Turkey - Second Highway Project

Document of 7 The World Bank FOR OFFICIAL USE ONLY Report No. P-3761-TU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMEI TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US4186.4 MILLION TO THE REPUBLIC OF TURKEY FOR A SECOND HIGHWAY PROJECT May 16, 1984 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents ma, not otherwise be disclosed without World Bank authorization.  TURKEY CURRENCY EQUIVALENTS Currency Unit Jan. 1980 1/ Jan. 1981 Jan. 1982 Jan. 1983 Jan. 1984 US Dollar TL 70.00 TL 91.00 TL 139.60 TL 191.15 TL 309.20 TL 1 US$ 0.014 US$ 0.011 US$ 0.007 US$ 0.005 US$ 0.003 l/ Since January 1980, the rate is being adjusted for the differential inflation between Turkey and its major trading partners. TL320/$1 (the end March 1984 exchange rate) was used in Parts III and IV of the report. FISCAL YEAR Republic of Turkey March 1 to February 28 (through 1981) March 1 to December 31 (1982) January 1 to December 31 (from 1983) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ERR = Economic Rate of Return FY = Financial Year FYR First Year Return GDP = Gross Domestic Product IIDM Highway Design Model ICB = International Competitive Bidding KGM = General Directorate of Highways LCB = Local Competitive Bidding NTMP = National Transport Master Plan p.a. = per annum pass/km passenger kilometers PCR = Project Completion Report pcu = passenger car units PT = Project Team SPO = State Planning Organization ton/km = ton kilometers TSM = Transport Sector Memorandum YSE = Roads, Water and Electricity Directorate in Ministry of Agriculture  FOR OFFICIAL USE ONLY TURKEY SECOND HIGHWAY PROJECT Loan and Project Summary Borrower: Republic of Turkey Amount: US$186.4 million (including capitalized front-end fee) Terms: Seventeen years including four years of grace, with standard variable interest rate Project Objectives and Description: The proposed project would consist of components selected from 1985-88 investment program of the General Directorate of Highways (KGM). The loan would provide financing for: (a) highway civil viorks; (b) procurement of equipment for investment and maintenance works; and (c) consultancy services and training. The project is designed to assist KGM in the following areas: (i) project planning, preparation and implementation; (ii) development of a modern and more balanced equipment fleet for its investment and maintenance works; (iii) pavements research and management; and (iv) staff training and highway safety. Benefits and Risks: The project would lead to savings in transport and highway maintenance costs and would promote highway safety. Savings would accrue especially on quick benefit yielding routes, which also generate foreign exchange earnings because of transit and export traffic. There are no unusual technical risks. The principal risk is that a need to reduce budgetary outlays could reduce funds available for financing the project. The annual review of budget adequacy would give the Bank an early opportunity to assess this financing risk which, though it might affect the KGM's investment program as a whole, would not necessarily affect the Bank-financed project. There is also a risk that transport demand might be below projected levels particularly in the case of transit traffic. However, risk analysis indicates that the subprojects expected to be financed by the Bank would remain economic, even if transport demands were substantially below cturrent expectations. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii~ - US$ million equivalent Estimated Project Costs: Local Foreign Total Rehabilitation: Pavement 24.3 45.1 69.4 Minor Earthworks 6.8 6.6 13.4 Investment Work Equipment 1.3 23.5 24.8 Maintenance Work Equipment 5.1 93.8 98.9 Consultancy Services - 2.3 2.3 Training - 0.6 0.6 Total Base Costs /1 37.5 171.9 209.4 Physical Contingencies 1.6 2.6 4.2 Price Contingencies 7.0 11.4 18.4 Total Project Cost 46.1 185.9 232.0 Front End Fee - .5 .5 Total Financing Required 46.1 186.4 232.5 Financing Plan; US$ million equivalent Local Foreign Total Government 46.1 - 46.1 Proposed Bank Loan - 186.4 186.4 Total 46.1 186.4 232.5 Est:imated Disbursements: US$ million Bank FY 1985 1986 1987 1988 1989 1990 1991 Annual 18.0 36.0 38.0 41.0 33.0 16.0 4.4 Cumulative 18.0 54.0 92.0 133.0 166.0 182.0 186.4 Estimated Economic 70 percent /2 Rate of Return; Staff Appraisal Report: Reporit No. 4978-TU, dated 14ay 16, 1984. Maps: No. 17912 and No. 17913 /1 KGM is exempt from custom duties and sales taxes on equipment purchases. /2 Refers to first-year civil works subprojects.  INTERNATIONAL BANK 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 SECOND HIGHWAY PROJECT 1. I submit the following reporl: and recommendation on a proposed loan to the Republic of Turkey for the equivalent of US$186.4 million to help finance selected components of the 1985-88 investment program of the General Directorate of Highways (KGM). The loan would have a term of 17 years including four years of grace, with interest at the prevailing rate. PART I - THE ECONOMY 2. An economic mission visited Turkey in June 1982, and its report entitled "Turkey-. Country Economic Memorandum, Recent Economic Developments and Medium-Term Prospects" (No. 4287-TU) was distributed to the Executive Directors in June 1983. The report, in addition to analyzing Turkey's medium-term prospects and overall creditworthiness, presents a synthesis of earlier special economic reports on aspects of Turkey's adjustment process. The report of the mission to review the financial system, entitled: "Turkey: Special Economic Report - Policies for the Financial Sector" (No. 4459-TU), was distributed in September 1983. An economic mission visited Turkey in January 1984 to review the economic developments of 1983, the 1984 Annual Program and selected structural adjustment issues. The findings of this mission are reflected in this section. 3. Turkey is about as large as France and Germany combined, with a population of around 46 million and an estimated GNP per capita of $1370 in 1982. The density of population is low (78 per square kilometer of agricultural land), and about 45 percent live in urban centers. Population growth (2.2 percent per annum) is below the median for middle-income countries. Despite rapid economic growth in the mid-1970s as well as substantial emigration of workers (to Western Europe and more recently, to the Middle East), the employment situation has deteriorated steadily with an unemployment rate currently estimated at about 18 percent. There is, however, little or no absolute poverty, although income distribution is skewed. There are considerable regional differences in income and large rural-urban disparities. Recent data indicate a probable worsening in income distribution, especially of wage and salary earners, and a sharp real decline in average earnings. Educational enrollments have expanded greatly but the level of adult literacy remains relatively low.  -2 Background 4. During the 1970s Turkey did not make the necessary adjustments to the shocks caused by the steep rise in oil prices, stagflation in the OECD economies, and the consequent deterioration in the terms of external trade. Until 1977 Turkey maintained high rates of economic growth by raising the share of investment in GDP. This was financed initially by workers' remittances and, following the quadrupling of oil prices, increasingly by short-term borrowing. The rapid GNP growth came to an abrupt halt in 1977 as the massive external debt burden led to a sharp deterioration in creditworthiness, severe shortages of imports, and disruptions in industrial production with a rise in unemployment. By the end of 1979, domestic inflation had also become an issue of critical importance. 5. The Turkish authorities' response to the crisis of the late 1970s was a major shift in development strategy in 1980, moving towards outward orientation and giving an increased role to market forces. Policies were adopted to expand exports and increase workers' remittances which, together with liberalization of imports, encouragement of foreign investment and prudent external debt management, were aimed at alleviating the balance of payments constraint and import shortages. On the domestic front, the objectives were a reduction in the inflation rate, reform of the State Economic Enterprises (SEEs), a more efficient financial sector, improved resource mobilization and better selection of investments, especially in the public sector. 6. The adjustment program, which has been supported by the Bank through four structural adjustment loans so far, involves far-reaching changes in attitudes, institutions, and the legal and policy framework, all of which take time and are difficult to put in place. In view of the severity of the crisis in 1979, and the urgent need to bring down inflation and stabilize the balance of payments as quickly as possible, the Government accepted the need for a temporary sacrifice of growth and social objectives. Major structural changes were made in the operation of the exchange rate regime, the tax system, interest rate policy, export strategy, the SEE sector and public investment policy. 7. The implementation of the program was carried out under a military regime which assumed power in September ;!980 following a period of sustained unrest. Subsequently a Consultative Assembly was set up to draft a new constitution, which was overwhelmingly endorsed in a nationwide referendum in November 1982. New election and party laws were then promulgated, and parliamentary elections completed in November 1983. A new Government assumed office in December 1983. The Structural Adjustment Process -- 1980-83 8. The Turkish economy has shown an impressive response to the structural adjustment program and actual performance met or exceeded the Government's own targets through 1982. By contrast, results in 1983 proved to  - 3 - be mixed, due in part to adverse economic developments on the external front, slippages in the monetary program, and Government inertia in the face of upcoming elections. 9. Real GNP, after falling for two consecutive years, expanded by 4.2 percent in 1981 and 4.6 percent in 1982. Growth was mainly export-led, with less than one-quarter of the grDwth in 1982 due to domestic demand. Demand for consumption increased by 3 percent while fixed investment grew at a modest 4.1 percent (both in real terms) in 1982, and depletion of inventories helped to expand supply. Public investment grew at a slower rate than private investment, thus reversing the trend of previous years. However, unemployment continued to grow as employment opportunities did not increase fast enough to absorb the expansion of the labor force. GNP growth slowed down in 1983 to about 3.2 percent as against the target of 4.8 percent, due in large part to the effect of adverse weather conditions on agricultural production. Industrial value added is estimated to have registered a growth of 6.6 percent as against the program target of 5.5 percent. Total fixed investment increased by about 4.2 percent. As in the previous two years, private fixed investment grew faster than public fixed investment (5.7 percent versus 3.2 percent). 