pr (perthocod)- hcul lire birtho per thousnd of cid-ve- ,popiict 1961.1 19t71,_end 19 78 dat. ..CONSoerTION Crude ltchbt (per thousad) - Annual1 deaths peo chuoo..nd of tld-yte.eseer Cero (-s cheumad pgelatioct) - Passenge oars comprise nto- popalation; 1960, 1970, and 10 78 dot. tare seating less char igho porsona; asoldes =ulanos, haarsae end Gotocnrcu Ri - Ot-Atncago uobto of d-ogbtoraasa will bear it iltrrotoa hoo normal prpodoctie pariod it ehr eaperiante prset asseicf or- tdic. ieeosef= e heeaIrrlair - oil types gf rtiv.r. fo,r odt nityeas;teay Simya -aeaa ding in 1960, 1917, ad 1977. brosetogmrlghioprhuanefgpaim; eodeml- Pamuly Pln_gohomtg asna ftbosnd)- Admnl tat of .... PtOOt beosd osteivtor- it, otbtiso ad tnyas hnr..tatp frel e ofbithcotrl ovce ads ospon e ntt-o fatly planing pt.gm. ecinffatdtafor rosonyears may eat he cma-blo st... meet fa ,l Plnioisera(coc of meritwumo - Porconoage of macnd oatrsanshdioeig oftr tchild-touring oge (15-44 ynare) wh. us birth-contro dtr..e to . ho_voe(nrchoad pcodatien - Tr reoivre for bro.A.oat to all marrio wome - t sat agegroup. ge..noo poblic pot thoneant population; eoldte udlicensed TV o.omivera FCOD AND NMITIOE ~~~~~~~~~~~~~~ic ..toe ioe an in years when registration of TV eca nine in offeot. IOl lAd 0Tt0 (Aewo997110nsoor fpr.pi. - Ciclait or thoussod oP.olattot) - Shows tht strgelroul - pvdcto ct all fort tomediira.. Produoti-oaolede see..d and feed and liatiso devoted primooily to rocarding gemraltawa It is cmoidered to go calandor. ya.r hania. Codtiet cvrprimary goods (t.g. sacae n o'al'i tapasa es u ia eh insteod tI agao) which are edible aod -otaio nutritnn (e.g. off.ee and Ct. ba Agdgely itfdno act e iner - hsde h ubro teaar eolded). -Aggregate rdoeno o onr sbsdO ciohets e.Id during the pe... in.idang admisiona to driv-to cinom outint verge rodcerprie ittbt; 961-hI, 1971, end 1978B dec.. Pet dait Juol .I.clre (Por.ro o rcur-tet) - lemputed from ad mobile orion enorgy sqooaIeu cf net food copplion available it conetry per .. pita LABOR FORCE Per dey. ha-tlablo nepplt- ottprue domosic Pood.totto, impnrtn lean Tona Lnte Porc (thousan.do)-cooiol ative person., including enpoota, end ctages ic or.Nesupplion enclodo animl feed, seda. armd feroes end uneployed btc eatuding hocatites,etdn. ote. quanities tand Jc foot pre.....ing, nod stt ditiuin eur- q.etD initce.. in cart. geeontries eon net temparabl; 1960, 1970 end motto were ati.ated to Phi beend ocptysiclogio- tod. tor earnlat,,- 1978 data. viy and houi thocntoc1 eiome talcepeosouro, body ueigtner Female tett)- PF-al lahr f-or sa p-rcetage of out1 laborfoe s_d ... dittibtio fppuacr at allowing ii poocstt forw- t at hricolture )percaac) - isbcr force in amn, foretry buting ant t"ushold "lecl; 1961-61. 1971 Ir 1 deofhgaspttag oftotalbo ter;1980. 1707 and 1978 dat. et supplY of -ct per ooy. Net supply of food to defited at a .R- an... electPricity, aster an ooeprcnae gf Prta. labor force; 1960. qoiratoco for all c-otrira estblishod by 010A pr-pido for etc,ttt 1970 sd 1978 data.- - allou",toec hi gon of total prt-ic Per day end 10 gSa of at.imn t ariltia aelorec ctnl. malt, and femal P- aticipattn gor pulse ptoto, of which 10 grat hbuld be a-i-aIpcet.Th..e.tead- t_ R idol Podtuur; 96-h, 97 ad 97 Pt1 9hd, l97C, aet 1911 dana. These are Ill's pacticipotion rnten tefl-cti 111~~~~~ -d 1977 matersfrm angtleuret otrd fometiainac puseeitgoas pr sy;19h-h, 1P1 d 970dno - troeni ooanenr. thotc 0,Itio of dI- peoait umfor ad. 81 ad ever age group i-u -T.r, cc childono it th. age group; ftor ect developingrot trien dats derived from lift tablau; 1960, 1970 aod 1977 dtct. CIIcEr _IuTimioTrloN Preteof Privte m (btht c.ah and ktnd)- byeie yrichect lie t.poot-o at Birth(vat -,A--rg tattoo rf ynarn of life rmeieimt IPtront othet 210 Perosa t, pearest 20 percent, and pcr--et F A ..pr.et at irt; 161,190 and 1976 dac. gf'tc "rtaity hots re thoosart - Auc-ua d.tche of cogfatt order one ystr POVERTY TARGET iRoo'i of ago t,11pe tbtean lpce ticho Etotmatd Absolute Potr-r inooms Leo 05cocct) ra n ua coott aeutrIocn fprlto)- total. arbec, end ruro1 - Abngle povoty tL.--e level it that toom leve hotowhche unma Numercipecle(ttu, nro,sd rural)wtcesublo eea to safe ngcriciemallyadoqute dm0t plus essential o-f rod r-qtirnts is eat eater s.upply finoludes orec-d a-farste'rn tro untreated 'bu''t urrtnete. d afodbe fucicdr: tnpatlcoo otar tha 20 meer from e.. Ins may tt- pereenl inciMoef tho ioroty Orbac ivo Je derived from the rura Ptoto' 00000 tocdy iccoucr tcoota t -cou (ce'e20(ccuiccr-octp ur-.h.yat acti P i, pcu nr ccidorh c plyorc oct u......i-ao, r rIh foccctcrheohtdtrc. o . b.lt.tocic caoi ood Prjetto ipotet tunerh, toureca d ar dog pto-ca ... hy wacrt-hrc th.r ory ciftuser .tboil 1990. f_r por rt ... dourularr.t fatttdollotcctt -~t -r' - 26 - TUkKEY - 6C7N6MIC IMVELUPHENT DATA SHEET - ANNEX I Page 4 of 6 Share oi A I t a I Peovlslonal -. P R O J E C T E D Growth .ates -Lo 1970 1973 1975 1977 1978 1979 1980 1982 1983 1985 1990 70-78 79-85 B5-90 1978 A. NATIONAL ACCOUNTS (TL Bi11tn. 1978 Price.) 