Document of

The World Bank

FOR omcIL USE ONLY

/f / epG y )- -Fil

Rlee NO- P-4148-TU

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO USt100 MILLION

TO THE REPUBLIC OF TURKEY

FOR A

SMALL AND MEDIUM SCALE INDUSTRY PROJECT

December 12, 1985

j s dogugat b a uuicd dlsdbelm mud my be med by redleats ei the perfornumu oftbdr offic dht ha mut my m othdse be didesd wi Wod l.k auth.rlzati.u

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TURKEY

CURRENCY EQUIVALENTS

C0rrencyUnit Jan. L980 /1 Jan. 1982 Jan. 1983 Jan. 1984 Jan. 1985 Oct 1985

US Dollar - TL70.00 TL139.60 TL191.15 TL309.20 TL45L.40 TL548.80TL 1 - US$0.0L4 US$0.007 US$0.005 US$0.003 US$0.002 US$0.002

/1 Since January 1981, the rate is being adjusted for the differentialinfLatiou between Turkey and its major trading partners.

Fiscal Year

January 1 - December 31

LIST OF ABBREVIATIONS

DESLYAB Devlet Sanayi ve Isci Yatirim BankasiDFC Development Finance CompanyDYB Devlet Yatirim BankasiFEKIS Foreign Exchange Risk Insurance SchemeHE Halk BankasiSEE State Economic EnterpriseSILO Small Industry Development OrganizationSMI Small and Medium Scale IndustrySPO State Planning OrganizationSSI Small Scale IndustrySYKB Sinai Yatirim ve Kredi BankasiTCZB Turkiye Cumhuriyeti Ziraat BankasiTSKB Turkiye Sinai KaLkinma BankasiUNDP United Nations Development ProgrammeUNIDO United Nations Industrial Development Organization

FOR OMCIAL USE ONLY

TURE

SHALL AND ]EDIUK SCALE INDUSTRi (SMI) PROJECT

Loan and Project Sumary

Borrover: Republic of Turkey

Beneficiaries: Sinai Yatirim ye Kredi Bankasi (SYKB)Balk Bankasi (HB)

Amounl: USg100 million

Term: Fifteen years, including three years of grace, at thestandard variable interest rate.

Relending Terms: The Borrower would onlend $98.4 million to SYKB and HBfor relending to eligible sub-borrowers in the small andmedium scale industrial sector and $0.35 million to BBfor technical assistance. The balance of $1.25 millionwould be-allocated to the Small Industry DevelopmentOrganization (SIDO) for technical assistance to SMIenterprises. For sub-loans covered under the ForeignExchange Risk Insurance Scheme (FElIS), sub-borrowerswould pay the fixed FRIlS interest rate while theBorrower would onlend Bank funds denominated in TL toSYKB and HB at a fixed interest rate equal to theonlending rate to sub-borrowers minus an intermediationfee of 4 percent. Alternatively, Bank funds would beonlent in foreign exchange to SYKB and RB at a fixedinterest rate equal to the then prevailing Bank rate plusa fee of 0.75 percent. The rate to sub-borrowers wouldbe fixed at 5 percent above the prevailing Bank rate.Amortization of $98.4 million for financing of industrywould conform substantially to the aggregate of theamortization schedules of individual sub-loans, whileamortization of $0.35 million for financing technicalassistance would be over 15 years including 3 years ofgrace.

Project The project is designed to support a program for theDescription: development of labor-intensive SMI, with special emphasis

on Small Scale Industry (SSI), through lines of credit toSYKB and BB, technical assistance for the institutionalstrengthening and efficiency improvement of HB andtechnical assistance to SMI enterprises through SIDO.

Tbis doc_mem th a n=kdi tibution and -y be usd by repients only in the pefonnce ofthewr oficd dUbis In coensomay not oerwie be dmicod wihout World Dank authonizautn|

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Benefits and Risks: The project would support the development oflabor-intensive SMI projects in industries where Turkeyhas a comparative advantage and thus contribute to bothjob creation and growth of manufactured exports. Theproject is estimated to create about 18,000 directjobs. The project would also provide technicalassistance to SMI resulting in their increasedproductivity and efficiency. In addition, the projectwould help strengthen the institutional structure forfinancial assistance to SMI. The project risks mainlyrelate to the overall investment situation in theprivate industrial sector and the timely utilization ofthe proposed loan by the intermediary banks.Substantial delays in loan utilization are unlikely,however, in view of the measures taken by the -Government to stimulate the growth of the privatesector.

Estimated Disbursements: $ Million

IBKD FY 1987 1988 1989 1990 1991 1992Annual 12.0 27.0 27.0 19.0 11.0 4.0Cumulative 12.0 39.0 66.0 85.0 96.0 100.0

Economic Rate of Return: Not applicable.

Staff Appraisal Report: Report No. 5526-TU, dated December 11, 1985

Map: No. 116561

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENITION OF THE PRESIDENT OF THE IBRDTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE RtEPUBLIC OF TURKEY

FOR A SMALL AND MEDIUM SCALE INDUSTRY PROJECT

1. I submit the following report and recommendation on a proposed loanto the Republic of Turkey for the equivalent of US$100 million to help financea Small and Medium Scale Industry (SMI) Project. The loan would have a termof 15 years including 3 years of grace, with interest at the standard variablerate. The equivalent of $80 million and $18.75 million would be onlent toSinai Yatirim ve Kredi Bankasi (SYKB) and Halk Bankasi (RB) respectively.Amortization of $98.4 million for financing of industry would conformsubstantially to the aggregate of the amortization schedules of individualsub-loans, while amortization of $0.35 million for financing technicalassistance would be over 15 years including 3 years of grace. Of the amountof $98.75 million, the portion covered by the Government's Foreign ExchangeRisk Insurance Scheme (FERIS) would carry the fixed interest rate establishedunder FERIS minus a fee of 4 percent, while the balance would be onlent at afixed interest rate equal to the then prevailing Bank interest rate plus a feeof 0.75 percent. The foreign exchange risk would be borne by thesub-borrowers in the latter case.

PART I - THE ECONOMY

2. An economic mission visited Turkey in June 1982, and its reportentitled "Turkey: Country Economic Memorandum, Recent Economic Developmentsand Medium-Term Prospects" (No. 4287-TU) was distributed to the ExecutiveDirectors in June 1983. The report of a mission to review the financialsector, entitled: "Turkey: Special Economic Report - Policies for theFinancial Sector" (No. 4459-TU), was distributed in September 1983. A Bankmission reviewed the Government's Fifth Five-Year Development Plan (1985-89)in September 1984 and its report: "Turkey: The Vth Five Year Plan in theContext of Structural Adjustment" (No. 5418-TU) was distributed in July 1985.

