Turkey - Current economic position and prospects

RESTRICTED Report No. EMA-40a This report is for of ficial use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION MEMORANDUM ON THE CURRENT ECONOMIC POSITION AND PROSPECTS OF TURKEY July 19, 1971 Europe, Middle East and North Africa Department FILE COP CURRENCY EQUIVALENTS After August 9, 1970 US $1.00 TL 15.0 TL 1 US $0.067 TL 1 million US $66,667 Prior to August 9, 1970 US $1.00 TL 9.00 TL 1 Us $0.11 TL 1 million US $111,111 Table of Contents Page BASIC DATA I. RECENT DEVELOPMENTS 1 A. Political Situation 1 B. Recent Economic Developments 1 II. THE GOVERNMENT PROGRAM 8 III. DEVELOPMENT PROSPECTS 12 STATISTICAL APPENDIX 14 This memorandum updates the last Bank economic report entitled "The Development Prospects of Turkey" (EHA 30a) of February 1, 1971. It is based on the findings of a mission consisting of Gordon C. Billington (Chief), Montek S. Ahluwalia (fiscal economist) and Ram K. Chopra (general economist), who visited Turkey in April 1971. BASIC DATA Area 780,000 sq. km. Population 35.5 million Rate of growth 2.6 percent per annum Density 46 per sq. ka. Gross National Product 1970 (current market prices) TL 144.5 billion Annual Rate of growth (constant prices) 1963-67=6.9%,1969=6.4%,1970=5.6% GNP at factor cost (1970 current prices) TL 127.7 billion GNP per capita at factor cost (1970) TL 3597 /l Industrial origin of NDP (% of NDP at constant prices) 1962 1970 Agriculture and forestry 39.7 29.6 Manufacturing, mining and power 16.2 19.5 Construction 6.3 7.4 Transport and Communications 7.2 8.0 Trade 8.1 9.0 Housing 4.8 5.5 Government services 9.7 11.1 Financial institutions and other services 8.1 9.9 Expenditure on GNP ( %of GNP at constant prices) Private Consumption 74.1 70.7 Public Consumption 15.4 12.7 Gross fixed investment 14.8 19.5 Net imports of goods and services 3.6 3.8 Net factor income from abroad -0.6 0.9 Gross National Saving 10.6 16.6 1969/1970 Public Finance (Billion TL) 1969 1970 Growth Rate 7 Current receipts 21.6 28.6 32.4 Current expenditures 15.6 20.3 30.1 Capital transfer 3.4 .8 41.2 Surplus, net of transfer 2.6 3.5 34.6 Investment expenditures 6.9 7.0 1.4 Money, Credit and Prices (Billion TL) Total money supply, incl. sight & saving deposits 30.1 35.1 16.6 Total central credits and advances 12.9 11.6 13.2 Total comercial bank credits 33.2 37.2 12.0 Rate of change of wholesale price index 5.9 E.8 - 1.7 Rate of change of consumer price index (Istanbul) 5.0 7.6 52.0 Balance of Payments (Million US $) 1962 1969 1970 Imports of goods 3EI 7F -94 Exports of goods 381 537 588 Net invisibles (including NATO receipts) -1 43 188 Current Account Deficit -242 -221 -172 Foreign Exchange Reserves (end of year) 221 -13 External Public Debt(million US $) 1969 1970 Total Outstanding Debt (end of year) 2196.j 2442.9 Debt Service 134.1 160.4 Debt Service Ratio(%of goods and services, 16.7 15.6 incl. worker's remittances) 1/ $240 at the new exchange rate of TL 15= US $1.- IBRD/IDA Operations (Million US $) 1199 197 Total loans - IBRD T87 -779 17 - IDA 80.3 92.3 92. Repayments - IBRD 39.6 41.9 45. Total loans outstanding - IBRD 55.8 o.3 138. - IDA 8c).5 92.5 92. IMF Position (Million US $) Quota i18 108 151 Net IMF Position 27 -11.6 8 Drawings 30 10.0 75 Repurchases -3 -21. -27 SDR Drawings - 18 I. RECENT DEVELOPMENTS A. Political Situation 1. Since the 1969 elections, which confirmed in power the Justice party, the government faced a constant erosion of its majority in the National Assembly. At the same time, there was growing violence by extremist groups of students and unrest among workers, which continued through 1970 to the early months of 1971. In March 1971, a new 'coali- tion and reformist' government was formed, following the intervention of the military and the resignation of the former government. The new government's program calls for the restoration of law and internal security, the reorganization of the state administration, rational management of the economy, long overdue structural reforms, and the formulation of the Third Five Year Development Plan. Continued commit- ment to the U.N. and NATO,membership of EEC, CENTO, and RCD, and con- tinued search for a satisfactory solution to the inter-community pro- blems of Cyprus are emphasized. B. Recent Economic Developments 2. In 1970 GNP grew by 5.6 percent, compared with an average of 6.6 percent in earlier years. The decline in the rate of expansion was mainly as a result of industrial growth slowing down to less than 3 percent in 1970 compared to 10 percent in 1969. In the first half of the year, industrial production lagged due to shortage of imported inputs and spare parts, tight credit conditions, social and labor un- rest and partly due to the expectation of devaluation. However, though production was low, there was considerable industrial investment, partic- ularly in the private sector, to take advantage of investnent incentives granted,probably leading to some excess capacity. Since the August 1970 devaluation, investment demand has remained weak, and the underlying causes were more on the demand side compared to supply shortages before devaluation. The expected recovery has not yet materialized because of a mixture of real and psychological factors. These consist primarily of a "wait and see" attitude to determine whether the exchange rate can be made effective, whether foreign exchange is likely to be adequate to guarantee access to imports without delay, and what sort of business and investment climate is likely to emerge in a more rational framework of relative incentives and economic prices. Expectations may also have been affected adversely by the Government's efforts to dampen down necessary price adjustments arising from devaluation. The escalation of student and labor unrest has caused continued pessimism in the busi- ness community which has not been entirely allayed by the initial state- ments of the new Government and the vigorous efforts to restore law and order. - 2 - 3. Agricultural output rose by only 1 percent in 1970, because of unfavorable weather conditions, a shortfall in wheat production, an inability to supply sufficient and timely inputs and continuing under- utilization of resources, particularly in irrigated areas and in forestry. Because of successive bad crops over the last three years, farmers have been unable to repay their debts and the cumulative effect of this has aggravated the chronic shortage of resources for agricultural credit. However, despite the low growth in agriculture, some underlying technological improvements are taking place. The area under improved Mexican wheat varieties in the coastal regions has expanded from 170,000 hectares in 1967 to 760,000 hectares in 1970, and significant attempts are being made to improve the quality of wheat on the Anatoliar Plateau. Given the large shortfalls in agricultural production in the last three years, it is unlikely that the Second Plan target of an in- crease in gross agricultural value added of 23 percent, or 4.2 percent annually, will be achieved. But with tinely rainfall this year the prospect of a successful wheat crop and the underlying improvements taking place, it is expected that agricultural output will make a major contribution to growth in 1971. 