CONFORMED COPY

LOAN NUMBER 1987 TU

Loan Agreement

(Second Structural Adjustment Loan)

between

REPUBLIC OF TURKEY

and

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

Dated May 15, 1981

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LOAN NUMBER 1987 TU

LOAN AGREEMENT

AGREEMENT, dated May 15, 1981 between REPUBLIC OF TURKEY(hereinafter called the Borrower) and INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank).

WHEREAS (A) the Bank has received a letter dated Febru-ary 20, 1981 from the Borrower describing a program of actions,objectives and policies designed to achieve a structural adjust-ment of the Borrower's economy, declaring the Borrower's commit-ment to the execution of that program, and requesting assistancefrom the Bank in the financing of urgent imports to be made duringthe execution of such program; and

(B) the Bank has decided in support of such program toprovide assistanze to the Borrower by making the loan as herein-after provided;

NOW THEREFORE the parties hereto hereby agree as follows:

ARTICLE I

General Conditions; Definitions

Section 1.01. The parties to this Agreement accept all theprovisions of the General Conditions Applicable to Loan andGuarantee Agreements of the Bank, dated October 27, 1980, withthe same force and effect as if they were fully set forth herein,subject, however, to the following modification thereof (saidGeneral Conditions Applicable to Loan and Guarantee Agreements ofthe Bank, as so modified, being hereinafter called the GeneralConditions), namely, that Section 2.01 No. 11 shall read:

"The term Project means the activities that maybe financed out of the proceeds of the Loan pursuantto the provisions of Schedule 1 to this Agreement."

Section 1.02. Wherever used in this Agreement, unless thecontext otherwise requires, the several terms defined in theGeneral Conditions and in the Preamble to this Agreement havethe respective meanings therein set forth and the followingadditional terms have the following meanings:

(a) "Lt" and "Lira" mean the currency of the Borrower;

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(b) "Project Account" means the account established inT.C. Merkez Bankasi pursuant to Section 3.01 of this Agreement;

(c) "T.C. Merkez Bankasi" means TUrkiye Cumhuriyet MerkezBankasi, the Central Bank of the Republic of Turkey establishedand operating pursuant to Law No. 1211 promulgated in the OfficialGazette of the Republic of Turkey No. 13409 of January 26, 1970 asamended;

(d) "SEE" means a State Economic Enterprise, or a corpora-tion, enterprise or entity, 50% or more of whose capital is ownedor controlled by the Borrower or any of its administrative sub-divisions, agencies or instrumentalities; and

(e) "Private Sector Firm" means a firm, corporation, part-nership or any other manufacturing entity 50% or more of whosecapital is owned or controlled by persons or entities other thanthe Borrower, its administrative subdivisions, agencies or instru-mentalities, including SEEs.

ARTICLE II

The Loan

Section 2.01. The Bank agrees to lend to the Borrower,on the terms and conditions in the Loan Agreement set forthor referred to, an amount in various currencies equivalent tothree hundred million dollars ($300,000,000).

Section 2.02. The amount of the Loan may be withdrawnfrom the Loan Account in accordance with the provisions ofSchedule 1 to this Agreement, as such Schedule may be amended fromtime to time by agreement between the Borrower and the Bank, forexpenditures made (or, if the Bank shall so agree, to be made) inrespect of the reasonable cost of the imported goods included insuch Schedule.

Section 2.03. Except as the Bank shall otherwise agree,the procurement of the goods to be financed out of the proceeds ofthe Loan shall be governed by the provisions of Schedule 3 to thisAgreement.

Section 2.04. The Closing Date shall be November 30, 1982or such later date as the Bank shall establish. The Bank shallpromptly notify the Borrower of such later date.

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Section 2.05. The Borrower shall pay to the Bank a commitmentcharge at the rate of three-fourths of one per cent (3/4 of1%) per annum on the principal amount of the Loan not withdrawnfrom time to time.

Section 2.06. The Borrower shall pay interest at the rateof nine and three-fifths per cent (9-3/5%) per annum on the prin-cipal amount of the Loan withdrawn and outstanding from time totime.

Section 2.07. Interest and other charges shall be payablesemiannually on January 15 and July 15 in each year.

