THE WORLD BANK The World Bank in Turkey: 1993­2004 An IEG Country Assistance Evaluation INDEPENDENT EVALUATION GROUP ENHANCING DEVELOPMENT EFFECTIVENESS THROUGH EXCELLENCE AND INDEPENDENCE IN EVALUATION The Independent Evaluation Group (IEG) reports directly to the Bank's Board of Executive Directors. IEG assesses what works, and what does not; how a borrower plans to run and maintain a project; and the lasting contribution of the Bank to a country's overall development. The goals of evaluation are to learn from experi- ence, to provide an objective basis for assessing the results of the Bank's work, and to provide accountability in the achievement of its objectives. It also improves Bank work by identifying and disseminating the lessons learned from experience and by framing recommendations drawn from evaluation findings. The World Bank in Turkey: 1993­2004 An IEG Country Assistance Evaluation 2006 The World Bank http://www.worldbank.org/ieg Washington, D.C. © 2006 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved 1 2 3 4 5 09 08 07 06 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Photo: Suspension bridge over the Bosphorus joining Europe and Asia (on the far side). Cover photo by Mark Henley, courtesy of Panos Pictures. Library of Congress Cataloging-in-Publication Data Kavalsky, Basil. The World Bank in Turkey, 1993­2004 : an IEG country assistance evaluation / Basil G. Kavalsky. p. cm. -- (Operations evaluation studies) ISBN-10: 0-8213-6573-8 ISBN-13: 978-0-8213-6573-1 e-ISBN: 0-8213-6574-6 DOI: 10.1596/978-0-8213-6573-1 1. World Bank--Evaluation. 2. Economic development projects--Evaluation. 3. Economic assistance--Turkey-- Evaluation. I. Title: IEG country evaluation. II. Title. III. World Bank operations evaluation study. HG3881.5.W57K38 2006 332.1'53209561--dc22 2006040530 World Bank InfoShop Independent Evaluation Group E-mail: pic@worldbank.org Knowledge Programs and Evaluation Capacity Telephone: 202-458-5454 Development (IEGKE) Facsimile: 202-522-1500 E-mail: eline@worldbank.org Telephone: 202-458-4497 Facsimile: 202-522-3125 Printed on Recycled Paper Contents v Acknowledgments vii Foreword ix Executive Summary xiii Turkey Country Assistance Evaluation Ratings Summary xv Acronyms and Abbreviations 3 1. Background: Crisis, Change, and Reform 3 Before Fiscal 1994 3 Fiscal 1994­98 4 Fiscal 1999­2004 7 2. The Bank in Turkey 7 The Policy Dialogue 8 The Bank's Country Assistance Objectives 11 The Lending Program 12 Quality of Bank Lending 13 Knowledge Services 15 Partnerships 16 Assessing Program Outcomes 19 3. First Pillar: Macroeconomic Stability 19 Improve Public Sector Financial Management 20 Support Structural Reforms 23 Assessing First Pillar Outcomes 23 The Bank's Contribution to First Pillar Outcomes 27 4. Second Pillar: Growth, Competitiveness, and Productivity 27 Strengthen the Banking System and Deepen Financial Intermediation 29 Improve the Management of Infrastructure 32 Enhance Productivity 34 Assessing Second Pillar Outcomes 37 The Bank's Contribution to Second Pillar Outcomes i i i T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 39 5. Third Pillar: Poverty Reduction and Social Development 39 Equity, Employment, and Social Protection 42 Improving the Health of the People 45 Improving Education Access and Quality 47 Assessing Third Pillar Outcomes 49 The Bank's Contribution to Third Pillar Outcomes 51 6. Fourth Pillar: Environment and Natural Resource Management 51 Meeting Environmental Challenges 52 Disaster Management 53 Assessing Fourth Pillar Outcomes and the Bank's Contribution 55 7. Overall Assessment, Lessons, and Recommendations 55 Rating the Overall Outcomes 56 Lessons and Recommendations Annexes 63 A: The Relation Between the Bank's Strategy and Program 77 B: Statistical Tables 95 C: List of People Met 99 D: Management Action Record 101 E: Summary Overview of MIGA's Activities in Turkey 105 F: Guide to IEG's Country Assistance Evaluation Methodology 109 Attachment 1: Comments from the Government 111 Attachment 2: Chairman's Summary: Committee on Development Effectiveness (CODE) 115 References Boxes 14 2.1 Perceptions of Bank Impact Differ Between Bank Staff and Turkish Authorities 36 4.1 Pillar Two Outcomes: Mixed Results 48 5.1 Changes in Turkey's Social Indicators 59 7.1 Summary of Recommendations Tables 4 1.1 Key Macroeconomic Indicators, 1993­2003 10 2.1 Country Performance Can Be Measured against 10 Objectives 11 2.2 Summary of Bank Lending to Turkey by Major CAS Objectives 13 2.3 IEG Ratings of Operations Closed, Fiscal 1994­2004 13 2.4 Turkey Has a Lower Percentage of Projects at Risk than Do Comparators 24 3.1 First Pillar: Macroeconomic Stability Outcomes 30 4.1 Regulatory Frameworks Created or Enhanced during 1993­2004 35 4.2 Second Pillar: Growth, Competitiveness, and Productivity Outcomes 40 5.1 Slow GDP and Job Growth Meant a Declining Employment Rate 43 5.2 Regional Differences in Health Outcomes 46 5.3 Third Pillar: Poverty Reduction and Social Development Outcomes 52 6.1 Fourth Pillar: Environment and Natural Resource Management Outcomes 56 7.1 Rating the Overall Outcomes Figures 12 2.1 Bank Lending to Turkey, 1994­2004 20 3.1 Turkey Slipped into Financial Crisis Three Times i v Acknowledgments This evaluation was prepared by Basil Kavalsky IEG). Gulmira Karaguishiyeva provided inputs on (task manager, consultant, Country Evaluation the financial sector as well as statistical and re- and Regional Relations, IEG). Sections on the so- search assistance. Indermit Gil and Gene Tidrick cial sectors were prepared by Jim Harrison (con- were the peer reviewers. H. Joan Mongal pro- sultant, IEG), and sections on infrastructure and vided administrative support. portfolio management by Ian Hume (consultant, Director-General, Evaluation: Vinod Thomas Senior Manager, Country Evaluation and Regional Relations, IEG: R. Kyle Peters Task Manager: Basil Kavalsky v Foreword T his Country Assistance Evaluation (CAE) assesses the outcomes of the World Bank's assistance to Turkey from July 1, 1993, to June 30, 2004. It focuses on the objectives of that assistance and the extent to which outcomes were consistent with those objectives. It looks at the Bank's contribution to the achieve- Agency (IEG-MIGA), prepared by Stephan Weg- ment of those outcomes and the lessons for the ner, is included as Annex E. The Turkey Coun- Bank's future activities both in Turkey and more try Impact Review of IEG-IFC was prepared in broadly. The evaluation included a review of rel- parallel with this CAE. evant documents, complemented by interviews The draft report was sent to the government with the staff of the Bank and other key donors, for comments. The comments received from the as well as representatives of the Turkish govern- government, and IEG's response, are included as ment, nongovernmental organizations (NGOs), attachments 1 and 2, respectively. Government and civil society. comments have received full consideration. A contribution by the evaluation unit of the World Bank's Multilateral Investment Guarantee Vinod Thomas Director-General, Evaluation v i i Executive Summary P rivate investment and a surge of exports following trade liberalization helped Turkey grow rapidly during the 1980s. Yet a mix of public in- vestments in infrastructure and populist policies, such as generous pen- sions for civil servants and large agricultural subsidies, gradually led to an imbalance in the public accounts and to high inflation. Between 1993 and 2004 economic growth was source management. Major aspects of the Bank's highly volatile. A series of weak coalition gov- program were as follows: ernments failed to achieve the consensus to un- dertake the measures needed for growth and a. Between 1993 and 2004 the Bank's main focus stability. Successive financial crises in 1994, 1999, was to help Turkey undertake the structural and 2001 could only be stabilized with new taxes reforms needed for macroeconomic sustain- or expenditure cuts equivalent to 5 percent of ability. These reforms were seen as essential gross national product (GNP). In 1999 an effort to restore sustained growth and to reduce was made to tackle some of the underlying struc- poverty. The reforms covered four areas: first, tural issues. While this effort was insufficient, ad- reducing the large deficits of state-owned en- ditional reforms in 2001 tilted the balance and, terprises (SOEs); second, reducing or elimi- together with the 2002 election of the first ma- nating agricultural input subsidies and price jority government in over a decade, appear to supports; third, containing the rising pen- have set Turkey on track for greater economic sion system deficit; and fourth, ensuring the stability. solvency of the state banks, which were used The Bank program during the review period during most of the period to provide off- encompassed four broad strategic pillars: macro- budget funding for government expenditures. economic management; growth, competitive- b. During the first half of the period, the Bank ness, and productivity, which included the was unable to sustain a dialogue on these is- financial sector and infrastructure; poverty re- sues with successive coalition governments. duction and social development; and natural re- Following the 1994 financial crisis, adjust- i x T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 ment lending was discussed briefly, but with Union (EU) accession, helping Turkey both to rapid recovery, the government decided not develop the technological basis needed to to pursue it. The Bank continued to look for compete effectively and to put in place gov- lending opportunities, but with the very weak ernance and anti-corruption programs to im- performance of the ongoing portfolio, lend- prove the climate for both domestic and ing declined sharply until 1998. Very little foreign direct investment. formal economic and sector analysis was car- e. The Bank also supported poverty reduction ried out, given the lack of interest on the and social development in the latter part of the part of the authorities and their hesitation CAE period, through both the design of ad- about Bank analysis of topics that were viewed justment operations and specific projects and as politically sensitive, such as poverty and re- sector work. While Turkey had little extreme gional development. poverty, there was a sizeable category of c. The dialogue was much closer in the latter half broader poverty concentrated mainly in the of the period, with increased management east and among new migrants to the large focus on Turkey, including the decentralization cities. Bank-supported programs tried to im- of Bank decision making to the Country Of- prove the health standards, expand the edu- fice in Ankara, and the increased role of the cational opportunities of the poor, and provide Country Office in program monitoring and cash assistance to the neediest families. In implementation. 1997 the Turkish Government took a major ini- There was a sharp increase in Bank support tiative in expanding compulsory education in response to the financial crisis and earth- from five to eight years, and the Bank geared quake of 1999, and especially in supporting the its program to support this change. program of measures introduced following f. The Bank had only limited engagement with the crisis of 2001. The expansion of Bank sup- Turkey on some of its serious environmental port was associated with measures to address issues, though it has helped strengthen the the structural imbalances through (1) bringing capacity to provide early warnings and man- the off-budget expenditures back into the age the aftermath of the natural disasters to budget; (2) giving a new impetus to the pri- which Turkey is prone. vatization program and hardening the budget constraint on the SOEs; (3) sharply reducing Program Outcomes agricultural price supports and input subsi- The Bretton Woods Institutions together played dies; and (4) recapitalizing the state banks. a key role in supporting the turnaround in On pensions, while some measures were Turkey's economy. Turkey's success in stabiliz- taken in 1999 to contain the deficit, these ing the economy and attending to some long- were insufficient, and the pension deficit has standing structural problems was the major grown substantially since. This remains a cen- achievement during the CAE period. Inflation tral issue in the Bank's dialogue with the gov- reached single-digit levels toward the end of ernment on structural reforms. 2004, and growth averaged about 7­8 percent be- d. In addition to the support for macroeconomic tween 2002 and 2004. When the political will to stabilization, the Bank also helped Turkey ad- reform was finally there, in many cases the gov- dress broader issues of growth, productivity, ernment built its programs around proposals and competitiveness. The focus was on deep- the Bank had put on the table during earlier ening the financial sector; improving the ef- years--in SOEs, in agriculture, in the financial ficiency of infrastructure in general, and the sector, in energy, and even in pensions (despite energy sector in particular; and, especially limited progress in that area). later in the period, with the growing prospect The Bank's effort to support growth, pro- of entering into negotiations for European ductivity, and competitiveness had more mixed x E X E C U T I V E S U M M A RY results. After many years of urging by the Bank, implemented and, until the late 1990s, the Bank the government's eventual agreement to fully in- had under-invested in the analytic work needed dependent banking regulation, a regulatory to have an impact on social development. More framework for energy, and improvements in the recently, sector work has played an effective role infrastructure for technology development were in supporting dialogue and operations. important conditions for future growth. It is too Except for improvements in air quality in soon for these to be reflected fully in major gains Ankara and Istanbul, and the development of in efficiency, though there are positive trends in communal watershed management programs, most areas. However, Turkey has not yet cre- these have been "lost years" for environmental ated the investment climate needed to attract the management in Turkey. Neither the authorities levels of foreign direct investment (FDI) typical nor the Bank focused on these issues. For ex- of comparator countries. With the agreement ample, the National Environmental Action Plan on negotiation for EU accession, a sharp rise in that was developed in the middle of the period FDI was projected for 2005, but it remains to be has had little impact. The Bank placed increas- seen whether this can be sustained in the ab- ing emphasis on disaster risk mitigation in its pro- sence of supporting measures. In addition, much gram after the 1999 Marmara earthquake, but the of the economy continues to be in the informal program has been slow to get off the ground. sector, which is unable to benefit from the fi- The outcomes of the overall Bank program are nancial flows needed for growth. The Bank could rated moderately satisfactory, with substantial have done more to keep a focus on the business institutional development impact and likely climate over the period. sustainability. Social achievements have also been mixed. In the coming years the Bank should con- Poverty declined only slightly up to 2002, but tinue a high level of support to Turkey, but some substantial consumption growth since then has rethinking of its approach is needed. With the im- probably translated into additional poverty re- provements in public sector management, the duction. While the benefits of expanding com- program should be rebalanced with greater sup- pulsory primary education coverage starting in port for private sector development (including 1997 have been substantial, quality needs to be its role in generating employment and reducing improved. The main achievement in health was poverty) and environmental management, but a halving of the infant mortality rate over the pe- without relinquishing the efforts to improve in- riod. Other health indicators moved more slowly, frastructure management and support social de- though generally in the right direction, with the velopment. Within these areas, greater attention notable exception of slippage in the child im- needs to be given to developing the capacity of munization programs. Employment remains an key agencies responsible for program imple- important problem--only half of the working mentation. Support for private sector develop- age population is employed, and women's par- ment would benefit from a coordinated approach ticipation in the labor force is among the lowest from the Bank, IFC, and MIGA, which has been in the Organization for Economic Cooperation lacking until now. Finally, improved environ- and Development (OECD). The Bank's contri- mental management will be an important area of bution to Turkey's social programs has been mod- Bank support to Turkey as it seeks to negotiate est. Some projects in these areas have been poorly accession to the European Union. Nils Fostvedt Acting Director-General Independent Evaluation Group x i T U R K E Y C O U N T RY A S S I S TA N C E E VA L U AT I O N R AT I N G S S U M M A RY Turkey Country Assistance Evaluation Ratings Summary Pillars/objectives Outcome Ratings 1. Macroeconomic stability Moderately Improve public financial Substantial growth with declining inflation and rising primary surplus after satisfactory management 2001, following years of volatility and three financial crises. Most extra- budgetary funds eliminated and fiscal controls streamlined (chapter 3 and table 3.1). Implement key structural Large SOE losses converted to modest surpluses; agricultural subsidies reforms substantially reduced and made less distorting; and scope for financing of off-budget subsidies by state-owned banks sharply curtailed, all contri- buting to sustainable fiscal improvement. But pension system deficits have risen rapidly, offsetting much of this gain (chapter 3 and table 3.1). 2. Growth, competitiveness, & productivity Moderately Strengthen banking Independent Banking Regulation and Supervision Authority created and satisfactory system and deepen regulatory and supervisory framework implemented to align more closely to financial EU standards. Banking system finances much stronger at end of period, but intermediation credit to private sector as a percent of GDP is low compared to OECD average, and little progress toward privatization of state-owned banks (chapter 4 and table 4.2). Improve management Regulatory frameworks and institutions established or enhanced in energy, of infrastructure telecom, and railways. Growing private investment in power. Utilities are being run on increasingly commercial basis, but quantifiable efficiency gains have not yet emerged (chapter 4 and table 4.2). Enhance productivity Agricultural reforms have reduced and rationalized subsidies and price supports, replaced state marketing agencies with private commodity exchanges, privatized agricultural SOEs, and reduced food costs to consumers. The institutional framework for research and development, intellectual property rights, and technological standards has been strengthened and made more self-sufficient financially. Governance improvements, including in public procurement, budget transparency, and energy and banking regulation have reduced scope for corruption, but have not yet translated into improved governance indicators or greater FDI (chapter 4 and table 4.2). 3. Poverty reduction & social development Moderately Promote equity, Poverty rate declined in line with growth in per capita GDP and satisfactory employment, and consumption; poverty monitoring improved. social protection Employment growth has been very slow, with a decline in employment rates, especially for women. A new, targeted social assistance program helps keep about 1.7 million poor children healthy and in school, with over 60 percent of benefits going to the two poorest regions. The pension system remains financially unsustainable. Regional income distribution does not appear to have deteriorated. Social sector spending protected during post 2001 fiscal contraction (chapter 5 and table 5.3). x i i i T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Turkey Country Assistance Evaluation Ratings Summary (continued) Pillars/objectives Outcome Ratings Improve the health Sharp (45 percent) drop in infant mortality brings Turkey's mortality rate below Moderately of the people the middle-income average. satisfactory The much slower infant mortality rate declines in the eastern regions, along with lower immunization coverage and less focus on disease prevention, remain serious concerns (chapter 5 and table 5.3). Improve education Primary school enrollment rate rose rapidly after 1998 (from 84 percent to 98 coverage and quality percent in gross terms), and faster for girls; substantial increase in secondary enrollments. Quality, though low, did not deteriorate during expansion. Female literacy improved relative to male; literacy in poorest region rose faster than national average (chapter 5 and table 5.3). 4. Environment & natural resource management Moderately Reduce Improved institutional framework, but no significant impact on pollution or unsatisfactory environmental natural resource management so far (chapter 6 and table 6.1). degradation Support better Response to 1999 earthquake disaster rapid and effective and institutions and disaster systems to deal with disasters are developing, though slowly (chapter 6 and management table 6.2). Overall rating Moderately satisfactory Note: SOE = state-owned enterprise. x i v ACRONYMS AND ABBREVIATIONS APL Adaptable Program Loan ARIP Agricultural Reform Implementation Program ASCU Agricultural Service Cooperative Union BRSA Banking Regulation & Supervision Agency CAE Country Assistance Evaluation CAS Country Assistance Strategy CEM Country Economic Memorandum DIS Direct income support DSI State Hydraulic Institute EBFs Extra-budgetary funds ECA Europe and Central Asia Region EFIL Export Finance Loan EIA Environmental Impact Assessment EIB European Investment Bank ERL Economic Reform Loan ESMAP Energy Sector Management Assistance Program ESW Economic and sector work EU European Union FDI Foreign direct investment FSAL Financial Sector Adjustment Loan GDP Gross domestic product GNP Gross national product HTP Health Transition Project IEG Independent Evaluation Group (formerly the Operations Evaluation Department) IFC International Finance Corporation IMF International Monetary Fund ISMEP Istanbul Seismic Risk Mitigation and Emergency Preparedness Project KGM General Directorate of Highways MEER Marmara Emergency Earthquake Reconstruction Project MIC Middle-income country MIGA Multilateral Investment Guarantee Agency MoENR Ministry of Environment and Natural Resources MoH Ministry of Health MoNE Ministry of National Education NEAP National Environmental Action Plan NGO Nongovernmental organization NPL Nonperforming loans x v T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 ODS Ozone depleting substances OECD Organization for Economic Cooperation and Development OED Operations Evaluation Department (now IEG-World Bank) PA Poverty Assessment PCU Project Coordination Unit PEIR Public Expenditure and Institutional Review PFMC Public Finance Monitoring Centre PFMP Public Financial Management Project PFPSAL Programmatic Financial and Public Sector Adjustment Loan PHRD Policy and Human Resources Development PIU Project Implementation Units PPAR Project Performance Assessment Report SAL Structural Adjustment Loan SOE State-owned enterprise SPO State Planning Office SRMP Social Risk Mitigation Project SSF Social Solidarity Fund SWAp Sectorwide Approach TCA Turkish Court of Accounts TCIP Turkish Catastrophic Insurance Pool TEK Turkish Electricity Authority TEMAD Emergency Management Directorate of Turkey TOOR Transfer of operating rights TTGV Turkish Technology Development Foundation UFW Unaccounted for water UME Turkish Institute for Meteorology UNDP United Nations Development Programme UNDPS United Nations Project Service Facility UNFPR United Nations Population Fund WDI World Development Indicators WSS Water supply and sanitation Note: OED has changed its official name to Independent Evaluation Group-World Bank (IEG-WB). The new designation "IEG" will be inserted in all IEG's publications, review forms, databases, and Web sites in the next few weeks. x v i Chapter 1: Evaluation Highlights ·For most of the CAE period Turkey's economy was volatile, and its government changed frequently. ·Fiscal deficits, largely off-budget, destabilized the economy. ·These deficits were driven by structural problems in state enterprises, pensions, and the banking, energy, and agricul- ture sectors. ·Stabilization and structural reforms in these areas set the economy back on a stable growth path, but only after crises in 1994, 1999, and early 2001. 1 Background: Crisis, Change, and Reform Before Fiscal 1994 I n the early 1980s, Prime Minister Turgut Ozal sought to dismantle state controls and liberalize the Turkish economy. For the first time in mod- ern Turkey, government was perceived as strongly supportive of private sector development. The private sector responded quickly, and gross domestic product (GDP), exports, and employment grew rapidly. Public investment in infrastructure also grew In 1994 a long-predicted Economic liberalization quickly. To circumvent the rigidities of the pub- financial crisis struck. Dur- accelerated growth in lic expenditure system, much of this investment ing the crisis, the govern- the 1980s, but fiscal was channeled through hundreds of new extra- ment requested support budgetary funds. The consequence was a loss of from both the International indiscipline generated fiscal discipline and inflation running at 50­60 Monetary Fund (IMF) and high inflation. percent a year. the World Bank. But the In the late 1980s the economy began to slow. economy proved more resilient than had been ex- It proved difficult to put in place the fiscal dis- pected. The flexible exchange rate allowed for a cipline and the second-generation reforms sizable real devaluation, and with low levels of do- needed to sustain growth, because the public sec- mestic debt the government was able to spend tor was a major source of rents and political pa- its way out of the crisis. Once the economy had tronage. The government failed to follow through recovered, the government lost interest in taking on privatization of state enterprises and was un- politically sensitive measures and did not proceed able to reduce the overall deficit. with either an IMF program or a Bank adjust- ment loan. Fiscal 1994­98 From 1995 to 1997, growth After Ozal's death in 1993, Prime Minister averaged over 7 percent. The The 1994 financial Demirel became president and Tansu Ciller took buoyancy of growth was driven crisis proved temporary, over as Turkey's first woman prime minister. A by expansion of private in- so needed structural period of unstable coalition governments fol- vestment and output. Such vi- lowed, with frequent changes among ministers brancy in the private sector reforms were not and senior officials. might seem surprising in a pursued. 3 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 But the underlying country with a weak coalition curities and to lend locally. In the power sector, structural problems still government, major internal se- lucrative build-operate-transfer contracts were curity issues, widely acknowl- awarded without open bidding. Electricity tariffs had not been corrected. edged structural imbalances, for many of these contracts were set at more and inflation approaching three-digit levels. But than double comparable rates in other coun- for several reasons it was not. First, relatively high tries. In agriculture, crop, input, and credit sub- growth rates in the richer economies spurred sidies, which went disproportionately to larger rapid growth of exports, demand for Turkish and wealthier farmers, remained an important in- workers, and the flow of remittances. Second, it strument of political patronage. And although is estimated that the "suitcase trade" with the for- the pension deficit was small in 1994, projec- mer Soviet Union yielded as much as $6­8 billion tions suggested that it would become a serious a year of informal exports. Third, investments in problem by the late 1990s. tourism in the 1980s paid off in the 1990s with a very large increase in earnings in that sector. Fi- Fiscal 1999­2004 nally, the Customs Union with the European Union In 1998, following the Asian and Russian financial (EU) in early 1996, which was controversial in crises, the Turkish economy began to slow, again Turkey at the time, provided both an opportunity causing predictions of crisis. An IMF-monitored for exporters and an incentive for investors. program was put in place as a precautionary mea- At the same time, little progress was made in sure. In spring 1999 a newly elected government areas where restructuring was needed--bank- approached the IMF to discuss a stabilization pro- ing, energy, agricultural subsi- gram. The main features of the program, which Financial crisis in 1999 dies, and the pension system. took effect on January 1, 2000, were a pre- led to IMF-sponsored Problems were building in the announced crawling peg and a matching fiscal banking sector, where com- deficit. These features were designed to reduce structural reforms and mercial banks, both state and inflationary expectations, and thereby lower real a stabilization private, were borrowing abroad interest rates and make it easier for the govern- program. to purchase government se- ment to meet interest payments on its debt. The Table 1.1: Key Macroeconomic Indicators, 1993­2003 Indicator 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 GDP growth (%) 8.0 ­5.6 7.2 7.0 7.5 3.1 ­4.7 7.4 ­7.5 7.8 5.8 8.9 Exports (% of GDP) 13.7 21.4 19.9 21.5 24.6 24.3 23.2 24.1 33.7 29.2 27.7 28.9 Current account balance (% GDP) ­3.6 2.0 ­1.4 ­1.4 ­1.4 1.0 ­0.7 ­4.9 2.3 ­0.8 ­3.3 ­5.1 Public sector borrowing requirement (% of GDP)a 12.1 7.9 5 13.1 13.1 15.8 24.7 11.8 16.4 12.8 8.7 5.8 Primary balance (% of GNP) (0.9) 3.8 3.3 1.7 0.1 4.6 2.1 2.3 6.0 7.1 6.0 6.9 Inflation, CPI (%) 66.1 106.3 88.1 80.4 85.7 84.6 64.9 54.9 54.4 45.0 25.3 10.6 Interest rate, interbank overnight (%) 69.9 92.1 106.3 74.3 77.9 79.0 69.9 199.0 59.0 44.0 26.0 19.1 Exchange rate, thousand lira/$ 11 30 46 81 152 261 419 625 1,226 1,507 1,501 1,422 Sources: IMF, State Planning Organization (SPO), World Development Indicators, and Country Office database. a. Combines IMF and SPO data. 4 B A C K G R O U N D : C R I S I S , C H A N G E , A N D R E F O R M program included a number of structural mea- sent the markets into free fall, In 2000 the economy sures aimed at sustainable deficit reduction. In and the crawling peg became overheated--financial particular, major reductions in agricultural subsi- untenable. crisis recurred in 2001. dies were initiated. The short-term effects were In March 2001 a major sta- positive, and a rapid recovery followed in 2000. bilization and structural reform The economic recovery of 2000 proved short- program was put in place, including the floating lived, partly a victim of its own success. During the of the exchange rate, a recapitalization of the recovery, nominal interest rates fell to levels not banking system, and a resumption of privatization. seen in Turkey for years, and the real exchange rate These steps were supported by a $16.2 billion appreciated. The result was a boom in consumer IMF program--the largest up A new reform package spending and rapid growth in imports. Consensus to that time. This package on reform measures within the coalition govern- steadied the economy. Recov- with a floating ment was difficult to sustain during the apparent ery and rapid growth followed exchange rate has economic boom, and the government delayed from 2002 to 2004, combined lowered inflation and too long on the kind of further fiscal tighten- with declining inflation, which sustained growth. ing that might have given the markets confidence reached single-digit levels by in the sustainability of the program. Late in 2000 the end of 2004. A new government, elected in a private commercial bank faced serious liquidity the fall of 2002, kept the key elements of the re- problems, and its foreign lenders called their form package in place, and in December 2004 a outstanding loans. In February 2001 a public dis- critical milestone was achieved--an agreement pute between the president and prime minister to commence negotiations on EU membership. 5 Chapter 2: Evaluation Highlights ·Bank lending mirrored the volatility of Turkey's economy. ·Concern about structural problems led the Bank to withdraw from adjustment lending in the late 1980s; dialogue deteriorated in the 1990s. ·The economic crises of 1999 and 2001 forced structural reforms, and the Bank reengaged. ·The Bank under-invested in analytic work, in part because of Turkish sensitivities, which still limit distribution of Bank work. ·The Bank has not done enough to help enhance the capaci- ties of Turkey's small but growing NGO community. 2 The Bank in Turkey The Policy Dialogue T he World Bank's engagement in Turkey dates back to 1950, when it made its first loan to the then-new member. Through 1980 the Bank made investment loans to most of the key economic sectors. Despite this consistent support, there was a sense of growing disappointment in the 1970s at the country's sluggish growth rate and the persistence of an etatist model of economic management. The Bank responded to Ozal's reforms of the The Bank was looking for From the late 1980s, 1980s with a sharp increase in the level of lend- opportunities to provide in- Bank concern about the ing. Turkey received one of the Bank's first Struc- vestment loans to meet the failure to undertake tural Adjustment Loans (SALs) in 1981, and there Turkish government's concern were four additional SALs during the following about negative net transfers. structural reforms grew, years. Total commitments exceeded a billion Between 1988 and 1993, the and it ceased new dollars a year during fiscal 1986 through 1988. Bank made 22 loans to Turkey, adjustment lending. With the acceleration of growth, Turkey was covering a wide range of sec- once again viewed as a success story--in the tors--water, health, education, social protection, words of one staff member of that period, "the energy, transport, finance, agriculture, and rural de- darling of the Bank." By 1988 the Turkish port- velopment. But by 1993, with limited ownership folio was the fifth-largest in the Bank. by the counterpart agencies, the Turkey portfolio During the mid-1980s, however, the Bank be- was considered one of the weakest in the Bank. came increasingly concerned that the failure to get the macroeconomy under control and to build on Fiscal 1994­98 the earlier policy changes was likely to lead to a At the beginning of this period, the Bank saw a crisis. In 1989 the Bank decided not to provide ad- new opportunity to rebuild its relationship with ditional adjustment loans until Turkey could Turkey, which had been in decline since 1988. In demonstrate progress on the structural problems practice, however, the government remained destabilizing its economy. The consequence was highly constrained by the difficulties of securing a decline in the aggregate level of lending to a consensus on policy measures among coalition about $600 million a year in the early 1990s. partners. When crisis struck in 1994, the Bank 7 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 prepared a long list of conditions for an adjust- program and supporting it with a $760 million ment loan that was intended to test the gov- Economic Reform Loan (ERL). The economy re- ernment's commitment. Later, as the economy sponded with a rapid resumption of growth and rebounded, the window of opportunity closed declining inflation and interest rates. The 2000 rather firmly. Country Assistance Strategy (CAS) reported on With no adjustment Although Turkey contin- the arrival of the long-awaited second-generation ued to be interested in bor- reforms and indicated that Turkey was being put lending and poor rowing from the Bank, both into a high-case lending program, with $5 billion performance on the sides were aware that the planned for a three-year period. investment portfolio, the weak governing coalition was Although the IMF-supported program collapsed Bank-Turkey relationship unable to meet the policy in early 2001, the Bank continued to help define conditionality that adjustment the further steps needed on structural reform. Fol- was at a low ebb. lending required. While in- lowing the reform measures implemented in vestment lending continued, poor portfolio per- March 2001, the Bank supported the Turkish pro- formance made it difficult to fund new projects. gram with $3.5 billion of new commitments in fis- Rapid growth in the mid-1990s, a buoyant private cal 2002--an increase of $2 billion over the high sector, sharply declining Bank lending, and lim- case, and the largest lending by the Bank to any ited analytic work (because of sensitivities con- country that year. The large lending levels con- cerning poverty and regional issues) all pointed firmed both the Bank's commitment to support to a diminishing role for the Bank in Turkey. sustainable change in Turkey and the value that the Turkish authorities placed on that support. Fiscal 1999­2004 The elections of November 2002 produced Toward the end of the 1990s, the dialogue was Turkey's first majority government since 1991. gradually rebuilt. In fiscal 1997 and 1998, a major The new government and senior administration portfolio restructuring had created space for focused initially on sorting out the priorities for new lending in some sectors. The decentraliza- the program to be supported by the IMF. For tion of the Bank's decision making and the ex- more than a year the Bank had no lending other panded analytic capacity of the Country Office than the second tranche of the education Adapt- made it easier to build relationships at the sen- able Program Loan (APL) that had been agreed ior level. In fiscal 1998, when the government upon with the previous government. passed legislation to extend the coverage of At that time the government had not fully compulsory primary education from five to eight complied with the conditionality of the second years, the Bank responded quickly to the gov- tranche of the 2000 ERL. There seemed to be lit- ernment's request for support with an Adaptable tle interest in moving forward with privatization Program Loan (APL). in telecommunications and energy. With the sta- A turning point in the relationship came when bilization program in place, however, the gov- the Marmara earthquake struck in the summer of ernment focused its attention on the structural 1999. The Bank moved rapidly to provide emer- areas covered by the program for Bank support. gency relief and also to propose working with Privatization received a new boost, and agreement the government on measures was reached that allowed the Bank to release The Bank's to mitigate the impact of fu- the second tranche of the ERL and proceed with decentralization and a ture disasters. This quick and approval of the third Programmatic Financial and rapid response to the effective response helped to Public Sector Adjustment Loan (PFPSAL III) and 1999 earthquake helped reestablish the Bank's cre- a number of other lending operations. reestablish dialogue. dentials with the Turkish gov- ernment and public. The Bank's Country Assistance During the economic crisis of fiscal 1999, the Objectives Bank worked closely with the IMF, helping to de- In the 1990s two Country Assistance Strategies fine the structural elements of the stabilization were prepared, followed by two others in 2000 and 8 T H E B A N K I N T U R K E Y 2003, and a CAS progress report in 2001, since the tentials, and would have bene- Turkey's current 2000 CAS was overtaken by the crisis. The Bank's fited from a more thorough government has strategy in Turkey throughout the period was consideration of their concep- welcomed continued dominated by the view that macroeconomic sta- tual underpinnings. This would bility was a necessary precondition for growth have been of particular help in Bank support for its and poverty reduction. Sustainable fiscal adjust- centering the strategic approach programs. ment was key, which meant resolving such struc- more clearly on private sector tural issues as the state-owned enterprise deficits, development, instead of treating it as a peripheral including the state banks, agricultural subsidies, topic, as merely an externality of the focus on and the growing deficit of the pension system. improved public sector institutional develop- Over the period, the Bank's strategy broadened ment, banking, and infrastructure. to reflect the enhanced dialogue. In the mid- Poverty reduction and social development 1990s, the Bank affirmed its corporate mission as received increased weight in the Bank program sustainable poverty reduction. Accordingly, the starting in 1997. This shift was appropriate given strategy prepared in the late 1990s proposed a the government's agreement, The need for strategic shift toward greater emphasis on poverty after protracted discussions reduction, and noted agreement with the gov- with the Bank, to cooperate on sustainable fiscal ernment on conducting a poverty assessment. a poverty assessment, its re- adjustment dominated The Bank's assistance strategy in Turkey is quest for assistance in imple- Bank strategy over the founded on four pillars: menting its 1998 education past decade. reform, and the need for emer- · Macroeconomic stability gency relief following the Marmara earthquake · Growth, competitiveness, and productivity in 1999 and the fiscal crises in 1999 and 2000. · Poverty reduction and social development But it took time to implement this shift in · Environment and natural resource management. emphasis. It was first necessary to build the an- alytic base for interventions; overcome the se- Within these 4 pillars, 10 objectives can be dis- curity issues limiting operations in the eastern cerned. These objectives represent outcomes region of the country, where much of the poverty that the Bank program was designed to support was concentrated; and resolve macro-structural and against which it can be evaluated. Table 2.1 issues that threatened growth and the fiscal sus- identifies each objective and its rationale. tainability of social programs. By the end of the The Bank strategy appears broadly relevant to period, however, there had been substantial Turkey's needs over the period. The consistent progress in the dialogue between the Bank and assignment of the largest weight in the program the government on poverty reduction and social to macroeconomic stability was appropriate, development, and a marked shift in investment since it was a necessary condition for progress lending (see table 2.2). in other areas. Finally, the area of environment and natural Considerable weight was also attached to a resources was consistently cited in each CAS, range of activities that have been brought to- although clearly assigned a lower weight than gether under the rubric of growth, competitive- the other pillars. The two Country Assistance ness, and productivity. These objectives assumed Strategies prepared in the 1990s The emphasis on increased importance toward the end of the reflected the emphasis in that 1990s, when it appeared that Turkey would begin period on international con- growth, competitive- negotiations on EU accession and would need to ventions for environmental ness, and productivity ensure that it raised productivity levels and had management and the weight would have benefited access to the technology and markets needed for attached to the preparation of from a clearer strategic competitiveness. National Environmental Action The programs in this area were often oppor- Plans (NEAPs). The earthquakes focus on the private tunistic, reflecting in part investment lending po- and floods of 1999 produced a sector. 