Document of

The World Bank

Report No: 22510-TU

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED HYBRID INVESTMENT/ADJUSTMENT LOAN

IN THE AMOUNT OF US$500 MILLION

TO THE

REPUBLIC OF TURKEY

FORA

SOCIAL RISK MITIGATION PROJECT/LOAN

August 17, 2001

Human Development UnitCountry Department VIEurope and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective August 6, 2001)

Currency Unit = Turkish LiraTL I = US$0.0000007US$1 = TL 1,350,000

FISCAL YEARJanuary 1 -- December 31

ABBREVIATIONS AND ACRONYMSARIP Agricultural Reform Implementation Project NCB National Competitive BiddingBOP Balance of Payments NGOs Non-governmental OrganizationsCAS Country Assistance Strategy ODTU Middle East Technical University (Orta Dogu Teknik Universitesi)CBOs Community-Based Organizations PCU Project Coordination Unitccr Conditional Cash Transfer PEIR Public Expenditure and Institutional ReviewCEM Country Economic Memorandum PFPSAL Programmatic Financial and Public Sector Adjustment LoanCPI Consumer Price Index PMR Project Management ReportCQ Consultant Qualification POM Project Operations ManualDIE State Institute of Statistics (Devlet Institutu Estadistika) PPP Purchasing Power ParityDIS Direct Income Support PSBR Public Sector Borrowing RequirementDPT State Planning Organization (Develet Planlama Tisilati) PSR Project Status ReportEERL Emergency Earthquake Recovery Loan PSSP Privatization Social Support ProjectES Pension Fund (Emekli Sandigi) QCBS Quality and Cost-based SelectionEU European Commission RFP Request for ProposalsFMS Financial Management System SB Ministry of Health (Saglik Bakanligi)GDP Gross National Product SBD Standard Bidding DocumentsGPN General Procurement Notice SDIF Savings Deposit Insurance FundHIES Household Income & Expenditure Survey SDR Special Drawing RightHLFS Household Labor Force Survey SDR Special Drawing RightIBRD International Bank for Reconstruction and Development SEEs State Economic EnterprisesIC Individual Consultant SHCEK Social Services and Child Protection OrganizationICB International Competitive Bidding SIL Social Investment LoanIFC International Finance Cooperation SMEs Small and Medium EnterprisesIMF International Monetary Fund SOEs Statement of ExpensesIS International Shopping SRMP Social Risk Mitigation Project/LoanISA International Standard Auditing SSK Social Security Institution (Sosyal Sigortalar Kurumnu)IT Information Technology SYDTF Social Solidarity Fund (Sosyal Yardimlasma ve Dayanisma

Tesvik Fonu)LCS Least Cost Selection SYDV Social Solidarity Foundation (Sosyal Yardimlacma ve

Dayanisma Tesvik Vakf)LSP Letter of Sector Policy TA Technical AssistanceM&E Monitoring and Evaluation TL Turkish LiraMB Central Bank of Turkey (Merkez Bankasi) UNDP United Nations Development ProgramMIS Management Information System UNICEF United Nations Children's FundMOF Ministry of Finance VAT Value Added TaxMONE Ministry of National Education (Milli Egitim Bakanligi) WB World Bank

Vice President: Johannes F. LinnCountry Director: Ajay Chhibber

Sector Director: Annette DixonSector Manager: Michal Rutkowski

Task Team Leader: John Innes

TURKEYSOCIAL RISK MITIGATION PROJECT/LOAN

CONTENTS

A. Project Development Objective Page

1. Project development objective 22. Key performance indicators 2

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 32. Main sector issues and Govermment strategy 33. Sector issues to be addressed by the project and strategic choices 20

C. Project Description Summary

1. Project components 232. Key policy and institutional reforms supported by the project 253. Benefits and target population 294. Institutional and implementation arrangements 29

D. Project Rationale

1. Project altematives considered and reasons for rejection 312. Major related projects financed by the Bank and other development agencies 313. Lessons learned and reflected in the project design 324. Indications of borrower commitment and ownership 335. Value added of Bank support in this project 34

E. Surmmary Project Analysis

1. Economic 342. Financial 343. Technical 354. Institutional 355. Environmental 386. Social 397. Safeguard Policies 40

F. Sustainability and Risks

1. Sustainability 41

2. Critical risks 423. Possible controversial aspects 43

G. Main Loan Conditions

1. Effectiveness Condition 442. Other 45

H. Readiness for Implementation 45

I. Compliance with Bank Policies 46

Annexes

Annex 1: Project Design Summary 47Annex 2: Detailed Project Description 52Annex 3: Estimated Project Costs 62Annex 4: Economic Analysis Summary 63Annex 5: Financial Summary 74Annex 6: Procurement and Disbursement Arrangements 76Annex 7: Project Processing Schedule 99Annex 8: Documents in the Project File 100Annex 9: Statement of Loans and Credits 102Annex 10: Country at a Glance 105Annex I 1: Letter of Sector Policy 107Annex 12: CCT Issues and International Experience 117Annex 13: Institutional Assessment 125

MA.P(S)IBRD 24903R

TURKEYSocial Risk Mitigation Project/Loan

Project Appraisal Document

Europe and Central Asia RegionECSHD

Date: August 17, 2001 Team Leader: John A. InnesCountry Director: Ajay Chhibber Sector Director: Annette DixonProject ID: P074408 Sector(s): EP - Primary Education, HC - Primary Health,

Including Reproductive Health, Chi, SA - Social AssistanceLending Instrument: Sector Adjustment Loan (SAD) Theme(s): Social Development; Social Protection; Gender

And Development; Poverty ReductionPoverty Targeted Intervention: Y

Program Financing Data[X] Loan [1 Credit [ ] Grant [ Guarantee [] Other:

For Loans/CreditslOthers:Amount (US$m): 500.0

Proposed Terms (IBRD): Varable Spread & Rate Single Currency Loan (VSCL)Grace period (years): 5 Years to maturity: 15Commitment fee: 3/4 of 1% Front end fee on Bank loan: 1.00%Financing Plan (US$m). Source Local Foreign TotalBORROWER 135.14 0.32 135.46IBRD 353.33 146.67 500.00Total: 488.47 146.99 635.46Borrower: REPUBLIC OF TURKEYResponsible agency: SOCIAL SOLIDARITY FUND (SYDTF)Address: Karanfil Sokak No. 67, Bakanliklar, Ankara, TurkeyContact Person: Yadigar Gokalp, Project CoordinatorTel: 0-312-424 0701 Fax: 0-312-424 0704 Email: yadigar@mailcity.com

Other Agency(ies):SOCIAL SERVICES AND CHILD PROTECTION ORGANIZATION (SHCEK)

Address: Necatibey Caddesi No: 11 Ankara, TurkeyContact Person: Mehmet Ozdal, Director GeneralTel: 0-312-229-3551 Fax: 0-312-231-0650 Email:STATE INSTITUTE OF STATISTICS (DIE)Address: Necatibey Caddesi No. 14, Sihhiye, Ankara, TurkeyContact Person: Nurgul Ogut, Vice PresidentTel: 0-312-425 2104 Fax: 0-312-417 4225 Email: nurgul ogut@die.gov.tr

Estimated disbursements (Bank FYIUS$m):.. .- 2002 . 0 v" .22025 - 2Q06 i Jv

Annual 105.00 80.00 130.00 100.00 85.00Cumulative 105.00 185.00 315.00 415.00 500.00

Project implementation period: September 2001 until December 2005[Expected effectiveness date: 09/15/2001 Expected closing date: 06/30/2006OCS PAD Fp rl F h. 2000

A. Project Development Objective

1. Project development objective: (see Annex 1)

The development objective of the Social Risk Mitigation Project/Loan (SRMP), is tomitigate the impact of the recent (February 2001) economic crisis on poor households (social riskmitigation) and to improve their capacity to cope with similar risks in the future (social riskmanagement). The SRMP will achieve these objectives through: (i) an adjustment portion,providing immediate support to the poorest affected by the crisis (social risk mitigation); and (ii)an investmentportion, which consists of three components (a) building up the capacity of stateinstitutions providing basic social services and social assistance to the poor (social riskmanagement); (b) implementing a social assistance system (Conditional Cash Transfers - CCT)targeted to the poorest 6 percent of the population conditional on improved use of basic healthand education services (social risk mitigation and prevention); and (c) increasing the incomegenerating and employment opportunities of the poor (social risk prevention).

The Government of Turkey is thus requesting the support of the World Bank in the formof a hybrid loan of US $500 million for the SRMP to assist in the implementation of thesemeasures. A key goal of the SRMP is to strengthen the social assistance system so that itbecomes cost-effective in Turkey and is better targeted to the poorest, and which will provide notonly a safety-net for the poor, but also a trampoline to help the poor escape poverty - a systemwhich not only mitigates social risk, but also helps to prevent and manage it. The SRMP willalso undergird the Government's overall economic reform program through mitigating social costsfor the poorest.

2. Key performance indicators: (see Annex 1)

Overall* Poverty indicators - headcount and poverty depth. Distributional indicators disaggregated

by welfare level, gender, urban-rural, etc.

Adjustment Portion - Rapid Response* Approximately 1.05 million poor children helped back to school in 2001.* Social Solidarity Fund (SYDTF)/Social Solidarity Foundation (SYDV) expenditures of

TL 550 trillion in 2001.

Investment Portion - Institutional Development* Functioning Management Information System (MIS) for SYDTF/SYDVs and Social

Services and Child Protection Organization (SHCEK).* Beneficiary satisfaction with SYDTF programs.* Strong public information campaigns implemented by SYDTF and SHCEK.* Household Income & Expenditure Survey (HIES) undertaken by the State Institute of

Statistics (DIE) beginning from 2002 supplemented by annual rapid surveys in statisticallyand methodologically acceptable years.

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Investment Portion - CCT* Number of CCT beneficiaries (target 1.10 million).* Net increase in school attendance rates for poor beneficiary population.* Net decrease in school drop-out rates for poor beneficiary population.* Increased vaccination coverage for poor beneficiary population.* Increased usage of health facilities by poor beneficiary population.

Investment Portion - Local Initiatives* Number of micro-business started by poor beneficiary population.* Number of income-generating sub-projects by poor beneficiary population.* Number of illiterate adults becoming functionally literate.* Number of unemployed youth trained.* Number of person-days of temporary community employment created.

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: R2001-0113;IFC/R2001-0134 Date of latest CAS discussion: July 12,2001

The updated CAS for Turkey is based on a three-pronged approach: (i) structural policiesaimed at correcting the weaknesses underlying the crisis and establishing a sounder basis fordisinflation and growth over the medium term; (ii) strong social policies including enhanced socialdialogue to achieve price and wage policies consistent with macroeconomic stability, andincreased emphasis on the protection of the most vulnerable groups of society; and (iii) fiscal andmonetary policies geared towards restoring financial stability and resuming the disinflationprocess. Maintaining social cohesion is especially important given the political volatility andsocial stresses of the country. The key elements supported by the SRMP are to:

* reduce poverty in Turkey and strengthen the institutional environment for monitoringpoverty and taking appropriate policy actions; and

* strengthen social protection for vulnerable groups through new social assistanceinitiatives, including introducing new targeted social assistance programs for groupsaffected by the crisis.

2. Main sector issues and Government strategy:

Macroeconomic Framework

Introduction

The Government reached agreement with the IMF in May on a new macro-economicframework and policy package, including a detailed program of structural reforms worked out incollaboration with the Bank, in response to the crisis set off by the failure of the exchange ratepeg in February 2001. To support the program, the IMF and World Bank are prepared to provideup to US$ 10.0 billion in additional exceptional external financing in 2001. The 6th and 7th

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reviews of the Stand-by arrangement were completed on May 15, 2001, resulting in thedisbursement of SDR 3 billion (US$ 3.9 billion) from the Fund. An augmentation of the Standbyamount by SDR 6.36 billion was also approved, bringing total IMF commitments for the programsince the Stand-by was approved in December 1999 to SDR 15.0 billion (over US$ 19.0 billion),including the SDR 5.8 billion (US$ 7.5 billion) Supplemental Reserve Facility (SRF) approved inDecember 2000. The 8th program review was approved on July 12, 2001, resulting in thedisbursement of a further SDR 1.20 billion (US$ 1.5 billon). On the same day, the Bank's Boarddiscussed the CAS Progress Report which increases potential support for the program to US$ 6.2billion, including US$ 1.2 billion on Special Structural Adjustment Loan (SSAL) terms. TheBoard also approved the US$ 1.1 billion Programmatic Financial and Public Sector AdjustmentLoan (PFPSAL) and the US $600.0 million Agriculture Reform Implementation Project (ARIP).The 9th IMF program review was completed on August 3, 2001 and the Fund has disbursed anadditional SDR 1.20 billion (US$ 1.5 billion). The Bank has begun preparation of a secondProgrammatic Financial and Public Sector Adjustment Loan (PFPSAL) which could go to theBoard in December 2001.

Economic Developments Leading up to the New Program

Original Disinflation Program. The Government launched its original disinflationprogram under near crisis conditions in mid-1999. The program aimed to bring inflation to singledigits and set the economy on a stable path of high growth. There were three core pillars: (i)strong fiscal adjustment, including large privatization revenues, designed to put public finances ona sustainable path; (ii) a crawling peg exchange rate anchor designed to lower inflationaryexpectations and bring down interest rates; and (iii) deep structural reforms aimed at sustainingfiscal adjustment and promoting productivity and growth. Structural reforms were focused onmeasures to: (a) support privatization, particularly in the telecommunications and energy sectors;(b) address fumdamental fiscal weaknesses, notably through pension reform, modernization ofagriculture support policies, and reform of public expenditure management including measures tocontain the rapid growth of contingent liabilities; and (c) strengthen the financial sector. Theinitial results were encouraging, however, signs of problems soon appeared which pointed to theunderlying macro risks. The current account deficit began to widen rapidly. Throughout theyear, inflation outpaced the rate of crawl under the peg. Although CPI inflation fell to a 15-yearlow of 39 percent by the end of 2000, this exceeded the 25 percent target, leading to realexchange rate appreciation of about 14 percent. The Government did not respond quickly to thewidening macro imbalances and clear signs that the economy was overheating. Under thequasi-currency board rules, the Central Bank (MB) refrained from sterilizing the capital inflowswhich were driving down interest rates to exceptionally low levels below the targeted path. Therewas little political support for additional fiscal measures when the primary surplus was exceedingthe program target. Structural reform implementation slowed perceptibly after mid year. TheGovernment was particularly slow in resolving problem private banks and restructuring the statebanks. The structural problems in the banking sector, highlighted in the Country EconomicMemorandum circulated to the Board in September 2000, were to play a central role in thecoming financial turmoil.

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From Turmoil to Crisis. Turkey was hit by a first round of financial turmoil inNovember 2000 brought on by the withdrawal of credit lines to Demir Bank, a key primary dealerof government securities. The November crisis demonstrated the vulnerability of the Turkishbanking sector to exchange and interest rate risks, as well as the mismatch between the maturityof assets and liabilities which had built up as a result of past macroeconomic distortions andinadequate banking supervision and enforcement. It also highlighted the importance of growingmacroeconomic risks as a relatively isolated incident quickly escalated to a systemic problem. Asconfidence fell, foreign portfolio investors withdrew funds, banking sector liquidity tightened, andshort-term interest rates shot up to over 1,000 percent. Large liquidity injections from the MBdid not calm the markets and resulted in a loss of about US$6.5 billion in reserves. This situationput the banking sector under severe stress particularly the state banks which faced steep increasesin the costs of financing their chronic liquidity needs. Overall, the balance of risk shifted abruptlyfrom overheating and external imbalance to recession and financial sector crisis. The Governmentresponded with an effort to strengthen its reform program, but this effort fell short and, in lateFebruary 2001, Turkey was hit by a full-fledged economic crisis. The fresh turmoil was ignited bythe public airing of political tensions. This set off a new wave of turbulence in the financial sectoras investors liquidated TL positions and fled to dollars in expectation of a government crisis. ByFebruary 21, overnight rates were over 2,000 percent with minimal transaction volumes. Thenext day, the Government announced the flotation of the Lira, effectively abandoning the originaldisinflation program.

New Macroframework

Key Macroeconomic Targets. The principal macroeconomic objectives of the new programare: first, to contain the impact of the collapse of the crawling peg and subsequent devaluation;and second, to resume a path of progressively lower inflation and increasingly sustainable growth.The macroeconomic targets for 2001 have been revised further in the context of the 9th Standbyreview to take account of the outcome for the first half of the year. Table 1 compares the revisedbaseline with the initial program projections announced in May. The main elements of themacro-framework are summarized below and discussed in more detail in the followingparagraphs:

* Based in part on higher-than-expected devaluation of the Lira (about 48 percent to date),the projection for average CPI inflation (Dec-Dec) for the year has been revised upward to58 percent, compared to the 52.5 percent initially projected; however, inflation is stilltargeted to fall to about 2 percent per month (seasonally adjusted) by the end of 2001;

* Nominal interest rates on government securities, now in the 90 percent range, areprojected to average to 91 percent for the year, resulting in average real rates of some 42percent, substantially above the initial program projection of about 36 percent;

* The contraction in GNP for 2001 has been revised downward to minus 5.5 percent,compared to the fall of 3.0 percent initially projected, on the basis of the sharp (4.2percent) fall in output during the first quarter and the higher-than-expected interest rates;the economy is still expected to recover during the second half of the year on the basis ofstrong export performance and tourism revenues;

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* Fiscal performance has been positive, despite the slowdown in the economy; theconsolidated public sector, including State Economic Enterprises, remains on track toachieve the targeted primary surplus of 5.5 percent of GNP;

* The end-year projection for the public debt to GNP ratio (net of MB net assets) has beenrevised upward to 87 percent of GNP, compared to 79 percent in the initial programbaseline; this is the result of the higher domestic interest rates, higher devaluation andlower growth realized during the first semester; the debt to GNP ratio is still projected tofall rapidly in 2002-03;

* The correction in the current account has been sharper than expected on the basis of avery steep decline in imports (19 percent decline in US$ terms for the Jan-May periodcompared to the same period in 2000) and a solid recovery in exports (9 percent increasein US$ for the Jan-May period); as a result, a current account surplus of about US$ 5billion is now projected for 2001 compared to the rough balance foreseen under the initialprogram; however, the target for gross international reserves remains broadly unchangedreflecting continued capital outflows;

* Inflation is still projected to fall sharply in 2002-03 and the economy is projected torecover as strongly as in the initial program baseline; however, the actual pace and extentof recovery will depend sensitively on a sustained reduction in interest rates.

Table 1: Key Economic Indicators

Actual 1/ Original Program 4/ New Baseline 5/ 2001 7/l 200 2001 2002 2003 2001 2002 2003 Outcome to date

OUTPUT, INFLATION, INTEREST RATE ANDGNP Growth 6.1 -3 5 6 -5.5 5 6 -4.2 (QI)CPI Inflation (Dec-Dec) 39 52.5 20 15 58 20 15 35.5 (Dec-July)Nominal Interest Rate 38 81 41 33 91 41 33 112.5 (Jan-June)Real Interest Rate -8.3 36 20 18 42 21 18 47 (Jan-June)Unemployment Rate 2/ 6.6 >8.5 6 6 >8.5 6 6 8.6 (Ql)

PUBLIC SECTOR BUDGETPrimary Balance (% GNP) 2.8 5.5 6.5 6.5 5.5 6.5 6.5Overall Deficit (% GNP) -19 -17 -10 -7 -20 -9 -7Public Debt (% GNP) 3/ 58 79 71 65 87 74 68

of which net extemal debt (% GNP) 20 34 28 23 34 27 22Privatization ($ bn) 3.3 3.1 3.5 3.5 3.1 3.5 3.5 2.0 (end-July)

EXTERNAL BALANCECurrent account balance (% GNP) -4.8 -0.6 -0.9 -0.6 3.0 -0.4 -0.6Exports(fob, Sbn) 31 34 36 39 35 36 39 14(Jan-May)Tourism ($ bn) 7.6 8.3 8.6 9.1 8.4 8.8 9.3 2.1 (Jan-May)Extemal Debt (% GNP) 57 66 60 57 72 64 60MB Foreign Exchange Reserves ($ bn) 23 21 22 24 21 23 25 17 (end-June)Short-termdebt(%MBFXReserves) 6/ 192 196 182 177 181 160 158

1/ Govermnent figures as adjusted by IMF and WB2/ Projections for 2001 are based on preliminary figures for the first quarter; projections for 2002-03 are from the DIE.3/ Includes the government securities issued to recapitalize the SDIF and state4/ As presented in the CAS Progress Report based on the 6th and 7th IMF program reviews in May

/ As revised for the 9th IMF program review in August 2001.6/ Includes medium/long term debt with remaining maturity of less than one year.7/ Preliminary.Source: Govermnent, IMF and WB estimates.

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Recent Economic Developments

Figure 1: Turkey - Benchmark Bond

220-

200 __ _

180

160

140A*120-

100

60

60

Interest Rates. The program has not restored confidence to the market as quickly or aseffectively as expected. After falling to below 80 percent in late May, interest rates ongovernment bonds increased again in June and July, reaching a peak of 109 percent on thebenchmark March 2002 bond on July 12, before subsiding somewhat to the 90 percent range atpresent (Figure 1). Spreads on Turkish eurobonds have also eased from the highs reached inmid-July. However, current rates on domestic government securities are still well above theinitially programmed path. A major source of the problem has been continuing concerns aboutthe Government's commitment to the program. While the Government has implemented animpressive array of reform measures, both macroeconomic and structural, internal debates withinthe Cabinet have spilled over into public quarrels. Moreover, the Governmnent was late in meetingcertain commitmnents for the 8th program review and the PFPSAL, including appointment of anew professional Board and management team for Turk Telekom and intervention inundercapitalized private banks unable to present credible recapitalization plans. Although theGovernment eventually met all of its commnitments, the perception of internal disagreements andindecision dissipated the expected boost in market confidence. Macroeconomic factors, includingmarket confusion about the Government's policy on intervention in the foreign exchange marketand contagion effects from other emerging markets in difficulty, have also played a role in thepersistence of high interest rates.

Inflation and Growth. The program target of 2 percent monthly inflation (seasonallyadjusted) by the end of 2001 remains within reach due to a combination of the sharp slowdown inthe economy and the tight demand management policies under the program. While inflationexceeded program targets during the first semester, in part due to somewhat larger than expecteddevaluation, the outcome for June (3.1 percent for the CPI) was in line with program projectionsand monthly inflation subsided further in July (2.4 percent for the CPI). For the year as a whole

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(December to December), the projection for CPI inflation has been increased to 58 percent.However, the objective for the coming 12 months (June 2001 to June 2002) is in the 30-35percent range. Reaching this goal will depend on the effectiveness of the program'smacroeconomic policies in lowering inflationary expectations. On the real side, the Bank hascarried out a corporate sector assessment to evaluate the impact of the crisis on the businesscommunity. Virtually all indicators point to a steep decline in economic activity since the onset ofthe crisis. Real GNP declined by 4.2 percent in the first quarter; private sector capacity utilizationwas a low 66 percent in June 2001, compared to 78 percent a year earlier, and the index ofindustrial production is similarly depressed. Surveys cite lower domestic demand as the biggestfactor and indicate that the majority of firms reduced their workforce in the first quarter,contributing to the sharp increase in the officially recorded unemployment rate to 8.5 percent.Official projections for GNP growth rates for 2001 as a whole have been revised downward tominus 5.5 percent. However, this still assumes a strong recovery during the second semester(with seasonally adjusted quarterly growth rates in the 2-2.5 percent range) which in turn willdepend on the behavior of interest rates and continued strong export performance. Similarly, thestrong recovery projected under the program in 2002-03 will depend on sustained improvement inthe financial markets and in the corporate sector.

Fiscal Performance. Fiscal performance is on track to generate the targeted 5.5 percentof GNP primary surplus of the consolidated public sector. Certain expenditures, e.g. wages andsalaries, will increase as a result of the higher inflation. Moreover, spending on social assistanceby the Social Solidarity Fund will be increased by some TL 125 trillion (about US$ 100 million),relative to the TL 425 trillion envelope agreed under the PFPSAL, as a result of thequick-disbursing component of the SRMP. The increased expenditure will be compensated by aprojected modest over-performance on the revenue side due in part to higher than expectedrevenues from withholding taxes on interest income. It is important to note, however, thatrevenue on interest income can be expected to decline over time if interest rates fall as projected.Achieving the 6.5 percent of GNP primary surplus targets for 2002-03 will be a serious challengeof the Government's political will and the fiscal outcome will depend critically on the extent andspeed of the projected economic recovery.

Monetary and Exchange Rate Policy. The Government is undertaking additionalmeasures to clarify and strengthen monetary and exchange rate policies under the program. Theauthorities intend to introduce inflation targeting as a new nominal anchor for the program in thefourth quarter of 2001. In the interim, base money will remain the main instrument for disinflationand revised targets for base money have been established as part of the 9th program review. Theshift to inflation targeting is not without risks and will require careful management. Turkey'sattempt to do so in a high inflation environment is largely unprecedented. Pressures emanatingfrom the going fiscal adjustment process and the bank restructuring program will pose furitherchallenges for inflation targeting. With regard to exchange rate policy, the MB will continue tosell foreign exchange to sterilize the inflows from IFIs to the budget. The MB will place all suchexternal support in a special account and the portion used for domestic payments will be sold inpre-announced auctions. The MB may also continue to intervene from time to time to smoothtemporary exchange rate fluctuations. However, such intervention will be infrequent and in bothdirections, consistent with the floating exchange rate regime. These steps aim to reduce market

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uncertainty about the authorities' exchange rate policy, thereby helping to ease pressure oninterest rates, but their effectiveness will depend on credible implementation.

External Balances. The correction in the current account has been more rapid and moreextensive than initially projected under the program, in large part due to the impact of therecession on demand and the larger-than-expected drop in the Lira. Through May, the currentaccount ran a small surplus of just over US$ 300.0 million, compared to the US$ 4.0 billiondeficit registered in 2000. Imports (fob) have fallen sharply and are now projected to reach US$42.0 billion for the year, US$ 12.0 billion less than in 2000. The fall in imports is an indicator ofthe extent of the falloff in domestic demand since the onset of the crisis and the depth of therecession. On the other hand, export performnance has been encouraging. For the year, exports(fob) are now projected to exceed US$ 35.0 billion, almost US$ 4.0 billion above the 2000 level.Tourism receipts are projected to reach US$ 8.5 billion for the year, about US$ 1.0 billion higherthan in 2000 and a record for Turkey. The current account is projected to return to rough balancein 2002-03 in line with the initial program projections.

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Table 2 Turkey: External Financing Requirements and(In millions of U.S. dollars)

2000 2001 2001 2002 2003

Outcome (Jan-May) 3/

Gross financing requirements 25,837 12,661 4,845 18,915 21,197

Current account deficit (exel. official transfers) 10,033 -4,526 -243 1,048 1,395Amortization on debt securities, o/w: 1,747 2,096 852 2,513 4,069

Public sector 1,397 2,093 852 2,370 3,881

Deposit money banks 350 3 0 143 188Medium and long-term debt amortization, o/w: 13,800 17,334 5,589 13,533 13,406

Public sector I/ 3,616 5,277 1,299 3,762 3,727Private sector 7,919 10,600 3,570 8,000 8,000Deposit money banks 2,265 1,457 720 1,771 1,679

Accumulation of gross reserves 257 -2,243 -1,353 1,820 2,327

Available financing 25,837 12,661 4,845 18,915 21,197

Foreign direct investment (net) 112 3,272 1,609 1,450 1,472Portfolio flows 2,769 -2,470 -1,966 6,650 6,451

Public sector 7,507 1,500 683 4,700 4,501Deposit money banks 492 0 0 450 450Private sector (net) -5,230 -3,970 -2,649 1,500 1,500

Medium and long-term debt financing, o/w: 19,079 12,367 4,256 13,650 13,096Public sector 1/ 4,353 5,167 555 4,800 3,896Private sector 12,824 6,600 3,541 7,250 7,500Deposit money banks 1,902 600 160 1,600 1,700

Short-term debt (net), o/w: 3,035 -10,963 -3,378 1,356 1,144Public sector 90 -29 -I 50 50Private sector 645 -2,465 -791 1,332 919Deposit money banks 2,300 -8,469 -2,586 -26 175

Official transfers 214 255 76 262 270Other 2/ -2,677 -3,274 -976 0 0IMF (net) 3,305 13,473 5,224 -4,453 -1,235

Purchases 3,398 14,594 1,160 0Repurchases 93 1,121 5,613 1,235

1/ General govemment.2/ Errors and omissions.3/ Estimate based on official BOP data through May 2001.Source: MB, IMF and WB estimates.

The gross reserve targets for the program remain broadly unchanged, despite theimproved current account balance, reflecting a higher level of capital outflows. The details of theupdated external financing plan are given in Table 2. With regard to the initial external financingplan in May (as presented in Annex B 11 of the Turkey CAS Progress Report-Report No.R2001-0113;IFC/R2001-0134), the major changes are for 2001, with private capital inflows in2002-03 projected to recover to levels adequate to repay the IMF and rebuild reserves as per theinitial program. The major revisions for 2001 relative to the initial external financing plan are asfollows:

* US$ 6.0 billion reduction in gross financing requirements, due essentially to the improvedoutlook for the current account;

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* US$ 2.5 billion increase in net FDI inflows as a result of investment in the 3rd mobilephone network (Is-Tim) and recently announced mergers and purchases of domestic banksby foreign banks;

* US$ 1.5 billion increase in net portfolio investment outflows reflecting primarily areduction in expected new borrowing by the public sector;

* US$ 4.0 billion increase in net short-term debt outflows, mainly due to reduced rollover offoreign bank credits to domestic banks; and

* US$ 3.0 billion increase in unrecorded outflows, a potential signal of significant capitalflight.

Program Risks and Mitigating Measures

As discussed in the June 2001 CAS Progress Report, the economic program is subject tosignificant risks which must be mitigated. Among the most important risk factors are sustainedpolitical support for the program and macroeconomic vulnerabilities, notably those linked topublic debt sustainability and exteinal vulnerability. Political risks are heightened by the socialpressures arising from the crisis. These pressures contributed to internal debates in June withinthe Cabinet on the implementation of certain reform measures including the level of wheat supportprices, a new wage agreement for public sector workers and legislation reforming the tobaccosector. These debates continued in July over the appointment of the new Board and managementfor Turk Telekom. Following the resignation of several ministers, the leaders of the coalitionparties have renewed their commitment to the program and there is a perception of renewedcohesiveness. Going forward, increased emphasis on the social dimensions will be essential tosustaining political support for what is in the end a painful stabilization and adjustment program.The Bank is playing an important role in helping Turkey mitigate the social risks. TheGovernment's commitment to protect social expenditure under the PFPSAL is a cornerstone ofthis effort and it will be important for the Government to extend this commitment into 2002-03.The strengthening of the social safety net envisaged under the SRMP is another core element ofthe Government's strategy for mitigating the social impact of the program. Other elements of thestrengthened social policy include the direct income support to farmers under the ARIP andsupport for workers displaced by privatization under the Privatization Social Support Project(PSSP).

Macroeconomic Risks. The macroeconomic framework and targets are ambitious giventhe extent of the current crisis. Interest rates will need to fall rapidly to ensure market willingnessto rollover the public debt in the near term, and the decline in rates will have to be maintained inorder to ensure the sustainability of the public debt over the medium term. The actual path of realinterest rates will depend critically on the effectiveness of macro-economic policies and theGovernment's domestic borrowing requirements. A critical factor in achieving the projectedlevels of nominal and real interest rates is control over inflationary expectations. This must beachieved through a combination of: (i) overall credibility of the program and its politicalleadership, including sustained commitment to structural reform; (ii) a well coordinated incomespolicy to limit inflationary wage adjustments; (iii) tight monetary policy, (iv) strong fiscaladjustment to contain the public deficit; and (v) the large package of exceptional financing fromthe IFIs to help finance the costs of the bank crisis and limit public sector borrowing in the

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domestic bond market. Actual growth performance will depend sensitively on how successfullythis policy package is implemented. Limiting the contraction in GNP for 2001 to the revisedprojection of minus 5.5 percent hinges on a sharp turnaround in economic activity in the secondsemester. The actual extent of recovery in 2002-03 will play an important role in the public debtdynamics as will the fiscal outcome. Although difficult, the Government has implementedbelt-tightening measures to reach the 5.5 percent of GNP primary surplus target for 2001.Tightening further to 6.5 percent of GNP in 2002-03 will require fundamental structural changesin the public sector.

Debt Sustainability. Table 3 presents the evolution of the public debt under the programmacro-framework as revised for the 9th Standby review. Under this baseline scenario, all of thekey public debt indicators-debt to GNP ratio, interest payments as a share of GNP, domesticdebt amortization, and the PSBR--fall rapidly after 2001. As shown in the top right side of thetable, this trajectory is a result of the sharp fall in interest rates and strong recovery projectedunder the program. Another key variable is the average maturity of new Treasury borrowing inthe domestic market-which has been steadily shrinking over the past year and is currently in thesix month range. In the baseline, the maturity of new borrowing is projected to increase rapidly inconcert with the fall in interest rates. If the program objectives of increased marketconfidence-with the attendant improvements in interest rates and maturity of newborrowing-and restored growth do not materialize, then the debt dynamics will be substantiallymore difficult.

Table 3: Debt Dynamics

Public Debt Forecasts (i % of GNP) Macroeconomic IndicatorsI-New Baseline 1/

Total Net Debt Stock 57.4 86.6 74.1 67.8 Nominal Interest Rate 38.0 91.2 40.6 32.6Domestic Debt Stock 39.1 52.2 47.1 45.8 CPI Inflation 39.0 58.0 20.1 15.0NetInterestPayments 21.9 25.8 15.6 13.1 GNPDeflator 52.6 48.5 33.6 14.9Dom Debt Amortization 12.9 21.3 20.5 18.0 Depreciation 24.8 94.3 16.1 10.0PSBR 19.1 20.3 9.1 6.6 GNP growth rate 6.1 -5.5 5.0 6.0

1.' Program projections as revised for 9th Standby review.Source: IMF and WB estimates.

The Government is taking a number of new measures in the context of the 9th reviewwhich it hopes will promote rollover of the public debt in the coming months. However,continued implementation of the core structural reform agenda remains key to building the marketconfidence needed to ensure that the public debt can be rolled over on a sustained basis. The newmeasures, announced in late July, include:

* Payment of up to two-thirds (TL 5 quadrillion) of interest coming due to the state banksuntil the end of 2001 in new securities bearing market interest rates; the remainingone-third (TL 2.5 quadrillion) will be paid in cash as initially planned;

* Restructuring of some TL 14 quadrillion in short-term securities bearing quarterlycoupons, purchased by the MB from the state and SDIF banks, into longer-term (2-6 year)

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debt with annual interest payments;* Increase in withholding taxes on repos, short-term deposits, and FX deposits, combined

with reductions in the rates on longer-term TL deposits;* Reduction in the levy on foreign credits from 6 percent to 3 percent;* Introduction of remuneration for required bank reserves by the MB;* Increase in the threshold for income tax declarations for income from government

securities (corrected for inflation) from TL 5 billion to TL 50 billion.

The conversion of short-term government securities purchased by the MB from the stateand SDIF banks into long-term debt and the reintroduction, albeit temporarily, of non-cashinterest payments to the state banks are significant changes from the initial program strategyagreed in May. These measures may in practice help improve market sentiment by reducing thenear-term rollover burden for the Treasury, but they may also complicate the transition to inflationtargeting and slow the pace of bank restructuring. The Government is well aware of the latterrisk and has adopted contingencies to ensure that state bank liquidity needs are not compromised.More critical to building confidence in the program, the Government is moving ahead withstructural reforms including the financial and public sector reforms agreed under the PFPSALprogram and the actions to improve the climate for the private sector under the Economic ReformLoan (ERL). Key structural benchmarks for the coming months include the submission to theParliament of a new public procurement law, resolution of the intervened banks under the SDIFand progress in restructuring of the state banks with the view towards their early privatization,appointment of the new regulatory Board for the energy sector, and adoption of a corporatizationplan by the new Turk Telekom Board designed to improve the company's operationalperformance and prepare it for successful privatization.

External Vulnerability. Turkey's extemal vulnerability is exemplified by the large grossfinancing requirements of some US$ 18-21 billion projected over 2002-03 (Table 2) which nowrepresent a greater proportion of GNP after the devaluation. The external debt stock at the endof 2000 is estimated to be US$ 114 billion (57 percent of GNP) of which about US$ 29 billionwas short-term. With the increase in capital outflows, the stock of external debt is now projectedto fall slightly to US$ 113 billion in 2001 (with the short-term debt stock falling sharply to US$18 billion). However, as a result of the greater-than-expected devaluation, this will equal 72percent of GNP, cornpared to 66 percent in the initial program projections. Strong exportperformance is projected to keep the debt service ratio to about 45 percent in 2001, in line withthe initial program. While improving thereafter, the debt service ratio is projected to remain closeto 40 percent through 2003. The increased level of capital outflows projected for 2001 indicatesthat the program's efforts to encourage private sector involvement (PSI), i.e., "bail in" by privatecreditors, have had little impact so far. Looking ahead, the extent to which Turkish banks andenterprises will be able to rollover their external obligations will remain an important determinantfor the program. Slowing the capital outflow, and then reversing this trend in 2002-03, will beinstrumental in relieving pressure on the exchange rate and creating the conditions for a sustaineddecline in domestic interest rates to sustainable levels. The exceptional financing from the IFIs in2001 is providing Turkey with needed support at this critical juncture, but a return of investorconfidence will be essential to ultimate success of the program. Were the capital account torecover more slowly than expected, Turkey does have the option of requesting the IMF to extend

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the maturity of the maturing SRF resources for an additional year.