4. The main growth sectors in the last year were government ser- vices, housing and construction, trade and transportation. In 1971, indications are that housing and construction, partly due to higher taxes imposed on some types of construction, may suffer frcm a recessicL, Table 1: SUPPLY AND USE OF RESOURCES (In billions of Turkish lira, at 1965 prices) 1967 1968 1969 1970 Resources GNP 91.8 98.0 104.3 110.2 Net imports of goods and services 1.6 2.9 2.9 3.2 Total 93.4 100.9 107.2 113.4 Uses Gross fixed investment 15.5 18.7 20.2 21.5 Private 7.4 8.7 9.2 10.0 Public 8.1 10.0 11.0 11.5 Consumption 77.9 82.2 87.0 91.9 Private 66.8 70.3 74.8 77.9 Public 11.1 11.9 12.2 14.0 Total 93.4 100.9 107.2 113.4 Source: Table 2.1 in Statistical Appendix. -3- 5. Total consimption increased in real terms by 5.6 percent in 1970 i.e. at roughly the same rate as the previous two years. However, public consumption increased by almost 15 percent, and private by about 4 percent. The large increase in public consumption was mainly due to payment of increased civil servants salaries in December 1970. The full impact of salary increases is still to come in 1971, when according to the Annual Program public con- sumption is expected to increase by over 35 percent in current prices. In 1970, gross fixed investment increased by about 6 percent, falling far short of the targeted 12 percent but accounting for 19.5 percent of MP in 1970. The growth in domestic savings which had been impressive, slowed down in 1969 and more noticeably in 1970, the rate of increase dropping to about 2.5 percent in 1970 compared to 14 percent in 1968. Despite this the share of GNP represented by gross national savings was 16.6 percent in 1970, due to a substantial increase in net factor inconie from abroad, mainly workers' remittances. Public Finance 6. Fiscal performance in 1970 was dominated by a serious attempt to balance the budget, to exercise some effective restraint on demand and to offset and control the effects of unavoidable changes in relative prices arising from devaluation, substantial increases in agricultural support prices and the inflationary pressures generated by new collective bargain- ing agreements. A supplementary budget was approved in February 1971 authorizing additional expenditures of about TL 6 billion. Current ex- penditures were held within the budgeted figure (TL 14.6 billion) partly because increased salaries under the Personnel Reform Law were paid only for December 1970 onwards and partly by across the board cuts in many other items of the budget. Investment expenditures were held to the budget figure of TL 7 billion implying that investment in real terms must have been lower than the target levels after allowing for price inflation following devaluation. Transfer expenditures, mainly to the SEEs were substantially higher than anticipated. Total expenditures amounted to TL 32.1 billion compared to the original budget forecast of TL 29.9 billion. Tax and other tnormall revenues were about TL 1.5 billion less than forecast. However, total domestic revenues at TL 28.6 billion were higher than budgeted due to substantial increases in non-tax revenues, and the overall consolidated budget, after including the counterpart funds of foreign loans and domestic financing of TL 4.3 billion, showed a surplus of nearly TL 0.8 billion. Despite this apparent surplus of TL 0.8 billion for the fiscal year 1970 and the windfall foreign exchange profits from devaluation the Treasury was un- able to reduce significantly the level of outstanding Central Bank advances. 7. The financial performance of the SEEs during 1970 was relatively poor. Increased costs of imports, higher salaries from the Personnel Reform Law and wage increases resulting from collective bargaining agree- ments led to substantial operating deficits. Government control over out- put prices prevented price increases from being passed on. Instead of an expected pre-tax profit of about Tb 1.0 billion there was an actual pre-tax loss of about TL 400 million. This deterioration is almost entirely accounted for (90 percent) by the deterioration in three -4- SEEs - the Turkish Coal Corporation, State Railways and P.T.T. These financial strains were reflected in unexpectedly large Treasury advances to the SEEs and a significant shortfall in real investment targets. 8. The budgetary situation in 1971 continues to show severe pressure on resource availability, the dominant feature being the financial cost of the Personnel Reform Law. The approved budget provides for a total level of expenditure of TL 38.5 billion, an increase of 25 percent over that for 1970. Two-thirds of this increase is on account of current expenditure. This results largely from the implementation of the Personnel Reform Law which has added TL 6.5 billion to the provision for the wage and salary bill in the consolidated.budget, thugh the actual cost is still uncertain and may be much more, and from the new exchange rate. These also account for the large increase in transfers to SEEs and in debt repayment charges. The budget also provides for investment expenditures of TL 7.9 billion, an increase of 13 percent over the 1970 level, but one which would barely compensate for expected price inflation. 9. Tax revenues are expected to increase by TL 6.6 billion, or 20 percent above the level for 1970. Of this about TL 2.5 billion is from additional tax measures introduced in August 1970 and some TL 2 billion on account of income tax payments on the higher level of salaries. The government also expects revenue from taxation on imports to increase sharply as a result of the change in par value and through an increased flow of imports. Should tax collections fall short of budget estimates, the government has the power to increase the rate of expenditure taxes up to 100 percent. 10. Despite this effort at resource mobilization - the ratio of taxes to GNP is expected to rise from 15.5 percent of GNP in 1970 to about 16.0 in 1971 - the overall deficit for financing is expected to grow from TL 3.5 billion in 1970 to TL 4.1 billion in 1971, to be financed equally from external and domestic long-term borrowing. The budget does not contemplate any recourse to short-term borrowing from the banking system. Even this picture may prove unduly optimistic in the light of growing demands for increased current expenditure to meet aspects of the new government program, the financial constraints on the SEEs and the desirability of increasing the level of real --investment expenditure this year. 11. The SEEs are likely to face a severe squeeze on financial resources. The SEE investment program for 1971 attempts a revival of real investment levels and has budgeted for investment expenditures of about TL 7 billion - an increase of 43 percent over the 1970 level. This is to be financed by a substantially larger volume of internally generated resources and budget transfers. Profits before taxes are expected to provide TL 1.3 billion compared to an estimated loss of TL 0.4 billion in 1970. Budget transfers will provide TL 3 billion and project credits TL 2.2 billion. The main weakness in the financial plan lies in the possible over-estimation of internally generated resources. In the first place the projected improvement in the profit position depended crucially upon early implementation of a series of price increases (textiles, coal, electricity, P.T.T., cement, paper and pulp, meat and fish, television and radio). These price increases were expected to yield an additional TL 1.8 billion in gross revenues but there have been unforeseen delays in implementation. The financing plan takes no account of the impact of general price increases on operating costs nor of the probable wage cost increases during 1971. This is particu- larly serious since almost 120 collective bargaining agreenents are due for renewal during 1971 and substantial wage increases will be difficult to resist given the salary increases under the Personnel Law. 12. These factors suggest that the government may face some diffi- culty in achieving a major objective - reviving the level of public in- vestment in 1971. Total investment expenditures from the consolidated budget and SEEs are expected to reach TL 14.6 billion in 1971. This amounts to about 8.8 percent of GNP (current market prices) comparing favorably with 8.2 percent in 1970 but still below the ratio in earlier years when it averaged 9.1 percent in 1968 and 1969. All in all, the financial constraints represent serious obstacles in the way of effec- tive