9 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table 2.1: Country Performance Can Be Measured against 10 Objectives Strategy element Rationale First Pillar: Macroeconomic Stability 1. Improve public financial The lack of transparency of the budget, and particularly the handling of subsidies and duty losses through off-budget management funding, was a major constraint on better fiscal management. 2. Support key structural Tax collections were commensurate with countries at its income level. The problem was overspending on reforms: subsidy and entitlement programs, which led to structural imbalance. a. Reduce the SOE losses were a direct fiscal drain; in addition, their monopolies in some important sectors limited investment budgetary drain in new infrastructure. from state-owned enterprises (SOEs) b. Reduce agricultural Large subsidies were being channeled through the state banks via the agricultural SOEs. The benefits went subsidies disproportionately to larger farmers. Input subsidies and price supports reduced economic efficiency and imposed burdens on the poor. Coalition governments used the system as an instrument of patronage. c. Reduce the deficit While the deficit was still small at the beginning of the period, it was projected to increase rapidly, given the in the pension generous benefits awarded by the government in 1992. The pension system mainly covered civil servants and system formal sector employees, and did not reach the poorest groups. d. Ensure the solvency The government was using the state banks as a funding mechanism for unbudgeted subsidy programs. The of state banks "duty losses" incurred by these banks represented a major contingent liability for the government. Second Pillar: Growth, Competitiveness, and Productivity 3. Strengthen the banking The banking system was borrowing abroad to purchase government paper, a highly risky activity. The regulatory system and deepen framework and banking supervision were inadequate for the risks this represented. Banks had no incentive to financial intermediation lend to the private sector except via connected lending to the large industrial groups associated with them. Small and medium-size enterprises (SMEs) in particular had limited access to term funds. 4. Improve management Public infrastructure management was on a fiscally unsustainable path. State-run utilities were not generating of infrastructure the resources needed for investment, nor did they have the managerial capacity for efficiency. Utility prices and system losses were high, collections were low. 5. Enhance productivity The private sector was well developed but hindered by structural deficiencies such as dominance of large family-owned groups and by a large informal sector estimated at 30­50 percent of the economy. The competitive base needed adjustments to integrate it into the knowledge economy, but this was impeded by lack of institu- tional support for technology upgrades. Foreign direct investment was much lower than in comparable countries, due in part to perceptions of serious problems of governance and corruption. Third Pillar: Poverty Reduction and Social Development 6. Promote equity, While extreme poverty was low, nearly 30 percent of the population fell into the category of broad poverty-- employment, and defined to include both food and nonfood items. Employment rates overall, and female participation rates in the social protection labor force in particular, were the lowest in the OECD. Social protection was not oriented to the poorest groups. 7. Improve health Health indicators were below those of comparator countries, and particularly low in the poorer eastern areas. standards Primary health services needed to expand, and maternal and child health care needed attention in the under- served parts of the country. 8. Improve education Coverage and quality of basic and secondary education were low relative to Turkey's income level, especially for coverage and quality girls, and especially in the poorer regions. Policy makers had focused on the need for vocational education to produce trained manpower, at the expense of the coverage and quality of general education. Fourth Pillar: Environment and Natural Resource Management 9. Reduce environmental Turkey's resources were at high risk of degradation (soil erosion, water and wastewater quality, air and indus- degradation trial pollution). At the beginning of the period, the Ministry of Environment had been newly created, and tracking systems were not yet in place. In addition, capacity needed strengthening to meet Turkey's obligations to inter- national and regional agreements. 10. Support better Turkey is highly prone to earthquakes and floods. Following the disasters of 1999 it became clear that relief disaster management alone was not enough; early warning and disaster response systems needed to be improved. 1 0 T H E B A N K I N T U R K E Y Table 2.2: Summary of Bank Lending to Turkey by Major CAS Objectives (US$ million) CAS 1 CAS 2 CAS 3+4 CAS pillar (1993­96) (1997­2000) (2001­4) Total Adjustment lending Macro-management 0 760 4,428 5,188 (49%) Investment lending Macro-management 62 62 (1%) Growth & PSD 580 720 905 2,205 (21%) Social sector & poverty 217 315 1,111 1,643 (15%) Environment & disaster management 362 1,127 20 1,509 (14%) Total 1,221 2,922 6,464 10,607 (100%) Source: World Bank internal database, at end-2004. new emphasis on disaster relief and management tural Reform Implementation In 1997 the Bank in the 2000 and 2003 assistance strategy docu- Program (ARIP) and the Social increased its focus on ments. As discussed in chapter 6, however, the Risk Mitigation Project (SRMP) poverty reduction, but follow-up in implementing this pillar was uneven, raised total lending to $3.55 and the impact limited. billion that year--by far the the strategy gave highest level of lending ever relatively less emphasis The Lending Program for Turkey in one year, and the to environment and highest for any country in the natural resources. Bank loans Bank that year. After the sec- From fiscal 1994 to 1997 the Bank made only ond installment of the educa- one or two loans a year to Turkey. The portfolio tion APL in July 2002, there was no Bank lending remained large, because some projects from the for almost 18 months during the elections and previous period were being implemented slowly change of government. Only in 2004 did lending and were carried over. From fiscal 1998 onward, resume, with $1.6 billion in the remaining months lending levels increased substantially. The Bank of the fiscal year. In fiscal 2005, $1.8 billion was supported the expansion of the education system lent, all for investment projects. and made large loans for emergency relief proj- During the period, the Bank's lending con- ects following the floods in 1998 and the earth- sisted of 34 loans for $10.6 billion, of which 27 quake in the summer of 1999. Most important, were investment or technical assistance loans, 5 the conclusion of an agreement with the IMF were adjustment loans, and 2 were hybrids. Table permitted the resumption of adjustment lending, 2.2 summarizes the lending within each of the four and a $760 million ERL became the centerpiece pillars. Most of the adjustment loans addressed is- of the Bank's support for structural reform. sues in several sectors but were With the rapid deterioration of events at the primarily directed at improv- Bank lending has beginning of 2001 and agreement on the new sta- ing public sector and financial mirrored the volatility bilization package in May of that year, the Bank management, and are grouped of Turkey's economy-- committed the Programmatic Financial and Pub- under the first pillar. Adjust- counter-cyclical peaks lic Sector Adjustment Loan I (PFPSAL I) at the be- ment lending, all of which oc- ginning of fiscal 2002 and PFPSAL II late in the curred after 1999, accounted responded to the crises same year. In addition, approval of the Agricul- for almost half of total lending. of 1999 and 2001. 1 1 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Figure 2.1: Bank Lending to Turkey, 1994­2004 4,000 3,500 3,000 millions) 2,500 ($ 2,000 1,500 1,000 Commitments 500 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Adjustment Investment Emergency recovery Source: World Bank internal database, as of end-2004. As shown in table 2.2, lending was spread fairly three loans were to be cut from the investment evenly among the remaining three CAS pillars. program to support the government focus on macroeconomic adjustment and structural re- Non-Bank grants form. Other operations were victims of the slow In addition to Bank loans, the program also ben- implementation of the existing program, which efited from more than 40 donor-funded grants delayed the preparation of new activities. A num- from various partner agencies, which together ber of projects were dropped after sizable ex- amounted to about $78 million. These grants penditure on preparation. Overall, the large were administered by the Bank, and, except for number of dropped projects suggests that the two grants (over $30 million in total) for reduc- CAS documents were not realistic about the tion of ozone-depleting substances, were made pace at which new investment loans could be pre- in conjunction with Bank loans. These grants pared and implemented. generally funded technical assistance or advi- sory services to bolster the Turkish institutions Quality of Bank Lending implementing or benefiting from Bank lending. In 1996 the Turkey portfolio was rated among the The various CAS documents 10 worst in the Bank. Of 28 projects in the port- Less than 60 percent of over the period show 59 oper- folio, 18 were problem projects with disburse- operations in the CAS ations planned but only 34 ment ratios of less than 10 percent. To correct loans (58 percent) approved. this problem, in 1997 Bank management and materialized, reflecting The volatility of Turkey's econ- the senior management of the Turkish Treasury Turkey's volatility, but omy and the need for substan- put in place a joint remedial action program. also a lack of realism tial unforeseen adjustment The measures included canceling a series of in Bank strategies. lending, combined with the projects to reduce the portfolio to projects that major earthquake of 1999, are were being effectively implemented; tightening partly responsible for this difference between the of procurement and disbursement procedures; CAS lending programs and the actual loans. and delegating the task management of ongoing When the 2000 CAS was overtaken by events, a projects largely to the field office, including sign- CAS Update was prepared, which indicated that off authority for procurement and disbursement. 1 2 T H E B A N K I N T U R K E Y Table 2.3: IEG Ratings of Operations Closed, Fiscal 1994­2004 Institutional Number Outcomes development Sustainability Country/group closed (% satisfactory) (% substantial impact) (% likely) Turkey 46 76 36 53 Europe and Central Asia 459 80 51 75 Bankwide 2,805 72 41 60 Source: Annex B, table B.5b; percentages are by number of operations. These steps dramatically improved portfolio income countries in the percentage In 1996 the Turkish quality. The number of problem projects was re- of projects at risk (see table 2.4). portfolio was duced to two, procurement procedures were These comparisons are volatile, among the worst- streamlined, and disbursement ratios improved however, as nearly 29 percent of to around 20 percent. By early 1998, the quality the operations were at risk at the performing, but an of the Turkey portfolio was the second-highest end of 2004. effective clean-up in (based on the percentage of projects at risk) in A number of persistent issues re- 1997 brought the Europe and Central Asia Region. Since then, main. Most critically, line ministries improvement. the outcomes of investment lending have been lack the capacity needed to imple- generally satisfactory. ment projects smoothly, formulate sector policies, The heavy weight of unsatisfactory projects or prepare for EU accession. Rapid turnover in earlier in the CAE period means that the over- leadership has disrupted implementation and all results for the period fall somewhat below hindered sustained institution building efforts. the Europe and Central Asia Region average (see The Bank has tried to help build capacity, but table 2.3). Perhaps the most striking rating is usually through a project imple- for institutional development impact: only 36 mentation unit (PIU), which has Portfolio problems percent of the projects were judged to have had sometimes diverted attention from persist for lack of a substantial impact, reflecting the difficulty of opportunities to build capacity implementation implementing the technical assistance compo- within the line ministries. The em- capacity in line nents of projects. phasis on PIUs reflects problems ministries. The Bank At the end of fiscal 2005, the Turkey portfolio with procurement, particularly with compared well with those of other middle- respect to the use of consultants has relied on PIUs and information technology. Gen- for implementation. Table 2.4: Turkey Has a Lower erally, the Turkish government is re- Percentage of Projects at Risk than luctant to hire consultants for projects, whether Do Comparators Turkish or foreign. The divided responsibilities for important implementation decisions in invest- Net ment lending continue to be a problem, especially Number commitment Percent the lack of clarity about the State Planning Orga- Country of projects ($ millions) at risk nization's involvement in project implementation. Turkey 19 5,929.9 5.3 Algeria 9 337.0 22.2 Knowledge Services Romania 19 1,395.9 0.0 From fiscal 1994 to 1997 the Bank produced Brazil 49 4,948.4 18.4 fewer formal economic and sector reports than Colombia 18 1,151.4 11.1 would be expected for a country of Turkey's size Thailand 1 84.3 0.0 and portfolio. Just before the period under re- Source: World Bank internal database, as of end-June 2005. view, the Bank completed studies of state-owned 1 3 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 The Bank under-invested enterprises (SOEs) and of Box 2.1: Perceptions of Bank Impact in formal analytic work women in development. At Differ between Bank Staff and Turkish the end of 1993 an analytic for much of the period, Authorities review of the country's partly because of the economy was completed. Until the late 1990s, the slow-disbursing portfolio led sensitivity of the Turkish The next formal analytic re- many in the Bank to conclude that the Bank was authorities. port on Turkey was the achieving very little in Turkey. By contrast, many cur- Country Economic Memo- rent and former government officials expressed the randum (CEM) of April 1996. Two factors ac- view that the Bank was having a valuable impact. In count for this lapse of nearly three years. First, their view, while the succession of weak coalition political instability prevented the Turkish au- governments in the 1990s made it virtually impossible thorities from mustering the internal consen- to get consensus on significant structural changes, the sus needed for wide distribution of Bank analysis dialogue and continuous engagement of the Bank on sensitive topics such as poverty and regional helped lay the foundation for subsequent progress. development. Second, even in sectors that were Many of the Turkish officials the mission met with in- open to Bank analytic work, the Bank was un- dicated that the Bank underestimates the impact of the willing to spend resources on work that it judged project preparation and implementation process on the would have little impact. attitudes and approach of development agencies and The Bank prepared several informal studies officials. They attributed many of the project imple- during this earlier CAE period. There were stud- mentation problems to lack of counterpart funding ies on the energy sector, for example, done due to the large deficits of the period. as part of project preparation through the Pol- icy and Human Resources Development (PHRD) Source: CAE team interviews. financing; on agricultural subsidy and trade is- sues; and, later in the period, on the financial sec- tor. However, the failure to carry out in-depth over the years and the Bank now has a substantial analyses in the social sectors, on employment, program of work on poverty-related issues, the gov- and on infrastructure was a factor in the often un- ernment is still at times unable to reach closure on satisfactory development outcomes of the Bank's the views of different ministries and agencies and investment portfolio at that time, as cited in is therefore unwilling to permit release of formal subsequent chapters and in annex A. reports. In the past year, for example, the Bank was From fiscal 1998 on, a more normal pattern asked not to issue a report on gender after Bank of analytic work evolved. Three reports--the staff had spent considerable effort in revising it in CEM, a Living Standards Assessment, and the response to the government's comments. The Public Expenditure and Institutional Review--be- key seems to be to identify and agree on topics well came the basis for the adjustment loans between in advance and to carry out the studies collabora- 2000 and 2002. Subsequent reports on health, tively, with government involvement. The Public agriculture, education, labor markets (these Expenditure and Institutional Review (PEIR) is an three distributed after the review period), and excellent example of building ownership and con- the municipal and water sensus in support of a difficult set of reform issues. Continuing sensitivity supply sectors are helping The health sector report, the poverty assessments, among Turkish to provide the context and and the forthcoming Education Sector Study (ESS) authorities limits the direction for the Bank's alsoreflectgoodpracticeincollaborativeprepara- distribution of reports, lending in these areas--cor- tory work. recting a major failure in the Despite limited dissemination of some Bank except where the Bank earlier program. economic and sector reports, it is evident that the has worked to build While the number of sen- Bank's major contribution to Turkey has been as joint ownership. sitive topics has narrowed a source of knowledge. Turkish officials and ac- 1 4 T H E B A N K I N T U R K E Y ademics generally assess the quality of Bank an- pricing, agricultural pricing and The Bank has been alytic work as high. A small number of reports subsidies, and financial sector effective in using the have been reviewed by the Quality Assurance reform has been reflected in the Fund's programs to Group (QAG), and all were rated satisfactory. structural benchmarks for the IMF On balance, and despite the thinness of the an- program. support a wider alytic work program in the early part of the review agenda of structural period, the Bank's analytic work has been impor- International Finance reforms. tant both in creating a knowledge base inside the Corporation Bank to inform Bank lending and in building a con- The World Bank's Country Office is located in sensus in the Bank and among officials in the core Ankara, while the International Finance Corpo- ministries. The Bank made effective use of ad- ration (IFC) has a regional office in Istanbul. justment lending as an instrument for supporting There is little interaction between the two insti- the key structural reforms it had identified and an- tutions, and coordination of programs is more by alyzed. This has helped to shape Turkey's policies. accident than by design. Preparation of joint CAS A similar approach is now being applied more documents has not led to better coordination. broadly to issues in infrastructure and the social The IFC has maintained good relations with sectors. This bundling of knowledge and lending the business community in Turkey, but this does has been the critical operational vehicle for the not feed into World Bank programs. Perhaps not Bank in Turkey, and maintaining the right balance coincidentally, Bank programs have been rela- between the two will remain key to the Bank's ef- tively light in their focus on constraints to private fectiveness in the future. sector development, except insofar as these con- straints affected the overall macro-stability and the Partnerships financial sector. With the move of the country director to the The International Monetary Fund field, the Bank has stepped up its contacts with During fiscal 1993­97 there was limited interac- the private sector substantially, and the country tion between the Bank and the IMF on Turkey. director is a regular speaker at the various events The IMF focused on tax issues, the Bank on pub- sponsored by chambers of commerce and in- lic expenditures. Starting with financial sector dustry. But no Bank staff member in Ankara has work in 1997, a closer collaboration evolved. been assigned to cover private sec- During the 1999 crisis, the IMF took the lead in tor development, and no struc- Despite joint CAS negotiating a program based on exchange-rate ture for coordinating with IFC has documents there has stabilization with the Turkish authorities. There been defined. A country review not been active were differences of view within the Bank about for Turkey has been prepared by the viability of this program, despite public state- IFC's Independent Evaluation coordination of Bank ments of support and the resumption of Bank ad- Group in parallel with this CAE. and IFC programs. justment lending. Under the program adopted in 2001, the Bank European Union and IMF worked closely with one another, and Throughout the period, the Bank factored the institutions have continued working together. Turkey's EU aspirations into its programs and In many respects, Turkey is an example of highly analytic work, and there are specific instances of effective Bank-Fund coordination. The scale of cooperation--in the recent education and health the Fund's financial support has helped it se- projects, for example, and in the implementa- cure movement on structural reform. The Bank tion of the PEIR recommendations. The Bank has has been able to steer Fund programs toward pri- been careful to ensure that when it advised on leg- ority structural reforms and provide the techni- islative or administrative changes, these changes cal back-up to support their design. The Bank's were compatible with EU accession, and has work on public expenditure management, energy brought experts from EU countries to Ankara to 1 5 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 The Bank is moving from review proposals before they the media increased exponentially with the a program consistent are sent forward. Bank's decentralization, and the coverage of the The Bank and the EU met Bank in the local press seems extensive by com- with EU accession to one recently in Brussels to dis- parison with other middle-income borrowers. On that supports accession. cuss the coverage of a Bank the other hand, the Bank is not engaging sys- CEM that would look at EU tematically with parliamentarians in Turkey. accession in the context of Turkey's macro and The most significant shortfall, however, is with structural adjustment. It is likely that EU-related the nongovernmental organization (NGO) com- work will become a central feature of the Bank's munity. The NGO sector in Turkey is relatively un- strategy as the program goes forward. The Eu- derdeveloped in comparison with European ropean Commission has expressed an interest in countries (including the new EU accession coun- having Bank support along these lines. tries), although it has been growing in recent years. Compared with NGOs in other countries Other donors that borrow from the Bank, Turkish NGOs have The most substantive involvement of the Bank had little involvement in Bank-supported pro- with other donors occurred after the earthquake grams. Particularly in the earlier years, there was and flood disasters of the 1990s, when agencies little attempt by the Bank to reach out to and from Spain, Japan, Switzerland, the Islamic De- foster the NGO community. There are some im- velopment Bank, the European Investment Bank portant exceptions, however. In anti-corruption (EIB), United Nations Development Program work, a partner NGO is conducting surveys of (UNDP), and United Nations Population Fund civil society, while in education a partner NGO (UNPFR) were engaged with the Bank in relief is organizing contacts with civil society stake- and rehabilitation efforts. holders in the ongoing study of the education sector. The Bank has good Civil society and NGOs contacts with academia, The Bank has worked closely Assessing Program Outcomes with some segments of Turk- During the period under review, the Bank did not but has not done enough ish civil society. For example, always define the outcomes it was supporting in to build the capacities of the Bank has had good re- quantitative terms or with targets that could be Turkey's fledgling NGO lationships with academia in monitored. Chapters 3­6 look at the actual out- community. Turkey. Turkish academics comes in fiscal 2004 for each of the four pillars have served as consultants on of Bank strategy compared with the baseline many Bank programs and as discussants at Bank- of fiscal 1994, and make a qualitative assessment sponsored seminars and consultations. of how satisfactory the outcomes are, how sub- Contacts with the private sector, which were stantial the institutional development is, whether very good in the 1980s, declined in frequency the outcomes are sustainable, and what con- during the period before fiscal 1997, but have tribution the Bank made to the achievement of been stepped up in recent years. Contacts with those outcomes. 1 6 Chapter 3: Evaluation Highlights ·The need for structural reform that would lead to sustainable deficit reduction was central to the Bank's dialogue with Turkey during the CAE period. ·Weak coalition governments were unable to address off- budget funding, financing through state banks, and deficits. ·Financial crises in 1999 and 2001 finally led to effective actions, with off-budget funding virtually eliminated and steps taken to reduce deficits. ·Inflation has come down sharply and high growth rates have been sustained for four consecutive years, but there is still an unfinished agenda in privatizing state enterprises and banks and reducing pension system deficits. 3 First Pillar: Macroeconomic Stability T he striking feature of Turkey's economy during the period under re- view was its volatility. On three separate occasions--in 1994, 1999, and 2001--the foreign exchange markets lost confidence in the capacity or willingness of the government to take measures to stabilize the economy. The currency was sharply devalued, and very subjecting those expenditures to parliamentary high overnight interest rates were required to scrutiny. In 2000 a first group of EBFs were closed; stem the outflows and meet the government's the 2001 package of reforms included legisla- financing needs. The financial crises translated tion to bring almost all the re- into declines in the real economy of 5­7 percent maining EBFs into the budget From 1994 to 2004, in each of the three crisis years (see figure 3.1). framework. The second task three crises resulting The underlying problem was fiscal imbalance, was to dismantle the rigid con- from fiscal imbalances which required borrowing by the government trol systems that had led to the wiped out much of the equivalent to an annual average of about 12 per- establishment of the EBFs. This cent of GDP throughout the period. In all three process is still in its early days, gain of economic crises the government was required to intro- though there was progress to- growth in the period. duce additional taxes or expenditure cuts equal ward the end of the CAE period to about 5 percent of GDP. with an agreement to shift the function of the Court of Accounts to one of ex post audit rather Improve Public Sector Financial than approval of individual expenditures. Management Outcome. The fiscal problem in Turkey during the The Bank's contribution. The Bank had little 1990s did not lie with the formal budget deficit, success in the fiscal 1994­98 period in getting the but in the large number of extra-budgetary funds policy makers to listen to the message on the (EBFs) and the use of state banks to finance un- need for structural reform. The CEMs were the budgeted public transfers. The problem deterio- most important instrument available and one rated steadily until the 1999 crisis. of the few widely circulated documents to pro- After the 1999 crisis, the government's first task vide a comprehensive picture of public sector fi- was to bring transparency into the budget process nancial operations, including the EBFs. Without by bringing the EBFs back onto the budget and the option of adjustment lending to get some 1 9 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Figure 3.1: Turkey Slipped into Financial Crisis Three Times (annual percentage of GDP growth) 12 10 8 6 4 2 percentage 0 ­2 Annual ­4 ­6 ­8 ­10 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: Country Office database. Until fiscal 1998 the movement on these issues, recognized the need for reform of the rigid Bank had little impact the Bank turned to techni- budget-control regime that had led to the creation cal assistance, with a wide- of extra-budgetary arrangements in line min- on the fiscal problem. ranging Public Financial Man- istries. The government launched six pilot cases agement Project (PFMP) in where greater managerial discretion was allowed 1995. The PFMP made a limited contribution. in the reallocation of budget resources across a The IEG assessment indicates that it was overly few categories of expenditure. These cases helped ambitious and that there was insufficient own- convince the Ministry of Finance that a broader ership among the key ministries. The only com- reform of the control regime was required. ponent that was viewed as satisfactory was the Second, the PEIR helped strengthen the ex- support for customs administration. ternal audit capability of the Turkish Court of It was not until the crises of 1999 and 2001 that Accounts (TCA) and eliminate its participation in the Bank began to make progress on these issues. budget execution via issue of visas for expendi- The ERL and the Programmatic Financial and ture in 2004. The TCA law has been submitted to Public Sector Adjustment Loans (PFPSALs) sup- parliament. It proposes major improvements in ported the critical reform--the integration of its audit function, including more comprehensive extra-budgetary funds into the budget frame- coverage. work. The 2000 CEM and the Public Expenditure Third, the Bank supported efforts to create a and Institutional Review (PEIR) that was begun in medium-term fiscal framework, which is now 2001 provided an important required by law. The Bank is providing assis- Bank adjustment underpinning for the adjust- tance to the government, together with EU tech- ment loans by creating the basis nical support. operations and analytic for institutional reform and work helped re-integrate sustainability of the changes. Support Structural Reforms the funds into the The PEIR was particularly budget and addressed important, for it set in motion Reduce the deficit of the state-owned ongoing reform of budget and enterprises the expenditure expenditure processes. First, Outcome. At the beginning of the review pe- rigidities that led to the a joint working group of the riod, state-owned enterprises (SOEs) accounted creation of these funds. Bank and the core ministries for about half of Turkey's public sector borrow- 2 0 F I R S T P I L L A R : M A C R O E C O N O M I C S TA B I L I T Y ing requirement. The budgetary burden of the progress and a need to waive conditions in order SOE sector was around 5 percent of GDP. The out- to proceed. put of SOEs represented roughly 10 percent of GNP, and their employment was 6 percent of total Reduce agricultural subsidies nonagricultural employment. Initially, reform ef- Outcome. Agricultural subsidies were among forts focused on privatization of SOEs, which the most serious budgetary drains during this pe- promised a double benefit: expenditures could be riod. Despite analytic work demonstrating that reduced by lower transfers, and revenues would these subsidies were inefficient and probably be increased by the proceeds of privatization. increased income inequality, The privatizations were challenged in the Turk- the close links between subsi- The deficit of SOEs has ish courts and also met with parliamentary op- dies and political patronage been substantially position, and the program proceeded slowly kept the system in place for reduced, but during the 1990s. After the 1999 and 2001 crises, much of the period. the budget constraint on SOEs, including mu- In 2000 input subsidies were privatization has been nicipal enterprises, was stiffened, with close mon- substantially reduced and a a less important part of itoring of their employment levels and pricing new regime was put in place to this than envisioned. decisions. A number of SOEs closed unprofitable provide direct income support plants and reduced employment. The conse- (DIS) payments to farmers. A recent Bank analy- quence of these steps has been a turn-around in sis suggests that the resulting net reduction in fis- aggregate SOE financial results, and there is now cal costs was over $4 billion. The transfers to a modest operating surplus. In recent years new farmers were better targeted than before, since impetus has been given to the privatization pro- direct income support was capped at 50 hectares gram, and in 2004 the revenues from sales of en- per farmer; farms above that size did not get terprise shares were the highest ever. more subsidy, as had occurred under the crop and input- The reduction of the The Bank's contribution. Just before the re- related subsidy programs. The large agricultural view period, the Bank released a study of SOEs same study suggests that with subsidy burden is a that proposed a range of options for improving reduced intervention purchases, their performance. During discussion of a pos- food prices in Turkey fell in re- signal achievement . . . sible adjustment loan in 1994, the Bank pre- lation to world market levels pared a long list of conditions, among which in 2001, and, despite increases in 2002, were still privatization figured prominently. When the Turk- below the levels of 2000--a significant benefit for ish authorities decided not to proceed with ad- the poor. justment lending, the fallback position was a Privatization Implementation Support Loan that The Bank's contribution. In 1996 the Bank provided $100 million, mainly as technical as- started a program of in-depth analytic work on sistance, to help prepare public companies for agricultural subsidies that focused initially on privatization. The loan disbursed very slowly, trade, and then broadened to include a wide and large amounts were cancelled on its closing range of sector issues. This work was embodied at the end of the decade. It was rated unsatis- in confidential studies presented to the gov- factory by IEG. ernment, which appear to have made a major The Bank resumed its push toward privatiza- contribution to the decision to proceed with tion with specific conditionality on infrastructure the change of the subsidy regime. This analysis privatization in the adjustment loans and with became part of the agreements for the Economic support for stronger social safety nets for re- Reform Loan, the ARIP loan, and the PFPSALs. trenched SOE employees through a Privatiza- Subsidy reform has had a huge fiscal impact and tion Social Support project in fiscal 2001 (and a has led to large gains in effi- One to which the Bank follow-up in fiscal 2005). Banking and infra- ciency and equity. It is one of structure privatization were probably the least the central achievements of made a significant successful parts of the program, with very slow the Bank in Turkey, and its contribution. 