1. Gra.. daetla prodoet 720.3 876.1 1034.2 1234.5 1272.7 1269.2 1288.2 1386.6 1D9.0 1582.3 1971.9 7.4 3.8 4.5 100.0 2. Gate from t- ne af tead. -6.0 3.8 .0.2 -10.1 2.0 -20.0 .15.9 -20.3 -21.7 -24.0 -41.7 - - - 0.0 3. Groo d-o_ti t nte 714.3 e79.9 .034.0 1224.4 1272.7 1249.2 1272.3 1366.3 1427.3 1558.3 1930.1 7.5 3.8 4.4 100.0 4. Etport. (U * N17) 42.7 66.3 50.8 62.0 74.0 71.2 77.0 92.1 188.4 119.2 183.5 7.1 8.9 8.9 5.8 5. I.port. (G No52 60.0 93.9 140.4 167.4 113.8 112.0 117.3 127.6 132.2 141.2 172.3 8.9 3.9 4.1 9.2 6. I'ooe't.o 130.0 158.1 245.0 273.2 243.4 263.7 263.7 280.2 294.8 326.2 420.3 8.4 3.5 5.2 19.5 7. Conoaaption 590.4 723.7 846.5 1036.8 1075.9 1053.5 1064.9 1142.0 1186.1 1278.1 1540.4 7.8 3.3 3.8 84.5 8. lomeoetcanltnga 129.9 152.4 185.7 197.7 196.8 212.8 207.5 224.4 241.2 280.2 389.8 5.3 4.7 6.8 15.5 9. Netiooal ooelr..ga 143.3 191.3 214.Z 213.0 212.7 236.0 216.2 237.5 260.8 304.0 423.6 5.1 4.3 6.9 16.7 8. SU101t1 OUTIUT Shoae of total (out (Peroes- ) 1. Agrteoltare 29.6 27.9 29.5 28.1 27.0 23.4 26.7 26.2 25.9 29.0 24.2 2. Dehtry 27.2 26.5 26.1 26.1 27.7 30.0 27.4 27.8 28.2 25.4 31.0 3. Other 43.2 45.6 44.4 45.8 45.4 46.6 45.9 46.0 45.9 45.6 44.8 C. PRIC8E (1978 . 100) 1. Loport prIce. 43.7 63.8 84.0 95.6 103.0 155.6 119.8 144.0 156.6 185.5 254.7 2. Import pIee.. 47.7 61.8 84.2 96.0 10).0 125.6 151.1 184.8 200.0 232.4 329.8 3. T.. of teed. 91.6 103.2 99.7 99.6 100.0 84.1 79.3 77.9 78.4 79.8 77.2 4. GDP defltor S/ 0.2 33.7 50.2 73.4 1C0.0 160.0 320.0 922.0 1198.0 2025.0 5039.0 5. Aooe.geeo-h.o.g rate (51.00 . TL) 11.0 14.2 14.4 18.0 24.3 36.4 D. PUBLIC FINANCE * Percent of GDP 1. C-eteol govere.eeeeveneo 22.6 20.9 23.1 24.2 24.2 23.8 2. Conteal goe..oote eop-odlt-re 24.9 22.0 23.7 27.9 28.5 25.9 3. PobIle aector deflell 3/ - 2.1 6.1 9.0 3.7 6.2 1970-78 1970 1975 1977 1978 e. SELECT4D INDICATORIS F. "AbUR FRCE ICOR 3.0 CiUoliao labo- force (milli-o) 13.6 15.8 16.0 16.4 Impost leo1ticoty 2.4 I/ leerplcpsrt a .d ede.ee.ployeeee CT) 11.0 12.3 13.1 13.5 Avecago do-oti sas-ig rate 16.9 Ciltac essployeroe (1.lDloe 13.1 14.7 14.7 14.8 -largl-al doestIL ovIn rate 13.6 of eioch (; Iee.a-m t/CDP 20.2 lopoeta/GDP 11.4 Acrltoltare 67.1 64.5 61.9 61.3 Indoot.y 13.3 14.9 16.3 16.6 other 19.6 20.6 21.8 22.2 Tottl.. -y mt add op bee- of rounding erpro. / Peejattod rots, of inft3tie are highly apoaloitive ood mabjoot to hange. - dorroving r-qaBr.mt of o etral geoes.et, Btat." otbe-i Letepe and other p.Ulc .Athieitioa 6/Poe 1970-77 parted. Oetebee 1980 S12DA - 27 - TURkEY - BALANCE OF PAYKENTS ANNEX I (Million IS Dollar) Page 5 of 6 Actual Provisional Proiected 1970 1973 1975 1977 1978 1979 1980 1981 1982 1983 1984 1985 1990 A. SUMIIAY Of BoLANCE OF PAYHENTS 1. topocce of good. and NFI 754 1799 2152 2556 3108 3257 3800 4500 5462 6473 7680 9114 19254 2 Imports of goode aod NFS -1096 -2391 -5219 -6436 -5059 -5699 -7300 -8400 -9714 -10877 -12162 -13524 -23405 3. _esooce balance - 342 - 592 -3067 -3880 -1953 -2442 -3500 -3900 -4252 - 4404 - 4482 - t41o - 4151 4. 1-c-nnt (net) 1/ -- 47 - 59 - 124 - 570 - 680 -930 _1350 -1670 -1500 - 1619 - 1749 - 1924 - 2309 5. frolis - 33 - 35 - 36 - 116 -60 -50 - - - 103 - 108 - 114 - 120 - }50 6. Workoe' renlttannee 273 1183 1312 982 983 1694 1800 2D00 2400 3000 3400 3800 5800 7. ht factor sIcolce lna.. 193 1089 1152 366 243 714 450 330 797 1273 1537 1756 3341 8. T.an.fene 91 18 23 12 - - - - 9 C Corrent a _tonl balance.- 58 515 -1892 -3512 -1710 -1728 -3050 -3570 -3475 - 3131 - 2945 - 2653 - 810 10. Private foreign capital 9Z 77 251 169 147 209 175 200 220 244 273 299 500 11. Poblic medium 4 lang-tern (H<)(gnoee) 21 271 376 386 502 530 1434 2175 3540 3135 3540 3826 4233 4423 12 Anortieation of poblic MaLT 11 2/ - 146 - 72 - 117 - 214 -360 -365 -1240 -1400 -1474 - 2176 - 2692 - 2897 -3729 13. Publin M< (Net) 125 304 269 298 150 1869 935 s 214 1661 1364 1134 1336 694 14. Sh14c-con (net) 2/ 66 -235 1159 1807 1097 582 839 220 - 172 s79 &94 -58 15. Copital not incladed elIe-her- 4i - 39 67 - 204 742 464 -206 1060 1018 2168 1827 1832 1286 16. Chanen F -reseces (- = inrna. e)- 186 - 728 417 566 148 7 30 - - 402 -181 -200 -212 -384 B. 4.LT LOAN COMMITMENTS 