Turkey - Greater prosperity with social justice policy notes

PREPARED BY THE WORLD BANK  ACKNOWLEDGEMENT This report has been prepared by the Turkey Country Team under the overall direction of Ajay Chhibber. James Parks and Sally Zeijlon are the principal editors of the report. The principal authors of the policy notes are Hormoz Aghdaey, Gokhan Akinci, Ismail Arslan, Dilek Barlas, Betty Hanan, Tunya Celasin, John Innes, Ira Lieberman, Ranjit Lamech, Gareth Locksley, Mark Lundell, Anil Markandya, Maureen McLaughlin, James Parks, Mirtha Pokorny, Christoph Pusch, Lalit Raina, and Sudipto Sarkar. Important contributions were made by Mediha Agar, Marie-Renee Bakker, Enis Baris, Jeanine Braithwaite, Marjory-Anne Bromhead, Mukesh Chawla, Peter Dewees, Annette De Kleine, Nedret Durutan, Guiseppe Fantozzi, David Fretwell, Vinod Goel, Robin Horn, Zeynep Kudatgobilik, James Moose, Kamer Ozdemir, Arzu Ozturk, Elliot Riordan, Ferda Sahmali, Joop Stoutjesdijk, Mathew Verghis and Anders Zeijlon. Pinar Baydar has prepared this report for publication.  TABLE OF CONTENTS OVERVIEW ..............................................................................................................................................................1 1. MACROECONOMIC POLICIES FOR SUSTAINABLE GROWTH.............................................................................9 2. PUBLIC SECTOR REFORM FOR EFFECTIVE GOVERNMENT ............................................................................14 3. ENHANCING TRANSPARENCY AND FIGHTING CORRUPTION FOR GOOD GOVERNANCE ................................19 4. IMPROVING SOCIAL PROTECTION THROUGH FISCAL SUSTAINABILITY, INSTITUTIONAL REFORM AND EFFECTIVE TARGETING................................................................................................................................22 5. EDUCATION AND TRAINING FOR INVESTMENT IN TURKEY'S FUTURE..........................................................27 6. REFORMING THE HEALTH SECTOR FOR IMPROVED ACCESS AND EFFICIENCY..............................................30 7. ISSUES FOR FINANCIAL SECTOR DEVELOPMENT AND GROWTH ...................................................................34 8. ASSISTING THE ENTERPRISE SECTOR IN TRANSITION FROM THE CRISIS.......................................................39 9. SME DEVELOPMENT AND TECHNOLOGY.....................................................................................................44 10. ACCELERATING PRIVATIZATION TO STRENGTHEN REFORM CREDIBILITY AND SUPPORT PRIVATE SECTOR DEVELOPMENT ............................................................................................................................................47 11. ATTRACTING FDI FOR COMPETITIVENESS AND GROWTH............................................................................50 12. MANAGING THE TRANSITION TO COMPETITIVE PRIVATE ENERGY MARKETS..............................................53 13. TELECOMMUNICATIONS REFORM FOR THE INFORMATION SOCIETY.............................................................58 14. EFFICIENT TRANSPORT FOR EQUITABLE GROWTH.......................................................................................63 15. RURAL REFORMS AND INVESTMENTS FOR GROWTH AND EQUITY ...............................................................66 16. IMPROVED ENVIRONMENTAL MANAGEMENT FOR SUSTAINABLE GROWTH AND CONTRIBUTING TO GLOBAL ENVIRONMENTAL GOALS ..............................................................................................................71 17. PROTECTING TURKEY THROUGH DISASTER PREPAREDNESS AND MITIGATION............................................74 18. IMPROVING MUNICIPAL SERVICES FOR TURKEY'S GROWING URBAN POPULATION ....................................77 19. LEGAL AND JUDICIAL REFORM ....................................................................................................................81 20. CIVIL SOCIETY.............................................................................................................................................85  OVERVIEW Turkey is a country with a huge potential. The vision that drives our proposals for the 58th Government is that of a country with greater prosperity, social justice and sustainability, that unleashes creative energy to realize fully this potential. Turkish society has come a long way from the 1960s, when a largely agrarian society began to modernize. In the 1980s, Turkey opened to the world economy and began a process of transformation into a competitive industrial economy with a vibrant private sector. The average family began to witness enormous improvements in its standards of living, Figure 1: Historical Growth & Inflation Rates opportunities, and hopes for parents and their children. But Growth Inflation 6 80 these gains were not 70 5 consolidated in the 1990s, and a 60 4 series of weak coalition 50 3 40 governments were unable to 2 30 build the institutional structures 20 to make these improvements 1 10 permanent. During the 1990s, - - 1980-90 1990-99 1980-90 1990-99 Turkey's economy recorded lower growth and higher inflation than in the 1980s (Figure 1). The 1990s was characterized by large "boom/bust" swings in the business cycle with average annual growth well below Turkey's potential, high inflation, increasing debt, and economic vulnerability. Corruption soared, and with slower income growth and limited improvements in basic services, social frustrations grew. If Turkey's untapped potential can be unleashed, the next decade can be much more productive than the 1990s. The coming decade need not be characterized by such volatility. Rather, it could be one of steady accomplishments, without the economic upheavals and unsteady reform progress of the past decade, with low inflation, and without the growing income disparity between sections of the population. This vision requires a substantial change in priorities and the way in which the state, market and citizenry interact. It requires: : a substantially greater effort on primary and secondary education, and on healthcare