2 1 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Populist measures implementation and impact hoc increases in the benefit levels and changes resulted in a very should continue to be moni- in the indexing mechanism have further added tored to ensure its benefits are to the deficit. generous pension sustained. system by international The Bank's contribution. Although the bur- standards, and reforms Lower the deficit of the geoning deficit of the pension system must be did not do enough to pension system counted among the failures of structural reform Outcome. In 1992 the gov- in Turkey, the Bank made a positive contribution correct this. ernment, in a populist measure in ensuring the inclusion of measures in the ERL before the elections, increased civil service pen- which if not enacted would have meant a still sions and eliminated the minimum retirement larger deficit today. Steps to reduce the pension age. Successive Turkish governments have strug- deficit were not included as part of the PFPSALs, gled with the fiscal consequences of these mea- apparently reflecting the view that their agenda sures. Out of growing concern about the rising was already large and the political balance so deficit of the pension system, reform measures delicate that to do so might have put the whole were put in place in 1999. These reforms included package at risk. However, the Bank has contin- the reestablishment and gradual increase of the ued to work with the government to build ana- minimum retirement age, reductions in benefits, lytic capacity to evaluate pension outcomes and increases in contributions, and the adoption of a reform options, including a major set of reforms "depoliticized" formula for pension adjustments. being considered by the government since early The viability of these measures depended on an 2005. "everything goes right" scenario, especially an in- crease in the number of contributors, which did Improve the functioning and financial viability not materialize. The consequence was a sizable and of the state banks increasing deficit. In addition, a Turkish court Outcome. For most of the 1990s, the state banks ruled that some of the changes could not be ap- were used to fund off-budget subsidies and there- plied to current participants in the pension system. fore were a major contingent liability for the gov- The 2001 reforms did not revisit the pension ernment. In 2001 the liabilities of the state banks issue, perhaps because of concern that this might were refinanced by the budget. The management push the civil service to oppose the entire reform of these banks has been professionalized, and package. As a result, the sys- substantial efforts made to lower costs. The num- The pension deficit is tem deficit is rising rapidly. ber of employees in state banks has been reduced growing and is a major Contributor coverage has been by more than 30,000 since 2001, and the number risk to fiscal stability. stagnant, reflecting both much of branches has been reduced by 820. slower growth in formal em- The role of the state banks remains unclear, ployment than anticipated at the time of the however, and the business model on which they 1999 reforms, and low contribution compliance. should operate remains elusive. In the past it was Even with the 1999 changes, the benefits are profitable simply to invest in government paper, very generous: replacement rates (65­75 per- but with returns on these securities having fallen cent) are high, and minimum contribution pe- toward levels comparable to earnings on de- riods (19.4 years) are low, in contrast to a target posits, it is no longer an attractive investment. replacement rate of 40 percent of gross wages The state banks will therefore need to compete after 30 years of contributions recommended with private banks in the market for private by the International Labor Organization. Finally, credit. the minimum retirement age is so low (43 for women and 46 for men) that the benefits stream The Bank's contribution. The Bank has con- persists over many years. On top of this, gov- sistently pushed for privatization of the state ernment decisions in 2003 and 2004 to make ad banks. The Bank was rightly concerned about the 2 2 F I R S T P I L L A R : M A C R O E C O N O M I C S TA B I L I T Y huge contingent liabilities the government would Second, there is a majority gov- The Bank correctly face in the event of a crisis, a concern that proved ernment that is in a better po- diagnosed the risks well-founded in 2001 when the costs of recapi- sition to take corrective action posed by the state talizing the state banks amounted to $22 billion, if needed. Third, inflation has or 14.7 percent of GDP. The Bank's analytic work come down to single-digit lev- banks, but its push for through the CAE period had resulted in a num- els for the first time in decades, privatization has yet to ber of informal studies on the potential re- and real interest rates are mov- yield results. structuring of the state banks, and analysis ing rapidly downward. Fourth, became part of the agreements on the PFPSALs. exports remain buoyant. As part of the reform program supported by the There are also significant Steps taken toward PFPSALs, one state bank, Emlak, was closed long-term factors. First, the stabilization in Turkey through merger with Ziraat, the main state bank; goal of EU accession provides in 1999 and 2001 legislation was put in place to prevent unfunded an anchor for retaining the re- "duty-losses" (that is, losses incurred due to the forms. Second, the political in- represent one of the state banks being required to fund government centives for current and future success stories of social programs or subsidies); and two public governments appear to lie in economic policy at the banks, Ziraat and Halk, restructured by laying off not putting past achievements international level half of their employees and closing branches. Yet at risk. Nevertheless, it is too the ultimate goal of privatization of all state soon to declare victory. The during the past decade. banks is far from being achieved, despite agree- pension deficit remains a major ment in principle to move in that direction. risk factor, and the real exchange rate appreci- ated substantially in 2003 and 2004. Sustainabil- Assessing First Pillar Outcomes ity will require a continued commitment to While the rating of moderately satisfactory for the careful macroeconomic management. Bank's programs throughout the full period re- flects the unsatisfactory outcome in the early The Bank's Contribution to years, and shortfalls in pensions and state bank First Pillar Outcomes privatization, the steps taken toward stabilization The need for macroeconomic stabilization and in Turkey in 1999 and 2001 represent one of the structural reform was central to the policy dia- success stories of economic policy at the inter- logue throughout the period. The timing and po- national level during the past decade. The evi- litical economy context of these reforms were a dence thus far suggests that Turkey has taken function of the crises and the ability of the gov- advantage of the reform opportunities afforded ernment to assemble a temporary coalition to by the 1999 and 2001 crises. support the necessary changes. But the Bank did Institutional development has been substan- make an important contribution to the design of tial. Budget transparency has increased, and a start the reforms. The CEMs, which provided an over- has been made on dismantling the rigid and arching framework, and the The Bank contributed counterproductive control systems in the Ministry work that the Bank supported of Finance that led to the expansion of off- in each of the above areas, fed significantly to the budget funding. The move to more commercial- into the strategies and blue- design of programs for style management of the SOEs and state banks prints developed by the Turk- the first pillar and to is also an important institutional reform. ish authorities to reshape the the eventual outcomes. The sustainability of these outcomes is rated economy after the crisis. as likely. There are a number of positive factors in The Bank's large financial package in support the short term. First, the key macro-variables (pri- of the changes was also well-judged. One senior mary surplus, public sector borrowing, public government member expressed his view this debt) have been held for four years in a range the way: "Could we have managed without the IMF regards as fundamental for sustainability. money? Yes, probably. But did it make a differ- 2 3 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table 3.1: First Pillar: Macroeconomic Stability Outcomes Indicator Baseline Outcome Comments Primary surplus as 2.3 6.9 Considerable achievement, but will need to be sustained, given percentage of GNP (1993) (2004) high debt levels Inflation, consumer 66.1 10.6 Inflation reached single digits at end-2004; the lowest level in prices (annual %) (1993) (2004) 35 years PSBR/GDP 12.1 6.2 Impressive progress, but remains high by international standards (1993) (2004) Total debt as 35.1 63.5 Although figure is double starting point, there has been a sharp percentage of GNP (1993) (2004) reduction from nearly 100% in 2001 Extra-budgetary funds 5.3 1.1 Major achievement; most extra-budgetary funds incorporated in as percentage of GNP (1993) (2003) budget Number of employees 434,655 330,450 Reflects effects of both privatizations and retrenchments in state enterprises (2000) (2004) SOEs' operating (5,928) 998 Substantial improvement, but given capital intensity of many surplus/loss after tax, (1993) (2004) undertakings, still represents a low return on investment in US$ millions Total number of state 50 40 Privatization program has been steady for non-infrastructure enterprises (1994) (2004) enterprises, but not as rapid as planned for infrastructure Total agricultural 1.7 0.8 During the course of the period subsidies reached as high as subsidies as (1993) (2004) 5% of GDP. Subsidies in 2004 consist mainly of Direct Income percentage of GDP Support payments Consumer transfers to 7,751 1871 Reduced price supports have meant substantial gains for food agriculture (in trillions (1998) (2001) consumers of TL at 2001 prices) Social security 1.0 4.5 Increased transfers reflect inadequacy of 1999 measures and transfers from (1994) (2004) steps in 2003 that have somewhat worsened the situation consolidated budget/ GDP (%) Number of employees 76,553 32,317 Despite substantial cuts, banks are still over-staffed, given the in state-owned banks (1993) (2004) nature of their business, which is closer to bond trading houses than retail banking Source: World Development Indicators and Country Office database. ence to the acceptability of the Bank's advice? gard to SOEs, the pension system, and the state Definitely. It made the Bank a player in the eyes banks, the Bank contributed through its dialogue, of the government and the Turkish public." its lending, and its analytic work to a fundamen- This is an area where the whole of the Bank's tal change in the understanding of the Turkish bu- contribution is more than the sum of the parts. reaucracy and public of the relationship between While there is major unfinished business with re- such reform and macroeconomic stability. 2 4 Chapter 4: Evaluation Highlights ·The Bank focused on establishing the institutional framework for efficient operation of the financial sector and infrastructure. ·The Bank's program was effective in creating legislative frame- works and supporting institutions charged with financial and infrastructure regulation. ·Although new private investment in energy has increased pri- vate provision of infrastructure, privatization has lagged, and better institutions have not yet translated into efficiency and productivity gains. ·Despite a vibrant private sector, significant challenges re- main: governance needs to improve, and the financial sector needs to be deepened to promote foreign investment and expansion of small and medium-size enterprises. 4 Second Pillar: Growth, Competitiveness, and Productivity D espite periodic financial crises as well as several natural disasters that had a serious impact on the economy, Turkey was able to achieve an average real GDP growth of 3.3 percent for the CAE period as a whole. Growth depended on the expansion of private sector production, and support for this was an important part of the Bank's strategy in the ear- lier years of the program. But by the 1990s the Bank's focus had shifted to enterprises have grown rapidly, there is a wide gulf public sector reform. The hypothesis appears to between them and the large industrial groups-- have been that Turkey's private sector had shown a "missing middle" in the Turkish private sector. it could compete in international markets and A large proportion of Turkey's private produc- that there was little value to be added by Bank tion (an estimated 30­50 percent) takes place in support. Indeed, the effective response of Turk- the informal sector, largely to The private sector has ish exporters to the Customs Union with the avoid taxes. This in turn has con- EU in 1996 seemed to support this view. strained financial sector growth. grown vigorously, but While the performance of Turkey's private The big industrial groups can bor- has important sector has been impressive, especially in export row from their associated banks weaknesses. growth, Bank analytic work has noted a number or abroad, while the small and of fundamental weaknesses over the CAE pe- medium-size enterprises can only borrow on the riod. For example, Turkey's private sector has basis of the part of their balance sheets that is on developed few joint ventures with foreign com- the books. Under such conditions, the entire panies that could provide access to new tech- Turkish commercial banking system is only the size nologies and markets. Foreign direct investment of a medium-size bank in Western Europe. in Turkey has consistently remained below the levels of comparator Eastern European and other Strengthen the Banking System and middle-income countries. Deepen Financial Intermediation The Turkish private sector is dominated by Outcome. In the early and mid-1990s, Turkey's large, family-based groups that are highly entre- financial sector was a crisis waiting to happen. As preneurial and aggressive. While small and medium explained earlier, the fiscal imbalances had led to 2 7 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 The government used the the use of the four state- In response to the crisis, the authorities un- financial sector to fund owned banks as a conduit dertook a number of reforms. An independent for off-budget expenditures Banking Regulation and Supervision Authority its growing deficit. hidden under the umbrella of was created in 2000 and took over supervision illiquid government "duty losses," which ac- of the banking sector from the Treasury and counted for 13 percent of banking system as- Central Bank, thus eliminating the unclear divi- sets. The government had dramatically influenced sion of responsibilities between these two agen- financial markets through its high domestic bor- cies. Reporting, auditing, and transparency were rowing requirements. Regulation and supervision upgraded, and the regulatory and supervisory were fragmented and ineffective. Lax regulations framework overhauled. Most bank regulations are led to excessively large loans to insiders. Fur- now in line with EU standards, and the financial thermore, a full guarantee of depositors' funds, sector is now the area where Turkey is judged by introduced after the 1994 banking crisis, en- the EU to need the least additional effort to align couraged indifference by depositors to the risks with EU requirements. the banks were taking. Many private sector banks While this represents a quantum improve- turned to arbitrage activities to generate a large ment in the governance and financial situation share of their profits. Earnings depended on the of the banking system in Turkey, there is still spread between deposit rates and the high real some way to go. The Turkish financial sector re- interest rates on government securities. Half mains shallow for an economy of its size and com- of the balance sheet was in foreign exchange- plexity, with limited financial products available. denominated items. On the liabilities side, the maturity structure of The first sign of an im- liabilities (deposits) is still short, although the After the crisis of 2001, a pendingcrisisoccurredinNo- share of time deposits has increased in recent costly recapitalization vember 2000, when a private years from a very low base. On the assets side, of the banking system bank (Demirbank) was unable credit to the private sector has declined (as a per- to refinance its stock of gov- cent of GDP) to only 15­20 percent of the OECD was required. ernment securities. The dis- average. The share of government securities is pute between the president still high, at 37 percent of total assets. and prime minister in February 2001 triggered a But there are also positive trends: the share full-blown crisis. Investors liquidated positions of loans in the total assets of the private banks in Turkish lira in expectation of political disarray, increased by one-third between 2002 and 2004; resulting in a spike of interest rates as high as 6,200 and banks are looking to expand their business percent on an annual basis and depletion of the in profitable areas like consumer credit and Central Bank's foreign currency reserves. credit cards. Low inflation and economic ex- The authorities were forced to float the lira pansion are likely to support further develop- and abandon the exchange rate peg. Banks with ment of the sector. net foreign currency positions suffered an im- mediate loss. Declines in the value of government The Bank's contribution. The Bank has been bonds depleted bank capital. The recession that involved in Turkey's financial sector since the followed aggravated the prob- early 1980s through the series of SALs during lem through an increase in 1980­85 and two Financial Sector Adjustment Reforms in 2000 and the nonperforming loans of Loan (FSALs) during the late 1980s. The dialogue 2001 have brought the corporate sector. As part between the Bank and the government was in- banking regulation and of the reform package, the terrupted for almost five years until the govern- supervision to near authorities had to recapitalize ment requested help from the Bank and IMF for both the state banks and the banking sector in the aftermath of the Asian international norms, some of the private banks by financial crisis. A joint Bank-IMF mission visited but the financial sector issuing $23.5 billion worth of Turkey in October 1997 to review selected issues remains shallow. government bonds. in the financial sector. The mission's assessment 2 8 S E C O N D P I L L A R : G R O W T H , C O M P E T I T I V E N E S S , A N D P R O D U C T I V I T Y was that the macroeconomic situation posed sig- included three elements: sector transformation nificant risks for the banking sector, and that se- (deregulation and competitive liberalization); rious instability could be triggered if there were disengaging the state (reducing or removing sub- no stabilization or a failed stabilization program. sidies and other financial supports, and profes- In the following years, Bank staff produced two sionalizing management); and, where relevant, confidential banking sector notes identifying private entry (through both privatization and major weaknesses in the sector and urging the au- encouragement of greenfield thorities to take action. entry by private owners and Turkey turned to the In 2000 the government requested a large operators). Bank and Fund for amount of financial support for banking reforms, assistance with the a sum outside the parameters of the Bank pro- Support sector transfor- sector after the Asian gram at that time. Instead, the Bank offered sup- mation. Major advances have port through a new $750 million FSAL designed taken place in infrastructure crisis. to reduce the vulnerability of the banking system management in Turkey dur- and improve its ability to withstand external ing the period under review. Subsequent Bank shocks. Disagreements between the govern- New laws have been passed, ment and the Bank led to delays, and the ap- new regulatory agencies es- support was too modest proval in December 2000 of the FSAL and an IMF tablished, and competitive to prevent the situation standby arrangement were not sufficient to re- practices adopted. Most of from deteriorating. assure the markets, given the relatively low lev- these changes were made after els of funding, the overvalued exchange rate, 2000 (see table 4.1). and the evident political disarray in Turkey. After the crisis, the government accelerated Assist in disengaging the state. Disengage- and broadened reforms. With the Bank sub- ment implies the introduction of more rigor- stantially increasing its support, it was agreed to ous, market-based, competitive management cancel the undisbursed second tranche of the of infrastructure. One measure of this trend is in FSAL and fold it into the PFPSALs. Even though actual payments made by the Treasury for its the measures taken under the FSAL were not suf- contingent liabilities from borrowings by state en- ficient to prevent the crisis, the analytic work terprises or municipal authorities. These pay- leading up to it laid a foundation for the post- ments declined from over $1.7 billion in 1997 to crisis program and allowed the Bank to react $443 million by 2004. The decline is part of the quickly and help design the conditions needed overall effort to instill fiscal discipline and reduce for further reforms in the financial sector. state participation in infrastructure management. Significant contributions have also come in the export finance sector. A well-designed Export Encourage private entry. The privatization Finance Loan (EFIL I) eased the credit crunch for program proceeded much slower than planned. exporters by providing medium-term financing A number of proposed privatizations were held during the pre- and post-crisis period. EFIL II, in up by successful court challenges, and others by addition to the credit line, included leasing com- lack of parliamentary approval. It was expected panies as financial intermediaries. Using leasing that eight state enterprises would be in private companies helped reach small and medium-size hands through privatization by 2002. But the exporters who have often had difficulty in ob- only sales by 2004 were two gas distribution com- taining credit from the banking system. panies and one mobile license--actually bought by Turk Telecom, not yet pri- Improve the Management vate itself. There were, how- The Bank responded of Infrastructure ever, significant gains in private quickly to the 2001 Outcome. The Bank's strategy was to support entry into the electric power improved investment and operational efficiency generation sector through crisis with policy and of the infrastructure sectors. The Bank's support greenfield investments. financial support. 2 9 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table 4.1: Regulatory Frameworks Created or Enhanced during 1993­2004 Sector and agency Date created Role Infrastructure sectors Energy: New energy law and regulatory agency 2001 Full regulatory authority for power, oil and gas, and LPG Telecommunications: New law to privatize 2001 Regulation of fixed line, wireless, and value added TurkTelecom services Regulatory authority: TA Other sectors Banking: new banking law 2000 Creates fully independent regulatory agency and Regulatory Agency: BRSA takes supervision functions out of CB and Treasury Public Procurement: New PP Law 2001 Regulates procurement in all public agencies Regulatory agency: PPA Industry technology: new law 2000 Regulate, ensure standards for MSTQ Regulatory agencies Secure IPR Disaster management: Turkey Emergency Management Agency 2000 Information and first responders Turkish Catastrophic Insurance Pool 2000 Mandatory private home insurance While privatization has If sector regulatory frame- sold is effectively tariffed, so the distribution not progressed, new works have been transformed, companies need higher wholesale tariffs to main- and if private entry, at least tain their viability. Despite much progress in pri- private investment in to some degree, has been vate entry and increased competition, therefore, electricity generation achieved, what outcomes can physical inefficiencies in the system remain un- has taken place, yet be reported on the improve- acceptably high. efficiency of the power ments to efficiency in the in- The situation in the water supply and sani- frastructure sectors? In the tation sector is similar to that of the power sec- system remains power sector, the growing tor. Progress has been made, but high tariffs still disappointing. share of private ownership of penalize consumers and finance internal ineffi- power generation (41 percent ciencies. The combination of low collection rates in 2004), and the increasing importance of and high unaccounted-for water (UFW) amount more competitive types of ownership--auto- to a low rate of effective tariffs. Taking the aver- generation and build-own-operate contracts (39 age of 40 percent UFW and collections running percent of the total) rather than the less com- at around 70 percent, this implies that effective petitive build-own-transfer contracts--has meant tariffs in the sector cover only 42 percent of water that more competition in the sector, which is in- use. In most OECD countries, effective tariffs are creasingly moving toward a market-based system. expected to cover around 80 percent of water. However, Turkey still has among the highest In the transport sector, the Bank's main focus power tariffs in the OECD. Further, distribution during the CAE period was on road improve- companies have average loss rates in the range ment and safety. Here the indicators suggest of 18­20 percent and collec- some progress. The roads sector is managed by In water supply, tion rates no greater than 91 the General Directorate of Highways (KGM), collections are low and percent. This implies that only which is executing a very large investment pro- system losses high. about 75 percent of all power gram. Until recently, the program had so many 3 0 S E C O N D P I L L A R : G R O W T H , C O M P E T I T I V E N E S S , A N D P R O D U C T I V I T Y projects that the average completion time per When the proposals for In transport, project project was over 22 years. In recent years, more build-operate-transfer generat- implementation than 130 projects were removed from the pro- ing facilities were launched, the efficiency has gram, bringing the completion average to around Bank was ambivalent. On the 13 years. Further, in the period since 1994, over- one hand, the decision to open improved modestly. all employment in the agency has been gradu- the power sector to private investment, even ally reduced, as a large share of contracting for for a limited time, was welcomed as bringing works was shifted from force account to open new financing and managerial capacity into the bidding. Employment fell from around 35,000 in sector. On the other hand, the Bank was con- the early 1990s to around 24,000 in 2004, and in cerned about the lack of transparency in the that same year force account represented about bidding process, the absence of proper regula- 30 percent of contracts, and open bidding ac- tion, and the fact that the ap- counted for some 70 percent. proach, which involved handing In power, the Bank has In the area of road safety there are some back the assets to the govern- had a long and close data--covering accident reductions in over 300 ment after 20 years, did not en- relationship and "black spots"--that show dramatic improve- courage proper maintenance of ments. Accidents in these black spots in 1994 to- capital. These concerns proved numerous projects. taled about 7,000, resulting in more than 900 to be well founded. Later the deaths. In 2004 there were fewer than 2,000 ac- Bank supported the alternative build, own, and cidents and only 54 deaths. These are important operate approach and assisted the government outcomes in themselves, but they also have pos- in adopting more transparent bidding proce- itive side effects on, for example, tourism. dures for these contracts. In the new climate of reform after 1999, the The Bank's contribution. During the early Bank was able to use the ERL to support agree- and mid-1990s, when the dialogue and the ap- ments on reforms of sector frameworks, in- petite for economic and sector work (ESW) were cluding, but going beyond, electric power: the weak, the Bank pursued its reform agenda almost new Energy Law and the establishment of EMRA, exclusively through individual investment loans the energy regulatory agency; the new telecom to sector agencies. The preparatory process for regulatory body (TRA); and the accelerated pri- these loans was used to deepen the Bank's vatization program of energy, telecommunica- knowledge and understanding of the power tions, and other entities. This period also saw the sector, rather than carrying out formal analytic re-emergence of sector studies as a tool of Bank work, which could have been disseminated more assistance: studies were prepared on energy and broadly. environment, the gas sector, municipal finances This approach was well demonstrated in the and water supplies, and railways. power sector, where there had been a long lend- The Bank's impact on reform in the water sup- ing relationship and excellent dialogue between ply and transport sectors was much less pro- Bank technical staff and senior officials from nounced than in the power sector. The Bank had TEK, the national power monopoly. While the intervened in the water supply and sanitation Bank itself had supported the consolidation of (WSS) sector with separate investment projects TEK into a single entity during the 1970s, it was in four cities: Ankara, Bursa, Antalya, and Cesme. later able to influence the government to un- While all were rated satisfactory bundle TEK into several generation, transmission, or moderately satisfactory over- Lack of regulation and distribution, and trading companies and to pre- all, three were rated as having a opaque bidding pare its various components for selective priva- modest institutional impact. processes marred an tization. The Bank successfully assisted this Moreover, there has been little attempt to open the process with two investment loans, the TEK Re- demonstrated effect from these structuring Project (1991) and the National Trans- projects in other cities, which power sector to mission Grid Project (1998). was an important objective. In private investment. 3 1 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Subsequently, Bank addition, very little impact seems Help transform agriculture adjustment lending to have been imparted on central Outcome. By the end of the period under re- agencies like the State Hydraulic view, efforts to transform the agriculture sector and analytic work Institute (DSI) or Illerbank, the and support private farming activity had begun laid the basis for state bank for financing municipal to pay off. The irrigation sub-sector had been regulatory reform. projects. The Bank did not suc- transformed earlier by the creation of private ceed in creating new mechanisms water user associations and a change to a sup- for handling WSS finances. Following completion porting role for the state water supply agency. In of two recent analytic studies, the Bank is now recent years private commodity exchanges have addressing this in a Municipal Services Project. been created, based on a new law to legalize The Bank was not very active in the transport warehouse receipts as tradable tender, and in the sector in Turkey, despite the potential role of trans- grains sector the Turkish Grain Board has virtu- port in the economy due to Turkey's unique lo- ally stopped buying grains and is now being cation on the major transit routes between the transformed into a payment agency for the Di- Middle East and Europe. In the roads sector, the rect Income Support program. The state agency Bank supported modest gains in efficiency through for providing inputs was liquidated, and privati- reductions in the number of employees in KGM zations have been accomplished or are under way (the Highway Agency) and an increase in the share in some other agricultural SOEs (the alcohol of open bidding as against force account con- section of TEKEL has been privatized, and the tracting. The most dramatic outcome in this sec- process is under way in the tobacco section; the tor--the sharp decline in "black spot" accident Kutahya sugar factory has been privatized). rates--has to be attributed to KGM, the agency that Since most of these changes took place after designed the strategy and action plan, although the 2000, it is still early to measure their impact on Bank did finance the works. production and total factor productivity. One The Bank's relationship with KGM has been a evident outcome was that in 2001 and 2002 Turk- difficult one. The Bank failed to build a collabo- ish prices of agricultural commodities fell rela- rative relationship during the preparation and tive to world market levels, partly as a result of implementation of the project, and a decision by withdrawal of price supports. A real price index the Bank in 2002 not to extend the project to for all farm crops (based on 1997) showed a level allow for completion of certain road, information, of 87.3 for 2001. While studies are still under way and safety components produced a strong reac- to determine the long-term impact on prices tion from KGM. The Bank's decision was under- and production patterns, in the short term the standable in the context of Turkey's fiscal crisis reforms have had a positive social impact, par- and the earlier poor performance of the invest- ticularly for the urban poor. ment portfolio, but in practice it hindered the Bank's capacity to support a critical sector for The Bank's contribution. In the early 1990s Turkish development. This said, the project con- the Bank supported two projects that straddled tributed to improved interdepartmental coop- the agriculture and environment sectors--the Pri- eration, and the Traffic Information Center vatization of Irrigation Project and the East Ana- established under the project is a major success. tolia Watershed Project. The former contributed substantially to the breakthrough in privatizing The framework of Enhance Productivity irrigation and support for water user associa- public support for The Bank's strategy was focused tions, while the latter developed a model for Turkish agriculture on three areas: productivity in watershed management that has been widely agriculture; development of in- replicated. Both projects were rated satisfactory has undergone major stitutions for technology trans- by IEG, although questions were raised about the changes. fer; and better governance to sustainability and replicability of the East Anatolia improve the investment climate. project as an environment-focused project be- 3 2 S E C O N D P I L L A R : G R O W T H , C O M P E T I T I V E N E S S , A N D P R O D U C T I V I T Y cause of the high cost per hectare of its foresta- The Turkish Standards In- Bank support has been tion component. stitute has been strengthened, key to achieving these However, the Bank did not succeed in sup- as has the Turkish Patents Of- institutional changes porting the reforms of state institutions in the fice. In the early 1990s a trade- sector until 2000­2001 when the ERL and the mark application in Turkey but it has not yet ARIP set in place the reform platform built by the took more than 14 months to succeeded in enhancing Bank's analytic work. These loans helped change process; it now takes no more the capacity of the the policy framework to reduce or eliminate than 6 months. In 2004 Turkey ministry. product- and input-based subsidy programs. In had some 900 trademark at- addition, the ERL supported legislation for vali- torneys and 685 patent attorneys, compared to dating the status of warehouse receipts as legal 430 and 267, respectively, in 1994--a measure of tender, and the ARIP helped bring about auton- how the focus on technology protection has omy for the Agricultural Service Cooperative grown in the past decade. The Turkish Technol- Unions (ASCUs). The Bank's failure to help the ogy Development Foundation (TTGV), a private Ministry of Agriculture develop the kind of pol- agency, has been established to fund technol- icymaking capacity that will be needed to deal ogy adaptation to local companies. It has provided with the complex issues related to the Common $140 million in soft loans to SMEs and other Agricultural Policy of the EU remains an impor- companies, and has made more than 1,400 tech- tant gap, despite funding technical assistance nology support service (TSS) matching grants. It for that purpose. has also established a venture capital fund. Over time, these developments should be useful in ex- Develop institutional support for technology panding the base of the knowledge economy. Outcome. At the start of the period the Turk- ish private sector was poorly served by the in- The Bank's contribution. A series of useful steps stitutional framework to encourage research and The development of technol- have provided Turkish development, to protect international property ogy infrastructure was sup- manufacturers with rights, to certify and calibrate products and tech- ported by two Bank projects. improved technological nology, and to assist local firms to introduce In building momentum for competitive technologies. In an increasingly change and reforming the state support. open economy, and with the long-term prospect agencies involved, the Bank of EU accession where strict product certification drew on the experience of work in this area in will be demanded, weakness in these areas would other countries, specifically India and Mexico. By have penalized Turkish products, both at home supporting the creation of private agencies as and abroad. part of its projects, the Bank has helped create po- There have been significant developments over tential champions for technology development the period. A new law for national product ac- that did not exist previously. creditation has been passed, and a new agency now certifies products for export markets, for Better governance to improve the IS9000, and for other purposes. The Turkish in- investment climate stitute for Metrology (UME) has been separated Outcome. Resistance to dealing with many of from TUBITAK, the national research institute, Turkey's structural problems came from the and made financially more self-sufficient. It now corruption implicit in the functioning of the handles 90 percent of Turkish industry's needs for state banks, the energy sector, and the system of metrology, against some 10 percent at the start of public tendering. The large industrial groups the decade. This saves Turkish companies time and learned to profit from this corruption, but for money, for they previously had to obtain these small and medium-sized enterprises and for po- services abroad. In addition, UME is beginning to tential foreign investors, it has been a major export these services to neighboring countries. constraint to investment in Turkey. The 2002 3 3 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Investment Climate Survey reported that, while Assessing Second Pillar Outcomes 28 percent of small enterprises regarded cor- The overall progress of outcomes for the second ruption as a major or severe problem, only 8 pillar is rated moderately satisfactory. The rating percent of large enterprises expressed this view. reflects the fact that institution building was at the With the increase in budget transparency and the core of the Bank strategy and that the period introduction of regulatory frameworks for energy saw substantial efforts at building institutional and banking, Turkey took two important steps and regulatory frameworks. The legal framework over the CAE period to tackle corruption at its has been adapted to the needs of a modern econ- source. omy: banking regulation and supervision are in- A further important step was taken after the dependent, and the agency has continued to crisis of 2001 with enactment of a new public pro- perform effectively in the post-crisis years; the curement law and the reform of the state ten- state banks are being managed as commercial en- dering system. In the previous system bids were tities; there has been a major development in reg- kept low initially; after con- ulatory frameworks for infrastructure operations; Turkey's climate of tracts were awarded, cost es- the power distribution sector has been restruc- tolerance for corruption calations were approved and tured in preparation for privatization; and the in- has changed and some paid, with kickbacks to politi- stitutional bases for agricultural growth and cians. The new law introduced important actions have technology transfer have been improved. As the more transparent bidding pro- quantitative indicators in table 4.2 and box 4.1 been taken on public cedures with the winning bids show, in many areas these institutional im- contracting. made public. This said, the provements have not yet been translated into World Bank Institute (WBI) efficiency gains. It will be important to monitor governance indicators suggest progress in these areas closely to ensure that The Bank has been an deteriorationinperceptionsof the potential benefits are realized. important source of many aspects of Turkey's gov- ernance and anti-corruption support for better Institutional development is rated substantial efforts between 1996 and 2002, governance in recent As indicated above, regulatory capacity and new with a slight improvement years. from 2002 to 2004. legal frameworks have been developed for man- aging the various sectors, and for this aspect the rating is high. The disappointing feature is The Bank's contribution. The Bank provided that the ministries responsible for programs in support for efforts to improve governance, fo- the infrastructure sectors, including agriculture, cusing specifically on corruption. The Bank have not developed the capacity to analyze and worked closely with TESEV, a Turkish think tank design the policies and programs needed to that conducted a series of surveys of corruption achieve outcomes. that were widely disseminated and created sub- stantial public awareness of corruption. Many of the programs the Bank was supporting in other Sustainability is rated likely areas were geared to eliminating sources of po- The lessons of lax management in the financial tential patronage and rents that had often been sector have been learned, and the privatization misused in the past. These program is back on track and seems to have Ratings reflect progress programs included the work genuine political commitment behind it. One done on the state banks, on worrying dimension is the structure of Turkey's on institutional the energy sector, and partic- private sector, with the dominance of large family- development in ularly the support for reform- owned groups and a substantial informal sector. addition to the ingthesystemofstatetenders, Long-term success is likely to depend on the quantitative outcomes. which was addressed by the extent to which the country is able to bridge new public procurement law. this divide through the development of medium- 3 4 S E C O N D P I L L A R : G R O W T H , C O M P E T I T I V E N E S S , A N D P R O D U C T I V I T Y Table 4.2: Second Pillar: Growth, Competitiveness, and Productivity Outcomes Baseline Outcomes Indicator 1993 2004 Comments GNP growth 3.3 7.6 Although growth was high in final years, the period (average (average average was disappointing. 