5/ 506 547 755 1205 1407 1896 Poblic Sector 487 491 649 1105 1307 1796 1. Benk groop 40 135 158 144 358 306 2. Othoc -ILtilatne-l 1172 100 40 6 54 123 3. G-onecrnnte: mace teconoen 1154 718 197 282 288 805 4. _oorontn: contrally planned econonie 114 3 3 150 204 35 5. Soppliner 47 4 79 260 123 1527 6. FiPnnc il in-tit-iaon - 32 172 263 281 3 7. Othec - -r Pri-atnaector 19 56 106 100 100 100 C. A4ERACE TERIMS O M1LT LOAN CUOtIEf1NTS 51 1. Grant eleent 1/) 37.4 39.2 15.6 11.4 14.2 14.7 2 I. Ince M% 3.6 4.7 7.2 7.6 7.2 7.0 3. d accty (year.) 18 8 25 7 13.5- 11.6 10.0 11 9 4. Grace (year) 4.6 7.1 3.8 4 2 331 3.0 .U Dues et include 1980 debt relIef eikeh e in-l.add under "napital -nt elnehbee inesded". The fture. .e. ltse.t relief 1980 9329 illin., 1981 $259 *illtan 1982 5173 illine and 1983 5142 M11ime; and poinl.pl elisif 1980 5733 .1111.., 1981 5518 .1111.. 1982 3387 illion nd 1983 $386 dllion. 2/ Up tn nd inleuding 1978 these figae -e gomeenet estiat., Ahn are eat Cnin.E.tt tIth Beek D01S det. 3/ Mainly -o-veetible Taekieh lre depeit .e. e. nePt-e ne-dite, e-ent r d a il n aeme.ee be.nkereW e-editn, esarb.,eet oredite, -veedr-fts, ede-r Sk a.she depeLt-, and IMF. 4J Ins dIng creams and esLeeiloe up tn 1979; foe poJaeoled yan. it Inalads. g-pfill, priLsts MILT b-rmnege an a net beet. nd tetal debt relief ($1062 .111mim in 1980, 5777 sllian ia 1984, 560 millIon in 19e2, nd 5528 Illie. in 1983). 5 P Pablin nd pablioly guarteed et-e 1al debt .el,. Oct118r 1980 gh21DA - 28 - TUIIY - EXTERNAL L;EBT AND CRXDITWIORTNINESS ANNEX I Pgeo 6 of 6 Actual Provisional 1970 1973 1975 1976 1977 1978 1979 A. OUTSTANDING DEBT (Million US Dollars) 1. Public Medium and Long Term (M and LT)(Disburned) i/ 1854 2669 3176 3519 4326 6100 10452 2. Private H and LT (disbursed) 1/ 42 115 160 253 479 557 650 3. Shore Term 2/ 279 1398 3441 6600 7469 4823 4. Total Outstanding Disbursed Debt 1896 3263 4734 7313 11405 14126 15925 5. Undisbursed Public M and LT 1/ 840 1101 1641 2393 2804 3500 3775 B. DEBT SERVICE (Million US Dollars) 1. Interest on all Debt (net of relief) i/ -47 -59 -150 -300 -570 -710 -930 2. Amortization of M and LT Debt (net of relief) -146 -72 -117 -119 -214 -380 -365 3. Total Debt Service Payments -193 -131 -267 -419 -784 -1090 .1295 C. DEBT BURDEN 1. Debt Service Ratio 4/ 18.8 4.4 7.7 11.2 22.2 26.7 26.2 2. Total Outstanding Disbursed Debt/GDP 5/ 15.0 15.7 13.1 17.9 23.9 28.3 26.5 D. EXPOSURE 1. Bank Group DOD/Total Outstanding Disbursed Debt 7.2 7.8 9.1 7.6 6.1 6.0 8.0 2. Bank Group Debt Service/Total Debt Service 3.2 14.9 12.2 10.8 8.3 7.7 8.8 E. COMPOSITIDN OF TOTAL OUTSTANDING DISBURSED DEBT 1979/ (Million US Dollars) (AMount) (AS % of Total) 1. Medium & Long-Term Debt 11 69 a. Public Medium and Long-Term 10452 65.6 (i) Bank Group 1080 6.8 (ii) Other Multilateral 639 4.0 (iii) Governments 4692 29.5 (iv) Suppliers 352 2.2 (v) Financial Institutions 3654 22.9 (vi) Bonds 35 0.2 b. Private Medium and Long-Term (Total) 650 4.1 2. Short Term 4823 30.3 (i) Convertible Turkish Lira Deposits 642 4.0 (ii) Suppliers' Credits/Commercial and Oil Arrears 1516 9.5 (iii) Acceptance Credits 634 4.0 (iv) Bankers Credits, Reimbursement Credits,Overdrafts 244 1.5 (v) Dresdner Bank 344 2.2 (vi) IMF 623 3.9 (vii) Oil Credits 408 2.6 (viii) Other 412 2.6 3. Total Outstanding Disbursed Debt 15925 100.0 1/ Bank DRS data. 2/ Based on Turkish Central Bank estimates. 3/ Based on Turkish Balance of Payments data, except for 1979. 4/ Total debt service (line B3) divided by exports of goods and non-factor services plus workers' remittances. 5/ At market prices. 6/ Bank DRS data, Turkish Central Bank and Treasury estimates. Oetober 1980 EMENA CPIIA - 29 - ANNEX II Page 1 of 10 STATUS OF BANK GROUP OPERATIONS IN TURKEY ST!hTEMENT OF BANK LOANS AND IDA CREDITS (As of December 31, 1980) Loan and Credit Number Year Borrower Purpose Bank IDA Undisbursed Twenty-three loans and fourteen credits fully disbursed 614.5 177.4 748-TU 1971 Republic of Turkey Education 13.5 0.7 844-TU 1972 Republic of Turkey Istanbul Water Supply 37.0 9.2 883-TU 1973 Republic of Turkey Ceyhan Aslantas 44.0 18.7 893-TU 1973 Turkish State Railway Railway Project 46.7 1.6 957-TU 1974 Republic of Turkey Antalya Forestry 40.0 0.2 1023-TU 1974 TEK/TKI Elbistan Power 148.0 51.4 1024-TU 1974 DYB Industry 40.0 0.6 1130-TU 1975 Republic of Turkey Rural Development 75.0 41.8 1248-TU 1976 Agriculture Bank of Turkey (TCZB) Agriculture Credit 54.3 31.2 1258-TU 1976 State Pulp and Paper Industry (SEKA) Newsprint 70.0 10.0 1265-TU 1976 Republic of Turkey Livestock III 21.5 11.6 1194-TU 1976 TEK Power