3. Turkey's area is about 781,000 square kilometers (i.e. about equal tothe area of France and West Germany combined) with a population of around5U million and GNP per capita of $1200 in 1984. The density of population islow (78 per square kilometer of agricultural land), and about 47 percent livein urban centers. Population growth (2.2 percent per annum) is below themedian for middle-income countries. Despite rapid economic growth in themid-1970s as well as emigration of workers (to Western Europe and morerecently, to the Middle East), there is still substantial unemployment which,including disguised unemployment in agriculture, is estimated at about19 percent of the civilian labor force. There is, however, little or noabsolute poverty, although income distribution is skewed. There areconsiderable regional differences in income and large rural-urbandisparities. Recent data indicate a probable increase in income inequalitysince the 1970s, especially a relative deterioration of the position of wageand salary earners and an improvement in the position of the trading andcommercial classes, and, more generally, of capital-owners. Educationalenrollment has expanded greatly, but the level of adult literacy remainsrelatively low ccmpared to the European average for middle income countries.

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Background

4. During the 1970s Turkey did not make the necessary adjustments to theshocks caused by the steep rise in oil prices, stagflation in the OECDeconomies, aud the consequent deterioration of its terms of external trade.Until 1977 Turkey maintained high rates of economic growth by increasingpublic investment. The foreign exchange requirements were financed initiallyby workers' remittances and then increasingly by borrowing, a large part of itshort-term. The rapid GNP growth came to an abrupt halt in 1977 as themassive external debt burden led to a sharp deterioration in creditworthiness,severe shortages of imports, disruptions in industrial production and a risein unemployment. By the end of 1979, domestic inflation had also become anissue of critical importance.

5. In response to the crisis of the late 1970s, the Turkish authoritiesmade a major shift in development strategy in 1980, moving towards outwardorientation and giving an increased role to market forces. To alleviate thebalance of payments constraint and import shortages, policies were adopted toexpand exports, increase workers' remittances, liberalize imports, encourageforeign investment and improve external debt management. On the domesticfront, the objectives were a reduction in the inflation rate, reform of theState Economic Enterprises (SEEs), a more efficient financial sector, improvedresource mobilization and better selection of investments, especially in thepublic sector.

6. The adjustment program, which has been supported by the Bank throughfive structural adjustment loans and an agricultural sector adjustment loan,involves far-reaching changes in attitudes, institutions, and the legal andpolicy framework, all of which require time to be put in place. Majorstructural changes have been made in the exchange rate system, the export andimport regines, the tax system, interest rate and selective credit policiesand the public investment program. Implementation of the adjustment programstarted in January 1980, continued under a military regime during the periodSeptember 1980 - November 1983, and has since been carried out by an electedgoverment.

The Structural Adjustment Program - 1980-85

7. The Turkish economy has shown an impressive response to thestructural adjustment program and actual outcomes met or exceeded theGovernment's own targets through 1982. The overall performance deterioratedin 1983 due to a combination of factors (slowdown of export growth, slippagesin the monetary program, shortfall in Government revenues), but improvedagain, except in the area of inflation and the budget deficit, in 1984. Theimprovement has been maintained in 1985, as evidenced by a slowdown ininflation and a reduction in the budget deficit.

8. After expanding by 4.1 percent in 1981 and 4.6 percent in 1982, realGNP growth slowed down to 3.2 percent in 1983, due to the effects of a badharvest, stagnant exports, and lower workers' remittances. The growth raterebounded in 1984 to 5.9 percent, mostly on account of favorable performancein agriculture (3.7 percent growth) and industry (9.3 percent growth).Exports also expanded strongly, by more than 25 percent in dollar terms. In1985, the growth rate of the economy is, according to the latest estimates,expected to be about 4.9 percent, as against the program target of5.5 percent. The slowdown of growth is apparent across the board, but is mostsignificant in agriculture (2.3 percent growth) and manufacturing

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(5.6 percent), due respectively to less favorable climatic conditions andslackening domestic demand. On the expenditure side, the average almual realrate of growth of public fixed investment over the period 1980-85 has beenfairly stable, at less than 3 percent p.a., while the growth rate of privateinvestment has recovered, following a 17.3 percent decline in 1980, and roseby 7.1 percent in 1984 and an estimated 5.2 percent in 1985. Privateconsumption, after declining by 5 percent in real terms in 1980, grew by5 percent in 1983 and 1984 before slowing down to an estimated 3 percent in1985. Strict budgetary discipline contributed to a steady decline in the realrate of growth of public consumption from 8.4 percent in 1980 to 1.8 percentin 1983; however, it increased to 3.8 percent in 1984 and an estimated4.4 percent in 1985.

9. Through 1982, the Government met with considerable success inreducing the rate of inflation by a combination of fiscal, monetary andincomes policies. After peaking at 107 percent in 1980, the average annualrate of increase in the wholesale price index decelerated to 37 percent in1981 and 27 percent in 1982. In 1983 the downward trend was reversed and theinflation rate rose to 30 percent. Inflation accelerated further in 1984, andreached 50 percent. The major factors that brought about the worseniug of theinflationary situation in 1984 were the lagged impact of the expansionarymonetary policy pursued during the second half of 1983, and a significantincrease in agricultural product prices, especially of fresh fruits andvegetables, as a consequence of export liberalization and higher export marketprices. Other contributory factors included substantial "catch up" increasesof SEE prices - since January 1984 most SEEs have effectively been allowed toset their prices freely - and higher import prices resulting from the nominaldepreciation of the Turkish lira. In addition, inflationary pressures stemmedfrom a larger than anticipated budget deficit in 1984 as a result of aslowdown in the growth of revenues.

10. Inflation is expected to decline to 43-44 percent in 1985. Thisaverage annual inflation rate would be the net result of a period of highinflation during the first quarter of the year, followed by a period ofdeceleration starting in April 1985. Deceleration occurred despitesignificant increases in prices of goods produced by SEEs; it was renderedpossible by the maintenance of high real rates of interest, a decline in theprices of a number of agricultural goods (mostly fruits and vegetables), andan overall slackening of domestic demand. The slowdown of inflation in thesecond half of 1985 reinforces the expectations of a further decrease in theaverage rate in 1986, bringing it close to the Government's target of25 percent.

11. In the fiscal area, the progress achieved between 1980 and 1982(during which time the budget deficit declined from 5.3 percent to 2.1 percentof GNP) was not sustained in 1983 and 1984. Due to a steady decline inconsolidated government revenues as a percentage of GNP, 1/ the budget deficitincreased to 3.2 percent of GNP in 1983, and reached almost 5 percent of GNPin 1984. The somewhat disappointing performance in the raising of revenueswas accompanied, however, by significant improvements in the control of publicexpenditure. Overall, government expenditures decreased from 22 percent ofGNP in 1983 to an estimated 16 percent in 1985, essentially due to a

1/ Although total government revenues (inclusive of extra-budgetaryfunds introduced in 1984) have not declined as sharply.

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curtailment of personnel expenditures and goveroment transfers to SEEs, withthe latter declining from 2.5 percent of GNP in 1983 to an estimated0.8 percent of GNP in 1985. However, the fact that improvements in the areaof government expenditures were not matched by commensurate gains in thereduction of the budget deficit highlights the urgency of mobilizingadditional public resources. As a step in this direction, the Governmentintroduced a Value Added Tax in January 1985, replacing previous indirecttaxes based on the value of output. The new tax has resulted in raising theshare of taxes on goods in total government revenues from around 12 percent in1983-84 to an estimated 20 percent in 1985. As a result of these measures,the budget deficit is expected to improve to about 2.5 percent of GNP in 1985.