1993­95) 2002­04) Foreign direct investment, net 0.35 0.9 Increase is from a very low base. Still well below most inflows (percent of GDP) (1993) (2004) comparable middle-income countries. Exports of goods and services 13.7 28.9 Major expansion of textiles, white consumer goods, (percent of GDP) (1993) (2004) automobile parts, and the like. M2/GDP 20 41 Improved significantly but still half the OECD average. Private sector credit/GDP 18 16 Credit is very small, one-sixth of OECD average. Time deposits/GDP 8 19 Public confidence improving but still share of long-term deposits of total deposits is very low. Share of government securi- 11.3 24.3 This remains at a high level. ties in total assets, percent State-owned banking 37 35 None of 3 State Banks has been privatized. assets/total assets Nonperforming loans/total 3.1 12 Higher numbers are positive since they reflect greater loans (2003) realism in loan classification and supervision. Risk-weighted capital ratio of 8 26 This ratio is higher than required by international private banks (percent) standards. EIU banking sector risk 56 63 State ownership and possibility of government crowd- (0 least risky­100 most risky) (1Q 1997) (Dec 2004) ing out private sector viewed as imposing high risks. Treasury payment of 1.74 0.44 Reflects progress in commercializing state enterprise guarantees ($b) operations. Infrastructure SOEs privatized 0 3 Although privatizations were few, a number of useful preparatory steps were taken. Employment in SOEs 440,110 320,466 A mix of privatizations and retrenchment of excess labor from enterprises. Power sector: 1994 2004 Progress is mainly in the regulatory and institutional framework. Implementation of changes needed for efficiency remains slow. Losses (percent) 15 19 Collections (percent) n.a. 79 WSS sector: Unaccounted-for 48 40 Still very high by comparison with OECD averages. water in four major cities (1991) 1999/2000 (percent) Transport (roads): 1994 2004 Although progress is substantial it still takes far too long to complete projects. The record on road safety is Investment completion (years) 24 13 very impressive. Employment in KGM 35,000 24,000 "Black spot" accidents/deaths 900 54 WBI Governance Indicator: 1996 2004 Turkey's rankings on this indicator have deteriorated Control of corruption relative to other countries, but the ranking has im- 61.3 50.7 (Percentile rank ­ 0­100) proved from the 2002 level. Sources: World Development Indicators, Turkish Banking Association, Ministry of Energy, and World Bank sector and project reports. 3 5 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Box 4.1: Pillar Two Outcomes: Mixed Results The charts below show how several Pillar 2 indicators changed average. Exports have grown substantially, indicating some com- over the CAE period, and how they now compare with those of other petitiveness gains, but foreign direct investment, while higher, is countries, and with Regional and middle-income averages. They still a small fraction of the MIC average. The relatively poor and provide a mixed picture. In the financial sector, there has been sub- falling governance indicators may be a factor here. In the power stantial financial deepening, with M2 growing as a percent of sector, despite growing private sector participation, the already- GDP, but credit to the private sector declined as a percent of GDP, high losses are growing. and both indicators are well below the middle-income country (MIC) Money and quasi money (M2) as % of GDP, 2003 Domestic credit to private sector (as % of GDP), 2003 100.0 120.0 80.0 100.0 80.0 60.0 GDP GDP 60.0 of 40.0 of % %40.0 20.0 20.0 0 0 Turkey '93RomaniaColombia Brazil l Asia y '04 y '03 y '93 Brazil Europe and Centra Turke Poland Algeria d income Thailand Romania Algeria Poland d income Thailand Mi Turke Turke Europe and C Colombiaentral Asia Mi Exports of goods and services (% of GDP), 2003 Foreign direct investment, net inflows (% of GDP), 2003 70.0 3.5 60.0 3.0 50.0 2.5 40.0 2.0 GDP GDP 1.5 of 30.0 of % 20.0 % 1.0 10.0 0.5 0 0 Turkey '93 Brazil Poland lombia 4 Brazil Co Turkey '0Mid income Romania entral Asia Algeria hailand Poland T Turkey '93 Turkey '04 Algeria Thailand Europe and C ColombiaMid incomeCentral AsiaRomania Europe and Electric power transmission and distribution losses WBI Governance Indicator: control of corruption, 2004 (% of output), 2002 70.0 25.0 60.0 20.0 ­100 50.0 40.0 15.0 rank 30.0 output 10.0 of 20.0 % 5.0 Percentile 10.0 0 0 Lower mid incomeAlgeria nia Turkey '04 ColombEurope and Central Asia ia nia ia Roma Thailand Brazil y '96 y '94 Brazil y '04 Turke Poland Thailand Poland d income Algeria Colomb Mi Europe and Central Asia Roma Turke Turke Source: Table 4.2 and WDI database. Comparator country data are for year indicated in table title. Turkish data are for years indicated by respective data labels. 3 6 S E C O N D P I L L A R : G R O W T H , C O M P E T I T I V E N E S S , A N D P R O D U C T I V I T Y scale enterprises that draw on small suppliers and From fiscal 1999 to 2004, the Limited analytic work in turn provide inputs to the larger groups. Bank's contribution was more constrained Bank substantial. Adjustment lending impact earlier in the The Bank's Contribution to Second Pillar operations helped to foster major Outcomes institutional changes in the fi- period, but later From fiscal 1994 to 1998, the Bank had little im- nancial sector and in agriculture, adjustment loans pact. Many of the achievements after 1998 rested and promoted some restructur- helped support better on work the Bank had done before 1994. The ing in power, telecoms, and the regulatory frameworks. failure to undertake a serious program of analytic state banks, though short of the work during this phase was a major lapse and is Bank's goal of privatization. A broader program of not fully explained by the lack of receptiveness of analytic work was also undertaken. Sector reports the Turkish authorities. The government was open were prepared on the agriculture sector and some to Bank sector work in infrastructure, technol- of the energy-related sub-sectors. Analyses of the ogy, agriculture, and private sector development. problems of the financial sector were incorporated The Bank was able to advance the reform agenda in the 2000 and 2003 CEMs as well as a number of through its lending activities in power and trans- informal studies. port, but overall it seems simply to have ignored the broader growth agenda during this period. 3 7 Chapter 5: Evaluation Highlights ·Overall outcomes are uneven, with good results in education and infant mortality, protection of expenditure levels, and modest poverty reduction, but slow in job growth, especially for women, and little progress in reducing regional disparities. ·Low levels of analytic work on poverty and social development left a large "analysis gap" before fiscal 1999, but the gap has narrowed sharply since then. ·Bank operations were also uneven. Some were plagued by im- plementation problems, while some more recent operations to target social assistance and reform the health sector are highly promising. ·The recent increased focus on collaborative analytic work and building institutional capacities holds promise for a more effective program. 5 Third Pillar: Poverty Reduction and Social Development T urkey's efforts to reduce poverty and improve the health and education of its people have taken place against a complex background of ini- tial conditions and underlying trends that combined to make Turkey's agenda for social development extremely challenging: · While extreme poverty (based on food con- lems in large parts of the poorer eastern region sumption alone) was quite low in 1994, over undermined investment and growth opportu- 28 percent of households fell below what is nities there until the late 1990s. In addition, now the official poverty line (based on total large portions of the workforce shifted out of food and nonfood consumption). agriculture and rural areas, In 1994, 28 percent of · There were large regional disparities, with with shares of both falling by per capita incomes in the poorer eastern re- about 13 percentage points households fell below gions less than half the national average. after 1990. what is now the official · Turkey's health and education indicators were The large loss of rural and poverty line, social low compared with many other middle- agricultural jobs, combined indicators were income countries, and lower still in the poorer with SOE and public sector eastern regions. downsizing, made it difficult relatively poor, and · There were also substantial gender disparities: for the rest of the economy to regional and gender women were much less likely to attend school generate enough net new jobs disparities were large. or find employment, and their labor force to absorb the growing labor participation rate was below 27 percent in force. Moreover, since female employment was 1993, about one-third the level of men's. concentrated in agriculture and rural areas, the impact on women's employment was particularly Economic growth for most of the review pe- negative. riod was slow and erratic, producing little in- crease in per capita consumption and relatively Equity, Employment, and Social few jobs. With the working age population grow- Protection ing unusually fast, employment rates dropped. Outcome. In terms of equitable growth and The benefits of economic growth were not poverty reduction, outcomes have been mod- evenly spread across the country. Security prob- est. Poverty declined slightly between 1994 and 3 9 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 2002, with extreme poverty falling from 2.9 per- culture, put large numbers of job seekers into the cent to 1.4 percent, and total poverty falling from labor market at a time when growth was slow and 28.3 percent to 27 percent. This modest decline volatile. Moreover, the growth that did occur is consistent with the slow and erratic GDP was relatively "jobless," as the volatility of the growth up to 2002 (the year of the most recent economy made employers less likely to hire new available household survey). Turkey's relatively workers than to extend work hours of existing high population growth (1.75 percent per annum, employees. Also, during much of this period over twice the OECD average) resulted in slow the government sought to reduce public sector per capita GDP growth, with almost no growth employment. in real per capita consumption. As a result of these factors, since 1993 the net There was a slight, but statistically insignificant, increase in jobs was about 3.1 million (about increase in the already relatively high inequality 1.5 percent per year), while the working age of consumption. Some observers had anticipated population grew by over 10 million (about 2.3 a more significant rise in inequality due to in- percent per year). Thus the employment rate fell creases in indirect taxes fairly steadily over the period, reaching 43.6 per- Slow growth meant that (which can affect the poor cent in 2004, the lowest among OECD coun- poverty fell only slightly adversely) and in interest in- tries. Also alarming is the continuing drop in by 2002, but rapid come (which accrued largely women's participation in the labor force, now to the rich). The reduction down to about 25 percent--the lowest among recovery in consumption in food costs resulting from OECD members and more than 40 percentage since then has probably removal of agricultural price points below the OECD average. This figure is reduced poverty further. supports may have helped partly explained by the decline in agricultural and prevent a significant wors- rural employment. Estimates suggest that 1.1 ening in consumption distribution in 2001 and million new jobs were created in 2004, which sup- 2002. The rapid growth in GDP and consumption ports the hypothesis that sustained growth is the since 2002 should have brought a further re- key to generating significant employment gains. duction in poverty by 2004, assuming no offset- Narrowing the gap between the poorer and the ting rise in inequality. richer regions continues to be a major challenge, In employment, Turkey's growth has not with per capita income in the poorest region been fast enough, or sufficiently labor-intensive, (Eastern Anatolia) still less than half the national to absorb the growing working-age population, average. During much of the review period, pri- let alone make inroads into the already signifi- vate investment and growth have been concen- cant backlog of unemploy- trated in the western part of the country, while Migration may have ment at the beginning of the major security problems undermined economic CAE period. The unusually activity in the east. To a large extent, however, the prevented regional fast growth in the working- labor shifts described above appear to have pre- income disparities from age population, combined vented a worsening of the regional income dis- widening. with the loss of jobs in agri- parity, with significant population migration from Table 5.1: Slow GDP and Job Growth Meant a Declining Employment Rate Indicator 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Per capita GDP (1987 TL `000) 1624 1507 1586 1666 1759 1782 1669 1762 1603 1701 1772 1916 Employment (m.) 18.5 20.0 20.6 21.2 21.2 21.8 22.0 21.6 21.5 21.4 21.1 21.6 Employment rate (%) 47.5 50.0 50.0 50.2 49.0 49.2 48.7 45.6 46.7 44.5 43.2 43.6 Source: State Planning Office, Government of Turkey, and World Bank Country Office database. 4 0 T H I R D P I L L A R : P O V E RT Y R E D U C T I O N A N D S O C I A L D E V E L O P M E N T the poorest regions (where population shares reaching some 1.7 million ben- The social protection declined by about 2 percentage points), into the eficiaries, with 60 percent of the system is not well richest. The net result between 1990 and 2001 was beneficiaries in the two poor- focused on the most a marginal improvement in the regional distri- est regions (East and Southeast bution of GDP, though the absolute gaps remain Anatolia), which contain 20 per- vulnerable and large. cent of the population. generates large The social protection system, which pro- deficits. vides benefits to over 80 percent of the popula- The Bank's contribution. tion, faces serious problems. Because most of its The Bank's main contributions benefits go to the middle class, it is not appro- to equitable growth with The government has priately focused on the most vulnerable popu- poverty reduction came after improved its capacity lations. Moreover, the pension system, which 1999, through the series of to analyze social absorbs over 90 percent of spending on social adjustment loans, the ARIP, and protection, is running rapidly rising deficits, and three poverty assessments. issues, and a new the generosity and cost of its benefits may reduce These actions helped restore component of its social the employment impact of growth. Its growing the economy to a sustainable assistance program is deficits drain resources that could be used to path of growth and identify and well-targeted. fund a larger, better-targeted social assistance support policies that could program. Although it was anticipated that the make growth more equitable. The most impor- generous system of severance payments would tant of these policies was the removal of agri- be phased out or reduced as unemployment in- cultural price supports (by the ERL and the ARIP), surance was introduced, these payments remain thereby reducing distortions and lowering food substantial for formal sector employees, partic- costs to consumers in the short run, and the ularly those from the public sector. Social assis- protection of social spending under the PFP- tance needs to be better targeted and better SALs. The Poverty Assessments financed, despite the conditional cash transfer were particularly important in Bank activities program discussed below. establishing a framework for an- made important On the positive side, the government has alyzing the impact of Turkey's contributions to now developed a more systematic capacity to an- growth strategy on the poor alyze both the broad issues of poverty reduction and in identifying ways to re- poverty reduction by and social protection, as well as the specific is- duce poverty more effectively, supporting growth and sues of pension reform. One important out- such as using the conditional more equitable come is a proposal for major reform of the cash transfer program men- policies. pension system, which has been prepared and tioned above. submitted to parliament for approval. Although The Bank had less impact on employment the coverage of unemployment insurance is still and labor market reforms, although the limited, it can provide a relatively cost-effective low level of employment generation was a mat- and nondistorting tool for assisting workers to ter of serious concern, reflected in analyses in cope with job loss, thus easing the way for future CEMs and Poverty Assessments from 2000 on. A labor market reforms. labor market study was under way during the The program of direct income support for review period, but its interim findings have not farmers replaced expensive, nontransparent sub- yet led to a consensus on an approach to Turkey's sidies with a better-targeted, lower-cost system. labor market issues and priorities. These issues Most promising, the social assistance system has include the slow pace of employment growth; ex- been strengthened by a system of conditional ceptionally low employment rates for women; the cash transfers to support schooling, health services impact of pensions, payroll taxes, and severance for the poorest six percent of the population, and pay on incentives to hire; and the implications of a system of small grants targeted to raise incomes Turkey's large informal sector for private sector for the poor. The conditional cash transfers are job growth. 4 1 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Analytic work Most of the Bank's interven- reductions in the fiscal deficit. However, these re- and lending for tions in this area involved active forms were not deep enough, and the deficits labor market policies. These had again began to rise. Since 2002, pension reform employment and some success, but did not mea- has been a consistent component of the dia- labor market reform surably increase employment logue of the Bank and IMF with the government, have not yet had opportunities or reduce labor helping to build an awareness of the serious- much impact. market rigidities. While the Em- ness of the problem and a capacity to analyze the ployment and Training Project options. The government's new round of para- trained and found jobs for more people than metric reforms to correct the underlying imbal- originally expected, it is not clear that this caused ances was being considered by the parliament a net increase in employment, and in any case when this review was finalized. the numbers trained were a small fraction of the In the area of social assistance, the Bank played increase in unemployment during the period. a major role through the Emergency Earthquake The Privatization Social Support Project seems Recovery Loan and the Social Solidarity Fund to have smoothed the SOE privatization process (SSF) in getting emergency cash assistance to by funding legally mandated severance payments earthquake victims quickly (IEG 2005b). The So- and additional benefits to laid-off workers. But cial Risk Mitigation Project (SRMP), including its it is less clear that it moved these workers per- innovative program of conditional cash trans- manently off the government payroll into pro- fers, built on the successful experience of the SSF ductive private sector jobs. Reports suggest that and on the analytical work of the findings of one the generosity of the benefits and the continu- of the poverty reports mentioned above. ing, though uncertain, prospect of rehiring by the These transfers target assistance to the poor- public sector caused large numbers of these est 6 percent of families in ways that both pro- workers to reject job offers from new private vide immediate assistance and help lift the next owners. generation out of poverty in a sustainable way: One element missing from the Bank's assis- the transfers, made to the mothers, are condi- tance program was microcredit, which has tional on children attending school and visiting worked in some economies to generate sub- health clinics to receive inoculations and other stantial additional jobs in a sustainable way. The basic health care. Thus they also reinforce the Local Initiatives component of the SRMP, which health and education operations that are part of provides repayable grants for small local projects, Pillar 3. Initial reports of the program's impact has some similarities to a microcredit operation are promising. In addition, through the PFPSALs and may ultimately have a significant employ- the Bank has helped to protect funding for so- ment impact, but it reached full-scale operations cial assistance programs during the post-2001 only in 2004, and its impact and sustainability will fiscal adjustment. have to be evaluated in the future. Bank support for social protection included Improving the Health of the People both social insurance (unemployment insurance Outcome. Over the past decade, Turkey's health and pensions) and social assistance. The estab- indicators have improved in some areas, notably lishment of unemployment insurance (agreed to in infant mortality, which fell by over 45 percent in the ERL) was a potentially important step, but (see table 5.2). Though still high by OECD stan- to date its coverage is limited, and dards, Turkey's infant mortality rate is at the Eu- The Bank has helped further reforms in its benefit struc- rope and Central Asia Region average and slightly the government build ture and contribution rates are below the average for middle-income countries. capacity to deal with needed for it to fulfill its potential. Life expectancy has also shown some gains, On pensions, the Bank assisted bringing Turkey slightly above the Europe and pension issues, but the government in designing the Central Asia Region average of 68 years. Life ex- pensions still need 1999 reforms and supported them pectancy improved for males and females at major reforms. under the ERL, generating initial about the same rate, with females living about 4 2 T H I R D P I L L A R : P O V E RT Y R E D U C T I O N A N D S O C I A L D E V E L O P M E N T these factors can be seen in the Urban areas and Table 5.2: Regional Differences slower decline in infant mortal- much of the western in Health Outcomes ity in the east (33 percent) than part of Turkey have in the nation as a whole (45 per- Indicator 1993 1998 2003 cent), even though one might substantially better Births with skilled delivery have expected a more rapid de- health outcomes than assistance cline in the east, where the ini- National average (%) 75.90 80.6 84.0 the rest of the country. Eastern region (%) 50.30 52.3 59.7 tial infant mortality rate was Eastern/national ratio 0.66 0.65 0.71 much higher (hence offering more scope for Infant mortality (per rapid gains). The reduction in infant mortality in 1,000 live births) the east came only after 1998, as security im- National average 53 43 29 proved and it became easier to implement ef- Eastern region 60 61 41 fective health programs. For some indicators Eastern/national ratio 1.14 1.42 1.41 the eastern part of the country improved more Child immunization, % fully rapidly than the national average, but even for vaccinated these indicators, large gaps remain. National average (%) 64.70 45.7 54.2 The other weakness shown in the indicators Eastern region (%) 40.60 22.9 34.8 Eastern/national ratio 0.63 0.50 0.64 is the declining share of public spending on pre- ventive care, despite the substantial rise in total Contraceptive use, all methods public spending on health. Most of the increase National average (%) 62.60 63.9 71.0 in health spending has gone toward curative Eastern region (%) 42.30 42.0 57.9 care, a shift in the expenditure mix toward less Eastern/national ratio 0.68 0.66 0.82 cost-effective interventions. This is reflected in Source: Turkish Demographic and Health Survey, 1993, 1998, and 2003. the decline in child immunization: between 1993 and 1998, the percentage of children fully im- 7 percent longer than males. Contraceptive use munized fell by about 20 percentage points. and the percentage of births assisted by trained While half of that lost ground was recovered by health personnel have both increased. Public 2003, DPT (diphtheria, pertussis, and tetanus) spending on health grew to levels similar to coverage, at 68 percent in 2003, is 22 percentage those of the Central and Eastern European coun- points below the Europe and Central Asia Region tries in the latter part of the 1990s, and those ex- average, and even below the world average of 74 penditures were protected throughout the percent. post-2001 fiscal adjustment. These good results are undermined, how- The Bank's contribution. The Bank's two ever, by their uneven distribution across regions Basic Health Projects sought to improve access (see table 5.2) and income groups and by an in- to health services by providing additional facili- adequate focus on prevention of disease and ties, training service delivery staff, and improving sickness. Urban areas and much of the western the management and policy-making capacities part of Turkey have substantially greater numbers of the Ministry of Health (MoH). The first proj- of health care professionals and facilities, as well ect covered eight under-served provinces in dif- as better health outcomes, than the rest of the ferent parts of the country, while the second country. Part of the improvement in national av- focused on 23 provinces in the east and south- erages reflects net migration to these better-off east where health indicators were the worst. and better-served areas. The assumption was that improved access In addition, the poorest 20 percent of the would result in improved health outcomes. The population are about half as likely as the richest IEG's review of the first project, which closed in 20 percent to have any kind of insurance cover- 1999, rated outcomes as marginally satisfactory, age, and are thus less likely to seek health care, noting that although baseline access and uti- even in life-threatening situations. The impact of lization data were not available, it was reasonable 4 3 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 to assume that access increased where new fa- identifying key issues in Turkey's system and a cilities were operating. The IEG also found that comprehensive, phased strategy to resolve them. the project contributed to improvements in The impact of the review was enhanced by being MoH's capacity by training large numbers of staff conducted in a collaborative way, involving the and installing a Management Information System, government, the medical profession, academ- though it noted that policy reform objectives ics, and other civil society stakeholders, that were not achieved due to the unstable political helped build public support for, and the gov- situation. The second project, closed in Decem- ernment's ownership of, the reform program. ber 2004, is more problematic. The planned fa- The dialogue following the sector review led cilities were either not yet complete or, if built, to the development of the Health Transition Proj- were not yet being used due to lack of staff. The ect (HTP), which is focused entirely on building project was given unsatisfactory ratings by IEG the systems and capacities needed to imple- in its final project status report. ment the first phase of comprehensive health- Both Basic Health Projects experienced major system reform. The project was designed to implementation problems, with long delays and restructure the MoH so it can exercise its strate- large cost overruns. This reflects the political gic policy and regulatory roles more effectively, and economic turmoil that prevailed during introduce a family medicine model for primary much of the period: the first project was imple- health care, build the capacities to implement mented under nine ministers of health and six universal health insurance, and strengthen the undersecretaries; austerity school of public health--all of which should in- The Bank's programs at times delayed crease the focus on preventive care. Unlike pre- contribution to the counterpart funding; and vious operations, the HTP appears to be fully health care sector was serious security problems embraced by the government, which adopted the much more successful in much of the eastern part main HTP components as its own reform pro- after 2001. of the country also delayed gram in 2002. implementation. Moreover, the government now has the solid The Bank sought to establish a strong Project majority needed to implement this complex and Coordination Unit (PCU), backed by a Manage- ambitious set of reforms, and the parliament ment Services Agreement with UNDP/UNOPS, to has already approved legislation to pilot the fam- improve implementation, but these approaches ily medicine approach and adopt more flexible did not produce good results, apparently under- hiring and pay policies. While it will take years mining the MoH rather than strengthening it. De- for much of the work in these areas to have an spite these problems, one constructive critic of the impact, some aspects, such as the change in Bank's assistance in health nevertheless argued staff pay structures, can bring near-term benefits that the Bank had been valuable, even in these op- by attracting staff to more remote facilities. But erations, as it "opened our eyes to international the reform program is ambitious and contro- thinking and to assessing health interventions in versial, and will need sustained effort and mon- terms of outcomes and improvements in health itoring to achieve success. indicators." Still, the Bank's contribution to out- The conditional cash transfers discussed ear- comes during the period up to 2001 was negligi- lier should also help support better health out- ble, especially given the scale of the effort. comes by encouraging the poor, who are least In contrast, the Bank's contribution after 2001 likely to use medical services, to seek prenatal was more positive, with the in-depth health sec- care and routine child immunizations. Finally, the tor analysis begun in 2001, the subsequent dia- provisions of the PFPSALs helped prevent a de- logue with the government, and the resulting cline in spending on preventive care as a share Health Transition Project. The sector review, the of GDP (even though it declined as a share of first since 1986, was of a high technical standard, total health spending). 4 4 T H I R D P I L L A R : P O V E RT Y R E D U C T I O N A N D S O C I A L D E V E L O P M E N T Improving Education Access and Quality Spending on education rose Over the past decade, Outcome. Over the past decade, Turkey has over the decade and stayed at Turkey made made substantial gains in school enrollments, es- fairly high rates even during substantial gains in pecially among girls in primary schools (See periods of fiscal contraction. school enrollments, table 5.3). These gains followed the 1997 reform Public spending as a percent of of basic education, which extended compulsory GDP is in the range of a num- especially among girls primary education from 5 years to 8 years, and ber of comparator countries. in primary schools. launched a major effort to enforce the require- As the need for subsidies at ment and ensure that adequate facilities and the primary level subsides (as the enrollment teachers were available. The increased enroll- rates reach 100 percent and as the primary school ment was concentrated in children from the cohort begins to shrink), resources should be- poorest 20 percent of households. Secondary come available for qualitative improvements and school enrollments have also grown rapidly, as for selective expansion at other levels. There is the higher numbers of eighth-grade graduates also scope for efficiency gains, Quality has remained seek further education. The increase in female with better completion rates enrollments at the secondary level kept pace and some shifts out of forms even, despite the with male enrollments, but there is no sign yet of education with high unit enrollment increases, of the gender gap narrowing at this level. costs (such as vocational edu- but student The proportion of the population with terti- cation), and for greater reliance achievement is still far ary education, while still the lowest among OECD on tuition at the university level below the levels Turkey members, also rose significantly (by nearly 30 per- to ration demand and finance cent between 1994 and 2002). Adult literacy also expansion. wants and needs. registered modest improvement, along with some narrowing of the gender gap. Literacy rates The Bank's contribution. At the beginning of should start improving more rapidly as the much the review period, the Bank's education portfo- larger numbers of primary school graduates lio consisted mainly of a set of operations fo- work their way into the adult population. cused on vocational education that had begun in It was a major achievement that school qual- the 1980s and continued to be implemented in ity, measured by learning assessment tests, did not the late 1990s. These projects reflected a view decline during this rapid enrollment expansion. prevalent in Turkey (and in the Bank in the 1980s) Moreover, girls' test scores are not significantly that the country's education priorities were vo- different from boys'. Turkey's establishment of sys- cational and technical training to produce a labor tematic learning assessments and its participation force that would enable the economy to grow and in international assessments are also positive compete in world markets. It was not generally outcomes, giving the country tools to chart fu- understood that large numbers of children did not ture system improvements. However, these as- complete primary school and therefore lacked the sessments give no scope for complacency, as basic skills to learn and adapt on the job to meet they demonstrate that learning levels are well the changing needs of the labor market. below what Turkey wants and needs: scores on The initial portfolio also included the National the national tests average below 50 percent Education Development Project, which reflected among OECD countries, and only one country Bank efforts to increase its scored lower in recent international assess- focus on primary and second- Bank operations ments. Moreover, Turkey's average scores conceal ary education and teacher train- suffered from wide variations, with small numbers of high- ing, and on the managerial implementation performing students from elite schools raising the capacity of the Ministry of average of the bulk of the students that achieved National Education (MoNE). Al- problems and dialogue only the lowest proficiency level. though the operation was was limited. 