The large capital outflows in 2001--coming on top of the large inflows under the originaldisinflation program in 2000--underscore the extent of Turkey's exposure to sudden shifts in theconfidence of intemational financial markets. At the same time, the country is faced with animportant opportunity. Most of the projected capital outflow is in the form of short-term debtand portfolio investment. The coverage of short-term debt by official reserves-an importantindicator of external vulnerability--actually improves under the revised baseline compared to theinitial program projections, although it remains well below desirable levels (Table 1). To theextent that Turkey is able to replace a significant share of the "hot money" outflow with longerterm inflows--especially FDI--over the medium term, the country's external vulnerability will bepermanently reduced. In this regard, the recently announced investments by foreign banks inTurkey's financial sector is an encouraging sign.

Poverty and Social Impact of the Crisis

The social impact of the crisis is already being felt as lay-offs, rising prices, and negativeeconomic growth reduce household incomes, and increase the risk of poverty on the poor. Thelandless poor in rural areas have been affected by a decline in construction and other informal jobopportunities, a problem that has also severely affected the urban poor also. Meanwhile the poorwith land are beset by increased input costs due to inflation.

A full social assessment for the SRMP has been completed (see Annex 14). The mainfindings are:

* Qualitative evidence on withdrawal of children from school. Field visits were undertakento Eastern Anatolia, Southern Anatolia, Central Anatolia, Istanbul slums, Ankara slums andthe Black Sea region. When asked in the absence of officials (and sometimes even in thepresence of officials although it is illegal in Turkey to keep a child from school), the poor havereplied that because of the crisis they are not going to be able to send their children to schoolin September, illegal or not. So there is an imminent danger of the destruction of humancapital. Additionally, Ministry of Health (SB) staff in Ankara and the field reportunderutilization of preventative care by poor families.

* Out-of-pocket school expenditures are larger than anticipated. In Turkey, compulsoryeducation through grade 8 is free of charge. However, at least in Istanbul, some publicschools asked for donations during registration in school year 2000-2001 of about TL 20million per child (nearly US$ 30 at the December 2000 exchange rate). Rural familiesrepeatedly stressed the cost of appropriate clothing for children, particularly shoes and wintercoats.

* Child labor as a coping device among the poorest families. The poorest families are forcedto mobilize all possible members as income earners to contribute to family income, even ifthey are children. In the Duragan area of Sinop province, families send boys as young as 9 towork for low wages in agriculture. In the major cities, children work in the informal sector,

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and certain cities (including Istanbul, Gaziantep, Diyarbikar) have significant groups of streetchildren.

* Changed consumption patterns of food. As a coping strategy to the crisis, many poorfamilies reported drastic changes in their consumption pattem of food, cutting back sharply onmeat, fresh fruits, vegetables, and tea. The worse cases reported that they were subsidingalmost exclusively on bread.

* Profile of extreme poverty. Poor families with many children, are at especial risk of extremepoverty, particularly in rural areas and in poor families where the main breadwinner (thehusband) is disabled, dead, or absent for military service. Other groups at risk are singleelderly living alone with no social insurance and recent migrants to urban slum areas.

Fieldwork undertaken in May 2001 for the Corporate Sector Assessment indicates that:

* The initial perception is that the crisis is unprecedented in its severity and impact onindustry in comparison to previous crisis due, in part, to the spillover effects of theproblems caused by the Russian crisis in 1998-1999, the Marmara earthquake in 1999 andthe November 2000 crisis;

* Small and medium enterprises(some 65 percent of SMEs surveyed) are laying offworkers, while larger firms are using accelerated vacation schedules, shortenedwork-weeks and other methods to avoid formalized layoffs; and

v Both banks and business owners confirm that credit is generally not available, except tothe best customers and even then for 90 days or less. Interest rates are very high, in USdollar terms at 15-18 percent.

In March 2001, a simulation of the impact of the crisis on the welfare distribution wasundertaken, using household data from 1994, to identify the characteristics of the most vulnerablehouseholds. This simulation suggested five patterns of likely increased poverty as a result of theFebruary 2001 financial crisis: (i) families with many children (widows with many children areparticularly vulnerable and extended families with many children, as well as single-parent families,seem to be the most affected in terms of high rates and high increases in food poverty; (ii) anincrease in unemployment disproportionately affect families with many children; (iii) those withmoderate levels of education seem more likely to become vulnerable-but still above the foodpoverty line-while the least educated are those most likely to become food poor; and (iv) theurban population seems more at risk (vulnerable) of slipping into food poverty as they have noaccess to small food plots to complement meagre cash incomes; and (v) families with reducedincome have responded to the crisis by reducing consumption, shifting to lower cost and qualityfood, postponing purchases of durables, and more worryingly, proposing to keep their childrenback from school due to the out-of-pocket expenses such as uniform, shoes, books and stationery.

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The Government is responding to this situation with a package structural reforms designedto help pull the economy out of recession and restore growth as soon as possible, which is the keyto minimizing job loss, and the social and poverty impact of the crisis. Restored confidence in thefinancial sector will help reverse the on-going credit crunch and generate new resources foreconomic recovery and job creation. The public sector reforms will help ensure the quality of thefiscal adjustment and improve overall efficiency of social service delivery. Better publicexpenditure management will increase the availability of resources for social expenditures.Actions to upgrade the operational performance of line ministries and agencies, includingincreased emphasis on policy formulation and a progressive shift to performance budgeting, willhelp ensure that these additional resources are used effectively to fight poverty and vulnerability.Action under the program to improve public governance and tackle corruption are likely tobenefit the poor disproportionately as shown in numerous international studies. Structural reformof the financial and public sectors is also crucial to avoid future crisis which would likely bedevastating for the poor.

Protecting Social Expenditures

The Government is strengthening Turkey's social protection programs (including throughthe support of the SRMP) and is committed to protecting social spending under the PFPSALprogram. Protecting expenditure on health, education and social protection from the impact ofthe crises is a key social objective. Otherwise, Turkey's human capital will suffer and the burdenof adjustment will fall on vulnerable groups. A supplementary budget for 2001 was approved byParliament in June which is consistent with the Government's macroeconomic objectives and alsoensures adequate expenditure envelopes for health, education and social protection. The budgetmaintains aggregate spending on education slightly above the average levels of 1998-2000 (as ashare of GNP) and programs a significant increase in expenditure on social protection relative to2000, resulting in part from the launch of the Direct Income Support (DIS) program for farmers.The preliminary outcome for spending on health, education and social protection under the 2001budget will be monitored in October. Benchmarks for public spending on health, education andsocial protection have been set at a level above the averages for the 1998-2000 period, reflectingthe Government's policy decision to ensure adequate expenditure on social priorities.

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Turkey: Social Expenditures (1998-2001)

TL billion 1998 1999 2000 3/ 2001 1/Education Expenditures 2,185,156 3,608,721 5,017,843 7,736,875Health Expenditures 1,479,673 2,567,369 4,359,145 6,379,445

of which health expenditures by SSIs 728,343 1,408,963 2,473,000 3,849,000

Social Protection 3,338,299 5,916,192 8,493,000 13,774,000a. Social Security Institutions (non-health) 3,254,299 5,660,192 8,123,000 12,849,000b. SYDTF 84,000 256,000 370,000 425,000/2c. Direct Income Support - - - 500,000

Total Social Expenditures 7,003,128 12,092,282 17,869,988 27,890,320

in % of GNP 1998 1999 2000 Average 2001 2/1998-00

Education Expenditures 3.73 4.61 3.98 4.11 4.24Health Expenditures 2.53 3.28 3.46 3.09 3.50of which health expenditures by SSIs 1.24 1.80 1.96 2.11Social Protection 5.70 7.56 6.74 6.67 7.55

a. Social Security Institutions (non-health) 5.56 7.23 6.45 7.04b. Social Solidarity Fund 0.14 0.33 0.29 0.23c. Direct Income Support - - - 0.27

Total Social Expenditures 11.97 15.45 14.19 15.29Source: Treasury, MEB, SB, DPT and World Bank.

1/ Supplementary budget allocations for 2001.2/ Increased further to TL 550,000 billion due to the SRMP Adjustment Portion (Rapid Response).3/ Data for 2000 are estimates.

Strengthening the social safety-net.

Social Insurance. The Government is working to improve the social safety-net, andespecially to reform the social security system. The reforms are necessary because the system isinsolvent and the level of benefits is not sustainable. The first phase of social security reformconsists of modifications to the public pay-as-you-go pension system to stem operating losses,including raising the retirement age for new entrants. The second phase of the social securityreform strategy, planned for 2001, focuses on strengthening the organizational underpinnings ofthe system, extending its coverage, separating the pension system from associated healthinsurance and unemployment schemes, and eliminating accumulated arrears. The third phase is tointroduce a framework for supplementary individual pension schemes. These reforms will bringforward a more targeted and sustainable social security system for old-age, but will only insureagainst one kind of risk - that of inadequate savings in old-age.

The existing severance payment system which covers both public and private enterprisescontinues to operate and is being strengthened by the Bank-financed PSSP. The unemploymentinsurance program, introduced as part of the reform of the public pension system in August 1999,will begin to make payments to the enrolled unemployed in early 2002 and thus is not addressedby the SRMP. The Government is moving quickly to expand targeted social assistance to those

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groups most affected by the crisis. This support will include programs to protect vulnerablefamilies (such as assistance with food, medicine and social services) supported directly by theSRMP.

Limitations of Social Insurance. Social insurance (pensions and disability) are tied to anindividual having a job in the formal sector. With the exception of the Bag-Kur social insuranceplan for the self-employed, the whole social security system is linked to holding a formal job(including the newly-introduced unemployment insurance). Such a system runs the distinct risk ofexcluding those without a connection to the formal labor market. In the 1994 Living StandardsAssessment, it was demonstrated that households headed by seasonal or casual workers (workerswithout a labor contract) were at high risk of poverty and economic vulnerability, and thatapproximately one out of four workers in Turkey are casual employees. Turkey's socialprotection system lacks a benefit that would be targeted to these vulnerable groups.

A comprehensive social safety-net helps to insure against the risks of unemployment andpoverty. Unfortunately, there are several large gaps in the social safety-net in Turkey. Turkeyhas only recently adopted unemployment benefits, but due to the period of required contributions,people will not be able to draw unemployment benefits until 2002. So, those who become joblessas a result of the economic crisis or reforms will not have unemployment insurance to supportthem while they search for other jobs. Social assistance is not comprehensive in Turkey but ratherad hoc, patchy, limited and underfunded.

Turkey's existing Social Assistance is quite limited. Turkey does not have a povertybenefit--a cash transfer that is targeted to the vulnerable--which could be used to help thosenegatively affected by the reform. Social assistance in Turkey is limited to ad hoc assistance inkind channeled through the 931 SYDVs, and limited programs for the elderly and disabled underLaw 2022, as well as institutional care for children and the elderly administered by SHCEK.Turkey has no other cash transfers that could help the vulnerable, unlike many neighboringcountries of Western and Eastern Europe, which have universal child allowances. The 1994Living Standards Assessment for Turkey found that the presence of children in a household doesincrease the risk of poverty substantially. Children under 10 years old have the highest povertyrisk among all age groups. CCT would fill this gap by providing an incentive to poor parents tokeep their children in school and for pre-school children to be regularly taken to health clinics, aswell as providing limited income support to the poorest households.

Using the Social Safety-net to Protect Human Capital

Turkey's social indicators do not compare favorably with other middle income countries(see Selected Social Indicators - Country Comparison below). In particular, infant and maternalmortality in Turkey is quite high for a middle-income country and female literacy is noticeablylower than the comparator countries (except for Tunisia). Life expectancy at birth is equal toTunisia and lower than the other countries. These facts point out the importance of interventionsin health and education, especially education of women. The Bank has been working inpartnership with Turkey on the supply side of these interventions, with several projects ineducation (including basic education) and health. However, to date, there have been limited

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efforts on the demand side, mostly in the form of public information campaigns, which have nothad much effect on these social indicators. The SRMP will help to fill this gap on the demandside by creating an incentive for poor households to keep their children in school and monitoredby the health system--the conditional cash transfers. CCT are an important tool in the country'sarsenal for improving these social indicators, since better education (particularly femaleeducation) has been linked to improved health indicators for mothers and children and higherhousehold income.

Selected Social Indicators - Country ComparisonIndicator Chile Colombia Mexico Poland Hungary Malaysia Tunisia EU

Population Growth () 1.6 2.0 2.0 0.2 -0.3 2.8 2.0 N.ALife Expectancy at Birth 75.0 70.0 72.5 72.5 71 72.5 69.5 77.4

Maternal Mortality 65 100 110 19 30 34 170 N.A

( of adultpo ulation 95 91 90 100 99 86 67 100Female Literacy Rate 95 91 88 100 99 81 56 100GNP per Capita (US$) . X 4,810 2,600 3,970 3,900 4,510 3,600 2,050 N.A

1/1998 data2/1999Sources: World Development Indicators, 2000; WHO World Health Report 1999; Turkey Demographic and Health Survey, 1998(Hacettepe Universit Institute of Population Studies); Turke Human DevelopmentReport, 1997 UNDP

Government Actions

The Government of Turkey has undertaken several key actions to strengthen the institutional basisfor the SRMP and to prepare to implement the SRMP. These actions have been completed inadvance of the Board presentation of the SRMP, in accordance with the negotiated commitmentof the Govermment as follows:

* Transfer of TL40 million by Treasury to SYDTF for the procurement of school attendancepackages

* Letter of Sector Policy (LSP) signed.* Project Operational Manual (POM) approved by Government.* Draft legislation submitted to Parliament strengthening the SYDTF and organizational

structure and SYDV reporting practices, and enabling the SYDTF and SYDVs to work moreeffectively with NGOs.

* SYDTF issued circular (on the SRMP) to the SYDVs and signed a Participating AgencyAgreement for the investment portion with SHCEK and DIE.

* Implementation Agreement for the adjustment portion signed by the Treasury and CBT.

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3. Sector issues to be addressed by the project and strategic choices:

Poverty Reduction. The SRMP seeks to alleviate poverty in two ways--combatting thetransient deterioration of living standards resulting from the crisis for the most vulnerable groups(the "safety-net") and expanding opportunities for the poor to escape from poverty (the"trampoline"). The World Bank's Living Standards Assessment (2000 - based upon 1994 data)found that absolute food poverty in Turkey was relatively low at less than 6 percent of thepopulation. The absolute poor are the target group for the quick-disbursing and CCTcomponents of the SRMP. However, the Living Standards Assessment found that about 36percent of the population were economically vulnerable. This is the target group for the localinitiatives component, which seeks to lift people out of poverty through income-generatingactivities,adult literacy, and youth employment.

Poverty Monitoring. Turkey lacks reliable household data on the impact of the Februaryfinancial crisis. The DIE cancelled the 2001 household income and expenditure survey formethodological reasons and the previous survey was conducted in 1994. To fill this critical gap inknowledge, the World Bank is co-financing a household survey partly from its operational budget,with the remainder of the support from the Government of Japan (PHRD Grant). This householdsurvey is being conducted by local consultants drawing on the Middle East Technical University(ODTU) with technical assistance from the World Bank. The household survey will provide thedata necessary for these key indicators: (i) poverty levels and household consumption; (ii) profileof poverty; (iii) access to health and educational services by the poor and non-poor; (iv) povertycorrelates which will be combined into a scoring formula that will be used in SRMP components;(v) extensive information on health indicators; and (vi) limited inforrnation on labor andunemployment (DIE has a regular program of labor force surveys).

Additionally, the institutional strengthening component of the SRMP provides forfinancing of two additional household surveys over the next four years with interviews and dataen,try conducted by consultants to the State Institute of Statistics (DIE). Finally, a rigorousimpact evaluation of the conditional cash transfers (CCT) component of the SRMP will beconducted, including a baseline and follow-up survey. Targeting criteria for the CCT and LocalInitiatives component will be updated to take into account these new sources of statisticalinformation and to ensure that as the poverty profile changes, the targeting criteria will beadjusted.

Social Policies. Stronger social policies are a linchpin of the program to help deal withsocial hardships. It is important for social cohesion that the Government moves towardsaddressing the impact of the February financial crisis on the most vulnerable. The SRMP providesa multi-faceted vehicle for the Government to address the crisis both quickly, through the RapidResponse component, and more lastingly, by building strong social assistance institutions and byexpanding the range of available interventions to encompass CCT and increased local initiativesincluding income-generating activities and adult literacy through the other components of theSRMP.

Social Services. In 2001, spending on imnrmunization/vaccination programs will beincreased in real terms within the overall budget ceiling. The Governrment intends to protect

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public expenditure on education, as well as increase the public health budget while reducing wastewithin the overall health budget. Moving beyond 2001, the Government sees the need to developsocial services for vulnerable and at-risk population groups including abandoned children/orphans,unemployed youth, illiterate adults, disabled, abused woman, and the elderly. SHCEK will takethe lead role in these areas. The SRMP will strengthen such social services through the LocalInitiatives component, and also increasing the poor's utilization of basic health and education onservices through the CCT.

Danger of Disinvestment in Human Capital. Preliminary indications from theforthcoming Social Assessment and task team field visits confirm that there is a looming danger ofdisinvestment in the human capital of children in poor households as a result of the financial crisis.CCT are an important tool to combat this danger, by giving parents an incentive to keep theirchildren in school and attended regularly at health clinics by covering part of the out-of-pocketcosts incurred.

Strategic Choices

a. Unified operation or separate operations. The SRMP is designed as an integratedoperation, combining four strongly inter-related components instead of having four separateoperations, namely focusing on: (i) adjustment (Rapid Response); (ii) technical assistance (TA)(Institutional Development component); (iii) CCT operation; and (iv) a social fund (LocalInitiatives component). There were two major considerations for making the SRMP into anintegrated operation. One concern was timing and logistics. The Government wants to move asrapidly as possible to mitigate the effects of the financial crisis and to take the opportunity at thesame time to strengthen the social safety-net. Trying to prepare four separate operationssimultaneously would have overtaxed both the Government and the Bank task teams. A secondmost important issue was the concern that the Rapid Response component (including itsconditionality) not be divorced from the overall strengthening of the social safety-net which isnecessary so that Turkey will be better able to cope with possible economic downturns in thefuture.

b. Use of an existing institution or building a new institution. When designing theSRMP, various alternatives for the institutional placement of the SRMP were considered. Thebasic choice was between working with an existing institution, the SYDTF, or creating an entirelynew institution such as a extra-governmental social fund. There are strong arguments againstcreating a completely new institution: time, ownership, and past track record. It takes significanttime and effort to build a new government agency, and the SRMP was prepared in a very tighttime frame. Next, ownership is best created by working with existing agencies. Third, theSYDTF has a strong track record both in micro-projects and social assistance provision across thecountry, and with cash payments in the Marmara earthquake region.

c. Supply-side interventions. Given the need to maintain the poor's access to health andeducation services in the aftermath of the February financial crisis, supply-side interventions suchas increasing places in school or staffing at health clinics were considered. However, Turkey hasseveral Bank-financed projects in both health and education that are working on reducing

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supply-side constraints. Expanding these supply-side efforts would probably not increaseutilization by the poor enough, since the poor face constraints on their income which affects theirdemand for and ability to use social services. What Turkey lacks is an incentive to the poor sothat they will use the available services. This demand-side incentive is provided in the SRMP'sCCT component.

d. Workfare (temporary community employment). Given that Turkey lacks a povertyor welfare benefit, a basic choice was between protecting the human capital of the poor byconditional cash transfers or creating a large-scale workfare program, whereby able-bodied adultsare employed in temporary public works at low wages. The SRMP does provide scope forworkfare/temporary community employment initiatives under the Local Initiatives component andthe Turkish government appreciates this window for increasing local temporary communityemployment efforts. However, a full-scale workfare program instead of the SRMP was notviewed as practical or as responding as directly to the impact of the crisis on children. The ruralareas are also highly vulnerable to the effects of the crisis, but it would be quite difficult to runpublic works programs outside of the urban areas. Additionally, the Turkish experience with localpublic works programs through the SYDVs suggest that it would be quite difficult to scale upprograms significantly. It would be difficult to target workfare well in terms of keeping the wageoffered low enough, since Turkish law mandates the payment of the minimum wage and socialtaxes but actually, wages in the informal sector are much lower than the minimum wage. It wouldrequire legislative action to offer a workfare wage lower than the minimum wage which might bequite difficult to achieve from a political economy perspective. Existing temporary communityemployment programs (as in the earthquake zone) have built up the expectations of beneficiarieswho have been extremely frustrated when the temporary employment has ended, and havedemanded ongoing employment creating a political economy problem. Finally, workfare does notreach the poorest of the poor, who are not able-bodied or work-able. For these reasons, it wasconsidered best to keep workfare (temporary community employment) as an option in the SRMPthrough the Local Initiatives component, but not to press forward for a large-scale workfareprogram at the present time.

e. Targeting. The SRMP uses two different kinds of targeting for delivering its twomajor assistance components--the existing community-based targeting mechanism of the SYDVfor the adjustment portion (Rapid Response) and a new targeting mechanism, a proxy-means testscoring formula for CCT and Local Initiatives. For the adjustment portion, it was not possible touse geographical targeting because the affected population is distributed across the country, and isnot exclusively rural (such as in Mexico where geographical targeting to rural areas is used). InTurkey, even the best-off areas such as Istanbul have large pockets of poverty in urban slumcommunities (gecekondu). For the CCT and Local Initiatives, a proxy-means test scoring fornulawas adopted that would give adequate weight to location as part of the score. However, for theCCT, both Government and SRMP loan resources are limited, and it would not be possible toprovide CCT to all the rural population. Some way to discriminate between the extreme poor andnot-so-extremely poor is required such as afforded by a scoring formula. The team was able towork with the 1994 data to develop a scoring formula, and as part of this operation, a householdsurvey of 4,000 households is being fielded to generate the data necessary to assess poverty inTurkey and to devise a more current scoring formula. The same scoring formula with a different

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eligibility level will be used as part of the selection criteria for individuals applying for LocalInitiatives micro-grants.

C. Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

The SRMP as a hybrid loan has an adjustment portion (Rapid Response) and aninvestment portion, with three strongly complementary components:

* Adjustment Portion - Rapid Response (US$ 100.0 million, of which the Bank Loanis equal to US$100.0 million): The adjustment portion of the SRMP will providequick-disbursing budget support against the Bank's standard negative list. The TLequivalent funds will be used to support key programs of the SYDTF targeted to thepoorest households in a single disbursement, inter alia: (i) school attendance packs(uniforms, shoes, stationery, textbooks ); (ii) pharmaceuticals and medical supplies thepoor people who are not able to pay for health expenses; and (iii) expansion of existingsocial assistance programs (including family food and heating support) to meet theincreased real needs generated by the crisis. The Government has signed a Letter ofSector Policy (LSP - Annex 11) on August 15, 2001 on social risk mitigation, socialassistance and poverty reduction. Conditions for the Tranche Release of theadjustment portion of the Loan would be: (i) satisfactory macroeconomicframework, as measured on the basis of indicators agreed between the Bank and theGovernment of Turkey; and (ii) satisfactory progress in the carrying out of theprogram as defined in the LSP. Treasury has already transferred an amount of TL40 million to the SYDTF for the procurement of school attendance packages for poorchildren which need to be distributed by the beginning of the school year onSeptember 11, 2001.

* Institutional Development (US$ 36.61 million, of which Bank US$ 30.48 million):The SRMP would strengthen the institutional capacity of key government agencies toimprove the coverage and targeting of the social safety-net for the poor. Keyelements include strengthening: (i) policy research, monitoring and evaluation (M&E)capacities; (ii) MIS & Information Technology (IT) development; (iii) staffdevelopment and training; and (iv) public information campaigns for both SHCEK andthe SYDTF/SYDVs. The capacity of DIE to monitor poverty through more frequentHIES will be developed and to undertake poverty mapping based upon the Census.This component will also support the Project Coordination Unit (PCU) within theSYDTF, which will oversee the implementation of the SRMP, including the financingof all the Financial Management System (FMS), per-audit, documentary reviews andoperational reviews, M&E studies, and beneficiary assessments. This would includethe provision of TA, training, computer and other equipment for the MIS to theSYDTF, SYDVs, SHCEK and the DIE.

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* Conditional Cash Transfers - CCT ( US$ 360.00 million, of which Bank US$ 260.0million): The SRMP would finance the introduction through the SYDTF/SYDVs ofan expanded social safety-net targeted to the poorest 6 percent of families linked tocertain positive behavioral changes such as keeping children in school and ensuringchildren receive adequate immunization coverage in a timely manner, basic health careand nutrition (including resolving micro-nutrient deficiencies). This would require theintroduction of an improved and systematic targeting system using "points" forhousehold characteristics linked to poverty. The loan would finance education grants(paid twice in a school term or four times during the 9 month academic year) andhealth/nutrition grants (paid quarterly) to the mothers (or other eligible recipients) ofchildren who are eligible in accordance with criteria set forth in the Project OperationsManual (POM). Government presentation to the Bank of a POM, satisfactory tothe Bank has been completed. All subsequent changes to the POM must be agreedwith the Bank, and all procedures and conditions set forth in the POM must befollowed during project implementation. The CCT is a highly targeted socialassistance transfer to families with children, requiring positive family behavioralchange with respect to health and education.

= Local Initiatives (US$ 133.85 million, of which Bank US$ 104.53 million): TheSRMP would strengthen and finance key programs of the SYDTF/SYDVs asproposed by provinces, districts, and local community demand, designed to provideenhanced sustainable employment opportunities for the poor, thereby reducingpoverty. Such programs are: (i) income-generating sub-projects (which will receiveimproved technical assessment and M&E under the SRMP); (ii) employability training(including adult literacy - especially for women-through mass media such as TV, localradio and local newspapers), technical and life skills training for unemployed youth -including how to get a job, start a small business); (iii) temporary communityemployment which will support workfare activities linked to the rehabilitation of localinfrastructure and community assets; and (iv) expansion of cost-effective socialservices for children, youth, disabled and the elderly (including through SHCEK andNGOs).

Adjustment - Rapid Response 100.00 15.7 100.00 20.01. Institutional Development 36.61 5.8 30.48 6.1II. CCT 360.00 56.7 260.00 52.0III. Local Initiatives 133.85 21.1 104.52 20.9

Total Project Costs 630.46 99.2 495.00 99.0Front-end fee 5.00 0.8 5.00 1.0

Total Financing Required 635.46 100.0 500.00 100.0

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The SRMP structure is summarized in the table below:

Social Risk Mitigation Project,

Component I Component It ComponePnt III Component IVRapid Response Institutional CCT Local

(Adjustment Developme nt I nitiativesComponent)

School SYDTF Application of IncomeAttendance & SHCEK DIE Targeting Generating

i Support SYDTVs - Mechanism 1 Sub-projecs

Health -_ _ _ _ Education Employability_ Support . r ; . Research & Benefits Training

MIS & IT MIS & IT PovertyMonitoring

Incremental - - - Health SocialSocial Research Research Staff Benefits Services

Assistance Monitoring & Monitoring & Development . Development___ _ __--- Evaluation Evaluation and Training -- __

| Staff . Staff PublicDevelopment; Development Information

Land Training and Training

Public PublicInformation Information

2. Key policy and institutional reforms supported by the project:

A number of key policy reforms are being sought:

(i) Establishment of an affordable safety-net which reinforces positive health andeducation behaviors.

CCT are transfers which are conditioned on recipient behavior for continued receipt. Thebehaviors required are school attendance for school-age children and well baby/health clinic visitsfor children below school age. The idea behind CCT is that the poor are often forced to pull theirchildren out of school to work or look after younger siblings when the household is faced with aneconomic crisis. This is clearly a looming danger for Turkey, based on the team's findings fromfieldwork and the Social Assessment. Withdrawing children from school often leads to apermanent reduction in the human capital of the children who do not typically return to schoolafter the crisis, and a perpetuation of the cycle of poverty across generations.

CCT will provide an incentive to the poor to: (i) keep their children in school and work onthe demand side of education by covering the out-of-pocket expenses (school books, uniforms,stationary and textbooks) that often preclude the poor from sending their children to school; and(ii) obtain adequate pre-natal care, basic health and nutrition services (including immunization,growth monitoring and resolving micro-nutrient deficiencies). CCT will be targeted to the poorby proxy means tests. In Turkey, a large informal sector means that income-testing would be tooexpensive and difficult, so a scoring formula based on a proxy means test will be used.

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CCT are an important mechanism to protecting and developing the human capital of thevulnerable. CCT are an important tool in the battle against the inter-generational transfer ofpoverty, since children who fail to complete basic education today become the poor of tomorrow.The CCT would need to be carefully monitored and evaluated to determine whether it is achievingits objectives and determine the duration of the program. A full review of the CCT would beundertaken with the Bank on December 31, 2003, as part of the mid-term review of theSRMP, and follow-up actions agreed with the Bank. The operation of the CCT will also bereviewed as part of the Annual Program review discussed below.

The level of the benefits for the Rapid Response component will be deternined by theSYDTF and SYDVs, based on their standard parameters for this type of in-kind social assistancealready in place. For the CCT component, there is a difference between the benefit for educationand that for health. Health benefits will be US $6 per child, paid quarterly, for a total of US$ 72per year. For education, a sliding scale will be used for each subsequent child, beginning at US $8per child and decreasing monotonically with each subsequent child. Education benefits will bepaid twice per term or 4 times during the 9 month academic year, totalling US$ 72 per child forthe first child in each family. These amounts are comparable to the benefits paid in CCTprograms in Latin America, and also corresponds to a significant share (but less than 100 percent)of out-of-pocket expenditures.

(ii) Improved targeting of social assistance to increase efficiency of public resourcesuse.

Virtually all of the SYDV in Turkey identify the needy and select them for assistance bythe deliberations of a local committee, which is headed by the Kaymakam at the District level andby the Governor or Vice-Governor at the Provincial level. While local officials may have accessto local knowledge about the applicants, they lack training in social work and social assessment,and their decisions are vulnerable to accusations of favoritism, even if none occurred.

Many countries have found the use of a scoring formula to lead to outcomes that are moreequitable and efficient than the decisions of local committees. Turkey has experience with scoringformulas--in Van province, the SYDV uses a scoring formula developed by the local SHCEKDirectors, and the SYDTF uses a scoring formula for the allocation of scholarships. Turkey willuse reliable household data from a socio-econo.nic survey to develop a national scoring formula.A major advantage of a scoring formula is that it can be used to rank households according totheir level of poverty, and different social assistance programs can use different cut-off points foreligibility. This would make it possible to target CCT and other food and social assistance to themost needy, while targeting other programs such as income generation and training to thosevulnerable, but not as destitute. In this way, scarce public sector resources for social assistancewill make the maximum impact on poverty reduction.

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(iii) Strengthening the institutional framework for social risk mitigation,management and prevention.

The existing SYDTF, SYDVs, and SHCEK will be strengthened under the SRMP toperform their increased and modemized role to strengthen the social safety-net linked to thedevelopment of the market economy--including enhanced technical staff skills, improved financialmanagement & auditing, MIS, M&E and linkages with civic society. This is predicated upon animproved organizational framework law for the SYDTF and SYDVs. The Government hassubmitted to Parliament legislation, satisfactory to the Bank, strengthening the SYDTF andSYDV structures to perform their long-term social risk mitigation, management andprevention role and enabling them to work with and contract NGOs more easily. Enactmentof this law is a condition of disbursement for the CCT and Local Initiatives components. Theinstitutional strengthening of the SYDTF and SYDVs will include the implementation of the keyagreed recommendations of the operational review undertaken by consultants in the context of theEmergency Earthquake Recovery Loan (EERL), inter alia, requiring formal financial reportingarrangements of the SYDVs to the STDTF, and the development and implementation of anintegrated MIS. The SRMP will finance the high priority investment needs of these institutionsthrough the Institutional Development component. The Government and the Bank will reviewannually, by November 30 each year, commencing 2001, progress in social protection policyand reforms and the adequacy of the budgetary allocations for such purposes (AnnualProgram), making recommendations to further enhance the SRMP program to strengthensocial risk mitigation, management and prevention, based upon a report to be received by theBank from the Government by October 30 each year during project implementation.Following such review, the Government will formally adopt the agreed Annual Program byJanuary 31.

(iv) Promotion of employability of the poor.

It would be both inappropriate and unaffordable to rely on a passive social assistancesystem. The CCT system must be supplemented by an active program aimed at helping toimprove the employability of the poor (basic skills related to market demands, literacy, numeracy,interviewing and job-search skills, coping-with-life-skills). The very limited temporary communityemployment activities undertaken by the SYDVs will be expanded to provide an employmentsafety-net to the able-bodied poor in areas where this can be organized. Additional support forstarting small-businesses and other income generating activities for the poor will be provided.Local temporary community employment programs will be supported. All these activities need tobe relevant to the market demands and of high technical quality and thus the Government willwork ever more closely with the private sector, especially chambers of commerce and industryand NGOs at the local level. These activities will be supported under the Local Initiativescomponent of the SRMP.

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(v) Adequate poverty monitoring and dissemination as the basis for policyestablishment.

Poverty policy design, M&E, has been handicapped by the lack of an adequate HIES (thelast having been undertaken in 1994, and that for 2001 having been cancelled in light of prevailedmacro economic circumstances and technical reasons). The Government will field twohousehold surveys during the SRMP, financed by the SRMP and the Government.

Turkey adopted the European Union Acquis in a legal declaration signed by the Councilof Ministers and the President of Turkey on March 19, 2001. The Official Gazette published(March 24, 2001) the 500-page National Program for the Adoption of the Acquis, of which 49pages pertain to the Acquis on statistical information. The Government confirmed that thisPresidential action has the force of law in Turkey and establishes a clear and unequivocal basis forfuture actions for statistics. The EU Acquis on statistics provides for open data access. TheGoverniment affirms that this Presidential Action is sufficient to establish the principles of opendata access in Turkey and thus has satisfied the Bank requirements under the SRMP. Support forthe continued quantitative monitoring and evaluation of poverty in Turkey through regular rapidsurveys will be provided through the Institutional Development component of the SRMP.

(vi) Civic society involvement and empowerment of the poor.

Increasingly, governments are realizing that the most effective approach to social policyand economic reform is to build partnerships with civic society, including key stakeholders such asNGOs, community-based organizations (CBOs), trade unions, and local officials. These actionswill over time give a stronger voice to the poor and thereby empower them more. There was anoutpouring of support for earthquake victims from NGOs, CBOs, civil society, and even privateindividuals. NGOs are active in providing social assistance to the needy, and in child welfareactivities but often in a sporadic uncoordinated manner with the responsible state agency. TheCiovernment is in the process of adopting draft legislation, which will then be submitted toParliament, to enable the SYDTF and SYDVs to work more effectively among themselves andwith the Government, and will encourage NGOs in their endeavors to grow and become moreprofessional. The Government has submitted to Parliament draft legislation, satisfactory tothe Bank, enabling the SYDTF and SYD V structures to work with and contract NGOs moreeasily. Enactment of this law is a condition of disbursement for the CCT and Local Initiativescomponents. Civic society will be actively involved in the Local Initiatives component of theSRMP as service providers; as members cf the Executive Committee; and civic societyrepresentatives will sit on the SRMP Advisory Committee.

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3. Benefits and target population:

The SRMP has several different target groups for the differing components of theoperation. For the adjustment portion, the target group consists of the poorest of the poor whohave already been identified by local community committees of the SDYTV, following the logicthat the poorest of the poor are the most vulnerable to the effects of crisis. A second target groupare children in those households with expenditures under the absolute food poverty line--some sixto eight percent of the population. The CCT component will be focussed on this group and thebeneficiaries will be identified by a proxy-means test scoring formula developed from householddata. The third target group is the economically vulnerable--according to the Living StandardsAssessment, the consumption of approximately 36 percent of the Turkish population is lowenough such that this population is at significant risk to slide into absolute poverty. This group isthe target group for the Local Initiatives component, since the income-generating activities arenot suitable for the poorest of the poor (who may not have the basic skills to develop smallincome-generating activities), but are highly relevant to those employed casually in the informalsector, for enhancing their income-generating potential.

Groups will be identified by different mechanisms. In the case of the target group for theadjustmnent portion, the targeting mechanism will be the existing SYDV local committees whichdecide eligibility on a case-by-case basis. For the CCT and Local Initiatives components, thetarget group will be identified by using the proxy-means test scoring formula, but the eligibilitycut-offs will be different for the different groups. More stringent criteria (a lower score) will beused to differentiate the absolute poor (for the CCT component), while the economicallyvulnerable will qualify under criteria which are still related to poverty, but not as stringent as theabsolute poor (for the Local Initiatives component).

4. Institutional and implementation arrangements:

The SRMP would be managed by the SYDTF, which has created a small PCU withsatisfactory staff to perform the following functions: project management, procurement, financialmanagement & disbursement, MIS, monitoring and evaluation (M&E). Participating AgencyAgreements, satisfactory to the Bank, have been signed by the SYDTF, SHCEK and DIEprior to Board outlining the commitments of all parties to implement the SRMP effectively.For the adjustment portion, an Implementation Agreement between the Treasury and MBhas been signed. In the case of the SYDVs, their participation in the SRMP are governedon the basis of circulars (accepted as satisfactory to the Bank) issued by the SYDTF whichare legally binding and obligate the SYDVs to implement the SRMP in accordance with thePOM and the Loan Agreement.

Advisory Committee: The Advisory Committee, chaired by the Minister of Stateresponsible for the SYDTF will include members who are representatives from the ParticipatingAgencies and related institutions, and civic society. The committee will be responsible forproviding the SYDTF guidance and recommendations regularly. The Advisory Committee shall beresponsible for periodically assessing the overall Project implementation and problems, based oninformation provided by the PCU and other sources, and shall provide the SYDTF writtenrecommendations and advice regarding future Project activities.