12. Progress has also been made in rationalizing interest rates andreforming the banking system. Commercial bank deposit interest rates, whichwere deregulated in July 1980, are positive in real terms. Time deposits havebeen yielding a positive real return since early 1984, with interest ratespresently ranging between 45 to 55 percent depending upon the term of thedeposit. Positive deposit interest rates have resulted in a steady increasein deposits: in 1984 private non-commercial deposits grew by 8 percent inreal terms, and in 1985 the growth has continued at a rate of about10 percent. Improvements in incentives for savings were accompanied byadministrative reforms of the banking system. A new banking law was enactedin June 1983. It included many of the recommendations made in the Bank'sreport on the Financial Sector (No. 4459-TU), including measures to reduce theundercapitalization of banks and the interlocking between banks andcorporations. The legal basis of the banking reform was strengthened with theenactment of a revised banking law in April 1985, which introducedstandardized accounting for banks and specified improved procedures forhandling of non-performing loans. The Government also took a major steptowards reducing the cost of bank intermediation by reducing in December 1983the financial transactions tax from 15 percent to 3 percent. Other importantdevelopments in the financial sector include measures undertaken to revitalizethe capital markets, for which IFC has provided technical assistance, and thesale of revenue-sharing certificates linked to the income from selected publicinfrastructual facilities (e.g. the Bosphorus bridge, and two dams).

13. While positive real interest rates have provided an incentive tosave, they have also meant high borrowing costs. Effective nominal interestrates range from 60 to 80 percent on non-preferential credits, in part becauseof the high intermediation costs of the commercial banks and the prevailingpractice of requiring compensating balances. The Government has taken anumber of steps in 1985 to reduce the interest rate differentials betweenpreferential and non-perferential credits: in particular, the perferentialinterest rate for export credits was discontinued ;n January 1985, whileinterest rates for agricultural short-term loans and for loans to SEEs havebeen increased in 1985 to 30 percent (from 28 and 24 percent respectively).The narrowing of the gap between interest rates on preferential andnon-preferential credits, together with the decrease in the amount ofpreferential credits, is expected to increase the general availability ofcredit and exert a downward pressure on non-preferential interest rates.

14. Improvements in the balance of payments were substantial between 1980and 1982, with the current account deficit decreasing from $3.3 billion(5.7 percent of GNP) in 1980 to $1.2 billion (1.6 percent of GNP) in 1982. In1983 the current account deficit increased to $1.8 billion, as merchandiseexports stagnated and workers' remittances fell by one-third. Thesedevelopments were reversed in 1984 as exports increased by over 25 percent in

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dollar terms to reach $7.4 billion. Remittances, tco, registered a higherthan expected increase, reaching $1.8 billion (up by 20 percent over 1983).Merchandise imports, fueled by high growth as vell as a more liberal importregime put in place in 1984, grew by more than 16 percent to reach$10.8 billion (or almost 22 percent of GNP). As a result of thesedevelopments, both the trade and the current account deficits declined ascompared to 1983: the trade deficit by $50 million, and the current accountdeficit by $350 million, to reach $1.4 billion or about 2.9 percent of GNP.Projections for 1985 indicate a further strong improvement of the currentaccount sitliation. Merchandise exports, after a sluggish start in 1985, havegrown by 13 percevt (in dollar terms) in the first nine months of 1985, whilemerchandise imports have grown at a moderate 5.3 percent. Among theinvisibles, tourism revenues and investment income from abroad have increasedsignificantly compared to 1984 and previous years. Similarly, workers'remittances have continued to rise at a rate of about 10 percent per annum.It is now estimated that the current account deficit in 1985 would be in therange of $650-800 million (about 1.3 - 1.6 percent of GNP).

15. Merchandise export performance has been impressive throughout the1980-85 period, during which exports registered an average annual rate ofincrease of about 22 percent in dollar terms. This growth has been led by themanufacturing sector and has involved a rise in the share of exports to theMiddle Eastern countries. Industrial exports, composed primarily of processedfoods and textiles, have risen from 36 percent of total exports in 1980 tomore than three-quarters in 1985. These results were achieved by acombination of indirect (flexible exchange rate policy, import liberalization)and direct (tax rebates, preferential credits) measures to enhance therelative profitability of exports and offset the traditional bias towardsproduction for the domestic market. Successful penetration of the MiddleEastern markets has brought their share in total Turkish exports from17 percent in 1980 to around 40 percent in the 1983-85 period.

16. On the import side, the 1982-83 period was marked by a relativestability in the growth of merchandise imports, as prices of both oil andnon-oil imports declined, and the volume rate of growth remained moderate. In1984, however, merchandise imports increased by 16.1 percent in dollar value.The increase was most pronounced in some of the groups (e.g. raw materials andconsumer goods) that have been suojected to major liberalization in terms ofboth a lowering of tariff rates and a significant removal of quantitativerestrictions. In 1985, as domestic demand eased, and the initial effects ofpent-up demand for importables released by import liberalization weakened, therate of import growth decreased to one-third of the level recorded in 1984.

Medium-Term Prospects

17. The Fifth Five Year Development Plan (1985-89), which was approved bythe Grand National Assembly in June 1984, reaffirms the Government'sdetermination to pursue an outward-oriented development strategy and toliberalize the economy by relying increasingly on market forces for allocationdecisions. The public sector is targeted to play a supportive role byconcentrating its investments in infrastructure rather than manufacturing,while the private sector is to be encouraged to play a leading role in thegrowth of manufacturing and exports. Some of the key targets are:

(i) an average annual GNP growth rate of 6.3 percent;

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(ii) an average annual real rate of growth of merchandise exports of10.6 percent;

(iii) an average annual real rate of growth of 10.9 percent in privateinvestment and 6.8 percent in public investment;

(iv) a declining external debt service ratio, from 26 percent in 1984to around 18 percent in 1989; and

(v) a decreasing rate of inflation reaching 10 percent p.a. in 1989.

18. While the overall thrust of the Plan'is in accord with the goals ofthe structural adjustment program, the Plan targets, if viewed collectivelyand in the light of the developments in 1984 and 1985, appear ambitious andlikely to strain domestic resources (especially in the public sector) as wellas to have an adverse impact on the external balance. Accordingly, theGovernment is adjusting the annual programs to ensure that they remaincompatible with the fight against inflation and with a growth strategycoumensurate with the Government's ability to generate resources.