4 5 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table 5.3: Third Pillar: Poverty Reduction and Social Development Outcomes Baseline Achievement Indicator (1993) (2004) Comment Poverty rate a) Extreme 2.9% ['94] 1.4% ['02] Poverty now projected in 21­25% range given growth since b) Total 28.3% ['94] 27.0% ['02] 2002, provided inequality did not worsen significantly. Per capita GDP, 1987 TL `000 TL 1624 TL 1916 Modest rise over period. After narrowing, regional differ- Regional difference .44 ['92-95] .47 ['99-01] ences may have widened since 2001. a) Employment rate 47.5% 43.6% Large bulge in growth of working-age population and shifts b) Participation rate out of agriculture during this period, but also a marked de- Total 52.1% 48.4% celeration in job growth. Female 26.8% 25.3% Spending on social protection/GNP 6.08% ['98] 9.03% ['03] Total social protection spending levels remained well above agreed floor (7% of GDP) during fiscal contraction, but over- spending on pensions indicates serious problem and urgent need for reforms. Infant mortality (per 1,000 live births) 53 29 ['03] Substantial (45%) drop: brings Turkey slightly below middle- income average. Decline slower in east. Life expectancy at birth (years) Total population 66.8 68.6 ['03] Moderate gain and no change in gender differential, which Female population 69.1 71.0 ['03] is in line with middle-income country and OECD averages. Female/total 103.3 103.5 ['03] Public health spending Total as percentage of GNP 2.15% ['96] 4.85% ['03] Success in raising and protecting expenditure levels, but Percentage of total spent on offset by declining share of expenditures on preventive preventive care 12.1% ['96] 6.3% ['01] care, which remained roughly constant as a share of GDP. Enrollment rates Primary (yrs. 1­8) a) Gross 84.27% ['93] 98.17% Highly significant and rapid enrollment increase after 1997 b) Net 80.1% ['97] 90.0% reform. Major implications for poverty reduction and labor Secondary (yrs. 9­12) market preparation. a) Gross 52.4% ['97] 84.0% Rapid increase at secondary level as primary completions b) Net 45.1% ['97] 78.7% grew. Female to male gross enrollment ratios a) Primary 85.8% ['97] 95.2% Significant rise in female primary enrollment relative to b) Secondary 74.2% ['97] 74.2% male does not yet show up at secondary level. Tertiary attainment as percentage of 7.0 [94] 9.0 [02] Increase brings Turkey to lower end of OECD range. 25­64 age group Learning assessments Establishment of regular national assessments a key institu- Grade 5: Combined subject scores tional step. While the absolute scores are quite low, and Male 1.75 (95-7) 1.87 (02) changes in scores not all statistically significant, it appears Female 1.79 (95-7) 1.92 (02) that the large enrollment expansion took place without loss in quality. Scores do not suggest gender differences in learning. Literacy rates Adult total 84.7% 87.9% ['03] Small relative gain for females should improve over time Ratio: female to male literacy .82 .85 given primary enrollment expansion. Literacy in poorest Regional difference .84 ['90] .89 ['00] region rose relative to national average. Public spending on education as 3.10% ['96] 4.47% ['04Pr] Protection of spending levels during severe fiscal contraction. percentage of GDP Sources: See notes to Annex B, table B2. 4 6 T H I R D P I L L A R : P O V E RT Y R E D U C T I O N A N D S O C I A L D E V E L O P M E N T better focused strategically than the previous a traditional sector report. But recent ones, it suffered from numerous implementation Turkish and international spe- collaborative sector problems, many stemming from the continued cialists collaborated with the work is stimulating a rapid turnover of MoNE leadership and profes- Bank team in preparing back- sional staff (despite a PIU intended to overcome ground papers on priority is- more comprehensive these problems). The efforts to improve MoNE ca- sues. The ESS was conducted dialogue on critical pacity were unsuccessful in this environment, with the support of the Istan- education issues. but some progress was made in increasing the bul Policy Center's Education focus on general education. Reform Initiative (a consortium of interested When the government extended compulsory nongovernmental organizations and stakehold- primary education from five years to eight years ers), which helped the Bank to engage a broader in 1997, the Bank supported this breakthrough segment of civil society in discussions of the re- with two Basic Education Projects that contri- search and findings as they became available. buted to enrollment expansion, especially in The participation of both governmental and rural and slum areas. Learning materials were nongovernmental stakeholders appears to be provided for nearly three million rural students, helping to develop consensus and ownership national learning assessment tests were improved of the results of the study. As in health, the and further institutionalized, and innovative non- PFPSALs helped protect spending levels during governmental approaches to early childhood the fiscal crisis, and the SRMP is helping poor fam- education were funded. However, several weak- ilies keep their children in school. nesses reduced the impact of these operations. The emphasis on information and communica- Assessing Third Pillar Outcomes tions technology as a way to improve quality ap- pears to have been excessive and premature, The overall outcome for the third pillar is rated with continuing problems in procurement and moderately satisfactory efficient use. Both of these operations have had Poverty reduction and employment growth were serious implementation issues and long delays. modest, due largely to the slow and volatile growth More generally, there has been little progress in of the economy. Agricultural reforms, however, ap- improving MoNE's management effectiveness pear to have brought benefits to the poor by due to its fragmented, bureaucratic structure cushioning the impact of the economic downturn and its frequent leadership turnovers (there of 2001. And consumption growth since 2002 has have been eight ministers over the review period, probably reduced poverty further. including three since 2002). The rapid rise in primary-school enrollments, Given the lack of systematic sector work until especially for girls, was a major achievement. It recently, with no comprehensive sector review occurred without apparent loss of quality, and is since 1986, the Bank appears to have missed an leading to increased enrollments at the sec- opportunity to underpin a dialogue on strategic ondary level as well. Over time these changes are issues of quality, equity, efficiency, and finance in expected to bring broader social and economic education. Instead, until recently the dialogue has benefits to Turkey. been dominated by implementation and pro- The 45 percent decline in infant mortality is curement issues. In addition to underscoring another major achievement, bringing Turkey the importance of timely, high-quality sector into much closer alignment with comparators. work, this experience suggests that a different ap- The implementation of a targeted social as- proach, possibly along the lines of a SWAp, might sistance program, with 60 percent of its 1.7 mil- have been more effective. lion beneficiaries in the two poorest regions, is In fiscal 2004 the Bank launched a compre- bringing relief to poor families while reinforcing hensive Education Sector Study (ESS), which education and health programs. The protection focused on critical policy issues and used a par- of spending for health, education, and social pro- ticipatory approach to have a wider impact than tection during a time of severe fiscal contraction 4 7 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Box 5.1: Changes in Turkey's Social Indicators The charts below show how some of Turkey's important social in- remains substantial room for improvement. The improvements in dicators have changed over time and how they now compare infant mortality and primary-school enrollments are particularly with those of other countries and with regional and middle- large. The female employment rate is an important exception, with income country averages. The charts suggest that most of Turkey's Turkey having the lowest rate by a wide margin. indicators are now in line with the comparators, though there GNI/CAP (Atlas), 2003 Female employment rate, 2003 6,000 60 5280 55 56 51 51 52 5,000 as 50 46 47 43 44 4,000 39 population 40 capita 3080 3,000 2580 2720 2800 age 30 26 per 25 2190 2260 1930 1930 employment 2,000 1810 20 US$ 1,000 working Female 10 of % 0 0 Colombia Algeria Mid income Thailand Romania ia 5 Europe and Central As Brazil Turkey '03Turkey '93 Poland Turkey '03Turkey '93Mexico Italy Greece Poland Spain ngary Korea public Hu Slovak Re CD total EU1 OE Infant mortality rates, 2003 Life expectancy, 2003 60 76 75 53 74 births 50 72 72 live 40 71 35 33 70 70 30 70 29 29 69 69 69 1,000 30 68 23 Years 68 per 66.8 20 18 18 66 10 6 64 Deaths 0 62 Turkey '93Algeria Brazil Mid income Turkey '0d Central Asia 3 Thailand Colombia Romania Poland 3 Turkey '0Central As ia Turkey '93 Thailand Brazil Mid income Romania Algeria Colombia Poland Europe an Europe and Primary enrollment rate (net), 2001 Public spending on education as percentage of GDP, 2001 100 7.0 97 98 6.0 6.0 95 95 93 5.0 4.5 90 90 4.0 4.0 4.0 88 4.0 87 86 3.0 3.1 Percent 85 Percent 3.0 2.0 80 80 1.0 75 0 Turkey '97 Thailand Colombia Romania Turkey '04Mid income Algeria Brazil Poland Romania Turkey '96 Colombia Mid income ia Europe and Central As Turkey '04 Poland Note/sources: Turkish data sources as for table 5.3. Comparator data are for year indicated in chart title and are from World Development Indicators/Global Develop- ment Finance database, except for employment rates, which are from OECD's 2005 Factbook. The comparators vary across charts because data were not available for all countries. 4 8 T H I R D P I L L A R : P O V E RT Y R E D U C T I O N A N D S O C I A L D E V E L O P M E N T has also been important in maintaining service de- opments of the recent past--particularly the new livery, and possibly in maintaining social peace in conditional cash transfer scheme, the reforms of a time of stress. the MoH, and the dialogue around the education The declining relative expenditure on pre- sector study--are sustained. ventive medicine, and particularly on immu- nizations, is a matter of concern, but even here The Bank's Contribution spending has not fallen as a percent of GDP, and to Third Pillar Outcomes immunization coverage has recovered some- In the first part of the review period, the Bank's what since 1998. In general, most social indica- contribution to the outcomes was small: little in- tors, including those for gender and regional vestment was made in the analytic work needed inequalities, were trending in the right direc- to build understanding and consensus, projects tion, but at a rather slow pace. Box 5.1 provides were not always well-focused on strategic goals, a snapshot of some of Turkey's important indi- and several projects were poorly implemented. cators compared with those of other middle- Efforts were made on the institutional side, but income countries. usually through PIUs, which often proved to be counterproductive. Institutional development during the period is Starting around 1999, however, The Bank's rated as modest as the first poverty report was contribution in the Turkey gained the capacity to carry out poverty being completed, the Bank began early part of the analyses, design pension reforms, implement a to reduce the "analysis gap" with new targeted social assistance program, and high-quality work on poverty and review period was carry out systematic learning assessments. The on health. In June 2005 the Bank small. government restructured primary education as completed a participatory, collab- an eight-year compulsory system and established orative analysis of education sector issues and a an unemployment insurance system. labor-market study. The Bank's response to the But there was a lack of progress in develop- 1999 earthquake was quick and effective. Policy- ing the structure and capacity that the line min- based lending helped to protect social spending istries need to design and implement reforms during fiscal contraction. Innovative operations in health and education policies and programs, have been launched (notably the Social Risk Mit- including engaging the local levels where many igation Project, which is already social programs will need to be based. The de- reaching 1.7 million poor benefi- High-quality analytic velopment of the SSF during earthquake relief, ciaries, and the Health Transition work since 1999 has and more recently in implementing conditional Project). However, implementation improved outcomes. cash transfers, is an important exception, as is the problems have persisted in health recent reform effort under way in the Ministry and education projects, despite reliance on PIUs of Health. designed specifically to avoid such problems. In- stitutional weaknesses continue in the key line Sustainability of third pillar outcomes is likely ministries (though in the MoH these weaknesses The expansion of primary education in particu- are beginning to be addressed through the HTP). lar has set in motion a process that should lead The recent initiatives have the potential to to further gains at other levels. In most areas the make major sustainable contributions to Turkey's question is not whether current trends can be efforts to improve the lives of its people and sustained, but whether they can be accelerated narrow the gaps with Europe. It will take time to to bring Turkey's indicators into closer align- realize that potential. It will also take continued ment with those of Europe. It will be important strengthening of line ministries to ensure sound to focus efforts to ensure that promising devel- policy and program design and implementation. 4 9 Chapter 6: Evaluation Highlights ·Turkey faces significant environmental challenges, but the Bank program has not addressed them systematically. ·The Bank did not follow up on its support for the National Environmental Action Plan, and Turkey still has no compre- hensive national strategy to address environmental problems. ·Since the 1999 earthquake, the Bank has initiated a program of support for disaster management, which is proceeding slowly but has the potential to deliver important benefits. 6 Fourth Pillar: Environment and Natural Resource Management Meeting Environmental Challenges O utcomes. While some progress was made during the period in addressing Turkey's major environmental challenges, a large agenda remains (see table 6.1). Much of the progress made so far relates to in- but not enough--has also been made in reduc- stitutional development: the Ministry of Envi- ing industrial and municipal air and water pollu- ronment and Natural Resources (MoENR), newly tion, although some forms of industrial pollution established in the early 1990s and merged with appear to have worsened during the period. the Ministry of Forestry in 2003, is gaining in Progress was made in building awareness of the capability and has now started to build the tech- problem of marine pollution under coastal pro- nical systems and standards that will be required grams aimed at reducing the effluents into the seas for conformity to the environment chapter of the (the Mediterranean Environmental Technical EU acquis communautaire.1 Part of this work Assistance Program [METAP] and the Turkey has yet to has involved the spread of knowledge to all Black Sea Convention [BSC]), and develop a government agencies, as well as to the private under the Nitrates Directive of the EU. sector, of the requirements of an Environmental But more is needed in this area, and comprehensive Impact Assessment (EIA) for investment projects. a national strategy needs to be devel- national strategy The phase-out of ozone-depleting substances oped. The National Environmental Ac- for its wide range mandated by the Montreal Protocol has been al- tion Plan was prepared during the of environmental most fully accomplished. Significant progress has period, but it does not appear to have also been made in reducing ambient concentra- been used as a framework for policy. challenges. tion of total suspended particulates (TSP) and Improved natural resource management is sulfur dioxide (SO2) from energy emissions in needed in areas of Turkey where land degrada- Turkish cities, mainly by changing from the use of tion, soil erosion, and deforestation threaten lignite to gas in heating systems. Some progress-- the livelihood of local communities. Programs have been mounted to involve local communi- ties in community-based natural resource man- 1The acquis communautaire is the body of laws, regu- lations, treaties, and judicial decisions that comprise EU law, agement programs. While the number is not and to which accessing countries must conform. large relative to the number of micro-catchments 5 1 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table 6.1: Fourth Pillar: Environment and Natural Resource Management Outcomes Indicator Baseline Outcome Comment Organic water pollutant (BOD) emissions (000kg per day) 166.2 (1994) 159.2 (2004) Very marginal improvement over the decade. Water pollution, textile industry (% of total BOD emissions) 20 (1994) 12 (2004) Substantial improvements, reflecting technology upgrades. Water pollution, food industry (% of total BOD emissions) 46 (1994) 49 (2000) Pollution has worsened. Water pollution, chemical industry (% of total BOD emissions) 7 (1994) 9 (2000) Pollution has worsened. Ambient concentrations of TSP (total suspended particulates) Substantial improvements, reflecting fuel (ug/m3) substitution from coal to gas in city heating Ankara 107 (1994) 62 (2000) systems. Istanbul 151 (1994) 68 (2000) Emissions of NOx per unit of GDP (1994 = 1.00) 1.0 (1994) 0.95 (2004) Some modest improvement, partly reflecting switch from coal to gas. Number of Community-Based Resource Management 0 (1994) 80 (2004) Modest progress relative to number of Programs, in microcatchment areas microcatchments. Sources: World Development Indicators, World Bank estimates from Ministry of Energy data, and project documents for East Anatolia Watershed Project. Note: BOD = biochemical oxygen demand. Wastewater treatment in the country (more than ment of municipal wastewater, the Bank has had is a significant gap. 2,000 in total), by 2004 there a negligible impact. were some 80 such community- Largely missing (even as the regional programs based programs operating. Progress has also like METAP and the BSC are pressing for this) is been made in expanding access to clean water the commitment by the government to a national supplies, in improved solid waste management environmental strategy. The National Environ- in cities and towns, and in the collection of mental Action Plan has not been followed up sys- wastewater. Today about 81 percent of all waste- tematically by either the ministry or the Bank. water in municipalities is collected. But there has The Bank had some success in supporting been little increase in the portion of collected better natural resource management. The new wastewater that is actually treated, which is cur- models for local resource management and new rently only around 51 percent of the total. methods of inter-ministerial cooperation for rural development, which the Bank supported The Bank's contribution. The Bank has pro- as part of the East Anatolia Watershed Project, vided Turkey with little assistance to reduce seem to be lasting--if expensive--approaches. environmental degradation. The Bank helped A follow-on project is about to be launched using address pollution issues through its support community-driven models for management of na- for the completion of ODS phase-out under tional parklands. In contrast, the Bank seems to the Montreal Protocol, and an ongoing renew- have had little impact on the Ministry of Envi- able energy project shows some promise, but ronment and Forestry (MEF) as the central body these were isolated activities. In other major charged with environmental management. areas, such as nutrient run-offs from agriculture (a major threat to Black Sea Disaster Management Bank support has been ecology), management of in- Outcome. In a period marked by a series of limited and not dustrial and municipal solid natural disasters, considerable attention has been systematic. waste, air pollution, and treat- focused on improving disaster management. Fol- 5 2 F O U RT H P I L L A R : E N V I R O N M E N T A N D N AT U R A L R E S O U R C E M A N A G E M E N T lowing the relief efforts carried out by the Turk- cently approved the 310 million Istanbul Seis- ish authorities, with widespread international mic Risk Mitigation and Emergency Prepared- support, homes, health facilities, schools, and ness (ISMEP) Project, which is focused exclusively other buildings have been rebuilt to higher on risk mitigation. earthquake-resistant standards than had been the case. The objectives are to build systems that Assessing Fourth Pillar Outcomes will help to minimize losses and economic and and the Bank's Contribution social disruption and to cushion the economy and the population from the effects of disasters. The Overall progress on the fourth pillar is judged Emergency Management Directorate of Turkey moderately unsatisfactory (TEMAD) was established to monitor, report, This rating is a composite of quite disparate rat- and respond to disasters. ings for environment, which was given a relatively New building codes were enacted, and a new greater weight in Pillar 4 strategy, and disaster national disaster insurance institution--the Turk- management. While there was some progress on ish Catastrophic Insurance Pool (TCIP)--was the environment over the period, it is not com- established under a new law that makes it manda- mensurate with the scale of Turkey's environ- tory for all homeowners (not just new buyers, as mental challenges or the challenge that EU before) to insure their properties each year against accession will present, and is rated moderately earthquake damage. Actual insurance enrollments unsatisfactory for the period. fluctuate from year to year, but are generally be- No rating is given for disaster management for tween 15 and 25 percent (between 1.8 and 2.4 mil- the first part of the period, but the overall speed lion enrollments). Several factors affect the level and effectiveness of the 1999 disaster relief effort of enrollment: ignorance (the system is still quite and the progress, albeit slow, in developing in- new); reluctance to declare home ownership, stitutions and systems to handle disaster risks war- where houses are built without permits, or on un- rants a moderately satisfactory rating for the owned land; and the government's continuing as- more recent years. This contributes to the rating sertion that it will give coverage to quake victims, of modest for institutional development, which works as a disincentive to pay the rela- offsetting the failure to develop a framework for tively high insurance premium (about $5­$20 a environmental management. month). Sustainability is likely with regard to the The Bank's contribution. Through four oper- environment ations, the Bank contributed to disaster manage- The goal of EU accession creates an imperative for ment through both emergency relief and programs the government to step up its efforts in this area. to mitigate the impact of future disasters. The The decision to borrow $400 million from the Bank was the lead agency in designing and dis- Bank in 2005 for disaster prevention and man- pensing relief, and under the Emergency Earth- agement suggests that the commitment in this quake Recovery Loan both broke new ground area will likely be sustained, even as the experience and set new records in disbursing large amounts of the 1999 earthquakes recedes in time. of relief through the Social Solidarity Fund. The Bank's contribution to the fourth pillar The Bank's efforts to support mitigation mea- was a composite of environmental management sures and institutions took time to get started, but and disaster preparedness. The Bank had little with each successive disaster relief project, un- impact in environmental management. The lack finished work was rolled into the new project, of follow-up on the NEAP, for example, was an im- thereby raising the share of mitigation in the portant shortcoming. The Bank has had a more overall project. By the time of the Marmara Emer- substantial impact on disaster management, mak- gency Earthquake Reconstruction (MEER) Project ing valuable contributions to the management in 1999, the share of mitigation was 64 percent of relief efforts, as well as the focus on disaster of the total loan amount. The Bank's Board re- mitigation going forward. 5 3 Chapter 7: Evaluation Highlights ·Overall outcome is moderately satisfactory. ·Institutional development is substantial, particularly in the financial sector and infrastructure. ·Sustainability is likely because the four pillars are on the crit- ical path for EU accession. ·The Bank had little impact in the early period and failed to find the right balance between analytic work and lending. ·The 1997 portfolio clean-up and decentralization followed by support for education reforms and quick response to the 1999 earthquake set the stage for enhanced dialogue, lending, and Bank impact. ·The Bank worked effectively with the IMF after the 1999 and 2001 crises to support critical structural reforms. ·The overall Bank contribution to Turkey has been significant and was more than the sum of the operational parts. 7 Overall Assessment, Lessons, and Recommendations Rating the Overall Outcomes T he overall outcome in the four pillars supported by the Bank's strategy is rated as moderately satisfactory. This rating is a com- posite of the unsatisfactory outcomes from the fiscal 1994­98 period and the much improved outcomes from fiscal 1999­2004. The unsatisfactory rating for the earlier period In evaluating the Bank's contribution to out- reflects the greater weight of the first two pillars, comes in the areas of its strategic objectives, where there was a worsening of some of the the review period divides up somewhat differ- key structural indicators. The satisfactory rating ently from the evaluation of outcomes. From for fiscal 1999­2004 reflects good outcomes in fiscal 1994 to 1996 the Bank's contribution was achieving macro-stability and a major turnaround negligible, largely because of a political envi- in fiscal balances, combined with positive de- ronment that was resistant to the policy changes velopments in the institutional basis for the fi- and program design needed for growth and ef- nancial sector and infrastructure, and in some of ficiency. The relevant question is not whether the the social indicators. In some respects the weaker Bank could have done anything that would have outcomes in the environment area reflect both made a difference, but whether the Bank pro- Turkey's and the Bank's strategic focus on the gram represented an appropriate response to this macro and financial areas. environment. In an important respect--the bal- Institutional development is rated sub- ance between analytic work and lending--the stantial. Much of the enabling framework of program was poorly judged: the large The Bank's legislation and regulatory institutions was put in number of small, yet complex, proj- contribution was place during the period. Important gaps are the ects with limited ownership by the im- failure to strengthen the policy and implemen- plementing ministries and agencies negligible in the tation capacity of the line ministries and to meant that substantial resources were 1994­96 period. strengthen the framework for governance and diverted into supervision. anti-corruption. The failure to carry out formal analytic work Sustainability is rated likely, given the in- during this period reflects government resist- stitutional development and impetus provided ance to, or lack of interest in, such analysis. In by the negotiations for EU membership. some areas, however, the authorities would have 5 5 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table 7.1: Rating the Overall Outcomes Institutional Pillars Outcomes development impact Sustainability 1. Macroeconomic stability Moderately satisfactory Substantial Likely 2. Growth, productivity, and competitiveness Moderately satisfactory Substantial Likely 3. Poverty reduction and social development Moderately satisfactory Modest Likely 4. Environment and natural resource management Moderately unsatisfactory Modest Likely All Pillars Moderately satisfactory Substantial Likely been open to Bank analysis, and the argument From fiscal 2000 to 2004, the Bank's impact should have been made that it was inappropri- on outcomes was substantial. The political en- ate to embark on lending without such analysis. vironment was much more favorable to Bank A richer program of analytic work on public ex- policy advice and interventions, and in many penditure, agriculture, education, health, trans- (though not all) sectors the Bank absorbed the port, energy, and environment could have lessons of the need for collaborative work in become the basis for improvements in the dia- order to enhance capacity and build ownership logue and greater awareness of the policy and of the programs it supported. program needs. From fiscal 1997 to 1999 the Bank demon- Lessons and Recommendations strated a much sharper strategic focus on Turkey-- in both its analytic work and management of The Bank's strategy lending--which produced significant improve- From the early 1990s until the end of 2003, the ments in both its dialogue with the Turkish government's interest in the Bank's ad- The strategic focus authorities and its effectiveness. The vice or financing correlated closely with financial sharpened in fiscal portfolio clean-up in 1997 and 1998 crises. In the future the Bank will need to find 1997­99. created space for more carefully se- areas of engagement and modes of operating that lected programs. The Bank's deci- the Turkish government will perceive as useful sion to support expanded primary education and for creating a more stable macroeconomy and the quick and effective response to the 1999 earth- contributing to growth. The agreement at the quake created the basis for the expanded sup- end of 2004 to begin negotiations for EU acces- port for policy change in the financial crises of 1999 sion constitutes a major change in the environ- and 2001. An expanded program of economic ment in which the Bank operates in Turkey. The and sector work provided the essential under- drive for EU accession will likely define eco- pinnings for Bank policy advice and assisted in nomic policy in the years ahead and should pro- building consensus to take the necessary measures vide a foundation for collaborative support and implement programs more effectively. between the Bank and Turkish authorities. Decentralization of the Bank was an impor- This evaluation finds that the Bank's strategy tant improvement. The capacity and responsibil- during the period under review was broadly ap- ities of the Country Office were substantially propriate. Macroeconomic instability was a con- enhanced during this period. While the impact on straint on sustainable growth and poverty outcomes during this transitional pe- reduction, requiring a focus on fiscal restructur- The impact on riod remained modest, the Bank's ing and increased efficiency in the public sector. efforts demonstrated that even in a While it remains essential that the Bank program outcomes became politically difficult environment it is addresses these issues, particularly capacities in substantial from possible to define strategies that en- line ministries to deliver services more effec- fiscal 2000 to 2004. hance the Bank's impact. tively, a move to a more balanced approach is now 5 6 O V E R A L L A S S E S S M E N T, L E S S O N S , A N D R E C O M M E N D AT I O N S appropriate. Looking forward, the Bank needs to adjustment lending is not ap- Turkey's drive for strengthen its analysis and support for (1) im- propriate because of lack of EU accession provides provements in the investment climate, including progress in policy reform. The an opportunity for governance and labor markets, and (2) improved Bank's experience in Turkey sug- environmental management. gests that it is useful to main- consistent Bank For much of the period, the Bank operated as tain a lending relationship with engagement during if the private sector did not need support. Yet the a country at such times, to main- a period of environment for private sector investment in tain the level of the Bank's coun- macroeconomic Turkey is not commensurate with its potential try and sector knowledge, and to competitors in the EU. The failure to attract for- provide some focus for dialogue. stability. eign direct investment is related to both the po- The EFILs are good examples of interventions litical and economic instability of the past and that keep the lines of communication open, pro- specific concerns about governance in the pres- vide useful funding, and avoid unrealistic com- ent. The large share of production that takes plexity and policy conditionality. The projects place in the informal sector is an indication of the supported by the Bank in the Turkey's private sector governance problems arising from the current early 1990s were often either too framework of incentives, regulations, and payroll small and cumbersome, over- needs to become more taxes. While Turkey's large industrial groups have loaded with technical assistance competitive and more learned to operate effectively within these con- and barely worth the efforts re- technologically straints, the situation facing foreign investors and quired to implement them, or sophisticated, both of domestic small and medium-size enterprises is overly ambitious--with multiple more difficult. In the future the Bank needs to give components, dependent on po- which require an much greater prominence to this set of issues, in- litically sensitive legislation, and increase in foreign cluding the linkages between private sector de- with limited ownership in the line direct investment. velopment, job growth, and poverty reduction. ministries. Effective support of the private sector will re- The Turkish experience underlines the value quire closer coordination between the Bank, of well-designed analytic work in positioning the IFC, and IEG-MIGA. Joint teams of IFC and World Bank to respond quickly and effectively in middle- Bank staff should follow up on the problems in income countries when there is a cyclical shift and the investment climate identified by the recent the demand for Bank lending increases. The study carried out by the joint Bank/IFC Private Bank's analytic work appears to have been nec- Sector Development Vice-Presidency. essary for success not only for adjustment oper- During the CAE period the Bank paid little at- ations but also for effective investment lending. tention to environmental issues, which were Bank management needs to ensure that a rea- crowded out by other issues, especially the ef- sonable program of analytic work is safeguarded forts to respond to the earthquake disaster of from the inevitable downward pressures on the 1999. The Bank's support for mitigating the effects budget that occur when the lending program de- of the earthquakes and helping put in place mea- clines. sures that can provide early warning and reduce The analytic work undertaken by the Bank in the potential impact of future disasters remains im- Turkey looks very different from the work car- portant, but needs to be placed in a broader con- ried out in most other borrowing countries. Until text of Turkey's mixed record of environmental 2000 the output of formal economic and sector management. Environmental management, and its work was extremely thin for a potential cost, is a high priority for EU accession. country of Turkey's size and com- The Bank can provide plexity, and few Bank documents valuable support for The Bank's mode of operation were sent to the Board or made environment The Turkish experience between 1993 and 1998 publicly available. Throughout raises the important issue concerning the way the the period Bank analytic work management, a key Bank operates in middle-income countries when was made available only to the for EU accession. 