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The Executive Committee for the Local Initiatives project would be comprised of theProject Coordinator for the SRMP, the Secretary General of the SYDTF, the M&E specialists, amember of SHCEK, and members of at least three national NGOs. The Executive Committeeshall be responsible for evaluating proposals for Sub-projects and Performance Grants, andmaking recommendations to the SYDTF, and for reviewing and reporting to the SYDTF thestatus of Sub-projects and Performance Grants under implementation.

The PCU, physically located within the SYDTF, will be in charge of project management,administration and concrete implementation, functioning as service-provider to the variousimplementing agencies. The PCU will work as a specialized organizational unit of the SYDTF,staffed with staff from the Fund (counterpart members) and local consultants for the activitieswhere the SYDTF lacks, at present, experience: both fiduciary (disbursement, procurement,project accounting and reporting) and pertinent to SYDTF's core functions (for instancetargeting, M&E and public information). The SYDTF will furnish through the PCU!: (i)Quarterly PMRs commencing on January 31, 2002; and (ii) will hold a mid-term projectreview with Bank by December 31, 2003, based upon a report received by November 30, 2003

The implementation of the SRMP will be in accordance with the POM which is currentlybeing finalized. The POM hass been approved by the Government and submitted to the BankThe POM can be modified only in agreement with the Bank

The PCU team will involve representatives from the SHCEK and the DIE (to easecommunication and facilitate coordination between the SYDTF and the two agencies) and willcomprise a procurement person, an accountant, a disbursement person, an information technologyexpert, a monitoring and evaluation expert, a reporting and communication expert, and twosupport staff. All PCU team members have already been appointed with TORs and CVsacceptable to the Bank. Job descriptions for the local consultants (Procurement Specialist, FMSSpecialist, MIS Specialist, IT Advisor, and Communication Specialist), to be hired for the life ofthe project and who will be preferably experienced in Bank-financed projects, were reviewed andapproved by the Bank. These consultants would be hired within the next two months. It isexpected that the SYDTF will improve its capacity by the support of these qualified professionalindividual consultants and that a financial management system satisfactory to the Bank will bemaintained and strengthened by the Fund throughout project implementation.

All fiduciary functions (disbursement, procurement, accounting and reporting) will becentralized at the PCU level. To that extent, the PCU must be provided appropriate resourcesand appropriate training in project management and administration for the PCU members. TheS YDTF has managed efficiently and effectively the emergency response to the August 1999earthquake, proving itself as the most suitable vehicle to administer assistance transfers in a fastand sufficiently controlled way. However, it has not performed project management andadministration functions for which, at present, there is no capacity in place. The SYDTF writtenpolicies and procedures will be reinforced through the circulars, satisfactory to the Bank, whichwill govem SRMP implementation.

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D. Project Rationale

1. Project alternatives considered and reasons for rejection:

Various lending instruments were considered to support the Government program andobjectives before the hybrid option was finally adopted

* SIL: Although a SIL would provide the necessary investment resources, it would notbe able to respond to the crisis needs in a timely manner.

* TA Loan: TA needs only form a small part of the overall financing requirements andthus such an approach was not found to be relevant.

* Adjustment Loan: An adjustment loan would be appropriate for both the quickresponse and legal framework improvement requirements. However, such anapproach would not address the key institution-building and investment requirementsof the SRMP. Having separate adjustment and investment loans would be an option,but the risk of the two elements losing coherence was considered high. An integratedapproach of a combined adjustment component as a rapid response to the crisiscombined with the longer-term institution-building and investment components wasthus adopted. A hybrid loan was chosen, despite the increased complexity in loanprocessing.

2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).

Latest SupervisionSector Issue Project (PSR) Ratings

(Bank-financed projects only)Implementation Development

Bank-financed Progress (IP) Objective (DO)

Poverty Reduction/Social Assistance Marmara Earthquake S SEmergency Recovery.Privatization Social Support U SProject.

Public Sector Management/Govemance Public Financial Management. S SEmergency Earthquake S SRecovery.Economic Reform. S SPublic Expenditure andInstitutional Review(Non-lending).Anti-corruption TA(Non-lending).

Programmatic Financial andPublic Sector Adjustment..

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Education/Employment Employment and Training(completed).Basic Education 1. U HS

Health Health I (completed).Primary Health Care Services(completed).Health Il. S S

Other development agenciesEducation/Employment EU - Modernization of

Vocational Training.EU - Support to BasicEducation Reform.UNICEF - Early ChildhoodDevelopment and EducationProject.

Health EU - Program of ReproductiveHealth in Turkey.UNICEF - Mother and ChildHealth and Nutrition.UNICEF - Adolescent Healthand Development.

NGO/Civic Participation UNDP - Local Agenda 21.UNICEF - Local CapacityBuilding and Area-BasedManagement.UNDP - Govemance Programin Turkey.UNDP - Gender Program.

Social Assistance UNICEF - Children in Need ofSpecial Protection Project.

Community Development UNDP - Southeast Anatolia(GAP) SustainableDevelopment Program.

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in the project design:

The SRMP draws extensively upon the experience obtained through the implementation ofthe Bank's Turkish portfolio (Turkey). The design has been based upon the lessons learnt andexperience gained from and other projects in Turkey, as well as social protection projects morewidely (global). It is totally consistent with the ECA and Bank-wide Social Protection Strategy(strategy). The main lessons leamt (with source in parentheses) incorporated into the SRMP aresummarized below:

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* Comprehensive social mitigation approach: There are great synergies to be obtained bylinking social protection with the health and education sectors as part of an overall socialmitigation strategy (strategy). The SRMP explicitly links social assistance provision withhealth and education under the CCT, thereby developing important synergies andstrengthening demand for basic health and education services by the poor.

* Policy implementation is as important as design: Even the best policy design can beundone by poor implementation (Turkey, global). The SRMP combines TA for policy design,together with the strengthening of M&E and resources for program implementation in acoherent and integrated manner.

* Strong national ownership: Projects will only be implemented effectively if there is strongnational ownership (Turkey, global). The project components build exactly on the strengthsof the SYDTF, SYDVs, SHCEK and DIE, and have their strongest endorsement. Provincialand District administrations and NGOs are also highly supportive.

* Involve stakeholders: Stakeholders views and inputs must be incorporated constantly intothe project design if it is to respond to the real needs of the proposed beneficiaries (global,Turkey). The project includes a number of beneficiary assessment to monitor stakeholdersinterests and perceptions. Communities will be able to make sub-project proposals under theLocal Initiatives component. All stakeholders are represented on the SRMP AdvisoryCommittee.

* Centrality of M&E: M&E of social protection programs and projects has been inadequate(global, strategy) in many lending operations within social protection globally and in Turkey.Institutionalizing M&E across the entire range of the activities of the SYDTF, SYDVs andSHCEK is central to, and one of the areas of real value-added, of the SRMP for Turkey.

* Coordinated informatics: Informatics systems must be able to communicate with oneanother with a user-friendly interface and should only be introduced after existing manualinformations systems and processes have been streamlined (global, Turkey). Special attentionis being given to ensure that the informatics systems of the SYDTF, SYDVs and SHCEK willall inter-connect effectively, and will have a user-friendly interface.

4. Indications of borrower commitment and ownership:

The borrower has a very high level of ownership of the SRMP as evidenced by: (i)undertakings made in the LSP, including strengthening the legislative basis for the SYDTF; (ii)increased allocation of budgetary funds for 2001 to the SYDTF to mitigate the impact of theFebruary 2001 crisis on the poor (including the already completed transfer of TL 40 trillion to theSYDTF for the purchase of back-to-school packs for the poorest 1.05 million children; (iii)establishment of the PCU for the SRMP including staffing, office space, furniture and equipment;(iv) high level of counterpart funding agreed; and (v) willingness to engage all stakeholders inproject governance through the SRMP Advisory Committee. The LSP commits the Governmentto working towards the passage of key pieces of legislation to strengthen Turkey's socialsafety-net.

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5. Value added of Bank support in this project:

The February 2001 crisis has made the Government more aware both of the need tomitigate the immediate negative impacts on the poor, and also to address long-term issues ofpoverty and social exclusion. The Bank is able to contribute to both of these needs in a majorway. In terms of the rapid response to the crisis, the Bank is able to provide additional financialresources and guidance on the key programs which would help mitigate the negative impacts ofthe crisis on the poor (support to poor families in basic education, health, heating and foodconsumption as well as strengthening the legal framework for the social safety-net). Over thelonger-term, the Bank is: (i) providing guidance on improvements in government structures tohelp the poor (SYDTF, SYDVs, SHCEK and DIE) including a stronger voice for the poorthemselves; (ii) building up the institutional capacity of these same institutions, including theintroduction of regular HIES to monitor poverty; (iii) supporting the introduction of anaffordable, highly targeted social safety-net (the CCT) which will lead to improved health andeducation outcomes for the poor, through both policy advice and finance; and (iv) improving thequality of income generating and employability training activities under the Local Initiativescomponent by bringing in best practice from social funds globally, improving procedures andcriteria, including the essential elements of the Government's economic reform program. TheMost recent poverty profile in Turkey is presented. A summary of the employment,unemployment and under-employment is provided. and increasing their financial resourcesavailable for such sub-projects thereby increasing their impact on the poor.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):(D Cost benefit NPV=US$ million; ERR = % (see Annex 4)O Cost effectivenessE Other (specify)

Annex 4 presents detailed analysis of: (i) the poverty profile in Turkey; and (iii) recenttrends in employment, unemployment and under-employment. An assessment of the allocationformula for the distribution of funds from the SYDTF to the 931 SYDVs was undertaken. Theformula is appropriate, fair, simple and transparent as it distributes funds based on populationweighted by a poverty index developed by the DIE with a further uplift factor of 50 percent forthe Eastern and South-Eastern Anatolian regions.

2. Financial (see Annex 4 and Annex 5):NPV=US$ million; FRR = % (see Annex 4)

The key financial issues being addressed are: (i) the sustainable revenue base for theSYDTF, including the need to avoid the accumulation of arrears in the transfer of revenues fromthe Treasury and maintaining a stable withholding rate by the Treasury on the earmarkedrevenues; and (ii) the FMS for the SYDTF and SYDV to ensure an open, transparent andaccountable management of funds. The first issue is being addressed through the LSP (seeAnnex 11) with commitments from the Treasury to ensure domestic financing to the SYDTF ofTL 550 trillion in 2001. The second issue is being addressed through the Institutional

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Development component which includes developing the FMS and computerized MIS for theSYDTF, SYDVs and SHCEK. A cash-flow statement of the SYDTF for 1999-2001 is includedin Annex 5. The SYDTF has managed to balance expenditures and revenues fairly closely inrecent years.

Fiscal Impact:

The fiscal impact of the Turkish Government's counterpart contributions to the SRMP isminimal. For the US$ 100 million adjustment portion, there is no net fiscal impact since the Bankis financing this component at 100 percent. For the CCT, while counterpart funding is expectedto be forthcoming from the Turkish Government, the amount of net increase in fiscal expendituresis quite low--only US$ 100 million over the life of the project, or less than 0.12 percent of GDP.Overall, the total net increment to Turkish fiscal expenditure over the first 3 years of the projectonly amounts to less than 0.15 percent of GDP. If the Government decides to continue the CCTat the level proposed under the SRMP, this would amount to public expenditures of some 0.17percent of GDP annually from 2005 onwards, but could be increased or reduced according to thepriority given to the CCT.

3. Technical:

A number of key technical issues are being addressed:

• Policy development, M&E - through TA and training under the InstitutionalDevelopment component.

* Staff skills - through in-service training under the Institutional Developmentcomponent.

* Public information - through the design and implementation of improved publicinformation campaigns using appropriate messages, media and languages for thetargeted population groups under the Institutional Development component.

* CCT - through the creation of a highly targeted social safety-net leading to improvedhuman capital behavior by the targeted population groups (i.e. the extreme poor)under the CCT component.

* Income generating sub-projects for the poor - through TA leading to improvedevaluation, supervision and technical inputs under the Local Initiatives component.

* Employability training for the poor - through improved design and implementation,making the training more relevant for the needs of the market economy with theenhanced involvement of the private sector and NGOs under the Local Initiativescomponent.

* Temporary community employment - expending the capacity of SYDVs to managesuch programs in a measured and effective manner.

4. Institutional:

The SRMP requires the active participation of a variety of central govermment agencies(SYDTF, SHCEK, DIE, MEB, and SB) together with the 931 SYDVs and the respective districtadministrations headed by the Kaymakam. NGOs and the private sector will play an increasinglyimportant role in the Local Initiatives component. They will participate as members of the

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Advisory Committee of the SRMP and as members of the Executive Committee of the LocalInitiatives Component. This would ensure the effective implementation of the SRMP, throughmeaningful representation of all key stakeholders and participants. Detailed institutional analysisof the key agencies (SYDTF, the SYDVs and SHCEK) is provided in Annex 13.

The SYDTF is an extra-budgetary fund established by Law No. 3294 dated May 29, 1986.The SYDTF is administered by a Committee comprising Under-secretary of the Prime Ministry,Under-secretary of Ministry of Interior, Undersecretary of SB, the General Directorate ofFoundations and the General Director of the SHCEK, under the chairmanship of a State Ministerappointed by the Prime Minister. All of the decisions made at the Committee meetings enter intoeffect after approval and ratification by the Prime Minister. The SYDTF does not have its ownadministrative capacity and most of its staff members are seconded and paid from ministries orother agencies. This is being changed

4.1 Executing agencies:

The SYDTF is responsible for the overall implementation of the SRMP and hasestablished an adequately locally staffed PCU. The SYDTF will transfer funds to the 931SYDVs, which will manage and disburse funds under the adjustment portion, CCT and LocalInitiatives components, under the guidance and direct supervision of the SYDTF. The SYDTF,DIE and SHCEK will each implement their respective sub-components of the InstitutionalDevelopment component, with technical support from the PCU.

The SYDVs are legal entities established at the provincial/sub-provincial level, managedby their own local Committee, enjoying some delegated decision-making in carrying out theiractivities. For effective coordination and monitoring by the SYDTF on the activities carried outby the SYDVs under the umbrella of the SRMP, the SYDTF will send the SYDVs circulars(satisfactory to the Bank), spelling out respective roles and responsibilities and empowering theSYDTF with authority to implement specific actions in case of less than satisfactory participationor performance by the SYDVs. The introduction of standardized procedures and reportingformats will be needed, which will be one of the outcomes of the establishment of a common,unified financial and management information system (financed under the InstitutionalI)evelopment component of the project). What proved to be an extremely successful responseand spontaneous mobilization under the earthquake emergency needs, under the SRMP will besystematized and documented, in order to become an efficient, sustainable and transparent socialsafety-net and an effective system of social services and assistance.

Given the accelerated project preparation, it is estimated that it would take until the latterpart of 2001 to establish a satisfactory FMS, adequate to support project implementation, willtake (including human resources, software, hardware, policies and procedures). This will bedocumented in the Financial Management Manual (which which be incorporated in the POM)which together with a positive certification by a Bank FMS staff of these arrangements, willbe conditions of disbursement for the CCT and Local Initiatives components.

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4.2 Project management:

The PCU will coordinate the SRMP. Office space has already been made available andequipment and furniture is in the process of being procured (using SYDTF own resources). APCU comprising 10 existing staff of the SYDTF (financed as a Government counterpart) willform the core of the PCU. All these 10 key staff have been appointed with TORs andqualifications satisfactory to the Bank. These staff will be complemented by short-termspecialized consultants on procurement, FMS, MIS and M&E financed under the SRMP. Inaddition, liaison officers will be appointed by both the DIE and SHCEK to ensure coordination oftheir respective sub-components with the SYDTF PCU.

4.3 Procurement issues:

The SYDTF has experience in managing cash payments funded from a Bank loan(the EERL), but has had no experience in traditional Bank procurement. Training, funded underthe loan, will be provided to the PCU procurement staff, complemented by frequent advice andsupport from the Bank's procurement specialists in the Ankara office. The procurement reviewhas been completed and the agreed procurement upgrading action-plan is included in Annex 6.

4.4 Financial management issues:

The PCU has an accountant who will be assisted through hiring a local consultantwith adequate qualifications. The FMS for the SYDTF will be completely upgraded under theInstitutional Development component to enable clear tracking of funds and improved accounting.The FMS review has been completed and is summarized in Annex 6.

The SYDTF is subject to government regulations on accounting (Uniform Code ofAccounts) and record-keeping; however, the Fund is not required to produce financial statements,given its nature of extra-budgetary fund and tax-exemption status. The SYDTF is subject toannual audits by the Prime Ministry Supreme Audit Board.

The SYDTF's existing accounting unit is not prepared and adequately staffed to cope withthe increased workload originated by the project. The existing FMS is inadequate to supportproject accounting/reporting functions (following government accounting classifications andconventions). It is not supported by the needed intemal controls; hence the need (among otherfiduciary areas, where adequate resources and skills are lacking) for the establishment of a PCUthrough which specialized information systems and adequate professional expertise will be madeavailable to the SYDTF.

Given the lack of financial management capacity at the PCU, establishment of basicfinancial management arrangements, satisfactory to the Bank is a Condition of LoanEffectiveness. Disbursement of each investment component of the loan will be subject to anFMS certification of the financial management systems for that particular component and anaction plan for the certification has been prepared and included in Annex 6.

The risks in this operation are considered substantial both from the financial controlperspective and reputational risk perspective. Therefore, beside the standard audit requirements to

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be applied in respect of both the adjustment and the investment parts of the project, a number ofmeasures have been agreed to minimize the risks identified in the various activities. Theseactivities are: (a) documentary reviews in respect of the adjustment portion by a governmentalaudit body; (b) pre-audits of payments under CCT carried out by a governmental audit body ona systematic basis; and (c) an operational review for the whole SRMP carried out at the end ofthe first year of implementation by the Treasury Controller,s with the assistance of anindependent, private sector accounting/consulting firm. The further strengthening of a satisfactoryFMS, and its maintenance over the life of the SRMP, will be monitored by the Bank duringsupervision and throughout project implementation which will be ensured by the availability of aFMS staff in the Bank's Ankara Office.

5. Environmental: Environmnental Category: F (Financial Intermediary Assessment)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analysis.

There are no significant environmental issues. The project is rated as an Fl and therefore,an Environmental Management Plan is not required for the SRMP. However, the socialassessments will include an area assessment for each community/locality eligible for under theLocal Initiatives component. The assessments would include mapping of the district from a socialand environmental perspective. Each sub-project identified by communities as a priority need willbe evaluated and assessed for its environmental impact by consultants recruited by the PCU forthis purpose. The Ministry of Environment has limited regional capacity to monitor compliancewith regulations and therefore the PCU will need to recruit consultants to be able to carry out thistask. TORs are being developed and included in the POM for this purpose. The approach for theTORs and for the monitoring will be used against the criteria described in the operations manualon a case-by-case basis for each sub-project. The SYDVs and the PCU will be responsible forevaluating each subproject proposal for its viability against several different criteria, including anenvironmental viability of the sub-project. This capacity for identifying and supportingenvironmentally sound sub-projects will be strengthened in all of the participating SYDVs andthrough training and technical assistance.

The POM details the mechanisms and institutional arrangements for: environmentalscreening at the time of grant application, environmental evaluation at the time of sub-projectappraisal, and monitoring compliance during sub-project implementation. The POM defines thecases in which no environmental review is needed, and those in which either an environmentalreview, a limited impact assessment or a full impact assessment (financed by the loan) is needed.It would also provide guidance on how to prepare an Environmental Management Plan whenmitigation measures are needed, and identify possible monitoring indicators to be used by theproject implementing unit for M&E. However, subprojects financed under the Local Initiativescomponent are expected to be very small interventions in infrastructure repair with no harmfuilaffects to the environment.

5.2 What are the main features of the EMP and are they adequate?

n/a

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft: n/a

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5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EAreport on the environmental impacts and proposed envirorunent management plan? Describe mechanismsof consultation that were used and which groups were consulted?

n/a

5.5 What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?

n/a

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.

A Social Assessment was undertaken. This included both stakeholders analysis andbeneficiary assessment. The objectives were to: (i) understand the impact of the fiscal crisis ondifferent social groups, mainly the poor and those vulnerable to poverty as a result of the crisis;(ii) evaluate the institutions in charge of service delivery to the poor and their programs; and (iii)provide information on strengthening and improving the services targeted to the poor.

There are a number of key social issues which are specifically of the concem of the socialassessment. They include: (i) gender, (ii) regional disparities, (iii) youth, and (iv) access andexclusion. The social assessment which includes both beneficiary and stakeholders assessmentexplore these social issues in-depth. For example, with respect to gender, the main issues are theaccess of young poor girls to education and the barriers to their equal participation; with respectto regional disparities are the cultural and communication differences which may effect access andresult in exclusion.

6.2 Participatory Approach: How are key stakeholders participating in the project?

The involvement of key stakeholders at all levels is essential for the success of the SRMP.The development of a responsive social assistance system, one of the main objectives of theSRMP, means understanding the diverse needs of the beneficiaries which is central to thelong-term success of the SRMP. To this end, stakeholders at all levels were consulted including:(i) Government institutions in charge of social service delivery SYDTF, SYDV, SHCEK, DIE,MEB, and SB; and (ii) NGOs working with the poor; and (iii) members of poor conmmunitiesthemselves. The views of all these stakeholders were taken into account for the preparation of theSRMP.

6.3 How does the project involve consultations or collaboration with NGOs or other civil societyorganizations?

In order to achieve its objectives, the SRMP requires enhanced participation of civicsociety (NGOs, trade unions and the private sector) as well as the involved Government agencies(Treasury, SYDTF, SHCEK, DIE, SOP, MEB, and SB) to ensure improved relevance and qualityof the activities financed. The Advisory Committee for the SRMP chaired by the Ministerresponsible for the SYDTF includes several NGOs. In relation to NGOs and civic society, the

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responsible for the SYDTF includes several NGOs. In relation to NGOs and civic society, theSYDTF is developing a simple accreditation process as encapsulated in the new SYDTF lawenabling the SYDTF and SYDVs to contract NGOs as service providers.

6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?

A program of Beneficiary assessment is included in the SRMP to undertake M&E on thesocial development outcomes of the project. The results will be disseminated and discussed in theAdvisory Conmmittee, and corrective actions if required taken.

6.5 How will the project monitor performance in terms of social development outcomes?

M&E arrangements will monitor SRMP outcomes on both the institutions involved as wellas the impact it has on the beneficiaries (see Annex 1). To enable a systematic M&E during thelife of the project a number of studies are completed or are underway. A household survey hasbeen commissioned to understand the poverty level among the beneficiaries of the project in orderto best reach them. In addition, a Social Assessment has been piloted in poor urban areas (gecekondus in Istanbul) and poor rural areas (Van) using Bank budget funds. This will befollowed by a more comprehensive social assessment covering the country financed under theSRMP. These two studies will be used as part of the baseline analysis for further M&E.

7. Safeguard Policies:7.1 Do any of the following safeguard policies apply to the project?a :j>z :S:>2!S,-:;SPlicy Applicability

Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) * Yes 0 NoNatural habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes * NoForestry (OP 4.36, GP 4.36) 0 Yes * NoPest Management (OP 4.09) 0 Yes * NoCultural Property (OPN 11.03) 0 Yes * NoIndigenous Peoples (OD 4.20) 0 Yes * NoInvoluntary Resettlement (OD 4.30) 0 Yes * NoSafety of Dams (OP 4.37, BP 4.37) 0 Yes 0 NoProjects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 NoProjects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes * No

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

Environmental screening will be undertaken for all sub-projects under the Local Initiativescomponent. Environmental screening criteria are included in the POM.

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F. Sustainability and Risks

1. Sustainability:

This hybrid operation consists of two portions: adjustment portion (Rapid Response)which is by definition not intended to be sustainable, and the other portion (investment element)which by definition needs to be sustainable. The investment portion includes three components,all of which are sustainable in the medium-term: Institutional Development, CCT, and LocalInitiatives.

For the Rapid Response (adjustment portion), the intention is to assist the Governmentwith its immediate efforts to relieve the effects of the financial crisis on the mostvulnerable--notably families with children, who were found to be the most vulnerable to thenegative impact of the crisis. A special focus of the rapid response component is to assist childrenin poor families to partially offset the expenses associated with the return to school in September2001. Other groups that would be assisted in this component are the poor holding health GreenCards, other eligible poor people including disabled to purchase pharmaceuticals and medicalsupplies, and those worst-affected by the crisis with assistance in kind and in cash. As a crisisintervention, these activities are by their nature one-off and do not require being sustained overthe medium-term.

Institutional Development by its nature is sustainable, since the goal of it is to createcapacity in Turkish institutions to facilitate reforms of the social safety-net and to become moreefficient and effective in so doing. By investing now in MIS technology, improving policyestablishment, M&E, and setting up a targeting mechanism and scoring formula, the institutionalstrengthening efforts will lead to improved efficiency and lower operating costs, thus enhancingsustainability. One of the objectives of public information campaigns is to solicit more voluntaryfinancing of SYDTF/SYDV and SHCEK programs from the general public and the businesscommunity.

On the CCT, the Bank will provide the majority of financing of these transfers under theCCT component of the investment portion of the SRMP for its first three years. However, theGovernment will also contribute counterpart funding to these transfers, on an increasing basis,rising to full payment beyond 2004 if the Govermment decides to continue the CCT. Initially, theCCT will be tightly targeted to the bottom 8 percent of the population by using a scoring formula,so overall costs will be contained at around 0.17 percent of GDP. Sustainability of expenditureson CCT will be greatly facilitated by the use of the scoring formula, which would enable theGovernment to contract or expand CCT as economic conditions and budgetary resources permit.As part of the institutional strengthening component, M&E capacity will be developed in theSYDTF and other institutions so that a comprehensive evaluation of CCT can be undertakenduring the SRMP. If CCT are as successful in Turkey as they have proved to be in Mexico andColombia, it is possible that the Government could continue CCT beyond the life on the SRMP asan important contributor to the social safety net in Turkey. Owing to the flexible nature of thetargeting mechanism, the Government could rapidly scale the CCT up or down, depending onneed and availability of budgetary resources. In the event that the Government decides not tosustain CCT beyond the life of the SRMP, the exit strategy would be for the Government to rely

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on other SYDTF activities such as workfare/temporary community employment (included underthe Local Initiatives component) or other social assistance in kind, relying on the institutionalstrengthening of the SYDTF/SYDVs created under the SRMP.

The Local Initiatives component is an expansion of the existing SYDTF progams,including income-generating and micro-grant programs, which cover their own costs and so aresustainable, and over time will contribute to general tax revenues. Other local initiative activitiesinclude investments in human capital, such as literacy, which have an economic pay-off andpositive externalities for Turkey. Stringent criteria are being applied to the community socialservices sub-projects to ensure that they are cost-effective and that recurrent cost financing isavailable.

2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):

Risk Risk Rating Risk Mitigation MeasureFrom Outputs to ObjectiveThe Government fails to undertake S The current PFPSAL program commits thecounter-cyclical social spending. Government to this.

Treasury fails to transfer sufficient S The Treasury is committed to doing so under theresources to the SYDTF in a timely LSP.manner.

LSP is not implemented fully. M Constant monitoring by the Bank.

Absolute poor are not fully aware of S Effective public information campaigns will beopportunities offered under the SRMP. supported under the SRMP.

Parliament fails to enact Legislation M Disbursement will not start before enactment ofconceming the SYDTF before the law.disbursement.From Components to OutputsSYDVs have insufficient implementation M The Institutional Development component willcapability. strengthen SYDVs implementation capacity

progressively over the life of the SRMP.

Targeting mechanism fails to work. M The targeting mechanism will be subject toregular M&E and corrective action.

High level of inclusion errors. S Stricter targeting will be enforced.

High level of social exclusion. S Beneficiary assessments will be used to monitorand correct any such problems.

Government allocates insufficient S The Loan Agreement will bind the Governmentcounterpart finance to the SRMP. to this.

Quality/availability of basic education M Bank education sector operations are workingservices is inadequate. on raising quality and effectiveness.

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Quality/availability of primary health care S Bank health sector operations are working onservices is inadequate. raising quality and effectiveness.

Overall Risk Rating S The SRMP is an operation with s !stantial-riskbut a high pay-off which will require strongBank supervision and hence budget for thispurpose.

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

3. Possible Controversial Aspects:

Macroeconomic situation: Turkey is experiencing significant volatility in its domesticmarkets, with particularly sharp increases in interest (up to 96 percent) rates and a depreciation inthe exchange rate (to TL 1,500,000 per US$) experienced on July 17, 2001. The IMF hasundertaken the ninth program review. However, some correction in these rates has alreadyoccurred and the recent financial review and tranche release by the IMF and the PFPSAL fromthe World Bank have prompted some short-term stability. The short term outlook continues tobe extremely uncertain and unsettled. In addition, there is concern that this situation compromisesTurkey's ability to go into the international bond market; domestic debt is increasing sharply at arate of some 3 percent of GNP per month right now. The external environment continues toworsen with non-oil commodity prices declining, debt increasing rapidly. However, it isprecisely, in a crisis such as this is, when the macroeconomic situation is most difficult, that socialprotection is most needed and the risk to the poorest warrants mitigating.

Choice of a Hybrid Operation: The Bank has had mixed experience with hybridoperations. However, the hybrid nature of the SRMP operation is as an important way to linkshort-term interventions with a medium-term policy reform, and the current crisis was seen asopening a window for both immediate response to the crisis and medium-term establishment ofimportant interventions previously lacking in social protection in Turkey. Given the importanceof mitigating the social risks of the project, the provision of school supplies to poor childrensupported under the quick-disbursing component constitutes an important confidence-buildingmeasure for the Government and should be supported by the Bank. The SRMP is innovative, inthat it combines elements both of the safety net (CCT) and the trampoline (Local Initiativescomponent).

The SRMP seeks to fill in significant gaps in Turkey's social safety-net, and is part of aconcerted Bank effort on mitigating the social impacts of the crisis, including the PSSP (severancepay for laid-off workers) and the ARIP (income support to farmers) as well as health, educationand social security operations. The SRMP was envisioned as part of the CAS - update high caseprogram, with only US$ 100 million in a the adjustment portion (thus a low leakage risk) and US$400 million in investment activities. If the macroeconomic situation changed sharply so thatTurkey was no longer in the CAS high case, the investment portion would still go forward. Themacroeconomic situation in Turkey would continue to be monitored closely, especially in thecontext of the next IMF review in September. In addition, the World Bank would prepare acontingency plan before the end of September 2001.

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Design & Implementation Issues: Implementation of a complex operation such as theSRMP is difficult and close supervision and monitoring are critical to success and issues ofsustainability. The SRMP faces high risks and adequate fiduciary controls must be put into placeto mitigate them. Special attention would be given to ensuring adequate Bank resources forsupervision.

Targeting: There are three possible controversial aspects of the targeting design under theSRMP: (i) reaction of the non-poor; (ii) regional disparities; and (iii) female education.

* Reaction of the Non-poor: Since the CCT component of the SRMP will includepayments in cash to poor families who keep their children in school and visit health clinics,there is the possibility of some backlash among the non-poor. The non-poor may resentthe provision of cash to the poor, and there could be some hostile reactions to theprogram. In particular, the fieldwork and forthcoming Social Assessment noted that thedistribution of income in the remote villages tends to be only a few relatively well-offvillagers and very many poor villagers. The few relatively-well off villagers may feelentitled to the CCT as well under the idea that "here in our village we are all poor."

* Regional Disparities: Since the SRMP will make a special effort to better target thepoorest, there is the chance that the emerging patterns of beneficiaries under the SRMPwill include large numbers of people from specific regions of the country. This may raisequestions of disproportionate representation of certain regions, as being a majority ofSRMP beneficiaries.

* Female Education: A major focus of the CCT is towards keeping children in school. Inthe Eastern Anatolian and many other rural regions and gecekondus in Turkey, there is adiversity of cultural/traditional attitudes towards the education of girls. In such families,there may be a conflict between the CCT incentive towards sending girls to school and thecountervailing traditional attitudes.

Choice of Implementing Agency: The Bank has prior experience with SYDTF as animplementing agency under the EERL. Its performance was positively evaluated. SYDTF'sability to manage financial and procurement aspects and its ability to adequately target,monitor and evaluate are all issues addressed under the SRMP project design under theInstitutional Development component. In addition, the SYDTF will benefit institutionallyfrom the new legislation on its reorganization and improved collaboration with NGOs.

G. Main Loan Conditions

1. Effectiveness Condition

* Basic financial management arrangements, satisfactory to the Bank, have been adopted by theSYDTF (PCU).

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2. Other [classify according to covenant types used in the Legal Agreements.]

All conditions to be fulfilled satisfactory to the Bank:

Adjustment Portion - Tranche Release

* Satisfactory macroeconomic performance.* Satisfactory progress in carrying out the Program (of the LSP).

Disbursement (for the CCT and Local Initiatives components)

* Bank FMS certifies that adequate financial management arrangements for the respectivecomponents have been adopted (including that MIS and project accounting software havebeen installed, Financial Management Manual has been adopted by the SYDTF and properstaff have been hired).

* A law has been enacted strengthening the SYDTF organizational structure and reportingpractices and enabling the SYDTF and SYDVs to work more effectively with NGOs

Dated Covenants

* By December 31, 2001, ensure that the SYDTF receives sufficient domestic finance toundertake agreed cumulative expenditures of TL 550 trillion.

* By December 31, 2003, undertake a mid-term review of the SRMP, including a full review ofthe CCT, with the Bank, and agree upon any necessary modifications, based upon a reportreceived by the Bank by November 30, 2003.

Ongoing Covenants

* Implementation of all procedures and conditions set forth in the POM, and all changes in thePOM must be approved by the Bank.

* Prepare SRMP PMRs quarterly, starting January 31, 2002.* Every year by October 30, provide a report on Turkey's social protection reform program and

the contribution of the SRMP towards the agreed objectives and specific project activities(Annual Program), review the Annual Program with the Bank by November 30, and formallyadopt the program by January 31 of the following year.

H. Readiness for Implementation

[l 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.

1 1. b) Not applicable.

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2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.

Z 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

El 4. The following items are lacking and are discussed under loan conditions (Section G):

Intensive work has started on the procurement documentation for the first year's activities.

1. Compliance with Bank Policies

1 1. This project complies with all applicable Bank policies.O 2. The following exceptions to Bank policies are recommnended for approval. The project complies with

all other applicable Bank policies.

John A. Innes Annette Dixon Ajay ChhibberTeam Leader Sector Director Country Director

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Annex 1: Project Design SummaryTURKEY: Social Risk Mitigation ProjecVLoan

Hierarchy of Objeqfives . 4 MWWoSector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)

Reduction of poverty and 1. Poverty indicators - HIES and Poverty Stability and soundness ofimprovement of poor headcount and poverty depth. Assessments. economic, social and laborhousehold's capacity to cope 2. Qualitative household Qualitative assessments of market conditions andwith economic crises. behavioral indicators. households. policies.

Strengthen capacity of the 3. Two Household surveys DIE HIES data-sets. Stability of Government andpublic sector to monitor and undertaken during SMRP public sector managementreduce poverty. Operational audit of

4. Poverty analyses completed Govemment agencies strategy.and disseminated. involved in poverty reduction.

Project Development Outcome I Impact Project reports: (from Objective to Goal)Objective: Indicators:To mitigate the impact of therecent economic crisis on poorhouseholds.Adjustment Portion 1. LSP is implemented. SRMP mid-term review. Government will ensureRapid Response - providing 2. SYDTF/SYDV counter-cyclical socialimmediate support to the expenditures of TL 550 Household surveys. spending.poorest affected by the crisis expenditures of T 5o lse(social risk mitigation). programsi Beneficiary assessments. Treasury transfers all

programs. revenues to SYDTF in aImpact evaluation studies. timely manner.

FMS reports. SYDVs spend funds asprogrammed.

Investment Portion. High level of inclusion ofTo improve the capacity of leve a n ofpoor households to cope with vulnerable and poorsimilar crises in the future population groups in(social risk management and r o tprevention)

(I) Institutional 1. Poverty monitoring system Project reports, includingDevelopment - building up established. distributional indicatorsthe capacity of state broken down by welfare level,institutions providing basic 2. More cost-effective social gender, urban-rural, etc.social services and social programs. Research & M&E functionsassistance to the poor (social Operational audit. developed.risk management). Trained staff remain within

institutions.

(11) CCT - implementing a For poor children (SRMP Scoring formula calculated,social assistance system beneficiaties) disaggregated periodically revised.

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targeted to the poorest by welfare level, gender,population conditional on urban-rural, etc.: MEB reports. All SYDVs fullyimproved use of basic health computerized with anand education services (social I. Increase in average years of Analysis of household intergrated MIS forrisk mitigation and schooling in low-income surveys. beneficiary eligibility andprevention). population. record-keeping.

* Improved education Impact evaluation studies.attainments (Grades 2. Increase in school1-11). attendance rates.

* Improved health 3. Decreased infant mortality. SB reports.conditions of youngchildren (ages 0-6). Analysis of household

surveys.

Impact evaluation studies.

(III) Local Initiatives - 1. Income of SRMP SYDTF and SYDV reports. Sub-projects are chosen andincreasing the income beneficiaries increased. implemented effectively.generating and employment Analysis of household surveysopportunities of the poor 2. Adult illiteracy decreases in Absolute poor are aware of(social risk prevention). SRMP areas. Impact evaluations. opportunities offered under

the SRMP.3. Youth unemployment Beneficiary assessments.decreases in SRMP areas. Social services are financially

sustainable.4. Increased number of socialservices expanded in SRMPareas.

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I . Key Performanke | & - - Ass-mp- - .-Hierarchy of Objectives Indicators i___________& __val_ _t_ti'______supin

Output from each Output Indicators: Project reports: (from Outputs to Objective)Component:Rapid Response SYDVs have sufficient1. School Packages acquired 1. Number of poor children Project reports. implementation capability.and distributed. benefiting (target 1.05

million). Documentary review. Targeting mechanism works.2. Pharmaceutical andmedical supplies support. 2. Number of people Operational audit. Low level of inclusion errors.

benefiting from3. Social assistance. pharmaceuticals and medical Low level of social exclusion.

supplies.