10. The Government has been remarkably successful in reducing the rate of inflation through a combination of fiscal, monetary and income policies, although the downward trend was reversed in 1983. After peaking at 107 percent in 1980, the annual average rate of increase in the wholesale price index declined to 37 percent in 1981, and around 25 percent in 1982, which was the program target. In 1983, it rose to 31.4 percent, as against the program target of 20 percent. The rise was fueled by an expansion of Central Bank credits to firms and commercial banks in difficulty during the second half of 1983. The resulting liquidity expansion, in conjunction with a lowering of nominal deposit interest rates, encouraged consumption at the expense of savings (consumption increased by 4.2 percent). I1. Commercial bank interest rates which were deregulated in July 1980 have increased substantially and are now markedly positive in real terms. As a result, total bank deposits increased by 72 percent in 1980 over 1979, and in 1981 this trend accelerated, with total deposits growing by 104 percent and time deposits by 263 percent. Growth in deposits slowed somewhat in 1982 and 1983. The bankruptcy in late June 1982 of a major non-bank financial institution shook depositor confidence and was followed by a shift of funds into the larger banks. The Government averted an immediate crisis in the banking sector and undertook actions to reform and strengthen the financial sector as a whole. A new banking law was enacted in June 1983. It covered many of the recommendations made by the Bank's report on the financial sector 1/. including measures to reduce the undercapitlization of banks, place limits on the real assets and investments of banks, link the establishment of branches to the level of a bank's equity, reduce the interlocking between banks and corporations, introduce a deposit insurance scheme and increase the role of the Central Bank in the supervision of the banking sector. The Government also took a major step towards reducing the cost of intermediation 1/ "Turkey; Special Economic Report - Policies for the Financial Sector" (No. 4459-TU), dated September 21, 1983.  - 4 - and strengthening the inter-bank market by reducing the level of the financial transactions tax from 15 percent to 3 percent in December 1983. Separately, the Government has reduced the level of withholding tax applicable to interest payments on deposits and bonds from 20 percent to 10 percent. 12. While positive real interest rates have provided an incentive to save, they have also meant high borrowing costs. The current real interest rate for non-preferential credits is about 30 percent, and there is considerable disparity between the cost of preferential and non-preferential credits. The high interest rates, together with the limited availability of credit, have led to considerable liquidity problems for the private business sector, particularly for businesses supplying the domestic market. In order to reduce real interest rates, measures are also needed to lower the operating costs of banks which are well above prevailing levels in comparable countries, in addition to a reduction in the inflation rate. 13. In the fiscal area the most notable feature is a marked retrenchment of the public sector. The budget deficit to GNP ratio, which stood at 4.6 percent in 1980, decreased to 1.2 percent in 1982, while SEE transfers as a percentage of GNP showed a steady decline from 4.8 percent in 1980 to 2.8 percent in 1982. The public sector accounts continued to show improvement in 1983. Although there was a shortfall in tax revenues, this was more than offset by savings in expenditure, so that the ratio of budgetary deficit to GNP further declined to about 0.5 percent. Transfers to SEEs as a percentage of GNP also registered a decline to 2.6 percent in 1983. However, total profits of SEEs at TL 52 billion were somewhat lower than expected, implying a slight increase in the ratio of the SEE financing requirement to GNP. 14. On the external account, the flexible exchange rate policy under which the Turkish lira has been adjusted daily since May 1981, together with stagnation in domestic demand and a booming Middle East market have all contributed to an unprecedented export growth in 1981 to $4.7 billion, or 63 percent higher in doLlar terms than the 1980 level. The increases were concentrated in manufactured goods (a rise of nearly 120 percent). Product groups with the largest increases included textiles, clothing, cement, iron and steel, and non-electrical equipment. Exports in 1982 reached $5.75 billion, about 22 percent above 1981, despite a significant decline in export prices, particularly for agricultural products. Manufactured exports were the major source of expansion, as exporters continued to develop markets in the Middle East. In 1983, exports grew by about 11 percent in volume but their value was slightly lower compared with 1982 at $5.7 billion, because of a sharp downward movement in export prices. 15. A new and rapidly growing source of foreign exchange is income earned from construction contracts in the Middle East and North African countries (with a gross value of around $12 billion in 1983). These activities are expected to add to the normal flow of workers' remittances, which remained strong throughout 1981 but declined in 1982 and 1983, reflecting the appreciation of the US dollar vis-a-vis European currencies as well as the impact of the recession in Western Europe. 16. The shortfall in earnings from exports and workers' remittances in 1983 was partially offset by a less-than-expected increase in the value of imports, which reached $9.0 billion as compared to the programmed level of $9.7 billion. The net result was a substantial increase in the current account deficit to $2.0 billion in 1983 (3.5 percent of GNP) as against $1.1 billion in 1982 (2.0 percent of GNP).  -5- The New Economic Program 17. The new Government announced its economic program in December 1983. The major structural measures are in line with the objectives contained in the 1980 reform program. Export growth and inflation control remain central to the new program. The measures include: (i) a reorganization of the Government's administrative machinery which, inter alia, concentrates authority over economic affairs in the Prime Minister's office; (ii) a substantial import liberalization; (iii) a rationalization of export incentives; (iv) a liberalization of the foreign exchange regime; (v) an interest rate policy designed to provide a real rate of return on savings while largely freeing lending rates set by the commercial banks; (vi) a reduction in the financial transactions tax and the withholding tax on interest payments; and (vii) a reaffirmation that with some exceptions, SEEs will be free to set their own prices.. Medium-term Prospects 18. The Government's draft Fifth Five-Year Development Plan (1985-89) is expected to be submitted to the Grand National Assembly in the Fall of 1984. The Government has announced its intention of preparing a Plan that is consistent with the aims of the continuing structural adjustment process, and has indicated its line of thinking on some of the key targets for the Plan: (i) the average annual real rate of growth of merchandise exports is projected to be in the 8-11 percent range; (ii) the Government's intention is to restore an approximate balance between public and private investment in the medium-term; given the public/private balance of about 60:40 in 1983, this implies a growth rate for private fixed investment which is tore than double that of public fixed investment over the Plan period; (iii) under the above assumptions, and with reasonable expectations regarding external capital flows, the Government's target average annual GNP growth rate for the Plan period will be about 6 percent; and (iv) the Government will not allow a situation in which the targeted growth rate of GNP will need to be supported by annual gross external capital requirements which would push the debt service ratio significantly above 25 percent.  -6- 19. The Bank's projections for the medium-term take as their starting point the Government's own targets for the key macroeconomic variables. The Bank attempted to disaggregate the Government's overall targets for the Plan and to check whether these were in line with domestic and foreign resources. The Bank's projections indicate the need for a continuation of the stabilization program well into 1986, an average annual GDP growth of 5.8 percent in 1985-89 and a manageable balanTce of payments. Two central assumptions underpin these projections, namely export sustainability and fiscal discipline. Table I below presents the Bank's projections of the key economic variables for the Fifth Plan period (1985-1989). Table 1: ThRUY - SlElCTED ECONO#IC INDICATORS, 1982-89 Average Annual 1982 1983 1984 1985 1989 Real Growth Rate Real Growth Rate Units Actual Estimate Program Projected 1982 1983 1984 1985-89 CDP 1980 TL b 4735 4892 5107 5358 6783 4.9 3.3 4.4 5.8 Consuimption 3897 4084 4186 4353 5426 6.5 4.8 2.5 5.3 Fixed Investment 908 946 994 i050 1384 3.5 4.2 5.0 6.8 Exports of Goods Current $ a 5746 5728 6800 :824 15848 37.0 11.3 18.2 9.0 I"port,; of Goods 8843 9235 9700 11050 21499 7.7 9.5 8.7 7.8 Tradte Belance -3097 -3507 -2900 -3226 -5651 Workerai' R,sittance" 2187 1550 1900 2052 2857 Current Account Balance Current * m -1131 -2001 -1019 -1088 -2552 Ratios fixed Investment/GDP X 19.2 19.3 19.5 19.6 20.4 Savings/GDP 2 17.2 16.0 17.3 17.9 18.9 Exports of Goods/GDP S 10.9 11.8 13.3 13.7 14.1 Current Account Deficit/GDP 2 -2.0 -3.5 -1.6 -1.5 -2.0 Debt Service Ratio a/ 2 18.2 27.2 23.6 24.7 22.6 Public Fixed Investment/ X 59.7 59.2 58.8 57.8 53.2 Total Fixed Investment omo I t am: Gross Capital Inflow Current * m 2792 3479 2939 3024 6593 a/ Total Debt Service including Debt Relief I Exports of Goode and NFS plus Workers' Remittances. Source: State Planning Organization for actuals and IBRD Projections. 20, These projections assume that the 1984 program for export growth will be achieved, so that in the base year of the Plan merchandise exports will stand at $6.8 billion. 1/ Merchandise exports are projected to grow at an average of 9 percent per annum in real terms, i.e. slightly on the conservative side of the Government's 8-11 percent target range. Merchandise imports, on the other hand, should grow moderately in real terms through 1986 and then pick up to an average 8-9 percent in the terminal years of the Plan, to match the projected growth rate of merchandise exports. On these assumptions, the current account balance shows a decreasing deficit through 1985 as stabilization policies act to curtail import growth while encouraging exports. As higher growth rates set in during the middle of the Plan period, the trend reverses and the current account deficit rises again through the end of the Plan, The terminal year 1989 would sholw a deficit of approximately IL/ Merchandise exports during the first two months of 1984 totalled $1,142 million, representing an increase oE 29.5 percent in dollar terms over the level achieved during the corresponding period in 1983.  $2.5 billion as compared to a 1985 figure of $1.1 billion. The projected capital account would remain manageable throughout the projection period even in the face of some sharp increases in the amortization and interest payments in 1985-1986 arising from the debts rescheduled during the 1978-1982 period, and the imposed constraint on foreigni exchange reserves being equivalent to at least two months' imports. The debt service ratio would average 23.8 percent for the Plan period with a maximum o: 24.5 percent in 1986. Gross capital inflows required to support Turkey in 1985-1989, on these assumptions, would average about $4.0 billion per year, or one-third more than the amount in the base year of the Plan. This inflow is consistent with a decreasing debt service ratio from 1986 onwards. 21. The projections indicate a GDP growth of 5.8 percent per annum on average throughout the Plan period, with a low of 4.9 percent in the initial year of the Plan and a high of 6.5 percent for the final year. The achievement of these growth rates will depend on the growth of the productive sectors, namely agriculture and manufacturing. This in turn will depend to a large extent on the Government's determination to constrain the growth of the public sector in line with public resources and to create a more favorable investment climate for the private sector through its anti-inflationary policies and its restructuring efforts. 