Section 2.08. The Borrower shall repay the principal amountof the Loan in accordance with the amortization schedule setforth in Schedule 2 to this Agreement.

Section 2.09. (a) T.C. Merkez Bankasi is designated asrepresentative of the Borrower for the purposes of taking anyaction required or permitted to be taken under the provisions ofSection 2.02 of this Agreement and Article V of the GeneralConditions.

(b) Without limitation or restriction to the f regoing,the Borrower shall entrust T.C. Merkez Bankasi with respo sibilitkfor the coordination and collection of relevant documentation, andthe preparation of withdrawal applications, under the Loan, whichwithdrawal applications shall to the extent practicable be con-solidated so as to provide for withdrawal of at least $25,000equivalent. Each such withdrawal application shall be submitted tothe Bank with a statement of the cumulative amount claimed forwithdrawal from the Loan Account on account of expenditures madeor to be made by Private Sector Firms under such application andall earlier applications submitted to the Bank.

ARTICLE III

Particular Covenants

Section 3.01. The Borrower shall open an account (theProject Account) with T.C. Merke;z Bankasi and shall deposit insaid account in accordance with its usual financial procedures,upon each withdrawal from the Loan Account, the equivalent inLiras of the currency or currencies withdrawn from the LoanAccount (such equivalent to be determined as of the respective

date of such withdrawals). The amounts so deposited in the ProjectAccount shall be used exclusively to finance expenditures includedin the Borrower's development programs.

Section 3.02. The Borrower shall:

(a) promptly upon receipt of appropriate applications frompotential importers: (i) determine their eligibility underthe Loan; and (ii) issue, or cause to be issued to eligibleimporters such import licenses as shall be required for theimportation of goods to be financed out of the proceeds of theLoan;

(b) make available, or cause to be made available, to thelicensed importers promptly as needed, such amounts of foreignexchange as shall be required to import goods to be financed outof the proceeds of the Loan; and

(c) take all such action as shall be necessary to facilitatethe timely importation of goods to be financed out of the proceedsof the Loan.

Section 3.03. The Borrower undertakes that adequate provisionwill be made for the insurance of the imported goods to befinanced out of the proceeds of the Loan against hazards incidentto the acquisition, transportation and delivery thereof to theplace of use or installation, and for such insurance any indemnityshall be payable in a currency freely usable to replace or repairsuch goods.

Section 3.04. The Borrower and the Bank shall from tima totime, at the request of either party, exchange views on theprogress achieved in carrying out the program referred to inparagraph (A) of the Preamble to this Agreement and the measuresspecified in Schedule 4 to this Agreement.

Section 3.05. (a) It is the policy of the Bank, in makingloans to, or with the guarantee of, its members not to seek, innormal circumstances, special security from the member concernedbut to ensure that no other external debt shall have priorityover its loans in the allocation, realization or distributionof foreign exchange held under the control or for the benefitof such member. To that end, if any lien shall be created onany public assets (as hereinafter defined), as security for any

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external debt, which will or might result in a priority for thebenefit of the creditor of such external debt in the allocation,realization or distribution of foreign exchange, such lien shall,unless the Bank shall otherwise agree, ipso facto and at nocost to the Bank, equally and ratably secure the principal of,and interest and other charges on, the Loan, and the Borrower,in creating or permitting the creation of such lien, shall makeexpress provision to that effect; provided, however, that, if forany constitutional or other legal reason such provision cannotbe made with respect to any lien created on assets of any ofits political or administrative subdivisions, the Borrower shallpromptly and at no cost to the Bank secure the principal of,and interest and other charges on, the Loan by an equivalentlien on other public assets satisfactory to the Bank.

(b) The foregoing undertaking shall not apply to: (i) anylien created on property, at the time of purchase thereof, solelyas security for payment of the purchase price of such property;and (ii) any lien arising in the ordinary course of bankingtransactions and securing a debt maturing not more than one yearafter its date.

(c) As used in this Section, the term "public assets"means assets of the Borrower, of any political or administrativesubdivision thereof and of any entity owned or controlled by, oroperating for the account or benefit of, the Borrower or any suchsubdivision, including assets held by T.C. Merkez Bankasi orany other institution performing the functions of a central bankor exchange stabilization fund, or similar functions, for theBorrower.