Transmission II 56.0 11.5 1310-TU 1976 Republic of Turkey Tourism 26.0 22.5 1379-TU 1977 DYB Industry 70.0 26.2 1430-TU 1977 TSKB Industry 74.0 11.6 1585-TU 1978 Republic of Turkey Northern Forestry 86.0 67.5 1586-TU 1978 Republic of Turkey Livestock IV 24.0 22.3 1606-TU 1978 Republic of Turkey Erdemir Steel Stage II 95.0 85.5 1741-TU 1979 Republic of Turkey Ports Rehabilitation 75.0 75.0 1742-TU 1979 Republic of Turkey Grain Storage 85.0 85.0 1748-TU 1979 TSKB Industry 60.0 56.5 1754-TU 1979 TSKB Private Sector Textiles 65.0 64.1 1755-TU 1979 SYKB Private Sector Textiles 15.0 15.0 S-15-TU 1979 Republic of Turkey Ankara Air Pollution Control 6.0 5.7 1818-TU 1980 Republic of Turkey Structural Adjustment 200.0 29.1 /c 1844-TU 1980 Republic of Turkey Karakaya Hydropower 120.0 120.0 1847-TU 1980 Republic of Turkey Sumerbank Cotton Textiles /a 83.0 83.0 1862-TU 1980 Republic of Turkey Livestock V 51.0 51.0 1915-TU 1980 Republic of Turkey Structural Adjustment Supplement /a 75.0 75.0 1916-TU 1980 Republic of Turkey Petroleum Exploration /a 25.0 25.0 1917-TU 1980 Republic of Turkey Oil Recovery /a 62.0 62.0 Total 2557.5 177.4 1170.5 of which has been repaid 228.5 6.4 Total now outstanding 2329.0 171.0 Amount sold 3.6 of which has been repaid 3.6 - 0 - - 0 - Total now held by Bank and IDA /b 2329.0 171.0 Total undisbursed 1170.5 0 1170.5 /a Not yet effective. /b Prior to exchange adjustments. /c $9 million undisbursed as of February 9, 1981 - 30 - ANNEX II Page 2 of 10 STATUS OF BANK GROUP OPERATIONS IN TURKEY STATEMENT OF IFC INVESTMENTS (As of December 31, 1980) Fiscal Amount in US$ Million Year Obligor Type of Business Loan Equity Total 1964 TSKB DFC - 0.92 0.92 1966 SIFAS I Nylon Yarn 0.90 0.47 1.37 1967 TSKB II DFC - 0.34 0.34 1969 TSKB III DFC - 0.41 0.41 1969 SIFAS II Nylon Yarn 1.50 0.43 1.93 1970 Viking I Pulp and Paper 2.50 0.62 3.12 1970 ACS Glass 10.00 1.58 11.58 1971 NASAS Aluminum 7.00 1.37 8.37 1971 SIFAS III Nylon Yarn 0.75 - 0.75 1971 Viking II Pulp and Paper - 0.05 0.05 1972 SIFAS IV Nylon Yarn - 0.52 0.52 1972 TSKB IV DFC - 0.43 0.43 1973 TSKB V DFC 10.00 - 10.00 1973 Akdeniz Tourism 0.33 0.27 0.60 1974 Borusan Steel Pipes 3.60 0.43 4.03 1974 AKSA Textiles 10.00 - 10.00 1975 Kartaltepe Textiles 1.30 - 1.30 1975 Sasa Nylon Yarn 15.00 - 15.00 1975 Aslan Cement 10.60 - 10.60 1975 DOKTAS Steel 7.50 1.37 8.87 1975 TSKB DFC 25.00 1.23 26.23 1976 NASAS Aluminum 1.58 - 1.58 1976 TSKB DFC 25.00 - 25.00 1976 Asil Celik Steel 12.00 2.20 14.20 1977 Borusan Steel Pipes - 0.06 0.06 1978 DOKTAS Steel - 0.09 0.09 1979 Ege Mosan Engines for Mopeds 2.15 - 2.15 1979 ISAS Motor Vehicles & Accessories 8.62 0.68 9.30 1979 Asil Celik Steel - 1.80 1.80 1979 Trakya Cam Glass 33.17 2.25 35.42 1980 TSKB DFC - 1.09 1.09 1980 ISAS Motor Vehicles & Accessories - 0.95 0.95 1980 MENSA Testile and Fibers 4.00 - 4.00 Total Gross Commitments 192.50 19.56 212.06 Less Cancellations, Terminations, Exchange Adjustments, Repayments and Sales 117.30 3.49 120.79 Total Commitments now held by IFC 75.20 16.07 91.27 Total Undisbursed 1.28 0.23 1.51 - 31 - ANNEX II Page 3 of 10 C. PROJECTS IN EXECUTION 1/ Ln. No. 748 Education Project; US$13.5 million loan of June 9, 1971. Effec- tive Date: September 29, 1971. Closing Date: March 31, 1981. The project was substantially delayed due mainly to initial diffi- culties in providing the project unit with adequate qualified staff and authority commensurate with its responsibilities. Implementation is completed for most items, although completion of some training institutions, including the Management Training Institute, has been delayed by contract disputes. Alternative steps to formally establish the Management Training Institute are likely to be needed. Training of teachers for technician schools, adult training centers and practical trade schools has made considerable progress. Sixty-seven local advisory committees for vocational and technical education have been established, one in each province. Ln. No. 844 Istanbul Water Supply Project: US$37 million loan of June 30, 1972. Effective Date: January 4, 1973. Closing Date: June 30, 1981. Project construction was delayed about 2-1/2 years due mainly to problems in the use of ICB procurement procedures and inefficient management. However, construction moved swiftly in 1977 and the two major water resources development programs were completed in early 1979. Substantial improvements to the distribution system required, to enable full utilization to be made of the new water sources are under implementation. Tariff increases have been implemented recently, and a reorganization of the management, accounting and financial systems is under consideration. Ln. and Cr. Nos. 883/360, Ceyhan Aslantas Multipurpose Project: US$44 million loan and US$30 million credit of March 22, 1973. Effective Date: March 20, 1974. Closing Date: December 31, 1981. Following delays due to difficult rock conditions and inappropriate tunnelling methods, two diversion tunnels have been completed, about two years behind appraisal estimate. The upstream coffer dam has also been completed. Progress in 1980 was in general satisfactory. The pace of construction of the power-house was lower than forecast, but is not expected to delay completion. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. - 32 - ANNEX II Page 4 of 10 The construction of the irrigation system is progressing, with the system now ready to transport irrigation water to about 40,000 ha, one third of the target. On-farm works are progressing steadily, with about 50 percent completed. Tile drainage is being delayed until the main drains are located. Staffing of the extension service is satisfactory except as regards consul- tants; the Government is taking steps to hire the latter. Ln. No. 893 Turkish State Railways; US$47 million loan of May 25, 1973. Effective Date; August 28, 1973. Closing Date; June 30, 1981. After initial delays, physical progress, including track renewals, rolling stock, and locomotive production, the latter financed by the European Investment Bank, is satisfactory. Over 95 percent of the loan has been disbursed and procurement action has been completed for use of the remaining loan funds. Despite several tariff increases since the loan was made, the Railways have continue to fall short of the financial targets in the revised Plan of Action agreed with the Bank in mid-1975. However, it is hoped that further increases in passenger fares and freight tariffs averaging 70 to 170 percent, which became effective in January 1980, will improve the Railways' financial situation. While the dieselization program is making satisfactory progress, other measures to improve operational efficiency, such as appropriate manpower planning, have not been given sufficient attention. Ln. No. 957 Antalya/Akdeniz Forest Utilization Project: US$40 million loan of January 28, 1974. Effective Date: May 26, 1976. Closing Date: June 30, 1982. Construction is substantially completed. Most of the main ancillary process equipment is in place, but construction is hindered by material shortages. The project is expected to be completed by January 1982 and production commence in mid-year, two and a half years behind the revised schedule. Sufficient foreign currency is available to complete the project. Local currency payments for the Akdeniz establishment are now being made. Substantial price increases in 1980 should enable the company to meet most of the local currency requirements. Ln. No. 1023 Elbistan Lignite Mine and Power Project: US$148 million loan of June 28, 1974. Effective Date; June 1, 1976. Closing Date: July 30, 1982. Project implementation had been delayed by critical problems, including insufficient staff, inefficient management, inadequate coordination among various agencies and unsatisfactory performance of civil contractors. Following continuous Bank and co-lender reviews of the situation with the Turkish authorities from early 1977, the remedial measures initiated by Turkey resulted in some improvement of project execution, until mid-1979. However, continuing and serious shortage of local funds has affected project progress, which has been aggravated by staff and management deficiencies. The Govern- ment's expected timely provision of adequate local funds for this high - 33 - ANNEX II Page 5 of 10 priority project from the Structural Adjustment Loan CounLerpart Funds is likely to help resume momentum in future. The colenders and the Government agreed in November 1980 on a detailed program of action to overcome remaining implementation problems; this program is now being implemented. Ln. No. 1024 DYB (State Investment Bank of Turkey): US$40 million loan of June 28, 1974. Effective Date: September 30, 1974. Closing Date; March 31, 1981. The loan was fully committed in February 1977, with eleven sub- projects approved by the Bank. Project implementation is satisfactory and disbursements are nearly complete. Ln. No. 1130 Corum-Cankiri Rural Development: US$75 million loan of June 23, 1975. Effective Date; January 22, 1976. Closing Date; December 31, 1981. The project is in general progressing satisfactorily though because of disruptions in construction