government action to deal with short-term needs and prepare long- term reforms. Furthermore, whilst the need for widespread reform of economic policies and institutions has been continually emphasized by the new government, clear proposals for fiscal and financial reforms have yet to emerge. Money and Credit 13. During the first half of 1970, a tight monetary policy was followed, and money supply increased by less than 10 percent in the twelve months ending July 1970. But after the August devaluation, the increase in money supply accelerated and amounted to 16.5 percent for calendar 1970. The substantial increase in money supply was due to payment of higher government salaries under the Personnel Reform Law in December, the advance payment of January salaries in December due to holidays, some net repayment of import guarantee deposits, and inflows of foreign exchange due to special assistance after devaluation. These factors also explain why the share of currency in total money supply rose markedly by the end of 1970. After devaluation, there was also a shift from demand into term deposits reflecting the new structure of interest rates introduced in August. Total Central Bank credit fluc- tuated considerably after devaluation, but over the year increased by 12.8 percent to TL 15 billion, compared to a 27 percent increase during 1969. About 70 percent of this increase was due to advances to the Treasury which increased from TL 3.2 billion in January 1970 to 4.4 billion at the end of December 1970. These advances were reduced to TL 3.8 billion at the end of February but increased again to TL 4.6 billion at the end of March. While commercial bank deposits increased by about 18 percent, commercial bank credits increased by 12 percent. This reflected the reduced need for private credit to finance imports and partly the lower level of business generally. -6- Prices 14. Afte- devaluation, prices of goods and services of SEEs were in most cases frozEn. At the end of 1970, the increase in the wholesale price index was about 6 percent. The GNP price deflator, which is considered by the Turkish althorities as a more reliable indicator of price movements, increasedby over 8 percent. 15. However, there are a large number of forces in the economy which are likely to exert pressure on wages and prices during 1971. Price increases in various SEEs proposed for November 1970 and postponed are now likely to be introduced during the course of 1971. By the end of May 1971, price increases that had become effective were in cement (23 - 30 percent), textiles (20 percent), and PTT (almost 100 percent). Substantial price increases in coal, power, pulp and paper are under active consideration. In addition, the large increase in wages and salaries of government employees, effective from December 1970, higher indirect taxes introduced late in 1970 and the absorption of price increases due to devaluation are likely to be foMowed by strong pressure for wage increases in the impending negotiations for the renewal of a large number of collective bargaining agreements. The support price for tobacco for the 1971 marketing season has already been raised by more than one-third; more recently an increase of 18 percent has been announced for 1971/72 cereal prices, and other increases in agricultural support prices may follow. The Annual Program forecast a wholesale price increase of 10 percent for 1971. In the first four months of 1971 wholesale prices increased by about 8 percent, and unless firm government control is exercised on wages and prices, further substantial increases in the general level of prices for 1971 seems to be unavoidable. Balance of Payments 16. The balance of payments in 1970 was affected by uncertainties about the exchange rate. In the fourth quarter after the August devaluation, exports particularly and imports to some extent showed an upswing. For the year as a whole commodity exports increased by 9.6 percent to $588 million, and commodity imports by about 18 percent to $948 million, thus worsening the trade balance to $360 million in 1970, compared to $264 million in 1969. The inflow of workers' remittances continued to be high in the last quarter reaching over $100 million. For the year as a whole workerst remittances increased by about 95 percent to reach $273 million. Although tourist receipts were affected by the outbreak of cholera, there was a small surplus on tourist account of $4 million. Due to these offsetting factors, the current account deficit declined to i$172 million from $221 million in 1969. 17. The major contributors to the growth of commodity exports were a 30 percent increase in mining and quarry products, particularly borates and chromium ore. Agricultural exports grew at about the average rate, but the growth of industrial exports like industrial production was disappointing. On the import side, the major growth was in investment goods, particularly due to an increase in prcject credits and also due to private foreign investment. 2mports of fond and eerag: also increased markedly, mainly because a shortfall in wheat production necessitated over 760,000 tons of wheat imports. The growth of imported inputs and raw materials however was small. 18. Private foreign investment increased considerably to $54 million in 1970, compared with $24 million in 1969. The increase was largely in the form of project credits from U.S.A. Imports with waiver rose from $20 to $34 million. Disbursements on official external assistance also increased to over $400 million compared with $280 million in 1969, mainly due to the special assistance for devaluation; the overall sur- plus in the balance of payments in 1970 was $164 million. At the end of December 1970, the gross reserves stood at $413 million compared to $170 million at the end of December 1969. This increase was due to net drawing on the Fund of $48 million plus the allocation of SDR $18 mil- lion, the refinancing of some $75 million of EMA debt repayments and an unused volume of official external aid. At the end of March 1971, the reserves amounted to $422 million. However, the reserve totals do not allow for a contingent liability of the Central Bank on account of letter of credit for imports that were approved, when the backlog of exchange allocations was eliminated, but which have not yet matured. Allowing for an estimate of this contingent liability, net reserves were about $140 million at the end of March 1971. 19. According to the Annual Program :or 1971, commodity exports are expected to increase by about 9 percent to $640 million i.e. roughly the same rate as the previous two years. This rather cautious forecast allows for the fact that production of traditional agricultural exports was low in 1970, and that industrial exports would have to pick up from the comparatively low growth in 1970. Imports are expected. to increase by 10 percent to $1045 million due mainly to the arrival of goods as a result of the clearing of the backlog of exchange applications ($300 million in July 1970). Part of this backlog was however, speculative and as a result the new monthly applications for imports after devaluaticn have been less than expected. The entire increase in imports is expectev to be in the liberalized and quota lists, with the liberalized list im- ports increasing from $366 in 1970 (actual) to $455 million in 1971. Re-4 materials imports are expected to increase by 35 percent, thus sub- stantially raising their share in total imports. If this is realized, then fuller use of industrial capacity would be possible with increased availability of inputs. The overall growth of commodity exports and i- ports is likely to be realized: for the first quarter in 1971 exports were about $180 million and imports $290 million, compared to $155 mil- lion and $240 million respectively in the first quarter of 1970 respec- tively. 