3. Number of peoplebenefiting from:

- food support;- heating support; and- other social assistance.

(I) InstitutionalDevelopment 1. Integrated MIS established. Project reports. Government allocates

1. SYDTF/SYDVs 2. Number of staff trained, sufficient budget to SRMPactivities.

3. Research, policy-making Procurement undertakenand M&E functions Prociently.developed. efficiently.

4. Public Information Appropriate technical skillsCampaign undertaken. are available.

Project reports.

2. SHCEK 5. Integrated MIS established.

6. Number of staff trained.

7. Research, policy makingand M&E functionsstrengthened.

8. Public Information EU acquis on open data accessCampaign undertaken. Household surveys results implemented.

3. DIE disseminated.9. Two household surveysundertaken. Web-site operational.

10. Number of staff trained.

I1. Unit-level datadisseminated.

(II) CCT. 1. Increase in succession rates Mid-term review. Quality of education is1. Higherratesofschool from basic to secondary . . adequate (motivated teachers,

1. Higher rates of school aviablt ofac learningtule. attendance and enrollment by education. Impactbealuationstudies

the.hilden fom lw-inome2. Reduction in school Joint (the borrower & the materials, etc.)thouehildren fromplow-income Bank) annual review at one ofhouseholds. drop-out rates.thseianlsueiio 4the sem-annual supervision

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3. Increase in enrollment rates mission.by poor households. Back-ground data to be

recorded in the Project'sMIS.Attendance andenrollment rates of students tobe reported to SRMP by theMEB.

2. Increased frequency visits 4. Increased vaccination Statistics on the use of Quality of primary health careto primary health care coverage. primary health care facilities services are adequatefacilities by pregnant & 5. Increased weight/height of to be reported to the Project by (supplies, staff).lactating women, and young young children. the SB. Supply-side provisionschildren from low-income (accessibility to schools andhouseholds. Project reports. primary health care services)

are adequate.

The net-value of benefits is alarge enough incentive forpoor households to adoptdesirable behaviors.

3. Application of a scoring 6. Targeting effectiveness. Scoring fornula is wellformula targeting mechanism. developed and disseminated.

(III) Local Initiatives 1. Number of new sub-project SYTDF staff skills areI. Income Generation. types undertaken. upgraded to provide adequate

2. Number of M&E.income-generating MIS and FMS are in place.sub-projects. Effective public information

3. Number of beneficiaries campaign.self employed or employed, 6 Private sector activelymonths after the assistance engaged in employabilityfinished has increased. training.

4. Types of micro businessesset up and operating 6 months Effectve targetminafter assistance finished hasincreased.

5. Number of NGOs as serviceproviders.

2. Employability Training. 6. Number of illiterate adultstrained to be functionallyliterate.

7. Number of youth receivingemployability training.

8.Number of NGOs as serviceproviders.

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3. Temporary Community 9. Number of temporaryEmployment. community employment

sub-projects.

10. Number of person-days oftemporary employmentshort-term jobs created.

11. Number of NGOs asservice providers.

4. Community Social 12. Number of communityServices. services project established.

13. Number of new modelservices established.

14. Number of NGOs asservice providers.

Project Components I Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)Adjustment Portion - Rapid US$ 100.00 million 1. Progress reports. 1. Parliamentary ratificationResponse .of the loan.2. Disbursement reports.

2. Timely hiring ofconsultants.

Investment Portion. Project reports Staff trained and consultantsI. Institutional Development US$ 36.61 million hired

MIS in placeTechnical Assitancecompleted

II. CCT US$ 360.00 million Project Reports Staff trained, POM adoptedImpact Evaluation MIS in placeHousehold Survey Analysis Techncial Assistance

completedIII. Local Initiatives US$ 133.85 million Project Reports Staff trained

Household Survey Analysis Procedures overhauledaccording to POM

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Annex 2: Detailed Project DescriptionTURKEY: Social Risk Mitigation Project/Loan

By Component:

Project Component I - US$100.00 millionAdjustment Portion: Rapid Response (Bank loan financing of US$100.0 million):

The aim of the adjustment portion is to bring immediate relief to vulnerable groupsthrough existing channels, since it is not possible within a short time to prepare new deliverymechanisms (which will be developed subsequently under the investment component of the loan).This component would finance Turkey's public and private sector import requirements of thebalance of payments (BOP) against a negative list. The Government will use the TL counterpartof the loan funds to finance priority actions for immediate relief to vulnerable groups sufferingfrom the impact of the February 2001 economic crisis.

The TL counterpart spending consists of three SYDTF program expenditures targeted tothe poorest families through existing mechanisms of the SYDTF and its affiliated 931 SYDVs:

* School attendance package (shoes, uniforrns, books, stationery for the poorest 1.05million children);

* Pharnaceuticals & medical supplies for poor Green Card holders (eligibility criteriaand further details on the Green Card program in Annex 13) and other eligible poorpeople, including the disabled; and

* Local social assistance in cash and kind (including family food and heating support) tothose worst affected by the crisis.

It is critical that an additional budgetary allocation be made for increasing the SYDTF'sbudget for 2001 by the US$ 100 million equivalent to cover the cost of the increased spending onthese rapid response measures for school attendance, pharmaceuticals, and local social assistance.Treasury has already transferred TL 40 trillion to the SYDTF for the procurement of the school

attendance packages for the poorest 1.05 million children to the SYDTF as an advance against thedisbursement of the adjustment portion due to the urgency to procure the packages by earlySeptember for distribution prior to the commencement of the school year on September 11. 2001.In order to finance adequately the key programs of the SYDTF to the poorest for the rest of theyear 2001, Treasury will ensure that the SYDTF receives sufficient domestic financing tocover cumulative agreed expenditures of TL 550 trillion (including the counterpart fundingfrom the adjustment portion of the SRMP) by December 31, 2001. These expenditures wouldbe tracked through the arrangements outlined in Annex 6 and would be subject to an ex postoperational review.

The projected expenditures of the SYDTF for the second half of 2001 are projected at TL381 trillion (including an estirnated TL 125 trillion from the adjustment portion of the SRMP).This is a substantial increase over the first half-year's expenditures of TL 169 trillion expenditure.Projections of SYDTF expenditures for the last 6 months of 2001, as approved by the Bank, areshown below by program:

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PROJECTION SYDTF EXPENSES JULY-DECEMBER 2001 (TL trillion)

CATEGORY JUL AUG SEP OCT NOV DEC TOTAL

1. MONTHLY TRANSFER TO SYDTVs 10.0 10.0 10.0 10.0 10.0 10.0 60.0

2. INVESTMENT PROJECTS 1.0 1.0 1.0 1.0 1.0 1.0 6.0

3. MEDICATION SUPPORT 1.0 1.0 1.0 1.0 1.0 1.0 6.0

4. INCOME GENERATION SUB-PROJECTS 1.0 1.0 2.0 2.0 3.0 3.0 12.0

5. EDUCATION SUPPORT /a 0.0 40.0 20.0 20.0 0.0 0.0 80.0

6. FOOD FOR TRANSPORTED STUDENTS 0.0 0.0 10.0 10.0 10.0 10.0 40.0

7. NATURAL DISASTER SUPPORT /b 3.0 3.0 3.0 3.0 3.0 3.0 18.0

8. FAMILY FOOD SUPPORT 0.0 0.0 10.0 0.0 10.0 0.0 20.0

9. FAMILY HEATING SUPPORT 0.0 0.0 10.0 15.0 15.0 0.0 40.0

10. OTHER SOCIAL SUPPORT /c 1.0 1.0 1.0 2.0 2.0 2.0 9.0

11. MINISTRY OF HEALTH /d 6.0 6.0 6.0 8.0 8.0 8.0 42.0

12. HIGHER EDUCATION SCHOLARSHIP 0.0 0.0 0.0 0.0 0.0 22.0 22.0

13. Contingency 0.0 0.0 0.0 0.0 0.0 26.0 26.0TOTAL 23.0 63.0 74.0 72.0 63.0 86.0 381.0Notes

a. School attendance packages - books, clothing, stationery.

b. Aksehir and Cankiri earthquake victims; Hatay flood.

c. Soup-kitchens, dormitories, terrorism victims etc.

d. Payment for Green-card holders treatment and pharmaceuticals within MOH facilities.

Project Component 2 - US$36.61 millionInvestment Portion - Component I: Institutional Development (Bank loan financing of US$30.48 million):

The institutional development components will build up the capacity of the main institutionswhich protect the poor, provide social assistance and services and poverty information in Turkey:(a) the SYDTF and the affiliated 931 SYDVs; (b) SHCEK; and (c) DIE.

(i) SYDTF/SYDVs. This sub-component will strengthen four main functions of theSYDTF/SYDVs: (a) MIS & IT; (b) Policy, Research, M&E; (c) Staff Development & Training;and (d) Public Information.

(a) MIS & IT. The SYDTF and SYDVs are responsible for implementing the US$ 360million CCT Program (see CCT Component below), which would serve more than a millionpoor beneficiaries. The type of transaction to be processed within the program would include:(i) beneficiary registration and application of the formula-based targeting mechanism; (ii)tracking of compliance with behavioral conditions, e.g. school attendance, health clinic visitsby the beneficiaries; (iii) compilation of the compliance data, and calculation of the amount ofpayment to be made to each household; (iv) issuance of payment authorization; (v) transfer of

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funds from SYDTF to SYDVs, and then to the financial institution or entity responsible formaking payments to the beneficiaries; and (v) verification of payments. In addition, financialrecords must be organized and presented in accordance with the requirements of theGovernment and the Bank's FMS to ensure accountability.

Obviously the CCT's success will depend on, among others, high capacity and high speedinformation processing systems. The SYDTF very successfully made and tracked payments tothe SYDV for earthquake benefits financed by the Emergency Earthquake Recovery Loan(EERL). However, the computational power of SYDTF and SYDVs require furthercomprehensive upgrading to handle the CCT program. Currently, approximately 70 percentof the 931 SYDVs are equipped with at least one PC. About 150 SYDVs are running astand-alone database application software called "Datasoft"', which keeps data on beneficiaryprofiles and records of benefit provisions. There is no system to share informationelectronically across among the SYDTF and SYDVs. Beneficiary level information(beneficiary profile, benefit provision records) are kept at the SYDV level, and not transmittedto the SYDTF. Communications between SYDTF and SYDV are in the form of physicaldocuments, rather than electronic communications. SYDTF currently runs 4 independentnetworks for each of: (i) Scholarship Program (Windows 2000 network running a databaseapplication based on Visual FoxPro), (ii) Health Program (software written in COBOLrunning on CTOS/OPS), (iii) Project-based Assistance Program (Windows98 Peer-to-Peernetwork consisting of 5 PC with no client-server application or special database applicationsto the program) and (iv) Social Assistance Program (same configurations as Project-basedAssistance Program).

The SRMP will finance the development of an integrated MIS for both the SYDTF centraloffice and the SYDVs, including hardware, network infrastructure, software development andstaff training. A study of SYDTF's hardware and infrastructure requirements was recentlycompleted by a consulting firm. The study does not, however, take into account the CCTbecause it was contracted before the Government of Turkey and the Bank started thediscussions about the SRMP. The SRMP will require additional studies, system design,development, installation and staff training. In addition, the system will include aBank-compliant financial management system (FMS) and an upgraded module for managingSYDTF's financing for the activities of the SYDVs according to a well developed formula,which uses population, inverse of GNP per capita and an uplift factor of 50 percent forEastern and South-Eastern Anatolia. Furthermore, the system will be designed to allowtransparent information integration with the systems of other social programs, mostimportantly those under SHCEK, in order to reduce duplication of efforts and increase theimpact of social programs as a whole.

(b) Policy, Research, M&E: Currently the SYDTF does not have a policy unit. Research,M&E functions are also undeveloped. Additional staff with adequate qualifications will behired for this purpose, together with some intemal staff re-assignments. This sub-componentwill provide the SYDTF with TA, training, a program of studies (including beneficiaryassessments) and office equipment to develop these functions.

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The costs of the PCU for the SRMP including project management, procurement, financialmanagement & disbursement, MIS, and M&E functions are included in this sub-component.The Bank loan will finance the costs of TA, operational reviews for the SRMP, furniture andequipment, as well as the incremental operating costs for the PCU.

PCU

ORGANIZATIONAL CHART

from other govranmat Mageent c T Procurmant Specialist (1l)o - t

l F . - 1 Secretary. t

memCb tributed y SSF e and focra Co10 suants rs. Tw en reuresoo rs aRecruited oni the basisYof needs for A c inln sComaunity revelopmentf Monitoring etc a a c d o

ISTITUTIONA t;PRGAS 8 PROJECTS I .HN CALFAxeroe

(c) Staff Development & Training. The SYDTF does not have an adequate humanresources policy. Currently there are some 67 SYDTF staff, of which and falitare secondedfrom other government agencies. The secondment period can be quite long-one staffmember had been seconded for 10 years. There are no written procedures or clear definitionof roles and responsibilities for the SYDTF staff. A comprehensive human resources policyincluding salary review, performance appraisal, staff training, and a career developmentcomponent will be developed under the SRMP. The SYDTF has drafted a new organizationallaw which strengthen the structure, linkages with the SYDVs and facilitatee greatercollaboration with NGOs. There are several areas where the skills mix of the SYDTF andSYDV could be improved. The SYDTF does not have staff with expertise in agricultural andincome-generating sub-projects, which makes it difficult for the SYDTF to properly evaluatethe proposals of the SYDV for funding of sub-projects in their districts. The SYDTF alsodoes not have trained social workers to help assess the role that SYDTF plays in the provisionof social assistance. This lack of trained social workers is especially acute in the SYDVs,which are currently responsible for facilitating the allocation of social assistance to applicants.Provision is made to hire up to 200 social workers per year on short-term contracts, withgeneric contracts and TORs satisfactory to the Bank, to strengthen the SYDVs in projectimplementation and management of programs such as the CCT. A training program forexisting SYDV staff is urgently needed to supplement their skills, and additionally, would berequired in any case for the CCT - hence the focus of the SRMP on in-service training in

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project management, management skills, social work and employment/income generationissues. The SRMP will finance the costs of trainers, training venues and materials for thispurpose.

(d) Public Information. Public information activities are highly undeveloped within theSYDTF. The SRMP will finance public opinion research as the basis for designing sound welltargeted public information campaigns to various client groups and stakeholders. Publicinformation campaign costs will be financed by both the Bank and the Government (fromSYDTF own resources) with implementation over 4 years, with a special focus on the CCTand Local Initiatives.

(ii) SHCEK. This sub-component will stregthen four main functions of SHCEK: (a) MIS& IT; (b) Policy, Research, M&E; (c) Staff Development & Training; and (d) Public Information.

(a) MIS & IT. Only four years ago, SHCEK was equipped with only one 486 PC. Today, amajor IT improvement project is underway in SHCEK funded from the Government budgetamounting to US$ 1.8 million which provides for the development of the MIS software,electrical cabling and computers for the SHCEK central and provincial offices. SHCEK alsorecently launched a WEB site (http://www.shcek.gov.tr), and installed a powerfulOracle-based database management system running on UNIX-based workstations in itsheadquarter office in Ankara. The IT/MIS department is staffed with 8 professionals.

The SRMP will finance the extension of this system to the 516 service delivery centers ofSHCEK including community centers, child-care institutions and homes for the elderly,shelters for abused women and rehabilitation centers for the disabled. This will facilitate thedevelopment of a completely integrated MIS by providing Local Area Networked-PCs foradministrative purposes, and beneficiary use as well as Internet connection. In addition, thesystem will be designed to interface seamlessly with the systems of the SYDTF and SYDVs,as well as other social programs.

(b) Policy, Research, M&E: The research, policy-making M&E functions of SHCEK will bestrengthened under the SRMP. Additional staff with adequate qualifications will be hired forthis purpose (funded by SHCEK). This sub-component will provide TA, training, a programof studies (including beneficiary assessments) and office equipment to develop these functions.

(c) Staff Development & Training. Skills of SHCEK staff will be upgraded through aprogram of in-service training on mangement, communication, social work, language skills,targeting and other key issues. The SRMP will finance the costs of trainers, training venuesand materials for this purpose.

(d) Public Information. Public information activities are highly undeveloped within SHCEK.The SRMP will finance public opinion research as the basis for designing sound well targetedpublic information campaigns to various client groups and stakeholders. Public informationcampaign costs will be financed by both the Bank and the Government and implemented overthe 4 year period of the SRMP, targeted to various audiences including: (i) beneficiaries (to

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make them more aware of their rights and responsibilities); (ii) the general public to makethem more aware of services available; and (iii) the international community, to make themaware of Turkey's progress in these fields.

(iii) DIE. Previously, Turkey did not have a program of regular household surveyscapable of providing the basis for poverty monitoring, evaluation and policy-making. However,Turkey has adopted the EU Acquis on Statistics in March 2001 that stipulates such a program andalso has convened an Advisory Council to work out the necessary methodology. Thissub-component will finance the TA necessary to develop a program of household surveys inTurkey, including the training of DIE staff in the new methodology, while the recurrent cost ofthe two household surveys during the SRMP project perioed would be covered primarily by theDIE budget with co-financing from the Bank. The Bank will finance non-salary requirements,such as the printing, incremental field survey and transportation costs and the hiring of temporarylocal consultants to conduct the interviews as well as incremental IT needs for at least twohousehold surveys. Under this component, the Bank would also finance the expertise needed onthe IT level for DIE to package its statistical data for distribution, and for enhancing the DIEwebsite so that users could download other DIE data directly, as well as dissemination throughprinted materials. Finally, this component includes financing for incremental IT and technicalassistance needs for the DIE to analyze the 2000 population Census. The Census analysis isimportant, because it will enable DIE to combine Census data with household data (with technicalassistance from the Bank) to produce a poverty map for Turkey.

Project Component 3 - US$ 360.00 millionInvestment Portion - Component II: CCT (Bank loan financing of US$ 260.00 million):

CCT are transfers which are conditioned on recipient behavior for continued receipt. Thebehaviors required are school attendance for school-age children and well baby/health clinic visitsfor children below school age. The idea behind CCT is that the poor are often forced to pull theirchildren out of school to work or look after younger siblings when the household is faced with aneconomic crisis. Withdrawing children from school often leads to a permanent reduction in thehuman capital of the children who do not typically return to school after the crisis, and aperpetuation of the cycle of poverty across generations.

CCT are an important mechanism to protecting and developing the human capital of thevulnerable. CCT are an important tool in the battle against the inter-generational transfer ofpoverty, since children who fail to complete basic education today become the poor of tomorrow.Given that families with children are found to be at high risk for increased poverty andvulnerability from the February financial crisis, CCT are a recommended policy intervention. CCTare transfers which are conditioned on client behavior for continued receipt. The behaviorsusually required are school attendance for school-age children and well baby/health clinic visits forchildren below school age. The idea behind CCT is that the poor are often forced to pull theirchildren out of school to work or look after younger siblings when the household is faced with aneconomic crisis. This often leads to a permanent reduction in the human capital of the childrenwho do not typically return to school after the crisis, and a perpetuation of the cycle of povertyacross generations. The loan will finance education and health/nutrition grants to the mothers ofchildren who are eligible in accordance with criteria set forth in the POM. The Bank will finance

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these grants on a declining basis through the end of 2004, whereupon the Government will takeover the full financing responsibility for CCT if it decides to continue the program. This decisionof the Government's will be informed by the results of a comprehensive review of CCT to beconducted by end-2003 and a formal impact evaluation (also financed under this component).

CCT provide an incentive to the poor to: (i) keep their children in school and work on thedemand side of education by covering the out-of-pocket expenses (school books, uniforms, fees)that often preclude the poor from sending their children to school; and (ii) obtain adequatepre-natal care, basic health and nutrition services (including immunization, growth monitoring andresolving micro-nutrient deficiencies). CCT are typically targeted to the poor by proxy meanstests or income tests. In Turkey, a large informal sector means that income-testing would be tooexpensive and difficult, so a scoring formula based on a proxy means test is recommended. CCTare an important mechanism to protecting the human capital of the vulnerable.

Mechanisms to Verify the Compliance with the Behavioral Requirements.Compliance with behavioral requirements must be monitored, recorded and verified. In Turkey,school attendance and health clinic visit records are well kept even in the poorest regions,although computerization of record keeping is limited. Thus, it can be expected that existingschool systems and health care systems can assume the first-hand role to verify the compliancewith the behavioral requirements.

Reducing exclusion. Using a scoring formula would help bring more objectivity in thecriteria used to allocate social assistance and thus reduce the scope for possible discretion andinclusion of the non-poor. To minimize exclusion of the poorest, the scoring formula will becombined with policies which:

* Help the poorest to formulate a demand for assistance. This will be done through (i) publicinformation campaigns, including local dialects, on the type of programs available, theeligibility criteria, and the rights of the applicants to appeal, and the benefits of thebehavioral changes (e.g. on promoting immunization etc.); (ii) house visits by femaleswho speak local dialects; (iii) and adult literacy campaigns to help applicants to feel moreconfident in approaching authorities for assistance. In this way both the InstitutionalDevelopment and Local Initiatives components will support the CCT through publicinformation campaigns and adult literacy programs respectively.

* Bring human safeguards to the scoring formula. This can be done first by allowing theapplicant to have its case reexamined by a local Appeals Conmmittee in case of adisagreement with the scoring formula. The committee could composed by the currentmembers of the SYDV Advisory Committee plus a social worker. Second, exclusioncould be minimized by having the same Appeals Committee systematically reviewing thosecases for which the scoring formula does not provide a clear cut-off. For instance, a rangefor the scoring will be defined within which each application will be automaticallyreexamined.

The System to Uniquely Identify Individuals and Households. Because a CCTprogram transfers benefits to a household based on specific attributes and behaviors of the

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household members, it is important that households and individuals can be uniquely identified andcross-referenced. Futher development of implementation mechanisms, including a sound FMSand MIS, will mean that the CCT will start in mid-2002.

The Government has made key decisions about the CCT:

* the amount of Government co-financing for the grants over the period 2002-2004--US$100 million;

* one national benefit rather than regionally differentiated benefits;

* the level of the benefit (which will be up to US$ 8 per child per 9 months of the schoolyear for the education grant and $6 per child per month for the health/nutrition grants);

* the scale for the education grant for additional children in the same family;

* the method of payment (through the banking system); and

* the age limits for the grants (children under 6 for health/nutrition grants, children 6 andabove provided that they are enrolled in grades 1-11 for education grants).

Further details on the CCT and the experience in other countries are provided in Annex12 of this PAD, while operational guidelines are laid out in the POM.

Project Component 4 - US$133.85 millionInvestment Portion - Component III: Local Initiatives (Bank loan financing of US$ 104.52million):

The SRMP will strengthen and finance key programs of the SYDTF/SYDVs as proposedby Provinces, Districts and local commnunities designed to provide enhanced sustainableemployment opportunities for the poor, thereby reducing poverty. Such programs are: (i)micro-grants for income-generating sub-projects (requiring improved technical assessment,M&E); (ii) employability training (including adult literacy - especially for women) andunemployed youth (technical and life skills - including how to get a job, start a small business);(iii) temporary community employment; and (iv) expansion of cost-effective community socialservices. This component will function in a social fund mode and would involve participation inimplementation of projects and technical assistance by possible service providers, includingNGOs, based on clearly defined terms of references; selection and performance criteria. Detailedimplementation arrangements are spelt out in the POM.

(i) Income-generating sub-projects: The Local Initiatives component will expand theprovision of micro-grants (Performance Grants) for income generating activities to communities,villages and groups of beneficiaries (currently undertaken by the projects and investments units ofthe SYDTF). The Local Initiatives sub-projects would differ from the current SYDTF practices

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by introducing clearly set and periodically revised procedures and systems for identification,appraisal, implementation and M&E of these grants. In addition, the Local Initiatives wouldexpand the types of projects eligible for micro grants by emphasizing the selection criteria andtargeting of beneficiaries rather than pushing a set menu of project options as is currentlypracticed by the SYDTF. The SRMP would strengthen the ongoing program ofincome-generating sub-projects through:

* improved sub-project analysis based on explicit criteria that take into accounteconomic, technical, financial and social aspects. SYDTF is developing suchcriteria, as well as in-house capability to (i) apply them to sub-project proposals;and (ii) improve implementation of sub-projects, with contracted TA from publicand private institutions.

* enhanced monitoring capability to ensure that sub-project implementationproceeds as planned and funds are spent as intended, monitoring and evaluationwould be built into each phase of sub project implementation and disbursements tosubprojects would be made upon receipt of satisfactory monitoring reports; and

* expanded evaluation capability, to determine the impact of the project onbeneficiaries and to draw lessons that can feed back into the project analysis andmonitoring phases.

* improved beneficiary targeting: In addition to applying the new scoring formualabased on the household survey conducted by local consultants drawing on ODTUexpertise, the eligible beneficiaries would be those whose profiles match thefindings of Social Assessment: persons without access to family resources; or toland or other property and assets; unemployed without social security benefits;persons who are not employed in the formal sector; female headed households(falling in any of the these categories); vulnerable children (orphans, streetchildren, disabled children); and persons do not have access to social assistancefrom any government source. Special attention would be paid to designingappropriate outreach mechanisms for reaching the poor whose cultural norms mayreduce their access to the project.

Sub-project analysis, preparation and monitoning functions will be performed atProvincial/District levels (SYDV), which will report to the center (SYDTF). The center willhave sub-project approval and general monitoring functions. The sub-projects will be targeted tothe poor using the CCT scoring formula, but raising the eligibility level to cover the poorest 36percent. Specific beneficiaries would then be selected according to their capacity to be successfulin an income-generation sub-project according to criteria being developed. The range of potentialsub-projects which could be supported by micro-grants under this component is quite largeincluding food-processing, fruit and flower production, weaving, metal-work, carpentry, smallgreen-houses, animal husbandry, transport and service development including minor retailactivities. The limit per beneficiary would be US$ 1,000; with beneficiaries encouraged to formsmall producer's associations.

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(b) Employability Training: The quality and quanitity of employability training includingadult literacy (especially for women) and for unemployed youth (technical and life skills--includinghow to get a job, start a small business) will be expanded under the SRMP. The existingprograms of SHCEK and other agencies will be improved by involving the private sector(including chambers of commerce and industry) and NGOs to enhance quality and relevance.Proposals for such training programs including clearly spelt-out target groups, beneficiaries, costsand quality controls (including involvement of the private sector and NGOs where relevant) willbe submitted by SYDVs to the SYDTF. Average costs per sub-project are not expected toexceed US$ 10,000 (with many significantly smaller), although a ceiling of US$ 25,000 has beenestablished. The Loan will finance the cost of trainers, materials, venues and equipment.

(c) Temporary Community Employment: The Local Initiatives component wouldinclude in its menu, those activities which would create short term daily wage employmentthrough community works such as the cleaning and repair of existing channels for irrigation,water supply to households, sewerage; garbage collection; cleaning and repair of parks, roads,street lights; repair of existing sidewalks, and whitewashing/painting of schools, clinics, etc.These would typically be proposed and executed by SYDVs with a ceiling per sub-project of US$50,000.

(d) Community services: The SHCEK network of community centers and socialservices will be expanded as they serve an important role in facilitating the integration of migrantsfrom rural areas into the urban environment. Any expansion of community centers will becommensurate with the SHCEK's capacity to adequately staff and finance the operations of suchservices. A crucial element for support for community centers expansion is that they ensure theinsertion of beneficiaries as productive participants in the economy and deal with the direct needsof vulnerable groups such as poor children, youth-at-risk, unemployed, and the elderly. Prioritywill be given to sub-projects which: (a) generate models which can be replicated elsewhere; (b)demonstrate more cost-effective ways of delivering social services; and (c) enhance thesustainability of service provision. Average costs per sub-project are not expected to exceedUS$50,000, although a ceiling of US$100,000 has been established.

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Annex 3: Estimated Project Costs

TURKEY: Social Risk Mitigation Project/Loan

Local ~Foreignw Tiotalp, . os ' - A ' oR. J , V 0C 0 m U S iliion

1. Rapid Response 0.00 100.00 100.002. Institutional Development 21.90 14.71 36.613. CCT 360.00 0.00 360.004. Local Initiatives 106.57 27.28 133.855. Front-End Fee 0.00 5.00 5.00Total Baseline Cost 488.47 146.99 635.46Physical Contingencies 0.00 0.00 0.00Price Contingencies 0.00 0.00 0.00

Total Project Costs 488.47 146.99 635.46Front-end fee 0.00 0.00

Total Financing Required 488.47 146.99 635.46

Identifiable taxes and duties are O (US$m) and the total project cost, net of taxes. is 635.46 (US$m). Therefore, the project cost sharing ratio is 78.68% of

total project cost net of taxes.

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Annex 4TURKEY: Social Risk Mitigation Project/Loan

Economic Analysis Summary

Introduction: Key background economic information pertinent to the SRMP ispresented in this Annex in the following sections:

I. Poverty, Inequality & Social Assistance in Turkey;II. Employment, Unemployment & Under-employment; andIII. SYDTF Allocation Formulae.

I. Poverty, Inequality, and Social Assistance

Absolute poverty is low but economic vulnerability is widespread

Absolute poverty in Turkey is low based on an international standard. Hence,internationally comparable "One-Dollar-a-Day" purchasing power parity (PPP) at 1985 pricesline, there is an extremely low incidence of poverty. Only 2.5 percent of the population havemonthly consumption below this level (Table 1). This puts Turkey in the range of countries withsmall incidence of absolute deprivation.

Absolute poverty based on a country-specific minimum food basket is also low. Althoughthe minimum food allowances adopted in Turkey are relatively high by international standards,only 5.7 percent of households and 7.2 percent of the population can be considered poor in anabsolute sense, i.e. have total monthly consumption below the cost of the minimum food basket.The cost of the minimum food basket in 1994 was about US$ 36 per month per equivalent adult.However, unlike absolute poverty, economic vulnerability is a widespread problem. A substantialnumber of households (31 percent) and an important fraction of the population (36 percent) haveconsumption below the economic vulnerability line (equal to the food line plus an allowance fornon-food items) - approximately equivalent to twice the level of the minimum food basket orabout US$ 190 per household per month.

Table 1. Poverty Incidence in Turkey Under Different Methodologies, 1994Methodology Poverty line Poverty

incidenceAbsolute poverty, One-Dollar-a-Day per capita at 1985 PPP 2.5 percent

(international standards) prices

Absolute poverty Local cost of minimum food basket /a 7.3 percent

Economic vulnerability Local cost of basic needs basket /a 36.3 percent

One-half of national median income

Relative income poverty 15.7 percent

Source: Team calculations from 1994 HIES. a Consumption per equivalent adult; economies of scale.

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The comparison of the 1987 and 1994 HIES results suggests that during this period therewas a reduction of about 2.3 percentage points in the overall incidence of economic vulnerability(from 38.5 to 36.2 percent of the population). However, the relatively rapid growth of thepopulation meant that despite the drop in incidence, there was an actual increase in the number ofeconomically vulnerable persons, which grew by more than one million. Progress in reducingabsolute povertywas more pronounced and actually lead to a reduction in the total number of thepoor in Turkey. Although the direction of change is unmistakable, it is also important to note thatthe magnitude of decline in poverty is not dramatic. Most households that left poverty between1987 and 1994, would still be categorized as economically vulnerable in 1994. However, since1994 was a crisis year, the comparison may underestimate the true decrease in poverty that hasoccurred since 1987. Unfortunately, the 1994 HIES data are the latest available that documenthousehold expenditures and incomes in detail.

The main factor contributing to the reduction in poverty was the large population shiftbetween urban and rural areas. As the population in the relatively less poor urban areas hasexpanded with migration flows, poverty in rural areas has fallen dramatically and hence totalpoverty has also declined. Demographic changes (lowering of fertility rates among the poor) alsocontributed to reducing the number of poor in the country as a whole. Almost a quarter of theoverall reduction of poverty was due to these "structural" factors. The other big contributor tothe drop in poverty was the increase in literacy rates among heads of households-by itself, thisaccountedfor almost one-half of the measured reduction in economic vulnerability and povertybetween 1987 and 1994.

Income inequality in Turkey is high

Turkey is a country with large and entrenched inequalities. Income differentials acrossregions and social groups are wide and persistent. When measured by the Gini coefficient,inequality in Turkey is close to the levels observed in some highly unequal countries such as Peruor Russia (Table 2).

Chile (1994) 0.51 Peru (1994) 0.45

Costa Rica (1996) 0.47 Philippines (1994) 0.43

Russia (1995)* 0.47 Ecuador (1994) 0.43

Turkey (1994) 0.45 Turkey (1994) 0.41

Bolivia (1990) 0.42 Tunisia (1990) 0.40

Bulgaria (1995) 0.38 Morocco (1991) 0.39

Italy (1995)* 0.35 Portugal (1990) 0.32

Source: WDI, 1998 (World Bank); Turkey: Calculations based on primary DIE HIES data adjusted for inflabon.

A significant share of total inequality in Turkey is explained by differences in endowments,geography and opportunities faced in the labor market. Two critical variables, education and

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employment status, each explain between a fifth and a quarter of all observed inequality.Rural/urban differences explain more than 10 percent of the total inequality in the country.Regional factors explain another 11 percent.

Social Assistance

Groups outside the defined benefit social insurance mechanisms in Turkey are served byseveral programs, but the total amount of assistance is relatively small. The programs areuncoordinated or, at best, loosely coordinated. The most important of them are the following:

* The SYDTF allocates resources to 931 regional affiliate foundations in every district, andprovides assistance to needy people, chosen at the discretion of the foundations. Benefitsin-kind include food, clothing, heating, medicine, and a variety of smallbusiness/self-employment activities. The share of cash assistance in total SYDTF program hasincreased considerably in the late 1990s. Education grants and scholarship programs, anddisaster related social assistance have also gained importance -now the largest program ofsocial assistance in Turkey.

* The Old Age and Disability Assistance Scheme is administered by the Pension Fund (ES)and local authorities. This was established in 1977 under Law 2022, and provides benefits forthose over 65 and those more than 40 percent disabled. From 343,250 beneficiaries in 1977,it had grown to have 908,619 beneficiaries by September 1998, with 81 percent of themreceiving old age support and the remaining 19 percent being compensated for theirdisabilities.

* Green Card scheme, begun in 1992-for health care to those with monthly income less thanone-third of the minimum wage. Possible beneficiaries include some in the rural population,employees unregistered with any social security system or the urban unemployed. In 1998,there were 7.8 million cardholders, has subsequently risen to some 12 million by 2001.

While the SYDTF is the largest supplier of social assistance, most of its support isprovided not as cash transfers but in kind support for health care and fuel consumption needs.The only consolidated source of information for this is a 1996 study by the DIE, which reportedthat only 20.3 percent of support was for periodic payments; 19.6 percent was for educationalassistance; 13.2 percent was for food and clothing; and 12.2 percent was for heating fuel.

Clearly, the best covered of the groups are the elderly and the disabled, while the worseoff are those of working age, and the unemployed. The elderly are covered either under the threemain social insurance schemes, or under the Law 2022, SHCEK and Green Card programs, withother discretionary assistance also possible from the SYDTF and other foundations. Theunemployed, on the other hand, are not covered by any defined benefit schemes, and have to relyon being identified and assisted by social workers who administer the discretionary schemes. Thissituation is bound to improve once the newly-adopted unemployment insurance scheme becomesactive. However, the new scheme will apply only to workers within the SSK system, and willthus not reach unemployed workers from the informal or agricultural sectors. The existingcategorization also excludes the "working poor", who are the least eligible for Government

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transfers. These failings point to the need to introduce a more systematic, means tested socialassistance program aimed at the poor-independent of age, employment status, or disabilitysupported under the CCT

Fiscal costs of the social assistance programs. These social assistance schemes, whileproviding relatively insignificant assistance to families, do have a budgetary impact, but one that ismuch smaller than that of the social insurance system. The SYDTF is the largest program ofsocial assistance in Turkey, with disbursements of about 0.29 percent of GNP in 2000 - upsharply from previous years. The Old Age and Disability Assistance program, administered by theES and local authorities, had disbursements of 0.06 percent of GNP in 1999, as did the GreenCard scheme. The SHCEK, which is funded by allocations from the State budget and a share ofrevenues from municipalities, provincial administrations, etc.,disbursed some 0.05 percent of GNPin 1999.

Table 3. Size of Social Assistance Programs in Turkey: Share of Allocated Funds in GNPYear 2022 SYDTF Green- SHCEK Total Public Inflation

Scheme Card Expenditure on CompensationSocial Assistance Payments of SSK

1993 0.12 0.11 0.03 0.05 0.31 1.05

1994 0.09 0.14 0.06 0.04 0.33 1.22

1995 0.06 0.08 0.08 0.04 0.26 1.26

1996 0.05 0.06 0.07 0.04 0.22 0.77

1997 0.06 0.11 0.07 0.05 0.29 0.44

1998 0.06 0.15 0.06 0.04 0.32 0.29

1999 0.09 0.20 0.06 0.05 0.40 0.21

Source: Sak (1999)

There are perceptible overlaps between the coverage of the various social assistanceschemes, thus making the set of social assistance schemes relatively inefficient at achieving itsgoals at minimum cost. Since the disbursements are mostly discretionary, there is no centralizedcoordination among the schemes, as a result of which some individuals may get disbursementsfrom all schemes, or from none. As an example, Table 4 examines the eligibility for socialassistance of five selected groups that are not covered by public social insurance. In the table,"yes" denotes that a member of the group is covered by the corresponding social assistancescheme, "no" that it is not. "Possible" denotes that it is feasible for a member of the group toreceive support, given the discretionary powers of the operators of the scheme. This, forexample, is particularly the case for the SYDTF, which has no strict regulations to dispense funds,but depends on the judgement of the kaymakam. The kaymakam's office also determines whobenefits from the Green-Card health care scheme, under fairly loose eligibility criteria. OnlySHCEK has a defined group of beneficiaries (the elderly and poor children), and is staffed byqualified social workers, who are required to be graduates of the School of Social Services ofHacettepe University. Moreover, in the absence of a unique personal identifier system, it is

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theoretically possible to receive benefits from one of the three public social security systems, andalso get one or more of the social assistance benefits.