it is probable that the irrigation works will be completed only by end 1983. Corum dam has been completed as also the works to divert run-off from 5 nearby watersheds. Kumbaba pumping station is ready, and irrigation has started. Alaca dam is expected to be completed by end 1981. Damage to the Alaca diversion tunnel, because of rock slides, has been regained and the tunnel lining is almost finished. Contracts for the irri- gation systems of the Guldercek and Alaca areas have been awarded and work is in progress. The project extension service is operating successfully and its impact on agriculture is promising. The Government has replaced one of the two vacant consultant posts. Further construction of village centers is being delayed until agreement is reached on satisfactory plan for using and maintaining existing centers and plans for additional centers are revised. Ln. No. 1194 Second TEK Power Transmission Project: US$56 million loan of June 14, 1976. Effective Date: April, 21, 1978. Closing Date: December 31, 1981. Procurement action is complete, somewhat behind schedule, and almost the entire loan is committed. Some deliveries have also been delayed because of foreign exchange shortages. Improvements are expected to continue in over- all project implementation and the rate of disbursement. Ln. No. 1248 Agricultural Credit and Agroindustries: US$54.2 million loan of May 5, 1976. Effective Date; May 11, 1977. Closing Date; September 30, 1981. The ferryship component has been implemented, and the two roll-on and roll-off ships purchased under this project and the Fruit and Vegetable Export project are now operating a regularly scheduled service between ports in - 34 - ANNEX II Page 6 of 10 Turkey and two ports in Italy. The of agro-industries component is delayed, mainly due to investors' reluctance to assume the foreign exchange risk. Government is reviewing possible measures to overcome this problem. The Agricultural Bank (TCZB) has introduced improved lending procedures for its ongoing supervised credit program, and this component is being implemented satisfactorily. After considerable delay, consultants have begun the study of TCZB's structure and procedures. At the Borrower's request, a cattle-fattening component of the Project, and US$7.7 million of the original Loan amount of $63 million allocated for this purpose, were cancelled on May 5, 1977. Also, as provided for in the Loan Agreement, $1.04 million for training was cancelled on December 22, 1977, following approval of UNDP funds for this purpose. Ln. No. 1258 Balikesir Newsprint; US$70 million loan of May 21, 1976. Effective Date: October 15, 1976. Closing Date: December 31, 1981. The project is nearing physical completion. The sawmill has begun operations, although wood supply and marketing problems now must be resolved. Recent price increases have helped to correct the local currency shortage situation and the project is expected to start production in early 1981, 2 years behind the appraisal schedule. Trial production runs have already begun. Ln. No. 1265 Livestock III: US$21.5 million loan of May 26, 1976. Effective Date; February 25, 1977. Closing Date: March 31, 1982. After a slower than anticipated start-up, project implementation improved but has recently deteriorated due to resource constraints affecting field staff travel. This has adversely affected the preparation of farm development plans. Though project area offices have been established, they are not fully staffed. Government has taken some measures, and reviewing others to correct the situation. A higher than expected proportion of sub-loans has been made to small farmers. Ln. No. 1310 South Antalya Tourism Infrastructure; US$26 million loan of July 9, 1976. Effective Date: March 1, 1978. Closing Date: December 31, 1982. Implementation of most project components is underway, with progress being made in preparation of specifications and project design work, although the pace of overall project implementation is somewhat slower than expected due to staffing constraints and difficulties in ensuring adequate inter-ministerial and inter-agency coordination. However, measures to strengthen the Project Unit and its consultants, the Tourism Bank, are being taken. - 35 - ANNEX II Page 7 of 10 Ln. No. 1379 DYB (State Investment Bank of Turkey): US$70 million loan of March 23, 1977. Effective Date: July 21, 1977. Closing Date: March 31, 1982. The loan is expected to be fully committed in the next few months. DYB still has severe staff constraints, which it has in part overcome by recruitment of