20. The trade deficit is projected at $4o million, and the current account deficit at $253 million. However, this forecast does not allow for any increase in workers' remittances and only a small rise in net tourism earnings. Workers' remittances had reached $86 million in the first three months of 1971, and if this rate continued they are likely to exceed $300 million for the year. In addition, there could be a - 8 - large' Surplus for tourism earnings. Debt repayments and th- grocs capital inflow are both likely to be lower than in 1970, with the net inflow unchanged at about $340 million. Within this total, project credits are expected to increase sharply. Even though the total flow of external assistance may not continue at the same high level.as 1970, the balance of payments should not pose major problems in 1971. The System of Trade and Payments 21. The August 1970 devaluation and stabilization measures provided for elimination of the delays in allocating foreign exchange and re- storation of a prompt payments system, reduction of the stamp duty and the advance import guarantee deposits, and simplification of- the export tax rebate system. The new import regime introduced on January 4, 1971 contains some important changes. A liberalization list, covering per- haps 30 percent of program imports was established, to be wholly free of administrative interference and control. Contrary to previous years, quota lists were to be announced for the full year, though the quotas were to be allocated on a six-month basis, to prevent speculative im- ports. Rates of import guarantee deposits, after having been halved at the time of the devaluation, were further changed: guarantee deposits for imports under List I were increased from 45 to 50 percent, and those under List II were reduced from 60 to 40 percent. The rate of stamp duty remained at 10 percent, after being reduced from 25 percent in August 1970. No further progress was made in the revision of the mul- tiple system of trade controls and quantitative restrictions to replace' them with a system of tariff controls. The new government has announcet further substantive changes in this system (see para 26). II. THE GOVERNMENT PROGRAM 22. The new government's program was announced in April 1971. Re- cognizing the severe constraints on resource availability and the latent inflationary pressures in 1971 and the limited extent to which the government can successfully intervene in the short-term, the main thrust of the government's reform program is towards long-term, structural and institutional reforms, which are unlikely to bear fruit in less than 2-3 years. Since the program was formulated only recently, the stated policies have, with few exceptions, yet to be translated into detailed measures and decrees. In some cases, where study groups have been set up, even policy statements are unlikely to be made before a few months. The program focuses on the need to re-establish internal security, announces that studies will be made of the basic principles of the Third Plan, and provides for .a series of measures to reorganize the State's administration to carry out major reforms, particularly in agriculture, education, and State Enterprises. 23. To re-establish internal security, martial law was introduced during May 1971 and extreme right or left-wing political, labor and student organizations were banned. The situation of unrest improved considerably as a result, but some sporadic violence has continued and the government has further tightened up security measures in June. -9- 24. Nationalization and control of foreign investment: The government has announced that petroleum distribution, mining, energy and forest resources will be nationalized and unified, state-owned industries will be set up in these sectors. The detailed procedures for nationalization are still being worked out. A more selective policy on foreign investment will be followed, and a greater emphasis placed on its balance of payments effects. Private foreign investment will be encouraged providing the following conditions are met: provision of technological skills that are unavailable by other means, the size of the projects is such that they cannot be completely financed domestica'ly, the projects are export- oriented and can be internationally competiti.ve, and majority ownership rests with Turkish nationals. These conditions will be cumulatively applied. These criteria are not new but are now likely to be more rigorously applied. The policy will not be applied to existing foreign investments but only to their expansion and to new investment. It is expected that decrees applying to existing investment will be scrupulously observed. Finally, the authorities intend to apply these conditions pragmatically and recognize the need for exceptions e.g. tourism. Smaller size entrepreneurs may however, face a shortage of foreign exchange that might previously have been obtained through foreign partners. It is not clear whether with the present policies on foreign investment and. nationalization, Turkey will be able to exploit fully the potential foreign exchange earnings in specific sectors, particularly mining and forestry. 25. Investment and export incentives: The new policy is based on the premise that in the past incentives have been ill-designed, substantially ill-used and ineffective. The aim is to remove arbitrariness in the application of incentives and make them conditional on measurable results. The separation of policy making for incentives (to be done by the SPO) and its implementation (by the new Ministry of External Relations) should help. It is not clear however, whether in the past most of the incentives, considered to be ineffective, went to the private or public sector. Moreover, the government is not planning to replace those provisions of Law 933 which were declared unconstitutional as applied, namely the authority to grant partial, as opposed to 100 percent duty exemption (Law 47h) and permit a maximum tax credit as investment allowance of 30 percent, compared to a previous maximum of 80 percent. At this stage, it is not clear how the government policy in this field will develop and administratively, how the incentives can be made conditional on measurable results. Meanwhile doubts about the..future of incentives have had an adverse effect on business confidence and it is important that a precise policy should be adopted as soon as possible. - 10 - 26. The external trade regime: The newly created Ministry of External Economic Relations issued new import and export regulations on April 30, 1971 and the main new factors of the system are the following: (a) An advance price control system for both imports and exports will be instituted, and in order to carry it out, connections with Turkish external agencies and external markets will be set up to follow current price trends. Exports and imports would have to be carried out on the basis of prices announced by the Ministry. (b) In allocating foreign currency for imports or in granting certificates, the Ministry will take into account the domestic requirements and the existing stocks, the income and corporation tax paid by the importer in the last 3 years and his income from commercial dealings in the same period, price conformity with standards set by the Ministry, the duration in which the import will be realized and domestic use made, and the suitability of the domestic sales price. In the case of export registration also, the amount of income and corporate taxes paid by the exporter in the last 3 years as well as his income from commercial transactions in the same period will be taken into account. (c) All exports to non-0ECD countries will be subject to export licences, except for perishables where registration could be done after export. Trade with bilateral agreement countries and countries where trading is done by the State will be regulated by the Ministry. In many ways, these regulations should improve and streamline procedures and lead to better coordination between various agencies controlling external trade and to the extent it provides current price information it should be beneficial for exporters and importers. But the system,in attempting to prevent misuse of foreign exchange, needs to avoid bureaucratic and substantive obstacles to foreign trade even with regard to the liberalized list, which may hurt Turkish exports. 