Table 4. Target Grou s of Social Assistance Programs in TurkeyParticipant 2022 SYDTF Green- SHCEK Other (private

Scheme Card foundations etc.)

Children (0-20 years No Possible Yes Yes Possibleof age)Elderly (65+) Yes Possible Yes Yes, from Possible

60+

Women (before 65) No Possible Yes Yes Possible

Disabled Yes Possible Yes Yes Possible

Unemployed No Possible Yes Yes Possible

Source: Sak (1999)

Private and local government sources of social assistance are not adequate to fullycompensate for the gaps in the public program. There are additional schemes operated bymunicipalities, who provide social assistance services including healthcare, kitchens for the poor,subsidized bread and basic food, and operate residential centers for the elderly and the children.Some of these services are also provided by special provincial administrations and villageadministrations.

II. Employment, Unemployment & Under-employment

(Results Of Household Labor Force Survey (HLFS) 2000 and First Quarter of 2001, DIE)

HLFS BASIC INDICATORS: 2000

Geographical Regions

Turkey Marmara Aegean Mediterra Central Black East SouthEast

nean AnatoUa Sea Anatolia Anatolia

Population 15 & 44,76 12,734 6,402 5,675 7,684 5,397 327 3,656

above mnillons 5

Employment millions 20,578 5,546 2,911 2,329 3,318 3,223 1,602 1,,649

Emp.Ratio percent 46 43. 45.5 41 43.2 59.7 49.8 45.1

Employment 49.2 47.5 49.4 45.2 45.2 62.1 51.4 48.5

Participation Ratio

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percent .

Unemployment (000) 1,451 507 251 234 153 129 52 125

Unemp Ratio percent 6.6 8.4 7.9 9.1 4.4 3.8 3.1 7.1

Educated Youngsters 21.7 18.1 23 30.2 20.8 21.9 19.1 23.7

(1)

Under- Emp. Ratio 7 5.7 5.3 10.5 5.4 4.4 14.7 10.4

percent

Educated Youngsters 6.8 4.1 4.3 6.3 10. 7.4 23.5 8.2

(1)

(1) Within age group 15-24, individual with high school or higher education.

LABOR PARTICIPATION

Turkey. Labor participation ratio for Turkey is 49.2 percent (73.1 percent for male and25.5 percent for female). This ratio is 44.1 percent in urban areas (70.7 percent for male and17.2 percent for female) and 57.4 percent in rural areas (77.0 percent for male and 38.6 percentfor female). Please see Tables 5.

Geographical Areas. The labor participation ratio according to regions is the highest inBlack Sea region with 62.1 percent and the lowest in Mediterranean and Central Anatolia regionswith 45.2 percent. Labor participation ratio for males is the highest in Black Sea region with 77.9percent and the lowest is in Central Anatolia Region with 69.1 percent. For female, this ratio isthe highest in Black Sea Region with 46.6 percent and the lowest in Mediterranean Region with19.1 percent.

EMPLOYMENT

Turkey. According to year HLFS 2000, the total employment in Turkey is 20.588 millionof which 15.223 million are male and 5.355 million are female. When the people employed in2000 are classified on the basis of four sectors that are agriculture, industry, construction andservices, the shares of the sectors are 34.9 percent, 18.1 percent, 6.5 percent and 40.5 percent foragriculture, industry, construction and services, respectively. 7,187,000 people are employed inagriculture sector in Turkey. 51.9 percent of these (3,733,000 people) are unpaid family workers.69.6 percent of unpaid family workers in agriculture (2,597,000 people) are female. Please seeTables 6.

Geographical Regions. 27 percent of employed in Turkey reside in Marmara Region,16.1 percent in Central Anatolia Region. When the employed people in regions are classified onthe basis of four main sectors (agriculture, industry, construction and services) the regions withthe highest agriculture employment are East Anatolia with 61.1 percent and Black Sea with 56.9

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percent. In industry, the regions with the highest employment are Marmara and Aegean with 31.4percent and 24.4 percent, respectively. In the construction sector, the highest employment is inMediterranean Region with 8.1 percent and South Eastern Anatolia with 7.9 percent. In servicessector, the highest employment is in Marmara Region with 50.8 percent and MediterraneanRegion with 49.6 percent. 62.8 percent (1,152,000 people) of 1,835,000 people employed inagriculture sector in Black Sea Region are unpaid family workers. 71.2 percent (820,000 people)of unpaid family workers in agriculture are female. The employment ratio in the regions arerealized as 59.7 percent in Black Sea Region, 49.8 percent in East Anatolia Region, 45.5 percentin Aegean Region, 45.1 percent in South Eastern Anatolia Region, 43.6 percent in MarmaraRegion, 43.2 percent in Central Anatolia Region and 41 percent in Mediterranean Region.

UNEMPLOYMENT

Turkey. The number of unemployed people in Turkey is estimated to be 1,451,000 andthe ratio of unemployment as 6.6 percent. The unemployment ratio does not differ on the basis ofgender in Turkey. However, in urban areas, the unemployment ratio is 8.9 percent (7.9 percent formale and 13.1 percent for female). This ratio is 3.7 percent in rural areas (4.7 percent for male and1.9 percent for female). The unemployment ratio for educated youngsters in Turkey is 21.70percent. Among educated youngsters, unemployment ratio in urban areas is 22.4 percent (19.8percent for male, 25.9 percent for female). In rural areas, unemployment ratio for educatedyoungsters is 19.9 percent (18.9 percent for male, 23.4 percent for female).

Geographical Regions. Mediterranean Region has the highest unemployment ratio with9.1 percent, and the Eastem Anatolia Region has the lowest with 3.1 percent. The unemploymentratio on the basis of gender in regions illustrate that the unemployment ratio for female inMarniara, Aegean and Mediterranean Region is higher whereas the same ratio is higher in CentralAnatolia, Black Sea, East Anatolia and South East Anatolia Regions for male. The highestunemployment ratio in urban areas is 11.2 percent in Mediterranean Region. The highestunemployment ratio in rural areas is 7.7 percent in Marmara Region. Mediterranean Region hasthe highest unemployment ratio for educated youngsters with 30.2 percent (29.1 percent in urbanareas, 34.9 percent in rural areas). Marmara Region has the lowest unemployment ratio with 18.1percent (17.1 percent in urban areas) and this ratio is 10.3 percent in rural areas of CentralAnatolia Region.

UNDER-EMPLOYMENT

Turkey. The ratio of under-employment in workforce is 7 percent in 2000. According toHLFS results of 2000, ratio of under-employment within labor force is 7.4 percent in urban areas,6.5 percent in rural areas. This ratio of under-employment amongst educated youngsters withinthe labor force is 6.8 percent. With regard to the ratio based on gender, in urban areas, it is 8percent for male, 5 percent for female, and in rural areas, it is 9.1 percent for male, and 1.5percent for female. The ratio for educated youngsters under-employed within the workforce is6.8 percent in Turkey, 5.5 percent in urban areas and 10.9 percent in rural areas. With regard tothe gender, the ratio becomes areas 6.5 percent for male and 3.9 percent for female in urbanareas, and 12.6 percent for male, 4.3 percent for female in rural areas. Please see Tables 5.

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Geographical Regions. The highest under-employment ratio within labor force is in EastAnatolia Region is 14.7 percent. This ratio is 15.5 in urban areas of this Region and 14.4 percentin rural areas. Under-employment ratio on the basis of gender in rural and urban areas of regionsillustrate that in urban areas, East Anatolia with 16.5 percent for male and South East Anatoliawith 8.8 percent for female have the leading places. The highest ratio of under-employededucated youngsters is 23.5 percent in Eastern Anatolia Region (18.4 percent in urban areas and32.3 percent in rural areas).

UNEMPLOYMENT IN THE FIRST QUARTER OF 2001

The results of the HLFS for the first quarter of 2001 were released by the DIE on June 4,2001. Figures confirmed a widely anticipated increase in unemployment. A 32.4 percent increasein the number of jobless occurred between the last quarter of 2000 and the first quarter of 2001,meaning 8.6 percent of the work force, or 1,809,000, are unemployed. While the figure shows adeterioration in employment, it is little worse than the 8.3 percent unemployment figure posted forthe first quarter of 2000. The estimated figure for "educated youth" stands at 23.7 percent. Thenumber of unemployed in the fourth quarter of 2000 was 1,366,000 and it is increased to1,809,000 in the first quarter of 2001.

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TABLE 5 - STATUS OF LABOR FORCE IN POPULATION FOR 2000THOUSAND PEOPLE, 15+AGE

POPULATION AND STATUS OF LABOR National Urban RuralTURKEY TOTAL1. CIVIL POPULATION ('000) 64,059 39,051 25,0082. POPULATION AT THE AGE OF 15 AND + ('000) 44,765 27,675 17,0913. STATUS OF LABOR FORCE ('000) 22,029 12,213 9,816

3.1. Employed 20,578 11,128 9,4503.1.1. Under-employed 1,541 907 634

3.2. Unemployed 1,451 1,085 3664. UNEMPLOYED ('000) 22,736 15,461 7,275

4.1. Searching for job since last three months 640 444 1964.2. Not searching jobs but ready to start work 458 271 178

4.2.1. With no hope to find job 139 83 474.2.2. Other 319 188 131

4.3. Seasonal Workers 584 85 4995. RATIO OF PARTICIPATION TO THE WORK FORCE (%) 49.2 44.1 57.46. UNEMPLOYMENT RATIO (%) 6.6 8.9 3.7

6.1. Ratio of Educated Youth (%) 21.7 22.4 19.97. RATIO OF UNDER-EMPLOYED IN LABOR FORCE (%) 7 7.4 6.5

7.1. Ratio of Educated Youth (%) 6.8 5.5 10.9MALE1. CIVIL POPULATION ('000) 32,179 19,726 12,4532. POPULATION AT THE AGE OF 15 AND + ('000) 22,310 13,933 8,3783. STATUS OF LABOR FORCE ('000) 16,298 9,849 6,449

3.1. Employed 15,223 9,075 6,1483.1.1. Under-employed 1,372 788 584

3.2. Unemployed 1,075 774 3014. UNEMPLOYED ('000) 6,012 4,084 1,929

4.1. Searching for job since last three months 444 286 1584.2. Not searching jobs but ready to start work 236 137 100

4.2.1. With no hope to find job 83 48 354.2.2. Other 153 89 _ 65

4.3. Seasonal Workers 266 48 2195. RATIO OF PARTICIPATION TO THE WORK FORCE (%) 73.1 70.7 776. UNEMPLOYMENT RATIO (%) 6.6 7.9 4.7

6.1. Ratio of Educated Youth (%) 19.5 19.8 18.97. RATIO OF UNDER-EMPLOYED IN LABOR FORCE (%) 8.4 8 9.1

7.1. Ratio of Educated Youth (%) 8.6 6.5 12.6FEMALE1. CIVIL POPULATION ('000) 31,880 19,324 12,5562. POPULATION AT THE AGE OF 15 AND + ('000) 22,455 13,742 8,7133. STATUS OF LABOR FORCE ('000) 5,731 2,364 3,367

3.1. Employed 5,355 2,053 3,3023.1.1. Under-employed 170 119 51

3.2. Unemployed 376 311 654. UNEMPLOYED ('000) 16,724 11,378 5,346

4.1. Searching for job since last three months 196 158 384.2. Not searching jobs but ready to start work 212 134 78

4.2.1. With no hope to find job 47 35 124.2.2. Other 165 99 66

4.3. Seasonal Workers 318 38 2805. RATIO OF PARTICIPATION TO THE WORK FORCE (%) 25.5 17.2 38.66. UNEMPLOYMENT RATIO (%) 6.6 13.1 1.9

6.1. Ratio of Educated Youth (%) 25.5 25.9 23.47. RATIO OF UNDER-EMPLOYED IN LABOR FORCE (%) 3 5 1.5

7.1. Ratio of Educated Youth (%) 3.8 3.9 4.3

Resource: HLFS, Ankara, SISNote: Educated Youth: Age group between 15-24 WR secondar school and higher education

The figures may not result in the sum due to rounding up

TABLE 6 - STATUS AT WORK ACCORDING TO THE ECONOMIC ACTIVITY IN 2000THOUSAND PEOPLE, 15+AGE

MALE+FEMALESTATUS AT WORK National Urban Rural1. Total 20,578 11,128 9,450a) Wage or Salary Earners 10,127 7,962 2,165b) Employers and Self-employed 6,198 2,672 3,528c) Non-wage Family Workers 4,253 495 3,758

2. Agriculture, Hunting, Forestry, Fishery 7.187 448 6,789a) Wage or Salary Earners 394 106 287b) Employers and Self-employed 3,061 201 2,860c) Non-wage Family Workers 3,733 141 3,593

3. Non-agricultural Activities 13,391 10,680 2,711a) Wage or Salary Earners 9,733 7,856 1,878b) Employers and Self-employed 3,137 2,471 668c) Non-wage Family Workers 520_ 354 165

Total (Percentages) |_10 _|_X 10C 10_a) Wage or Salary Earners 49.2_ 71.5 22.9b) Employers and Self-employed _ _30.1| 24 37.3c) Non-wage Family Workers 20.7 4.4 39.8

ECONOMIC ACTIVITIES rTotal 20,578 11,128 9,450Agriculture 7,187 448 6,739Industry 3.733 3,081 652Construction 1,329 872 458Services 8,330 6,728 1,601

Total (Percentages) 100 100 100Agriculture 34.9 4 71.3Industry 18.1 27.7 6.9Construction 6.5 7.8 4.8Services 40.5 60.5 16.9

Resource: HLFS, Ankara, SISNote: The figures may not result in the sum due to rounding up

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III. SYDTF Allocation Formulae

The SYDTF uses robust formulae for the allocation of the general and heating socialassistance support to the 931 SYDVs and are heavily redistributive and progressive.

General Social Assistance: For each district the coefficient is the product of: population(A) multiplied by the inverse of GDP per capita (B) multiplied by a regional coefficient (C).

Where:(A) is the latest population census figure from DIE.(B) is taken from DIE statistics, inverted and normalized to a factor of 1 (richest

districts) to 10 (poorest districts).(C) is 1.5 for all Eastern and South-Eastern Anatolian districts and 1.0 for the rest of

the country.

The value of the products ABC is added up for the entire country and a coefficient to 8decimal places obtained. Actual transfers to a particular SYDV are subject to a minimum of TL1.5 billion per month.

Heating Support: A very similar formula is used for heating support except that theregional coefficient is replaced by a heating coefficient determined by the Meteorological Office(with higher values for colder regions). Heating support, of course is only provided in the Winterseason.

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Annex 5: Financial Summary

TURKEY: Social Risk Mitigation Project/Loan

TurkeySocial Risk Mitigation ProjectComponents by Financiers(US$ '000) IBRD The Government Total

Amount % Amount % Amount %

1. Rapid Response 100,000.0 100.0 - - 100,000.0 15.72. Institutional Development 30,476.3 83.3 6,130.9 16.7 36,607.2 5.83. CCT 260,000.0 72.2 100,000.0 27.8 360,000.0 56.74. Local Initiatives 104,523.8 78.1 29,329.2 21.9 133,853.0 21.15. Front-End Fee 5,000.0 100.0 - - 5,000.0 0.8

Total 500,000.1 78.7 135,460.1 21.3 635,460.2 100.0

TurkeySocial Risk Mitigation Project % % TotalComponents Project Cost SUI (US$ '000) Foreign Base

Local Foreign Total Exchange Costs

1. Rapid Response - 100,000.0 100,000.0 100 162. Institutional Development 21,896.8 14,710.4 36,607.2 40 63. CCT 360,000.0 - 360,000.0 - 574. Local Initiatives 106,572.3 27,280.7 133,853.0 20 215. Front-End Fee - 5,000.0 5,000.0 100 I

Total PROJECT COSTS 488,469.1 146,991.1 635,460.2 23 100

TurkeySocial Risk Mitigation ProjectProject Components by Year(US$ '000) Totals Including Contingencies

2001 2002 2003 2004 2005 TotalI. Rapid Response 100,000.0 - - - - 100,000.02. Institutional Development 428.4 14,960.9 12,616.3 4,813.8 3,787.8 36,607.23. CCT - 40,000.0 200,000.0 120,000.0 - 360,000.04. Local Initiatives - 23,035.0 32,371.0 35,097.0 43,350.0 133,853.05. Front-End Fee 5,000.0 - - - - 5000.0

Total PROJECT COSTS 105,428.4 77,995.9 244,987.3 159,910.8 47,137.8 635,460.2

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SYDTF INCOME & EXPENDITURES 1998-2001(TL trilion)1998 1999 2000 2001

REVENUES actual actual actual projectionOther Funds 96,646 145,762 225,111 213,869Income and Corporate Tax 26,261 258,341 159,781 283,558Traffic Fines 2,911 32,460 22,804 57,168Advertisement Revenue 0 254 254 871Radio/TV 0 313 2,086 2,786Petroleum Consumption Tax 43 229 0 0Previous Years Revenues 0 505 7,795 0Other Revenues 2,813 17,114 102,050 2,777SRMP World Bank 0 0 0 125,000

Total Revenue (Gross) 128,674 454,978 519,881 686,029

Revenue DeductionBudget (40% withholding) 1/ 38,042 173,492 167,439 136,290Other Funds 4,731 83,641 9,700 0Total Revenue (Net) 85,901 197,845 342,742 549,739

ExpendituresMonthly Transfer to SYDVs 7,984 14,013 21,760 60,000Investment Proiects 2,855 9,842 4,597 6,000Income Generating Sub-projects 8,586 7,977 7,726 12,000Medication Support 2,465 4,356 10,207 6,000Education Support 3,929 2,123 3,057 80,000Food for the Transported Students 8,456 18,764 28,578 40,000Family Heating Support 4,096 2,116 5,843 40,000Family Food Support 5,399 5,954 7,496 20,000Natural Disaster Support 9,484 72,042 206,173 18,000Other Social Support 4,055 4,065 5,609 9,000University Scholarships (MEB) 12,154 17,194 27,583 22,000Green Card Holders (SB) 9,095 19,273 31,939 42,000May-June Actual Expensditures 0 0 0 148,877June Expenditures 0 0 0 20,000Contingency 0 0 0 26,000

Total Expenditures (Net) 78,558 177,719 360,568 549,877

Fund Balance 7,343 20,126 17,826) 1381/ The earmarked revenues of the SYDTF are subject to a variable withholding by the Treasury.In recent years this has been 40 percent.

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Annex 6: Procurement and Disbursement ArrangementsTURKEY: Social Risk Mitigation Project/Loan

Procurement

General: Bank-financed Goods contracts under the project will be procured inaccordance with the World Bank Guidelines: Procurement under IBRD Loans and IDA Credits,published January 1995, and revised in January and August 1996, September 1997 andJanuary 1999 (henceforth referred to as Procurement Guidelines), Bank-financed contracts forConsulting Services required for the Project will be awarded following the World BankGuidelines: Selection and Employment of Consultants by World Bank Borrowers, datedJanuary 1997, revised in September 1997 and January 1999 (henceforth referred to asConsultant Guidelines). Project activities and procurement contracts not financed by the Bankwill be procured in accordance with the national regulations of the borrower and/or theprocurement regulations of the co-financing institutions. The project inputs, estimated costs andprocurement methods are summarized in Table A. The Procurement Plan is shown in Table Al.Other procurement information, including prior review thresholds for Bank-financed procurementcontracts, and a summary assessment of the procurement capacity of the coordinating andimplementing agencies and the Bank's review processes are presented in Tables B 1 and B2. Forprocurement under the Loan, the Borrower would use the Bank's latest Standard BiddingDocuments (SBD), Standard Form of Consulting Contracts and Requests for Proposals (RFP),and Standard Bid Evaluation Report Forms.

Notification of Business Opportunities: A General Procurement Notice (GPN) will bepublished in the Development Business announcing works, goods and consultant services to beprocured, and inviting interested eligible suppliers, contractors and consultants to express interestand to request any complementary information from the Borrower. The GPN will be updatedannually thereafter for all outstanding procurement under International Competitive Bidding(ICB) procedures, and consulting assignments by Shortlist. Specific Procurement Notices will bepublished in accordance with the procurement plan. The local advertisement procedure would berepeated for all bidding packages. The local advertisements would be in the English language andat the option of the Borrower, also in the Turkish language. For consultant services contractsabove US$ 200,000, Requests for Expressions of Interest will be advertised in the DevelopmentBusiness and in national newspaper (in the national and English languages).

Procurement Arrangements: Procurement under the SRMP includes the contracting ofgoods, consultant services, training and local initiatives sub-projects during the 4.25 yearimplementation period. The project (total cost US$ 635.46 million including taxes) is financed bya Loan of US$ 500.00 million and the Turkish Government with a contribution of US$ 135.46million. Procurement procedures are described in the succeeding paragraphs.

The procurement arrangements under the SRMP are primarily based on the Bank appraisal ofthe existing procurement management capability of the SYDTF, including the PCU. A capacityassessment of the implementing agency has been carried out as per separate report in the projectfile. A Procurement Action Plan has been developed, which provides a menu of actions and

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recommendations to build procurement capacity in the PCU. Government entities are not eligibleto participate in the World Bank financed contracts unless they meet the criteria under WorldBank Guidelines that they are legally, managerially and financially autonomous, and operate undercommercial Law. Procurement will be under the responsibility of the PCU, formed within theSYDTF. The PCU will be responsible for project implementation including coordination,procurement, disbursement, maintaining the project accounts and overall coordination ofimplementation by other agencies such as SHCEK and DIE. However, the procurements underLocal Initiatives Component will be implemented by the communities, not by the PCU.

The Project Coordinator has been appointed full-time with TOR and qualificationssatisfactory to the Bank. Under her management, a team comprised of one procurement specialist,two financial management specialists, one IT specialist, one M&E specialist and two support staff,will be working for the implementation of the project. In addition to these staff of the full-timeindividual consultants in various disciplines (i.e. one procurement specialist, one financialmanagement specialist, one IT specialist, one reporting/communication specialist) will be hired tostrengthen the PCU with TOR and qualifications satisfactory to the Bank.

Procurement Arrangements:The SRMP has two portions, Adjustment and Investment(the latter with three components):

* Adjustment Portion: Rapid Response. There is no procurement in accordance with theBank's procedures. Disbursement will be made against imports, following negative listprocedures.

* Investment Portion:

3 Component I: Institutional Development. The Bank's procurement policies andprocedures will apply.

i Component Il: CCT. There is no procurement in accordance with the Bank'sprocedures, because these grants will be distributed according to detailed procedures andconditions set forth in the POM.

* Component III: Local Initiatives. The Bank's simplified procurement policies andprocedures for community participation investments will apply. These policies andprocedures are set forth in the POM.

Bank-Financed Procurement: Bank financed expenditure items under InstitutionalDevelopment Component will be procured as follows:

Goods

(a) International Competitive Bidding (ICB). Goods consisting of computer hardware andsoftware and related office equipment which are estimated to cost more than US$ 100,000equivalent per package, will be procured using ICB procedures in accordance with the Bank'sProcurement Guidelines.

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(b) International Shopping (IS). Procedures for IS will be used for procurement of smallquantities of readily available off-the-shelf items, such as basic office equipment estimated to costless than US$ 100,000 equivalent per contract, up to an aggregate value estimated at US$400,000 equivalent. International shopping procedures will be based on comparing pricequotations obtained from at least three suppliers from two different source countries, inaccordance with Bank Procurement Guidelines.

(c) National Shopping (NS). Miscellaneous small quantities of furniture, goods andequipment for the dispersed project institutions, of readily available off-the shelf item which donot exceed US$ 50,000 per contract, may be purchased on the basis of prudent NS. NSprocedures will be based on a comparison of written price quotations obtained from at least threelocal suppliers, in accordance with Bank Procurement Guidelines. The aggregate value of NScontracts is estimated at US$ 200,000 equivalent.

Consulting Services and Training

(a) Quality and Cost-based Selection (QCBS). QCBS procedures will be used for theselection of institutions and/or consultant firms that will carry out public opinion research, M&Eand other research activities. The total aggregate value of contracts procured under QCBS isestimated at about US$ 9.759 million equivalent.

(b) Quality-based Selection (QBS). QBS procedures will be used for the selection ofinstitutions and/or consultant firms that will carry out training programs under the project. Thetotal aggregate value of contracts procured under QBS is estimated at about US$ 2.82 millionequivalent.

(c) Consultant Qualifications (CQ) CQ procedures will be used for the selection ofinstitutions and/or consultant firms that will carry out dispersed/small training programs under theproject and for beneficiary assessments. The contracts will be less than US$ 100,000. The totalaggregate value of contracts procured under CQ is estimated at about US$ 2.31 millionequivalent.

(d) Individual Consultants (IC). Individual consultants would be recruited for specific skillareas/expertise which would be needed for short periods of time at scattered intervals, and whichwould be impractical to package with the assignments for consulting firms described above. Therequired social workers for the SYDVs, specialized technical consultants for the Local Initiativescomponent and specialists for the PCU will be hired under IC arrangements. The total aggregatevalue of contracts procured under IC is estimated at about US$ 2.94 million equivalent.

(e) Least Cost Selection (LCS). The consultant services for the annual financial audit of theproject financial statements and accounts will be procured in accordance with the LCS proceduresin accordance with the Bank Consultant Guidelines.

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(f) Procurement of Training Services: The PCU will prepare a detailed Annual TrainingProgram in consultation with the related organization under the SRMP implementation. TheAnnual Training Program will contain time schedule for workshops, training, in-service training,including detailed information on the content, itinerary, location, number of beneficiaries, costestimates for each activity etc. The proposed Annual Training Program will be submitted to theBank for review and clearance before starting implementation. After the Bank's clearance, theprogram shall be implemented in accordance with the agreed procedures i.e. QCBS, QBS, CQ.The status of Annual Training Program will be included as part of the Quarterly PMRs and will beupdated and/or modified as may be mutually agreed between the PCU and the Bank.

Procurement of Sub-projects under the Local Initiatives Component:

In accordance with paragraph 3.15 of the Bank's Procurement Guidelines, the simplifiedprocurement procedures for community participation will be applied. The Procurement rules forthis component are set forth in details in the POM. In general procurement will be undertakenusing the Bank's simplified procurement methods for Community Participation in accordancewith the Bank's Procurement Guidelines.

i Income Generating Sub-projects; each sub-project for goods, works and servicesestimated to cost less than or equal to US$ 10,000 will be procured competitivelyfrom domestic sources.

* Employability Training; each sub-project for goods and services estimated to costless than or equal to US$ 10,000 will be procured competitively from domesticsources.

= Temporary Community Employment; each sub-project for goods and worksestimated to cost less than or equal to US$ 50,000 will be procured through NationalShopping (NS) and/or Minor Works (MW) procedures as mentioned below.

* Community Social Services; each sub-project for goods and works estimated to costless than or equal to US$ 100,000 will be procured through National Shopping (NS),International Shopping (IS) and/or Minor Works (MW) procedures as mentionedabove.

Minor Works (MW). Small construction works of sub-projects under Local InitiativesComponent estimated to cost less than US$ 50,000 per contract will be procured through MWbased on at least three quotations obtained from qualified domestic contractors in response towritten requests.

As the sub-projects are developed by the communities, the need for contractors, suppliers andconsultants shall be advertised every 6 months in local (village or district level) and/or provincialnewspapers. If no such papers exist, the notice board of the community would be used for thepurpose of advertisement. The applicants shall be registered at the community level and, forprocurements under National Shopping, Minor Works, Consultants Qualifications, quotationsshall be asked from these applicants.

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Review by the Bank of Procurement Decisions

Scheduling of Procurement. Procurement of goods and services for the project will becarried out in accordance with the agreed procurement plan (Table Al), which will be updated asnecessary and included in the progress reports for Bank review and approval. The Bank willreview the procurement arrangements proposed by the Borrower, including contract packaging,applicable procedures, and the scheduling of the procurement processes, for its conformity withBank Procurement and Consultant Guidelines, the proposed implementation program anddisbursement schedule. The following procurement action and documentation would be subjectto Prior Review by the Bank.

(a) Goods: Equipment, Furniture and Materials: Prior review of bidding documentpackage (including, inter alia, Invitation to Bid, Instructions to Bidders and Bid Data Sheet,General and Special Conditions of Contract, Bid Forms, Schedule of Requirements, TechnicalSpecifications), Bid Evaluation Reports; Recommendations of Contract award and draft Contractwill be conducted for: (i) all ICB tenders (contracts above US$ 100,000); (ii) the first threecontracts awarded through IS; and (iii) first three contracts awarded through NS; and (v) firstthree contracts awarded through MW procedures.

(b) Consultant Services, including Training: Prior review of procurement documentsand actions will be conducted for:

(i) QCBS, QBS and LCS. Prior review of (1) short listing criteria for consultingassignments, (2) Consultants Short Lists (three to six consultants per assignment); (3)complete Request for Proposal (RFP) package (including Invitation, Information toConsultants and Data Sheet, General and Special Conditions of Contract, Technical Proposalstandard forms, Financial Proposal standard forms, and draft Contract Agreement); (4) Termsof Reference, including description of services, consultants' reporting requirements, andrequired qualifications of consultants' key personnel; (5) Technical and Financial EvaluationReports (including official minutes) and Recommendations for contract award; and (6)Negotiated Contract.

(iii) IC contracts of US$ 25,000 and above and for contracts with firms US$ 100,000and above: (1) short listing criteria for consulting assigmnents, (2) Consultants Short Lists(three to six consultants per assignment); (3) Technical and Financial Proposal, and draftContract Agreement); (4) Terms of Reference, including description of services, consultants'reporting requirements, and required qualifications of consultants' key personnel; (5)Technical and Financial Evaluation Reports and Recommnendations for contract award; and (6)Negotiated Contract.

(iv) IC contracts below US$ 25,000 and for contracts with Firms below US$ 100,000:(I) criteria for short listing consultants; and (2) Terms of Reference;

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(v) CQ consultant contracts: Prior review of: (1) short listing criteria for consultingassignment, (2) Consultants Short List (three to six consultants); (3) Request for Proposalpackage (including Invitation, Information to Consultants and Data Sheet, General andSpecial Conditions of Contract, Technical Proposal standard forms, Financial Proposalstandard forms, and draft Contract Agreement); (4) Terms of Reference, includingdescription of services, consultants' reporting requirements, and required qualifications ofconsultants' key personnel; (5) Technical Evaluation Report; (6) Minutes of contractnegotiation and recommendation for contract award; and (6) Negotiated Contract.

Post-Review. Those contracts below the Bank's prior review threshold, are subject tothe Bank's ex-post review in accordance with Bank Procurement and Consultant Guidelines.Periodic ex-post review by the Bank of procurement contracts will be undertaken during regularsupervision missions and will involve about I in 10 contracts for IC services and an average of Iin 5 contracts for other procurement.

(c) Procurement review for Local Initiatives Component: Procurements under LocalInitiatives Component shall be subject to the Bank's post review and this review shall be carriedout together with the financial post audits.

Action Plan for strengthening the PCU Capacity to Implement Project Procurement

The following actions need to be taken in the order below;

* The procurement file containing the up-to-date procurement documents such as guidelines,templates of procurement notices, standard bidding documents for the procurement of goodsunder ICB, IS and NS methods, standard request for proposal document for the consultantsservices, standard consultants contracts for large and small assignments and for time basedand lump-sum payments, evaluation report formats have been prepared in hard copy and inelectronic version on diskettes and provided to the PCU staff before the Loan Negotiations.The PCU shall translate into Turkish the related documents for NCB and MW which will behandled in Turkish.

* The PAS will organize a one-day procurement familiarization seminar for the PCU staffincluding the individual consultants and any other staff who will be potentially involved indifferent aspects such as technical, financial, legal aspects of the project. This seminar willserve to both introduction of Bank's procurement procedures and updating their previousknowledge. The seminar will be scheduled during the Project Launch Workshop to be held inSeptember 2001.

* As mentioned above, SYDTF will hire an experienced procurement consultant for the life ofthe project before the effectiveness of the Loan. The procurement consultant will have at least5 years experience in Bank financed projects and shall work very closely with the procurementstaff of the PCU mainly for the preparation of bidding documents for the procurements to becarried out in the first year of the new project. The TOR and the CV of the procurementconsultant shall be reviewed and approved by the Bank before signing the contract.

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* Although the procurement person had a one week seminar on Bank procurement, he shouldattend additional more intensive training especially in the procurement of goods andconsultants services. However, his main handicap is his lack of English language. Therefore,the procurement team should be supported with some other staff who speaks English. Theprocurement staff shall attend intensive procurement training offered by Bank or by ILO inTunrn during the early implementation of the SRMP.

* Each Bank Supervision Mission shall include the PAS assigned to this project to assist thePCU staff for updating the procurement plan and resolving pending procurement issues toovercome delays.

Procurement methods (Table A)

Turkey - Social Risk M itigation ProjectTable A: Project Costs by Procurement Arrangem ents (US$ m illion equivalent)

Procurem ent M ethodExpenditure Category ICB NC B Other Total Costdl

A. Adjustm ent - 100.000 100.000(1 0 0. 0 0 0) (1 0 0. 0 0 )

B. Conditional Cash Transfer 3-360.000 360.000(260.000) (260.000)

C. Sub-projects (Local Initiatives) - - 127.480 127.480(1_04.5_39)_ (104. 539)

D. Goods 17.192 0.568a 17.760____________________ _________________________ (14.570) (0.483) (15.0 53)E. Consulting Services 12.75 7 12.757* 7==L ==____________________________________ (10.748) (10.748)

F. Training 5 45cI 5. 145(4.360) (4.360)

G. Increm ental O perating Costs 9.5 19 9.519_____ ____ ____ ____ _____ ____ ____ ____ ___ _ ____ ___ ____ ____ (0.300) (0.300)

H Front End Fee 5.000 5.000l 1 _ (5.000) (5.000)

TOTAL 17.192 620.469 637.661i__________________________________________ (14.570) (485.430) (500.000)

Figures in paranthesis are the amounts to be financed by the Bank Loan.The am ounts that exceed these figures will be financed by the Borrower.

a/ Includes: IS contracts - US$ 0.400NS Contracts - US$ 0.168

b/ Includes: QCBS Contracts - US$ 7.399QBS Contracts - US$ 1.286CQ Contracts - US$ 1.062Individual Cons. - US$ 2.935Financial Audit with cost of US$0.075 to be financed by the Borrower is included in I

c/ Includes: QCBS Contracts - US$ 2.360QBS Contracts - US$ 1.534CQ Contracts - US$ 1.251

d/ No other donor financing, so Non-Bank Financed (NBF) column is deleted.