5 7 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 A collaborative government (confidentially). crises. The speed and quality of the response operating mode has This analysis is useful and im- (based on the expanded program of analytic been a key to success in portant work, which even now work) was an important element in the Bank's could help to inform the un- contribution to outcomes in Turkey during the lat- creating ownership, and derstanding of the Bank's role. ter part of the period. needs to be extended. Some effort should be made The Bank's impact in Turkey was most effec- to systematize these informal products and pro- tive when it worked collaboratively with the gov- vide access to them for Bank staff. ernment. In almost all the cases in which studies There is another important issue, however. or projects were identified as being particularly The large investment made in Bank analytic work successful, there was a strong collaborative ele- should not be confined to a select group of gov- ment in the approach. These collaborative ac- ernment officials. As indicated, the Bank's analy- tivities were rated high in their institutional ses have influenced policy, but, except for the development impact. The PEIR and the health CEMs, they have not done much to promote sector work should be the model for most Bank discussion in the academic community or among activities in Turkey, combined where appropri- the public at large. This is an area where the ate with participatory approaches that include Turkish government needs to revisit how it re- nongovernmental stakeholders, as in the ongo- lates to the Bank's analytic work, and there needs ing Education Sector Study. Collaborative work to be serious discussion of better ways to han- should be extended to all aspects of the program, dle Bank analytic work in the future. The task of including supervision and evaluation work, and final review could be delegated to an advisory collaboration needs to go beyond the govern- panel that includes academics and civil society ment. The role of NGOs in Turkey is evolving rap- representatives. Similarly, for lending, the Bank idly from a once-weak base, and the Bank needs should work collaboratively with stakeholders to adapt its programs to support this evolution. outside of government, such as NGOs. The IEG's CAE retrospective1 indicated that, The overall impact of the Bank's decentraliza- in a third of all CAEs, most Bank operations are tion in Turkey has been positive. Starting in 1996, rated satisfactory, yet the overall impact is less the Country Office was strengthened by increas- than the sum of the parts. In Turkey the opera- ing the number and seniority of both interna- tions present a mixed picture, yet the overall tional and local staff, and its effectiveness has impact of Bank support has been positive, es- been enhanced through the delegation of re- pecially since 1999. Why was the Bank able to sponsibility from Washington. The increased re- have this impact in Turkey? Decentralization and sponsibility for portfolio improvement contributed a broad program of analytic work were important to the turnaround in 1997­98, and the decen- in setting the stage, so that when a political con- tralization of management of 80 percent of the on- sensus was reached on the need for structural going portfolio has been important to maintaining reforms, the Bank was able to respond quickly. that improvement. The mission met with Turkish Turkish authorities turned for guidance to the officials, who without exception judged decen- work the Bank had done over the years in agri- tralization to be a key factor in culture, public expenditure management, bank- The Bank's activities in the Bank's enhanced dialogue ing, energy, pensions, and other areas, all of Turkey have been more with the government and in- which became guideposts for needed action. creased access to policymak- The challenge for the Bank in the coming years than the sum of the ers since 1997. In their view, it will be to work its way out of this job and to pro- parts, and the success of has also permitted a quicker mote the development of institutional capacities the program since 1997 identificationofoptionsforpo- in Turkey, which can define the policy frame- positions the Bank well sitioning the Bank effectively work and supporting measures needed for in the public eye and a more growth, poverty reduction, and EU accession. to contribute to Turkey's rapid response to policy prior- aspirations for EU ities such as education reform, 1 Country Assistance Evaluation Retrospective, OED, accession. naturaldisasters,andeconomic World Bank, May, 2005. 5 8 O V E R A L L A S S E S S M E N T, L E S S O N S , A N D R E C O M M E N D AT I O N S Box 7.1: Summary of Recommendations 1. The Bank should increase the assistance program's participation of nongovernmental stakeholders, as well strategic focus on private sector development and en- as more systematic dissemination. vironment and natural resource management issues by: 3. The Bank should also build collaborative approaches · Defining a strategic approach to Private Sector De- more systematically into its lending, including imple- velopment in collaboration with IFC and MIGA, draw- mentation and monitoring. At the government level, ing on the recent Joint Investment Climate Assessment the Bank should seek to work more effectively with the and leading to a new program of Bank support for PSD, line ministries, with projects implemented through their including expanded coverage of issues of gover- normal structures, and focus on building sustainable ca- nance, anti-corruption, the regulatory framework, pacities in the ministries when needed. There should and employment impact. be a clear burden of proof for sector staff to demon- · Expanding the Bank's analytic work on environmen- strate the justification for organizing an "enclave" ac- tal and natural resource management issues and tivity through a PIU. The Bank should also systematically agreeing with the Turkish government on a program develop activities to extend the collaborative approach of support for Turkey's environmental priorities. beyond the government, to include NGOs and other civil society stakeholders, again to develop a greater 2. The assistance program should maintain an ade- sense of ownership of Bank-supported activities in quate level of well-focused, high-quality analytic work, Turkey. as it did in the latter part of the review period. The Bank should proceed with lending activities in Turkey only 4. The Bank should assist the Turkish authorities to put when it is confident that the analytic work--not nec- in place frameworks for monitoring the key development essarily the Bank's own--is in place to support the de- programs and outcomes, including, for example, the sign of programs. This analytic work should be carried efficiency of Turkish infrastructure, the social impact of out collaboratively, building systematically on the mod- pension expenditures, women's labor force participa- els developed for the public expenditure and education tion, progress in health sector reforms, and the range studies, so that it can generate genuine ownership both of programs of assistance to the poor such as direct in- within the government and the society at large. This col- come support for farmers and conditional cash trans- laboration needs to go beyond the government and en- fers. Nongovernmental stakeholders could play a useful compass a more active role for the Bank in ensuring the role in this monitoring. 5 9 ANNEXES ANNEX A: THE RELATION BETWEEN THE BANK'S STRATEGY AND PROGRAM First Pillar: Macroeconomic Stability Table A1. Public Financial Management Table A2. Structural Reforms Second Pillar: Growth, Competitiveness, and Productivity Table A3. Strengthen the Banking System and Deepen Financial Intermediation Table A4. Improve Management of Infrastructure Table A5. Enhance Productivity Third Pillar: Poverty Reduction and Social Development Table A6. Promote Equity, Employment, and Social Protection Table A7 Improve Health Standards Table A8. Improve Education Coverage and Quality Fourth Pillar: Improved Environment and Disaster Management Table A9. Reduce Environmental Degradation Table A10. Support Better Disaster Management 6 3 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 First Pillar: Macroeconomic Stability Table A1: Public Financial Management Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Lending Public Financial Management (FY95) 62 MS L S Only the customs component rated satisfactory but the project helped to build a constituency for change in the bureaucracy. ERL (FY00) 760 S L S Helped tie down the commitment to transparency and to provide back-up for IMF programs for deficit reduction in key structural areas. PFPSAL I (FY02) 1,100 S NE S PFPSAL II (FY02) 1,350 MS L S PFPSAL III (FY04) 1,000 Analytic work CEMs (4) Viewed as solid reports that provided a useful context for the Bank's dialogue and operations. PEIR (FY02) Very effective in building constituency for reform and securing good collaboration. Dialogue and partnerships A central feature of the dialogue throughout the period Close collaboration with IMF Division of labor, with Bank handling public expenditures and IMF covering tax policy. Note: $450 million of PFPSAL II was disbursed in August 2002. The remaining balance of PFPSAL II was cancelled in June 2003 and was folded into PFPSAL III. For notes to all tables, see end of table A10. 6 4 A N N E X A : T H E R E L AT I O N B E T W E E N T H E B A N K ' S S T R AT E G Y A N D P R O G R A M Table A2: Structural Reforms Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Lending ERL (FY00 ) 760 S L S Adjustment lending played an important PFPSAL I, II, III role in keeping a focus on privatization in the period from 1999 to 2004. Privatization Implementation 100 U NE M Provided resources for severance pay- Assistance Project (94) ments and enhanced capacity of privati- zation agency. ARIP (FY02) 600 Provided resources for severance pay- ments for agricultural parastatals and helped govt. reduce their role in provi- sion of inputs and marketing. TEK Restructuring (FY01) 300 MS L S Led to the separation of generation, transmission, and distribution to provide a basis for possible later privatization. Analytic work CEMs (4) In absence of a systematic review of the SOE sector, the CEMs provided useful background information and reviewed progress on privatization. Note: $450 million of PFPSAL II was disbursed in August 2002. The remaining balance of PFPSAL II was cancelled in June 2003 and was folded into PFPSAL III. For notes to all tables, see end of table A10. 6 5 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Second Pillar: Growth, Competitiveness, and Productivity Table A3: Strengthen the Banking System and Deepen Financial Intermediation Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Lending FSAL (FY01) 778 MS L S Aimed to strengthen regulation and supervision of the banking sector. After major crisis, second tranche was can- celled. Many of the components of FSAL were incorporated into PFPSAL I and PFPSAL II. PFPSAL I ( FY02) 1,100 MS NE S PFPSALs series aimed at strengthening PFPSAL II (FY02) 1,350 MS L S BRSA, bringing banking regulations to PFPSAL III (FY04) 1,000 international standards, restructuring problem banks, privatization of state- owned banks. EFIL I (FY00) 253 S L M Primary objective was to provide medium-term loans to exporting enter- prises hurt by global financial crisis. Secondary objective was to start dia- logue with major banks through setting up strict eligibility criteria. EFIL II (FY04) 303 Followed on EFIL I, added leasing com- panies, aimed to also reach small and medium-size exporters not serviced by banking sector. End-2004 Implementa- tion Review ratings HS/HS for DO/IP. Analytic work Banking Sector Policy Note Identified major weaknesses in the 1997­1999 banking sector and laid out a foundation for post-crisis program. Banking System Crisis Impact Assessed the cumulative impact of two Assessment, FY01 banking crises and outlined the critical actions necessary to recover from the damage suffered in the banking sector. Non-bank financial institutions The objective was to make an assess- ment of non-banking sector for future Bank involvement through lending oper- ations. But no follow-up has been men- tioned yet in the Bank's program. Dialogue and partnerships IMF The Bank's assistance to the banking sector has been closely coordinated with the IMF. Note: For notes to all tables, see end of table A10. 6 6 A N N E X A : T H E R E L AT I O N B E T W E E N T H E B A N K ' S S T R AT E G Y A N D P R O G R A M Table A4: Improve Management of Infrastructure Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Lending TEK Restructuring (1991) 300 MS L S Restored financial viability to TEK, began first stages of un-bundling, con- tinued long-standing sector dialogue. National Transmission Grid (1998) 270 Financed strategic links to neighboring countries, and implemented second and third stages of un-bundling of genera- tion, transmission, distribution, and trading entities. Latest implementation review ratings are S/S. The major insti- tutional changes supported by the proj- ect appear sustainable. WSS Projects Ankara Sewerage (1990) 73 S U M Satisfactory progress with physical facilities, less certain progress with instilling improved governance. Bursa WSS (1993) 130 S L M Satisfactory progress with physical facilities; one case where private opera- tor experience was positive, quite posi- tive efficiency gains; some problems with private contractors. Cesme WSS (1995) 13 Most successful case of private opera- tor; latest implementation review ratings are S/S. Antalya WSS (1995) 100 MS L S Satisfactory progress with project facili- ties, but major conflict between private operator and contractor now in court, interfered with outcomes and put sustainability in question. Roads Improvement and 250 MS L M Satisfactory progress with program of Safety Project (1996) road improvements, some modest gains in efficiency; dramatic improvement in road safety in "Black Spots," thanks to highly responsive program devised by KGM. Closure of project and cancella- tion of unused funds seen by some as premature. ERL (2000) (telecom; power 760 S L S Significant progress with regulatory sector frameworks) reform, little (or slow) progress with privatization. ICR subratings were MS for telecom, MU for energy. Berke Hydro Plant (1992) 270 HU U N Bank financed private independent power producers (IPP); project started with promise, but was seriously im- peded by a hostile private buy-out of the operator ownership; Bank was prudent to cancel the loan. (Continues on the following page.) 6 7 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table A4: Improve Management of Infrastructure (continued) Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Analytic work Efficiency of Gas Distribution (1999) Underlay the restructuring and privatiza- tion strategy for the gas distribution sec- tor, introducing increased competition. Caspian Oil and Gas (2003) Follow-on to Baku-Ceyhan TA project. Gas Sector Note (2004) Explored options for moving away from the Turkish National Gas Company (BOTAS) as sole-source gas buyer. Dialogue and partnerships Energy Workshop (1999) Initiated by the country director, in re- ESMAP sponse to request from Ministry of Energy for reform strategy assistance. Led to a series of studies, and fed into ERL action plans for power, gas, and petroleum. Note: For notes to all tables, see end of table A10. Table A5: Enhance Productivity Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Lending Technology Development 100 MS L M Began process of building public infra- Project, TDP I (1991) structure, protection systems, and financing for technology; created new institutions (Technology Development Foundation of Turkey--TTGV); failed to get legislative basis for national accred- itation agency. TDP II (1999) 155 Continued work in building institutions, extended funding to increasing circle of companies, succeeded in securing needed National Accreditation Council (NAC) law. Sustainability seems as- sured, and institutional impact has been substantial. Implementation review ratings HS/HS. Analytic work CEM 2000 S Laid out macroeconomic basis for ex- pansion of the export sector, and under- pinned the EFIL loans. Data as provided by an internal quality assurance group that monitors the Bank's project quality. Dialogue and partnerships None Note: For notes to all tables, see end of table A10. 6 8 A N N E X A : T H E R E L AT I O N B E T W E E N T H E B A N K ' S S T R AT E G Y A N D P R O G R A M Third Pillar: Poverty Reduction and Social Development Table A6: Promote Equity, Employment, and Social Protection Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Lending Employment and Training [93-01] 67 S L M Supported active labor market policies (ALMP). Privatization Implementation 100 U NE M Lack of substantial privatization meant Assistance and Social Safety little impact of safety net and ALMP Net [94-99] provisions. Project TA contracted the International Labour Organisation (ILO) to carry out detailed analyses of pension system problems. Emergency Earthquake Recovery 253 S L S Counterpart funds used to provide Loan [00-01] social support payments to earthquake victims through Social Solidarity Fund. PPAR ratings. Privatization Social Support 250 Mainly funds severance payments and [01-05 ] special additional payments to laid-off SOE employees; also supports relatively small AMLP program. Designed more to ease privatization than reduce poverty. Workers have little incentive to accept private sector job offers. Implementa- tion review ratings S/HS. Social Risk Mitigation (SRMP) 500 Highly innovative hybrid operation fund- [02-06 ] ing conditional cash transfers to poorest 6% and locally driven small projects. Implementation review ratings S/S. Econ Ref Ln [00-04] 760 S L S Supported initial reforms of pensions and start of unemployment insurance. Ag Ref Impl Project [02-06 ] 600 Hybrid operation led to lower consumer food costs and less distorting, more equit- able income support to farmers. Likely significant poverty-reducing impact. Implementation review ratings S/MS. PFPSAL I [02-02] 1,100 S NE S Programmatic Financial and Public Sec- tor SALs: series of PDLs sought to pro- PFPSAL II [02-03] 1,350 MS L S tect social spending levels in time of large fiscal contraction; also supports PFPSAL III [04-05] 1,000 public expenditure management (PEM) reforms that should build line min- istries' capacities for strategic budget- ing. PFPSAL III Implementation Review rating S/S. PPDPL [pending] Proposed Programmatic PDL would, inter alia, support reforms in social in- surance (pensions and health), social assistance, and labor markets, as well as public service delivery. (Continues on the following page.) 6 9 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table A6: Promote Equity, Employment, and Social Protection (continued) Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Analytic work WID Report [93] Report on gender issues; published in May 1993. CEM [96, 00, and 03] Contained analyses of Social Security Issues. Living Standards [00] Initial path-breaking poverty report. Stressed links between growth, employ- ment, and poverty reduction; developed poverty profile; analyzed impact of pub- lic spending; and discussed regional and gender issues. Marmara Earthquake Quick, informal assessment to guide Assessment [99] response to 1999 disaster. Poverty [04] Poverty assessment (PA) that provided analytical base for SRMP. Gender [04] To inform CAS preparation. Joint Poverty Assessment [05] Recently completed PA done as joint study with Turkish Statistical Agency (SIS). Labor Market Long under preparation. CEMs of 2000 and 2003, and PAs of 2000 and 2005 contained interim analyses. Dialogue and partnerships Social Security Reform Dialogue Dialogue based on initial analysis by ILO-funded by project TA; main findings summarized in 1996 and 2000 CEMs; led to 1999 reforms in ERL; underpins components of Health Transition Project and future reforms to be supported by PPDPL. UNDP and the U.S. Agency UNDP partnership in mobilizing commu- for International Development nity participation for local initiatives (USAID) partnership in imple- component; USAID grant funding menting SRMP ($9 mn) of Conditional Cash Transfer component. SIS Partnership in Joint Poverty Poverty analysis now has become a reg- Assessment ular part of State Institute of Statistics' work program. Note: For notes to all tables, see end of table A10. 7 0 A N N E X A : T H E R E L AT I O N B E T W E E N T H E B A N K ' S S T R AT E G Y A N D P R O G R A M Table A7: Improve Heath Standards Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Lending Basic Health 1 [89-99] 75 MS U M Aimed to improve health in underserved areas of 10 of Turkey's 67 provinces through improved service delivery and greater financial sustainability and to strengthen management capacity of MoH. Civil works and equipment over 85% of initial project costs. Bankandborrowerperformance rated unsatisfactory by IEG. Nearly 10-year implementation period. Major issue with size and effectiveness of PIU. Persistent staffing issues. Basic Health 2 [95-05] 150 Aimed to improve equity of access to health services by construction and staffing of clinics in 23 low-income, underserved eastern and southeastern provinces; and to improve MoH man- agement. Implementation delayed by civil unrest in area [early to late 1990s] and frequent changes in government/ MoH leadership. Financed vaccination campaign in late 03. $22.5mnreallocatedtomeetpost- earthquake needs. ClosedinDecember2004;over10- year implementation period. At closing, 5 of 23 clinics not yet finished, and no clinic operational. PIU issue continued, but reduced. Quality of supervision assessment = 2 in 2000 and 3 in 2003. Final implementation review ratings U/U. Primary Health Care Services 15 NR NE NR Intended to pilot family medicine ap- [97-01] proach but implementing legislation never passed. Subsequently restructured to reestab- lish health services in areas affected by Marmara earthquake in 1999. Disbursed only about $0.3 mn, even after restruc- turing to meet emergency needs. Un- clear why unsatisfactory rating in project completion note changed to NR. Marmara Emergency Earthquake 29 Two small health components in this Project [00-05 ] large [$505 mn] emergency operation: [health component only] $6.9 mn for adult trauma post-earthquake and $21.6 mn for facility reconstruction. Utilization slow: mental health policy and emergency equipment for health centers still pending in late 2004. Implementa- tion review ratings S/S. (Continues on the following page.) 7 1 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table A7: Improve Heath Standards (continued) Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Health Transition [04-08 ] 61 Supports preparation and first phase of fundamental, comprehensive reform of health system, including reorganization of MoH; hospital autonomy; family med- icine approach; universal health insur- ance with related reforms of social insurance institutions; and collaborative approach between MoH and Ministry of Labor and Social Security (MoLSS). Based on comprehensive sector study in 2003 and government's Urgent Action Program. QER. Implementation review ratings S/S. Analytic work Public Expenditure and Contained substantive chapter on Institutional Review [02] health-expenditure issues. Poverty Assessments [00 & 05] Chapters on health issues in 2000 and 2005 Poverty Assessments. National Health Accounts and These key building blocks for health Burden of Disease sector analysis carried out and funded by the Basic Health 2 project. Health Sector Study [03] First comprehensive sector review since Sept. 1986; included major collabora- tion and dissemination effort; provided analytical base for Health Transition Project [04]. Dialogue and partnerships UNDP/UNOPS Management services agreement to act as procurement agent and management service provider for Basic Health 1 and 2. UNICEF, WHO, Centers for Basic Health 2 (BH2) focus on maternal Disease Control (CDC), MoH and child health interventions empha- sized by UNICEF. Collaboration on Measles Eradication Program in 2003 and 2004, using funds from BH2. EU and WHO Under Health Transition Project, coordi- nation with EU on its grant to MoLSS for Social Security information platform and network, and with WHO on TA for M&E. MoH Frequent leadership changes and key staff turnovers limited policy dialogue; MoH institutional reform became possible only recently. Note: For notes to all tables, see end of table A10. 7 2 A N N E X A : T H E R E L AT I O N B E T W E E N T H E B A N K ' S S T R AT E G Y A N D P R O G R A M Table A8: Improve Education Coverage and Quality Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Lending Industrial Schools [85-95] 58 MS Unc. N Aimed to improve quality and quantity of trained manpower by upgrading equip- ment, curricula, and materials in 39 of 316 existing industrial schools; assisted schools reportedly still functioning bet- ter than others, but demand for this type of education reportedly declined. Bankperformanceratedunsatisfac- tory, borrower performance satisfactory. (Nearly) 10-year implementation period. Nonformal Vocational Training 59 S Unc. N Bank and borrower performance rated [87-95] satisfactory. Impact on employment likely negligible. Industrial Training-2 [88-98] 116 MS U M 10-year implementation period. Impact on employment negligible. National Education Development 90 MS U M First operation aimed at general educa- [90-99] tion system; initial focus on raising quality of primary and secondary educa- tion and teacher training and on improv- ing management of MONE. Restruc- tured in 1996. Established national as- sessment test system; piloted expan- sion of primary coverage; and new early education training of mothers program in partnership with NGO. Bankperformanceratedunsat;bor- rower sat. Closed 2 years and 3 exten- sions after original closing date. Quality of supervision = 3. Basic Ed-1 [98-03] 300 U L N Focused on capacity expansion and teaching materials in low-income rural and slum areas on introducing IT equip- ment and programs in selected schools. Serious implementation problems de- spite PIU. Quality at entry = 3. Basic Ed-2 [03-06 ] 300 Implementation problems persist. QER; Quality at entry = 3,3. Implementation review ratings U/U. Analytic Work Education and Training Sector [87] Accepted view that primary enrollment rates were nearly 100%; focused on need to meet perceived skill gaps in the economy; highlighted need for better sector data and for deconcentration of MONE. (Continues on the following page.) 7 3 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table A8: Improve Educationn Coverage and Quality (continued) Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Primary and Secondary Education Highlighted the substantial coverage [91] gaps in primary and secondary levels (with enrollment rates estimated at 80% for 5-year primary schools and 35% for secondary schools), as well as the need for higher quality. Public Expenditure and Contained substantive chapter on edu- Institutional Review [02] cation expenditure issues. Poverty Assessments Substantive chapter on education issues in 2005 Poverty Assessment; discussion of impact of spending in 2000 Poverty Assessment. Education Sector Study [05 ] First comprehensive sector review since Sept. 1986; includes major collaboration and dissemination effort with civil soci- ety stakeholders; Still under way, but provided input for recently approved Secondary Education Project. QER. Dialogue and Partnerships Mother and Child Education This NGO's innovative program of Foundation (ACEV) mothers' training and early childhood education supported thru several proj- ects [Ind Schools, NFVT, NEDP, and BE2]. Education Reform Initiative (ERI) Partnership with ERI, supported by Sab- naci University, ACEV, and Open Society Institute, to engage civil society stake- holders in dialogue with WB and GoT on education sector issues and the studies being prepared for the Educa- tion Sector Study. European Union Close collaboration to ensure that EU's parallel grant assistance to secondary education and recently approved Sec- ondary Education Project are consistent and mutually reinforcing. Note: For notes to all tables, see end of table A10. 7 4 A N N E X A : T H E R E L AT I O N B E T W E E N T H E B A N K ' S S T R AT E G Y A N D P R O G R A M Fourth Pillar: Improved Environment and Disaster Management Table A9: Reduce Environmental Degradation Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Lending ODS Phase-out Grants (94/5) 30 NA NA NA Bank-administered grants made under the Montreal Protocol. ODS phase out now almost complete. No formal ratings available, but appears to have had satisfactory results. Renewable Energy Project (04) 202 Bank financed IPPs in four medium hydro projects, as part of clean energy program. Shows promise, but take up is somewhat slow. Implementation review ratings S/S. Analytic work Energy and Environment (00) ESW Comprehensive survey of major environ- mental issues facing Turkey as it con- fronts expansion of energy needs with growth in GDP, and in terms of higher standards demanded by EU membership. The NEAP (01) ESW/TA Bank-initiated action plan, designed to offer assistance to the MEF in address- ing environmental issues in a prioritized strategy. The Clean Air Initiative (03) NLTA Part of the overall Energy and Environ- ment follow-on program. EIA Policy Work for MEF (04) NLTA Bank listing of areas in which compli- ance to EU norms is deficient, and sug- gestions as to how compliance can be attained over time. TA to MEF, likely impact is modest. Energy and Environment (04) ESW Summarized results of 10 studies, into energy and environment issues arising out of the Energy Workshop of 1999. Contains comprehensive assessment of relevant issues to be addressed as Turkey approaches EU accession. Dialogue and partnerships Energy Workshop (02) Culmination of the Energy and Environ- ESMAP + JSTCF ment project (10 studies), contained in a Synthesis Report that summarized main findings and issues. Main audi- ence was Ministries of Energy and Environment. Note: For notes to all tables, see end of table A10. 7 5 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table A10: Support Better Disaster Management Ratings Amount Outcome/overall Bank program (US$ mn) assessment Sustainability IDI Comments Lending Earthquake Rehab and 285 S L M Mainly dealt with relief and reconstruc- Reconstruction (93) tion, with first attempts at building mitigation capacity. Emergency Flood and 369 S L M While mitigation capacity-building was Earthquake Recovery (98) greater than in first project, still mainly focused on relief and rehab, in which progress was satisfactory, but IDI was modest. EERL (00) 253 S L M Record rate of relief disbursement through the Social Solidarity Fund. (PPAR rating) MEER(00) 505 Substantial increase in mitigation capacity (established TEMAD and TPIC), but both institutions moving forward somewhat slowly. Implementation review rating S/S. Analytic work None Dialogue and partnerships Disaster relief and other Agencies, with diverse experience and assistance Aid Coordination capabilities, from Spain, Japan, Switzerland, the Islamic Development Bank, the EIB, UNDP and UNFPR were all engaged with the Bank (as lead agency) in parallel relief and rehabilita- tion efforts. Note: For completed operations, ratings for outcome, institutional development, and sustainability are from the most recent Implementation Completion Reports, IEG Implementation Com- pletion Report Review or Project Performance Assessment Reports. Scales are: HS (highly satisfactory), S (satisfactory), MS (moderately satisfactory), MU (moderately unsatisfactory), U (unsatisfactory), and HU (highly unsatisfactory) for outcomes; H (high), S (substantial), M (modest) or N (negligible) for institutional development impact, HL (highly likely), L (likely), U (unlikely), HU (highly unlikely), or Unc. (uncertain) for sustainability. In some cases ratings of NR (not rated) and/or NE (not evaluable) are given. For ongoing operations (or those completed too recently to have an Implementation Completion Review), ratings are from last available project status reports/implementation status re- ports, and rate development objectives/implementation using a scale of HS (highly satisfactory), S (satisfactory). U (unsatisfactory), HU (highly unsatisfactory), NA (not applicable) and NR (not rated). Where available, the Quality Assurance Group quality at entry and quality of supervision ratings are presented. The Quality Assurance Group uses a 1­4 scale (for highly sat- isfactory, satisfactory, marginal, and unsatisfactory, respectively). For AAA work, the quality assurance group quality of ESW ratings are used where available. The scales are the same as for quality at entry and quality of supervision. Dates are fiscal year of approval and of closing; closing year of ongoing projects/studies in bold italics; amounts are original loan amounts in US$mn. 7 6 ANNEX B: STATISTICAL TABLES Table B1: Turkey at a Glance Table B2: Key Economic and Social Indicators, 1990­2003 Table B3: External Assistance to Turkey, Total Net ODA Disbursements, 1990­2003, in US$ Million Table B4a: Turkey--Economic and Sector Work, 1990­2003 Table B4b: Turkey--List of IBRD/IDA-Approved Projects, 1990­2004 Table B5a: World Bank Commitment by Sector Board for FY99­04, US$ Million Table B5b: Project Ratings by Sector Board, Exit Fiscal Years 1994­2004, Turkey and Comparisons Table B5c: Portfolio Status Indicators, Turkey and Comparisons Table B6: Cost of Bank Programs for Turkey and Comparison Countries, US$ Thousands, Fiscal Years 1994­2004 Table B7: Turkey--Bank's Senior Management, 1995­2005 Table B8: Turkey--Millennium Development Goals 7 7 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table B1: Turkey at a Glance Europe & Upper- Central middle- Turkey Asia income POVERTY and SOCIAL 2004 Development diamond* Population, mid-year (millions) 71.3 472 576 GNI per capita (Atlas method, US$) 3,770 3,290 4,770 Life expectancy GNI (Atlas method, US$ billions) 269.0 1,553 2,748 Average annual growth, 1998­04 Population (%) 1.5 ­0.1 0.8 Labor force (%) 2.2 ­0.5 ­0.9 GNI Gross per primary Most recent estimate (latest year available, 1998­04) capita enrollment Poverty (% of population below national poverty line) .. .. .. Urban population (% of total population) 67 64 72 Life expectancy at birth (years) 69 68 69 Infant mortality (per 1,000 live births) 33 29 24 Child malnutrition (% of children under 5) 8 .. .. Access to improved water source Access to an improved water source (% of population) 93 91 93 Literacy (% of population age 15+) 88 97 91 Gross primary enrollment (% of school-age population) 91 101 106 Turkey Male 95 103 108 Upper-middle-income group Female 88 101 106 KEY ECONOMIC RATIOS and LONG-TERM TRENDS Economic ratios* 1984 1994 2003 2004 Trade GDP (US$ billions) 59.9 129.7 240.4 302.8 Gross capital formation/GDP 16.2 21.5 22.8 25.7 Exports of goods and services/GDP 15.6 21.4 27.4 28.9 Gross domestic savings/GDP .. 22.5 19.5 19.9 Gross national savings/GDP 16.4 25.3 19.1 19.9 Domestic Capital formation Current account balance/GDP ­1.9 2.0 ­3.3 ­5.1 savings Interest payments/GDP 3.1 3.1 2.9 2.4 Total debt/GDP 36.1 51.1 60.5 53.4 Total debt service/exports 33.0 34.1 38.4 32.6 Present value of debt/GDP .. .. 63.6 56.2 Present value of debt/exports .. .. 211.1 181.9 Indebtedness 1984­94 1994­04 2003 2004 2004­08 Turkey (average annual growth) GDP 4.5 3.1 5.8 8.9 5.0 Upper-middle-income group GDP per capita 2.3 1.4 4.3 7.5 3.7 Exports of goods and services 6.8 11.1 16.0 12.5 5.7 STRUCTURE of the ECONOMY Growth of capital and GDP (%) 1984 1994 2003 2004 (% of GDP) 50 Agriculture 21.6 16.0 13.4 12.9 Industry 25.0 31.4 21.9 22.4 0 Manufacturing 16.4 20.2 13.3 13.9 99 00 01 02 03 04 Services 53.4 52.6 64.7 64.7 ­50 Household final consumption expenditure 79.6 65.9 66.6 66.9 GCF GDP General gov't final consumption expenditure 8.3 11.6 13.6 13.2 Imports of goods and services 19.7 20.4 30.7 34.7 Note: 2004 data are preliminary estimates. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 7 8 A N N E X B : S TAT I S T I C A L TA B L E S Table B1: Turkey at a Glance (continued) STRUCTURE of the ECONOMY (continued) 1984­94 1994-04 2003 2004 Growth of exports and imports (%) (average annual growth) Agriculture 1.4 1.0 ­2.4 2.0 40 Industry 5.7 2.4 5.0 8.8 20 Manufacturing 6.1 3.4 8.4 10.1 Services 3.9 3.3 6.4 8.3 0 99 00 01 02 03 04 Household final consumption expenditure 3.9 2.3 7.1 10.1 ­20 General gov't final consumption expenditure 3.5 3.5 ­2.4 0.5 ­40 Gross capital formation 5.0 3.0 20.4 27.4 Exports Imports Imports of goods and services 9.2 9.1 27.1 24.7 PRICES and GOVERNMENT FINANCE 1984 1994 2003 2004 Inflation (%) Domestic prices 100 (% change) Consumer prices .. 106.3 25.3 10.6 80 Implicit GDP deflator 48.2 106.5 22.5 9.9 60 Government finance (% of GDP, includes current grants) 40 Current revenue .. 21.4 39.6 39.9 Current budget balance .. ­1.2 ­5.8 ­2.0 20 Overall surplus/deficit .. ­7.5 ­9.1 ­4.8 0 99 00 01 02 03 04 TRADE GDP deflator CPI 1984 1994 2003 2004 (US$ millions) Total exports (fob) 7,389 18,106 51,206 67,001 Export and import levels (US$ mil.) Agricultural and livestock 896 1,066 2,201 2,645 125,000 Mining and quarry products 239 263 469 649 Manufactures 6,254 16,777 44,378 59,533 100,000 Total imports (cif) 10,757 23,270 69,340 97,540 Food 359 658 404 528 75,000 Fuel and energy 3,887 3,771 11,568 14,400 Capital goods 2,675 5,323 11,326 17,397 50,000 Export price index (2000=100) 107 114 105 122 25,000 Import price index (2000=100) 118 105 106 120 0 Terms of trade (2000=100) 91 108 99 102 98 99 00 01 02 03 04 Exports Imports BALANCE of PAYMENTS 1984 1994 2003 2004 (US$ millions) Current account balance to GDP (%) Exports of goods and services 9,546 29,182 70,231 91,029 Imports of goods and services 11,340 26,297 73,736 102,180 4 Resource balance ­1,794 2,885 ­3,505 ­11,151 2 Net income ­1,440 ­3,264 ­5,559 ­5,519 Net current transfers 2,082 3,010 1,027 1,127 0 Current account balance ­1,152 2,631 ­8,037 ­15,543 Financing items (net) 1,086 ­2,085 12,084 16,367 ­2 Changes in net reserves 66 ­546 ­4,047 ­824 ­4 Memo: Reserves including gold (US$ millions) 3,899 16,519 44,957 53,649 ­6 98 99 00 01 02 03 04 Conversion rate (DEC, local/US$) 367 29,818 1,496,668 1,421,835 (Continues on the following page.) 7 9 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table B1: Turkey at a Glance (continued) EXTERNAL DEBT and RESOURCE FLOWS 1984 1994 2003 2004 Composition of 2004 debt (US$ mil.) (US$ millions) Total debt outstanding and disbursed 21,608 66,250 145,367 161,801 A: 6,153 IBRD 2,358 5,195 5,214 6,153 B: 77 IDA 181 136 83 77 C: 21,321 G: 31,895 Total debt service 3,223 10,259 27,808 30,506 D: 1,186 IBRD 325 1,218 719 767 IDA 4 7 7 7 E: 6,592 Composition of net resource flows Official grants 90 175 150 160 Official creditors 1,061 ­605 541 758 Private creditors 277 ­30 4,959 6,687 Foreign direct investment (net inflows) 113 559 1,254 1,874 Portfolio equity (net inflows) 0 1,059 1,133 6,064 F: 94,577 World Bank program A ­ IBRD E ­ Bilateral Commitments 794 250 300 1,586 B ­ IDA D­ Other multilateral F ­ Private Disbursements 628 343 276 1,499 C ­ IMF G ­ Short-term Principal repayments 129 806 502 586 Net flows 500 ­463 ­226 913 Interest payments 200 419 224 189 Net transfers 299 ­882 ­450 724 The World Bank Group: This table was prepared by country unit staff; figures may differ from other World Bank published data. 8 0 Table B2: Turkey--Key Economic and Social Indicators, 1990­2003 Average Europe & Central Series name 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Turkey Algeria Brazil Colombia Romania Thailand Asia World GDP growth (annual %) 9.3 0.9 6.0 8.0 ­5.5 7.2 7.0 7.5 3.1 ­4.7 7.4 ­7.5 7.9 5.8 3.7 2.3 1.8 2.7 ­0.4 5.1 ­0.2 2.5 GDP per capita growth (annual %) 6.8 ­1.0 4.0 6.0 ­7.2 5.2 5.1 5.6 1.3 ­6.3 5.6 ­9.0 6.2 4.2 1.9 0.3 0.4 0.8 ­0.1 4.2 ­0.3 1.1 GNI per capita, Atlas method 2,270 2,540 2,900 3,080 2,600 2,750 2,820 3,100 3,060 2,800 2,980 2,420 2,510 2,790 2,758.6 1,752 3,434 1,844 1,584 2,177 2,150 4,919 (current US$) GNI per capita, PPP (current 4,300 4,420 4,700 5,100 4,830 5,200 5,570 6,000 6,150 5,840 6,300 5,870 6,310 6,690 5,520.0 4,786 6,415 5,742 5,586 5,635 5,870 6,459 international $) Agriculture, value added 18.3 15.8 15.3 16.2 16.0 16.4 17.4 15.1 18.5 16.0 15.4 12.8 13.0 13.4 15.7 10.9 7.8 14.8 18.1 10.0 11.4 4.5 (% of GDP) Industry, value added (% of GDP) 29.8 30.5 29.9 29.8 31.4 30.0 27.9 28.2 25.0 24.6 25.3 26.1 23.7 21.9 27.4 52.2 32.2 32.0 40.6 40.4 36.4 31.1 Services and so on, value added 51.9 53.7 54.7 54.0 52.6 53.6 54.7 56.8 56.5 59.4 59.4 61.1 63.3 64.7 56.9 37.0 60.1 53.3 41.3 49.6 52.2 64.4 (% of GDP) Exports of goods and services 13.3 13.8 14.4 13.7 21.4 19.9 21.5 24.6 24.3 23.2 24.1 33.7 29.2 27.7 21.8 29.7 9.8 18.2 27.2 49.4 34.1 21.6 (% of GDP) Imports of goods and services 17.6 16.6 17.4 19.3 20.4 24.4 27.5 30.4 27.9 26.9 31.5 31.3 30.7 31.0 25.2 24.5 10.1 19.4 33.4 48.1 33.2 21.3 (% of GDP) Current account balance (% of GDP) ­1.7 0.2 ­0.6 ­3.6 2.0 ­1.4 ­1.4 ­1.4 1.0 ­0.7 ­4.9 2.3 ­0.8 .. ­0.8 3.7 ­2.2 ­1.6 ­5.0 ­0.3 .. .. Total debt service (% of GNI) 4.9 5.5 5.7 4.8 7.9 6.7 5.9 6.2 7.3 10.0 10.3 15.6 15.2 .. 