19. The Bank's projections indicate that GDP growth of 5.7 percent p.a.on average for the 1985-90 period may be more realistic. In the first phaseof this period (1985-87), growth might be relatively slow (5.3 percent p.a.),gradually accelerating in the outer years with an average rate of 6.0 percentp.a. in the period 1988-90. The inflation targets in the Bank's projectionsare also more conservative, implying a reduction from about 40 percent in 1985to around 18 percent in 1990. Key economic variables in the Bank'sprojections for the period 1985-90 are presented in Table 1: 1/

Table 1: TURKEY - SELECTED ECONOMIC INDICATORS, 1984-90

Real Ctb Rae Aeg Real Gma.Ctb Rate19" 19M5 19 (2) (0)

unit. (Act.) {I:t.) (proj. 134 1963 1933-90

CW /a 1955 7L bil 25672.5 26920.2 3546t.3 5.3 4.9 5.7Artc-Itnr. M al:. 4723.2 5181.3 3.0 2.3 3.0zeesetty 7U63.1 7605.6 10320. 9.3 6.6 7.3So-ice. 12143L2 13I0.5 17151.4 4.7 4.8 5.6

Cone.ptim 21578.3 22389.1 29274.5 b.9 3.7 5.5rihd itect - 4632.3 4921.6 6742.1 z.0 5.1 6.5

8L".oct of goed (fob) Cerr 8 il 7389.0 7N92.0 18127.6 34.6 12.1 * .5InPre at moods 1.) 10331.0 10810.9 21567.7 18.0 5.3 7.3

Trad. balace -29N2.0 -2823.9 -36w- 1

we.er. renictarce. 1791.0 21W.0 2741.3

C.rrent eccoent bIeLce - -142b.0 -750.5 -309.0

Znw.la nt_cG 7. 20.2 19. 20.5basic .. Lfi/CW 1 15.5 16.0 18.3Espon.- of swdeJlcV 7 14.0 15.0 17.1C-cot ace. deiritAMP /b 2 -2.7 -1.4 -0.3Debt ker= VatL IC 2 2b.0 31.3 21.2P.blic fiil ineaeskr/

total fix"d ia"vteet 2 59.0 56.5 51.3

an_e it_:GrCa Capital reqeired Crsr 2 nil 4627.3 33.8 4507.4

Ia At arket pric.e. Coenp tes are aproened at facter coet.Lb Asoed - Stmt IL_/c TetLL debt *r"sic (Ildindg h*rt-tee,)jeaepacte of goods *ad WS pla -rker.' re.ittsc.es.

11 The Bank's projections for 1985 may differ slightly from theGovernment's latest estimates for 1985 discussed above.

7

20. Achievement of these growth rates will depend primarily on theperformance of agriculture and manufacturing. This in turn will depend to alarge extent on the Government's detenmination to constrain the growth of thepublic sector in line with resources and to create a more favorable investmentclimate for the private sector. This translates into a projected real growthin public fixed investment of about 3.8 percent p.a. on average for the1985-90 period, starting with a more modest increase of around 3.5 percentp.a. in the early years. The comparable figure for the growth of privatefixed investm nt (for the Whole period) is 10.0 percent p.a. These figuresare consistent with the need to meet the infrastructural requirements of theeconomy through the public investment program, while providing for thecapacity expansion of the private sector necessary to meet the output andexport targets. The projections allow for a modest increase of per capitaconsumption of about 3.0 percent p.a. on average over the period 1985-90.

21. Merchandise exports are projected to grow at an average rate of8.5 percent per annum in real terms during 1985-90, while merchandise importsare projected to grow at an average annual rate of 7.8 percent. This isconsistent with the import liberalization program of the Government. On theseassumptions, the current account deficit is projected to decrease through 1988as stabilization policies act to contain import growth while encouragingexports. As higher growth rates set in during the outer years of the period,the trend would reverse and the current account deficit would rise moderatelythrough 1990. For the year 1990, the projections show a deficit of$810 million as compared to an estimated 1985 figure of $750 million. Theprojected capital account would remain manageable throughout the period, evenin the face of some sharp increases in amortization payments arising from thedebts rescheduled during 1978-80.

22. On the external front, the current expectation of lower oil prices inthe next period is likely to have a positive impact on the balance ofpayments. The savings on direct petroleum imports could be as much as$275 million in 1986 alone. Lower oil prices will no doubt have some negativeconsequences for Turkey's exports to oil-exporting countries as well as onprofit and workers' remittances from construction activities in theseco-ntries. Nevertheless, the overall effect on the current account is likelyto be positive, due to the stronger effect of the import savings.

23. The medium-term scenario presented above is, of course, only one ofmany possibilities and is used specifically to illustrate Turkey's potentialin the light of the Government's own development strategy. Given Turkey'sprogress in the structural adjustment program, the favorable response whichthis has evoked from the international financial community, and the presentoutlook for both lower oil prices and a strong growth of Turkish exports, theGNP growth projected in the medium-term base case scenario could be exceededif slightly higher export growth rates were achieved and there was animprovement in the mobilization of public resources.

24. In view of the sensitivity of the projections to the assumptionsregarding export growth, a downside risk case has also been developed. WithTurkey's export performance heavily dependent on exogenous factors such as theworld economic conditions and movements in international prices, a slowergrowth of merchandise exports (an average of about 6 percent p.a. over the1985-90 period) coupled with lower mobilization of public resources(3 percent lower revenues than envisaged under the base case scenario) would

lead to a more difficult but still manageable balance of payments situation, alower GDP growth (averaging about 4.7 percent p.a.) and a higher debt serviceratio (averaging 26.7 percent during 1986-90 against 25.1 percent in the basecase scenario). In such a situation the Government would have less chance ofabsorbing Lhe unemployed and improving tangibly the average standard ofliving. However, if the Government in such circumstances were to resort to ahigh growth strategy, then it could witness a repeat of the situation whichprevailed in the 1970s, and which led to a debt crisis. It is unlikely thatthe Government would risk such a situation. It is therefore more probable -even if exogeneous developments are unfavorable - that the GovernmenL willcontinue with the structural adjustment program as implemented to date, sothat the scenario of high growth fuelled by increased external borrowing seemsat present unlikely.

External Debt and Creditworthiness

25. At the end of 1978, Turkey had $7.2 billion in short-term debt and$7.0 billion in medium and long-term debt. Between 1978 and 1980, Turkeyrescheduled some $9.2 billion of outstanding obligations through a series ofrescheduling arrangements concluded with official and commercial creditors.Following the resolution of the debt crisis, inflows were mostly from officialsources - OECD countries, the World Bank and the IMF. Since 1983 commitmentsfrom commercial banks have outstripped those from official sources and arelikely to reach an estimated level of $2.5 billion by end-1985. Of theestimated total debt outstanding of $22.3 billion (including IMF) at end-1984,medium and long-term debt accounted for about 79 percent. Short-term debt asa percentage of total debt outstanding fell ftom 51 percent in 1978 to about11 percent in 1982, then increased to 14 percent in 1983 and to an estimated21 percent in 1984. Much of this 6 rowth in the stock of short-term debt isdue to the inflows associated with the Dresdner Bank scheme 1/. At ent-1984,the outstanding liabilities associated with the Dresdner scheme amounted to$1.8 billion, constituting 39 percent of short-term external obligations.Based on the growth scenario outlined in paras. 19 to 22, debt outstanding anddisbursed as a percentage of GDP is projected to fall from an estimated42 percent in 1984 to 37 percent in 1990. This translates into a total debtoutstanding forecast for 1990 of $28.8 billion, with short-term debtconstituting about 25 percent of the total.