Section 3.06. The Borrower shall ensure that records shallbe kept to register all expenditures financed out of the proceedsof the Loan in accordance with sound accounting practices con-sistently applied.

Section 3.07. Upon the award of any contract for goods to befinanced out of the proceeds of the Loan, the Bank may publish adescription thereof, the name and nationality of the party to whomthe contract was awarded and the contract price.

ARTICLE IV

Additional Event of Suspension

Section 4.01. For the purposes of Section 6.02 of the GeneralConditions, tiie following additional event is specified pursuant

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to paragraph (k) thereof, namely, that an event has occurred whichshall make it improbable that the program or a significant part ofthe program referred to in the Preamble to this Agreement will becarried out.

ARTICLE V

Termination

Section 5.01. The date August 17, 1981, is hereby specifiedfor the purposes of Section 12.04 of the General Conditions.

ARTICLE VI

Representative of the Borrower; Addresses

Section 6.01. The Minister of Finance of the Borrower isdesignated as representative of the Borrower for the purposes ofSection 11.03 of the General Conditions.

Section 6.02. The following addresses are specified forthe purposes of Section 11.01 of the General Conditions:

For the Borrower:

Maliye BakanligiHazine Genel Mudurlugu ve

Milletlerarasi IktisadiIsbirligi Teskilati Genel

SekreterligiAnkara, Turkey

Cable address:

MALIYEHazineAnkara

For the Bank:

International Bank forReconstruction and Development

1818 H Street, N.W.Washington, D.C. 20433United States of America

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Cable address: Telex:

INTBAFRAD 440098 (ITT)

Washington, D.C. 248423 (RCA) or64145 (WUI)

IN WITNESS WHEREOF, the parties hereto, acting throughtheir representatives thereunto duly authorized, have caused

this Agreement to be signed in their respective names in the

District of Columbia, United States of America, as of the day andyear first above written.

REPUBLIC OF TURKEY

By /s/ Tevfik AltinokAuthorized Representative

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT

By /s/ Roger ChaufournierRegional Vice President

Europe, Middle East and North Africa

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SCHEDULE 1

Withdrawal of the Proceeds of the Loan

1. The table below sets forth the Categories of imported commod-ity groups to be financed out of the proceeds of the Loan and theallocation of the amounts of the Loan to each Category:

Amount of theLoan Allocated(Expressed in

Category Dollar Equivalent)

(1) Agriculture 200,000,000

Materials for produc-tion of fertilizersexcept petroleum andpetroleum products

(2) Industry 100,000,000

Raw materials andintermediate goodsexcept petroleum andpetroleum products

TOTAL 300,000,000

2. Notwithstanding the provisions of paragraph 1 above:

(a) No withdrawals shall be made in respect of:

(i) expenditures in the currency of the Borrower or forgoods or services supplied from the territory ofthe Borrower;

(ii) payments made prior to the date of this Agreement,except that withdrawals in an aggregate amount not

exceeding the equivalent of $30,000,000 may be madeon account of payments made for such expendituresbefore that date but after April 1, 1981;

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(iii) payments for taxes levied by, or in the territoryof, the Borrower on goods or services, or on theimportation, manufacture,, procurement or supplythereof; and

(iv) expenditures for goods procured under invoicps forless than $5,000 equivalent.

(b) No withdrawal shall be made and no commitment shallbe entered into to pay amounts to the Borrower or others inrespect of expenditures to be financed under this Agreement afterthe aggregate amount of the Loan withdrawn from the Loan Accountand the amount of commitments entered into by the Bank upon theBorrower's request in respect of expenditures to be financed underthe Loan would exceed the equivalent of $200,000,000,, unless theBank shall be satisfied, after an exchange of views referred to inSection 3.04 of this Agreement with the progress achieved by theBorrower in the carrying out of the measures described in Schedule4 to this Agreement.