8.1 12.7 6.0 7.1 5.2 9.0 5.4 .. External debt (% of GNI) 32.5 33.5 35.3 37.9 50.8 43.1 43.5 44.0 47.5 55.0 58.5 79.0 72.2 .. 48.7 60.9 34.0 37.1 20.7 57.6 39.0 .. Real effective exchange rate 111.9 114.5 109.9 122.9 92.5 100.0 102.7 277.6 118.5 123.1 136.5 112.5 125.3 136.5 .. .. .. .. .. .. .. .. (period average)a Gross domestic savings (% of GDP) 20.1 19.9 20.9 21.9 22.5 21.0 18.6 19.3 20.6 19.7 17.0 19.2 19.8 19.7 20.0 33.8 20.4 17.2 17.6 33.9 24.5 22.8 Gross capital formation (% of GDP) 24.3 22.7 23.9 27.6 21.5 25.5 24.6 25.1 24.2 23.4 24.5 16.8 21.3 23.0 23.5 28.5 20.6 18.5 23.9 32.8 23.5 22.2 GFCF, private sector (% of GDP) 16.0 16.0 16.0 19.0 19.0 20.0 20.0 21.0 18.0 16.0 16.0 13.0 11.0 11.0 16.6 17.9 17.1 8.8 .. 23.9 .. .. Inflation, consumer prices 60.3 66.0 70.1 66.1 106.3 88.1 80.4 85.7 84.6 64.9 54.9 54.4 45.0 25.3 68.0 13.9 605.0 18.1 98.6 4.0 (annual %) Literacy rate, adult total (% of 78.4 79.4 81.6 84.7 84.1 85.0 84.9 85.1 85.8 86.3 86.5 86.3 87.1 87.9 84.5 61.3 84.5 90.4 97.6 93.7 96.5 74.1 people ages 15 and above)b Immunization, DPT (% of 84.0 72.0 77.0 76.0 87.0 67.0 72.0 79.0 81.0 79.0 85.0 88.0 78.0 68.0 78.1 88.9 82.0 80.1 97.3 93.6 88.9 73.7 ANNEX children ages 12­23 months) Improved sanitation facilities 87.0 .. .. .. .. .. .. .. .. .. 90.0 .. .. .. 88.5 92.0 73.5 84.5 53.0 87.5 50.6 (% of population with access) Improved water source (% of 79.0 .. .. .. .. .. .. .. .. .. 82.0 .. .. .. 80.5 89.0 85.0 92.5 58.0 82.0 90.9 77.5 B: population with access) Life expectancy at birth, total 66.1 .. 66.6 66.8 66.9 67.1 67.2 67.4 67.6 67.8 68.0 68.2 68.7 68.6 67.5 69.4 67.1 70.1 69.6 69.0 68.6 66.0 ST (years) A Mortality rate, infant (per 1,000 64.0 .. .. 53.0 .. 50.0 .. .. .. .. 38.0 .. .. 29.0 46.8 42.8 39.8 25.0 21.5 28.0 33.8 59.2 TISTICAL live births)c (Continues on the following page.) T ABLES 81 82 THE WORLD BANK Table B2: Turkey--Key Economic and Social Indicators, 1990­2003 (continued) IN TURKEY Average Europe & Central Series name 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Turkey Algeria Brazil Colombia Romania Thailand Asia World : Population growth (annual %) 2.3 2.0 1.9 1.9 1.9 1.8 1.8 1.8 1.8 1.7 1.7 1.6 1.6 1.6 1.8 1.9 1.4 1.8 ­0.3 0.9 0.1 1.4 1993­2004 Population, total million 56.2 57.3 58.4 59.5 60.6 61.7 62.9 64.0 65.2 66.3 67.4 68.5 69.6 70.7 63.4 28.6 162.6 39.7 22.6 59.1 472.2 5,773.0 School enrollment, preprimary 4.7 5.3 5.6 6.2 6.6 7.3 7.9 8.0 6.0 5.9 6.1 6.8 .. .. 6.4 2.5 56.3 26.3 62.6 65.8 55.1 35.1 (% gross) School enrollment, primary 99.1 100.2 84.3 84.9 85.2 84.6 84.5 85.6 88.5 94.3 96.2 96.6 96.4 98.2 91.3 105.8 123.5 109.0 96.5 93.7 99.3 102.6 (% gross)d School enrollment, secondary 47.3 48.7 51.8 53.4 56.3 57.0 58.2 52.4 56.6 57.0 56.0 60.9 71.3 84.0 57.9 63.9 62.9 61.6 81.3 49.3 84.2 61.4 (% gross)e Unemployment, total (% of 8.0 8.0 8.3 8.7 8.4 7.5 6.5 6.7 6.8 7.7 6.6 8.5 10.6 .. 7.9 24.4 7.3 12.7 7.0 1.9 8.2 6.0 total labor force) Urban population (% of total) 59.2 59.8 60.4 61.0 61.5 62.1 62.7 63.2 63.7 64.2 64.7 65.3 65.8 66.3 62.8 55.1 78.8 72.8 54.4 30.6 63.1 45.5 Urban population growth 4.6 3.0 2.9 2.9 2.8 2.8 2.7 2.6 2.6 2.6 2.5 2.4 2.4 2.3 2.8 3.0 2.2 2.7 0.0 1.6 0.2 2.3 (annual %) Source: World Development Indicators, except where indicated. a. Series used is Real Effective Exchange Rate Index (REER3- CPI) from the Bank of Turkey (official Web site). b. Updated data from Hosgar 2004. c. 1993 and 2003 data are from Turkey Demographic and Health Survey (TDHS), 1993 and 2003. d. Series revised from 1992/3 on to reflect conversion from 5- to 8-year primary cycle. Calculated from Hosgar 2004 and Dulger 2004. e. Discontinuity in series to reflect change in structure of primary education: up to 1996 includes grades 6­11; after 1996 includes only grades 9­11. From Hosgar. Source for text table 5.2.: 1. Poverty Rates from Joint Poverty Assessment, State Institute of Statistics and World Bank, December 2004. 2. National and Regional per capita GDP from State Planning Office and World Bank Country Office Database. 3. Employment and Labor Force Data from Labor Force Survey, State Institute of Statistics. 4. Spending on Social Protection, Health and Education as percentage of GDP from Country Office Database. Percent of health spending on preventive care from Reforming the Health Sector for Improved Access and Efficiency, World Bank, March 2003, Volume I, p.25 5. Infant mortality and life expectancy from Turkish Demographic and Health Surveys, 1993, 1998 and 2003. 6. Enrollment rates from S. Hosgar, Status and Trends of Education: Turkey, (1970­2003), draft report, 2004; and I. Dulger, Turkey: Rapid Coverage for Compulsory Education Program, 15 March 2004. Literacy rates from Hosgar. 7. Learning Assessment results from Dr. Giray Berberoqlu, Student Learning Achievement in Turkey, June 2004. Subject scores combined for ease of presentation. Grade 8 scores show similar pattern. 8. Literacy rates and male/female ratios from Hosgar, Op. cit.; regional data calculated from Provincial Indicators, 1980­2003, State Institute of Statistics. Table B3: External Assistance to Turkey, Total Net ODA Disbursement, 1990­2003, in US$ Million Donor 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Total Austria 8.1 4.2 1.0 ­2.9 ­1.7 14.2 13.8 13.0 12.6 13.7 10.6 12.9 13.6 18.1 131.1 Belgium 2.6 6.5 ­2.8 ­2.9 ­3.0 0.2 ­4.5 ­4.3 ­4.6 ­3.8 ­0.2 ­4.3 ­5.4 ­4.1 ­30.5 Finland 2.9 9.3 2.4 ­0.4 0.3 ­0.1 ­1.2 0.3 ­0.9 ­3.1 0.3 0.7 1.1 0.7 12.3 France 65.0 50.8 54.3 52.3 43.1 18.3 31.5 22.4 28.6 23.4 7.8 3.1 9.1 8.2 417.9 Germany 241.5 174.0 60.4 50.5 25.8 13.4 82.8 24.3 ­12.1 5.6 ­21.0 66.3 ­71.0 ­11.4 629.0 Greece 0.1 0.2 0.3 0.9 2.0 0.4 2.1 4.2 10.2 Italy 21.9 20.2 51.3 0.9 ­3.0 ­6.0 ­4.5 ­5.6 ­2.2 ­1.1 ­1.8 ­1.4 ­4.1 ­6.7 57.8 Japan 324.2 424.5 21.1 12.7 9.1 33.7 2.7 ­21.7 ­30.4 ­45.6 144.5 ­64.6 ­15.9 1.0 795.3 Netherlands 0.4 3.5 1.0 ­0.5 ­1.2 ­5.3 ­1.4 ­0.6 2.8 3.3 0.6 2.4 0.3 5.0 10.4 Norway 1.6 0.1 0.6 0.1 0.3 0.2 0.7 0.8 4.1 1.8 2.9 4.2 7.3 24.4 Spain 0.2 1.0 ­0.2 ­0.1 ­0.2 ­0.3 ­0.1 ­0.1 ­0.1 2.6 4.4 8.6 14.2 41.4 71.4 Sweden 0.7 3.0 1.2 1.1 2.4 3.7 4.2 2.2 1.0 1.5 2.6 0.8 1.7 1.5 27.4 Switzerland 1.1 ­0.8 6.1 4.2 6.6 5.9 3.4 2.3 2.5 4.5 5.8 3.1 4.3 1.8 50.7 United Kingdom ­8.2 14.7 3.8 13.2 20.7 ­0.1 2.2 1.7 1.3 2.3 0.5 ­0.2 ­0.7 ­1.9 49.3 United States ­76.0 225.0 ­78.0 133.0 ­71.0 101.0 ­75.0 ­86.0 ­72.6 ­72.8 ­61.9 ­59.5 144.5 ­43.4 ­92.7 Arab countries 630.6 453.9 145.5 140.8 140.0 140.1 167.6 ­9.8 6.7 32.8 37.3 54.8 150.1 -- 2,090.5 Other bilateral donors 2.0 2.9 ­0.2 0.3 0.2 6.4 11.8 2.0 ­0.5 15.6 3.1 0.3 1.3 ­2.0 43.0 Total bilateral 1,218.5 1,392.8 267.4 402.2 168.1 325.4 233.6 ­59.0 ­67.0 ­16.2 136.4 26.0 249.2 19.8 4,297.3 EC ­24.0 205.1 ­23.8 ­17.9 ­23.3 ­13.1 5.9 60.8 81.9 20.3 186.7 142.6 150.8 140.4 892.5 MONTREAL PROTOCOL 0.7 9.1 2.4 0.9 1.1 0.5 4.0 18.7 GEF 0.9 0.9 0.9 0.1 0.3 1.9 0.7 5.7 IDA ­4.0 ­4.0 ­5.3 ­5.9 ­5.9 ­5.9 ­5.9 ­5.9 ­5.9 ­5.9 ­5.9 ­5.9 ­5.9 ­5.9 ­78.1 IFAD 2.2 ­0.7 ­0.2 1.8 ­0.4 ­2.8 ­0.1 UNDP 2.9 2.4 2.7 2.2 0.8 1.1 2.0 0.9 1.0 0.6 1.1 0.8 0.9 0.9 20.2 UNTA 0.9 1.0 1.3 1.6 1.1 1.5 1.1 1.2 1.3 1.5 0.9 0.8 0.9 0.9 15.8 UNICEF 1.3 4.0 5.0 3.3 1.8 2.3 2.9 1.8 1.8 1.2 1.1 0.9 0.8 0.9 29.0 UNHCR 1.9 8.7 8.0 5.4 3.8 3.2 4.8 4.5 4.5 4.8 3.9 4.3 5.1 4.4 67.3 ANNEX WFP 2.7 1.4 3.5 1.0 0.4 0.4 9.5 Other U.N. 5.5 3.5 1.2 0.9 1.2 1.0 1.5 0.6 0.3 0.2 0.3 0.6 0.2 0.1 17.1 UNFPA 0.6 0.8 0.7 0.6 0.8 0.7 0.7 0.7 1.3 0.8 0.5 0.7 0.9 0.9 10.7 Council of Europe 0.0 ­0.2 ­3.8 1.2 ­2.7 B: Arab agencies ­0.8 ­1.3 0.6 ­1.7 0.3 0.5 1.2 ­2.8 5.2 ­1.2 ­0.2 ST Multilateral, total ­10.7 220.7 ­10.0 ­7.4 ­19.6 ­11.7 12.9 66.3 96.0 27.3 190.7 143.3 161.3 146.0 1,005.3 A TISTICAL EU members, total 335.4 287.9 172.1 111.3 83.0 39.5 123.4 53.3 26.4 44.9 4.4 89.1 ­39.3 55.5 1,386.9 Total donors 1,207.8 1,613.5 257.5 394.8 148.6 313.7 246.6 7.2 29.1 11.2 327.2 169.3 410.5 165.8 5,302.7 Source: Geographical Distribution of Financial Flows to Aid Recipients, OECD. T ABLES 83 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table B4a: Turkey--Selected Key Economic and Sector Work, 1990­2005 Document title Date Report no. Document type Gas sector strategy note 09/01/2004 30030 Sector Report Rapid coverage for compulsory education: the 1997 basic education program 05/01/2004 30801 Working Paper Explaining and forecasting inflation in Turkey 04/01/2004 WPS3287 Policy Research Working Paper Is there room for foreign exchange interventions under an inflation targeting 04/01/2004 WPS3288 Policy Research Working Paper framework? Evidence from Mexico and Turkey Customs modernization initiatives: case studies 01/01/2004 30112 Publication Energy and environment review--synthesis report 12/30/2003 ESM273 ESMAP Paper Greater prosperity with social justice policy notes 11/21/2003 27379 Sector Report Marmara earthquake assessment 09/14/2003 27380 Working Paper Country economic memorandum: towards macroeconomic stability and 07/28/2003 26301 Economic Report sustained growth Vol. 1­3 Poverty and coping after crises Vol. 1­2 07/28/2003 24185 Sector Report Non-bank financial institutions and capital markets in Turkey 04/30/2003 25954 Publication Corporate sector impact assessment report V 03/31/2003 23153 Sector Report Reforming the health sector for improved access and efficiency Vol. 1­2 03/31/2003 24358 Sector Report Non-Bank financial institutions and capital markets report 02/28/2003 25467 Economic Report The World Bank research observer 17 (2) 09/01/2002 30412 Publication Secondary education and training 08/31/2001 22858 Departmental Working Paper Public expenditure and institutional review--reforming budgetary institutions 08/20/2001 22530 Economic Report for effective government Social services delivery through community-based projects 07/31/2001 23307 Working Paper (Numbered Series) Forestry sector review 06/27/2001 22458 Sector Report The challenge of urban government policies and practices 01/31/2001 21642 Publication Measuring banking efficiency in the pre- and post-liberalization environment: 11/30/2000 WPS2476 Policy Research Working Paper evidence from the Turkish banking system Foreign entry in Turkey `s banking sector, 1980­97 10/31/2000 WPS2462 Policy Research Working Paper Country economic memorandum--structural reforms for sustainable growth Vol. 1­2 09/15/2000 20657 Economic Report Financing of private hydropower projects 07/31/2000 WDP420 Publication The private sector and development: five case studies 07/01/2000 26641 Working Paper (Numbered Series) Socio-economic differences in health, nutrition, and population in Turkey 05/01/2000 30550 Working Paper Energy and the environment: issues and options paper 04/30/2000 ESM229 ESMAP Paper Case studies in participatory irrigation management 02/29/2000 20247 Publication Social assessment and agricultural reform in Central Asia and Turkey 02/29/2000 WTP461 Publication Economic reforms, living standards and social welfare study 01/27/2000 20029 Economic Report Social assessment for the Turkey forest sector review 11/30/1999 22373 Working Paper (Numbered Series) Partners for development: new roles for government and private sector in the 09/30/1999 19807 Publication Middle East and North Africa Increasing the efficiency of gas distribution--Phase 1: case studies and 07/31/1999 ESM218 ESMAP Paper thematic data sheets Capital flows, macroeconomic management, and the financial system-- 07/31/1999 WPS2141 Policy Research Working Paper Turkey, 1989­97 Evaluating the impact of active labor programs: results of cross country studies 06/30/1999 20131 Working Paper (Numbered Series) in Europe and Central Asia Deregulating technology transfer in agriculture: reform's impact on Turkey in 03/31/1999 WPS2086 Policy Research Working Paper the 1980s The private sector and development: five case studies 09/30/1998 23471 Publication The 1994 currency crisis in Turkey 04/30/1998 WPS1913 Policy Research Working Paper Tax reform in developing countries 12/31/1997 17284 Publication The effects of financial liberalization and new bank entry on market structure and 11/30/1997 WPS1839 Policy Research Working Paper competition in Turkey The effects of hyper-inflation on accounting ratios--financing corporate growth 08/31/1997 17077 Publication in industrial economies Easing barriers to movement of plant varieties for agricultural development 07/31/1997 WDP367 Publication Intensified systems of farming in the tropics and subtropics 06/01/1997 WDP364 Publication Industrial evolution in developing countries: micro patterns of turnover, productivity, 12/31/1996 16196 Publication and market structure 8 4 A N N E X B : S TAT I S T I C A L TA B L E S Table B4a: Turkey--Selected Key Economic and Sector Work, 1990­2005 (continued) Document title Date Report no. Document type Economic implications for Turkey of a customs union with the European Union 05/31/1996 WPS1599 Policy Research Working Paper Challenges for adjustment Vol. 1­3 04/01/1996 15076 Economic Report Governance, leadership, and communication--building constituencies for 01/01/1996 30615 Working Paper economic reform Uneven governance and fiscal failure: the adjustment experience in Turkey 09/30/1995 15258 Working Paper (Numbered Series) Institutional influences on economic policy in Turkey: a three industry comparison 07/31/1995 15141 Working Paper (Numbered Series) Trade reform, efficiency, and growth 03/31/1995 WPS1438 Policy Research Working Paper Informal settlements, environmental degradation, and disaster vulnerability: 01/01/1995 14955 Publication the Turkey case study An introduction to the microstructure of emerging markets 11/30/1994 IFD24 Publication Voting for reform: democracy, political liberalization, and economic adjustment 06/30/1994 13349 Publication The World Bank economic review 7(2) 05/31/1993 17646 Publication Women in development 05/31/1993 11922 Publication Informatics and economic modernization 03/31/1993 11839 Publication Economic crises and long-term growth in Turkey 01/31/1993 11744 Publication The impact of financial reform: the Turkish experience 12/31/1992 11688 Departmental Working Paper Political economy of policy reform in Turkey in the 1980s 12/31/1992 WPS1059 Policy Research Working Paper Los Angeles, Mexico City, Cubatao, and Ankara--Efficient environmental 08/31/1992 WPS942 Policy Research Working Paper regulation: case studies of urban air pollution Piecemeal trade reform in partially liberalized economies: an evaluation for Turkey 08/31/1992 WPS951 Policy Research Working Paper Tax incentives, market power, and corporate investment: a rational expectations 05/31/1992 WPS908 Policy Research Working Paper model applied to Pakistani and Turkish industries External debt, fiscal policy, and sustainable growth in Turkey 03/31/1992 10556 Publication Inflation stabilization in Turkey: an application of the RMSM-X model 01/31/1992 WPS845 Policy Research Working Paper Public sector debt, fiscal deficits, and economic adjustment: a comparative 01/31/1992 WPS840 Policy Research Working Paper study of six EMENA countries The political economy of poverty, equity, and growth in Egypt and Turkey 12/31/1991 10368 Publication Foreign trade and its relation to competition and productivity in Turkish industry 02/28/1991 WPS604 Policy Research Working Paper Lessons from tax reform: an overview 01/31/1991 WPS576 Policy Research Working Paper Privatization in Turkey 11/30/1990 WPS532 Policy Research Working Paper A RMSM-X model for Turkey 08/31/1990 WPS486 Policy Research Working Paper A strategy for managing debt, borrowings, and transfers under macroeconomic 06/30/1990 8777 Publication adjustment Turkey: export miracle or accounting trick? 04/30/1990 WPS370 Policy Research Working Paper Debt management and borrowing strategy under macroeconomic adjustment 02/21/1990 7732 Economic Report Inflation, external debt, and financial sector reform: a quantitative approach to 08/31/1989 WPS261 Policy Research Working Paper consistent fiscal policy The internal transfer problem: Turkey 07/31/1989 IDP46 Internal Discussion Paper Unemployment, migration, and wages in Turkey 1962­85 07/31/1989 WPS230 Policy Research Working Paper Economic adjustment in Algeria, Egypt, Jordan, Morocco, Pakistan, Tunisia, 07/31/1989 EDI15 Publication and Turkey CAS Documents Country Assistance Strategy Vol. 1 8/6/97 16992 Country Assistance Strategy Document Country assistance strategy Vol. 1 11/28/00 21408 Country Assistance Strategy Document Country assistance strategy progress report (CASP) Vol. 1 7/10/01 22282 CAS Progress Report Country Assistance Strategy Vol. 1 of 1 10/2/03 26756 Country Assistance Strategy Document Source: Imagebank, data as of 01/10/05. Note: Excluded from this list are 11 reports that have not yet been disclosed. 8 5 86 THE Table B4b: Turkey--List of IBRD/IDA-Approved Projects, 1990­2004 WORLD Latest Approval IBRD/ Latest Latest risk Project Date, rev Institutional BANK Project ID fiscal year Sector Board IDA DO IP rating status closing Outcome Sustainability development P048852 NAT'L TRNSM GRID 1998 Energy and Mining 270 S MS M Active 12/31/2005 P009073 INDUSTRIAL TECH 1999 Private Sector Development 155 HS S M Active 12/31/2005 IN P068368 MARMARA EARTHQUAKE EMG RECON 2000 Urban Development 505 S S S Active 5/31/2005 P069894 PRIV SOC SUPPRT 2001 Social Protection 250 S HS N Active 12/31/2005 TURKEY P070286 ARIP 2002 Rural Sector 600 S MS S Active 12/31/2005 P074408 SRMP 2002 Social Protection 500 S S M Active 6/30/2006 P059872 BASIC ED 2 (APL #2) 2003 Education 300 U U M Active 2/28/2006 P070950 ANATOLIA WATERSHED REHAB 2004 Environment 20 S S M Active 6/30/2012 : P072480 RENEW ENERGY 2004 Energy and Mining 202 S S S Active 6/30/2010 1993­2004 P074053 HEALTH TRANSIT (APL #1) 2004 Health, Nutrition and Population 61 S S S Active 12/31/2007 P082801 EFIL 2 2004 Financial Sector 303 HS HS N Active 9/30/2009 P082996 PFPSAL 3 2004 Economic Policy 1,000 S S S Active 6/30/2005 P008974 AG.EXTN. II 1990 Rural Sector 63 S U S Closed 6/30/1998 MODERATELY SATISFACTORY UNCERTAIN MODEST P009029 NATL ED DEVT 1990 Education 90 S S M Closed 6/30/1999 MODERATELY SATISFACTORY UNLIKELY MODEST P009061 ANKARA SEWERAGE 1990 Water Supply and Sanitation 173 S S M Closed 2/28/1999 SATISFACTORY UNCERTAIN MODEST P009036 PRIVATE INVESTMENT C 1991 Financial Sector 200 S S M Closed 6/30/1997 UNSATISFACTORY HIGHLY UNLIKELY SUBSTANTIAL P009051 STATE AND PROVINCIAL 1991 Transport 300 S S N Closed 12/31/1997 MODERATELY SATISFACTORY LIKELY NEGLIGIBLE P009058 TECHNOLOGY DEVELOPME 1991 Public Sector Governance 100 S S M Closed 12/31/1998 MODERATELY SATISFACTORY LIKELY MODEST P009071 TEK RESTRUCT 1991 Energy and Mining 300 S S N Closed 12/31/2000 MODERATELY SATISFACTORY LIKELY SUBSTANTIAL P009019 BERKE HYDRO PLANT 1992 Energy and Mining 270 HU HU # Closed 12/31/1997 HIGHLY UNSATISFACTORY UNCERTAIN NEGLIGIBLE P009044 AGRIC RESRCH 1992 Rural Sector 55 S S M Closed 4/30/2001 MODERATELY SATISFACTORY UNLIKELY MODEST P009097 TA FOR TREASURY DATA 1992 Public Sector Governance 9 S S N Closed 6/30/2000 SATISFACTORY LIKELY SUBSTANTIAL P009023 E ANATOLIA WATERSHED 1993 Rural Sector 77 S S M Closed 9/30/2001 SATISFACTORY LIKELY SUBSTANTIAL P009064 EMPLOYMENT & TRG 1993 Social Protection 67 U S S Closed 12/31/2000 SATISFACTORY LIKELY MODEST P009065 BURSA WATER & SANITATION 1993 Water Supply and Sanitation 130 S S N Closed 6/30/2001 SATISFACTORY LIKELY MODEST P009099 EARTHQUAKE REHAB & RECONSTRUCT 1993 Urban Development 285 S S N Closed 6/30/2000 SATISFACTORY LIKELY MODEST P009102 PRIV IMPLMT 1994 Private Sector Development 100 U U S Closed 12/31/1999 UNSATISFACTORY NON-EVALUABLE MODEST P009076 HEALTH 2 1995 Health, Nutrition and Population 150 U U H Closed 12/31/2004 P009093 ANTALYA WS & SANITATION 1995 Water Supply and Sanitation 100 U U H Closed 6/30/2003 MODERATELY SATISFACTORY LIKELY SUBSTANTIAL P035759 PUB FIN MGMT 1996 Public Sector Governance 62 S S S Closed 12/31/2002 MODERATELY SATISFACTORY LIKELY SUBSTANTIAL P038091 ROAD IMPRVMT & TRAFFIC SAFETY 1996 Transport 250 S S M Closed 3/31/2003 MODERATELY SATISFACTORY LIKELY MODEST P009095 PRIM HEALTH CARE SERV 1997 Health, Nutrition and Population 15 S U H Closed 6/30/2001 NOT AVAILABLE NON-EVALUABLE NOT AVAILABLE P045073 BAKU-CEYHAN OIL EXP PIPE TA 1997 Energy and Mining 5 S S N Closed 3/31/1999 SATISFACTORY LIKELY MODEST P008985 CESME WS & SEWER 1998 Water Supply and Sanitation 13 S S S Closed 12/31/2004 P009072 PRIV OF IRRIGATION 1998 Rural Sector 20 S S N Closed 6/30/2004 P009089 BASIC ED 1998 Education 300 U U S Closed 12/31/2003 UNSATISFACTORY LIKELY NEGLIGIBLE P048851 COMMODITIES MKT DEVT 1999 Rural Sector 4 S S M Closed 3/31/2003 SATISFACTORY LIKELY SUBSTANTIAL P058877 EMGY FLOOD RECOVERY 1999 Urban Development 369 S S M Closed 9/30/2003 SATISFACTORY LIKELY MODEST P068394 EMG EARTHQUAKE RECOV - EERL 2000 Private Sector Development 253 S S M Closed 3/31/2001 SATISFACTORY NON-EVALUABLE NOT AVAILABLE P065188 EFIL 2000 Financial Sector 253 S S M Closed 8/31/2003 SATISFACTORY LIKELY MODEST P068792 ERL 2000 Economic Policy 760 S S S Closed 4/30/2004 P066511 FSAL 2001 Financial Sector 778 S S S Closed 3/31/2002 MODERATELY SATISFACTORY LIKELY SUBSTANTIAL P070561 PFPSAL I 2002 Financial Sector 1,100 S S H Closed 12/31/2001 SATISFACTORY NON-EVALUABLE SUBSTANTIAL P070560 PFPSAL 2 2002 Financial Sector 1,350 S S S Closed 6/30/2003 MODERATELY SATISFACTORY LIKELY SUBSTANTIAL A N N E X B : S TAT I S T I C A L TA B L E S Table B5a: World Bank Commitments by Sector Board for Fiscal Years 1994­2004, US$ Million Sector Board 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total Percent Economic Policy 759.6 1,000 1,760 17.5 Education 300 300 600 6.0 Energy and Mining 5 270 202 477 4.7 Environment 20 20 0.2 Financial Sector 252.5 777.8 2,450 303.1 3783 37.7 Health, Nutrition, and Population 150 14.5 60.61 225.1 2.2 Private Sector Development 100 155 252.5 507.5 5.1 Public Sector Governance 62 62 0.6 Rural Sector 20 4 600 624 6.2 Social Protection 250 500 750 7.5 Transport 250 250 2.5 Urban Development 369 505 874 8.7 Water Supply and Sanitation 100 13.1 113.1 1.1 Total 100 250 312 19.5 603.1 528 1,770 1,028 3,550 300 1,586 10,046 100.0 Source: World Bank internal database as of 01/10/2005. 8 7 88 THE Table B5b: Project Ratings by Sector Board, Exit Fiscal Years 1994­2004: Turkey and Comparisons WORLD Overall Bank Overall borrower Total Outcome IDI Sustainability performance performance BANK evaluated (% satisfactory) (% substantial) (% likely) (% satisfactory) (% satisfactory) Net Net Net Net Net Net Sector commitment By commitment By commitment By commitment By commitment By commitment By IN Board Country ($ million)a numberb ($ million) number ($ million) number ($ million) number ($ million) number ($ million) number TURKEY Education Algeria 120 3 26 33 0 0 0 0 26 33 26 33 Brazil 1,676 10 99 90 61 60 91 80 76 78 85 89 Colombia 232 4 59 75 20 50 50 67 59 75 59 75 : Romania 170 3 100 100 100 100 100 100 100 100 100 100 1993­2004 Thailand 158 2 100 100 100 100 100 100 100 100 100 100 Turkey 579 5 51 80 0 0 49 20 29 40 51 80 Europe & Central Asia 1,161 22 73 73 45 36 68 61 51 67 62 76 Bankwide 15,029 254 83 79 47 40 74 62 78 78 78 78 Energy and Algeria 648 4 34 50 14 25 14 25 75 67 75 67 Mining Brazil 939 4 100 100 100 100 100 100 100 100 100 100 Colombia 528 4 78 75 49 50 78 75 100 100 100 100 Romania 160 1 100 100 100 100 100 100 100 100 100 100 Thailand 861 12 100 100 55 50 100 100 100 100 100 100 Turkey 1,033 7 25 29 44 29 27 33 56 67 1 33 Europe & Central Asia 5,887 62 66 66 55 44 70 73 79 88 72 74 Bankwide 34,393 336 70 65 45 41 65 58 73 73 68 64 Environment Algeria 0 1 100 0 100 100 100 Brazil 664 9 45 67 31 33 44 67 39 56 39 56 Colombia 23 1 100 100 0 0 100 100 100 100 100 100 Romania 0 1 100 100 100 100 100 Thailand 120 2 100 100 76 50 100 100 100 100 100 100 Turkey 0 2 100 100 50 100 100 Europe & Central Asia 130 25 100 92 100 80 96 79 100 92 96 88 Bankwide 3,177 109 66 71 39 49 71 70 60 70 62 70 Financial Brazil 1,012 4 100 100 82 75 100 100 82 75 82 75 Sector Colombia 580 5 92 80 27 40 84 75 92 80 92 80 Romania 300 1 100 100 100 100 100 100 100 100 100 100 Thailand 760 3 100 100 100 100 100 100 100 100 100 100 Turkey 2,391 5 92 80 90 80 85 75 92 80 92 80 Europe & Central Asia 4,338 34 91 76 84 55 86 78 93 85 92 85 Bankwide 24,117 153 83 70 58 49 79 65 85 73 84 75 Health, Romania 14 1 100 100 100 100 100 100 100 100 100 100 Nutrition and Brazil 1,004 7 75 86 47 57 75 86 75 86 75 86 Population Colombia 70 2 32 50 0 0 32 50 32 50 32 50 Romania 149 1 100 100 0 0 100 100 100 100 100 100 Turkey 71 2 100 100 0 0 0 0 0 50 0 50 Europe & Central Asia 748 18 94 88 31 53 85 82 90 89 84 78 Bankwide 9,141 179 78 68 50 40 75 63 80 72 79 70 Public Sector Algeria 21 1 100 100 0 0 100 100 100 100 100 100 Governance Brazil 1,995 6 100 100 84 50 100 100 99 83 94 67 Colombia 783 4 100 100 43 50 100 100 100 100 100 100 Romania 179 1 100 100 0 0 0 0 Thailand 418 2 96 50 96 50 96 50 96 50 96 50 Turkey 150 3 100 100 35 67 100 100 100 100 71 67 ECA 1,703 38 96 89 73 71 85 86 97 95 88 81 Bankwide 12,187 187 85 74 48 44 84 65 89 81 84 70 Private Sector Algeria 3 1 0 0 0 0 0 0 0 0 0 0 Development Brazil 45 2 100 100 100 100 100 100 100 100 100 100 Colombia 408 2 55 50 55 50 55 50 55 50 100 100 Romania 97 1 0 0 0 0 100 100 0 0 0 0 Turkey 281 2 90 50 0 0 90 50 90 50 ECA 2,099 27 93 78 86 56 92 74 92 77 89 77 Bankwide 6,599 119 85 68 54 38 80 69 86 76 85 65 Rural Sector Algeria 143 8 2 13 0 0 0 0 57 50 15 33 Brazil 2,159 29 71 90 73 86 83 90 64 82 72 82 Colombia 275 7 46 50 19 33 19 33 47 60 19 40 Romania 400 2 25 50 25 50 25 50 25 50 25 50 Turkey 706 8 100 100 78 63 77 57 90 83 100 83 ECA 2,944 58 81 78 47 52 62 66 76 76 65 72 Bankwide 27,375 534 78 69 48 40 61 50 71 65 69 64 Social Algeria 47 1 100 100 100 100 100 100 100 100 100 100 Protection Brazil 1,515 3 100 100 50 67 100 100 100 100 100 100 Colombia 359 3 100 100 100 100 100 100 100 100 100 100 Romania 108 4 100 100 54 75 100 100 100 100 100 100 ANNEX Turkey 50 1 100 100 0 0 100 100 100 100 100 100 ECA 1,722 35 51 89 38 63 96 87 52 91 50 89 Bankwide 8,805 138 88 83 46 48 77 60 82 84 86 82 B: Transport Algeria 277 3 60 67 0 0 0 0 31 50 31 50 Brazil 1,457 9 100 100 75 67 70 75 91 89 71 67 ST Colombia 603 5 94 80 55 40 11 20 91 75 91 75 A TISTICAL (Continues on the following page.) T ABLES 89 90 THE WORLD BANK Table B5b: Project Ratings by Sector Board, Exit Fiscal Years 1994­2004: Turkey and Comparisons (continued) IN TURKEY Overall Bank Overall borrower Total Outcome IDI Sustainability performance performance evaluated (% satisfactory) (% substantial) (% likely) (% satisfactory) (% satisfactory) Net Net Net Net Net Net : 1993­2004 Sector commitment By commitment By commitment By commitment By commitment By commitment By Board Country ($ million)a numberb ($ million) number ($ million) number ($ million) number ($ million) number ($ million) number Transport Romania 240 2 100 100 100 100 100 100 100 100 100 100 Thailand 380 5 100 100 19 20 97 80 100 100 100 100 Turkey 624 3 72 67 0 0 72 67 100 100 55 50 ECA 2,747 38 80 89 36 51 85 79 88 94 77 89 Bankwide 23,695 280 89 84 53 52 72 66 92 92 84 82 Urban Algeria 290 4 86 75 77 50 18 50 86 75 76 50 Development Brazil 674 7 100 100 52 57 75 86 100 100 100 100 Colombia 77 2 100 100 24 50 100 100 100 100 100 100 Thailand 20 1 100 100 0 0 0 0 Turkey 467 3 94 67 0 0 94 67 100 100 100 100 ECA 991 17 72 73 3 13 67 54 72 67 93 67 Bankwide 8,667 138 80 68 24 26 60 48 81 74 83 69 Water Supply Algeria 813 4 34 25 0 0 0 0 0 0 0 0 and Sanitation Brazil 1,092 6 100 100 41 50 74 83 100 100 90 83 Colombia 163 2 89 50 0 0 0 0 100 100 100 100 Romania 19 1 100 100 100 100 100 100 100 100 100 100 Turkey 594 5 83 80 12 20 30 40 47 60 47 60 ECA 819 18 86 81 21 31 41 57 60 71 60 71 Bankwide 8,399 131 63 64 27 33 42 47 69 67 60 61 Overall Brazil 14,233 96 91 92 66 67 86 86 85 84 84 80 Colombia 4,506 43 85 76 40 43 63 62 86 81 89 81 Algeria 2,811 33 52 45 13 12 8 19 64 58 60 50 Romania 2,415 21 76 86 44 67 80 90 69 84 69 84 Thailand 3,328 29 99 97 59 52 99 90 99 96 99 96 Turkey 6,946 46 77 76 49 36 63 53 79 74 73 71 ECA 33,523 459 74 80 49 51 79 75 79 85 70 79 Bankwide 213,013 2,805 78 72 44 41 69 60 80 75 75 71 Source: World Bank internal database as of 01/10/2005. a. Total evaluated ($) is total net commitment of evaluated projects, which outcome was rated minus total net commitment of evaluated projects, which outcome was not rated. b. Total evaluated (No) is total number of evaluated projects, which outcome was rated minus total number of evaluated projects. which outcome was not rated. A N N E X B : S TAT I S T I C A L TA B L E S Table B5c: Portfolio Status Indicators: Turkey and Comparisons Number Net Projects Commitment of commitment at risk At risk Commitment at risk Country projects amount (no.) (%) at risk (%) Algeria 9 337.0 2 22.2 112.2 33.3 Brazil 49 4,948.4 9 18.4 626.7 12.7 Colombia 18 1,351.4 2 11.1 48.0 3.6 Romania 19 1,395.9 0 0.0 0.0 0.0 Thailand 1 84.3 0 0.0 0.0 0.0 Turkey 19 5,929.9 1 5.3 300.0 5.1 Source: World Bank internal database as of July 6, 2005 (for FY05). Table B6: Cost of Bank Programs for Turkey and Comparator Countries, US$ Thousands, Fiscal Years 1994­2004 Total Supervision Lending ESW Other Bank 15,374,823 1,479,828 1,380,052 1,086,542 11,428,401 ECA 1,111,215 278,100 330,709 207,198 295,209 Algeria 29,284 10,924 10,036 5,850 2,475 Brazil 126,881 44,907 36,272 24,165 21,536 Colombia 44,377 15,403 15,783 7,665 5,526 Romania 47,402 17,377 19,576 7,610 2,839 Thailand 39,980 10,073 11,687 11,704 6,515 Turkey 59,475 24,860 21,658 9,323 3,634 Cost structure by percentage Total Supervision Lending ESW Other Bank 100 10 9 7 74 ECA 100 25 30 19 27 Algeria 100 37 34 20 8 Brazil 100 35 29 19 17 Colombia 100 35 36 17 12 Romania 100 37 41 16 6 Thailand 100 25 29 29 16 Turkey 100 42 36 16 6 9 1 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table B7: Turkey: Bank's Senior Management, 1995­2005 Year Vice president Country director Chief/resident representative Economist 1991 Willi A. Wapenhans Michael Wiehen Luis de Azcarate 1992 Wilfried Thalwitz Michael Wiehen Luis de Azcarate R. Coutinho 1993 Wilfried Thalwitz Michael Wiehen Luis de Azcarate R. Coutinho 1994 Wilfried Thalwitz Michael Wiehen Frederick Thomas Temple S.Otoo 1995 Wilfried Thalwitz Rachel Lomax Frederick Thomas Temple S.Otoo/Jacob Kolster 1996 Johannes F. Linn Kenneth Lay Frederick Thomas Temple S.Otoo/Jacob Kolster 1997 Johannes F. Linn Kenneth Lay Frederick Thomas Temple S.Otoo 1998 Johannes F. Linn Ajay Chhibber S.Otoo 1999 Johannes F. Linn Ajay Chhibber S.Otoo 2000 Johannes F. Linn Ajay Chhibber* S.Otoo 2001 Johannes F. Linn Ajay Chhibber* James Parks* 2002 Johannes F. Linn Ajay Chhibber* James Parks* 2003 Johannes F. Linn Ajay Chhibber* James Parks* 2004 Shigeo Katsu Andrew N. Vorkink* James Parks* 2005 Shigeo Katsu Andrew N. Vorkink* Rodrigo A. Chaves* Source: The World Bank Group Directory 1995­2005. Note: * Staff located at the Country Office at Ankara, Turkey. 9 2 A N N E X B : S TAT I S T I C A L TA B L E S Table B8: Turkey--Millennium Development Goals 1990 1995 2001 2002 1. Eradicate extreme poverty and hunger 2015 target = halve 1990 $1 a day poverty and malnutrition rates Population below $1 a day (%) 2 Poverty gap at $1 a day (%) 0.5 Percentage share of income or consumption held by poorest 20% 6.1 Prevalence of child malnutrition (% of children under 5) 10.3 Population below minimum level of dietary energy consumption (%) 2.5 2.5 3 2. Achieve universal primary education 2015 target = net enrollment to 100 Net primary enrollment ratio (% of relevant age group) 89.4 96.2 87.9 Percentage of cohort reaching grade 5 (%) 97.6 94.9 Youth literacy rate (% ages 15­24) 92.7 94.9 95.5 3. Promote gender equality 2005 target = education ratio to 100 Ratio of girls to boys in primary and secondary education (%) 82.2 82.7 85.4 Ratio of young literate females to males (% ages 15­24) 90.9 93.3 95.2 Share of women employed in the nonagricultural sector (%) 16.7 16.7 18.9 Proportion of seats held by women in national parliament (%) 2 4. Reduce child mortality 2015 target = reduce 1990 under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 78 60 45 41 Infant mortality rate (per 1,000 live births) 64 50 38 35 Immunization, measles (% of children under 12 months) 78 65 90 82 5. Improve maternal health 2015 target = reduce 1990 maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) 70 Births attended by skilled health staff (% of total) 75.9 6. Combat HIV/AIDS, malaria and other diseases 2015 target = halt, and begin to reverse, AIDS, etc. Prevalence of HIV, female (% ages 15­24) Contraceptive prevalence rate (% of women ages 15­49) 63 Number of children orphaned by HIV/AIDS Incidence of tuberculosis (per 100,000 people) 34 32.1 Tuberculosis cases detected under DOTS (%) 7. Ensure environmental sustainability 2015 target = various (see notes) Forest area (% of total land area) 13 13.3 Nationally protected areas (% of total land area) 1.4 1.3 1.6 GDP per unit of energy use (PPP $ per kg oil equivalent) 4.5 5.1 5.6 CO2 emissions (metric tons per capita) 2.6 2.8 3.3 Access to an improved water source (% of population) 79 82 Access to improved sanitation (% of population) 87 90 Access to secure tenure (% of population) 8. Develop a Global Partnership for Development 2015 target = various (see notes) Youth unemployment rate (% of total labor force ages 15­24) 16 15.6 16.7 19.5 Fixed line and mobile telephones (per 1,000 people) 122.1 221.5 580.6 628.6 Personal computers (per 1,000 people) 5.3 14.9 40.7 44.6 General indicators Population 56.2 million 61.7 million 68.5 million 69.6 million Gross national income ($) 127.3 billion 170.0 billion 166.1 billion 173.3 billion GNI per capita ($) 2,270.00 2,750.00 2,420.00 2,490.00 (Continues on the following page.) 9 3 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Table B8: Turkey--Millennium Development Goals (continued) 1990 1995 2001 2002 Adult literacy rate (% of people ages 15 and over) 77.9 81.8 86.5 Total fertility rate (births per woman) 3 2.7 2.4 2.2 Life expectancy at birth (years) 66.1 68.3 69.6 69.9 Aid (% of GNI) 0.8 0.2 0.1 0.4 External debt (% of GNI) 32.5 43.1 79 72.7 Investment (% of GDP) 24.3 25.5 16.8 16.3 Trade (% of GDP) 30.9 44.2 65 59.7 Source: World Development Indicators database, April 2004. Note: In some cases the data are for earlier or later years than those stated. Goal 1 targets: Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day. Halve, between 1990 and 2015, the proportion of people who suffer from hunger. Goal 2 target: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling. Goal 3 target: Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education no later than 2015. Goal 4 target: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate. Goal 5 target: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio. Goal 6 targets: Have halted by 2015, and begun to reverse, the spread of HIV/AIDS. Have halted by 2015, and begun to reverse, the incidence of malaria and other major diseases. Goal 7 targets: Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources. Halve, by 2015, the proportion of people without sustainable access to safe drinking water. By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers. Goal 8 targets: Develop further an open, rule-based, predictable, non-discriminatory trading and financial system. Address the Special Needs of the Least Developed Countries. Address the Special Needs of landlocked countries and small island developing states. Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term. In cooperation with developing countries, develop and implement strategies for decent and productive work for youth. In co- operation with pharmaceutical companies, provide access to affordable, essential drugs in developing countries. In cooperation with the private sector, make available the benefits of new technologies, especially information and communications. 