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TABLE Al: PROCUREMENT PLAN FOR SOCIAL RISK MITIGATION PROJECT(INSTITUTIONAL DEVELOPMENT COMPONENT)

1 2 3 4 5 6 7

(c)Cont Description T Number of Estimated Cost Procure PrequaVSL (BD/RFP) Bid Cont- Contract-ract Y slices/ (US$ 000) ment l.Invitation l.invitation ract Com-No P items/ Method GPNISPN/ 1. Prepa- GPN/SPN/Loc Signing pletion

E sub- Local ration alpackages 2.Opening 2.Opening

3. Eval. & 3. Eval. &Recom. Rec.Award

Total BF NBF(d) (a) (b)

1. Design of CS 2 507 430 77 QCBS Sep. Nov. 2001 Dec. 2001 Mar. Aug. 2002computer network 2001 Jan. 2002 2002system (including Feb. 2002applicationsoftware) forSYDTF andSHCEK _

2. Establishment of G I 6,407 5,430 977 ICB Sep. 2001 Jul. 2002 Aug. 2002 Dec. Oct. 2003computer network Oct. 2002 2002system (hardware, Nov. 2002software etc.) forSYDTF andSYDVs

3. Office Equipment G 3 826 700 126 ICB Sep. 2001 Nov. 2001 Dec. 2001 Mar. Jun. 2003for SYDTF and Jan. 2002 2002SYDVs I Feb. 2002

4. Policy and CS Multiple 696 590 106 QBS Sep. 2001 Nov.2001 Dec. 2001 Mar. Dec. 2005Research Studies Jan. 2002 2002for SYDTF and Feb. 2002beneficiaryassessment _

5. Monitoring and CS Multiple 590 500 90 QBS Sep. 2001 Nov. 2001 Dec. 2001 Mar. Dec. 2005Evaluation Jan. 2002 2002Services for Feb. 2002

_ SYDTF6. Development CS Multiple 2,251 1,908 343 IC Sep. 2001 Nov. 2001 Dec. 2001 Feb. Dec. 2005

Consultants for Jan. 2002 2002PCU and SYDVs

7. In-Service training CS Multiple 944 800 144 CQ Sep. 2001 Oct. 2001 Nov. 2002 Mar. Dec. 2003for SYDTF Jan. 2002 2002

______________ _______ Feb. 20028. Public Opinion CS 1 296 250 45 QCBS Sep. 2001 Oct. 2001 Nov.2001 Mar. Jun. 2002

Research for Jan. 2002 2002SYDTF Feb. 2002

9. Public Information CS 1 1,475 1,250 225 QCBS Sep. 2001 Oct. 2001 Nov. 2002 Mar. Dec. 2003Campaign for Jan. 2002 2002

_ SYDTF _ Feb. 200210. Office Equipment G Multiple 118 100 18 NS Sep. 2001 Oct. 2001 Oct. 2001 Nov. Dec. 2003

for PCU _ Nov. 2001 200111. PCU Consultants CS Multiple 590 500 90 IC Aug. 2001 Aug. 2001 Sep.2001 Sep. Dec. 2005

200112. Accounting G 1 50 43 7 NS Aug. 2001 Sep. 2001 Sep. 2001 Oct. Nov. 2001

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Software O = Oct. 2001 2001

13. Operational CS 1 236 200 36 QCBS Sep. 2001 Aug.2002 Sep. 2002 Jan. Dec. 2004Review Nov. 2002 2003

_________ _______ ___________ Dec. 200214. !Estab]ishment of G I 9,959 8,440 1,519 ICB Sep. 2001 Jun. 2002 Jul. 2002 Oct. Oct. 2003

computer network Sep. 2002 2002system (hardware, Oct. 2002software etc.) forSHCEK

15. Needs Assessment CS Multiple 826 700 126 QCBS Sep. 2001 Nov. 2001 Dec. 2001 Mar. Dec. 2005studies for SHCEK Jan. 2002 2002l _____________ _________ _____ Feb. 2002

16. Beneficiary CS Multiple 678 575 103 CQ. Sep. 2001 Nov. 2001 Dec. 2001 Mar. Dec. 2005Assessment Jan. 2002 2002Studies for Feb. 2002SHCEK

17. M&E Consultants CS 1 94 80 14 IC Sep. 2001 Nov. 2001 Dec. 2001 Feb. Dec.2005for SHCEK Jan. 2002 2002

18. In-services trainin CS Multiple 1,534 1,300 234 QBS Sep. 2001 Oct. 2001 Nov. 2001 Feb. Dec. 2003for SHCEK Dec. 2001 2002

Jan. 200219. Language Training CS 2 236 200 36 CQ Sep. 2001 Oct. 2001 Nov. 2002 Feb. Dec. 2003

for SHCEK Dec.2002 2002Jan. 2002 _

20. Public Opinion CS 1 295 250 45 QCBS Sep. 2001 Oct. 2001 Nov. 2001 Feb. Jun.2002Research for Dec. 2001 2002SHCEK Jan. 2002

21. Public Information CS 1 1,475 1,250 225 QCBS Sep. 2001 Aug. 2002 Sep. 2002 Feb. Dec.2003Campaign for Nov. 2002 2003SHCEK ___ _Jan. 2002

22. Computer Training CS Multiple 2,360 2,000 360 QCBS Sep. 2001 Nov. 2001 Dec. 2001 Mar. Dec. 2002for SYDTF, Jan. 2002 2002SYDVs and Feb. 2002SHCEK staff

23. Household Survey CS 1 1,699 1,440 259 QCBS Sep. 2001 Oct. 2001 Nov. 2001 Jan. Dec.2004(DIE) Dec. 2001 2002

Jan. 2002

24. rraining of DIE CS 1 71 60 11 CQ Sep. 2001 Oct. 2001 Nov. 2001 Jan. Dec. 2004staff and in-service Dec. 2001 2002training for HEIS __ Jan. 2002

25. IT Equipment for G 2 200 170 30 IS Sep. 2001 Oct. 2001 Oct. 2001 Nov. Dec. 2001DIE Nov. 2001 2001

26. Training and CS Multiple 384 325 59 CQ Sep. 2001 Nov. 2001 Dec. 2001 Mar. Dec. 2004Consulting Jan. 2002 2002Services for DIE Feb. 2002Census Analysis _

27. IT Equipment for G 2 200 170 30 IS Sep. 2001 Oct. 2001 Nov. 2001 Jan. Jul. 2002Census Analysis Dec. 2001 2002

28. E3aseline Survey CS 1 236 200 36 QCBS Sep. 2001 Oct. 2001 Nov. 2001 Mar. Dec. 2002for Evaluation of Jan. 2002 2002CCT Feb. 2002

29. Outcome Survey CS 1 236 200 36 QCBS Sep. 2001 Oct. 2003 Nov. 2003 Mar. Dec. 2004for Evaluation of Jan. 2004 2004CCT |Feb. 2004

30. Analysis for CS 1 118 100 18 QCBS Sep. 2001 Aug. 2004 Sep. 2004 Jan. Mar. 2005Evaluation of CCT Nov. 2004 2005

________ _ ___Dec. 2004=TOTAL 35,587 30,161 5,426

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(a): The Total Costs are inclusive of 18% local taxes (VAT).(b): NBF: Non-Bank-Finance is the Govemment's contribution in terms of local taxes (VAT) which is 18% of thecontract price.(c): The minimum bidding time as per the Bank's Procurement and Consultants' Guidelines shall be allowed. ThePCU wishes to apply tight schedule to be able to achieve the implementation plan.(d): For "multiple" number of items/sub-packages; the activity dates represent the initiation of the first contract andthe activity will continue throughout the implementation of the project as required.

Prior review thresholds (Table B)

Table B1: Summary of Procurement ActivitiesTurkey - Social Risk Mitigation ProjectTable BI: Consultant Selection Arrangements (USS million equivalent)

Procurement Method |

Expenditure Category QCBS| QBS CQ IC Total

A. Consulting Firms 9.759 2.820 2.313 14.892(8.270) (2.390) (1.960) - (12.620)

B. Individual Consultants - 2.935 2.935- - - 1 (2.488) (2.488)

TOTAL 9.759 2.820 2.313 2.935 17.827(8.270) (2.390) (1.960) (2.488) (15.108)

Figures in paranthesis are the amounts to be financed by the Bank Loan.

QCBS: Quality and Cost Based SelectionQBS: Quality Based SelectionCQ: Selection Based on Consultants' QualificationsIC: Individual Consultants (per Section V of Consultants Guidelines)

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Table B2: Thresholds for Procurement Methods and Prior Review

% of Loan

Goods/Works ICB IS/NS Amountsubject torDiOr review

IS: Less thanProcurement Above $100 000 $100,000;Thresholds NS: Less than

$50,000$ 14.57 million IS: $ 400,000

Aggregates NS: $ 200,000

All contracts IS: first 3

Prior Review contractsPrior Review ~~~~NS: first 3

contracts 90%Consultants QCBS QBS CQ Individual

Aggregates $ 9.759 million $ 2.820 million $ 2.313 million $ 2.935 million

All consultant All consultant All consultant All contractsPrior Review contracts contracts contracts above $25,000

One in ten contracts for Individual Consultants contracts and one in five contractsEx-post Review for other procurements shall be subject to post review which will be carried out

periodically during supervision missions.

The capacity of the implementing agency to conduct procurements has been assessed. The overallprocurement assessment is high-risk. The following action plan is recommended as a result of thisassessment. 1. The procurement file containing all of the up-to-date Bank's procurement documents suchas guidelines, SBDs, RFP etc. is to be provided to PCU both in hard copy and electronically before the LoanEffectiveness. 2. The PAS shall organize one day procurement familiarization seminar for the PCU staffduring the Project Launch Workshop. 3. PCU shall hire an experienced procurement consultant before theLoan effectiveness. 4. PCU procurement staff shall attend the intensive procurement training offered by ILOTurin during the early implementation of the project.Country Procurement Assessment Report or Country Are the bidding documents for the procurementProcurement Strategy Paper status: The CPAR is finalized actions of the first year ready by negotiationsin June 2001. YES NO X

Estimated date of Estimated date Indicate if there is Domestic Preference for Goods DomesticProject Launch of publication of procurement Yes X No Preference forWorkshop General subject to Works, ifSeptember 2001 Procurement mandatory SPN applicable

Notice in Development Yes No X09116/2001 Business

. Yes X N o

Explain briefly the Procurement Monitoring System: Procurement implementation progress will be monitoredthrough progress reports and supervision missions. Each supervision mission will include the projectprocurement specialist for updating the procurement plan and conducting post review.Co-financing: None

____ - S 101 IWE1 _ Indicate name of Procurement Staff or Bank's staff part of Task Team responsible for the

procurement in the Project: Elmas Arisoy (ECCTR)xplain briefly the expected role of the Field Office in procurement: There are two procurement

specialists in the Country Office.

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Disbursement

Allocation of loan proceeds (Table C)Disbursement

Allocation of loan proceeds (Table C)

The proceeds of the Loan would be disbursed in accordance with the guidelines providedin the Bank "Disbursement Handbook". The procurement and disbursement arrangements arebased on the Bank's appraisal of the procurement and financial management capability of theimplementing ministry and its institutions, as well as the experience and lessons leamed fromongoing Bank operations in the HD sector in Turkey. Loan funds are expected to be fullydisbursed within nineteen (19) quarters after the expected effectiveness date of September 15,2001. The Project Completion Date is December 31, 2005 with a Credit Closing Date of June 30,2006. The disbursement categories and amounts and percentages to be financed under eachcategory are presented in Table C, as follows:

Table C: Allocation of Loan Proceeds

Expenditure Category Amount in US$ Financing Percentage

1. Adjustment - (Rapid Response) 100,000,000 100%2. Education Grants and 260,000,000 100% up to December 31, 2002;Health/Nutrition Grants (CCT) 80% for up to December 31, 2003;

and 60% thereafter3. Performance Grants and Sub- 100,000,000 82% of disbursed amountsprojects (Local Initiatives)4. Goods 15,000,000 100% of foreign expenditures;

100% of local expenditures (ex-factory cost); and

82% of local expenditures for other itemsprocured locally

5. Consultants' Services, including 15,000,000 82 %Training6. Incremental Operating Costs 300,000 82%7. Front-end fee 5,000,0008. Unallocated 4,700,000Total 500,000,000

Use of statements of expenditures (SOEs):

Disbursements will be made on the basis of Statements of Expenditure (SOE) forcontracts for the CCT, local institutions sub-projects, goods, consultant services, training,accordance in with the table below. Supporting documents for expenditures financed on basis ofSOEs will be retained by PCU for at least one year after disbursement and made available forreview by Bank representatives and external auditors. Disbursement for the Rapid Response

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component will be undertaken as a single disbursement to the CBT upon Loan Effectiveness.

All applications to withdraw from the loan will be made in accordance with guidelines setout in the Bank's disbursement handbook. All applications to withdraw will be fully documented,except those for training and contracts not subject to prior review, as shown above, for whichreimbursement may be made against certified statements of expenditures SOEs. Project accountswill be subject to an independent audit for each fiscal year, in accordance with auditing standardsacceptable to the Bank.

SOE Thresholds:* Goods: contracts costing less than US$ 100,000 equivalent* Consulting services - firms: contracts costing less than US$ 100,000* Consulting services - individuals: contracts costing less then US$ 50,000 equivalent* Training: all contracts

Administration of Disbursement:

The PCU will be responsible for the maintenance of a centrally managed financialmanagement system (FMS), including records and accounts, for the preparation of financialstatements in a format acceptable to the Bank, adequate to reflect the operations, resources andexpenditures of all withdrawal applications in accordance with Bank's guidelines.

Special account:In order to facilitate Loan disbursement, the Government will establish a Special Account

in the CBT on terms and conditions satisfactory to the Bank to cover the Banks share ofexpenditures. The Authorized Allocation for the Special Account would be US$ 15,000,000.However, during the initial stage of implementation, an amount limited to US$ 5,000,000 will bedeposited in the Special Account. When the aggregated amount of disbursement reaches USS15,000,000, the amount deposited in the Special Account will be increased to the full authorizedallocation of US$ 15,000,000. The minimum amount of each application should be 20 percent ofthe authorized allocation. Applications for replenishment of the Special Account would besubmitted monthly, or whenever one-third of the amount has been withdrawn, whichever occursearlier.

Traditional Disbursement Procedures. The disbursement under the loan will be made inaccordance with traditional disbursement procedures as explained in Disbursement Handbook.

Financial Management

Institutional and Implementation Arrangements: Fiduciary Considerations

The SYDTF is an extra-budgetary fund established by Law No. 3294 dated May 29, 1986.The SYDTF is administered by a Committee comprising Undersecretary of Prime Ministry,Undersecretary of Ministry of Interior, Undersecretary of SB, the General Directorate of SYDTFand the General Director of the SHCEK, under the chairmanship of a State Minister appointed by

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the Prime Minister. All of the decisions made at the Committee meetings enter into effect afterapproval and ratification by the Prime Minister. The SYDTF does not have its own administrativecapacity and most of its staff members are seconded and paid from ministries or other agencies.The SYDTF is subject to government regulations on accounting (Uniform Code of Accounts) andrecord-keeping. However, the SYDTF is not required to produce financial statements, given itsnature of extra-budgetary fund and tax-exemption status. The SYDTF is subject to annual auditsby the Prime Ministry Supreme Audit Board.

The SYDTF's existing accounting unit is not prepared and adequately staffed to cope withthe increased workload resulting from the project and the existing financial management system isinadequate to support project accounting/reporting functions (following Government accountingclassifications and conventions) and not supported by the needed internal controls; hence the need(among other fiduciary areas, where adequate resources and skills are lacking) for theestablishment of a PCU through which specialized information systems and adequate professionalexpertise will be made available to the SYDTF.

The PCU will be in charge of project management, administration and concreteimplementation, functioning as service-provider to the various implementing agencies. The PCUwill work as a specialized organizational unit of the SYDTF, with staff from the SYDTF(counterpart members) and local consultants for the activities where the SYDTF lacks experience,at present: both fiduciary (disbursement, procurement, project accounting and reporting) and corefinctions (targeting, M&E and public information).

The PCU consists of eight SYDTF staff (already appointed with TOR and CVssatisfactory to the Bank) and local consultants, namely, a procurement specialist, an accountant, adisbursement, IT expert, a M&E expert, a reporting and communication expert and two supportstaff who will be financed under the SRMP. It will include a liason person each from the SHCEKand the DIE to facilitate coordination with those institutions. Job descriptions for the localconsultants, were reviewed and approved by the Bank and hiring is underway. Appointment ofthe FMS consultant, along with a functioning FMS, is a Condition of Effectiveness. The SYDTFwill improve its capacity by the support of these qualified professional individual consultants. AnFMS satisfactory to the Bank will be maintained and strengthened by the SYDTF throughoutproject implementation.

All fiduciary functions (disbursement, procurement, accounting and reporting) will becentralized at the PCU level. Thus, the PCU must be not only appropriately resourced, but thePCU members will need appropriate training in project management and administration. TheSYDTF managed efficiently and effectively the emergency response to the August 1999 Marmaraearthquake, proving itself as the most suitable vehicle to administer assistance transfers in a fastcontrolled manner. However, it did not perforn project management and administration functionsfor which, at present, there is no capacity in place. Furthermore, the SYDTF lacks written policiesand procedures governing its functions and regulating its relations with the SYDVs.

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The SYDVs are separate autonomous legal entities established at the provincial/districtlevel, managed by their own local Committee, enjoying relative latitude in decision-making and(given their legal status) exercising some independence in carrying out their activities. Foreffective coordination and monitoring by the SYDTF of the SRMP activities carried out by theSYDVs, the SYDTF will send out a legally binding circular (satisfactory to the Bank) to all 931SYDVs biding them to the POM and the SRMP Loan Agreement prior to Board. This circularwill spell out respective roles and responsibilities and empowering the SYDTF with authority toimplement specific actions in case of less than satisfactory participation or performance by theSYDVs. The introduction of standardized procedures and reporting formats will be needed,which will be one of the outcomes of the establishment of a common, unified FMS (financedunder the Institutional Development component of the SRMP). The excellent performance of theSYDTF/SYDV under Marmara earthquake emergency will be systematized and documentedunder the SRMP, in order to become an efficient, sustainable and transparent social safety-net andan effective system of social services and assistance catering to the poorest.

In consideration of the accelerated project preparation schedule, it will take an estimatedin two months from appraisal (July 2001) to establish a satisfactory FMS, - including humanresources, software, hardware, policies and procedures documented in the POM - . Asatisfactory certification by the Bank FMS of this system is a Condition of Disbursement for theCCT and Local Initiatives components.

Adjustment Portion: Rapid Response

The adjustment portion of the SRMP will be disbursed in a single tranche based uponcompletion of the tranche release conditions. For this portion, the PCU will have accounting andreporting responsibilities, and the reporting will be in the form of a quarterly progress report.

Consistent with the nature of this operation, implementation arrangements for theadjustment portion of the loan will be simplified (for instance in terms of financial reporting andauditing requirements). However, to ensure transparency and sound governance, thearrangements governing the transfer of funds among the implementing institutions and theassociated supporting documentation and reporting obligations would be spelled out in anImplementation Agreement to be entered by Treasury and the MB.

Each of the 931 SYDVs will maintain a distinct bank account for the four different typesof assistance (school attendance support, pharmaceuticals, heating and food assistance). This isneeded since the SYDTF will have to prepare quarterly progress reports to the Bank based uponmonthly data. The availability of bank statements for the various SYDVs and type of assistancewould allow the SYDTF to do so, even in the absence of timely, regular and accurate reportingfrom the SYDVs. A generalized lack of 'reporting culture' is observable in the SYDVs,customarily used to receiving funds from the SYDTF but not reporting back on the basis ofstandardized formats and/or at regular intervals. The PCU has prepared reporting templatescontaining the minimum information to be provided by the SYDVs, which have been reviewedand approved by the Bank. The PCU will consolidate those records and prepare a summarizedquarterly progress report with monthly data.

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Applications will be screened and decided upon by the SYDVs based on the criteriacurrently in use and forwarded to SYDTF on a monthly basis for disbursement. Assistance willbe provided to applicants either in cash or in kind. In the latter case, the SYDVs will have todisclose, or quantify, the monetary equivalent of the benefits provided in their report to theSYDTF.

Since records and supporting documentation for the transfers will be retained at the singleSYDV level (the SYDTF will only receive a summarized report with attached the list ofapplicants/beneficiary and the bank statement), limited compliance audits (basically, documentaryreviews) will be conducted by a governmental audit body across the SYDVs to ascertain that: (i)proper authorization and fund transfer mechanisms are in place; (ii) adequate filing procedures areobserved (allowing opportune audit trail); and (iii) meaningful budgets and complete summaryreporting, supporting the next-period disbursement request, are prepared by the SYDVs and sentto the SYDTF.

The diagram presented below summarizes the flow of funds, relating supportingdocumentation, reporting lines and documentary reviews for the adjustment portion of the SRMP.

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M ------------ ----- -X

i,X L'S - iSliSS_~~~~~~~~~~~

l A X gtg~~~~~~~~~~~~~~~~

{-R l~~~~--------------W 1 51| t

, ---1 ., -tit--1

I.Iii!

Tl~~~~~~~~~~~~~~~tr

IL

Zs --------~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,v

Investment Portion

For the implementation of the investment components, the detailed, specific financialmanagement arrangements and flow of funds and applicable controls for each component aredescribed below. The PCU will establish a financial management system meeting Bankrequirements. The system will entail adequate staffing (in terms of number and skills), will besupported by a suitable accounting software and will be assisted by an adequate controlenvironment and a combination of ex-ante and ex-post external audit arrangements.

All the elements described will be documented in a Financial Management Manual, whichwill be an integral part of the POM, which is a condition of disbursement for the CCT and LocalInitiatives components. The POM will document, inter alia: (i) organization and managementstructure of project implementation; (ii) job description for PCU team members; and (iii)operational procedures to be followed; and (v) project management reporting and externalreporting classifications, formats and frequency, PMRs, procurement reports, audit reports, etc.

The diagram presented above summarizes the flow of funds, relating supportingdocumentation, reporting lines, ex-ante audits (for the CCT) and external auditing arrangementsfor the investment components of the SRMP.

(I) Institutional Development Component

The SYDTF and SYDVs needs have been identified in the institutional assessment (seeAnnex 13) and supported by the results of the operational review conducted by an internationalaccounting and consulting firm (PriceWaterhouseCoopers, PWC) under the EERL. Theinstitutional strengthening of the SYDTF and the SYDVs will involve the implementation of thekey agreed recommendations of the operational review conducted by the consultants in thecontext of the EERL (which have been accepted by the SYDTF and the Government) requiring,inter alia, the introduction of unified procedures, the development of formal financial reportingarrangements between the SYDTF and the SYDVs and the establishment of an integrated MIS.

The SYDTF needs a complete overhaul of its information system, especially in respect oftools for networking and interfacing with the SYDVs, primarily the creation of a unified data-baseand real-time data sharing. In this respect, detailed functional and technical specifications arealready available (prepared by PWC). These specifications, with small adaptations, will form thebasis for the (RFP) for the new MIS. The project accounting software and related equipment forthe PCU will be financed under this component, with the initial assistance of the PHRD. Allbeneficiaries will be required to introduce a maintain a fixed asset register for the equipmentfinanced by Loan proceeds.

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(II) CCT Component

The CCT will be implemented by relying on existing networking arrangements andprocedures envisaged under the Rapid Response component, thereby avoiding placing anenormous administrative burden on the SYDTF. Thus the CCT would use a decentralizedapproach, whereby the SYDTF would provide (monthly) periodic allocations to the SYDV. TheSYDV would then arrange payments, maintain records and prepare summary reports for the PCU,administer the payments through a bank with which the SYDTF will enter into a contractualarrangement.

To strengthen the accountability and transparency of the whole process, pre-audits ofCCT will be conducted by a governmental audit body under TOR already agreed with the Bank.The pre-audits, although conducted in a systematic way, would be not generalized: inconsideration of the large number of micro-payments involved, the risk that this safeguardmeasure slows down implementation of the CCT program must be avoided. The pre-auditswould rather represent a verification of the transparency and correctness of payments'administration, conducted by an independent third party, covering a representative random sampleof transactions, and carried out on a rotational basis throughout all SYDVs. The purpose of thepre-audits would, in fact, be to provide reassurance to all stakeholders that the whole process isadequately controlled; in this respect, auditors would: (i) review the information prepared by theSYDVs on the claims/payable benefits for the given period under examination; and (ii) wouldcross-reference the compiled requests with the list of beneficiaries and the single payment advises(for the beneficiary) and payment orders (for the bank), in order to ascertain the reliability of themechanisms supporting cash releases. The verification would also extend to the adequacy of theaccounting records maintained and supporting documentation filed in respect of the transactionsunder examination. Based on the positive results of the pre-audit, the SYDV would make fundsavailable to the beneficiaries, sending payment instructions to the relevant commercial bank(s).

(III) Local Initiatives Component

The process entails SYDVs, municipalities, communities, NGOs etc. presenting theirsub-project proposals to the SYDTF for screening and approval. The sub-project cycle wouldalso involve the support of Service Providers (for instance Associations, NGOs, etc. alreadyexperienced in the management of the relevant sub-project activities) that would supportsub-projects' execution, contribute to monitoring and evaluation on behalf of the SYDTF and alsofunction as an intermediate layer, between the SYDV and the beneficiaries, when this might beuseful. The administration of sub-project financing entails disbursement in several installmentbased on specific triggers linked to measurable physical progress.

An integrated MIS, financed under the Institutional Development component, will beintroduced within the SYDTF/SYDVs, which would strengthen the institutions' targeting andM&E capabilities and facilitate scrutiny and oversight functions under the project. It is believedthat the elements of self-control generally embedded in the Local Initiatives (due to the collectivecontrol exercised over sub-projects execution and the use of related resources by the investing

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groups or community) is another element positively contributing to the establishment of anadequate control environment for this component's activities.

Control Environment

Project accounting/reporting policies and procedures, as well as administrative routineswill be documented in the Financial Management Manual (which will include the accountingsoftware user's manual), representing an integral part of the POM. The PCU staffing shouldensure adequate division of labor, segregation of duties and clear reporting lines. The acceptanceby the Bank of the POM is a Board condition.

No project funds will be transferred directly to the beneficiaries or any other implementingagency outside the project's documented framework. All implementing agencies (SYDVs,SHCEK and DIE) will enter into Participating Agency Agreements spelling out roles andresponsibilities of all parties to the agreement.

All payments for goods and services procured under the project, as well all SpecialAccount draw-downs for the Rapid Response component (for which the MB is in charge ofdisbursement) as well as withdrawal applications for the non-adjustment components will have thejoint signature of the SYDTF General Secretary and the PCU Coordinator, or their delegatedrepresentatives.

Budgetary control represents the primary financial control safeguard, by way ofpreparation by the PCU of a consolidated work plan for the project, to be approved by theAxdvisory Board, the Treasury and the Bank. However, in consideration of the demand-drivennature of several programs financed under the project, the preparation of accurate estimates mightprove difficult and will require strict cooperation with SYDVs and other implementers and theneed, for the PCU, to refine its planning and forecasting, as well as its M&E capabilities. For thisreason, PMR-based disbursement is not recommended. Disbursement will be made in accordancewith traditional disbursement procedures throughout the life of the project.

Auditing Arrangements

Consolidated annual project financial statements for the investment components will beaudited by the Treasury Controllers in accordance with International Standards on Auditing (ISA)and under TOR already cleared by the Bank. An appropriate Government audit body will carryout documentary reviews of the activities under the Rapid Response component and pre-audit ofpayments - on a selective but systematic basis - under the CCT under TOR already cleared by theBank.

At the conclusion of the first year of project implementation (end of year 2002), anoperational review of the activities carried out under the project (financed by Loan proceeds) willbe conducted by the Treasury Controllers together with an independent, private sectoraccounting/consulting firm under TOR already cleared by the Bank.

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Risks and Mitigation Strategies

The risks in this operation are considered substantial both from the financial controlperspective and reputational risk perspective. Besides the standard audit requirements to beapplied in respect of both the adjustment and the investment portions of the SRMP, a number ofmeasures have been agreed to minimize the risks identified in the various activities, which aresummarized below:

* Documentary reviews in respect of the adjustment component (Rapid Response) by aGovernmental audit body;

* Pre-audits of payments under the CCT, carried out by a Governmental audit body on aselective, but systematic basis; and

* Operational review for the whole project, carried out at the end of the first year ofimplementation by the Treasury Controllers together with an independent, private sectoraccounting/consulting firm.

Action Plan

The SRMP will be subject to a detailed review and re-assessment of its adequacy tosupport project activities, to be conducted by the project FMS. The graduation of the systemfrom inadequate to satisfactory, as required by OP/BP 10.02 and the Financial ManagementInitiative, is a condition of disbursement for the CCT and Local Initiatives components.

To achieve this, the Bank and the Borrower agreed upon the details of a time-boundaction plan specifying the steps necessary for the development of a financial management systemmeeting Bank's minimum fiduciary requirements prior to the first disbursement under theinvestment components. The further strengthening of the system and the maintenance of asatisfactory FMS throughout the life of the SRMP will be monitored by the Bank duringsupervision (this will be ensured by the availability of an FMS staff in the Bank's Ankara Office.

Action Responsible DeadlineParty

Implementation Agreement signed for the adjustment portion Treasury, MB Board DateSYDTV screening criteria for the adjustment portion agreed SYDTF-PCU August 9, 2001by the Bank

PMU Finance Manager consultant starts work SYDTF-PCU September 1, 2001Procedures manual for the adjustment portion covering SYDTF-PCU Board Dateimplementation arrangements, including FMS arrangementsdocumentedProject accounting software installed and tested SYDTF- PCU September 15, 2001Engagement with appropriate terms of reference signed with SYDTF- PCU September 30, 2001a governmental audit body for the documentary review

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under RRCBank FMS certifies FM arrangements and systems for the Bank Board Dateadjustment portionBank FMS certifies FM system for institutional development; Bank EffectivenessConditional Cash Transfers and Loal Initiatives components.Special Account audit report Treasury January 31, 2002

First annual project report completed by SYDTF/PMU SYDTF-PCU/ January 31, 2002Treasury

Bank FMS certifies FM system for CCT and Local Initiatives Bank Prior to initialcomponents disbursement for

those components(in early 2002)

Operational Review for the first year of project Treasury/ October 30, 2002implementation Bank

SYDTF-PCU

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Annex 7: Project Processing Schedule

TURKEY: Social Risk Mitigation Project/Loan

Project Schedule Plannh .ActualTime taken to prepare the project (months) 2 2

First Bank mission (identification) 05/08/2001 05/08/2001Appraisal mission departure 07/28/2001 07/23/2001

Negotiations 07/31/2001 08/03/2001Planned Date of Effectiveness 09/15/2001

Prepared by:

SYDTF, SHCEK and DIE with Bank assistance.

Preparation assistance:

PHRD.

Bank staff who worked on the project included:

Name SpecialityJohn Innes Team Leader

Jeanine Braithwaite Co-Team Leader

Hideki Mori MIS/IT & CCT POM

Helen Shahriari Social Assessment

Maniza Naqvi Social Fund Specialist

Alexandre Kolev CCT - Socio-economic Aspects

Roberto Tarallo FMS

Seda Aroymak FMS - Ankara

Ferda Sahmali HD Operations Officer - Education/Social Protection

Ibrahim Akcayoglu HD Operations Officer - Health

Nedim Jaganjac Health Sector LinkagesMarit Granheim Education Sector Linkages

Elmas Arisoy PAS

Dilek Barlas/Gennady Pilch Lawyers

Rohit Mehta Disbursement Officer

Nadejda Mochinova Program Assistant

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Annex 8: Documents in the Project File*

TURKEY: Social Risk Mitigation Project/Loan

A. Project Implementation Plan

August 1, 2001.

B. Bank Staff Assessments

1. Emergency Earthquake Recovery Loan, Turkey, October 27, 1999.

2. Economic Reform Loan, Turkey, March 20, 2000.

3. Programmatic Financial and Public Sector Adjustment Loan (PFPSAL), Turkey, June 20,2001.

4. Beneficiary Assessment Report (EERL), Turkey, April 2000.

5. Turkey Economic Reforms, Living Standards and Social Welfare Study, April 1999, PovertyReduction and Economic Management Unit, Europe and Central Asia Region.

C. Other

Government

1. Prime Ministry General Directorate of Social Services and Child Protection Institution,2001 Fiscal Year Budget, Presentation of State Minister Mr. Hasan Gemici to TBMM Plan andBudget Commission, November 2000, Ankara.

2. Gaziantep Social Solidarity and Assistance Foundation Implementation Regulations,Gaziantep SYDV, Gaziantep, 2000.

3. Research on Shanty town, General Directorate of Social Planning Department of Research,Alpar I., Dr. Yener S., Nisan 1993.

4. A General Evaluation of TKV-SDC Programme for the 1st Phase, I. Village Level Work,Development Foundation of Turkey, January 1998.

5. Social Solidarity and Assistance Incentive Funds Support to Information Systems

6. 8th Five Year Development Plan, Social Services and Assistance Private SpecializationCommission Report, DPT, Ankara 2001.

Other

1. Socialization of Social Assistance Services: Van Social Solidarity and Assistance Foundation

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Sample. Demur N. H., 100. Yil University Social Science Institute, Department ofSociology, Van, 2001.

2. Common Country Assessment (CCA). Turkey 2000, UN.

3. The United Nations Development Assistance Framework 2001-2005, Turkey, UNDAF

4. "Measuring the Quality of Life Across District Centers in Turkey." Akder H., ODTU,Department of Economics, Ankara, 1993.

5. Human Development Report, Turkey, 2000, UNDP.

6. Supporting Women Owned Businesses in Turkey: A Discussion of Needs, Problems,Opportunity, and Strategies, Development Alternatives, Inc. and the Strategic ResearchFoundation, November 1995.

7. Convention on the Rights of the Child (CRC) Relevant Laws and Legislation of the Republicof Turkey, Social Services and Child Protection Agency and United Nations Children'sFund, June 2000.

8. Strong Family Strong Society, Department for Protection of Integrity of Families, Alpay F.,May 2001.

9. Adana Socio-Economic Report, Development Alliance Foundation, Nisan 2000.

10. Turkey Foundations and Associations, Baloglu Z., Ocak 2000.

11. Government of Turkey - UNICEF Programme of Cooperation, 2001 - 2005, May 29, 2000,UNICEF.

12. "The State of Children and Women Turkey', Assoc. Prof. Dr. Hancioglu A., Assist. Prof. Dr.Koc I., Assist. Prof. Dr. Dayioglu M., Turkey, June 2000, UNICEF.

*Including electronic files

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Annex 9: Statement of Loans and Credits

TURKEY: Social Risk Mitigation Project/LoanMay-2001

Difference betweenexpected

Original Amount in USS Millions and actualdisbursements

Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm RevdP070286 2002 ARJP 600.00 0.00 0.00 0.00 600.00 0.00 0.00P070561 2002 PFPSALI 1100.00 0.00 0.00 0.00 7.15 -1092.85 0.00P069894 2001 PRIV SOC SUPPRT 250.00 0.00 0.00 0.00 239.50 15.33 0.00P044175 2000 BIODIVINTRLRESMGMT(GEF) 0.00 0.00 8.19 0.00 7.35 1.13 0.00P065188 2000 EFIL 252.53 0.00 0.00 0.00 174.10 -78.24 0.00P068368 2000 MARMARA EARTHQUAKE EMERGENCY 505.00 0.00 0.00 0.00 342.66 279.33 0.00

P068792 2000 RECON. 759.60 0.00 0.00 0.00 375.00 375.00 0.00P058877 1999 ERL 369.00 0.00 0.00 0.00 176.24 146.91 114.57P009073 1999 EMGY FLOOO RECOVERY 155.00 0.00 0.00 0.00 127.22 -5.44 0.00

PD48851 1999 INDUSTRIAL TECH 4.00 0.00 0.00 0.00 3.31 3.31 0.00P048852 1998 COMMODITIES.MKT.DEV. 270.00 0.00 0.00 0.00 264.10 213.44 -0.85P009089 1998 NArL TRNSM GRID 300.00 0.00 0.00 0.00 150.07 150.07 0.00P008985 1998 BASIC ED I 13.10 0.00 0.00 0.00 11.42 7.49 0.33P009072 1998 CESME W.S. & SEWER. 20.00 0.00 0.00 0.00 9.87 8.39 3.04P038091 1996 PRIV. OF IRRIGATION 250.00 0.00 0.00 0.00 71.76 88.23 0.00P035759 1996 ROAD IMPR. & SAFETY 62.00 0.00 0.00 5.00 32.00 37.00 23.87P009093 1995 PUBLIC FINAN. MGT. 100.00 0.00 0.00 14.86 42.52 36.96 3.02

P009076 1995 ANTALYA WATER SuPPLY 15000 0.00 0.00 0.00 72.97 97.63 26.91P009023 1993 HEALTH II 77.00 0.00 5.10 0.00 18.95 29.49 7.58

E ANATOUA WATERSHED

Total: 5237.23 0.00 13.29 19.86 2726.18 313.17 178.47

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TURKEYSTATEMENT OF IFC's

Held and Disbursed PortfolioMay-2001

In Millions US Dollars

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1990/93 Conrad 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001997/98 Demir Leasing 3.89 0.00 0.00 0.00 3.89 0.00 0.00 0.000/94/96 Dernirbank 7.50 0.00 0.00 7.50 7.50 0.00 0.00 7.501989 Edirne 1.13 0.00 0.00 0.00 1.13 0.00 0.00 0.001993/96 Eldor 3.00 0.00 0.00 0.00 3.00 0.00 0.00 0.001988/93/96 Elginkan 8.49 0.00 0.00 0.52 8.49 0.00 0.00 0.521995 Entek 24.00 0.00 0.00 23.19 24.00 0.00 0.00 23.191997/98 Finans Leasing 3.89 0.00 0.00 0.00 3.89 0.00 0.00 0.001992/99 Finansbank 10.00 0.00 0.00 35.00 10.00 0.00 0.00 35.001994/98/00 Garanti Leasing 2.55 0.00 0.00 16.19 2.55 0.00 0.00 16.191994/95/96 Global Security 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001999 Gunussuyu Kap 4.00 0.00 2.64 0.00 4.00 0.00 2.64 0.001998 Indorama Iplik 10.00 0.66 0.00 0.00 10.00 0.66 0.00 0.001998/00 Ipek Paper 0.00 0.00 0.00 15.00 0.00 0.00 0.00 15.002000 Isiklar Ambalaj 0.00 0.00 10.00 0.00 0.00 0.00 9.50 0.001990 Kepez Elektrik 11.34 0.00 0.00 0.00 11.34 0.00 0.00 0.001988/90 Kiris 8.26 0.00 0.00 0.00 8.26 0.00 0.00 0.001996 Kocbank 5.71 0.00 0.00 0.00 5.71 0.00 0.00 0.001996 Koclease 6.43 0.00 0.00 0.00 6.43 0.00 0.00 0.001992/97 Korfezbank 9.00 0.00 0.00 13.00 9.00 0.00 0.00 13.001990/92 Koy-Tur 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001991 Kula 4.53 0.00 0.00 0.00 4.53 0.00 0.00 0.001993/96 Medya 0.00 0.00 4.99 0.00 0.00 0.00 4.99 0.001998 Modem Karton 20.00 0.00 0.00 10.00 20.00 0.00 0.00 10.001991 NASCO 10.18 0.00 0.00 3.55 10.18 0.00 0.00 3.551998 Ottoman 18.18 0.00 0.00 72.73 18.18 0.00 0.00 72.731997 Oyak Bank 8.33 0.00 0.00 5.00 8.33 0.00 0.00 5.001998 Pasabahce-Schott 11.83 0.00 0.00 11.83 11.83 0.00 0.00 11.831983/94/98 Pinar ET 10.21 0.00 0.00 0.00 10.21 0.00 0.00 0.001994/00 Pinar SUT 14.47 0.00 0.00 0.00 0.00 0.00 0.00 0.000/97 Rant Leasing 1.78 0.00 0.00 0.00 1.78 0.00 0.00 0.001999 SAKoSa 21.90 0.00 0.00 21.42 21.90 0.00 0.00 21.421986/90 Silkar Turizm 3.34 0.00 0.00 3.80 3.34 0.00 0.00 3.801993/96 Sise Ve Cam 6.30 0.00 0.00 8.40 6.30 0.00 0.00 8.401998 Soktas 10.85 0.00 0.00 0.00 10.85 0.00 0.00 0.001996 TCRA 0.00 0.10 0.00 0.00 0.00 0.05 0.00 0.00

TDD 0.60 0.00 0.00 0.00 0.60 0.00 0.00 0.001995 TEB Finansal 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.001999 Toprak Leasing 1.78 0.00 0.00 0.00 1.78 0.00 0.00 0.001997 Trakya Cam 0.00 1.18 0.00 0.00 0.00 1.18 0.00 0.001979/82/83/89/91/96/ Turk Ekon Bank 15.00 0.00 0.00 20.00 15.00 0.00 0.00 20.0099 Turkiye Garanti 14.55 0.00 0.00 69.09 14.55 0.00 0.00 69.091995/99 Unye Cement 19.74 0.00 0.00 0.00 19.74 0.00 0.00 0.001993/98 Uzel 20.00 0.00 0.00 15.00 11.37 0.00 0.00 8.5319991999

Total Portfolio: 481.75 7.60 21.63 398.74 448.65 7.55 21.13 392.27

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Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

2000 Pinar Sea 4.00 0.00 0.00 0.002001 Akbank 20.00 0.00 0.00 80.002001 Arcelik III 20.00 0.00 0.00 100.002000 BICT 20.00 5.00 0.00 0.001999 CBS Gsoup Restr 5.80 0.00 0.00 0.001999 Ege Seramik 18.00 0.00 5.00 0.002000 Erbakir 5.00 5.00 0.00 0.00

Total Pending Commianent 92.80 10.00 5.00 180.00

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Annex 10: Country at a GlanceTURKEY: Social Risk Mitigation Project/Loan

Europe & Lower-POVERTY and SOCIAL Central middle-

Turkey Asia income Development dlamond'1999Population, mid-year (millions) 64.3 475 2,094 Life expectancyGNP per capita (Atlas method. US$) 2.900 2.150 1,200GNP (Atlas method, US$ billions) 186.6 1,022 2.513

Average annual growth. 1993-99

Population (%) 1.5 0.1 1.1Labor force (%) 2.6 0.6 1.2 GNP . Gross

per * - ~~~~~primaryMost recent estimate (latest year available, 1993-99) capita enrollment

Poverty (% of Population below national povertY line)Urban oopulation (% of total population) 74 67 43Life expectancy at birth (Years) 69 69 69Infant mortality (per 1, 000 live births) 38 22 33Child malnutrition (% of children under 5) 10 8 15 Access to safe waterAccess to improved water source (% of population) 86Illiteracy (% of population age 154-) 15 3 16Gross orimary enrollment i% of school-age populalion) 107 100 114 -T urkey

Male ill 101 114 Lower-middle-income groupFemale 104 99 116

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1979 1989 1998 1999Economic ratios'

GDP (US$ billions) 91.7 107.1 201.2 185.7Gross domestic investment/GDP 14.1 23.5 24.2 23.3Exports of goods and services/GDP 3.1 16.2 24.3 2312 TradeGross domesticsavingslGDP 11.5 21.9 20.6 19.6Gross national savinqs/GDP 14.4 26.6 25.9 23.5

Current account balance/GDP -1.5 0.9 1.0 -0.7 Domestic Interest oavments/GDP 0.3 2.5 1.7 2.4 Savi InvestmentTotal debtGDP 17.4 38.8 48.2 54.8 avingsTotal debt servicelexports 28.7 32.4 26.5 34.8Present value of debUGDP 49.9Present value of debt/exports 160.9

Indebtedness1979-89 1989-99 1998 1999 1999-03

(averape annual qrowth)GOP 5.0 4.0 3.1 -5.1 5.5 TurkeyGNP per capita 2.4 2.5 2.3 -7.8 4.1 Lower-middle-income groupExports of qoods and services 11.0 12.0 -7.0 5.9

STRUCTURE of the ECONOMY

i979 1989 1998 1999 Growth of Investment and GOP (%)(% of GDP) 40

Aariculture 27.9 17.4 18.5 15.8Industrv 23.8 32.8 25.0 24.3 20

Manufacturing 16 0 21.4 15.5 14.6Services 48.3 49.8 56.5 60.0 -20 97

Private consumption 77.0 68.8 66.7 65.2 40

General qovernment consumption 11.5 9.3 12.7 15.2 GDI + GDPImports of goods and services 5.7 17.8 27.9 26.9

1979-89 1989-99 1998 1999 Growth of exports and Imports(average annual growth)AQriculture 1.1 1.6 9.3 -5.2 40

Industry 7.3 4.5 1.8 -6.7 20

Manufacturinq 7.5 5.4 1.0 -6.0 20Services 4.0 4.0 3.1 -3.9

Private consumption 4.0 0.1 -3.9 20

General government consumption 4.0 7.8 6.5Gross domestic investment 4.6 -1.4 -9.5 40

Imoorts of goods and services 11.1 2.3 -3.7 Es-ports mportsGross national product 4.9 4.1 3.9 -6.4

Note: 1999 data are preliminary estimates.