22. The scenario assumes progressive improvements in the public/private fixed investment ratio throughout the Plan period, from the initial 59.41 ratio in 1984 to a terminal year ratio of 53.47. This translates into projected real growth per annum in public fixed investment of about 4.7 percent. The comparable figure for private fixed investment is 9.6 percent, or a little more than twice the growth rate for public investment. 23. The medium-term scenario described here is of course, only one of many possibilities and is used in this report to illustrate Turkey's potential in the light of the Government's own targets. The Bank projections are consistent with the more conservative of the Government's targets and are considered realistic, given Turkey's record of structural adjustment, the favorable responses from the international financial community to the new Government's program and the present view of future resources and export market possibilities. A scenario compatible with the upper ranges of the Government's key targets would need to be supported by substantially higher export growth rates that would be more difficult to realize, given the transitional (stabilization-cum-growth) nature of the upcoming Plan. 24. There are certain risks associated with achieving the Government's targets. On the downside, with Turkey's export performance heavily dependent on exogenous factors such as the world economic outlook and movements in international prices, a slower growth of merchandise exports, say 6-7 percent over the Plan period, would lead to a more difficult (but still manageable) balance of payments situation, more external borrowing, a lower GDP growth (averaging about 4.5 percent per annum) and a higher debt service ratio (26-27 percent per annum). In such a situation the Government would have little chance of absorbing the unemployed and improving tangibly the average standard of living. However, given the Government's emphasis on export promotion and the determined efforts to counter the bias towards producing for the domestic market, the perspective set out in the medium-term scenario presented above, would represent a balanced goal.  - 8- External Debt and Creditworthiness 25. At the end of 1978, Turkey had $7.5 billion in short-term debt and $6.8 billion in medium- and long-term debt. Service payment obligations (mostly on short-term debt) were $5.1 billion (including arrears), or nearly three times the value of merchandise exports in 1977. Between 1978 and 1980, Turkey rescheduled some $9.2 billion of outstanding obligations through a series of rescheduling arrangements concluded with official and commercial creditors. Approximately $6.0 billion of short-term debt, including $2.6 billion in convertible Turkish lira deposits and bankers credits and $1.2 billion of non-guaranteed suppliers credits, were consolidated into medium-term loans or partially converted into Turkish lira obligations. Following the resolution of the debt crisis, inflows were mostly from official sources -- major creditors being the OECD countries, the World Bank and the IMF. Of the total debt outstanding of $18.6 billion at end-1982, 81 percent constituted medium- and long-term debt. Short-term debt as a percentage of total debt outstanding fell from 51 percent in 1978 to 11 percent in 1982. Based on the growth scenario outlined earlier, debt outstanding and disbursed as a percentage of GDP is projected to fall from 38 percent in 1983 to 30 percent in 1989. 26. The debt service ratio increased from about 14 percent in 1981 to 27.2 percent in 1983 as a result of a large repayment of previously rescheduled debt under the earlier OECD agreements. Debt service (interest and amortization) obligations are likely to be high over the coming years and would average about $4 billion per year in 1985-89. On the assumption that the average annual gross capital inflows during the period 1985-89 will be on the order of $4 billion, the projections beyond 1984 show a debt service ratio of 24.7 percent in 1985 and 22.6 percent in 1989. The debt burden should remain manageable provided current policies are successfully implemented, the export drive is sustained and Turkey continues to receive further support from international commercial and official sources. There are some recent encouraging signs of Turkey's ability to enter the commercial market for medium-term loans. In July 1983 the Central Bank of Turkey received a $200 million five-year syndicated loan for balance of payments needs. More recently, an agreement was signed in March 1984 with a consortium of 36 foreign banks for a $300 million six-year syndicated loan for balance of payments needs. In addition, a consortium of Swiss and German banks signed a SwF 980 million credit in March 1984 for the financing of hydraulic and electrical equipment for the Ataturk Daim. 27. Turkey continues to be in good standing with the IMF. A three-year standby arrangement in an amount equivalent to SDR 1,250 million was approved by the IMFts Board and became effective on June 18, 1980. The Government purchased the full amount authorized under the arrangement. The Government also purchased SDR 56.25 million against the one-year standby arrangement for SI)R 225 million approved by the Fund in June 1983. Upon the election of the new Government, Turkey requested cancellation of the existing standby and its replacement with a new one-year arrangement in an amount equivalent to SDR 225 million. This proposal was approved in April 1984 by the Fund's Executive Board.  - 9 - PART II - BANK GROUP OPERATIONS IN TURKEY 28. Through March 31, 1984 the Bank and IDA have lent $4,628.2 million 1/ to Turkey, through 77 projects. Agriculture accounts for 18 percent of funds lent, industry and DFCs for 28 percent, power for 16 percent, structural adjustment and program loans for 29 percent, and urban development, transportation, education, tourism and technical assistance for the remaining 9 percent. As of March 31, 1984, I]FC commitments to Turkey totalled about $240 million, of which about $74 million were still held by IFC. Annex II provides a summary statement of Bank loans, IDA credits and IFC investments as of March 31, 1984. 29. The execution of Bank-financed projects in the public sector has been slow, due in part to weak management, limited coordination amongst ministries, staffing problems, and the serious external and domestic financial crises from 1977 to 1979. There has been notable improvement since September 1980. Nevertheless, problems persist in many cases, reflecting difficulties in staffing the public sector at current salaries, over-centralized bureaucratic structures and continuing constraints on the availability of local funds. The high interest rates for working capital combined with depressed domestic demand and reluctance of investors to take the foreign exchange risk have affected the implementation of private sector projects and led to slow commitments under DFC lending. Disbursements for all sectors combined average 44 percent of appraisal estimates (excluding structural adjustment loans) as compared to 54 percent for Tunisia and 42 percent for Morocco. 30. Bank lending is aimed at supporting Turkey's medium-term objectives of restructuring the Turkish economy by placing more reliance on market forces and adopting a more outward-oriented strategy. These objectives also include increasing domestic savings and reorienting a restrained public investment program to reflect the Government's priorities of completing ongoing projects faster and emphasizing quick-yielding new investments with positive balance of payments impact. The main vehicle for the Bank's operational discussions with the Government has been the structural adjustment lending (SAL) program. Four SALs have so far been approved, and a proposal for a fifth is being processed. The success of the SAL program has highlighted the need to develop sector policy lending vehicles for continuing the policy dialogue at the sectoral level. 31. Agriculture, industry, energy and transportation will continue to be the key sectors for Bank lending with the accent being placed on improving the management of projects. In agriculture, the emphasis will be on irrigation, credit, and reform of the extension and research services. In industry (including DFCs), it will be on the promotion of exports, employment, and increasing operational efficiency. Energy projects under preparation will focus on power generation based on domestic hydro and lignite resources, as well as enhanced oil recovery and oil and gas exploration. Lending for the transport sector will focus on developing the infrastructure necessary to facilitate exports and improve the efficiency of operations. Projects for industrial training, urban development and public utilities may supplement these efforts. 1/ Net of cancellations.  - 10 - 32. The close macroeconomic and sector dialogue established with the Government in recent years is expected to be pursued. The economic and sector work undertaken recently includes studies of the agricultural and financial sectors. Topics likely to be covered in the future include a review of the next five-year development plan, including a review of major public sector projects, a study focussing on the impact of structural adjustment, a review of transport investments and studies of the engineering and agro-industries. 33. This is the fifth loan to Turkey to be presented to the Executive Directors this fiscal year. One other project is being processed, a proposed fifth SAL. 34. The Bank Group's share of the estimated total external debt was about 1L percent in 1982, and is expected to grow to about 16.0 percent by 1985; its share of total debt service payments is projected to increase from about 12 percent in 1982 to about 15 percent in 1985. 35. IFC has invested in synthetic yarns, textiles, pulp and paper, glass, aluminum, cement, iron and steel products, heavy diesel engines, motor bicycle engines, piston rings, food processing and tourism. It has also invested in the Industrial Development Bank of Turkey (TSKB) and provided guarantees for overseas contracting firms. In addition, IFC is currently providing technical assistance to the Government with respect to the development of the capital market and a regulatory framework for leasing. PART III - THE TRANSPORT SECTOR AND HIGHWAYS SUBSECTOR 36. Transport is viital for the economic, political and social development and integration of a country as large as Turkey, with populations and economic activities spread over a wide area and where people and goods often have to travel long distances over difficult terrain under severe climatic conditions. Its economic role extends beyond its direct contribution to GDP and employment through its indirect impact on such related activities as construction, manufacturing, retail trade, insurance, police and taxation. It had been one of the more dynamic sectors of the economy prior to 1978, when traffic growth rates were about 1-1/2 times the growth rate of GDP. Since that time, the growth of domestic traffic was practically halted under the impact of the increases in oil prices and the 1980 economic stabilization policies. During 1983 domestic traffic started to grow again at an annual rate of about 4 percent. 37. The transport system consists of about 61,000 km of primary and secondary highways as well as about 220,000 km of tertiary roads and tracks; about 8,000 route-km of railways; about 100 port and landing facilities, including 15 major ports, and 16 airports of which 2 handle scheduled int:ernational traffic. Road transport, which is in the hands of the private sector, dominates the industry: in 1982 it accounted for 70 percent and 90 percent of total freight and passenger traffic respectively. The corresponding share of railway freight was about 10 percent, down from 20 percent in 1976 (the peak of railway freight) and also about 10 percent for railway passenger traffic. Data on coastal shipping traffic are not very reliable, but its share in total freight transDort is estimated at about 20 percent, primarily oil products.  - 11 - 38. Turkey's transport system has generally been able to meet transport demand, although bottlenecks do occur and transport costs are often higher than they would be if modern equipment and the appropriate infrastructure were in place. At present, road transport is highly competitive and is able to handle the trade offered apart from occasional unusual peak demands. The principal problem is that the road infrastructure is below standard for current traffic and deteriorating seriously, especially on the principal transit and export routes, despite an active maintenance program. The ports have little modern container handling equipment with the result that loading and unloading operations are sometimes very slow and costly. The most serious transport problem rests with the railways where traffic is being diverted to other modes because of the poor quality of the railway services. Railway operational capacity is so low that the Railways cannot accept all traffic that is being offered. This has led to some bulk cargos being carried by trucks on relatively long distances, with consequent additional costs of road maintenance and repair. 39. For the overall transport sector, there are some basic issues in pricing, investment and in operational efficiency. For example, on pricing: (i) road user charges for heavy trucks may not appropriately reflect costs although overall road user revenues are adequate; (ii) the railways operate at a loss; and (iii) port tariffs, while providing an adequate overall level of revenues, are not related to the cost of specific activities in some areas. User charges for heavy trucks and the question of relating port tariffs more adequately to cost are being studied under on-going IBRD financed projects. Investment planning and project preparation tends to be weak in the sector. However, the State Highway Authority (KGM) has made significant advances in these areas. Operational efficiency, is especially low in the railways, leading to low productivity, poor quality and uncompetitive services. 40. The Government's plans for the development of the sector are embodied principally in the stabilization programs pursued since 1980 and, especially, in the National Transport Master Plan (NTMP) for 1983-1993, which was approved by the Government in 1983. In 1982, the most recent year for which reliable figures are available, investment in transport amounted to nearly 20 percent of total investment. This represenf:s a return to the share prior to the 1977 economic crisis. However, this recovery is largely the result of a surge in the share of private investment, which has grown significantly with the growth of international transit traffic and rising exports to the Middle East and Gulf areas. 41. The principal features of the NTMP are as follows: (i) total freight transport in ton-km is expected to grow at an average rate of 4 percent per year and total passenger-km at 4.6 percent per year, assuming an average annual growth rate of GDP of 5.5 percent; (ii) total investment in the transport sector is expected to increase from 1.66 percent of GDP in 1983 to 3.35 percent in 1993 or from 18 percent of total public investment to 27 percent; (iii) an assumed shift in the modal allocation of investment mainly from roads to the railways and coastal shipping, although roads retain the largest share; (iv) an identification of transport corridors where bottlenecks exist or are expected to arise; and (v) major investment projects selected on the basis of a multi-criteria analysis.  - 12 - 42. Although the NTMP has certain limitations, it is a valuable component in the planning process for the sector in that it provides a first coimprehensive long-term forecast of transport demand, as well as a general framework and general directions for the development of the sector. It also draws attention at an early stage to several corridors where bottlenecks are likely to arise. Furthermore, the NTMP is to be supported by detailed five-year plans, now being prepared for 1985-89 for each mode by each agency; these plans are to be rolled over each year. The Government intends to update the NTMP every three years, the first time in 1985, to take into account the experience with its implementation during the preceding years and changing economic forecasts. 43.. A draft transport sector memorandum was discussed with the previous Government in July 1983. At that time, a broad consensus was reached on the principal issues in the sector and the basic gDals and policy principles to be pursued. In particular, the authorities agreed that tariffs should be based on costs, although specific programs to reach this goal gradually would hlave to be prepared for each mode. The authorities also accepted the need for adequate project preparation, including the preparation of appropriate feasibility studies for major investments, and the need to strengthen existing institutions with a view to improving their performance. This understanding needs to be confirmed with the new Government. KGM in the Ministry of Public Works has already made an impressive start during the past two years in introducing a system of comprehensive, detailed planning. A master plan for the development of the ports has also been prepared. Discussions are underway with the railways concerning the introduction of comprehensive corporate planning. Previous Bank Loans 44. The Bank has participated in four previous projects in the transport sector. There have not been any Operations Evaluiation Reports on these projects, but a report on the railways project is under preparation. In general, the two earlier projects faced significant procurement and administrative delays while the two more recent: projects are making reasonably good progress. A $12.5 million loan for the First Port Project (28-TU), approved in 1950, included extension of several ports, one new port and equipment for handling specialized commodities. Following agreed project changes, a supplementary loan of $3.8 million was made in 1954. Although completion was delayed from 1958 to 1962, most of the physical works were completed by 1959, with procurement for a relatively small part of the project causing most of the delays. A $75 million loan for a Second Port Project (Loan 1741-TU), approved in 1979, aimed at the rehabilitation of the ten main public ports. The project is expected to be completed during the current year. Because of delays in procurement the Closing Date has been extended by one year to June 30, 1984. 45. A $46.7 million loan for a Railway Project (Loan 893-TU) was approved in 1973. It included financing for track renewal, signalization and telecommunications, manufacture of rolling stock, modernization of work shops, training and technical assistance. Although much of the project had been completed by the planned 1976 Closing Date, long delays due to management problems and slbw procurement procedures resulted in completion of the project only in May 1981. The project was largely successful in meeting its physical objectives, principally track renewal. However, it was less than successful in achieving institutional and policy objectives, particularly those related to improved procurement and financial viability.  - 13 - 46. The First Highway Rehabilitation Project (Loan 2137-TU), approved in April 1982, generally is being implemented satisfactorily. The rehabilitation works are of good quality and are proceeding at a satisfactory rate. The feasibility studies prepared by KGM for selection of road sections for Bank financing have been of good quality. Progress has also been made under the project in strengthening KGM project monitoring capability and supervision of civil works under contract. However, two components of the project are behind schedule. Under the loan the Borrower agreed that by December 31, 1983 as part of a vehicle load control program, an analysis would be prepared of the incremental damaging effect of heavy vehicles. Based on this, proposals would be made for amending vehicle taxation regulations. The analysis has not yet been completed although the vehicle load control program, which comprised a major portion of the covenant's objectives, has been successfully implemented. A satisfactory interim report was submitted to the Bank during negotiations of this proposed loan, and a revised schedule for completion of the study by December 1985 was agreed. Similar delays have occured in meeting the schedule under which the Borrower agreed to prepare a highway safety program satisfactory to the Bank by July 31, 1984. A recent Bank mission reports that progress is being made towards this goal. Revised terms of reference for a highways safety study as well as a more realistic implementation schedule were also agreed during negotiations of this proposed loan. A first stage study, covering most of the scope of the study originally agreed, is now expected to be completed by December 1985. A second phase, including identification of safety hazards and preparation of a program of remedial work, would be completed by December 1986. The Highway Sub-Sector 47. Responsibility for public roads is divided between the KGM of the Ministry of Public Works and the Road, Water and Electricity Directorate (YSE) of the Ministry of Agriculture. KGM is responsible for construction and maintenance of primary and secondary roads totalling about 61,000 km, of which about two-thirds are paved. YSE is responsible for the construction and maintenance of some 220,000 km of tertiary rural roads and tracks, of which approximately 6000 km are paved. During 1984 about 1,100 km of low volume roads will be transferred from the responsbility of KGM to that of YSE or abandoned, because they are no longer considered to be of regional importance. 48. The primary and secondary highway network carries about 70 percent of total land freight traffic and about 90 percent of land passenger traffic, A major part of the system was built in the 1950's and 1960's and is therefore nearing the end of its normal service life, especially since actual traffic volumes have been higher than had been anticipated when the roads were built. Traffic counts and surveys of existing road conditions, carried out by KGM as part of the preparation of its five-year plan, indicate that many primary roads are deteriorating rapidly, despite heavy and technically satisfactory maintenance, as they carry traffic volumes far in excess of their design capacity. Road conditions are worst on the roads that have experienced the rapid increase in transit and export traffic in recent years. To cope with the current traffic volume, road pavements must be strengthened. In some cases roads have deteriorated to such an extent that they require complete reconstruction. The road rehabilital:ion program which was initiated under the ongoing Highway Rehabilitation Project is to be extended under the proposed project.  - 14 - 49. KGM is carrying out an investigation of possible improvements in the pavement design for Turkey and of the clevelopment of an economic pavement management program. The proposecd project will assist KGM in both of these Endeavors. It is hoped that the effort will lead to more economic designs of pavements for Turkish conditions and also to improved allocation of expenditures between highway rehabilitation, pavement strengthening and highway maintenance. Related to this work it is expected that the rationalization of the system of road user chlarges will be pursued. 