26. The debt service ratio for medium and long-term credits increasedfrom about 26 percent in 1984 to an estimated 31 percent in 1985, mostly as aresult of large repayments of rescheduled debt falling due. Debt serviceobligations are expected to be on average about $4.0 billion a year during1986-90, a quarter of which is attributable to service obligations onrescheduled debt. However, the debt service ratio is projected to decrease toa level of about 25 percent during 1986-1990, due largely to improvements inthe current account of the balance of payments. The debt burden should remain

11 Under this scheme the Dresdner Bank collects deposits from Turkishworkers in West Germany and automatically places these funds at thedisposition of the Central Bank of Turkey, which guarantees thedeposits i.nd pays an interest rate commensurate with the Euro-marketrate.

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manageable provided current policies are successfully implemented, the exportdrive is sustained, and Turkey continues to receive support from internationalcommercial and official sources. Confidence in Turkey's overall economicperformance, its stable record in meeting debt servicing obligations and itsimproved debt management, encouraged commercial banks to commit about$1.3 billion in 1985. Several major American, European, Japanese and MiddleEastern banks were involved in these operations, including a $500 millionsyndicated loan in support of the balance of payments signed in April 1985.

27. Turkey's economic program has been supported by the DF through aseries of standby arrangements during 1980-84. The Government has not askedfor a new standby in 1985. The Government's decision seems to reflect theview that the favorable economic developments in 1985 constitute proof ofTurkey having "graduated" from the INF's program and that the IMF presencethrough Article IV consultations should suffice for purposes of maintaininginternational confidence.

PART II - BANK GROUP OPERATIONS IN TURKEY

28. Through September 30, 1985 the Bank and IDA have lent$6185.8 million 1/ to Turkey, through 88 projects. Agriculture accounts for21 percent of the funds lent, industry and DFCs for 22 percent, power for16 percent, structural adjustment and program loans for 27 percent, and urbandevelopment, transportation, education, tourism and technical assistance forthe remaining 14 percent. Disbursements for all sectors combined averaged63 percent of appraisal estimates at the end of September 1985, which comparesfavorably with other countries in the region. As of September 30, 1985, IFCcommitments to Turkey totalled about $246 million, of which about $64 millionwere still held by IFC. Annex II provides a summary statement of Bank loans,IIA credits and IFC investments as of September 30, 1985.

29. Bank lending is aimed at supporting Turkey's mediumrterm objectivesof restructuring the Turkish economy by placing more reliance on market forcesand adopting a more outward-oriented strategy. The main vehicle for theBank's operational discussions with the Government has been the structuraladjustment lending (SAL) program, which was compleLed in June 1984, and morerecently the sectoral adjustment lending program. Significant progress hasbeen achieved in the last five years, but the task of restructuring is by nomeans over. The current plan involves the broadening and deepening of theadjustment process at the sectoral level. Recent economic developments haveunderlined the need for a continuation of the stabilization program withoutgiving up the goals of sectoral adjustment. Hence the emphasis of Banklending in the post-SAL period would be on striking an appropriate balancebetween sectoral adjustment lending designed in part to be quick disbursingand supportive of policy reforms in the major sectors, and carefullyformulated project lending focussing on high priority projects principally inthe agriculture, energy, industry and transport sectors.

1/ Net of cancellations.

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30. A series of secteral adjustment loans for the major sectors isplanned over the next few years. A first loan for agriculture was approved inJune 1985. Further lending of this kind would support measures to address thestructural problems of the financial sector and enhance the utilization ofindustrial capacity in the public and private sectors, keeping in view thescope for the "privatization" of publicly-held assets in the manufacturingsubsectors. Other sectors where sectoral adjustment loans are likely to bedeveloped include energy and transport, and it is expected that there would bea follow-up loan in agriculture.

31. Project lending, which would continue to make up the majority of thelending operations, would be designed to support and strengthen the adjustmentprocess. Some project lending would be earmarked for the construction orrehabilitation of key projects in the energy sector. Other projects would beguided by the major policy objectives of the Government, which includegeneration of foreign exchange (including improving productivity in exportindustries and providing essential infrastructure for exports), improvement ofinstitutional efficiency, non-inflationary output growth and amelioration ofthe social costs of adjustment (including provision of social infrastructureand employment generation, with some emphasis on the least developed provincesin Eastern Turkey).

32. The close macroeconomic and sector dialogue established with theGovernment in recent years is expected to be pursued. The economic and sectorwork currently being undertaken includes a review of the public investmentprogram and studies of housing finance, engineering industries, transportinvestment, telecomaunications and electronics. Topics expected to be coveredin the future include a study in domestic resource mobilization, a countryeconomic memorandum focussing on inflation, reviews of the health andeducation sectors and a study of private sector adjustment to liberalizationaction.

33. This would be the second loan to Turkey presented to the ExecutiveDirectors this fiscal year. Other projects being processed include theKayraktepe Hydropower Project, a loan for drainage and on-farm development, afinancial sector adjustment loan and a loan for Elbistan operation andmainteuance assistance.

34. Turkey's debt burden is projected to remain manageable throughout1985-89 (paras. 25 and 26). The Bank Group's share of Turkey's total externaldebc was 13.4 percent in 1983, is estimated at 14 percent in 1984, and isexpected to grow to about 17 percent by 1989. Official debt outstanding isprojected to increase from $11.0 billion in 1984 to $13.4 billion in 1989 andprivate medium and long-term debt outstanding is projected to increase from$5.2 billion in 1984 to $7.5 billion in 1989. The Bank group's share of totaldebt service payments is projected to increase from about 12 percent in 1983to an estizmated 13 percent in 1984, and to about 18 percent in 1989.

35. IFC has invested in synthetic yarns, textiles, pulp and paper, glass,aluminum, cement, iron and steel products, heavy diesel engines, motor bicycleengines, piston rings, food processing and tourism. It has also invested inthe Industrial Development Bank of Turkey (TSKB) and provided guarantees foroverseas contracting firms. In addition, IFC is currently providing technicalassistance to the Government with respect to the development of the capitalmarket and a regulatory framework for leasing.

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PART III - THE SECTORAL FRM&EWORK

The Manufacturing Sector

36. Overview. The key objectives of Turkey's industrial developmentstrategy are expansion of exports, broadening of the range of goods produced,greater efficiency in public and private enterprises, and employmentgeneration. The Government recognizes that job creation must be the outcomeof economically viable investments. Numerous studies of Turkey's industrialsector have shown that factor productivity is significantly higher in privatethan in public industry, and that small firms in the private sector offer highreturns per unit of capital invested, while being more labor intensive. TheGoveroment's industrial policy involves limiting public investment in themanufacturing sector to rehabilitation and modernization of existinginvestments and relying on private sector investment in new manufacturingindustries. The small and medium-scale industrial sector, which had beensomewhat neglected during the 1960s and 1970s when Turkey gave priority tolarge-scale capital intensive projects in the public sector, is to beencouraged through removal of disincentives and provision of technical andfinancial assistance.