27. Advisoa and st groups: Special expert advisory groups have been formed to report during the next few months on the objectives and policy guidelines to be adopted in the following fields: constitutional amendments to strengthen the executive relatively to the legislature, civil service reorganization, reorganization and improvement of SEEs and agrarian land reform. A National Education Reform Committee has been set up. In addition, a special study is to be started in July 1971 of the whole field of internal resource mobilization and the system of external trade controls and tariffs. As part of the new tempo of government activity, ministries are actively engaged in developing a work program covering their objectives, policy formulation and implementation for the next six months, for the Annual Program for 1972 and for the Third Five-Year Development Plan. Ministries have been instructed to speed up completion of studies already under consideration in such areas as application of the personnel reform law, tax administration, program budgeting, banking and insurance development. - 11 - 28. Administrative reorganization: To inplement this wide and far reaching reform package, the government attaches special importance to measures to reorganize the government administration. Even before the outcome of the studies on administrative streamlining, mentioned above, the SPO has been reconverted into a planning, advisory agency with individual ministries reassuming greater responsibility for policy and decision making. The Department for. the Encouragement and Implementation of Investment has been shifted from the SPO to the new Ministry of External Economic Relations, which will be responsible for coordinating the government's relations with the private sector in the fields of external trade and investment and export promotion. The Ministries of Industry and Commerce have been merged into one ministry. There is a proposal to use the former EIEI, a pre-investment group in the Ministry of Energy and Natural Resources, as the nucleus of a "State Project Office" which would be responsible for pre-investment studies on all projects referred to it. Furthermore, there are proposals to reshape the State Investment Bank into a "Development Bank" such that it will have increased autonomy in investment and project decisions, allow it to raise money on the capital market, have equity and management participation in SEEs and lend both to public and private borrowers. 29. The inistry of Finance is traditionally responsible for and plays a major role in many aspects of economic decision making. Modernization and reorganization of the Ministry and strengthening of its economic intelligence and policy making machinery is long overdue. Studies were started two years ago and a draft establishment law for the Ministry has been prepared. The program identifies some areas where fiscal reform is needed: rationalizing the system of income taxation to minimize tax evasion, extending the tax net to cover agricultural incomes and improving tax administration. Generally, a well-articulated program of financial and organizational reform, covering both the revenue and expenditure side and efficient auditing of government expenditures is needed. 30. Although the reform package is an impressive one, it rEmains to be seen whether the resolve of the new government can be translated into adinistratively effective measures, especially as it is not clear whether the government has the technical aid administrative expertise to undertake the wide range of reforms envisaged. 31. Composition of investment: A crucial area of policy, on which the new government has not yet focussed, is the composition of investment and the distribution of available resources. The macro-economic basis of planning combined with a somewhat belated concentration on project preparation and this outside the framework of an annually phased 5-year investment program, has in the past led to a heavy concentration - 12 - on long gestation projects, industrial projects of uneconomic size, and an excessive number of projects in relation to available resources. Until recently, little attention has been given to export-oriented investment. These in turn hae given rise to delays in completion, and loss of priorities. Although various institutional reforms are being contemplated to improve the composition of investment in the longer term and ensure a better evaluation of project contribution to growth, new measures to change the composition of investment towards quick yielding pro_ jects and improve the concentration of available resources have not yet emerged. This is particularly important in view of the short-term re- source constraints discussed earlier, and their implications for eco- nomic growth in the next year or two. III. DEVELOPMENT PROSPECTS 32. The new government shows a serious commitment to rational eco- nomic management of the economy and fundamental institutional and struc- tural reform. It has opted for a long-term reform strategy, recognizing the inevitable short-term constraints arising out of past policies. But the government may soon need to formulate short-term measures to raise investment and growth above the low rates experienced in 1570. The government fEces serious political problems in 1971 connected with the restoration of law and order and. an atmosphere of normality. These are complemented in the economic sphere, with the need to restore con- fidence in.the economy in the short-term as well as establishing a sound basis for future growth. 33. The constraints on the government's ability to manoeuvre in the short term are associated primarily with the inadeauacy of data on the level of activiby in the short term, lack of selective techniques to influ- ence the general level of demand and the limitations on budgetary re- sources. Given the pressure for consumption expenditure increases during 1971, severe shortages in investment resources are likely to emerge and, in the light of the problems mentioned above and in the section on Public Finance, the Annual Program growth target of 10 percent in public investment is unlikely to be achieved. For the first half of 1971, private sector confidence has been low, leading to a "wait and see" attitude. Indications are that housing and construction, one of the main growth sectors during 1970, is likely to suffer from a recession. Consequently, the targeted growth of 8 percent in private investment is also unlikely to be realized, and growth in total investment in 1971 cFn be expected to fall short of the Annual Program target of 9 percent. 3w. Substantial inflationary pressures will emerge during the year, both from the side of wages and output prices, particularly in the public sector. In view of this, the government faces a choice between upward adjustment of SEE prices, necessary for their financial and economic ratio- nalization, and an attempt to restrain price increases in the economy. - 13 - This dilmma underlies the delays in the adjustment of SEE prices. Eut the more they are delayed, the greater will be the price increases neces- sary to restore some degree of financial viability. These problems empha- size once again the necessity for the government to develop an overall incomes policy and a meaningful machinery for consultation between employers and labor and between industry and the government. 