additional junior staff. It hopes improved contract terms will enable it to fill more senior positions as needed. Ln. No. 1430 TSKB XII (Industrial Development Bank of Turkey): US$74.0 million loan of June 3, 1977. Effective Date: August 29, 1977. Closing Date; December 31, 1981. Progress is satisfactory and the loan has been fully committed. TSKB has essentially reached its agreed targets for allocation of its resources to projects in less developed regions and export-oriented industries. It has so far been unable to raise resources in international capital markets as expected because of Turkey's economic difficulties, but the interest of several financing sources is anticipated once conditions permit renewed efforts. Ln. No. 1585 Northern Forestry: US$86.0 million loan of June 5, 1978. Effective Date: October 30, 1978. Closing Date: March 31, 1986. Industrial wood production for 1979 was close to forecasts but there were significant shortfalls in some other targets, principally as a result of Government budget cuts. Continuing local resource constraints have adversely affected all targets during 1980, causing delays in preparation of forest management plans over about 22 percent of the project area and timely payment by SEEs' for timber delivery. Foreign procurement is effectively up to date but local state enterprises have been unable to supply much of the locally produced equipment (principally vehicles to replace existing stocks). Consideration is being given to procuring them internationally. Ln. No. 1586 Livestock IV: US$24.0 million loan of June 5, 1978. Effective Date: October 31, 1978. Closing Date: June 30, 1985. The supervised credit program for farm development has not yet been initiated, mainly because of difficulties being encountered in recruiting veterinarians and agronomists to serve in eastern Turkey and by resource constraints adversely affecting field staff travel. Government has taken some actions and is reviewing other measures to overcome them. The milk industry study has been satisfactorily completed. International recruitment of technical specialists, considerably delayed, is underway. - 36 - ANNEX II Page 8 of 10 Ln. No. 1606 Erdemir Stage II Steel: US$95.0 million loan of June 30, 1978. Effective Date: July 30, 1979. Closing Date: June 30, 1983. Procurement for the phenol treatment plant, the raw material handling system and the hot rolled shear line are completed. Product selling prices have been substantially increased in January 1981. Production from existing facilities has been severely restricted from time to time because of the lack of raw materials due to the limited availability of foreign exchange. Ln. No. 1741 Ports Rehabilitation: US$75 million of July 2, 1979. Effective Date: January 22, 1980. Closing Date: June 30, 1983. The project coordinating committee is in place and functioning effectively. Procurement is making good progress. UNDP has appointed a project manager to implement the project related training programs. The port sector planning studies have been delayed by lack of staff, but steps are being taken to correct this. Ln. No. 1742 Grain Storage; US$85 million of July 2, 1979. Effective Date; January 21, 1980. Closing Date: June 30, 1985. Project implementation has begun. Proposals from prequalified consultants for engineering design and supervision of construction are under evaluation. Ln. No. 1748 TSKB XIII (Industrial Development Bank of Turkey): US$60 million of July 12, 1979. Effective Date: October 25, 1979. Closing Date; December 31, 1982. After initial delays, the progress is now satisfactory with over 75 percent of the loan committed. TSKB and ITC finalized in November the technical assistance program for training, and export development is under implementation. Lns. Nos. 1754 TSKB (US$65 million) and 1755 SYKB (US$15 million) Private Sector Textiles loans of September 17, 1979. Effective Date: February 29, 1980. Closing Date: December 31, 1984. Consultants have prepared the preliminary program for local training. The additional consultants for technical services and for the extension services are in place. Revised Action Plans are being prepared. Approval of sub-projects has begun, and about 25 percent of the loan has been committed. - 37 - ANNEX II Page 9 of 10 Ln. No. S-15 Ankara Air Pollution Engineering: US$6 million loan of December 12, 1979. Effective Date; April 4, 1980. Closing Date; December 31, 1983. Consultants being selected for project studies. Ln. No. 1818 Structural Adjustment Loan; US$200 million loan of March 26, 1980. Effective Date: April 1, 