The diamonds show four key indicators in the country fin bold) comDared with its income-group average. If data are missinqg the diamond willbe incomplete.

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Turkey

PRICES and GOVERNMENT FINANCE1979 1989 1998 1999 Inflation (%)

Domestic prices(% chanqe) 50Consumer prices .. 63.0 83.7 63.5 00-Implicit GDP deflator 75.8 75.7 75.7 56.2

50Government finance(% of GDP, includes current grants) 0Current revenue .. 21.5 24.6 25.4 94 95 96 97 98 9

Current budget balance ,. 4.2 -5.7 -14.4 GDP detator OCPIOverall surplus/deficit .. -5.2 -13.4 -23.4

TRADE

(US$ millions) 1979 1989 1998 1999 Export and Import levels (US$ mill.)

Total exports (fob) 2,261 11,780 31,221 29,326 so,oooTextiles 428 3,911 10,510 9,830Processed agricultural products 1,081 1,971 2,141 1,840 4000OOManufactures 1,732 10,437 23,873 23,755

Total imports (cif) 5,069 15,792 45,921 40,693Food 85 890 510 444 20.000Fuel and enermy 1,817 3,406 4,501 5,376Capital goods 1,403 3,953 11,033 9,062

93 94 95 96 97 98 99Export price index (1995=1 00) .. 85 87 82Import price index (1995=100) .. 90 86 84 H Exports * ImportsTerms of trade (1995=100) .. 94 101 98

BALANCE of PAYMENTS

(US$ millions) 1979 1989 1998 1999 Current account balance to GDP 1%)

Exports of goods and services 2,969 17,612 52,037 44,548 2Imports of goods and services 5,182 18,464 55,299 48,726Resource balance -2,213 -852 -3,262 -4,178

Net income -1,009 -1,745 -481 -2,361 98Net current transfers 1,810 3,558 5,727 5,175

Current account balance -1,412 961 1,984 -1,364 -2 -

Financing items (nefl 1,300 1,801 -1,537 6,570Changes in net reserves 112 -2,762 -447 -5,206 _

Memo:

Reserves including gold (US$ millions) *- 9,283 29,499 34,128Conversion rate (DEC, localUSS) 31.1 2,122 259,627 416,686

EXTERNAL DEBT and RESOURCE FLOWS1979 1989 1998 1999

(US$ millions) Composition of 1999 debt (US$ mill.)Total debtoutstanding and disbursed 15,929 41,577 96,906 101,781

IBRD 890 5,869 3,304 2,902 s: 107 c 890IDA 190 162 112 107 A D:3,783

Total debt service 1,340 7,092 16,513 18,316 G: 23,472 E 8,237IBRD 105 1,010 924 845IDA 3 6 7 7

Composition of net resource flowsOfficial grants 52 95 37 80Official creditors 964 -555 -118 -760Private creditors 3,068 1,631 -153 -3,269Foreign direct investment 75 663 573 138Portfolio equity 0 56 2,888 -1,727 F: 82,390

Wortd Bank programCommitments 306 604 956 1,165 A - IBRD E - BilateralDisbursements 280 419 271 384 B - IDA D -Other mulblateral F - PrivatePrincipal repayments 36 506 684 616 C-IMF G-Short-termNet flows 244 -87 -414 -232Interest payments 72 510 246 236Net transfers 172 -597 -660 -468

Development Economics

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AdditionalAnnex 11

TURKEY: Social Risk Mitigation Project/Loan, Letter of Sector PolicyREPUBLIC OF TURKEY

PRIME MINISTRYTHE UNDERSECRETARIAT OF TREASURY

Ref: B.021. HM.0,DEI0.i 04.198-6432 Ankara, 15 August2001

Mr. James D. WolfensohnPresidentThe World Bank1818 H Street NWWashington, DC 20433USA

Dear Mr- Wotfensohn,

Letter of Sector Pollcy on Social Risk Mitigation, Social Assistance andPoverty Reduction

This Letter of Sector Policy (LSP) sets out the main features of Turkey'sproposed reforms for social risk mitigation, social assistanc and povertyreduction policy, This proposed reform program is significant. and wfll leadTurkey to a new phase in its social risk mitigation, social assistance and povertyreduction policy - one that is more in line with Turkey's neighbors In theEuropean Union (EU) and best practice globally.

Social and Poverty lnpact of the Cris and Rfofrm Program. Thesocial impact of the recent economic crisis is already beirg felt as laoy-of, risingprices, and negative growth reduce household incomes and place a growing riskof poverty and vulnerability on people already at the lower end of the Incomescale. Industry's initial perception is that the cri6is is unprevodented In itsseverity In comparison to previous crisis due, in part, to the spillover effects of theproblems caused by the Russian crisis in 1998-1999 and oarthquakes in 199and the November 2000 crisis. Unemploymvent has riswn from 6.6 percent In2000 and is projected to increase to around 8-5 percent as a result of the crftss.This has provided a renewed impetus to the Government to strengthen our socialsafety-net and improve our policies.

In March 2001, a simulation of tthe irnpact of the crisis on the weharedistribution was done using household data from 1994, to identify thecharacteristics of the most vulnerable households, This sirmlation suggestedfive paterns of likely increased poverty as a result of the recent financial crisis:(i) families with many children and extended families with many chidren, as wellas singleparent families, seem to be the most affected in terms of hih rate andhigh increases in poverty- (ii) an ircrease in unemployment woulddisproportionately affect families with many children; (iii) those with middleeducation seem more lIkely to bcome vulnerable - but still above the povwty

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line - while the least educated ame those mot likely to become poor; (lv) the threeregions of Anatoria have the highest rates of vulnerabgity and poverty but notalways the h-igest incrases in those ctaracteristics; and (v) the urbanpopulation seerns more at risk for vulnerability but there is not much differencebetween urban and rural households in terms of the risk of poverty.

Overall R.ftn Program. The financial and public sector reforms thatwould be supported by the Wofid Bank, IMF and the intemational community, willhave imporant social benefits and will support the Government's povertyreduction effrts. These structurl refrms are designed to help pull the economyout of rnession and restore growth as soon as possible which is the key tominimizing job loss, and the social and poverty impact of the crisis. Restoredconfidence in the financial sector will help reverse the on-going credit crunch andgenerate new resources for nmnic recovery and ob creation. The publicsector reforms will help ensure the quality of the fiscal adjustment and improveoverall efficiency of social servie delivery. Better public expendituremanagement will Increase tw availabiry of resources for social expenditures.Actions to upgrade the operatkoa performance of line ministies and agencies,including incresed nphasila on policy fortulatn and a progressive shift toperformance budgeting, wil help ensure that these additonal resources are usedeffectively to fight poverty and vulnerability. The program features institutionaland policy measures to improve the operational performance of line ministriesand agencies including those responsible for basic social services. Action underthe program to iemproe public governance and tackle oorruption are likely tobenefit the poor dlspropooately as shown in numemus intematonal studies.Structural reform of the financ:ial and public sectors is also crucial to avoid futurecrisis which would likely be devastating for the poor.

Thus the Govemment's overall reform program is based on a three-pronged strtegy: (i) strctural policies aired at orrecbtng the weaknessesundertying the crisis and establishing a sounder basis for disinflation and growthover the medium term; (i) strong social polices Including enhanced socialdiaogue to achieve pric, and wage policies consistent with macroeconomicstabiity, and increased emphasis on the protection of the most vuinerable groupsof society; and (iil) fiscal and monetary polcies geared towards restoring financialstabilty and resming the disinflation proess. It Is very well understood that aproductive and srtrong private sector is needed to be a strong and reputable statein the 21st century. In the same way, in order to have a sound free marketeconomy, it is important to have a strong state providing social support to theneedy and undertaking egulatry supervision. A strong economy will be createdby a functioning prate sector, an effetive state, and a broad social solidarity.This is our taoret what we are koging for, and indeed it is what Tukey deserves.Maintaining social cohesion is especially important given the poitical volatiWiand social stres of the oontry. Mreetng the fiscal cost of prgrnms to supportsocial cohesion and protec vulnerable groups within the overall fiscal adjustmentwill be a chalenge.

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Protcting Publc ixpendiure In the Social Setor The Government iIs strengthening Turkeys social protetion programs and is committd toptectng social spending. Protecting expenditr on health, education andsocial protcton from the impact of the cwse is a key social objectiv.OtherMw. Tures human capil will suffer nd the burden of adjusmtent wilfal on vulnerable groups. A supplementary budget for 2001 was approved byParlIant in June which is consistent with the Governments maceconomicobjectves and also ensures adequate expenditure enwelopes for heatth,educatin and social protecion. The budget nWntins aggregat spending oneducaton slghtly above the average levels of 1992000 (as a share of GNP)and prgmrms a signficat increase in exediture on social protection relativfto 2000 rsulting In part from he launch of the Direct ncome Support (D1S)program for farmers. Overall puic spending on heatth is also projected toremain above the i98*-2000 avorage levol. Savings are expected to coe fromefflciency ans In heah expendItures for civil servants under the administrativereform of the social securt system, but part of these savings ar beingchanrad into increased expenditure on preventive an ptimary care Th3prelimnary outcome for spending on health, education and soial protectionunder the 2001 budget will be monitored in Ocoer Benchmarks for publicspening on healfth, educatin and social protection as shares of GNP agreedwith the Bank have been estabUshed for the program These benchmark hawebeen set at a level somewhat above the averages for the 1998-2000 period,reflecting the Govenment's policy decision to enure adequate expenditure onsoci prioritis. nificant deviations from e program benchmarks will bedisussed with the Bank with the aim of determining appropriate corretiveaction. The Government is commited to allocatng satisfactory experditureenvelopes fbr social programs in the 2002 budget

Sial Policies. Sroner social policies are a linchpin of the program tohelp dea with social harshjps. There are four aspects to this,

(i) Improved socal dialogue. In April, a law was adopted to formalizethe role of the Econmit and Social Council, Henceforth, the Council,which btings togeher the Government, labor unions and employees undert chairnanship of the Prim* Minister, wvil hold regular and feuentmeetings. A cetral function of the Council is to enable an intensivedIakgjue on wages and prices with employr and trade unions to takeplac*.

(ii) Incomes poicy. While the purchasing power of civil servants wilbe prottd against erosion by inflation, real wages for public sectorworkr ar expected to be reduced takng into account the ral Increasesacorded in 1992000. Agreement on an income packge was reachedbetween the Govemrmert and the labor unions in May 2001.

(ii) 5Socl protection. Effots to strengthen the social insurancesystem will contnue. The existng severance payment system which

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covers both public and private enteiprises continues to operate. Theunemployment ineurance program, introduced as part of the reform of tiepublic pension system in August 1999, will begin to make patyments to theenrolled unemployed in early 2002. Structural refom of the pensionsystem continues to progress with the adoption in April of egslatlon fhrthe third voluntary pension pillar (private pensions). The Governmfntintends to move quickly to expand targeted social assistance to thosegroups most affected by the crisis. This support could include programs toprotect vulnerable fairrles (such as asstance with food. medioine andsocial services). The DIS program to farmers, supported by the SanIsAgricuttural Reforrn Implementation Prject (ARIP) will be iniiated in 2001,as part of the agricultural reform. It will also help farmers -especiallysmaWl farmer - deal with the crisis. The ongoing Privatization SocialSupport Projet (PSSP) will provide enhanced social protecton to workerslaid off as a result of privatization and enterpise restructuring.

(iv) Social aervices. Spending on immunizfiontraccinabion programswill be increased in real terms within the overall budget ceiling. TheGovermment intends to protect public expenditure on education, as well asincrease the public health budget while reducing waste within the overallhealth budget. as noted in the table above.

However, the reform program also envisions an expansion of existing in-lind transftrs as a way to cushion the social impact of the recent financial crisis.The goal of the reform program is to improve social assistance system in Turkeythat is targeted to the poorest, and which wil provide not only a "safety*net forthe poor, but also a *trampoline" to help the poor escape poverty.

Social Risk Mitigation. A key lement of strengthening thes socialpolicies, complementing the support of the PSSP, ARIP and the ProgrammaticFinancial & Public Sector Adjustment Loan (PFPSAL) I, is developing strongersocial risk migation, management and prevention measurs, picipalmeasures are. (1) instutional strengthening - sengthening the institutional basisand capacity of those agencies irwolved in socia risk mitigation in order toimprove social risk mitation, management and prevention polcies over themedium to long-term; (ii) conditional cash transfers (CCO) - Introducing CCT. ahighly targetd social astistance transfer to families with children, requir'ingpositive family behavioral change with respect to health and educatioo, whichresonates with the EU policy of child allowances; and (iii) local initiatives -expanding the active eenok t of Turkey's social safety-net through Increasedsupport to incomeenerating, youth employability, adult literacy and tempoirrycommunitv employmen related social infrastructure network, as driven by localcommunity demand.

Turkey requests the support of the Worid Bank in the form of a hybrid loanof; US $500 rmillion for the Social Risk Mitistion ProjecULoan (SRMP), to assistIn the implemetatio of these reforms including the development of the new

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CCT socal sistance system In Turkey. The SRMP will consist of two portkon:(i) an adjustment portion of US$ 100 million to prvide immediate socialassistance in kind to the rnost vuberable groups affected by the c* s - therebymitigating immediate socEl risks; and (i) an investment portio of US$ 4M0million to povide for the protection of the hunan capil of poor cildren and toconvey techrical assistance and inseutfota strngthning, icluding themanagement infonaon system and reatd hardwar needs, covering threecomponents of th SRMP - inslituonal dvalopment, the CCT and localinitiatives.

1. Social Risk WHton-mmadiate Response to the Crisis

The aim of the adjusment porion is to bring inmmediate relief to vulnerablegroups through existin channes, since it is not possible within a short timne toprepare now delery mechanism (which will be devloped subsquerety underthe investment portion of te oan). This poftion wouid finanoo Turkeys pubficand private sector import requirenents of the balance of payments (BOP). TheGovernment will we the Turkih Ura (TL) counrtrpart of the loan funds to financepriority actions for inMediate refief to vulnerable groups sfferiing from the impactof the recent economic crsis. This porftion will firarne up-front balance ofpayments support to bolster Turkey's internatlonal reserves, as well as budgetarysupport to help fund spending priortes for vublerable groups.

It is proposed that the T counterpart spending ensist of three areas ofexpenditures tWgeted to tVe poorest famriies through existing mechanisms of theSocial Solidarity Fund (SYDTF) and ts afiTated Social Solidarity Foundations(SYDVs) which could be made rapidly:

* school attan4ans packapm - required before Septenber 11 - the start ofthe school year,

a phrmsaceuticas & medical supplies far poor "green-cardw holders andpoor non'reencard holders including h disabled; and

* social assistnce in cash and kind to those wort affected by the crisis.

The SYDTF has indicatd that it could rapidly move the US$ 100 millionthrough its existing channels and existing selection mechanism (localcommittes) for bgrwciarte, similar to ts very successful performance indelering cash beneft undew the Emergency Earthquake Recovery Loan. TheSYDTF Identified these thre area as ones in whch it could rapidly scale upeistitng programs and in which the need is greatest following the recenteconomic cisis. The SYDTF does hve some temporary community

mployment program in a few SYEs. bWt these temporay communityenpl*yment progams aimited both in scope and number, and could not beexpanded quickly.

Although the resources for the adjustment porbon would be for budgetarysupport and Blarnce of Payment (BOP) financine, it is critcal that an addifional

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budgetary allocation be made for increasing the SYDTF's budget by the US$ 100million equivalent to cover the cost of the increased spending on the emergencymeasures for back-to-school, medicine, and local socia assistance. To this end,Treasury has already transferred sufficient funds for the procurement of theschool attendance packages for approxinately 1.05 million children to theSYDTF (estimated at TL 40 triion). Morover, Trasuwy wit ensure that theSYDTF receives sufficient domestic finawce to undertake agreed cumulativeexpenditures of TL 550 tiilon (indluding the TL equivalent of the SRMPadjustnent portion) by Decemrber 31. 2001, subct to. (a) disbusement of theadjustment portion of the SRMP before December 31, 2001; and (b) anyjustifiable fiscal revisions neessitated by Government's economic program oreconomic and financial circumstances.

The projectd expenditures of the SYDTF for the second half of 2001 areestimated at TL 381 triUlon (nckuding an estimated TL 125 trililon from the SRMPfinancing) a substantal increase over the first half-year's expenditures of TL 169trillion expenditures, making total expenditures for the year of TL 550 trillion.

The use of a tading mechanism to follow the flow-of-funds from the Bankloan through countepart eqivalentldeposit account to the SYDVs would berequired. This is exactly the sarne existing mechanism already used successfullyin the Emergency EaMquae Reovery Loan (EERL).

if. Social Risk Miigation, Management & Prevention-Mediun & Long-term

Social Insurance: The Goverment of Turkey has been working toimprove its social safett, and especialty to refomn the social security system.The reforms are necessary because the system was insolvent In the past and thelevel of benefits was not sustainable. The first phase of social security reformconsists of modfications to ihe public pay-as-you-go pension system to stemoperating losses. induding raising the retirement age for now entants. Thesecnd phase ofe social security reform strategy, planned for 2002, focuseson strangtning t organizational underpinnings of the systsm. extending itsooverage, separating the pension system from associated health Insurance andunemployment schemes, and eliminating accumulated arrears The third phaseis to introduce a frameowrk for supplenentary individual pension schemes.These reforms will bring forward a more targeted and sustainable social securitysystem for old-age, but wi1l o1ty insure aganst one kind of risk - that ofinsufficient savings in old-age.

A comprehensive socal safety-net helps to insure against the risks ofunemploynwnt and poverty. Unfortunately, there are several large gaps in btesocial safety-net in Turkey. Turkey has only reocently adopted unemploymentbenefits, but due to the perod of rquired coributions, peopte will not be able todraw unemployment benefit until 2002. So, those who becorne jobless as aresult of the recent financial crisis will not have unemploymnent insurance tosupport thern while tthey search for other jobs.

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Ned for Social Asshftnc: The Turkith social safety-not consists ofsocial insurance (pensions and disabity) which ar tied to an individual hving ajob in the formal sector. With the exception of the Bag-Ku social insurance planfor the self-employed, the wtole socil security system io rnked to holding aformal job (including the newly-Introduced unemployet Isurnce). Such asystem runs te distinct risk of exckuding those wihout a connection to the formallabor market Households headed by seasonal or casual worker (workerswitout a labor contract) are at high risk of poverty and economic vulnerability.TurkeyWs social protecn system lacks a bet that would be targeted to thesevulnerable groups.

Turkey** existing Social Asasetane Is quit limitd. Turkey does nothave a poverty benrefit-a cash ransfer that is target to the vulnerable-whichcould be used to help those negatively affectd by the reform. Social assistancein Turkey is limited to ad hoc assistancie In cash and in kind channeled throughthe 931 SYDVs, and limited prgrmos for the elderly and disabled under Law2022, as well as institutional care for children and the elderly administed bySHCEK. Turkey has no otte cash tansfer that could help the vulneable,unlike many neighboring countries of Western and Eastem Europe, which haveuniversal child alowances. CCT would help to address the inadequacy inTurkey's social assistance system by providing an incentive to poor children tostay in school and for pro-scool children to be regulary taken to health clinics.

This letter lays out a vision for social assistance in Turkey and the requiredstrategy of the evoliton and furer developmen of the social protection systemin Turkey. Key componen of this viion incudeu

* CCT;* Equitable and effiieWnt Idenficaion and selon of bemficiaries;* Enhanoed Legal Bass for the SYDTF and SYDVs;* Instiutonal strengthning;* Promotion of omployabit and mcro-businesses amongst the poor* Further developments in Social Insurance;* Poverty monitoring;* Sharing of Infomstion; and* Civic sociey involvement

CCT

CCT are btansfems which are conditoed on clint behavior for continuedreceipt The behavwrs usually required are schol attendance for school-agechildren and well baby/health dinic vieIts fbr chlren below school age. Tht ideabehind conditiol cash b*frs Is that the por re f forced to pull theirchildren out of school to work or look after younge sibngs when the householdis faced with an economic crisis. Thi n lads to a pwimanent reduction in

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the human capital of the children who do not typically return to school after thecrisis, and a perpetuation of the cycle of poverty across generations.

CCT provide an incentive to the poor to: (i) keep their children in schooland work on the demand side of education by covering the out-of-pocketexpenses that often preclude the poor from sending their children to school; and(il) obtain adequate pro-natal care, basic health and nutrion servces (includingimmunization, growth monitoring and resolving micro-nutrient deficiencies). CCTare typically targeted to the poor by proxy means tests or income tests, InTurkey, a large informal sector means that income-testing would be tooexpensive and difficult, so a scoring formula based on a proxy means test isrecommended. CCT are an important mechanism to protecting the humancapital of the vulnerable.

CCT are an inportant tool in the battle against the inter-generationaltransfer of poverty, since children who fail to complete basic education todaybecome the poor of tomorrow. Due to need for detailed preparation, the CCTwvvould need to be carefully monitored and evaluated to determine whether it Isachieving its objectives and deternmine the duration of the program. A full reviewwould be undertaken before December 31. 2003.

identificaotIn and selection of beneficiaries.

Virtually all of the SYDVs in Turkey identfy the needy and select them forassistance by the deliberations of a local committee, which is headed by theKaymakam (District Govemor) at the district level and by the Governor or Vice-Gzovernor at the provincial level. While local officials may have access to localknowledge about the applicants, they lack training in social work and socialassessment.

Many countries have found the uso of a scoring formula to lead tooutcomes that are more equitable and efficient than the decisions of localcommittees. Turkey has limited experience wth scoring formulas. Turkey wNllneed up-to-date household data from a soci-economic surey to develop anational scoring formula. A major advantage of a scoring formula is that it can beused to rank households according to their level of poverty, and different scialassistance programs can use different cut-off points for eligibility. This wouldmake it possible to target COT and other food and social assistance to the mostneedy, while targeting other programs such aS income generation and training tothose not as vulnerable.

Enhanced Legal Basis for SYDTF and SYlV:.

Legislation is expected to be enacted by December 31,2001 to strengthenthe SYDTF organizational structure and reporting practices and enabling theSYDTF and $YC)Vs to work more effectively with NGOs. The Government willsubmit this legislation to Parliament by the Board presentation of the SRMP.

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Instturtional Strngthning.

The exsting (SYOTF. SYDVs. SHCEK), and any fuure organizations,need to be strengthend to perkom their icreased and rmodernzed role linked tcthe developmernt of the market economy - including enhanced technical staflskils, improved financial management & audting, Management lnformrtionSystem, Monitoring and Evaluation and linkages wMh cic socity. Theinstitutional strengthening of the SYDTF and SYOtsV will nkclude theimplementation of the key agreed recommendaions of the operational reviewundertaken by convulants In ft context of the EERL, inter alia, reqlug formalfinancial report arrangements of the SYOVs to the SYDTF, and thedewlopment and irnpkwbentation of an Integrated management informatIonsystem. The SRMP vAil finance the high priority investrent needs of theseinstitufions through the Institionaf Strengthening component.

Promotion of employabUlty and micro-busrinw.

A passive social assistance system is not suffiient and must besupplented by an actve program aimed at helping to improve theemployability of the poor (basic skills - elated to market demands, literacy,numeracy, interviewng and job-search skills. coping-with-life-skills). Additionalsupport for starting micro-businesses and other income generating activities forthe poor will be provided. All these activities need to be relevant to the marketdemands and of high technical quality and thus the Govemment proposes towork ever more cdely wih the private sector. especially chwnbers of commerceand industy at the ko1a keel. These actvities will be supporbed under the LocalIntiatves component of the SRMP.

Poverty Monitoring.

A eeries of activities are being undetaken to monitor and evaluate theimpact of the crisis on household weltfare. However, this has not been facilitateddue to the lAck of an up-o-date Household Income and Expendiure Survey. TheGovemment wilA establish more frequent affordable surveys to be undertaken bythe State Institute of Statistics and supported through te SRMP.

Infwmation sharing.

The development of a scoring formula and understnding about whichgroups are suffering most from t Impact of the crsis quIres up-to-datehousehold infordm. Turkey has adopted a National Program for te Adoptionof the EU Aoquis by a lea decaation signed by the Counci of Minrist andthe President of Turkey on March 19, 2001, The EU Acquis includerequirements on open data access for statistical informat, and the ntionalprogram includes exremely detailed plans for harmonizng Turkish statisticaldata with the EU standards, induding open data access. As a part of thiscommitment to open data acess, the Govemrment will make data from the next

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Household Income and Expenditure Survey avilabe on the unit recofd 11el assoon as the survey is conducted and th 4data cleaned and Suppotfor the continued quan_tative monioing and evaluation of p verty inTurkceythrough household surves w;I be provkidd through the insttuionakstrengthening component of the $RMP.

Civic society invalvement

Increasingly, gove9 ments am reaEng that th most OffWv apprachto social policy and eonomic rfcT itobid partnsi wisetyincluding key stakeholders such "s nogovenmen a i community-based organizations (oot), trade unions and localwas an outpouring of support for earthquake vkms rN s, Cis, cIsociety, and even private indiduals. dO6s are actie in providing socialassistance to the needy, and in hid wlfare acivites. The Government ispreparing legislation to enable td SYV to wor more etivelywith Govemment and wi1l encouwage NOOs in their endeavors to grow andbecome more professional. Civic society wil be actively d intho LocalInitiatives component of the SRMP and civic soci represet will sit onthe SRMP Advisory Board.

Concluaion: The SRMP provides us with an unprecedented opportunityto invest in the future of our children, and to provie both a saety-net and atrampoline to help rmtiate poverty and t give the poor oppouifie* to escapefrom poverty- Through our effort to create a modern social assistance system inTurkey, we will hamonize our domstic po4cy with the social plcyf the EU,which will furthew our candidacy. Our partnership with the World eank hn theseefforts will assist us It the mitigation of poverty in our country, and will help ustowards the realization of our shared dream of a world without poverty.

Sincerely yours,

Ka I Gerviaan Go,iState Minister Satei;ister

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AdditionalAnnex 12

TURKEY: Social Risk Mitigation ProjectCCT Issues and International Experience

Targeting Issues for the CCT. Most governments can not afford to provide universalsocial benefits because of the very high cost of universal benefits. Most countries choose totarget their assistance to the poor or poorest, on grounds of equity and because of the fiscalconstraints. Several methods have been used internationally to target benefits to the poor.

Self-targeting. Self-targeting is when a government provides a benefit that is so low thatonly the poor are interested in receiving the benefit. Positive examples include a food subsidy fora low-quality food product that only the poor consume, or a public works program where thewage is kept so low (lower than the minimum wage) that only the poor are willing to work for it.Negative examples include the creation of difficult bureaucratic procedures that require so muchtime and difficulties that only the desperate will try to obtain the benefit.

Geographic targeting. Combining population census with socio-economic survey dataallows the construction of a poverty map. The poverty map can be used to target poor localities.For example, in the CCT program Progesa in Mexico, a poverty map is used to select the poorestvillages in rural areas and the individuals are selected based on a proxy means test. Every child inthe village then receives the CCT as long as the conditions are met.

Expert evaluation. In some countries, social workers or other informed local sourcessuch as teachers, decide who is poor enough to be eligible for social assistance. In Jamaica socialworkers currently decide who benefits from the Poor Relief program, but Jamaica is seeking toreform its safety net by adopting a scoring formula (see below) which will free social workersfrom home inspection and allow them to provide social services and counseling to clients.

Income-testing. In the USA and several European countries, income-testing is used toverify household income and eligibility for social assistance. Income-testing is cost-efficient onlywhen there is a culture of tax declarations for both individuals and companies and computersystems which can verify and check the income declaration. For example, in the USA, socialassistance applicants must provide their most recent tax declaration and their social security(identification) number. Computer checks are then run on the identification number to verify thedeclared income. Income-testing does not work well in countries where there are large informalor subsistence agricultural sectors, since it is very difficult to verify informal income. Sending aninspector to the home of each applicant is extremely expensive administratively is normally onlydone for a random sample of applicants or in special cases where there is evidence of fraud.

Scoring formula. Scoring formula (also called proxy means-testing or combinedindicator targeting) is a technique whereby the household's living standards are estimated basedon a series of indicators that are found to be correlated with poverty in that country. Theindicators are typically things like the number of children and elderly in the household, the housingmaterial and amenities (such as water and electricity), number of rooms, and often, consumer

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durable goods (refrigerators, cars) and in agricultural areas, household holdings of livestock andland.

Such scoring fornula have been widely used in Latin America (including Chile,Colombia), a province of Russia and in other former Soviet Union countries, and are beingdeveloped for Ghana and Jamaica, among other countries. Scoring formula are best derived fromquantitative household survey data, and can be differentiated by urban/rural or majorgeo-economic zones of a country (such as East and West in Turkey). Turkey has experience withscoring formula--in Van province, the SYDV uses a scoring fornula developed by the Director ofSHCEK, and the SYDTF uses a scoring formula for the allocation of scholarships.

The SRMP includes several sources of survey infornation that will be used to devise andregularly update a scoring formula for targeting the CCT and Local Initiatives. First, the WorldBank is co-financing a household survey partly from its operational budget, with the remainder ofthe support from the Government of Japan (PHRD Grant). This household survey is beingconducted by local consultants drawing on the Middle East Technical University (ODTU) withtechnical assistance from the World Bank. The household survey will provide the data necessaryfor these key indicators: (i) poverty levels and household consumption; (ii) profile of poverty; (iii)access to health and educational services by the poor and non-poor; (iv) poverty correlates whichwill be combined into a scoring fornula that will be used in SRMP components; (v) extensiveinformation on health indicators; and (vi) limited information on labor and unemployment (DIEhas a regular program of labor force surveys).

Additionally, the institutional strengthening component of the SRMP provides forfinancing of two additional household surveys over the next four years with interviews and dataentry conducted by consultants to the State Institute of Statistics (DIE). Finally, a rigorousimpact evaluation of the conditional cash transfers (CCT) component of the SRMP will beconducted, including a baseline and follow-up survey. Targeting criteria for the CCT and LocalInitiatives component will be updated to take into account these new sources of statisticalinformation and to ensure that as the poverty profile changes, the targeting criteria will beadjusted.

SYDV Selection criteria and health. The lack of clear-cut selection criteria by theSYDVs impedes their effectiveness. The SYDTF does provide social assistance quickly (soupkitchens, health services for a limited number of cases lacking Green Cards (health benefits cards),elderly; poor families in disaster situations or at special occasions). However, the targeting andselection criteria for assistance are discretionary rather than according to pre-set, well definedcriteria and target groups such as would be provided by a scoring formula. Even for the GreenCard for health services, the targeting is not very clear since to some extent the selection criteriafor who has Green Cards can be arbitrary. The use of a scoring formula would be a way to moveaway from arbitrary decisions and bring more objectivity in the selection process.

International Experience with CCT. There is significant experience with CCT inseveral countries, particularly in Latin America.

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Conditional Cash TransfersDefinitions and ExperienceCash payments given to poor households who fulfill a set of conditions - usually a standardnumber of preventive care visits for children under five and enrollment and good attendancefor school-aged children. Large programs of this nature have been established and evaluatedin Mexico and Brasilia (school portion only) and new programs have been or are about to belaunched in Honduras, Nicaragua, other parts of Brazil, Ecuador, Colombia, and Jamaica.The programs are targeted to poor families, usually with a proxy means test, and sometimes(Mexico, Colombia, Nicaragua) restricted to poor districts identified with a poverty map.Mexico's Progresa program increased primary enrollment rates by about one percentagepoint (base of 90 percent for boys and 94 percent for girls) and secondary rates by 8 percentfor girls (base of 67 percent) and 5 percent for boys (base of 73 percent). Prenatal care inthe first tri-mester rose 8 percent, the incidence of disease among children under five wasreduced by 12 percent. Preliminary evidence shows that Brasilia's Bolsa Escola programparticipants have lower dropout rates than non-participants (0.4 versus 5.6 percent), higherpromotion rates (80 versus 70 percent) are more likely to enter school at the right age andhave similar learning outcomes.Pros and Cons

*Tie together short run assistance and long run human capital formation to help break theintergenerational cycle of poverty.

*Ensure families are proactive in seeking their own welfare.*Add a demand side tool to help obtain desired health and education sector outcomes.*May address gender issues by giving greater incentives to girls and/or by making mothers the

recipients of the cash.Most poor children already get primary education and many get healthcare and secondary education.

Usually exclude poor families without children in the right age range.Require good physical access and quality of services to ensure human capital development.Proxy Means TestsDefinitions and ExperienceProxy means test use a handful of easily observable characteristics about a household tocalculate a score that indicates how well off the household is. Entry into various programsor the benefit levels are decided based on the household's score. The indicators and weightsin the scoring formula are the result of a sophisticated statistical analysis of nationalhousehold survey data. The indicators include location and quality of housing, ownership ofdurable goods, features of household demographics, human capital and sometimes laborforce activity.Pros and Cons

*Verifiable, may allay concerns over politicization or randomness of benefit assignment(especially among program administrators).

*Single targeting system may be used for several programs, which maximizes return for fixedoverhead.

*Uses easy to observe variables strongly correlated with poverty in market economies.Mayseem mysterious or arbitrary to some (especially among clients and critics).