35. Although the extent to which the government can successfully inter- vene in the short-term is admittedly limited, the short-term need is for an efficient utilization of excess capacity in industry, an attempt to change the composition of investment towards quick yielding projects, con- centration on completion of ongoing investments and a radical reduction in the number of ongoing projects. Furtheimore, since resources for credit are available in the commercial banking system (see para 13), active measurs to stimulate private investment and activity would be helpful. The effect of low investment levels in 1970 on economic growth in 1971 should be partly offset by a better agricultural outturn in 1971 and a possible improvement of industrial activity. 36. In the longer term, if the country remains politically stable and if the government can push through its reform program of fundamental changes. the prospects are promising. Turkey has the ability to grow at a rate in excess of 7 percent per year and step up its progress towards external via- bility. The prospects of exports growing by 10 percent per annum are goo&. However, to achieve these aims, Turkey will. continue to require subs tantial amounts of external assistance on favorable terms. The balance of paymelts remains vulnerable to many adverse factors e.g. variations in agricultural output due to weather, the vulnerability of workers' remittances to pros- perity in Europe and the difficulties of expanding manufacturing and mining exports. Hence, although the prospects are good, any adverse development in these fields could lead relatively quickly to foreign exchange diffi- culties. 37. Following successive debt rescheduling and arrangements for debt relief, and the record level of workers' remittances in 1970, the debt servic burden in 1970 was lower than expected, amounting to 16 percent of total foreign exchange earnings. If exports and workers' remittances continue to grow as indicated then this ratio could drop to about 15 percent by 1977. STATISTICAL APPENDEX 2.1: Expenditure on Gross National Product 2.2: Domestic Product by Industrial Origin 3.1: Balance of Payments 3.2: Imports by Types of Financing and by End Use 3.3: Exports by Commodity Groups 3.4: Gold and Convertible Foreign Exchange Reserves of Central Bank 4.1: External Public Debt Outstanding 4.2: Estimated Future Service Payments on External Public Debt 5.1: Central Government Revenue and Expenditure 5.2: Treasury Cash Position 5.3: Central Government Revenue 5.4: Financing of Operational SEE's 6.1: Money and Quasi-Money 6.2: Central Bank Credits 9.1: Price Indices Table 2.1: Expenditure on Gross National Product (Billion TL) 1967 1968 1969 1970 * (Current Prices) Consumption 1 85.2 93.3 103.7 120.2 Private 72.9 79.8 88.9 102.8 Public 12.3 13.5 14.8 17.4 Fixed Investment 17.2 20.8 23.4 26.3 By Sector Private 8.2 9.6 10.3 12.3 Public 9.0 11.2 13.1 1.0 By Asset Building and Construction 11.9 14.4 16.7 Machinery and equipment 5.3 6.4 6.7 Net exports of goods and services -1.4 -2.4 -2.5 -4.3 Exports 5.7 5.7 6.2 8.6 Imports 7.1 8.1 8.7 12.9 GDP at market prices 101.0 112.7 124.6 142.2 Net factor income from abroad 0.3 03 0.5 2.3 GNP at market prices 101.3 12.0 125.1 144.5 Net indirect taxes 10.9 12.3 13.9 16.8 GNP at factor cost 90.4 99.7 111.2 127.7 Gross national saving 16.1 18.7 21.4 24.3 (Constant 1965 Prices) Consumption 77.9 82.2 87.0 91.9 Private 66.8 70.3 74.8 77.9 Public 11.1 11.9 12.2 14.0 Fixed Investment 15.5 18.7 20.2 21.5 By Sector Private 7.4 8.7 9.2 10.0 Public 8.1 10.0 11.0 11.5 By Asset Building and Construction 10.1 11.9 13.1 Machinery and equipment 5.4 6.8 7.1 Net exports of goods and services -1.9 -3.2 -3.3 -4.2 Exports' 5.6 5.7 6.o 6.0 Imports 7*5 8.9 9.3 10.2 GDP at market prices 91.5 97.7 103.9 109.2 Net factor income from abroad 0.3 0.3 0.4 1.0 GNP at tarket prices 91.8 98.0 104.3 110.2 Net indirect taxes 8.8 9.3 10.2 11.0 GNP at factor cost -3.0 55.7 94.1 99.2 Gross national saving 13.9 13.7 17.3 18 3 * Provisional /1 Includes change in stocks. Source: State Institute of StatfiRics, adjusted by IBRD to take account of revisions in the production estimates for agriculture; Table 2.2: Domestic Product by Industrial Origin (Billion TL at factor cost) 1967 1968 1965 1970 (Current Prices) Agriculture and Forestry 28.8 30.3 32.1 34.8 Mining and Quarrying 1.3 1.5) Malufacturing 14.1 15.3) 20.5 22.9 Electricity, gas and water 0.6 0.8) Construction 6.2 7.3 8.3 9.3 Trade 7.2 7.9 9.0 10.8 Transportation, communications 6.5 7.4 8.4 9.7 Housing 4.1 4.7 5.4 6.3 Government Services 8.7 9.8 10.3 13.0 Financial institutions and other services 7.8 9.0 10.3 11.8 Net domestic product at factor cost 85.3 94.0 104.8 118.6 Depreciation 4 .8 5.4 6 .0 6 .8 GDP at factor cost 90.1 99.4 110.8 125.4 (Constant 1965 prices) Agriculture and Forestry 26.6 27.1 27.1 27.4 Mining and Quarrying 1.1) Manufacturing 12.9) 15.9 17.5 18.0 Electricity, gas and water 0.5) Construction 5.4 6.0 6.5 6.8 Trade 6.6 7.3 7.,7 8.3 Transportation, communications 5.9 6.3 6.9 7.4 Housing 3.9 4.3 4.7 5.1 Government Services 7.9 8.7 9.4 10.3 Financial institutions and other services 7. 7.9 8.6 9.2 Net domestic product at factor cost 78.2 83.5 88.4 92.5 Depreciation 4.5 4.9 5.3 5.7 GDP at factor cost 82.,7 88.4 93.7 98.2 Source: State Institute of Statistics, adjusted by IBRD to take account of revisions in the production estimates for agriculture. Table 3.1: Balance of Payments (Million US$Y 1967 1968 1969 1970 1971 (Actual) (Program) CURRENT ACCOUNT Foreign trade Imports (cif) -68$ -76h -801 -948 -1.045 Exports (fob) 523 496 537 588 640 Trade balance -162 -268 -264 -360 -405 Invisibles Tourism and travel - 14 - 9 - 5 4 7 Interest - 35 - L1 - 45 -48 -63 Profit transfers - 25 - 32 - 32 -33 -39 Workers' remittances 93 107 141 273 262 Others 1 2 -2 -16 -2 Invisibles balance 34 27 35 180 146 NATO infrastructure and off-shore receipts 1 10 8 8 6 Current Account Balance -114 -231 -221 -172 -253 CAPITAL ACCOUNT Private resources 29 30 44 92 57 - Suppliers' Credits - - - - - - Direct investment 17 13 24 58 32 - Direct imports (with waivers) 12 22 20 34 25 Official 246 274 279 117 400 Project assistance 83 127 17 179 230 Program assistance 92 87 79 64 100 Debt relief /l 46 35 11 16 - EMA Credits 25 25 15 25 15 EMA Refinancing - - - 50 25 US PL 480 imports - - 41 83 30 Gross capital inflow 275 309 364 509 457 Amortization of Public debt -106 -94 -115 -173 -118 Net capital inflow 169 215 249 336 339 Overall Balance +55 -16 +28 164 86 Errors and Omissions -67 +20 +94 -4 -48 Change in reserves (- increase) +12 - 4 -122 2 -168 -38 Foreign Exchange Reserves 119 123 245 2 413 451 Net IMF Position - 8 27 -11.5 4T- Drawings 27 30 10.0 75 15 ReDurchases -19 -3 -21.5 -27 -27 SDR Drainigs 18 16 /1 Including interest refinanced: $2 million in 1967; $7 million in 1968; and an estimatE $2 million in 1969. /2 The increase reflects mainly a one-time change in Central Bank accounting, representil a shortening of the "lead" in import payments. Source: Ministry of Finance. Table 3.2: Irports By Tes of Financing and By End Use Million US $) 1967 1968 1969 1970 1971 Program Actual Program Actual Program Actual Program Actual Program I. Programmed imports - Liberalized list 340 326 360 361 355 344 400 366 455 - Quota list 24 196 240 202 235 189 20 192 270 Convertible currency for programmed imports $80 $22 600 563 590 $34 605 558 725 - Bilateral agreement countries 90 105 100 lo8 105 104 105 96 100 Total programmed imports 670 627 700 671 695 638 710 654 825 II.. Self-financing imports /l Foreign 90 38 100 63 130 75 135 113 145 -1 17 f-In111 - Foreign private capital 25 10 13 43 16 - imports with waiver 10 11 15 17 18 54 20 62 2$ - NATO infrastructure $ 3 3 2 2 3 2 17 4 - PL 480 - - - - - 2 - 55 30 - Others - 1 - 5 - 19 - 4 - Total non-programmed imports 130 58 135 93 165 163 170 294 220 III. Total imports Boo 685 835 764 860 801 880 948 1045 of which: Investment goods 340 260 332 325 365 351 375 446 