37. The economic policies adopted since 1980 have attempted to moveTurkey away from its previous import-substitution focus towards anoutward-orientation and greater reliance on market forces. During 1982-84,the Government reoriented major parts of the incentives framework towardspromociJng export development. Significant progress has also been made inremoving quantitative restrictions and in lowering duties on imports, bringingcompetitive pressures to bear upon Turkish industry. Turkish firms are nowexpected to compete in domestic and export markets without reliance on theexcessive tariff protection and fiscal incentives that characterized Turkishindustrial policy prior to 1980.

38. The Government's Fifth Five-Year Development Plan (1985-89) projectsfavorable growth prospects for the industrial sector. The manufacturingsector's share in GDP is expected to grow to 27 percent during the Planperiod. Currently, the manufacturing sector accounts for about 25 percent offixed investment, 11 percent of aggregate employment and 65 percent ofmerchandise exports. The private sector, whose share of manufacturingemployment and value added is approximately twice that of the public sector,is concentrated in the food processing, textiles, garments, engineering,glass, plastics and ceramics subsectors. The public sector is mainlyconcentrated in heavy industry (iron and steel, fertilizers, pulp and paper,cement, petroleum refining, chemicals and mining) as well as in some lightindustries such as textiles and electrical machinery, and certainagro-industries such as milk and meat processing.

39. The Role of Small and Medium Scale Industry. Small and mediur-scaleestablishments 1/ number about 6,000 units accounting for about 68 percent of

1/ There are several definitions of small and medium scale manufacturingunits in Turkey. The Small Industries Development Organizationdefines small units as those employing 10-49 workers and medium-scaleunits as those employing 50-199 workers. Under IBRD Loan 1952-TU,small-scale units were defined as firms with fixed assets (includingland and buildings) valued at less than $500,000 (in 1984 prices) andmediumrscale units as those with assets up to $2.5 million.

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establishments registered in the organized private sector (employing 10 ormore workers). They employ about 235,000 workers or about 45 percent of thetotal employed. These numbers exclude units in the informal sector(para. 40). On the basis of a 1978 survey, SMI's share in total manufacturingemployment was estimated at about 35 percent. SMI firms are very prominent incertain industries, notably wood processing/fu±rniture and engineering.Updated data regarding the distribution of value added and employment by sizeof units are not available, but the proportions accounted for by SMI invarious industries do not appear to have changed very markedly in the last sixyears. To date as a group SMI has played a small role in exports. However,the linkage between SMI and exports is expected to grow substantially in thenext few years as Turkey's experience is expected to resemble more that ofother prominent exporting countries.

40. The artisanal units in the non-organized sector (employing1-9 workers) are much more numerous (about 177,000 establishments), accountingfor about 20 percent of manufacturing value added and employing about455,000 workers. Areas of growth for artisans are in metal goods, plasticgoods and furniture production. Despite special schemes (paras. 42 and 43),most artisanal units appear to be operating at the margin, with theirfinancial condition made more difficult by high nominal interest rates onworking capital and their inability at times to pass on inflation costincreases to their consumers. As a result of import liberalization,competitive pressures on the SSI and artisanal sector can be expected tointensify, leading to rationalization of the sector.

41. SMI generally face a number of internal and external problemsinhibiting their development. Internal problems adversely affectingproductivity include obsolete machinery, deficient production engineering andmanagement practices and insufficient trained workers. External problemsinclude limited access to institutional finance and lack of technicalassistance. Available sources of technical assistance are too costly or notgeared to assisting SMI.

42. Support Programs. The Government has increasingly recognized thepotential of SMI to contribute to employment creation and export growth. TheFifth Five-Year Plan enunciates a strategy which includes: (i) enlarging theflow of investment and working capital loans; (ii) strengthening the SmallIndustry Development Organization (SIDO) to develop appropriate strategies,policies and technical extension activities for SMI; and (iii) expandingsupport for industrial estates for SSI units and providing on-the-job andtechnical training. Moreover, recent policy reforms have reduceddiscrimination in regard to access of SMI to incentives.

43. In October 1984, a new incentive scheme simplified investmentapplication procedures for projects of less than TL600 million. Under thisscheme, small projects also became entitled to receive the same rate of cashincentive (7 percent of the capital cost of completed projects) from theGovernment as large projects. For small units, the minimum required equitypercentage is 40 rather than 50 percent for any project proposal submitted tothe State Planning Organization (SPO) for a Certificate of Encouragement.Finally, the special problems faced by SMI units in obtaining access to theexport rebate system, which was geared towards large volume exports, have beeneased by the Government through the phasing out of the export rebate systemand the maintenance of a realistic exchange rate policy.

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44. Strategy for Industry and Experience vith Past Lending. The Bank hasundertaken a number of studies in recent years (including one on small andmediumrscale industries) related to the industrial sector in Turkey. Thesestudies have formed the basis for a constructive policy dia.logue with theGovernment. Bank lending for the industrial sector has beea directed at twobroad areas: (i) improving the efficiency of SEEs (such as in the textiles,pulp and paper, and iron and steel subsectors) both through direct Bank loansand indirect loans through DYB; and (ii) encouraging private sector investmentthrough financial intermediary loans utilizing TSKB and SYKB. The structuraladjustment program included a strong focus on trade policy issues, SEEefficiency and financial sector refonms.

45. In order to support the Government's objective of expanding the roleof the private sector in export expansion and employment generation, theproposed project would build on the Bank's first project in this area - theLabor-Intensive Industry Project (Loan 1952-TU) - and provide furtherassistance for the development of the small and medium-scale manufacturingsector. Under the first project, SYKB approved 112 sub-projects for a totalamount of about $40 million, principally in the textile, chemical, machinery,food, metal products and marble industries. SYKB's performance in utilizingthe Bank loan, as reflected by the good quality of sub-project appraisal, thelarge number of sub-projects financed and the low cost per job, has been verysatisfactory. The strategy under the proposed project would be to providetechnical assistance to SMI units by enabling SIDO to initiate theestablishment of a nationwide network of extension services centers. SIDOwould also assist in integrating the activities of small producers andsubcontractors with those of larger exporting firms. In addition to financingSMI through Sinai Yatirim ve Kredi Bankasi (SYKB), the proposed project wouldalso give special emphasis to the development of the artisanal subsector bysupporting the development lending activities of Halk Bankasi (HB). TheBank's operations in the industrial sector were reviewed by the OperationsEvaluation Department in its report entitled "Sector Operations Review: TheIndustries and DFCs Program in Turkey" (Report No. 3077 dated July 18, 1980).Since the Bank's operations in the DFCs sector till then had been confined tofinancing TSKB and, through it, private sector industry, the report focussedon TSKB. However, the report highlighted the importance of institutionalstrengthening of financial intermediaries as well as the need for an exportorientation for Turkish industry, the exploitation of its comparativieadvantage and a relatively modest capital intensity. All these findings havebeen taken into account in designing subsequent Bank operations including theproposed project.