1980. Closing Date: September 30, 1981. The loan is fully committed and disbursements were $188 million as of January 30, 1981. Progress has been satisfactory, and the second tranche was released on July 30, 1980 and the final one on October 23, 1980. Ln. No. 1844 Karakaya Hydropower: US$120 million loan of May 21, 1980. Effective Date; August 15, 1980. Closing Date: December 31, 1988. Project implementation is making progress. Ln. No. 1847 Sumerbank Textiles Modernization and Rationalization; US$83 million of May 28, 1980. Effective Date: February 27, 1981. Closing Date: June 30, 1984. The loan is not yet effective. Project implementation has begun. Arrangements for consultants are nearly finalized and procurement procedures have commenced. Ln. No. 1862 Livestock V; US$51 million of June 6, 1980. Effective Date: October 22, 1980. Closing Date: June 30, 1987. Project implementation has begun. Consultants are being selected. Ln. No. 1915 Structural Adjustment Loan Supplement: US$75 million of November 24, 1980. Effective Date: February 25, 1981. Closing Date: August 31, 1981. The loan is not yet effective. Ln. No. 1916 Petroleum Exploration Project: US$25 million of November 24, 1980. Effective Date: March 24, 1981. Closing Date: December 31, 1984. The loan is not yet effective. - 38 - ANNEX II Page 10 of 10 Ln. No. 1917 Bati Raman Enhanced Oil Recovery Field Demonstration Project; US$62 million of November 24, 1980. Effective Date; March 24, 1981 Closing Date; December 31, 1984. The loan is not yet effective. - 39 - ANNEX III Page 1 of 2 TURKEY LABOR INTENSIVE INDUSTRY PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable of Key Events (a) Project Identification: December 1978 (b) Time taken by the Borrower and 18 months (December 1978 to SYKB to prepare Project: June 1980) (c) Agency which prepared Project: Government and SYKB assisted by Bank (d) First presentation to Bank: April 1980 (e) Appraisal June/July 1980 (f) Negotiations: January 1981 (g) Planned date of Effectiveness; June 1981 Section II: Special Bank Implementation Actions None Section III: Special Conditions (a) Conditions of Effectiveness; (i) Execution of a Subsidiary Loan Agreement between the Republic of Turkey and SYKB on terms and conditions satisfactory to the Bank (para. 60); (ii) Execution of a protocol between SYKB and Is Bank or between SYKB and any two other commercial banks formalizing the arrangements governing their assistance to SYKB in identifying eligible sub-projects in urban centers (para. 59). (b) Other Conditions; (i) Only sub-projects with an investment cost per job of not more than $15,000 will be eligible for financing (para. 57); (ii) One-third of the proposed Bank loan will be allocated to financing SSI sub-borrowers (para. 57); - 40 - ANNEX III Page 2 of 2 (iii) Government will assume the foreign exchange risk for all SSI sub-loans and for other TL sub-loans related to financing the imputed foreign exchange cost of domestically produced equipment (para. 60); (iv) SYKB will establish a fund for financing technical assistance to its clients and expenditures on other purposes agreed with the Bank, to be funded by a charge of 0.5 percent from its gross spread (para. 58); (v) SYKB will make special efforts to promote and finance sub-projects in priority urban centers (para. 59); (vi) SYKB will submit to the Bank for its approval the first five SSI sub-loans and first five other sub-loans, irrespective of its size. It will thereafter submit for the Bank's ex-post review 10 percent of its SSI sub-loans and 25 percent of its other sub-loans below the free limit selected by the Bank from SYKB's list of approvals (para. 63); (vii) SYKB will compute the economic rate of return for all sub-projects exceeding US$750,000 investment it finances and ensure that the economic return for these sub-projects is normally at least 15 percent (para. 64); (viii) SYKB will undertake a comprehensive evaluation of the implementation of the project, under terms of reference approved by the Bank, two years after loan effectiveness which would include an evaluation of the technical assistance program, the functioning of the cooperative arrangement with the commercial banks and any other important matter relating to project execution (para. 62). 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Группа Всемирного банка · Memorandum & Recommendation of the President
Turkey - Labor Intensive Industry Project
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Memorandum & Recommendation of the President
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