50. KGM is a compeitent and well run organization. Its labor force, while still large, has been reduced from 34,200 in 1981 to 31,600 in 1983. In general, KGM higher level staff is competent., although in many cases refresher courses and courses designed to expose them to up-to-date techniques of planning, supervision, and works and equipment control are needed. Under the ongoing highway project and in preparation of the proposed project, KGM has made important steps to improve its organizat:ion: the planning staff has been strengthened and the planning approach has been broadened to cover the entire network. A project monitoring unit, established in 1981, is making an important contribution to improving project implementation; also the number of field supervisory staff has been increased significantly. They are being trained currently in mocdern methods to supervise the work of contractors. A particularly important aspect is that initial steps have been taken to improve highway safety, although research will continue in this field. 51. Highway planning and design is the responsibility of KGM with most work being carried out "in house". Consultants are only being used for specialized works. KGM's investment programs, although prepared on an ad hoc basis in the past, have been cost conscious and the road network generally has not been overbuilt and serves the country well. More recently, and specially in line with the framework provided by the NTMP and aided by the ongoing Highway Rehabilitation Project, KGM has improved planning discipline. Also it has accepted more readily the use of economic criteria in project preparation and planning. 52. Highway expenditures are largely financed through the budget. SPO's approval is required for the investment budget and the Treasury's for the recurrent budget (i.e. maintenance). Revenues obtained from road users for the past five years show a substantial surplus over highway expenditure, although vehicle license fees have not kept pace with inflation and revenues from vehicle and spare parts taxes have been depressed. The total 1984 KGM budget, including maintenance, will be about $475 million (equivalent) and is projected to increase by about 4 percent p.a. It is expected that the road user revenues which reached about $800 million (equivalent) in 1983, although increasing more slowly than the general level of prices, will continue to cover expenditures. The Government will keep the relative trends under regular review. KGM's Highway Investment and Maintenance Programs 53. The total costs of KGM's 1985-88 investment and maintenance programs are estimated at $1,488 million and $650 million respectively, at April 1984 prices. KGM highway investment and maintenance programs are based upon: (i) projects identified and prepared at the Central Government's level, including major projects such as motorways anc. major bridges; and (ii) investment and maintenance programs prepared at local or regional level, but subsequently analyzed and evaluated by the KGM Planning Department. The program is translated on an economic priority basis into a rolling five-year  -- 15 - program within the resource constraints laid down by the Central Government. The financing plan is specified in the NTMP (Highway Section), which will be subject to major review every three years: annual investment and maintenance budgets may be affected by short-terra trends, but in 1983 and 1984 they were appropriate to. financing plan targets. Should resources fall short of targeted amounts or should traffic growth be less, the annual and five-year rolling plans would be modified either by delaying start-up or cancelling projects. A NTMP guideline, however, is to complete projects in the shortest period practically and economically possible. Currently, routine and periodic maintenance is to be given priority, but a careful study is being undertaken to optimize the investment and maintenance mix, leading to a modern pavement management system. The cost of routine and periodic maintenance averages about $3,800 per km per annum and may be reduced or redistributed as more roads are strengthened and rehabilitated. 54. KGM's proposed investment program has been prepared according to the methodology and criteria agreed for the selection of Bank-financed subprojects. It is estimated to yield an overall rate of return of about 27 percent. The program is considered balanced and in keeping with identified national priorities. The evaluation of subprojects shows that about 25 percent currently yield rates of return of less than 10 percent. This conclusion requires interpretation. Typically the low yielding subprojects are either physically ongoing or are in the program's outer years, and the majority are low standard earth or gravel roads in less developed regions carrying low traffic volumes and which are proposed to be upgraded to all weather paved standards. While it is not practicable to stop ongoing works, continued close cooperation with KGM should permit outer year projects to be reevaluated as part of a continuing review process. Although the data used in subproject analysis are considered to be realistic, they are rather limited and reevaluation should take into account a broader range of data, in particular: (i) actual traffic growth may in some cases be higher than the assumed average growth rates used in this model; (ii) generated traffic is probably understated for subprojects designed to achieve major improvements in operating conditions; and (iii) neither the value of passenger time savings nor benefits from improved safety have been included. KGM's detailed plan for 1985-88 states that it is a major goal to ascertain the economic benefits for each of the routes of the existing network and that investments in roads that are found to be uneconomic are to be stopped. In fact, since project appraisal in December KGM has continued the reevaluation of the investment program. Approximately 1,100 km of roads are recommended for elimination from the primary and secondary network; these will include some of the uneconomic proposals. 55. KGM's highway maintenance program consists of routine and some periodic maintenance. Both are essential to the preservation of KGM's existing capital assets. The program has been prepared on the basis of detailed road condition inventories and proposed upgrading over the next five years and data on geophysical and climatic conditions and traffic. The preparation of the program has been reviewed by the Bank and is considered technically sound and relevant to the system's needs. The question of the correct balance between highway maintenance and highway improvement is being addressed under a pavement research program which is expected to lead to a modern pavement management system. However, this will be a gradual process in view of the size of the country and the widely differing regional conditions. Under these circumstances a calculation of a rate of return on the maintenance program is not considered useful nor practicable. Recent experience shows  - 16 - that highway maintenance program rates of return are typically in excess of 100 percent and, taking into account traffic volumes and climatic conditions, there is no reason to expect that Turkey will depart from this norm. PART IV - THE PROJECT 56. A request for assistance for the project was received in November 1982. It was prepared by KGM with the assistance of Bank preparation missions. The project was appraised in Decemiber 1983. Negotiations were held in Washington from April 24 to April 27, 1984L. The Turkish delegation was led by Mr. Tunc Bilget, Chief Counselor for Financial and Economic Affairs of the T,urkish Embassy in Washington D.C. It also included representatives of the Treasury and KGM. A report entitled "Staff Akppraisal Report of a Second Highway Project" No. 4978-TU, dated May 16, 1984, is being circulated separately to the Executive Directors. The mrain features of the loan and project are given in the Loan and Project Summary and in Annex III. Maps showing the transport network of Turkey and the roads selected for rehabilitation under the first tranche of this project are attached (IBRD Map. Nos. 17912 and 17913). Project Objectives 57. The proposed project would continue and expand upon the objectives of the Highway Rehabilitation Project (Loan 2137-TU), whose primary objective was to assist KGM in the preparation and implementation of a sound highway rehabilitation program. The proposed project would also assist in financing art equipment renewal program primarily design(ed to improve highway maintenance productivity. In addition, the proposed project would help improve pavement research and management, and modernize the management and control of the equipment fleet and spare parts. In the selection of subprojects for financing under the loan, priority would be given to quick benefit yielding sections of the highway network, especially those that carry transit or export traffic. Project Description 58. The components of the proposed project are: (i) selected subprojects from KGM's civil works investment program covering road sections to be started during 1985-88; (ii) procurement of equipment and spare parts needed by KGM to modernize its investment and maintenance equipment fleet; (iii) fellowships for training KGM staff; and (iv) consultant services for KGM to promote pavement research and planning, and for other services related to the KGM investment program. Civil Works Subprojects 59. A first-year program of subprojects suitable for Bank financing has been identified from KGM's 1985-88 investment program. It consists of rehabilitation and some upgrading of sections (totaling 279 km) of two main highways that carry heavy volumes of traffic especially for the foreign exchange earning transit and export traffic. It is estimated that this program would yield a rate of return of about 70 percent. Detailed action plans, including individual critical path programs for these subprojects, have been prepared. The capacity of the existing monitoring and control unit would be increased to meet the increased work load. Future years' subprojects to be financed from the loan would be evaluated and selected according to  - 17 - methodology and criteria acceptable to the Bank, from KGM's investment program which would be reviewed on an annual basis (draft Loan Agreement, Section 3.04). Equipment and Spare Parts 60. The maintenance of KGM's equipment fleet is of a very high standard. However, due to past shortages of foreign exchange, the equipment fleet has become over-aged on the basis of technical as well as economic criteria. About 50 percent is currently more than 11 years old. In the absence of a renewal program, in five years this could exceed 75 percent. Therefore, an estimate of future requirements has been prepared on the basis of a detailed study of road maintenance needs and an inventory of existing equipment. Based upon this study, a four-year equipment renewal program was prepared, under which obsolete and uneconomic equipment would be replaced and the equipment composition would be changed to match the characteristics of the highway system. Over the four-year period about 25 percent of the fleet would be replaced and the size of the equipment fleet would be reduced. About 80 percent of the new equipment would be used for periodic and routine maintenance. From the proposed $156 million program of equipment renewal, about $32 million would be excluded from Bank financing due to the Government's desire to use reserved procurement procedures, with the remainder financed under the proposed project. In association with the proposed program, the ongoing Loan 2137-TU is financing training for KGM personnel in equipment fleet management and especially the control and management of spare parts. Finally, KGM plans to introduce a nationwide, computerized spare parts control system. Consultancy Services and Training 61. A program of fellowships abroad for its technical staff (about 250 man-months) is proposed to assist KGM in (i) management of the equipment fleet and spare parts inventory; (ii) planning design and construction, and (iii) pavement research and management. These fellowships would be a continuation of a 60 man-months program provided under the Highway Rehabilitation Project (Loan 2137-TU). The fellowships probably would be provided in Western Europe by contractors, consultants, State Highway Departments and Universities. A training program (10 man-months) has already been drawn up to assist senior mechanical and computer staff of KGM to set up and implement their equipment control program under the Highway Rehabilitation Project. The ongoing program and the proposed fellowships are arranged by the KGM's Training Department directly with the agencies concerned. A detailed fellowship program would be agreed with the Bank during the annual program reviews. 