315 Raw materials 375 380 418 394 440 396 450 454 615 Consumer goods 8$ 45 8$ 4$ $5 $4 $5 48 11$ 1 Due to differences in classification figures may differ from balance of payments. Source: State Plannning Organization Table 3.3: Exports by Commodity Groups (Million US $) 1967 1968 1969 1970 1970 1971 (Actual) (Program) (Actual) (Program) Agricultural and Animal Products 420.7 W06.6 405.1 450.0 142.8 466.o Cereals and pulses 8.7 9.7 6.8 7.0 9.8 7.0 Nuts, fruits and vegetables 132.6 126.8 161.7 127.5 137.7 168.0 - Hazelnuts 82.7 76.0 /1 107.6 70.0 87.0 100.0 - Raisins 22.7 22.6 22.8 25.0 20.8 26.0 - Dried figs 7.2 7.0 6.8 7.0 7.2 8.0 - Citrus fruits 6.6 8.6 10.2 13.5 15.0 20.0 - Others 13.4 12.7 14.2 12.0 7.7 14.0 Industrial crops and forestry products 254.1 240.1 204.1 271.0 261.6 253.0 - Tobacco 117.7 94.8/2 81.5 118.0 78.6 107.0 - Cotton 128.5 139.1/3 113.6 15.0 173.2 136.0 - Forestry products ) 1.9 2.3 7.0 2.8 2.5 - Others )78 4.3 6.7 1.0 7.0 7.5 Animal products and fisheries 25.4 30.0 32.5 44.5 33.7 38.0 - Livestock 8.8 10.7 11.3 21.5 15.7 15.0 - Wool 2.1 1.9 1.2 3.5 - 1.0 - Mohair 6.4 6.8 5.3 7.5 3.7 6.0 - Fisheries (fresh) 2.5 4.4 5.9 8.0 6.7 7.0 - Others 5.7 6.3 8.8 4.0 7.6 9.0 Mining and Quarry Products 20.7 26.1 34.9 32.0 45.4 42.0 Chromiun ore 7.2 9.6 12.8 16.0 15.7 14.0 Borates ) 0.6 5.5 7.5 7.4 10.0 Magnesite ) 2.1 2.4 2.5 4.3 3.0 Quicksilver 13.5 1.6 3.2 ) 3.2 4.0 Others ) 12.2 11.0 ) 6.0 14.8 11.0 Industrial Products 81.2 63.7 96.9 118.0 100.3 132.0 Food and beverages 46.0 29.8 54.9 50.0 41.3 58.0 - Olive oil 6.8 0.8 12.7 17.0 0.2 - Sugar - 1.5 12.2 0.0 4.0 - Oil cake - 19.8 17.6 22.2 20.8 Textiles 3.1 8.0 15.9 22.0 25.9 30.0 - Cotton textiles 0.5 3.5 11.6 6.7 12.5 Wood and printing products 1.2 2.0 2.1 8.0 2.7 5.0 hides and leather products 0.2 0.3 1.0 3.5 4.6 3.0 Chemicals 3.2 3.2 6.7 6.1 8.7 8.0 Petroleum products 0.4 1.3 2.6 0.9 0.6 2.0 alass and ceramics 0.3 1.0 0.4 2.5 1.0 1.0 Non-ferrous metals 18.2 16.7 9.0 15.0 11.4 12.0 - Copper (blister, electrolytic) 16.0 13.6 6.8 12.5 6.1 5.0 Metal products and machinery 0.2 0.2 0.9 6.5 1.8 3.5 Electrical machines 0.1 0. 0.1 1.0 0.3 0.3 Others 6.3 /4 1.2 3.3 2.5 2.1 4.2 (57.4)/5 (43.0) /5 Total Exports 1 522.7 496.4 536.8 600.0 588.5 640.0 Source: State Planning Organization /1 Includes hazelnuts in shell /2 Includes tobacco refuse /3 Includes cotton linters 717 Including $3.7 million worth of goods which are classified as agricultural products from 1968 onwards. /5 Including all sub-sectors which are shown from 1967 onwards. /6 Figures may not sum up to the totals because of rounding. Table 3.4: Gold and Convertible Foreign Exchange Reserves of Central Bank (Million US $ equivalent) End of Period Gold Convertible Foreign Total Exchange Reserves Gross Assets Liabilities Net 1967 123 -79 44 1968 123 -84 39 1969 December 123.5 100.9 55.2 45.7 169.2 1970 January 123.5 92.2 45.7 46.5 170.0 February 123.5 112.6 51.5 61.1 184.6 March 123.5 103.8 55.3 48.5 172.0 April 123.5 104.6 66.3 38.3 161.8 May 123.5 90.0 65.8 24.2 147.7 June 123.5 90.7 70.0 20.7 144.2 July 123.5 92.6 88.2 4.4 127.9 August 123.5 114.4 36.1 78.3 201.8 September 123.5 155.0 20.7 134.3 257.8 October 123.5 189.7 8.8 180.9 304.4 Noverber 123.5 271.6 10.9 260.7 384.2 December 123.5 301.5 11.7 289.8 413.3 1971 January 123.5 307.1 7.5 299.6 423.1 February 123.5 333.4 9.9 323.5 447.0 March 123.5 308.2 9.8 298.4 421.9 Source: Central Bank Table 4.1: External Public Debt Outstanding l (Thousand US'$) Debt Outstanding Debt Outstanding Dec. 31, 1969 Dec. 31, 1970 Disbursed Including Disbursed Including Only Undisbursed Only _Undisbursed Total External Public Debt 2 1,640,711 2,181,261 1,8L1,105 2,442,936 Privately held debt O4,09 . _3,573_ 67.5)4 Publicly issued bonds 19,255 19,255 L9,32O 18,320 Suppliers 11 302 11,962 89487 -14 Germany 1,007 1,927 1,260 1,320 Italy 34 344 78 78 Japan 132 132 250 250 Netherlands 500 500 193 193 Sweden 193 193 735 735 Switzerland 1,090 1,090 6,971 7,571 United States 7,176 7,776 10,765 39,080 Financial Institutions 13,53 .852 106 29,997 Switzerland 1,848 30,139 8,059 8,083 United Kingdom 9,012 9,036 1,000 1,000 United States 2,677 2,677 Loans from International Organizations 312 813 )62 603 383,472 578 172 Council of Europe 4,793 4,582 4,582 Eurofirma 286 286 256 256 European Fund (EMA, EPU) 98,738 98,738 121,649 161,649 European Investment Bank 94,325 164,325 120,491 180,257 IBRD 38,907 102,009 53,497 139,111 IDA 75,764 92,452 52,997 392,317 Loans from Governments L 1,283,803 1.645,578 1.429.o6_ 1.797.216 Austria 1 7,009 7,009 6,256 6,863 Belgium 9,954 11,346 10,440 11,940 Canada 15,115 18,843 22,753 24,329 Denmark 1,707 1,867 1,791 4,467 France 55,490 87,160 63,399 125,957 Germany 314,476 353,333 326,829 384,841 Italy 68,505 102,473 83,282 109,113 Japan 14,055 15,700 15,419 15,700 Netherlands 11,448 12,443 11,194 12,451 Norway 2,789 2,789 2,789 3,279 Sweden 4,208 5,497 4,383 8,130 Switzerland 10,038 10,166 9,902 12,491 United Kingdom 104,429 117,869 106,375 121,824 United States 664,580 899,083 764,248 955,831 1 Debt with an original or extended maturity of over one year. /2 Does not include loans from U.S.S.R. amounting to $395.4 million (Frame Agreement 1967) and from Poland amounting to $11.2 million (Agreement 1969). / Does not include $2.0 million unallocated portion of Austrian Frame Agreement. Table ..2: TURKEY - ESTIMATED FUTURE SERVICE PAYMENTS ON EXTERNAL PUBLIC DEBT OUTSTANDING INCLUDING UNDISBWRSED AS OF DECEMBER 31, 1970 Debt Repayable in Foreign Currency (In thousands of U.S. dollars) DEBT OUTST (BEGIN OF PERIOD) PAYMENTS DURING PERIOD I INCLUDING AMORTI* YEAR UNDISBURSED 2ATION INTEREST TOTAL TOTAL EXYTERNAL PUSLIC DEBT 1971 2s276s076 115s819 49s165 164,984 1972 2#160s258 106#412 5l747 1580158 1973 2#053#846 89s424 52*818 142242 1974 1s964,422 83,861 50#633 1340694 1975 10880#561 84,946 47,490 132*636 1976 1,795S614 84,830 46,1f5 131005 1977 1,710,784 89s536 45s#91 135#427 1978 1s621s247 93,040 43s632 136,672 1979 1#528P207 90f071 41,133 151,204 1980 1P438#137 87,845 38s233 126#077 1981 I350s292 86,529 35#293 122,822 1982 1,263,763 82,926 32,424 .11S350 1983 1#180,837 83,543 29,640 t13#1S2 1984 1.097#294 76s220 28.750 104#971 1985 1#021s074 74s263 26#281 100,345 1986 946,811 66s308 23,965 90#292 1987 880#503 64#354 22,245 $6598 1988 816s149 61,622 20PS83 82s205 1989 754#527 59.245 18918 76,163 1990 695,283 57,598 17,329 74#927 Note: Includes service on all debt listed in Table 1 prepared June 14, 1971 with the exception of the following, for which repayment terms are not available: European Fund $105,OO0,OOO European Investment Bank $ 20,000,000 French Government $ 41,860,000 Total $166,660,000 Table 5.1: Central Government Revenue and Expenditure (billion TL) 1967 1968 1969 1970 3 1971 Budget Actual Budget I. REVENUES General Budget Tax Revenues 14.9 16.3 19.1 24.0 23.0 29.5 Non-Tax Revenues 1.2 1.7 1.7 2.1 4.6 3.4 Annexed Budget 0.7 0.7 0.8 1.0 1.0 1.4 Total Revenues T1 IT67 2-. 27.1 2 3 II. CURRENT EXPENDITURE Wages & Salaries 9.7) 11.0) 12.4 ) 10.9) 14.6 ) 15.1 Goods & Services ) )1/ 1/ 4*2 4.9 Interest Payment 0.7 0.9- 1.0 0.8 - 1.5 Other Transfers 1.7 2.5 2.2-' 3.0 5.7 3.1 Total 12.1 177 15.6 20.3 Current Surplus 4.7 4.3 6.0 8.3 8.3 9.7 III. CAPITAL EXPENDITURE Investment 5.0 6.1 6.9 7.0 7.0 7.9 Transfers to SEEs 0.8 0.8 2 1.9 2.0 3.0 Debt Repayment 1.1 1. 1.3-' 1.9 2.0 3.0 Total .7 7.9 10.3 11.1 F13. Overall deficit -2.2 -3.T -. ... IV. FINANCING External Financing 1.1 1.3 1.0 1.3 2.8 2.1 Long Term Domestic Borrowing 1.h 1.1 1.3 1.5 1.5 2.0 Savings Bonds (0.9) (0.6) (0.7) (0.9) (0.9) (1.2) Long Term Borrowing (05) Ll (0.6) (0.6) (o.6) (0.8) Short Term Domestic Borrowing -0.3 1.2 2.0 - - - Advances from Central Bank (0.5) (0.) (1.6) - - - Other (-0.8) (0.8) (0.4) - - - Total 2.2 3.6 4.3 2.8 .3 4.1 1/ Budget estimates; closed accounts are only partially available for 1968 and 1969. 