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Sophisticated system, requires moderate to high levels and quality of information,technology and staffing.Not sensitive to quick changes in welfare, as experienced in a crisis or in some transitioncountries.Conditional Cash Transfers with Proxy Means TestsBottom Lines

*A new and increasingly popular element in safety nets programs.*Best suited to settings where poverty is chronic and human capital outcomes low despite

efforts to provide extensive and good quality services.*Require significant administrative capacity for targeting, for verifying that conditions are

met, to get transfers to individuals and to coordinate among the several agencies (ministriesof welfare, health, education, planning, local govenmment) and many local agents of each(clinics, schools, municipalities, banks) .

Sources: Grosh (2001); Legovini and Regalia (2000); Sedlacek, Ilahi, and Gustafsson-Wright (2000)

Exclusion. A non-negligible share of the poorest population may actually be excludedfrom any kind of social assistance due to a lack of demand for services. The reasons might be acombination of factors:

3 The lack of information on the availability of social assistance programs among thepoorest both in rural and urban areas.

* The reluctance of low-educated male heads of households to apply for any outsideassistance.

* Within the household, the difficulty of women in traditional families to make their voicesheard to ask for assistance.The reluctance of women to address their needs to officials sometimes sent to villages toidentify the needy.The cumbersome procedures that the beneficiaries have to go through for an assistancewhich is not large in scope and not continuous;

_ In some remote rural areas, the difficult access to a SYDV and the cost involved in travelwhich can exceed the benefit.

* Language difficulty to communicate with officials.* Informal transactions that are made to avoid paying taxes on the sales of durables are not

officially registered so that the poor who have sold informally some durables (cars, etc..)may not be eligible because they cannot prove the transaction.

* Another concem for exclusion is the discretionary nature of assistance allocation,especially with respect to projects and boarding school scholarships. Connections seemto play a role in being included in the projects as well as in the allocation of boardingschool places.

* Difficulty to obtain official documents for those who have migrated. For some of theresidents of the gecekondus in major cities who have migrated from other parts of thecountry, the process to apply for Green Cards and other benefits is difficult and costly dueto the requirement that they have to prove that they do not own anything in their villagesof origin.

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Required Behaviors of Individuals. Detailed specifications behavioral requirements arecritical in the success of a CCT program. In Colombia, a student can be absent from school up to4 days in any given month in order for the household to which s/he belongs to qualify for thebenefit payment for the month. No unexcused exceptions are permitted, but a doctor's note isaccepted for an excused absence, which is also the case proposed for Jamaica. Furthermore, inEcuador, it was proposed to revoke the child's eligibility permanently once the child has failed tomeet attendance requirements for 3 consecutive payment cycles.

Considerations Regarding Supply-side Constraints. Sometimes certain localconditions do not allow beneficiaries to fulfill their behavioral requirements, which may be metunder different circumstances. If for example, a local health post or clinic is not adequatelyequipped nor staffed, does it make sense to make benefit payments to the periodic visit to such ahealth post? Requiring the beneficiaries to visit a better equipped and staffed but distant healthpost, but such a requirement could increase the costs to the beneficiaries, and make them lessresponsive to the CCT program.

Value of Benefits. DeterTnination of the value of benefits requires careful considerations,including the following. First, a CCT program may require a built-in mechanism/procedure tofrequently adjust the value of benefits, taking into account the effect of inflation.

Second, the value of benefits needs to be attractive-enough for low-income households toadopt and maintain positive behaviors, and at the same time, low enough for better-offpopulations to refrain from making illicit solicitation of benefit payments.

Third, the benefit values may need to be differentiated depending on the attributes ofhousehold members, the behaviors to be encouraged, and particular cultural as well as localcircumstances. For example, the out-of-pocket costs of attending schools would be higher forolder children. Therefore, "one-size fits all" benefit system may be over-kill for younger childrenwhile being insufficient for older children. Likewise, where cultural biases exist against girls'education, perhaps the program should provide a premium to those households that ensure girls'school attendance. Where supply-side constraints exist, the program could also provide apremium to compensate higher costs of accessing services. While differentiation of the value ofbenefits may be desirable under certain circumstances, it also adds complexities to the programmanagement and could raise administrative overhead. Thus, upon consideration of a particularscheme of differentiation, its advantages and disadvantages need to be carefully analyzed.

Fourth, the value of the benefit should have a strong relationship with the actualout-of-pocket costs of schooling and health-care (including transportation, school books,uniforms, etc.). Additionally, benefits should have some relevance to a poverty line, expressed asa percentage of the local poverty line.

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Taking into account these considerations as well as the available envelope of Governmentand World Bank resources, the benefit levels have been set as follows:

* For education benefits, not to exceed $8 per child. Second and subsequent children willrecieve smaller benefits on a sliding scale. Payment will be made twice a term, or four timesduring the 9 month academic year, totaling US $72 per year.

* For health benefits, $6 per child per month, payments to be made quarterly, totaling US $72per year.

Form of Payment. A CCT program makes cash payments to its beneficiaries. One wayto do this is to wire money to the beneficiary's bank account. Concerns were raised with respectto the accessibility of bank networks to rural households. Unfortunately, altemative forms ofpayments--cash voucher, check, and food stamps--do not address the accessibility problem betterthan wiring money through bank networks, and thus the Government of Turkey has decided thatCCT payments will be made through banks. Given that the members of rural households visit citycenters at least approximately once every month to go to markets, obtaining the cash at a bankdoes not seem to be more burdensome than the alternatives.

At times, the question of whether to pay in cash is raised. However, vouchers or foodstamps do not keep recipients from misusing the benefit. Food stamps can be easily traded in thesecondary market, and would not deter the recipients from undesirable consumptions significantlyrnore effectively than cash. Furthermore, these alternatives are more administrativelycumbersome and could be more costly, as they need to be printed and delivered. Consequently,wire transfer appears to be the most preferable forrn of payment.

Cash as an Incentive. In many countries, the World Bank has asked the poor about theirpreferences for assistance, and the overwhelming preference of the poor is to be helped with cashpayments, not food or other items in kind, because of the flexibility of cash. For CCT, it isimportant that the benefit be paid in cash to serve as incentive to parents to send their children toschool. Sometimes, people are concerned about cash payments, since the recipients might spendbenefit payments for undesirable purposes like tobacco consumption. It is important tounderstand that if a poor recipient is going to spend on tobacco consumption, it is likely that sucha person will already have kept his child from school to save money for tobacco, and may evenhave sent the child out to work in the informal sector.

Household Representative Authorized to Receive Benefit Payments. CCT programstypically designate the mother as the person who is authorized to receive benefit payments onbehalf of the household. In many countries of Latin America and Africa, the payment is made tothe mother, not to the father, since research clearly shows that women are much more likely tospend cash assistance on food or the needs of the children. While payment to the mother may bedifficult in some regions where the tradition is for the father to do the shopping in town and tocontrol finances, the principle of payment to mothers would also help to empower women there,particularly the younger ones. Even if the mother simply handed the cash to her husband,designating the mother as the household representatives would make meaningful impact onhousehold behaviors of, if not present generation, the next generation by officially recognizing the

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important role of women. For such households without mothers, it is important to specify whowill receive the benefit payments on behalf of the household under what circumstances.

Payment Cycle. One of the design challenges of a CCT program is to define the paymentcycle, illustrated by the loop in the right side of Figure 1. Each of the steps represented by theboxes, diamonds and arrows in the figure consists of a large number of sub-steps, each of whichneeds to be defined very clearly.

In principle, the shorter the payment cycle is, the greater will be the CCT program'simpact on the behaviors of the beneficiaries. This is because the beneficiaries will see the linkagebetween the cause (e.g. school attendance/non-attendance) and the effect (payment/non-payment)more clearly.

Make the first Paynnent

Begin ~~~~~~to the beneficiay

9 0~~~~~~~~~~~~~~~~~~~~~~~~~.Program Promotion The beneficiary rues throg _________________

Outreach Campaigns a tefined period of ftme: .Yes

I -- -Potential fleneticiaries Apply Veity the be-\tirysAppliui-cn ef for the Program compliance with the

5 lirrorul.J!:IILd | l de6ned behavioral Should the beneficiury- u rV _ conditions doring the lai io the p-ogan,

Appeal N- me poet-asedmehanismeligibiliy critera' Ha, the benefcayTk prpit

_ ~~~~~~~~~~~~~~~~cmple itha th actin No _ s defin edwvis><X N o ' No

| No N o

Yes. Yes

Calculate the bnhfit m t b No . t b/eneairtillamount, and make a rontergameligible'

the ppl cantDoes the applicant payment to then.ide "d ~ ee pora seifcbenehfiarycosdee elaigible elgibility criteria? eenr

N.t Yes Yes

the Register the applicant eiity Re-esaluat tRejeicant ) > as the beneficiarY and _ e Reefia elilty inAppli. nt /calculate enetnefiry n

the program

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Project Operational Manual.

The Bank requires the borrower to prepare a Project Operational Manual (POM) for theproject to be financed by a Bank investment loan. A POM is a major document, detailing, amongothers: (i) management structure of project implementation; (ii) terms of reference of keypersonnel; (iii) project implementation plan and time table (physical, financial and procurement);(iv) operational procedures to be followed; (v) intemal and extemal reporting arrangements andformats (including progress reports, financial reports, audit reports and procurement reports). Itis important to note that the Bank requires the borrower to follow Bank guidelines forprocurement and financial management. Any deviation from the guidelines need to be fullydescribed in the POM, and approved by the Bank's regional procurement advisor and the financialmanagement specialists before the loan becomes effective.

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AdditionalAnnex 13

TURKEY: Social Risk Mitigation ProjectInstitutional Assessment

I. SYDTF

Background

The SYDTF was legally established in May 1986 under Law 3294. "The purpose of thisAct is to assist citizens in absolute poverty and need and (other)persons that have been admittedto or have entered Turkey in any way, to ensure fair distribution of income by taking measures forstrengthening social justice, to promote private social assistance and solidarity" (Article 1,amended 16 June, 1989).

The SYDTF is an extra budgetary fund, financed by earmarked taxes and administered bya State Minister. It works in coordination with 931 regional SYDVs, which are responsible forfulfilling all the requirements of the law in order to have funding resources to implement thedifferent services and activities benefiting the needy. The volume of funds transferred by SYDVsis far greater than that under the Social Assistance for the Elderly and the Disabled (Law 2022).

Administrative Board

The SYDTF Board comprises a Prime Minister Undersecretary, an Interior MinistryUndersecretary, a SB Undersecretary, General Director of SHCEK and the General Director ofSYDVs under the chairmanship of a State Minister appointed by the Prime Minister. All thedecisions made at Board meetings enter into effect after the ratification and approval by the PrimeMinister. The Board is the highest level to which applications for approval of Program Servicescan be made; Investments, Scholarships, Social Assistance. Health Assistance to Green Cardholders does not require Board approval and is signed off by the Directors on behalf of the StateMinister.

Benefits in kind include: food, clothing, fuel, medicine and a variety of small productiveprojects (greenhouses, fruit cultivation, bee-keeping, handicrafts, carpet weaving). The cashbenefits are grants and scholarship programs, and emergency related assistance.

The processes and procedures have been built up throughout the years in a non-systematicway through short-term planning. The procedures for the appraisal of requests at the SYDTF areessentially limited to checking the completeness of the required documents to present them to theBoard for revision and approval.

The decisions on project approval by the the Board are based on the assessment ofprojects by staff whose expertise are in areas other than development or poverty alleviation. In

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addition, there is insufficient technical criteria used for assessing projects, therefore the mainemphasis in proposal asssements is placed on the budget and availability of funding as the mainpoints of consideration. Therefore, there is a need for developing procedures and criteria forproper assessments of proposals as well as extensive training of staff. Since the SYDTF does nothave its own budget for operational costs, it has very little opportunity for doing this.

In addition, since the SYDTF does not have its own budget for operational costs, if thereis a need for furniture, computers, etc. a request is presented by the Ankara SYDV to the SYDTFBoard for approval. Once the request is approved, the Ankara SYDV obtains the equipment andthen physically transfers it to the SYDTF central office.

SYDVs

The SYDVs have been established in provinces and districts as legal entities. The SYDVCommittee is chaired by the Governor of the provinces, and in the districts by the Kaymakam(District Governor). The municipal mayor, the provincial head of finance, the provincial director ofsocial services, the health official and three private citizens make up the committee. Each SYDV isindependent and has freedom in the decision-making process for granting social assistance and forincome-generating sub-projects.

The process of granting an income-generating sub-project begins with the applicant'sfilling out an application form and obtaining the necessary documentation. Next, the SYDV Boardconsiders the application and the members of the Board either approve or reject the requests attheir discretion. There is no unified systematic criteria to evaluate the requests for sub-projects bythe SYDVs. Afterwards the application forms are sent to the SYDTF where, according to the typeof requests, they are distributed among the different departments. The SYDTF departmentsappraise the proposal based on the completeness of the documentation without any systematictechnical appraisal. The requests are then presented to the SYDV Board. Funds are transferred toall the SYDVs on a monthly basis, at the start of the winter season for fuel, at the start of theschool year for education, and before the Ramadan holidays for foodstuffs and clothing.

Revenues of the SYDTF and SYDVs

According to Article 4 of Act no. 3294 the Fund's revenues consist of:

* Amounts to be transferred from established funds or those to be established by laws anddecrees pursuant to a decree issued by the Council of Ministers provided that suchamounts shall not be higher than 10 percent of total funds thereof, less withholding of 40percent by the Treasury (abolished).

* An additional amount of 4 percent to be paid by taxpayers liable to pay income andcorporation income taxes, less withholding of 40 percent by the Treasury.

* An amount corresponding to 5 percent of proceeds obtained from sale of forestryproperties (abolished).

* 50 percent of proceeds from traffic fines.* 30 percent of proceeds obtained by the Turkish Radio and Television Organization (TRT)

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from advertisements (abolished).* 15 percent of proceeds obtained by the Radio Television High Council (RTUK) from

advertisements.* 0.02 percent of proceeds from fuel oil consumption tax (abolished).* Funds to be allocated from the budget.* All kinds of donations.* Other revenues.

Allocation of Resources

The Board chaired by the State Minister meets on average 5 times a year, and all theapplications from the SYDVs, which have been sent to the SYDTF offices for revision and havecomplete documentation, are considered for approval of funding. The process established underLaw 3294 gives total discretionary power first to the regional authorities and then to the Board.Resources are allocated regionally at the beginning of each year on the basis of population andsocio-economic indicators. At the present moment there is no systematic methodology fortargeting and allocation of resources, to ensure that the most needy will be the final beneficiaries.Two key problems are:

* The absence of well established selection criteria and a centralized database, such as anMIS, allow for an individual to receive duplicative support from the SYDTF; and

* The lack of a M&E system to measure impact and improve procedures.

Disbursements

The current budget is supported by an off-budget mechanism which gives the SYDTFflexibility for the allocation of resources according to its components. The resources aretransferred on a monthly basis to the 931 regional SYDVs for their regular activities through thestate banking system according to the formula in Annex 6. The Resources Department is limitedto processing the disbursements to the SYDVs. It does not have authority to supervise and auditthe final payments to the beneficiaries.

All the requests presented in the official forms are supported by basic documentation,(letters) which describe the problem that will be solved if the money is granted. In some cases(productive projects), it is stated that the amount of money received should be paid back in cash,but no monitoring is undertaken by the SYDTF to check if this money is ever repaid.

Targeting

The Law defines the targeted group of citizens as those who are poor and in need of help,who are not connected to the Social Security System, and who can become productive if helpedwith education and training. SYDVs apply individual criteria, not consistent with one another,based on their knowledge of the inhabitants of the province or district. Exclusive reliance on localknowledge leaves open the scope for criticism of favoritism. There is an obvious need to have asystematized targeting methodology to limit the discretion that the current procedures have.

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Management and Organizational Structure

The current SYDTF Organizational structure is as follows:

* State Minister* Board of the Fund* Secretary-Generals' Office* Assistant Secretary-Generals' Office

SYDTF DEPARTMENTS

The SYDTF has the following departments:

* Project Programs* Health Programs3 Social Assistance* Scholarship Programse Investments_ Earthquake

Registration DepartmentData Processing Research and StatisticsResource Management

_ Implementation Follow-up and Appraisal• External Relations* Personnel and Conunuication

Department Function Monthly Staffing Monthly and BoardDisbursements yearly Approval in(May 2001) applications each meeting

receivedProject Income generating US$ 770,000 8 Persons: 200 per month 240 perPrograms projects;greenhouse I from Zirat Bank meeting

s, carpet weaving, I MOF 2,400 annuallybeehives etc. I Min of Interior (1,200 yearly)

I Halk Bank2 from PrimeMinistryI from an SYDV

Health Health (95 percent to US$ 4,500,000 8 Persons: 2,500 per month 2,500Programs Green Card holders 3 PMs office; 30,000 per year.

and direct approval of 1 General Armyother one time I Emlag Bankpayments of social 2 MEB/disaster assistance I MOF

Social 25 percent shelter; US$ 4,500 8 Persons: 250-300 300-400 perAssistance 50 percent 2 MEB per month meeting.

Dormitories, lunches, 3 PM office

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soup kitchens; I Zirat Bank25 percent child I Social Securitycenters Retirment

I MeteorologyDirectorate

Scholarship US$ 4,500,000 8 Persons: 90,000 in 1999 Direct DecisionPrograms I MOF usually 120, 000 making

4 PM office received 40,0001 MEB approved 19991 Ministry Interior usuallyI State Ports and 55-75,000Airports approved

Investments Construction of US$ 450,000 2 Persons: 30 applications Per BoardDormitories, soup I PM's office monthly meeting 25kitchens, rehab. I Min. of Justice. 260-300 annual 25 approvedcenters. Recently Procurement: 30 per monthM&E auditing. applications per

month

Earthquakes US$ 18,000,000 4 Persons: Direct decisionmaking

Registration Receives, registers, 6 persons: 26,000 documentsDepartment keeps copies 5 from PM's office received in year

distributes documents. I state railways. 2000. 70 percentMails outgoing health related.correspondence

Resource Review of 931 Bank US$45,000,000 5 persons:Management statements. 1 PM office

Transmittal of request 1 Zirat Bankto release funds from I MOFSYDTF account to I State RailwaysSYDV accounts. I Ministry of JusticeMonthly and Periodicdisbursements

External & Represent SYDTF Spersons:NGO at conferences and PM's officeRelations meetings. Learn

experience fromNGOs. Recommendstrategic changesfor SYDTF.

Staff

Law 3294 restricts the SYDTF's functions essentially to a funding mechanism. TheSYDTF can only fund state organizations i.e. the 931 affiliated SYDVs. The SYDTF does nothave its own administrative capacity and most of its 67 staff members are seconded and paid fromother organizations. A number of staff including the Directors are from the Prime Minister'soffice, while other staff members are from Zirat and Halk Banks; MEB; SB; Ministries of Justiceand Finance; State Railways, and Airport and Ports; General Director of SHCEK andUndersecretary of the Prime Ministry.

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Training

It is not current SYDTF policy to have staff trained in a systematic way, and there is nobudget for training. The only training that SYDTF staff receive internally comes from thecomputer specialist who prepares basic training for staff who do not have any computer skills.The development of a training plan for the PCU and the SYDTF should be part of the yearlySYDTF plan of activities in order to:

* Disseminate best practices, frameworks, and new knowledge* Practice skills and receive professional feedback* Network, share, reflect and encourage* Be driven by ongoing feedback that is received and analyzed.

Procedures

The SYDTF has developed procedures and processes that are followed by memory, orthey are transferred from one staff to the next. There are no written procedures, nor technicalguides or manuals for new staff to learn from or for managers to revise and improve procedures.Improvements in SYDTF operations and operations are suggested in the following areas:

e Focus on the process of identification of needs and the means for addressing beneficiaryneeds.

i Network and share a database system of potential beneficiaries, with other governmentand non- government organizations.C Cross-check assistance to beneficiaries, how much, by whom, what criteria.

i Systematically monitor and evaluate assistance and impact.o Build organizational capacity at the beneficiary level through the creation of cooperative

and associations: Creation of capacity at the beneficiary level to move out of poverty andcreate sustainable income generating opportunities.

* Extend the organization's abilities for outreach beyond urban and peri-urban areas.* Avoid duplication of services among the various public and private sector social assistance

organizations.* Avoid abuse of system through better selection criteria, cross-checking, and monitoring

and evaluation.* Provide assistance based on a clear definition of the poor and a selection criteria set down

in the operations manual, and not based on the discretion of administrative and politicalauthorities.

* The role of municipalities in social assistance should be expanded. Currently municipalitieshave their own resources to provide social assistance, and do not have resources fromState social assistance programs.

Discussions with Government and social assistance organizations indicate that there is aneed to rationalize this assistance through definition of poverty, selection criteria, targeting,monitoring and evaluation, financial management, mechanisms, coordination with otherorganizations, and an avoidance of overlapping of functions and overlapping of assistance to the

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same beneficiaries.

II. SHCEK

Background

SHCEK is a General Directorate with budget and public legal entity, established under theLaw 2828 promulgated in 1983. It is the only public agency providing services to vulnerablegroups such as poor children, the young, the disabled, the aged and families in need of protection,care and assistance.

Turkey has a long tradition of providing assistance to those in need. During the Ottomanera, social assistance organisations were founded to protect the rights of the widows and orphansand to ensure the subsistence of other people in need of assistance. The most important amongsuch organisations were the foundations (Vakiflar). The Vakiflars had a significant social impactduring the Ottoman era and provided assistance to the economic and socially disadvantaged.Such people in need were provided with food, shelter, clothing and education. Hospitals,orphanages, soup houses, religious institutions and care houses were established by Vakfilars.

On June 15th, 1921, the social assistance commission of the Grand National Assemblywas founded. After the foundation of Republic the social services were generally performed bypublic institutions and agencies. The Civil Law promulgated in 1926 set forth regulationsaffecting the social services for children. At least 9 laws affecting the social services for childrenhave been promulgated since then;

* In 1949, the first law on "Children in Need of Protection" was promulgated.* In 1957, the 1949 law was annulled and the second law on "Children in Need of

Protection" was promulgated.e In 1959, the law number 7355 on the "Establishment of Social Services Institute" was

adopted. That law was based on the need for the training of social services professionals insocial services schools.

* In 1963 "Social Services General Directorate" was founded within the Ministry of Healthand Social Services pursuant to the Law number 225.

* New constitution of Turkish Republic adopted in 1982 included detailed provisions onsocial services, and resulted in the promulgation of the Social Services and ChildProtection Agency Law in 1983.

* In 1988, the additional Law number 3413 was promulgated as an addition to the SocialServices and Child Protection Agency Law to provide employment opportunities for thechildren having left training institutions after reaching 18 years of age, in public agenciesand institutions. The Prime Ministry instead of the Ministry of Health and Social Serviceswas designated as in charge of Social Services.

SHCEK is responsible for providing service to the aged, the disabled, the women and allindividuals of the society who need protection and support. SHCEK currently provides 24 hoursservice to more than 30,000 infants, children, young people, the aged and the disabled; and more

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than 75,000 citizens during daytime with its 364 social service facilite (97 Training Institutions, 77Children's Homes, 50 Rest Homes for the Aged, 48 Care and Rehabilitation Centres, 36Community Centres, 16 Nurseries and Daycare Centres, 6 Mutual Support Centres for the Aged,7 Shelters for Women, 7 Youth Homes, 16 Children and Youth Centres and 1 Adult CounsellingCenter).

Services For Children and Families

Children and Young People in Need of Protection: According to the SHCEK Law 2828,the children in need of protection are defined as the children whose physical, spiritual or moraldevelopment or personal security is in danger; who do not have a father or a mother or neither; orwhose parents are not known; or have been abandoned, neglected or abused by their parents; orwhose parents are in prison. SHCEK is designated as responsible for executing the services forsuch children. However, SHCEK faces difficulties in providing such services especially during theperiods of crisis when national incomes deteriorate more. This problem becomes even moresevere due to the fact that approximately 35 percent of the population is not included in socialinsurance programs, that there is high unemployment and the social services and social assistanceprograms do not cover a sufficient number of people.

SHCEK generally provides care services only to the children in need of protection forwhom it is not possible to live with their own families or a foster family and who cannot beadopted. Among the 18,000 children under the care of SHCEK, 5.5 percent are abandonedchildren and another 7.2 percent are those whose parents died. The majority (87.3 percent)however do have a living parent who is still in contact. SHCEK provided services to the childrenin need of protection and families through aid in cash and in kind, children's homes, traininginstitutions, foster family and adoption service and children and youth centres for street children.In 2001, 7 Children's Homes and 5 Training institutions are planned to be opened.

Since healthy development of the children under protection can be ensured in institutionswhere one-to-one relations can be established and which are organised in a manner similar to thefamily environment, the works concerning furnishing the existing children's homes in a mannersimilar to family environment will be continued and the new institutions will be constructed andfurnished with lower capacities. The young people who are under protection in the SHCEK'sinstitutions and who are enrolled in the last year of high school or who have graduated from highschool are sent to University Entrance Examination Preparation Courses to prepare for theuniversity entrance test and to improve their performance.

UN Convention on the Rights of the Child: SCHEK is responsible for monitoring andcoordinating the implementation of the Convention on the Rights of the Child which became anational legal instrument after being published in the Official Gazette in 1995.

Adoption Services Adoption services occupy an important place among the models ofservices provided to the children in need of protection. A person must be a minimum of 35 yearsof age and must have no children in order to be able to adopt a child. In accordance with article21 of the UN Convention on the Rights of the Child, the child is allowed to benefit from adoption

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services in accordance with the prime interests of the child. The children under the care andprotection of the SHCEK, who are suitable for adoption, are adopted by the parents whoseapplications are accepted by the court verdict after the investigation carried out by the socialworkers. Since the adoption requests involve mainly healthy children of 0-1 age group, about 450children meeting these criteria are adopted every year.

Foster Family Services Foster family services are executed by the Provincial SocialServices Directorates. The best place for the care and protection of the children is a familyenvironment. In Westem societies, 75 percent of the children in need of protection are cared byfoster families. In Turkey, on the other hand, this rate has not reached even to 2 percent despiteall efforts. There have been various attempts to develop and improve the efficiency of fosterfamily services. The number of children cared by foster families is 395 as of the end of 1999,while 93 more children were placed with foster families during the first nine months of 2000.Currently 470 children are under care of foster families of which 110 of those children are caredby volunteering families while 370 are cared for a fee. All of the applicants were contacted bymail or by social work experts in three months' period. However, it has been understood that thissensitivity was caused by the earthquake and the families wanted to adopt or care for childrenwho had experienced the earthquake, but not other children. The families applying to serve asfoster families are paid a monthly amount of TL 35 - 80 million, depending on the age andeducation of the child. The sums paid for disabled children are increased by two times dependingon the disability and age of the child. In addition, education and medical expenses and allowancesof the children cared by foster families are paid by SHCEK.

Street Children/ Working Children: In recent years, the number of children living andworking in the streets has been observed to increase quickly. The causes which force children tolive and work in the streets are economic and social factors such as rapid and uneven urbanisation,increasing squatter development, inequality in income distribution, migration form the rural areasto the cities, etc. For this purpose, children and their families are provided with guidance,counseling, training and rehabilitation services by the Children and Youth Directorates as anattempt to solve the problems of children that live and work in the streets.

The identity details, educational conditions, working conditions of the children and theirreasons to live and work in the street are investigated through the "Street Studies" conducted bythe professionals working at the Children and Youth Centres and the children are encouraged tovisit the centres. The families who are contacted during the street studies are informed about thedangers of the streets for the children and told that it is a crime to force the children to work.

The professionals working at the centers conduct personal studies concerning thepsychosocial, educational and family conditions of each child. The families who force theirchildren to work in the streets because of economic deprivation are examined social assistnacefood, clothing, stationary are provided to the families within the scope of social assistance, thepsycho-social development of the child and the necessity of play, education and social activitiesare emphasized and the families are encouraged to send their children to these centres. Providingtherapy to the children with health problems and performing medical care against the risk ofcontagious diseases posed by the streets are among other services supplied.

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The efforts to contribute to the solution of the problem of children living/working in thestreets are continuing in Bursa, Batman, Van and Malatya. The Istanbul Ayvansaray Children andYouth Centre provides day service to working children; 20 Children and Youth Centres areplanned to be in service by the end of 2001. Centers with specialized staff and technicalequipment are planned to be established or children with problems such as drug addiction,prostitution or children running away from home for the first time. The scope of the studiesoriented towards the problem group and their families are planned to be expanded and the studiesconducted together with the families are planned to be focused on. Job and professionalqualification programs are intended to support the families who force their children to work in thestreet for economic reasons.

Nursery and Daycare Centre Services: A total of 1,252 children benefit from the servicesof 16 Nursery and Daycare Centers were the children of working parents are cared. In 2000, 5nurseries were closed because of working under-capacity for a long time.

Supporting the Youth in Society: Public agencies and institutions are obliged to allocateone per thousand of the existing vacant posts every year to the children under the care andprotection of SHCEK. As of October 2000, the number of children placed at jobs was 1,826,with 4,552 children are waiting to be placed in employment.

Women's Shelters: Women's Guesthouses have assumed significant functions in reachingthe target of preventing and gradually eliminating violence against women. In the Women'sShelters, professional studies are conducted to examine the situations of women, theirdisagreements with their families or spouses and solutions for their problems. Such effortsinclude providing the psychological support, counselling, legal guidance, taking measures to helpthem to be self-sufficient, prepare them have a job preventing the recurrence of violence, ensuringhealthy family relationships for their children to grow up in, and monitoring their conditions. Atotal of 2,414 women and 2,083 children have benefited from the services of the Women'sShelters from their first opening to September 2000, and 390 women have been placed inemployment. Work is ongoing to open a new women's Shelters in Istanbul. This would provideservices to additional 500 women and 300 children in 2001.

Protection and Preventive Services

Community Centers: The General Directorate, in addition to institutional services, since1993 operates Community Centers which provide protective, preventive, therapeutic andrehabilitative services. Community Centers are institutions aimed primarily for disadvantageregions. As of October 2000, there were 24 Community Centres in gecekondus and 12 in Southand Eastern Anatolian cities, now there is atotal of 44. As of October 2000, 75.000 women,young people and children have benefited from the services of the Community Centers. TheCommunity Centers aim to increase the rate of literacy, increasing the participation in educationprocess at every level, develop productive skills especially among women, provide opportunitiesof employment to generate more income, increase the consciousness of the society to act in anorganised manner, reduce the domestic work load of the women, and rising the status of women

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through programs to develop their knowledge and skills in various fields.

The Early Childhood Support Project, which was commenced in the 1990s and continuedin 2000, was implemented among the groups of 15 children in primary schools. During thisprogram which was implemented on half-day basis, food was distributed to the children every dayand aid in kind (clothing, educational stationery, etc.) were provided to the children and families.The program was implemented in 13 provinces, namely in Istanbul and Izmir, Igdir, Diyarbakir,Batman, Agri, Siirt, Sirnak, Bingol, Mus, Van, Hakkari and Mardin in Eastern and South-EasternAnatolia for 10,000 children.

Aid in Kind and in Cash Services: In recent years, the services of aid in kind and incash which are protective-preventive and supportive in nature have gained gradually moreimportance among the service policies of the General Directorate of SHCEK. On the other hand,the services of aid in kind and in cash by the SHCEK lead to more efficient service with fewerresources, which enable the individuals to continue their lives within their own family union.

The following groups are given priority in benefiting from the services of aid in kind and incash: (a) children placed under protection and cared by the SHCEK, but who can be cared bytheir own families if economic support is provided; (b) children who are chosen for protection andto be placed at the SHCEK due to the economic poverty of their families; (c) disabled childrenand young people under the care of their families due to the lack of sufficient institutional support;and (d) children for whom a protection order is requested due to the economic poverty of theirfamilies.

Services for the Disabled

SHCEK has started serious attempts to provide solutions to the problems of disabledindividuals, to ensure care and rehabilitation by developing and implementing modern models. Theaim is to and dispersing the rehabilitation services to ensure that the disabled can live productiveand independent lives in the society. Successful initiatives are continued to make the disabledindividuals under protection happy and productive through activities including toy workshops,greenhouses, mushroom cultivation, ceramics, packaging industry, agricultural rehabilitation andanimal husbandry. SHCEK provides services to the disabled citizens including therapy, care andrehabilitation, training for the families of the disabled individuals, guidance and counselling,institutional counselling and social aid.

The SHCEK provides services to the disabled in 51 day and night rehabilitation centres.The 3,318 disabled individuals benefited as of September 2000. An "Independent Living Home"project was implemented for the disabled individuals, who have achieved basic living skills,sufficiently equipped for independent life and gained professional qualifications through therehabilitation programs provided by the centers. Within the scope of "Independent Living Home"project, an "Independent Living Unit" was established in 1999 for the disabled individuals undercare in the Saray Rehabilitation Centre (Ankara), who have developed self-care skills.

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Services for the Aged

Approximately 7.1 percent of Turkey's population is over 60 years old. This groupexpected to exceed 15 percent of the population by 2010. Since the importance of the servicesto be provided to the aged increases. SHCEK provides the aged with nursing homes. Thenumber of nursing homes for the aged is 50 as of October 2000 and the total capacity is 5,397.

IV. The Health System in Turkey

Health services in the public sector in Turkey are mainly provided by the Ministry ofHealth (SB), the social insurance institution, known as the Sosyal Sigortalar Kurumu (SSK), andthe University hospitals. Other ministries (like Defense, Education, and Transport), localgovernments and some state economic enterprises also provide health services, but their capacityis quite limited.

The SB is the sole provider ofpreventive services, provided in health centers, health posts,mother and child health and family planning centers, tuberculosis dispensaries, malaria and cancercontrol centers. In addition, the SB implements several special preventive health programs thatprovide reproductive health services, family planning services, public health education,immunization, control of diarrheal diseases, control of acute respiratory infections, etc. The SB isthe major provider of maternal health care services, provided through health posts, healthcenters and hospitals. All preventive and first contact services provided by the SB are free ofcharge to all users. The SB also provides laboratory based preventive services through the RefikSaydam Hygiene Center.

The private sector consists mostly of public physicians who are allowed to work in theirprivate practices in the afternoons and provide a significant share of outpatient care. Thoughexact data is not available, the private sector appears to be an important source of care in largeurban areas and in the Western part of the country.

Health Coverage

The population can be divided into two main groups: people who have some sort of healthcoverage, comprising about 87 percent of the total population, and people who do not have anysort of health coverage, comprising the remaining 13 percent (i.e. 7.5 million). Those who haveany sort of coverage can be categorized as: (i) White-collar worker (civil servants and theirdependents, members of Emekli Sandigi); (ii) Blue-collar workers (members of Social SecurityAgency); (iii) Self-employed entrepreneurs and small artisans (members of Bag-Kur); and (iv)those of the rural and urban poor covered by the Green Card scheme.

This leaves a big subgroup comprising over 13 percent of Turkey's population that is notcovered either by any health insurance program or by the Green Card program. There is aprovision under Code 3294: Law on Incentive to Social Aid and Solidarity Fund under which thestate can pay for health expenditures of those are not insured, are unable to get a green card and

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cannot afford to pay for their health care, but the allocations and use of the SYDTF resources isfar from adequate to address the healthcare needs of this population. Enacted under Law 3816 of1992, the Green Card Program provides free health care services to its beneficiaries. Managed bythe SB and financed via general taxes, the Green Card program is seen as a transitional solutionthat would prevail until the General Health Insurance System is brought into application. Toqualify for the Green Card, an individual should be a Turkish citizen, not be covered by any socialsecurity system, and have a monthly income of less than one-third of the minimum wage amount(excluding taxes and social security premiums) as determined by Code 1475. Clearly, there is apressing need for some insurance system that will expand coverage and extend health care to 8.6million people who are not eligible for obtaining Green Card.

Effect of the Crisis to Utilization of Health Services

It is a common belief that the current crisis did not affect utilization of health services andthat it remains low for poor and those that do not have health insurance. However, it is expectedthat if crisis persists, long term effects will especially affect utilization of both preventive andcurative services by the poor.

Registration and Reliability of Health Data

Government continues to rely on the existing reported data for utilization of services aswell as for immunization coverage. In general, the reported data do not include children that arenot registered and therefore actual figures do not always correspond with reported figures. Inaddition, there are no data on utilization of services and immunization coverage per differentsocio-economic groups which would enable better targeting. These issues are being coveredunder the socio-economic survey in preparation for the SRMP and an immunization study underthe Bank-assisted Health II project.

According to some reports, there is a significant number of children under five whosebirths are not registered with authorities. Opinions for magnitude of this problem are divided.Issue of non registration might have effect on estimating number of beneficiaries, calculatingcoverage rates, planning services and setting priorities.

Suggestions For Effective Implementation of CCT

To date, much effort has been made to strengthen supply side of provision of healthservices. Health education and health promotion activities had important but also limited impactto creating demand for preventive health services. It is highly recommended by SB thatinformation campaign on the availability of CCT should be combined with health promotion andhealth education programs. SB believes that in addition to incentives created by conditional cashtransfers, the awareness of benefit of preventive health services are more important in the long runand would complement strengthening the demand.

Verification process for compliance with conditionalities has to be transparent andauditable to prevent false certification and abuse of the system. Experience from other countries

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shows that introduction of individual health cards was an effective way to preserve data onimmunization, growth monitoring and prenatal care. The introduction and procedure ofdistribution of individual health cards has to be defined in such way to avoid duplication andpotential abuse but also to be affordable and to be accessible for poor. In addition to introducingindividual health cards on auditable register of visits to health centers for each individual withdescription of services provided should be established. Those changes and introduction ofindividual health cards, and register would require additional training for health staff both inadministrative issues related to implementation of this program but also in explaining the set ofcriteria that would be established as conditionalities.

Regardless of the fact that criteria for obtaining the green card appear to be fairly welldefined to target the poor, the process of registration, issue of land and property ownership andlack of verification system, etc. seems to contribute to wide abuse of this system. Therefore,eligibility for Green Card appears be inappropriate for targeting criteria for CCT.

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