62. The project also includes provision of consultancy services to KGM for pavement research and management (initially two man-months), and for engineering design and other specialized support (about 200 man-months). During negotiations, KGM agreed that consultants would be employed with qualifications, experience and termts of employment satisfactory to the Bank (draft Loan Agreement, Section 3.03).  - 18 - Project Cost and Financing 63. The estimated total cost of the project, including physical and price contingencies is $232.0 million. This includes about $87.4 million of pavement works, $18.0 million of minor earthworks, $123.7 million of investment and maintenance work equipment, and $2.9 million of consulting service and training. The foreign exchange cost of the project is estimated to be about $185.9 million. The proposed loan would finance this amount plus the front-end fee. 64. The costs of highway rehabilitation proposed by KGM for Bank financing for the the first year of the proposed loan, are based on quantities derived from completed engineering studies and are based on KGM's 1984 unit price schedule for contract works. These costs are comparable to those obtained from bidding on similar works in Turkey. Costs for the rehabilitation in subsequent years are estimated based upon the costs of the first year's program. The foreign exchange component of the total cost of pavement works is estimated at 65 percenit, and of related earthworks and drainage works at 49 percent. These estimates assumed that 25 percent of the pavement contracts will be won by foreign contractors and that local firms will win all the earthworks and drainage contracts. 5 percent physical contingencies and foreign exchange price contingencies at 7.5 percent for 1984, 7 percent for 1985 and 6 percent per year thereafter have been provided for the civil works component. (The do:Llar equivalents of local costs are expected to escalate at about the same rate as the foreign exchange component, due to the Government policy of floating the TL rate to accommodate the difference between local and foreign inflation). No physical or price contingency has been provided for the equipment, consultants or fellowship components. 65. Since KGM is exempt from custom duties and sales taxes on equipment purchases, the capital cost of equipment and spares has been estimated using 1983 CIF prices for imported goods net of import duties, and the ex-factory costs net of taxes for local goods. All equiJment costs include an allowance of about 15 percent for the purchase of spare parts. 66. Fellowship costs are based on current costs in Western Europe of $2,500 per man-month. 'For consultancy services, which are expected to be local and foreign, on highway safety and pavement research, a lump sum of $2,300,000 is included based on up-to-date contract prices. Project Management and Implementation 67. KGM would be responsible for implementing all components of the project and for overall loan and project administration. A Project Team would be maintained within KGM, with organization and terms of reference satisfactory to the Bank, to facilitate coordination and management of execution of the Project (draft Loan Agreement, Section 3.02). Project implementation would be based upon detailed annual project implementation scheduling similar to that carried out for the ongoing Highway Rehabilitation Project. Implementation is estimated to be spread over a six-year period ending December 1990. Critical path analysis has been used for each component of project implementation. The overall implementation schedule has been prepared taking account of experience under the First Highway Project and includes an allowance of one extra year for possible slippages.  - 19 - 68. A format of financial reports has been designed and agreed with KGM for purposes of monitoring project expenditure, resources and Bank disbursements. The annual financial reports would be prepared by KGM's Accounts and Budget Department and sent separately to the Bank. Financial control procedures are essentially a priori with auditing carried out by Ministry of Finance inspectors. This has been proved to be satisfactory under Loan 2137-TU. During negotiations, the Government and the Bank reached agreement regarding the auditing requirements for the project (draft Loan Agreement, Section 4.02). 69. Project monitoring and reporting procedures include Government preparation of; (i) indicative multi-year overall investment and maintenance programs by October of each year; (ii) detailed annual programs each year, including the results of project implementation during the past years; (iii) quarterly progress reports on Bank-financed elements (physical and financial); (iv) feasibility study reports as required for the investment and maintenance programs; (v) bid evaluation reports; and (vi) audit reports on Bank-financed elements of the project. Annually, and not later than October 31 of each year, commencing with 1935, the Government and the Bank would review: (a) project performance during the current year; (b) the detailed investment, maintenance and training programs of the project for the forthcoming year; (c) the next year's selection of subprojects for financing under the loan; (d) the proposed next yearts procurement of equipment; and (e) the indicative program of highway investment for the remainder of the four-year period, 1985-88. During negotiations, agreement was reached on the annual review arrangements (draft Loan Agreement, Section 3.04). Procurement and Disbursement 70. The cost of civil works, including contingencies, which KGM intends to submit for financing under the loan is estimated at about $106 million equivalent, of which about $79 million equivalent of paving contracts would be let under international competitive bidding (ICB) procedures. These contracts are estimated to be between $3.0 million to $15.0 million each. The contractors would be required to prequalify. Up to $18 million equivalent of contracts below $3 million each for related earthworks and drainage and up to $9 million of small paving contract:s below $3 million each may be procured through local competitive bidding ILCB) procedures which are satisfactory and which permit participation of foreLgn contractors. The local bidding procedures are being used under the ongoing highway project with good results. Equipment and spares to be financed under the loan have been estimated at $123.7 million of which about $92 million would be let under ICB. An additional $32 million of equipment, in contracts estimated to cost under $3 million each, would be procured through LCB procedures. These would be contracts for equipment for which Turkish suppliers are in a particularly strong competitive position and the chance of foreign suppliers winning a contract would be low. The LCB procedures have been reviewed and are satisfactory. They permit participation by foreign firms on a non-discriminatory basis. Contracts estimated to cost under $20,000 each, and in the aggregate not to exceed $800,000, could be procured through local shopping. Consultant services contracts would be awarded in accordance with normal Bank procedures. Training fellowships proposed would be reviewed in advance by the Bank. 71. The proposed loan would be disbursed against the following items: (i) contracts for civil works on selected road sections to be submitted by KGM to the Bank in accordance with agreed procedures, 60 percent of the cost of  - 20 - paving contracts and 45 percent of the cost of other contracts (earthworks, drainage, and ancilliary works); (ii) contracts for procurement of equipment and related spare parts for the KGM fleet, 100 percent of foreign expenditures and 100 percent of local ex-factory expenditures and 40 percent of local expenditures for items procured off-the-shelf; (iii) fellowship training, 100 percent; and (iv) consultants services, 100 percent. The Government would provide appropriate local counterpart funds. A revolving fund of $9 million equivalent would be established to enable thE Government to make payments directly for eligible expenditure (draft Loan Agreement, Schedule 5). Establishment of the fund would be a conditicn of effectiveness (draft Loan Agreement, Section 5.01). Environmental Impact 72. The net environmental impact of the project would be positive. In particular, the highway improvements would enhance highway safety and reduce traffic congestion and air and noise pollution. Benefits and Risks. 73. The proposed loan would focus on the consolidation of the physical, institutional and policy objectives of the ongoing highway rehabilitation project. It would also serve to expand and develop the Government/Bank dialogue in the transport sector, especially in highway project preparation and evaluation. 74. The first year's program of rehabilitlation subprojects includes two sections, 37 km of the Ankara-Gerede road and the Gerede-Osmancik (242 km). The former is an important link between Istanbul and Ankara, while the latter services domestic traffic for the northern third of Turkey and the valuable export and transit traffic to Iran. Project benefits from road user savings for these sections produce economic rates of return of 83 percent and 66 percent respectively, or 70 percent on average. Additional benefits would accrue from safety improvements and encouragement of increased export and transit traffic to Iran. The equipment replacement program is based upon a comprehensive survey of the existing fleet showing that a substantial portion of KGM's equipment is beyond its useful economic life. Equipment replacement should reduce the cost and improve the quality of KGM's highway maintenance program. The followship and training components should assist KGM in improving investment planning, highway safety, and pavement management and research, especially the use of less expensive road construction materials and methods. 75. The principal risks for the project are that government funding could fall below total requirements, for example as a result of unforeseen economic difficulties, or that traffic, particularly transit traffic to Iraq and Iran, could be sharply reduced. In the event of a curtailment of government funding, KGM's investment program would have to be adjusted, preferably by postponing or eliminating investments of lesser priority. The annual review of budget adequacy would give the bank arn early opportunity to assess this financing risk which, though it might affect KGM's investment program as a whole, would not necessarily affect the Bank-financed project. As to a reduction of transit traffic, the prospects are that after the Iran/Iraq hostilities cease, a high volume of transit traffic will continue to be needed for some time to meet the demands of reconstruction. Furthermore, any reduction in such traffic could be gradually compensated by rising volumes of  - 21 - Turkish exports to the area. At worst under these circumstances, the benefits from the proposed investments on these transit routes would be lower than expected, but still sufficiently high to justify the planned investments. This conclusion is supported by the results of sensitivity tests for the road to Iran included in the first year's program. PART V - LEGAL INSTRUMENTS AND AUTHORITY 76. The draft Loan Agreement between the Republic of Turkey and the Bank and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. A special condition of loan effectiveness would be the opening of the special account for the revolving fund (para. 71). Features of special interest are listed in Annex III of this Report. 77. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENATION 78. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments May 16, 1984 Washington, D.C.  - 22 - Annex I TA B LE_IA Page l of 5 TURKEY - SOCIAL INDICATORS DATA SHEET TURKEY REFERENCE GROUPS (WEIGHTED AVERAGES) /a MOST (MOST RECENT ESTIMIATE) /b 1960/b 1 l/b RECENT /b MIDDLE INCOME INDUSTRIAL 1970- ESTIMATE- EUROPE MARKET ECONOMIES AREA (THOUSAND SQ. EK) TOTAL 780.6 780.6 780.6 AGRICULTURAL 372.3 381.8 381.8 GNP PER CAPITA (US$) 300.0 550.0 1540.0 2453.6 11112.7 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 258.0 512.0 779.0 1580.8 7500.6 POPULATION AND VITAL STATISTICS POPULATION,14ID-YEAR (THOUSANDS) 37509.0 35321.0 45529.0 URBAN POPULATION (/. OF TOTAL) 29.7 38.4 46.7 47.6 76.2 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILL) 68.3 STATIONARY POPULATION (MILL) 119.4 YEAR STATIONARY POP. REACHED 2110 POPULATION DENSITY PER SQ. KM. 35.2 45.2 56.9 82.0 139.0 PER SQ. KM. AGRI. LAND 73.9 92.5 116.4 157.2 514.2 POPULATION AGE STRUCTURE (%) 0-14 YRS 41.2 41.0 38.6 31.9 22.4 15-64 YRS 55.2 54.3 57.0 60.9 66.0 65 AND ABOVE 3.5 4.7 4.4 7.2 11.6 EPOPULATION GROWTH RATE (%) TOTAL 2.8 2.5 2.3 1.6 0.8 'JRBAN 6.1 5.1 4.1 3.4 1.4 CRUDE BIRTH RATE (PER THOUS) 43.1 37.9 33.2 25.0 13.8 CRUDE DEATH RATS (PER THOUS) 15.8 12.2 9.2 9.1 8.9 GROSS REPRODUCTION RATE 3.1 2.7 2.2 1.7 0.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUS) .. 65.6 66.6/c USERS (' OFDMARRIED WOMEN) 5.3/d 3.0 38.0c7.. FOOD AND NUTRITION INDEX OF FOOD PROD. PER CAPITA (1969-71=IOo) 96.0 100.0 111.0 108.4 112.4 PER CAPITA SUPPLY OF CALORIES (U OF REqUIREMENTS) 115.0 111,0 122.0 129.6 134.4 PROTEINS (GRAMS PER DAY) 85.0 80,0 86.0 92.3 99.0 OF WHICH ANIMAL AND PULSE 25.0 23.0 25.0/f 34.6 61.4 CHILD (AGES 1-4) DEATH RATE 50.0 31.2 19.8 10.4 0.4 HEALTH LIFE EXPECT. AT BIRTH (YEARS) 50.5 56.6 62.4 67.2 74.9 INFANT MORT. RATE (PER THOUS) 189.5 147.5 119.2 71.4 10.7 ACCESS TO SAFE WATER (%POP) TOTAL .. 52.0 75.0/R URBAN .. 51.0 70.ZL7. RURAL .. 53.0 0.D7. ACCESS T0 EXCRETA DISPOSAL (T OF POPULATION) TOTAL .. .. URBAN .. .. 20.0/g. RURAL .. .. POPULATION PER PHYSICIAN 2500.0 2230.0 163D.0 1094.8 553.6 POP. PER NURSING PERSON 16310.0/h 1880.0 1130.0 762.5 182.9 POP. PER dOSPITAL BED TOTAL 600.0 490.0 500.0/f 334.0 119.8 URBAN 340.0/b 310.0 foo.o7? 216.0 143.2 RURAL 5100.07h 5910.0 6240.07 ADMiISSIONS PER HOSPITAL BED .. 20.2 22.3/f 20.0 17.7 HOUlSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.7/i 5.9 U RBAN .. .. . .. RURAL .. .. AVERAGE NO. OF PERSONS/ROOM TOTAL 2.4/i 2.2 URBAN 2. 07 1.9 RURAL 2.77 ... ACCESS TO ELECT. (% OF DWELLINGS) TOTAL 29.0 41.1 57.0/. URBAN .. 78.2 RURAL 2.0 18.0  - 23 - Annex I T A B L E 3A Page 2 of 5 TIURKEY - SOCIAL INDICATORS DATA SHEET TURKEY REFERENCE GROUPS (WEIGHTED AVERAGES) /a MOST (MOST RECENT ESTIMATE) lb RECENT /b MIDDLE INCOME INDUSTRIAL 1 960/b 1979/b ESTDfATE- EUROPE MARKET ECONOMIES EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 75.0 110.0 101.0 102.2 101.5 MALE 90.0 124.0 110.0 107.2 103.3 FEMALE 58.0 95.0 93.0 97.9 103.3 SECONDARY: TOTAL 14.0 27.0 37.0 56.5 89.2 MALE 20.0 38.0 49.0 63.4 84.5 FEMALE 8.0 15.0 24.0 48.9 86.0 VOCATIONAL (% OF SECONDARY) 17.7 13.7 22.3 22.4 18.3 PUPIL-TEACHER RATIO PRIMARY 46.0 38.0 27.0 24.7 20.2 SECONDARY 19.0 28.0 23.0 22.1 14.4 ADULT LITERACY RATE (Y) 38.0 51.3 60.0 69.7 98.9 CONSUMPT ION PASSENGER CARS/THOUSAND POP 1.7 3.9 1l.S_/g 52.9 356.5 RADIO RECEIVERS/tTHOUSAND POP 49.1 87.7 96.4 165.5 1085.4 TV RECEIVERS/THOUSAND POP 0.0 1.8 75.3 124.2 449.5 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 51.3 40.6 89.1 96.3 331.3 CINEMA ANNUAL ATTENDANCE/CAPITA 1.1 7.0 1.9/e 2.9 3.5 LABOR FORCE TOTAL LABOR FORCE (THOUS) 13782.0 15829.0 19737.0 FEMALE (PERCENT) 40.2 37.0 36.4 34.5 36.1 AGRICULTL'RE (PERCENT) 78.5 67.7 53.5 40.7 6.2 INDUSTRY (PERCENT) 10.5 12.1 12.8 23.4 37.8 PARTICIPATION RATF (PERCENT) TOTAL 50.1 44.8 43.4 42.0 45.5 MALE 58.7 55.7 54.4 55.2 59.0 FEMALE 41.2 33.6 32.0 29.1 32.5 ECONOMIC DEPENDENCY RATIO 0.9 1.0 1.0 0.9 0.8 INCOHE DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HTGHEST 5% OF HOUSEHOLDS 33.0/d 32.8/k HIGHEST 20% OF HOUSEHOLDS 61.07d 60.67k .. .. 43.1 LOWEST 207 OF HOUSEHOLDS 4.27d 2.9i .. ,. 5.5 LOWEST 405 OF HOUSEHOLDS 10.67d 9.4/k .. .. 16.5 POVERTY TARCET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 342.O/e RURAL .. .. 2 70. 0O/e ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. RURAL .. .. 220.0/e 409.0 ESTIMATED POP. BELOW ABSOLUTE POVERTY INCOME LEVEL (7) URBAN .. RURAL .. NOT AVAILABLE NOT APPLICABLE N O T E S /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, "Data for 1960" refer to any year between 1959 and 1961; "Data for 1970" between 1969 and 1971; and data for "Most Recent Estimate" between 1979 and 1981. /c 1974; /d 1963; /e 1978; /f 1977; /g 1976; /h 1962; /i 1965; Ij 1975; /k 1968. May 1983  - 24- Annex I Page 3 of 5 Ml INrITO Osil SOCIAL. INDICATOR Nonoot Altbisast Int 4a. . drontr'I'rusgosol udgod lb.s soon s tal sdrluiL.,In s.oold ,1on bonoa WIa Lbs -y o to tnsorooiou-llp n.uaiaBonao of ttslak of snagarlou doistloow ood ronrop nod bY dlff .... I -tftnrls to coloentog LB.s dat. Tbs dana sr, -ostal.,_ atnn iso..t ob.rdoro of.sgio o nootol,od charonnorLs crnat major difror....s. Biosnconrss lbs rofooso *oaapo ups (11 oti -as notry roop of Otis nobJoon ooor ,ad (2) n oar gr-p nnti osta high.,rsoSnog iom tian. nt 00.-0ff ;r-p of cbA - Ijc cnr Isotpl for Htgh 1oose Oil tcporoors" grop shop. 'tIddlo I-os Nort Afri-a uod ttlddls at . Is L otio- Bsoaaa ofsrogrocoonau ofltls . I Ltis rop So rop data Otis an-rg. poulton-Lghtodiatobstlo s for. ouc ladMi.ouno sd sh-o only obsmJorlny of Ois. oIaI-s Ln. hrop.. data for otit toiosnor. Soos Ot. coaog fcoaoIa among ntis ttd .totr doId. o nn _o1ailuinlln of data sod Ls oat a-ifo.s, c-ntn,, t bs SEAIntogod mq.to. flotIon! rf-nun Popul tio inido,d ti byois of. peic - tonal scrfaoa ara. oasplskioghlan un n Itan sunr 1900, It-iCisilIl0ns o.a.at.lonoisotylnl a90 l MS19 dto., Zm tluto rtrlaPno onano oto yoso fpuno A Y - nlousorul - onlisat of sgrnolnonnlara nodnonporatly or orauony ol andfoal grsuua urut Sss-lsna d oora.1 prL lo coss n onkm oTp,psao ainsdkoeiniadn ot falar;190, onstop stunllianno"m.." 19671 190odd 1190 dana . Pbluln u toptult bcnli.1orta. sad roml PnL-pu ,laa (nata. api OM:OTAAWV__ CMl pnTA on nass0 -or.-I manac p-les. -nailt-loipultad p,r-lyatAfgfsalad by oalsd isptl iIIl6I 7tosftoosttodm World cant ala 1179t -asnol rati.bllitacionnnnccrh O pnlnrontlistnt puso tt on a ptMun ontorgy (lot MI7d Lgnio,punotmn If nnu -I t nod -pito- ; nol_naoiiat it., -tdiifo cd.)l f-int nttoo ic-ncn acod -lo-o 1900, 1910. sod 1910 data. . hao noniaitl toiodsA bOIOs ni palsnn lltpitit, nod cora ~~~~ As~~~~~~~~~ of Jo1, I; 19600 1970, nod 1991 Msnoonasc Sd - fnL ownor oftanaln co o dioohtisgs ats. from hoaplcals ilo-odrA f- it ot-slinationd of buds. d...M cdaisilt of60 19Oeiao ar9as -y,. affoec toorotaitotOty of daou1d00- NjjIjj4~jtj3~ii2~ CarrontpupL.tioo pojrnooos uPsbood 00 1990 an ialn maIn souls. A-tats nldo o nsy co to, aelodad to MiijddiiI'b g an Ms n 0loI sontally and Lrllo t I'lt inoosainld for- alncu upms rats.. nojscnom putmotsrsfoe sorot.ity tans. coaprlo of tines _a.og oab-r If pursc p Iroo- totaL. omb-. and noro1 -n.mS. oobs lo-iosoi lglIft sP-oooy 00 :ihanIlessn li oor' u ~ uso u onI l unbion n drora -eoPlo cannonto oaPln, Lo-m -ao,ad fs-ts if moooooytosiao aO77.5 doIlllogs, eoonnsp ol.lg osld -I -u.-otonutr n Lor.Y.pnssfrforotllI nuns abc buns ninr 1-1.1 m -cepsd pns 4-too ollwn Ic f-tnnlloys....rdlog 00L eoaloo and pus.. faIly Csotofcrotn(r of doo lnMgs) - tonsl . abmo. ond rorl1 ploanig pufanooog Kah iotpO toaago 0 f topnnCosnoa slig ltostlco in lInIgqatn mpnotg tosbl-toc of -arollty tnd fonilltcy croad. ocrfJscclo P.n o.If corl1, Iro,ad toa d tllns. nospcotnly. Snalaarnasolmon- t ascatony up L_no tintes Lo 00.go-h _stc of Iufploloi i ao 07 o b nan..s,.l ---I, oT delr fpss o doo o dlffLIcnII M nt n ofrrm 'psdo"non -far...i P.plra toci ioputo.iocnaosiol- oa,ot n tomato - boild-tios sacodor posolantan Osoolty odons0olootroqoIfr-osoc1 .".b.,"J.tl, f oas d foot. poorh. of appoono prlsar Corocon !i7.h10.~a - cd-par uanltnoi po shad elosst(0 oea-)ofpolsgorLt. noabocll ,bolnmau ihsln flon. inscac. o for taotans 1900 .1970 an 98 o.-Itop.Ils- -ohI.1t.of 2ln -17 trot of ago;Al -eotsaodan- foorso artd P.r s. it.ospleltarn land- lomonsd00 abns fo ssnlolcorl Iso gontaIilt sac.lodod. f7 --.I p1ldp,ibr .w. populalot; 160. 170, mn 1991 dana. Poi-scio 1ai1Yptar.adscndr-oalsooosooldt 1oncanlo Iroont tans bo resn)-d o - C-N ot. nnntnus on-tonalold- Rni.,rt so sscodst.d osdodd n.oios0 sait ocanr ppulaItioon for0 t1970i, .190770 ad 17-t .t o o Im -opoisto oo -1 pT nt ond.oon. - p00puotOo; 97 1970, no C10 .dta 197010ELT1 R puuncw; 90,ii, an 919dunn. onsoo..ls ha ngc urosmscotaonoaca.haso n saca-doseaca o,isbun o~f doacsa 000ollIinla LI .01 tnanp .hinl,lo.. ion nooo rapnnocn , no Ofaropelno pomota-apcflc bsdi 'ooons(co"toon onl"ln - ,1npno sctoc ordio f-metidy nob..; o-ulty fin-oraonssmI0in100, 1970. ood tnoscan Rn aota potitt pun chI-a d of pplaon alodoson tool. Llosdnontp neenisoadI ao t.o i tsioncIfnsi Po ln lanto Atcscor I.,An.-I (tiheaundol - Mont cabt of -coo-on sosa n.fc,an o oen Of ma not toeompstinbls i..o not profran. To tocoloers (pun choasod oorolsoo-Id -ill tacotosr for I tmdea t '~y)la~~r'yrPtodoetooc0aeIna I 199-1 7.100lIedso on p0 eaoiea polte ailee doonod oriso 1 p 10 ene-d too ..nosi con. to oeonslosoo f Ldan s aons fo nul. odilsaoeplnt goclst Cos caI Acounseo aiO orla- oio ttnsiro bused on outlonal atonogs tfndoeot poice colohos; 1901-05, I 1970,keaodl1901 b,utn.d adeugst non ton so pplo: sotodstonoot5 1sod, sands c1p9ino Otl 90 n 99 o "asotn tos fnd n food prooso loc..and los..I dttlooo. Laslo po -poIo)-f ltlio otta ooacg f oo abrtts actnnpad ,1bolgc ooadec not,io. smoaos A _osngoda... fsp-ol so 196o re7onag d of nodttiao oc; 90 90an e sa a-otand ssudtsrLnoo ofpeISOo, and I tleolo L. pnso o oust. ll,s410 ocoo ao orsl ltg,enoooo, aoacr at 'Y ahod hIso;11-, 1070 an 980ions,ora Ifeollp,nn t.an .1n no ub oosg of-. tonal '.ino fn9o"1' roanson o l Ifocls F.snlso Op d 71 0 peotdfo o a aenleti2 p on.1 aro. Lwps as~ 0001, asI., and nfal. lubo- foo..oo. toI. ponsn. f oileh 10 oso onodhoai poon ThtsolOnO 19 70 .,, sod 1981 data. Th..os. hoso onitoprc..poona octdods h.0.On iao o of 75 R-aa of local p-onsl, and 23 Sl.oo Irte lot aga-no% Inoto f th.ep oln mdlegn st oad Thoed Wonld rood Ocoy;10-1,190ad 190 daa"Ieoeooao at - I'oto of Peplution adan 17 sod 65 and onso no ist'lc IrTsd 0b rma "slad enlao -tnonri.on.pt ofrodo. tona lot nones dota ro nml an Ilo On gn pee doty; 1961465, 1970 nod 1977 daco. l8ClofO~~~~~~~~~~~~~I- DISTRIBUTION Cinid "tAo 1-)Pcnbo (pot nihoad), - anal doonnsh, theoad0 sncnoso oimrIes (otI ..d hIn) -Rtel by int htetin 5 sgatool-Oys ts,o hinltdrsnlo -leosags ttop; fofoosnept oton,liotloen P.osot 40e. dIooolet nf no IInlo dana dotloa,d fra linr oublso; 1900, 1977 sod 1981 .lao..hatia ainri;1902, 19770n 91dta bodh Inotor=a noo nosdaals nIn .Lafo rllo asls inn ea sns ton toto ondot odstOsnhsocd Aioottoo thnIe Ldlansi -101 o o o)-obsan oa pso of ago pun . liosdlts bincrhi; 1910, 1970 nod 1991 data. Amln p-,s"Y Ioo-l- nO-hnt,osho hb fli lo Mnsof hoaOsa (s-nts- .. o f Purn.i-ct) - coca l .oi-o,ad, oa ntno lI liadqat dian pl ssnll o-odeqitmnaI o taice nt. a IIstus If thnltope oopplalt I tpesa Icso 0I coae_y1lho lots) 1 .dotr fro ItO Iror poo noatIblic foonal o J. odea Liocad tnsn tha 11 monos esro thdos o fori.lti csof li1ni Ln trot noon. feom a ho-s man io etooLdotd as holtog io coscile scso *of chottsiaoad Ptonlotlot Oso boosPornIcs as ntao to hoosa. I tota sest essaoabloscesso 00o.0 lopy ohot tins n-iaefr or so'd roral :- Poeo of oplsno (rbIo anldItotl) sososinolo -M,.ac of niha b,-ahold do . hots nosp ol d.toocca pto of po 00dyinn ft-cii, Ohs fomly' .stonan. Eooa o octn 00M-0 1 orn foplnoo os.oin n noc