2/ This item includes some items such as payments into sinking funds which should not be included under current expenditure but cannot be separated owing to lack of information. 3/ Transfer expenditures were divided into current and capital accounts by mission estimates of the individual items. Source: Ministry of Finance. Table 5.2: Treasury Cash Position Il (million TL) As of End of Fiscal Year 1967 1968 1969 1970 1971 Position Mar.31,171 Assets 1,403 1,746 2,690 5,305 3,572 - Cash and bank deposits 810 933 1,107 1,557 1,690 - Advance payments 593 81.3 1,583 3,748 1,881 Short-term liabilities 3,475 4,659 6,660 6,593 7,244 - Short-term advances 1,937 2,302 3,198 3,864 4,751 - Treasury bills 348 348 348 - - - Treasury notes 338 720 962 978 577 - Deposit funds 852 1,289 2,152 1,751 1,916 Cash Balance -2,072 -2,915 -3,970 -1,288 -3,672 Deferred payments -1,036 -939 -900 -2,007 -4,626 Net Treasury Position -3,108 -3,854 -4,870 -3,295 -8,298 Source: Ministry of Finance, Monthly Economic Indicators 1 General budget only. Table 5.3: Central Government Revenue (million TL) 1967 1968 1969 1970 1971 Fiscal year /1 Budget Actual Budget Actual Budget Actual Budget Actual Budget Total Domestic Revenue (I, II and III) 17,070 16,786 19,322 18,685 23,535 21,687 27,158 28,620 34,322 I. Total tax revenues (A and B) 15,150 14,882 17,301 16,239 21,249 19,141 24,060 22,992 29,550 A. Direct taxes (1 and 2) 4,720 5,070 5,950 5,695 6,950 6,798 8,960 8,640 11,215 1. Taxes on income and profits 4,430 1,809 5,550 5,384 6,600 6,435 8,350 8,171 10,600 Personal income tax 3,690 3,979 4,600 4,444 5,100 5,168 6,750 6,573 8,650 Corporation tax 740 830 950 941 1,500 1,267 1,600 1,598 1,950 2. Other direct taxes 290 260 400 311 350 363 550 468 615 Defense tax on buildings 175 159 170 189 215 220 280 256 300 Inheritance and gift tax 35 29 50 40 40 53 120 58 100 Motor vehicle tax 80 72 180 82 95 90 150 154 115 Revenue from abolished direct taxes - - - - - - - - 100 B. Indirect taxes (1,2 and 3) 10,430 8,812 11,351 10,544 14,299 12,343 15,160 14,351 18,335 1. Taxes on sales of goods and services 8,564 8,212 9,365 8,935 12,046 10,904 13,525 12,477 15,015 Import production tax 1,230 1,167 1,350 1,199 1,500 1,058 1,150 1,295 2,050 Domestic production tax 1,390 1,302 1,500 1,558 1,900 1,688 2,890 2,195 2,500 Petroleum production tax 1,w0 1,315 1,550 1,529 2,100 1,566 2,590 2,180 3,450 Banking and insurance transact- ions tax 582 639 790 740 920 839 1,080 1,138 1,280 Transportation tax 120 100 100 98 110 90 200 116 225 PTT service tax 70 58 65 62 75 76 175 74 90 Defense tax and monopoly revenues 1,670 1,621 1,700 1,265 2,191 2,148 1,700 2,276 2,000 Sugar consumption tax 470 1419 510 363 700 730 550 444 570 Foreign travel expenditure tax 172 162 190 215 200 270 300 258 - Real estate purchasing tax 216 235 260 290 350 377 575 442 550 Stamp tax 560 582 675 663 800 723 865 912 1,100 Stamp duty on imports 644 612 675 953 1,200 1,339 1,450 1,143 1,200 2. Customs duties 1,621 1,386 1,721 1,332 1,975 1,137 1,275 1,439 2,175 3. Other indirect taxes (wharf dity, fees and revenue from abolished tax) 245 214 265 277 278 302 360 435 1,145 II. Non-tax revenues 948 1,187 1,054 1,715 1,293 1,704 2,070 4,634 3,393 III. Annexed budget revenues 972 717 967 731 993 842 1,028 994 1,379 /1 Fiscal year beginning March 1 3ource: Ministry of Finance Table 5. 4 Financing of Operational SEEs (million T.L.) Program Program 1967 1968 1969 1970 1971 A. USES 1. Investment Expenditure 3,722 3,533 3,811 4,686 7,345 a. Stocks 815 99 -412 n.a. 596 b. Fixed Investment 2,907 3,434 4,223 4,686 6,749 2. Long Term Debt Repayment 1,232 1,318 2.031 2,807 2,165 a. State Investment Bank 958 1,030 1,781 2,437 1,703 b. Foreign,Exchange Equalization account 43 43 67 5 - c. External Debts 190 169 128 213 462 d. Consolidated Debts 41 76 55 152 - Total 4,954 4,851 5,842 7,493 9,510 B. SOURCES 3. Internal Resources 1,294 1,313 1,298 1,863 2,435 a. Profits/Losses after taxes 376 277 144 507 75b b. Depreciation 918 1,036 1,154 1,356 1,677 4. Short term funds 1/ 822 44 -933 -569 379 5. Long term borrowing 2,225 2,687 4,001 4,299 3,696 a. State Investment Bank 2,075 2,230 3,057 2,188 1,496 b. S.I.Bo Deferred Debts - - - 1,261 - c. Counterpart funds - - - - - d. Foreign Project Credits 150 457 944 850 2,200 6. General Budget Transfers 613 807 1,476 1,900 3,000 Total 4,954 4,851 5,842 7,493 9,510 1/ Represents net change in cash, increase in accounts receivable, net change in other payments and net change in short-term borrowing. Source: OECD Consortium (Turkey - 68/69), 1st revision of March 28, 1969. SIS - Draft 1970 Budget (Butce Gerekcesi, 1970 Mali Yili1). Ministry of Finance Table 6.1i Money and Quasi-Mone (Billion TL) 1967 1968 1969 1970** 1971 ** (Actual) (March) Money supply Notes and coins in circulation 8.7 8.2 9.1 11.7 11.2 Commercial sight deposits /1 3.6 4.9 6.0 6.6 5.7 Sight saving deposits l0.4 12.8 15.1 16.8 17.7 Total money supply 22.7 25.9 30.1 35,1 34.6 Quasi-money Time deposits /2 5.1 6.2 7.3 9.8) Public sight deposits 2.0 2.2 2.4 3.0) Deposits with the Central Bank 0.9 1.2 1.2 2.3 2.3 Total Quasi-money 8.0 9.6 10.9 15.1 15.1 Total money and quasi-money 30.7 35.5 41.0 50.2 49.7 ** Provisional /1 Including deposits with the Central Bank on which checks can be issued. /2 Comprising time deposits of individuals (savings) and private enterprises as well as time deposits of public enterprises. Source: Monthly Bulletin, Central Bank. Table 6.2: Central Bank Credits (Million TL) 1967 1968 1969 1970 1971 March Public Sector Agricultural support 2,419 2,960 3,545 3,645 3,659 - Monopolies Administration 750 1,210 1,750 1,750 1,750 - Sugar Corporation 570 620 700 625 675 - Sumerbank 109 110 145 145 154 - TOPRAK 990 1,020 950 1,125 1,080 Treasury 1,951 2,181 3,057 4,359 4,558 Treasury bills 348 348 348 - - Advances against gold 62 62 62 - - Bank liquidation fund 269 263 253 322 322 Surplus imports (TOPRAK) 18 - - - - Other /1 128 125 128 84 34 Subtotal 5,195 5,939 7,393 8,410 8,573 Banking System Agriucultural bills 1,035 1,437 1,824 2,296 2,192 Tobacco financing 233 239 298 296 Agricultural sales corporation 843 1,213 1,617 1,419 784 Import bills - - - - - Export bills 333 221 ) ) ) Industrial: Mining and small ) 1,788 2,192 1,86 traders' bills 809 852 ) ) ) Commercial bills 328 267 ))) Subtotal 3,81 4,229 5,527 6,155 4,758 Ordinary dredit, total /2 8.776 10o168 12,920 14,565 _ 1,31 Special agricultural financing 151 525 647 650 650 1 Including a non-agricultural credit to the Sugar Corporation of TL 34 million. 2 Excluding special agricultural financing and an unchanged consolidated credit to the Government of TL 5,268 million. Source: Central Bank, Monthly Bulletin Table 9.1: Price Indices (1-963 = 100) 1969 1970 1967 2968 1969 1970 I II III IV I II III IV Yearly Average Quarterly Average Wholesale Prices Total 123 1.29 237 1h5 137 137 135 139 1h5 1hb 1hl 148 Food and feeding stuffs 12b4 129 137 13 138 138 13b 138 aTh8 14h 136 143 Cereals 11)b 121 130 132 229 131 128 130 133 132 130 133 Tivestock 153 155 252 184 156 159 1V 17 192 185 172 188 livestock products 138 135 1h2 150 1.2 139 139 16 155 2h7 lhh 155 Industrial raw materials and semi-manufactured nroducts 122 130 136 18 13b 135 137 1h0 1h1 1U 150 155 Fu e 118 256 178 179 173 174 179 187 181 174 177 182 Minerals 126 129 131 157 130 130 131 131 132 152 171 171 Cbemicals and pharmaceuticals 140 1h1 143 203 142 143 1)3 1)3 175 189 211 236 Construction materials 128 132 10 152 138 - - - 16 150 155 155 Textiles 117 116 11.8 12h 116 118 119 119 123 123 121 127 Cost of Living Ankara, total 122 227 137 148 131 132 134 338 1)3 1h 1)8 158 Istanbul, total 131 139 1h5 156 1b )hh 1)5 1h9 152 153 156 162 Food 133 139 1)7 158 1)5 1)7 1)6 152 155 156 157 163 Heating and light 108 12 125 127 225 125 125 125 125 125 126 132 Clothing 125 3)4 139 153 137 137 139 142 1)7 149 155 161 Other 132 140 1)6 162 1)5 1U) 1)5 148 152 156 165 17h Source: Ministry of Finance 5tate Institute of Statistics, Ministry-of Commerce.