The Financial Sector

46. * The financial system in Turkey is dominated by the banking systemwhich consists of 19 domestic commercial banks, 13 foreign commercial banks,and 15 specialized banks, such as the Agricultural Bank (TCZB) and HalkBankasi (HB). In addition, two privately-owned development banks (TSKB andSYKB) and two government-owned banks (DYB and DESIYAB) provide term finance tothe manufacturing sector. Nearly 60 percent of total private fixed investmentin the organized sector is financed by financial institutions, with thebalance coning mainly from the investors' own sources. Of this amount, nearlyfour-fifths is extended through deposit money banks, while the investment anddevelopment banks account for the balance. A substantial portion of depositmoney banks' short-ternm loans is rolled over year after year and in effectconstitutes medium-ternm finance, but such financing is principally applied atpresent to payments of arrears.

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47. Balk Bankasi (HB) is the principal source of loans to smallbusinesses in the unorganized sector through a network of more than600 regional offices and branches. Its borrowers include small tradesmen andartisans, often organized in cooperatives, as well as SMI manufacturingunits. For SMI units that are too large to qualify for HB financing (i.e.firms with fixed assets of more than TL300 million excluding land andbuildings), sources of funds are very limited. Commercial banks are reluctantto lend to SMI because of higher administrative costs and a perceived higherrisk. SYKB has been providing funds under the Bank-financed Labor-IntensiveIndustry Project for firms at the larger end of the StI spectrum.

48. The cost of loans to borrowers in Turkey is influenced to some extentby the rediscounting policies that are set forth periodically by the CentralBank, which vary with different activities and maturities. For investmentloans eligible for Central Bank rediscounting, the final cost is a blendbetween the cost of funds eligible for rediscounting and the cost of fundsfrom the banks' own sources. The effective blended interest rate of mediumand long-term TL investment loans for industrial credits from the depositmoney banks is now estimated at 50-55 percent p.a., but the cost of similarfunds from the investment banks is 38-41 percent p.a., because a relativelyhigher proportion of these loans can be rediscounted with the Central Bank.Given the expectation of significantly lower inflation rates in the future,these interest rates are generally expected to be positive in real terms overthe life of the loans. For SSI units that qualify to borrow from HalkBankasi, a range of rates exists depending upon the source and purpose. Fortradesman and artisans who are members of cooperatives and require loans forworking capital, the effective cost through the Central Bank rediscountfacility is estimated at 30-32 percent, whereas the cost of investment loansfor SSI is 43-52 percent.

49. Until mid-1984, the interest rate on foreign currency loans was setby the intermediary's cost (or the weighted average cost) of foreign currencyborrowings plus a spread (about 5 percent), with the borrower assuming thefull foreign exchange risk. The substantial depreciation of the Turkish lirain 1982-84 caused heavy losses to borrowers carrying the foreign exchange riskand therefore demand for such loans virtually ceased. To encourage greateruse of foreign borrowings, the Government, in July 1984, instituted a foreignexchange risk insurance scheme (FERIS) which was made applicable to IBRD loansto TSKB and SYKB. Under this scheme, loans were denominated in TL at a fixedinterest rate (26 percent) over an 8-year term, with a special fund bearingthe foreign exchange risk. The scheme succeeded in stimulating investmentdemand, in part because the effective cost to borrowers (estimated at31-33 percent, including front-end and special commitment fees) was lowcompared to the prevailing inflation rate. The Government decided to continuethe scheme in 1985, with a fixed interest rate of 35 percent for sub-loansapproved through December 31, 1985. The rate will be reviewed every sixmonths and adjusted as necessary. The scheme also lays down guidelines forthe treatment of prepayment. Coverage of intermediary banks under FERIS hasbeen extended to include, in addi.ion to TSKB and SYKB, several otherdevelopment banks including HEB and DESIYAB. The Government's intention is tooperate FRiIS as a temporary, self-financing and non-discriminatory scheme tomobilize urivate sector iuvestment. In particular, the Government intends todiscontinue FER1S in its present form as soon as the private investmentclimate has revived, and to manage the scheme on a self-financing basis, i.e.without any subsidy from the budget. It is also the Government's intention to

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set FERIS interest rates so as to be positive over the life of the sub-loans,and in line with interest rates for similar maturities under the CentralBank's rediscount facility for industrial lending.

50. The Government has already taken a number of measures for thealleviation of the problems and constraints facing the financial sector(para. 12). The full impact of some of these measures can only be realizedover several years. Additional measures would also be necessary and are underthe Government's consideration. One of the problems, namely the highintermediation cost of commercial banks and the need for efficiencyimprovements, is being addressed under the proposed project through provisionof technical assistance to Halk Bankasi for institutional strengthening.

PAR1 IV - lIE PROJECT

51. The project was identified by a Bank mission in cooperation with theTurkish authorities in September 1984. It was appraised in November 1984.Negotiations were held in Washington in November 1985, with a Turkishdelegation led by Mr. Hikmet Ulugbay, Chief Economic and Commercial Counselor,Embassy of the Republic of Turkey, and including representatives of SYKB, HBand SIDO. A Staff Appraisal Report entitled "Small and Medium Scale IndustryProject" (No. 5526-TU) dated December 11, 1985 is being distributedseparately. A loan and project summary is provided at the beginning of thisreport and Annex III contains supplementary project data.

Project Obiectives and Description

52. The proposed project would assist in the development of efficientlabor-intensive industries, mainly in the SMI category, and thus contribute tojob creation and growth of manufactured exports, both important objectives ofthe Government's structural adjustment program being supported by the Bank.The project would also concurrently assist in developing financialintermediaries capable of providing term finance and financial services to SMIin an efficient manner and thus improve SMI's access to term finance.Finally, the project would help to initiate a national program of technicalassistance to provide a range of technical and management services to SMI in acost effective manner. In order to achieve the above objectives, the projectincludes (i) credit lines of $8U million and $18.4 million for Sinai Yatirimve Kredi Bankasi (SYKB) and Halk Bankasi (HB) respectively; and (ii) technicalassistance of $1.25 million for a program of technical assistance to SMI, tobe implemented by the Small Industry Development Organization (SIDO), and$35U,000 for the institutional strengthening of RB.

Financial Intermediaries

(i) Sinai Yatirim ve Kredi Bankasi (SYKB)

53. The Institution. SYKB was established in 1963 by five majorcommercial banks in Turkey, to meet the investment financing needs of theprivate industrial sector. Its paid-in capital is TL2 billion of which60 percent is owned by Is Bank - the largest bank in Turkey. Its managementand staff are competent and adequate in numbers. SYKB's appraisal proceduresare satisfactory but there is scope for further strengthening of projectsupervision; SYKB has confirmed measures to achieve this.

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54. Operations and Financial Position. Total loan approvals of SYKB haveincreased from TL2,765 million for 29 projects in 1980 to TL16,783 million for83 projects in 1984, i.e. an increase of 57 percent p.a. in nominal terms and14 percent p.a. in real terms. Local currency loan approvals were 33 percentof total loans during the 1980-1984 period. Foreign currency loans increasedfrom $17.4 million (13 in number) in 1980 to $22.0 million (46 in number) in1982 but declined to $18.1 million (41 in number) in 1983 due to thereluctance of sub-borrowers to accept the foreign exchange risk. Foreigncurrency loan approvals, however, increased to $37.7 million (66 in number) in1984 with the introduction of the Foreign Exchange Risk Insurance Scheme(FERIS) (para. 49). SYKB has generally firtanced labor-intensive projectswhich have obtained Certificates of Encouragement from the Government. It isestimated that about 26,000 direct jobs would be created by projects whichreceived loans from SYKB for fixed investment during 1980-84.