b-ltn Io fps.pioL. na,cncndoa)n'nlpnnc dispsa as poea Ifoso thioera p..enOi- p0potatlon-. feoodi.po... say iclod nbacolicolo moddisonal, ciih to otIhoo tnnno fOocmc sodhoisibo Dtisl,onon hbytsenn n ssswo ipas--b-n apstom o- ohs o Iof pIt Oeon alssad roatt Os trst--o triols n soionnnLsolno My 1003  - 25 - ANNEX I Page 4 of 5 TURKEY - COUNTRY DATA Population; 45.5 million (1981) GNP Per Capita: USi1540 (1981) Amount Average Annual Increase (%) Share of GDP at Market Prices (%) (million US$ (at constant 1980 prices) (at current prices) Indicator at current prices) 1982 1965-70 1970-75 1975-80 1965 1970 1975 1980 NATIONAL ACCOUNTS Gross domestic product /a 52,890 6.6 7.5 2.8 100.0 100.0 100.0 100.0 Agriculture 10,324 3.1 4.4 2.7 30.7 26.4 26.2 21.4 Industry /b 13,527 9.5 9.5 2.8 16.6 17.2 18.0 28.6 Services 26,073 8.2 8.0 3.7 42.9 46.5 46.0 44.3 Consumption 44,345 5.8 7.0 2.7 84.6 82.8 85.2 81.8 Gross investment 10,705 11.7 12.9 0.6 16.7 20.1 23.3 26.4 Exports of goods and NFS 7,618 7.9 7.3 4.4 6.1 5.8 6.1 7.1 Imports of goods and NFS 9,778 11.2 13.8 -3.1 7.4 8.7 14.5 15.2 Gross national savings 9,250 11.6 11.9 2.4 15.8 18.8 18.1 18.3 Average Annual Increase (%) Composition of Merchandise Trade (%) (at constant 1980 prices) (at current prices) 1972-75 1975-80 1972 1975 1980 MERCHANDISE TRADE /c Merchandise exports 5,746 -6.1 2.8 100.0 100.0 100.0 Primary 2,317 -6.3 4.0 72.6 64.1 64.0 Industrial products 3,429 -5.8 0.9 27.4 35.9 36.0 Merchandise imports 8,734 11.2 1.2 100.0 100.0 100.0 Agriculture and livestock 176 27.9 -23.8 2.2 4.3 0.7 Mining and quarrying 212 17.4 6.8 1.2 1.6 1.8 Petroleum 3,640 5.4 11.0 9.9 17.1 48.8 Machinery and equipment 2,352 14.0 -12.1 45.0 35.6 18.2 Other industrial products 2,354 9.9 4.5 41.7 41.4 30.5 1978 1979 1980 1981 1982 PRICES AND TERMS OF TRADE GDP deflator (1980 = 100) 29.0 49.4 100.0 142.1 181.5 Exchange rate 24.3 31.1 76.0 111.2 162.6 Export price index 63.0 78.2 100.0 91.9 92.4 Import price index 61.2 71.9 100.0 101.8 102.6 Terms of trade index 102.9 108.8 100.0 90.3 90.1 As X of GDP (at current prices) 1965 1970 1975 1980 1982 PUBLIC FINANCE Current revenue 15.0 22.6 22.0 19.8 17.0 Current expenditure 10.0 11.8 12.6 11.5 8.1 Surplus (+) or deficit (-) -2.0 -2.3 -0.4 -4.8 -1.0 Investment expenditure 4.7 5.7 4.2 3.9 3.9 Transfers 5.0 7.5 5.5 9.2 6.0 Foreign financing 1.8 1.6 0.3 0.2 -0.01 1965-70 1970-75 1975-80 OTHER INDICATORS GNP growth rate (X) 6.8 7.7 2.6 GNP per capita growth rate (X) 4.1 5.0 0.3 ICOR 2.9 2.9 5.7 Marginal savings rate (2) 28.2 19.5 30.8 Import elasticity 1.7 1.8 -1.3 /a At market prices; components are expressed at factor cost and will not add due to exclusion of net indirect taxes and subsidies. 7- Includes mining and quarrying, manufacturing, and electricity, gas, and water. Ic In accordance with Turkish Government's specifications, which are not compatible with SITC's.  - 26 - ANNEX I Page 5 of 5 TURKEY - BALANCE OF PAYMENTS, EXTERNAL CAPITAL, AND DEBT / (million Us$ at current prices) Population: 4 .5 million (1981) GNP .er Capita: U:il540 (1981) Acttai Estimated pro1ected 1970 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 BALANCE OF PAYMENTS Net exports of goods & NFS 342 1984 2442 4658 3476 1993 2032 2065 2305 2571 2764 Exports of goods 4 NFS 754 3075 3247 4102 6416 7874 7962 9527 li21 13073 15101 Imports of goods 6 NFS 1096 5059 5689 8760 9892 9867 9994 11592 13519 15644 179S5 Worker- re-ittances 273 983 1694 2071 2490 2187 1550 1982 2171 2409 2674 Nt tcransfers 91 - - - - - - - -- - - Current account bal-ace -58 -1741 -1771 -3207 -2076 -1010 -1808 -1587 -1763 -1976 -2051 Direct private i-vestme,t 92 147 200 148 129 125 127 130 14S 158 14 Puolac MELT (groos) /b 271 1017 4321 2354 2188 2076 1867 1857 1968 2318 2681 Amortiration on M8LT7b -146 -336 -414 -434 -545 -1230 -1105 -1258 -1783 -2093 -2283 Public M.LT (net) /b 125 681 3907 1920 1643 846 762 599 182 225 398 Other capital /c 27 1061 -2410 1642 983 200 368 1059 1730 1916 1835 Cha-ge in reserves (- increase) -186 -148 74 -503 -680 -162 550 -202 -293 -324 -356 nt-r-ti. ioal reserves 612 874 800 1303 1889 2050 1500 1702 1995 2319 2675 Reserves as .onths of iports 7 2 2 2 2 2 2 2 2 2 2 Actual 1972 1977 1978 1979 1980 1981 1982 GROSS DISBURSEMENTS Gro-s di-burse=ents 372 259 857 4198 Id 2279 2116 2020 Official grants - - - - - 300 200 Coecu-s-iona 261 193 228 588 812 522 355 B-iateral 139 100 129 406 749 499 283 IDA 4 19 8 3 - - - Other multilaterol 118 74 91 179 63 23 71 Nos-co-cessfonal i11 566 629 3610 /d 1466 1294 1465 Official eaport credits 1 47 133 250 288 355 400 IBRD 25 146 165 277 313 454 665 Other aultilateral 27 5 35 15 150 162 147 Pcivate 58 368 296 3068 /d 715 323 253 EXTERNAL DEBT Debt outstanding and disbnrsed 2450 4293 6322 10942 13415 13804 14296 Official 2273 3657 5489 7189 8281 8906 10103 IBRD 92 512 648 890 1158 1546 2144 IDA 99 181 188 190 189 188 187 Other 2082 2964 4653 6109 6934 7172 7772 * ri-ae 177 636 833 3753 5134 4898 4193 Debt outstanding including undisbhorsed 3560 7128 9879 14620 16807 17093 19561 DEBT S0RVI0E Total debt service /e 224 363 428 627 1001 1231 2385 payments 161 196 264 403 405 546 1229 Interest 63 167 164 224 596 685 1155 Total debt service as x exports of goods NFS o vorkers remittances 11.8 10.3 10.6 12.7 16.2 13.8 23.7 Total deLt service as X GNP 1.3 0.8 0.9 0.9 1.7 2.0 4.4 Average interest rate o I sev loans (1) 4.4 7.7 6.9 11.3 6.5 7.6 7.3 Official 4.5 7.7 5.6 3.5 5.5 5.3 6.2 Pri-ase 6.8 7.8 8.2 13.6 10.6 15.4 12.0 Average maturity of sew 1oans (years) 22.1 11.6 13.3 11.0 17.4 15.0 18.4 Official 26.0 12.7 15.2 25.1 16.6 16.3 21.1 Private 11.0 9.2 7.6 7.1 6.4 4.5 8.0 BANR GROUP EXPOSURE (7) 1BRD DOD/tetal DOD 3.7 11.9 10.2 8.1 8.6 11.2 15.0 IBRD disbursements/total grese disburs.eents 6.7 19.1 18.4 6.5 13.7 25.0 32.9 IBRD debt dtservice /e 5.1 17.2 19.2 16.8 13.3 14.0 9.0 IDA DOD/total DOD 3.9 4.2 3.0 1.7 1.4 1.4 1.3 IDA disbursements/total gross disbursements 1.1 2.5 0.9 0.1 - - - IDA debt service/total debt service /e 0.4 0.6 0.5 0.4 0.3 0.2 - As 7 of Debt Outstanding at E,d of Most Recent Year (1982) TERMS STRUCTURE Matority structure of debt outstanding (02 Mat-rities due vithin 5 years 39.9 Mat-rities doe vithio 10 years 79.5 Interest structure of debt outstanding (i) Interest de within first year 6.5 /a All entries on external debt are defined as in the B..k's Debtor Reporting System (only public and private guaranteed M6LT debt). 7i Includes private guaraoteed and non-guaranteed debt and grants. /c Iacludes errors and emissions, and for projected years it includes net IMF, short-term, and unidentified capital inflows. 7T Includes $2,638 aillion of consolidated short-tera debt. 7T Takes aco-unt of debt relief due to debt reseheduling, cod eocludes interest on short-tern debt snd private non-guaranteed debt.  - 27 - ANNEX II Page 1 of 2 STATUS OF BANK GROUP OPERATIONS IN TURKEY A. STATEMENT OF BANK LOANS AND IDA CREDITS /a (As of March 31, 1984) Loan Fiscal Amount ($ millions) /d Number Year Borrower Purpose Bank IDA Undisbursed Thirty-eight loans and fourteen credits fully disbursed 2130.0 177.4 883-TU 1973 Republic of Turkey Ceyhan Aslantas 44.0 7.3 1130-TU 1975 Republic of Turkey Rural Development 75.0 7.4 1248-TU 1976 Agriculture Bank of Turkey (TCZB) Agriculture Credit 54.3 26.8 1265-TU 1976 Republic of Turkey Livestock III 21.5 5.6 1310-TU 1976 Republic of Turkey Tourism 23.0 9.6 1585-TU 1978 Republic of Turkey Northern Forestry 86.0 47.4 1586-TU 1978 Republic of Turkey Livestock IV 24.0 17.6 1606-TU 1978 Republic of Turkey Erdemir Steel Stage II 95.0 28.2 1741-TU 1979 Republic of Turkey Ports Rehabilitation 75.0 25.8 1742-TU 1979 Republic of Turkey Grain Storage 85.0 80.8 1754-TU 1979 TSKB Private Sector Textiles 65.0 37.4 1755-TU 1979 SYKB Private Sector Textiles 15.0 10.0 S-15-TU 1979 Republic of Turkey Ankara Air Pollution Control 6.0 5.1 1844-TU 1980 Republic of Turkey KarakaXa Hydropower 120.0 70.6 1847-TU 1980 Republic of Turkey Sumerbank Cotton Textiles 83.0 53.5 1862-TU 1980 Republic of Turkey Livestock V 51.0 43.3 1916-TU 1980 Republic of Turkey Petroleum Exploration 25.0 18.1 1917-TU 1980 Republic of Turkey Oil Recovery 62.0 29.6 1952-TU 1981 Republic of Turkey Labor Intensive Industry 40.0 28.1 1967-TU 1981 Republic of Turkey Second Fruit and Vegetables 40.0 35.9 1985-TU 1981 Republic of Turkey Fertilizer Industry Rehabilitation 110.0 88.8 1998-TU 1981 Republic of Turkey State Industrial Enterprise Finance 70.0 58.8 2093-TU 1982 TSKB Export-Oriented Industries 100.0 94.4 2094-TU 1982 Republic of Turkey Erzurum Rural Development 40.0 33.9 2131-TU 1982 Republic of Turkey Second Fertilizer Rehabilitation 38.0 36.4 2137-TU 1982 Republic of Turkey Highway 71.1 55.1 2159-TU 1982 ISKI Istanbul Sewerage 88.1 86.2 2318-TU lI83 TCZB Second Agricultural Credit 150.4 150.4 2321-TU 1983 Republic of Turkey Fourth Structural Adjustment 300.8 1.3 2322-TU 1983 TEK Third TEK Transmission 163.0 162.5 2327-TU 1983 TPAO Thrace Gas Exploration 55.2 55.0 2399-TU/b 1984 Republic of Turkey Industrial Training 36.8 36.8 2400-TU/b 1984 Republic of Turkey Technical Assistance for SEEs 7.6 7.6 Total 4450.8 177.4 1455.3 of which has been repaid 504.2 11.0 Total now outstanding 3946.6 166.4 Amount sold 3.6 of which has been repaid 3.6 - 0 - - 0 - Total now held by Bank and IDA /c 3946.6 166.4 Total undisbursed 1455.3 - 0 - /a The status of the projects listed in Part A is described in a separate report on all Bank/IDA financed projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31. /b Not yet effective. /c Prior to exchange adjustments. /d Net of cancellations.  - 28 - ANNEX II Page 2 of 2 STATUS OF BANK GROUP OPERATIONS IN TURKEY B. STATEMENT OF IFC INVESTMENTS (As of March 31, 1984) Fiscal Amount ($ Millions) 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 11 Nylon Yarn 1.50 0.43 1.93 1970 Viking I Pulp and Paper 2.50 0.67 3.17 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 1971/83 Viking II Pulp and Paper - 0.15 0.15 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 1976/83/ 84 NASAS Aluminum 1.58 0.09 1.67 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 - 0.16 0.16 1979 Ege Mosan Engines for Mopeds 2.15 - 2.15 1979 ISAS Motor Vehicles & Accessories 8.85 0.45 9.30 1979 Asil Celik Steel - 1.80 1.80 1979 Trakya Cam Glass 33.15 3.23 36.38 1980 TSKB DFC - 1.09 1.09 1980/82/ 84 ISAS Motor Vehicles & Accessories - 1.53 1.53 1980 MENSA Textiles and Fibers 4.0 4.0 1981 Kirklareli Cam Sanayii A.S. Glass Tableware 12.99 - 12.99 1982 M.A.N. Motors Motor Vehicles & Accessories 8.53 - 8.53 1982 TSKB DFC - 0.35 0.35 1984 Pinar Food and Food Processing 3.90 3.90 Total Gross Commitments 218.13 21.55 239.68 Less Cancellations, Terminations, Exchange Adjustments, Repayments and Sales 157.05 8.31 165.36 Total Commitments now held by IFC 61.08 13.24 74.32 Total Undisbursed 7.46 - 7.46 0982I April 18, 1984  - 29 - ANNEX III Page 1 of 1 TURKEY - A HIGHWAY SECTOR PROJECT Supplemental Project Data Sheet Section I: Timetable of Key Events (a) Time taken by country to prepare 12 months the project (Dec. 1982 to Dec. 1983) (b) Project preparation agency General Directorate of Highways (KGM) (c) First Bank mission to consider November 1982 the project (d) Appraisal mission departure December 1983 (e) Negotiations completed April 27, 1984 (f) Loan effectiveness planned August 1984 Section II: Special Bank Implementation Action None Section III: Special Conditions A. Condition of Effectiveness Opening of special account for project revolving fund (para. 71) B. Other (a) Subprojects in KGM's investment program to be financed from the loan will be selected in accordance with methodologies and criteria acceptable to the Bank (para. 59); (b) the KGM will maintain a Project Team to facilitate coordination and management of execution of the propoposed project (para. 67); and (c) the Government will review the overall implementation plan for the project on an annual basis, updating physical and financial plans (para. 69).   IBROD 179 12 24NIJARY 1984 40 IB U L G A R I 30'AN