9 4 ANNEX C: LIST OF PEOPLE MET Prime Ministry Mr. Birol Aydemir Deputy Undersecretary, State Planning Organization Mr. Kemal Madenoglu Director General, Social Sectors and Coordination Directorate, State Planning Organization M. Cuneyd Duzyol General Director, Economic Sectors and Coordination, State Planning Organization Mr. Metin Kilci President of Privatization Administration Mr. Sema Alpan Former National Environment Action Coordinator at State Planning Organization Ms. Yadigar Gokalp Executive Director, Social Risk Mitigation Project, Social Solidarity Fund Ilhan Kesici Former Undersecretary of SPO Treasury Mr. Aydin Karaoz Former Deputy Undersecretary of Treasury Mr. Aysen Kulakoglu Former Department Head of World Bank projects, Treasury 2000­2004 Mr. Faik Oztrak Former Undersecretary of Treasury Mr. Ferhat Emil Former Undersecretary of Treasury Mr. Ibrahim Canakci Undersecretary of Treasury Mr. Levent Yener Head of Department, Treasury (ARIP Project) Mr. Selcuk Demirel Former Undersecretary of Treasury 1999­2001 Mr. Sen Akman Former Assistant GD in Treasury Ministry of Finance Mr. Abdulkadir Goktas Head of Department, Budget and Fiscal Control Department Mr. Ahmet Kesik Deputy General Director, Budget and Fiscal Control Department Ministry of Agriculture Mr. Ali Tunaboylu ARIP Project Coordinator Mr. Hasim Ogut Deputy Undersecretary, Ministry of Agriculture Ministry of Energy Mr. Budak Dilli General Manager, Ministry of Energy Ministry of Public Works Mucait Arman General Directorate Highways Yasar Yilmaz General Directorate Highways Central Bank Mr. Sureyya Serdengecti Governor of Central Bank Mr. Ercan Kumcu Deputy Governor of Central Bank 9 5 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Mr. Hakki Arslan General Director, Central Bank, Banking & Financial Institutions Department Mr. Rustu Saracoglu Former Central Bank Governor 1987­1993, President of Finance of Koc Group Mr. Yavuz Canevi Former Central Bank Governor, Board of Member of Turk Economic Bank Ministry of Health Mr. Ulvi Saran Deputy Undersecretary Mr. Mehmet Ugurlu Director General of Primary Health Care Services Mr. Fehmi Aydinli M.D., Vice General Director, General Directorate of Primary Health Care Mr. Haydar Mezarci Project Coordinator Ministry of National Education Mr. Hikmet Ulubay Former Education Minister Mr. Salih Celik Deputy Undersecretary, Ministry of National Education Ministry of Economic Affairs Mr. Kemal Dervis Former Minister for Economic Affairs Ministry of Labor and Social Security Mr. Tuncay Teksoz Acting President of Social Security Institution Other Institutions Turkish Court Accounts Mr. Erol Akbulut General Secretary Banking Regulation and Supervision Mr. Engin Akcakoca Former Chairman, BRSA Mr. Tevfik Bilgin President of BRSA Mr. Ferruh Tunc Deputy President, Savings Deposits Insurance Fund (SDIF) Eximbank Mr. Gulcin Coklu Department Head Mr. Neslihan Dogan Funding Manager Iller Bank Mr. Bahattin Kaptan Deputy General Director Mr. Melike Alpaslan Banks Association of Turkey Industrial Development Bank of Turkey (TSKB) Mr. Ahmet Demirel Deputy General Director Mr. Orhan Beskok Deputy General Director Isbank Mr. Ersin Ozince General Director Ziraat Bank Mr. Can Akin Caglar General Director 9 6 A N N E X C : L I S T O F P E O P L E M E T Turkish Electricity Transmission Corporation Mr. Ayse Cansiz Project Coordinator Marmara Research Center Mr. Sedat Inan Director National Meteorology Institute Mr. Sermet Suer Director of UME Sabanci University Prof. Tosun Terzioglu President, Sabanci University Prof. Ustun Ergudur Head, Education Reform Initiative, Istanbul Policy Institute Ms. Neyyir Berktay Project Coordinator, Education Reform Initiative, Istanbul Policy Institute Mr. Batuhan Aydagul Project Specialist, Istanbul Policy Institute Prof. Izak Atias Sabanci University Istanbul University Prof. Asaf Savas Akad Middle East Technical University Prof. Dr. Ahmet Acar Prof. Dr. Giray Berberoglu Faculty of Education Ankara University Professor Dr. Ercan Uyguy Head of Economy Department, Faculty of Politics NGOs Mr. Emine Cagan Secretary, General Ari Movement Mr. Enis Bagdadioglu Turkish Trade Unions Confederation Mr. Ferdi Miskbay Director, Technology Development Foundation Dr. Fusun Sayek President of Turkish Medical Association Mr. Bulent Pirler Secretary General, Turkish Confederation of Employer Association Turkish Association of Economics Rifat Hisarciklioglu Chairman of Union of Chambers and Exchange Press Osman Ulagay Milliyet Newspaper European Union Office Dr. Holger Schroder Mr. Melek Erman European Union Office Mr. Mustafa Balci Education and Training Specialist UNDP Mr. Jakob Simonsen Resident Representative at UNDP Ms. Yesim Oruc UNDP 9 7 ANNEX D: MANAGEMENT ACTION RECORD IEG Recommendations Requiring a Response Management Response 1) The Bank should increase the assistance program's strategic focus Because of the necessary attention to the banking system after the on private sector development and environment and natural resource 2001 banking crisis, we recognize that substantial attention had to be management issues by: focused in the Bank's program on the financial sector, and less upon the · Defining a strategic approach to private sector development in col- private sector. As the economy and sector have now stabilized, the pro- laboration with IFC and IEG-MIGA, drawing on the recent Joint In- gram has launched a new series of adjustment operations dealing with vestment Climate Assessment and leading to a new program of the public-private interface under the umbrella of employment genera- Bank support for PSD, including expanded coverage of issues of tion. A key pillar of that program will be improvements in the business governance, anti-corruption, the regulatory framework and em- environment and support to the private sector. The investment climate ployment impact; and review under way will underpin it along with the joint Bank-IFC work done · Expanding the Bank's analytic work on environmental and natural on the annual Investors Advisory Council hosted by the government. resource management issues and agreeing with the Turkish On the environment, the CAS progress report will include additional government on a program of support for Turkey's environmental activities in this area. priorities. 2) The assistance program should maintain an adequate level of well- We agree that a high level of well-focused analytical needs to support focused, high-quality analytic work, as it did in the latter part of the not only lending but the quality of the dialogue under the program. We review period. The Bank should proceed with lending activities in also agree, as we have been doing with the Education Sector Study and Turkey only when it is confident that the analytic work--not neces- the Investment Climate Assessment, that more involvement with non- sarily the Bank's own--is in place to support the design of programs. government stakeholders is needed. We believe the EU accession This analytic work should be carried out collaboratively, building sys- process, which included substantial financial support for NGOs, will help tematically on the models developed for the public expenditure and present more opportunities in the future. education studies, so that it can generate genuine ownership both within the government and the society at large. This collaboration needs to go beyond the government and encompass a more active role for the Bank in ensuring the participation of nongovernmental stakeholders, as well as more systematic dissemination. 3) The Bank should also build collaborative approaches more system- We agree. atically into its lending, including implementation and monitoring. At the government level, the Bank should seek to work more effectively with the line ministries, with projects implemented through their normal structures, and focus on building sustainable capacities in the ministries when needed. There should be a clear burden of proof for (Continues on the following page.) 9 9 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 IEG Recommendations Requiring a Response Management Response sector staff to demonstrate the justification for organizing an `enclave' activity through a PIU. The Bank should also systematically develop activities to extend the collaborative approach beyond the govern- ment, to include NGOs and other civil society stakeholders, again to develop a greater sense of ownership of Bank supported activities in Turkey. 4) The Bank should assist the Turkish authorities to put in place frame- We are striving to do this and have built in monitoring and evaluation works for monitoring the key development programs and outcomes, components in recent projects and as capacity building in analytical work, including, for example, the efficiency of Turkish infrastructure; the so- such as under the joint poverty assessment. cial impact of pension expenditures; women's labor force participa- tion; progress in health sector reforms; and the range of programs of assistance to the poor such as direct income support for farmers and conditional cash transfers. Nongovernmental stakeholders could play a useful role in this monitoring. 1 0 0 ANNEX E: SUMMARY OVERVIEW OF MIGA'S ACTIVITIES IN TURKEY Turkey Country Assistance Evaluation MIGA Activities (FY91-04) An Overview by IEG-MIGA World Bank Group and MIGA Strategy nificant beneficiary of this focus. Thus far, MIGA The World Bank Group (WBG) Country Assis- has issued 14 guarantees2 to Turkish investors for tance Strategies (CASs) for Turkey emphasized the 11 projects in Eastern Europe and Central Asia need to restore macroeconomic stability and en- in the beverages, telecommunications, and bank- hance competitiveness to foster employment ing sectors. At present, Turkey has been one of growth in the private sector as priorities. The the two most important "south-south" investors CASs also recognized infrastructure as a bottleneck in MIGA's portfolio. for economic growth and the role private sector should play in this sector. The CASs (for 1997, IEG-MIGA Portfolio Overview 2000, 2001 Update, and 2003) briefly noted that Turkey has been a MIGA member since 1988. MIGA's task was to play a complementary role Between fiscal 1991 and 2004, MIGA issued a to the Bank and the IFC in this regard, by facili- total of 20 guarantees in support of 16 projects tating foreign direct investment (FDI) through for a total cumulative gross exposure of US$577 political risk guarantees, particularly in the infra- million. The majority of these projects have been structure sector. in the financial sector, with a few others in the MIGA expected to expand its guarantees in services, manufacturing, and infrastructure sec- Turkey during the 1997­2000 CAS period. While tors.3 Out of these 20 guarantee contracts, 18 MIGA guarantees indeed increased in this period, have been cancelled to date by clients, leaving mainly covering financial sector projects, the one active guarantee project (with 2 contracts) 2000 CAS noted that MIGA would aim to fur- in MIGA's portfolio in Turkey.4 ther expand and diversify its portfolio by focus- The majority of MIGA's guarantee activity in ing on infrastructure investments. However, with Turkey occurred during the fiscal 1998­2000 pe- the onset of a severe financial crisis in 2001, this riod. New guarantees issued went up to US$161 did not materialize, which had a predictably neg- million in gross exposure in 1999 (figures E1­E2), ative impact on the investment environment. but began to decline again in 2000 following the There were no new MIGA guarantee projects in onset of economic recession at the end of 1999. fiscal 2001, and only three new guarantees were 1 issued in fiscal 2002; since then MIGA has not MIGA Review 2000. 2Gross exposure of US$116 million. guaranteed any new projects in Turkey. 3The financial sector accounted for 11 of a total of 16 proj- MIGA's 2000 strategy defined a "multi-niche" ects; the remaining 5 were in the manufacturing (2), services approach for the agency.1 One of the priorities (2), and infrastructure (1) sectors. 4Clients cited "change in corporate strategy," "early re- was supporting "south-south" investments. Turk- payment of loans," or "switching to self insurance" as reasons ish companies investing abroad have been a sig- for canceling the guarantees prior to their expiration. 1 0 1 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 Figure E.1: IEG-MIGA Guarantee Activity in Turkey Fiscal years 1991­2004 7 6 MIGA Guarantee Projects MIGA Guarantee Contracts 5 4 3 2 1 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: IEG-MIGA Annual Reports, various years. Figure E.2: IEG-MIGA Guarantees Issued in Turkey (gross exposure) Fiscal years 1991­2004 180 160 US$M 140 120 100 80 60 40 20 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: IEG-MIGA Annual Reports, various years. There were no new MIGA guarantees in 2001, investments in Turkey during 1991­2004. Guar- when the investment climate suffered from a antees in the services and manufacturing sectors severe financial crisis. account for 19 and 12 percent, respectively. Al- Since 2002, MIGA has guaranteed only two though there is only one infrastructure project, new projects, consisting of one large infrastruc- its share of the total exposure is significant (23 ture and one manufacturing sector projects. percent) because of its large size. Cumulatively, the financial sector accounted As of June 30, 2005 MIGA had only two active for 46 percent of all MIGA guarantees issued for contracts (associated with one infrastructure 1 0 2 A N N E X E : S U M M A RY O V E RV I E W O F M I G A' S A C T I V I T I E S I N T U R K E Y project), with a total gross exposure of US$135 Both evaluated projects involved shareholder million, representing 2.65 percent of MIGA's total loans to expand their lending operations for gross exposure. MIGA has not provided any tech- medium-term credit. MIGA guarantees helped nical assistance to Turkey for FDI promotion.5 them expand country credit limits and provided an additional safety net. Both banks had been Effectiveness of Guarantee Activities very selective and conservative in their lending To date, MIGA has carried out ex-post evaluations decisions and favored public sector projects. of two financial sector projects in Turkey, guar- While both banks remained active in Turkey dur- anteed during the fiscal 1998­99 period, and as- ing and after the financial crisis of 2001, they sessed the environmental impact of a more curtailed their lending volumes during this pe- recent nonfinancial sector project. riod; one offered only short-term lending, while Most of the financial sector projects insured by the other used its medium-term lending for MIGA have been to facilitate the investments of public works projects, when solid investment foreign banks operating in Turkey. Foreign banks projects from the private sector became scarce. constitute a relatively small share of the banking In the former case, during the crisis, the bank sector, which has been dominated by state-owned compared well with its peers in Turkey in busi- banks. During the 1990s, the private banking sec- ness performance. In the latter case, this bank tor grew rapidly in assets, profits, and sophisti- did better than its peers in profitability, but its cation. However, financial deepening did not efficiency and productivity suffered. While sup- materialize in the high-inflation environment. porting public sector projects helped preserve From the mid-1990s, a large number of private its profitability, it was a departure from the orig- banks have been created, many of which lacked inal expectation that it would use the MIGA- critical size. They served the business interests of guaranteed facility to provide lending to a more their parent company, typically large conglomer- diverse group of private sector clients. Both ates active in a wide range of sectors. A number banks had positive, albeit small, impacts on im- of foreign banks have also invested in domestic proving financial intermediation, but remained banks as shareholders, in addition a small num- small players operating in a niche market, limit- ber of foreign banks operate as a branch of their ing their overall impact. parent. The 1997 CAS had noted the almost com- Both projects were rated satisfactory for their plete absence of medium-term debt financing in contribution to providing medium-term lend- Turkey, in a high-inflation/high-real-interest-rate ing in a difficult economic environment, at least environment. The banks became heavily de- prior to the crisis. pendent on interest earnings from government IEG-MIGA also assessed the environmental securities. Most foreign banks worked under strict impact of a MIGA-guaranteed infrastructure proj- country exposure ceilings, in particular, as the fi- ect. The review concluded that the project was nancial sector in Turkey came under strain. well designed and constructed, and the opera- tion met high environmental and safety stan- dards at the time of the IEG-MIGA review. The project fits well with country's strategic priority of expanding its energy supply in an environ- 5 However, MIGA offered technical assistance (TA) to the Center for Private Sector Development in Istanbul, a mentally sustainable manner. From an environ- joint undertaking of the OECD and the Turkish Development mental perspective, the plant design--with its Agency TICA, which was created to support the transfer of state-of-the-art technology with high thermal ef- experience for private sector development to countries in the neighboring countries. This collaborative activity lasted for ficiency using natural gas--represents the least about two years, until the Center was dissolved by OECD. polluting option for a thermal power plant. 1 0 3 ANNEX F: GUIDE TO IEG'S COUNTRY ASSISTANCE EVALUATION METHODOLOGY This methodological note describes the key ele- Assessments of assistance program outcome ments of IEG's country assistance evaluation and Bank performance are not the same (CAE) methodology.1 By the same token, an unsatisfactory Bank assis- tance program outcome does not always mean CAEs rate the outcomes of Bank assistance that Bank performance was also unsatisfactory, and programs, not the Clients' overall vice-versa. This becomes clearer once we consider development progress that the Bank's contribution to the outcome of A Bank assistance program needs to be assessed its assistance program is only part of the story. The on how well it met its particular objectives, which assistance program's outcome is determined are typically a sub-set of the Client's development by the joint impact of four agents: (a) the Client; objectives. If a Bank assistance program is large in (b) the Bank; (c) partners and other stakehold- relation to the Client's total development effort, ers; and (d) exogenous forces (e.g., events of na- the program outcome will be similar to the Client's ture, international economic shocks, etc.). Under overall development progress. However, most the right circumstances, a negative contribution Bank assistance programs provide only a fraction from any one agent might overwhelm the posi- of the total resources devoted to a Client's devel- tive contributions from the other three, and lead opment by donors, stakeholders, and the gov- to an unsatisfactory outcome. ernment itself. In CAEs, IEG rates only the outcome IEG measures Bank performance primarily on of the Bank's program, not the Client's overall de- the basis of contributory actions the Bank directly velopment outcome, although the latter is clearly controlled. Judgments regarding Bank perfor- relevant for judging the program's outcome. mance typically consider the relevance and im- The experience gained in CAEs confirms that plementation of the strategy, the design and Bank program outcomes sometimes diverge sig- supervision of the Bank's lending interventions, nificantly from the Client's overall development the scope, quality and follow-up of diagnostic progress. CAEs have identified Bank assistance work and other AAA activities, the consistency of programs which had: the Bank's lending with its non-lending work and with its safeguard policies, and the Bank's · Satisfactory outcomes matched by good Client development partnership activities. · Unsatisfactory outcomes in Clients which achieved good overall development results, Rating Assistance Program Outcome notwithstanding the weak Bank program In rating the outcome (expected development · Satisfactory outcomes in Clients which did impact) of an assistance program, IEG gauges the not achieve satisfactory overall results dur- extent to which major strategic objectives were ing the period of program implementation. relevant and achieved, without any shortcomings. In other words, did the Bank do the right thing, 1 In this note, assistance program refers to products and did it do it right. Programs typically express and services generated in support of the economic devel- their goals in terms of higher-order objectives, opment of a Client country over a specified period of time, and client refers to the country that receives the benefits of such as poverty reduction. The Country Assis- that program. tance Strategy (CAS) may also establish inter- 1 0 5 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 mediate goals, such as improved targeting of on the country's development. The second step social services or promotion of integrated rural is a bottom-up review of the Bank's products development, and specify how they are expected and services (lending, analytical and advisory to contribute toward achieving the higher-order services, and aid coordination) used to achieve objective. IEG's task is then to validate whether the objective. Together these two steps test the the intermediate objectives were the right ones consistency of findings from the products and ser- and whether they produced satisfactory net ben- vices and the development impact dimensions. efits, and whether the results chain specified in Subsequently, an assessment is made of the rel- the CAS was valid. Where causal linkages were ative contribution to the results achieved by the not fully specified in the CAS, it is the evaluator's Bank, other donors, the Government, and ex- task to reconstruct this causal chain from the ogenous factors. available evidence, and assess relevance, effi- Evaluators also assess the degree of Client cacy, and outcome with reference to the inter- ownership of international development prior- mediate and higher-order objectives. ities, such as the Millennium Development Goals, For each of the main objectives, the CAE eval- and Bank corporate advocacy priorities, such as uates the relevance of the objective, the rele- safeguards. Ideally, any differences on dealing vance of the Bank's strategy towards meeting with these issues would be identified and re- the objective, including the balance between solved by the CAS, enabling the evaluator to lending and non-lending instruments, the efficacy focus on whether the trade-offs adopted were ap- with which the strategy was implemented, and the propriate. However, in other instances, the strat- results achieved. This is done in two steps. The egy may be found to have glossed over certain first is a top-down review of whether the Bank's conflicts, or avoided addressing key Client de- program achieved a particular Bank objective or velopment constraints. In either case, the con- planned outcome and had a substantive impact sequences could include a diminution of program Ratings Scale IEG utilizes six rating categories for outcome, ranging from highly satisfactory to highly unsatisfactory: Highly satisfactory The assistance program achieved at least acceptable progress toward all major relevant objectives, and had best practice de- velopment impact on one or more of them. No major short- comings were identified. Satisfactory The assistance program achieved acceptable progress toward all major relevant objectives. No best practice achievements or major shortcomings were identified. Moderately satisfactory The assistance program achieved acceptable progress toward most of its major relevant objectives. No major shortcomings were identified. Moderately unsatisfactory The assistance program did not make acceptable progress to- ward most of its major relevant objectives, or made accept- able progress on all of them, but either (a) did not take into adequate account a key development constraint or (b) pro- duced a major shortcoming, such as a safeguard violation. Unsatisfactory The assistance program did not make acceptable progress to- ward most of its major relevant objectives, and either (a) did not take into adequate account a key development constraint or (b) produced a major shortcoming, such as a safeguard violation. 1 0 6 A N N E X F : G U I D E T O I E G ' S C O U N T RY A S S I S TA N C E E VA L U AT I O N M E T H O D O L O G Y Highly unsatisfactory The assistance program did not make acceptable progress to- ward any of its major relevant objectives and did not take into adequate account a key development constraint, while also producing at least one major shortcoming, such as a safeguard violation. relevance, a loss of Client ownership, and/or Sustainability can be rated as highly likely, unwelcome side-effects, such as safeguard vio- likely, unlikely, highly unlikely, or, if available lations, all of which must be taken into account information is insufficient, non-evaluable. Sus- in judging program outcome. tainability measures the resilience to risk of the The institutional development impact development benefits of the country assistance (IDI) can be rated as: high, substantial, modest, program over time, taking into account eight or negligible. IDI measures the extent to which factors: the program bolstered the Client's ability to make more efficient, equitable and sustainable use of · Technical resilience its human, financial, and natural resources. Ex- · Financial resilience (including policies on cost amples of areas included in judging the institu- recovery) tional development impact of the program are: · Economic resilience · Social support (including conditions subject · The soundness of economic management to safeguard policies) · The structure of the public sector, and, in · Environmental resilience particular, the civil service · Ownership by governments and other key · The institutional soundness of the financial stakeholders sector · Institutional support (including a supportive · The soundness of legal, regulatory, and judi- legal/regulatory framework; organizational cial systems and management effectiveness) · The extent of monitoring and evaluation · Resilience to exogenous effects, such as in- systems ternational economic shocks or changes in the · The effectiveness of aid coordination political and security environments. · The degree of financial accountability · The extent of building NGO capacity · The level of social and environmental capital. 1 0 7 ATTACHMENT 1: COMMENTS FROM THE GOVERNMENT OVERALL GOVERNMENT VIEW ON WORLD BANK ASSISTANCE With the World Bank assistance for about six ership. Particularly, long average implementa- decades, Turkey took concrete steps towards tion life of health and education projects, im- economic development. World Bank assistance plemented in Turkey during the last decade, on education, health, infrastructure, financial reflects this issue. and public sector reforms yielded positive tan- gible results. The complex procedures for disbursement and procurement used to be one of the important Our dialogue with the Bank is built on mutual un- barriers to reach our eventual goal of develop- derstanding on the priorities of each other. ment. The Bank's recent efforts to streamline and Lessons taken from the past contributed much simplify its lending procedures enabled the im- to our strong dialogue. The political stability plementing agencies to utilize the funding during the last three years consolidated our ben- sources more effectively. efit from the Bank assistance. Ownership is the key factor for successful im- The central mandate of the Bank is to fight plementation. The contribution of the related poverty on a multidimensional scale ranging parties in designing the components of the loan from human development to security, voice and is key for reaching the targets of the loan. Our ex- participation. However, the Bank's understand- perience so far, reveals that this is valid both for ing of the poverty impact of programs and poli- investment and policy lending. The conditional- cies is sometimes narrow, and to this end, the ities reflecting the Government's program will fur- Bank tends to focus mainly on the social sectors ther enhance the ownership. The policy matrix while neglecting productive sectors. Further- for the development lending should focus on more, the Bank tries to reduce poverty through actual needs of the country and support the pri- increased expenditures on the social sectors. ority policies of the Government's program. For example, in health and education, the Bank focuses on the inputs and the outputs and its in- Our past weak performance regarding adjustment terventions are for securing increased expendi- lending was the consequence of coinciding in- tures on these sectors. Even though the targets ternal and external factors. Political instability did are outperformed, sometimes converting these not allow for sound policy environment. The measurable inputs/outcomes into sustainable Bank's policies were not helpful, either, in that re- quality results such as better student achieve- spect. Bank's insistence on using large and com- ment or improved health status is difficult. Ac- plex policy matrix in programmatic operations tually, any Bank assisted poverty reduction activity led to departure from the main objectives of the is proved to have the most success when it is sup- operation. Additionally, too many components ported by the existing local initiatives and own- and indicators bring forth too many agencies 1 0 9 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 which hampers ownership and flexibility. We ex- One should underline that Bank support on our perienced such cases that any conditions unmet, way to EU is invaluable. We believe that the re- despite the fulfilment of other commitments, cent CEM report will be an important guide for blocked the disbursement of whole loan. We would our efforts with respect to EU Acquis. like to encourage the Bank to shift its policies to- wards ex post conditionality from preconditionality Last but not the least, we appreciate the Bank's and follow the policy of concentrating on one sec- non-lending assistance. The Bank's expertise on tor in each operation. Rewarding the actions which development issues is non-arguable; Bank's tech- is already taken rather than relying on promised nical assistance supported by research and its reforms to be taken in the future is considered as expertise in the world of development is an im- a good step to contribute to smooth implemen- portant source to identify priority areas and address tation of programmatic operations. development challenges. However, this expertise should be synthesized with the home-grown ideas We appreciate the support of Bretton Woods insti- to serve for the purpose of country development. tutions to our economic program. However, cross- conditionality is becoming a major issue in our We believe that building on the experiences with program financing. We would like to urge the World the Bank for so many years, our partnership Bank to eliminate cross-conditionality with the with the Bank cites a good model for other mid- IMF programs in the design of the policy lending. dle income countries. 1 1 0 ATTACHMENT 2: CHAIRMAN'S SUMMARY: COMMITTEE ON DEVELOPMENT EFFECTIVENESS (CODE) The Informal Subcommittee (SC) of the Com- recommendations and will incorporate them in mittee on Development Effectiveness (CODE) its strategy. met on October 24, 2005 to discuss the report en- titled The World Bank in Turkey, 1993­2004 Coun- The Chair representing Turkey welcomed the try Assistance Evaluation, prepared by the report and noted the World Bank Group's con- Independent Evaluation Group (IEG). Written tribution to sustainable development and macro- statement was issued by Mr. Hermann. economic stability in the country. He stressed that Turkish authorities broadly agreed with the CAE Background. The Turkey CAE provided an as- ratings, but noted that average rating for ten sessment of the Bank's assistance during the pe- years did not fully reflect the achievements of the riod of 1993­2004. The report noted that the last three years. In this regard, he noted that Bank's experience in Turkey clearly divided into separate rating of two sub-periods would have two phases and the key lessons were associated better projected the current dynamics of the with each phase. Prior to 1997, the Bank em- country's economic development. He also dis- phasized investment lending in a situation of agreed with IEG's rating of the sustainability of major structural distortions and under-invested the outcomes as "likely." He argued that the rad- in analytic work. In the subsequent period, a ical changes in the fundamental dynamics of the greater strategic focus combined with decen- economy during the last three years indicated tralization to the field and an expanded program that the sustainability of the outcomes should of analytic work, rebuilt the Bank's relationship have been rated "highly likely," rather than and positioned it to play an effective role in sup- "likely." Turkish authorities welcomed the re- porting structural reform. Overall, IEG has rated port's recommendations in emphasizing more the development outcome of the Bank's assis- private sector development and improving in- tance as moderately satisfactory, with substantial vestment climate, but urged continuous efforts institutional development impact and likely sus- in public sector reform as well. The Turkish Chair tainability. Among major lessons identified was the also asked that, since the majority of the de- importance of the Bank maintaining its analyti- tailed comments of the Turkish authorities had cal capital and senior managerial focus in a coun- been taken into account in the text, only the try, even when there is little response from the general comments should be included in the client. The CAE made the following recommen- final report. dations: (i) focus on support for Turkey's EU ac- cession aspirations; (ii) more emphasis to Main Conclusions and Next Steps. The Sub- environmental management; (iii) resume sup- committee welcomed the CAE and broadly agreed port to the private sector; (iv) help to improve with the ratings and recommendations. Among investment climate through better governance main issues raised by the members were: need and regulations; (v) improve coordination with to improve synergies between the members of the IFC; (vi) support efforts to build more efficient, World Bank Group and aid harmonization with policy-oriented line ministries. Management other donor partners, particularly the EU; more broadly agreed with the report's conclusions and active support for the private sector, especially the 1 1 1 T H E W O R L D B A N K I N T U R K E Y: 1 9 9 3 ­ 2 0 0 4 small and medium enterprises (SMEs); and im- Private sector development and the role of portance of maintaining close dialogue with the IFC. Members agreed with the CAE assessment clients through non-lending activities (AAA, sup- that the Bank's assistance should have centered port for private sector and NGOs) in times of low more clearly on private sector development. demand for the Bank's assistance. Some members echoed the concerns of the Turkish authorities regarding low level of in- The following points were raised. volvement of IFC with the second-tier companies and SMEs and noted the need for more active Reports' timing and coverage. Members ap- work towards diversifying the financial sector. preciated the submission of the IEG report, which had provided a broad and comprehensive view Coordination/cooperation. Several members of the World Bank Group's assistance to the felt that the IEG report should have paid more country, and encouraged the same practice for fu- attention to some aspects of the Bank-Fund col- ture country evaluations. Several members sup- laboration in Turkey, particularly related to the first ported the Turkish authorities' view on the period pillar of assistance to the country--macroeco- covered by the CAE, noting that an average as- nomic stability. They noted that a more frank sessment of the whole ten year period might not discussion of some disagreements between the have fully captured the recent achievements and two institutions would have been beneficial for differences between the two sub-periods. IEG informing the Bretton Woods Institutions in other noted that while defining a period to be rated is important client countries of comparable size. IEG often a challenge, outcomes of three of the four noted that despite some disagreements on coun- pillars of the Bank's program during the decade try stabilization program in the past, the Bank- would have been quite similar even if split into Fund relationship in Turkey has been overall very separate periods. productive--their collaboration on the 2001 re- form being an example of best practice. Some Country dialogue, ownership and capacity. members noted the Turkish government's con- Members broadly concurred with the report's cerns about Bank-Fund cross-conditionality issue. emphasis on the importance of maintaining active Management clarified that since 2001 the Bank- dialogue with the clients and highlighted the role Fund collaboration has been very effective and of country ownership as a crucial component for beneficial for the country. IEG added that in the success. In this regard, they noted the positive im- case of Turkey it was almost impossible to avoid pact of decentralizing the Bank's decision-making certain overlaps on conditionalities. Respond- to the country office in the late 1990s. Manage- ing to concerns raised by some speakers ment noted that in a country like Turkey, the best regarding coordination with other donors, man- way to promote ownership would be drawing ap- agement noted that the Bank is working closely propriate country comparisons, especially with the with the EU to make sure that the Bank's coun- new EU member countries. Members agreed with try assistance strategy is complementary to the the CAE on the need to better engage NGOs and EU strategy and helps to build capacity for ab- civil society organizations, but also stressed the im- sorption of expected EU grant funds. portance of keeping the government closely in- volved in that process. Some members expressed Lessons learned. Some members were inter- interest whether Turkey could be a pilot for test- ested in the lessons that can be drawn from the ing the use of country systems. Management Turkey's experience with successful agricultural replied that it would seriously consider piloting liberalization and reduction of agricultural sub- the use of country systems in Turkey, both on sidies. IEG noted that reduction of agricultural the fiduciary and environmental side. Another subsidies--one of the real successes of the Bank's concern expressed by some members was re- support in Turkey--was a result of exemplary lated to the limitations of the ring-fenced ap- analytical work and close cooperation with the au- proach in project implementation and the role of thorities. A member noted the importance of the PIUs. lessons learned from the experience with ad- 1 1 2 AT TA C H M E N T 2 : C H A I R M A N ' S S U M M A RY: C O M M I T T E E O N D E V E L O P M E N T E F F E C T I V E N E S S ( C O D E ) justment lending in Turkey, which demonstrated throughout the period under review. IEG replied the need for more ex-post conditionalities and that since, in its view, employment generation in sharper sectoral focus. Another member felt that SME sector would be the best way to overcome the report could have been more specific about poverty in Turkey, the report's focus on private the reasons to clean up the portfolio in Turkey. sector development and better synergies with the Several members noted that Turkey's experience other members of the WBG in this area would provides a typical case in the context of Middle be in line with the Bank's mission to fight poverty. Income Countries (MICs) development, and Management noted that the Bank has recently could serve as a basis for a study of the Bank's ex- done substantial work in helping the govern- perience in MICs, including crisis preparedness, ment to build capacity in the poverty monitor- establishment of early monitoring systems and cri- ing area, creating an annual monitoring system. sis management. IEG replied that it is planning A member urged more attention to promoting to conduct a study of the Bank's experience in gender equality in Bank projects. Some speak- MICs, based on individual CAEs, in the near fu- ers noted that serious issues remaining in the ture. A member suggested that in the future sim- pension reform in Turkey necessitate having a ilar reports should make better use of various clear message in that area, and asked for details indicators (e.g. CPIA, WBI governance indica- on the Bank's strategy in this regard. Manage- tors, others) as guidance for further action needs. ment noted that it maintains an intensive dia- logue with the government to develop significant Social sectors. Some members felt that the re- changes in the presently unsustainable and costly port could have put more emphasis on poverty pension system. reduction and employment generation, given the overall modest achievements in those areas Pietro Veglio, Acting Chairman 1 1 3 REFERENCES Berberogu, Giray. 2004. "Student Learning ------. 2005b. "Turkey: Erzincan Earthquake Re- Achievement in Turkey." Middle East Technical habilitation and Reconstruction Project (L3511- University. TR); Turkey Emergency Flood and Earthquake Dulger, I. 2004. "Turkey: Rapid Coverage for Com- Recovery Project (L4388-TR); and Emergency pulsory Education Program." World Bank Work- Earthquake Recovery Project (L4518-TR)." Proj- ing Paper No. 30801. Washington, DC. ect Performance Assessment Report No. 32676- Hacettepe University Institute of Population Stud- TR. Washington, D.C. ies. 2004. Turkey Demographic and Health MIGA (Multilateral Investment Guarantee Agency). Survey, 2003. Hacettepe University Institute 2000. 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