Turkey - Fifth Five Year Plan in the context of structural adjustment : a review (Vol. 1 of 3) : Summary Report

Report No. MiS-EU Turkey-The Vth Five Year Plan in the Context of Structural Adjustment: A Review (In Three Volumes) Volume l: The Summary Report July 20, 1985 EMENA Country Programs II Division A FOR OFFICIAL USE ONLY Document of the world Bank This report has a restricted distribution and may be used by recipients only in the performrance of their official duties. Its contents may not otherwise be disclosed wthout Word Bank authorization.  TURKEY CURRENCY EQUIVALENTS (Annual and Quarterly Averages) Value of USt 1959 TL 2.80 1970 TL 11.50 1971 TL 14.92 1972 TL 14.15 1973 TL 14.15 1974 T1 13.93 1975 TL 14.44 1976 TL 16.05 1977 T1 18.00 1978 TL 24.28 1979 TL 31.08 1980 TL 76.04 1981 TL 111.22 1982 TL 162.55 1983 TL 225.46 1984 First Quarter TL 309.95 Second Quarter TL 347.91 Third Quarter TL 387.27 December 1984 TL 434.30  FOR OmCIL USE ONLY This report is based on the findings of a World Bank Mission that visited Turkey in September 1984. The Mission consisted of the following: Firouz Vakil (Mission Chief) Ritu Anand Jeffrey Balkind Fnn-Fan Jen Branko Milanovic Malvina Pollock Ibis document has a resticted distribution and may be used by recipients on in the prfwoce of their offil duties. Its contemts may not otherwise be discosed without World Bank authorit  ABSTRACT The report has two main purposes: first, to monitor progress against the SAL V conditionality, specifically stated as "completion of the preparation of a Fifth Five Year Development Plan compatible with the aims of the structural adjustment program", and second, to provide the overall strategic inputs to the upcoming Public Investment Review and the future lending program. As to the first objective, the report concludes that the Fifth Five Year Plan represents an acceptable medium-term framework. The report points out, however, that some projections seem to be overly optimistic (e.g. reduction of inflation, export growth, growth of Government revenues), and that the size of the Plan could strain both domestic and foreign resources, especially if projected Government revenues fail to materialize. The areas where the constraints seem most binding are public finance and the foreign balance. The public finance is of particular concern because of its relation to inflation. As a result, the report recommends pruning of the Government investment portfolio and enactment of priority measures in order to mobilize public resources. It concludes that the rate of GDP growth projected in the Plan would need to be scaled down in order to moderate import growth, avoid jeopardizing the balance of payments position, and reduce the pressure on public resources. As to the second objective, the report provides a set of projections for the mediumr-term, more in line with the possible constraints. It stresses the fact that the improvement in the project portfolio must be viewed as a task independent of the revenue situation. The report also concludes that the recomnended pruning of investments will not be detrimental to export growth, since the realization of the export targets requires only a moderate amount of (well-selected) investments.  TURKEY THE VTH FIVE YEAR PLAN IN THE CONTEXT OF STRUCTURAL ADJUST1ENT A REVIEW Table of Contents VOLUME I - THE SUMMARY REPORT Page No. Country Data MAP Executive Summary i -v Background 1 I. Introduction 3 II. The Overall Development Strategy and the Macro-Balances 3 III. Initial Conditions and Mediumr-Term Prospects 5 IV. The Fifth Plan's Export Regime - Policies and Targets 8 V. The Fifth Plan's Import Regime - Policies and Targets 1! VI. The Agricultural Sector Strategy in the Vth Plan 14 VII. The Industrial Sector Strategy in the Vth Plan 16 VIII. The Energy Sector Strategy in the Vth Plan 18 IX. The Transport Sector Strategy in the Vth Plan 19 VOLUME II - THE MAIN REPORT Chapter 1: Macroeconomic Results of Structural Adjustment 1980 - 1983 1 A. The 1984 Reform Program 11 1. The Plan and the Structural Adjustment Process 11 2. The Statement of Development Policy-1984 12 B. The Overall Development Strategy in the Structural Adjustment Context 12 1. The Growth of Merchandise Exports 15 2. Public Fixed Investment 16 3. Public Investment in Priority Sectors 18 4. Public Resource Mobilization 19 5. Debt Service Constraints 22 6. The Rate of Growth of GNP 26 C. The Plan Balances 28 D. Assessment 35  - ii - Page No. Chapter III: Initial Conditions and Medium-Term Prospects 37 A. Recent Econoaic Developments 37 B. The Base Year of the Plan - 1984 40 C. Assessment of 1984 43 D. The Bank's Medium Term Projections 44 1. The Base Case 44 2. Downside Risk Case 48 E. Concluding Remarks 55 Chapter IV: The Fifth Plan's Export Regime - Policies and Targets 58 A. The Problem - Export Sustainability 58 B. The Plan's Objectives 59 C. The Main Differences 59 D. Export Projections and Implications 61 E. Den5..nd for Turkish Exports 67 F. Supply Considerations 71 G. Export Incentives: Recent Developments _.u' Implications for the Plan 73 1. Export Tax Rebates 75 2. Preferential Credit 77 3. Foreign Exchange Allocation 80 4. Total Direct Subsidies - Current Situation and 1984-89 Forecasts 81 5. Exports and Real Effective Exchange Rates Current Situation and 1984-89 Projections 84 H. Conclusions 90 Chapter V: The Vth Plan's Import Regime - Policies and Targets 93 A. Import Liberalization 93 B. The 1984 Import Regime 93 C. The Plan's Objectives 96 D. Past Performance and Feasibility of Plan Targets 98 1. The Central Issue 98 2. Plan Projections 99 3. Imports in Total Domestic Supply 100 4. Major Manufacturing Imports 101 5. Feasibility of Import Projections 101 E. 1984 Import Liberalization and Prospects 103 1. Removal of Quantitative Restrictions 103 2. Reduction of Tariffs 105 F. Conclusions ill  - ili - Page No. Chapter VI; The Agricultural Sector Strategy in the Vth Plan 114 A. Background and Overview 114 B. Performance of the Agricultural Sector During the Structural Adjustment Period 1980-83 115 C. Implications of the Continuing Structural Adjustment Process on the Agricultural Sector 116 D. The Fifth Plan: Agriculture 117 1. Production 118 2. Investments 124 3. Absorption 127 E. Suimmary and Recommendations 135 Chapter VII: The Industrial Sector Strategy in the Vth Plan 144 A. Introduction 144 B. Background and Performance 1980-83 144 1. Role of Industry 145 C. Strategy and Policies 147 1. The Objective3 147 2. Instrumentalities 147 3. Reform of State Economic Enterprises 148 4. Investment and Budgetary Trends 149 5. Comparative Advantage 151 D. The Fifth Plan: Industrial Sector 152 1. Share of Industry 153 2.