3. Notwithstanding the allocation of an amount of the Loanset forth in paragraph 1 of this Schedule, if the Bank has rea-sonably estimated that the amount of the Loan then allocated toany Category will be insufficient to finance the expenditures inthat Category, the Bank may, by notice to the Borrower, reallocateto the respective Category, to the extent required to meet suchestimated shortfall, proceeds of the Loan which are then allocatedto another Category and which in the opinion of the Bank are notneeded to meet other expenditures.

4. If the Bank shall have reasonably determined that the pro-curement of any item in any Category is inconsistent with theprocedures set forth or referred to in this Agreement, no expen-ditures for such item shall be financed out of the proceeds of theLoan and the Bank may, without in any way restricting or limitingany other right, power or remedy of the Bank under the LoanAgreement, by notice to the Borrower, cancel such amount of theLoan as, in the Bank's reasonable opinion, represents the amountof ouch expenditures which would otherwise have been eligible forfinancing out of the proceeds of the Loan.

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SCHEDULE 2

Amortization Schedule

Payment of PrincipalDate Payment Due (expressed in dollars)*

On each January 15 and July 15

Beginning January 15, 1986Through January 15, 1998 11,540,000

On July 15, 1998 11,500,000

* To the extent that any portion of the Loan is repayable ina currency other than dollars (see General Conditions,Section 4.04), the figures in this column represent dollarequivalents determined as for purposes of withdrawal.

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Premiums on Prepayment

The following percentages are specified as the premiumspayable on repayment in advance of maturity of any portion ofthe principal amount of the Loan pursuant to Section 3.05 (b)of the General Conditions:

Time of Prepayment Premium

Not more than three yearsbefore maturity 1.70%

More than three years but notmore than six years beforematurity 3.40%

More than six years but notmore than eleven yearsbefore maturity 6.20%

More than eleven years but notmore than fifteen yearsbefore maturity 8.50%

More than fifteen yearsbefore maturity 9.60%

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SCHEDULE 3

Procurement

1. Except as provided in paragraph 3 thereof, goods to beimported under a single contract estimated to cost $10,000,000equivalent or more, shall be procured through limited interna-tional tendering on the basis of at least three responsive quota-tions from suppliers from the member countries of the Bank andSwitzerland or from Taiwan.

2. Contracts for the purchase of goods estimated to cost lessthan the equivalent of $10,000,000 shall be awarded through normaltrade channels on the basis of the procurement procedures ofthe purchaser of such goods.

3. Contracts for commonly traded commodities may be awarded onthe basis of price quotations available from organized inter-national commodity markets.

4. With respect to each contract costing $250,000 equivalentor more, the Borrower shall furnish to the Bank, prior to thesubmission to the Bank of the first application for withdrawalof funds from the Loan Account in respect of such contract,two conformed copies of such contract; in raspect of contractsreferred to in paragraph 1 of this Schedule, the Bank shall, inaddition, be furnished with, a description of the advertising andtendering procedures followed, an appropraite analysi- of therespective bids and recommendations for award and such otherinformation as the Bank shall reasonably request. The Bank shall,if it determines that the award of the contract was not consistentwith this Schedule, promptly inform the Borrower and state thereasons for such determination.

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SCHEDULE 4

Review with respect toSchedule 1, paragraph 2 (b)

The Borrower and the Bank shall review:

1. The adequacy of policies and legislative and administrativemeasures for export promotion, import liberalization and domesticresource mobilization, in particular with respect to tax reforms:(a) progress in enacting a law providing for a value addedtax to be introduced during the Borrower's fiscal year 1982;and (b) progress in establishing adequate procedures for taxcollection, especially with respect to personal and corporateincome and agricultural sales tax.

2. The adequacy of progress in reforms of State Economic Enter-prises, in particular (a) by September 30, 1981, (i) carrying outthe reforms decided in principle by the Council of Ministersin February 1981, and (ii) decision of the Council of Ministersof legal changes permitting greater delegation of authoritywithin SEEs and multi-year contracts for their managers; and(b) carrying out the decree No. 8/2022, dated November 29,1980, with respect to the number of authorized positions andnew hiring. Progress will be reviewed inter alia by examiningthe implementation in selected SEEs of the measures referredto under (a) (i) and (b) hereof.

3. The adequacy of energy policies, in particular pricing ofpetroleum products at levels comparable to international marketprices.