55. SYKB's net income as a percentage of equity has increased from22 percent in 1980 to 32 percent in 1984. Hcwever, the returns toshareholders in nominal terms on their capital are still low compared tointerest rates on term deposits or other financial instruments in Turkey.SYKB's administrative expenses in relation to total assets have remained ataround 2 percent which is satisfactory. The long-term debt/equity ratio hasgone up from 4.2:1 at the end of 1980 to 8.6:1 at the end of 1984, which iswithin the maximum limit of 9:1 agreed with the Bank under the Labor IntensiveIndustry Project. At the end of 1984, the current ratio was 1.9:1 indicatinga satisfactory liquidity position. SYKB's arrears and loans affected byarrears of more than three months were 2.5 percent and 14.7 percentrespectively of the total loan portfolio on December 31, 1984 and werereasonable. SYKB's fInancial statements have been audited by independentauditors who have given unqualified audit reports.

56. According to SYXB's financial projections, its return on equity wouldincrease to 45 percent in 1988. Its liquidity and long-term financialposition would also continue to be satisfactory.

57. Bank-financed Operations. SYKB has so far received two loans of$15 million (Loan 1755-TU) and $40 million (Loan 1952-TU) from the Bank insupport of the development of the textile industry and labor-intensiveindustries respectively. The two loans were almost fully coumitted by the endof 1984. Under the Labor-Intensive Industry Project, SYKB had approved112 sub-projects for a total amount of $39.5 million up to December 31, 1984.About 38 percent of the loan amount was approved for SSI sub-projects againstthe original target of 33 percent. Sub-projects financed under the loan wouldcreate about 8,600 jobs at an average cost of $8,700 each. SYKB's performancein utilizing the loan, as reflected by the good quality of sub-projectappraisals, the financing of a large number of SSI sub-projects, and the lowcost per job, has been very satisfactory.

(ii) Halk Bankasi (KB)

58. The Institution. Halk Bankasi was established in 1938 as a StateEconomic Enterprise (SEE) with the basic purpose of contributing to themobilization of savings and providing working capital and investment loans totraders, artisans and small and mediumrscale industries. It is the only bankspecializing in the latter activity at present. The Treasury is the mainshareholder of HB and holds 95 percent of HB's paid-in capital of

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TL11.5 billion ($26.4 million as of December 1984). IB operates from its headoffice in Ankara and regional offices in Istanbul and Izmir as well as its 598branches and 9 foreign currency bureaus throughout Turkey. Its management andsenior staff have generally long banking experience. It has recently receivedtechnical assistance from the Federal Republic of Germany for support to itslending to selected subsectors in SSI.

59. Halk Bankasi has agreed to strengthen its staffing and to adoptappropriate policies and procedures to improve its project appraisal andsupervision. In addition, RB has agreed to undertake an in-depth review ofits overall institutional structure with the help of independent consultantsfor the purpose of long-term institutional strengthening and improvements inefficiency. Under the proposed project, the Bank would provide $350,000 to RBfor the above-mentioned study of its institutional structure and for stafftraining, in addition to $18.4 million for onlending to SSI as a pilotproject. This pilot project should lay the basis for further Bank assistanceto SSI through HB.

60. Operations and Financial Position. Over the period 1981-1984, HB'stotal lending increased by 1.5 percent p.a. in real terms and amounted toTL207 billion ($475 million) at the end of 1984. HB's Industrial CreditDepartment, which has the overall responsibility for loans to SMI for workingcapital and investment purposes, accounted for 25 percent of the totalportfolio of HB as of December 31, 1984. HB's industrial credit portfolio(including both short and long-term loans) increased by 1 percent p.a. in realterms during 1981-84 and amounted to TL48 billion ($110 million) at the end of1984. Working capital loans were about 70 percent of total loans made in1984, the balance of 30 percent being for fixed investment.

61. HB's net profit as a percentage of equity was 19 percent in 1982,12 percent in 1983 and 25 percent in 1984. HB's administrative expenses as ashare of total assets between 1981-1984 were 3-4 percent and its interestspread was 6-9 percent, both on the high side. At the end of 1984, HB's totaldebt/equity ratio stood at 12:1, which is low for a commercial bank and wellwithin the limit of 20:1 required by the Central Bank for all commercialbanks. HB follows sound liquidity policies. Total arrears for all credits ofHB at the end of 1984 were TL8.1 billion ($18.6 million) or about 4 percent ofthe loan portfolio, which is on the low side. HB's financial projections showthat its return on equity would be about 18 percent in the next four years andthat it would maintain a satisfactory liquidity and long-term financialposition.

62. EB's financial statements are audited by the Supreme Board ofAuditors of the Prime Ministry. The audit is carried out in accordance withthe Government's requirements for state enterprises and is consideredacceptable by the Bank. HB's accounts have been found satisfactory by theauditors.

Technical Assistance Program for SMI

63. The technical assistance needs of SMI in Turkey are relativelysophisticated and include access to improved product designs, productiontechnology, management methods and marketing skills, particularly forcompeting in export markets. There is also a need to develop inter-firmlinkages between SMI and larger firms to allow SRI access to national andinternational markets.

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64. Until now, SMIs have had very limited access to institutional sourcesof technical assistance because these institutions were not geared towardsserving the needs of smaller firms. In 1970, with the support of UNDP/UNIDO,the Government established the Small Industry Development Organization (SIDO)with a pilot project in Gaziantep in Eastern Turkey to assist smallenterprises, especially metal working industries, located nearby. The pilotproject has not been successful primarily because of the incompatibility ofits relatively complex machinery and technology with the needs of most of thesmall enterprises in the area for relatively simple knowhow and the lack of aneffective extension service to cater to the needs of SMI.

65. In June 1983, the Government decided to restructure SIDO. Ittransformed SIDOU into a semi-autonomous body of the Ministry of Industry andTrade (MOLT) with the mandate to provide technical assistance to SMI on anationwide basis. At the same time, UNDP approved a three-year project at anestimated cost of $912,000 to assist SIDO in establishing a demonstrationcenter and common facilities for small foundries in Ankara.

66. In the light of its experience with the Gaziantep pilot project,SIDO's management has adopted a new strategy to assist SMI. The new strategycalls for SIDO to build up a decentralized network of branch offices staffedwith multidisciplinary extension teams. Each branch office would promotetechnical assistance by visiting and undertaking diagnostic surveys of SMIfirms to assess their problems and needs and refer firms needing specializedassistance to appropriate experts or institutions capable of providing suchservices. Thus SIDO would be a catalyst in mobilizing existing sources oftechnical, marketing, training and management expertise to assist SMI, ratherthan attempting exclusively on its own to service all the diverse technicalassistance needs of SHI.

67. SIDO currently employs a total staff of 72, of which 66 are atGaziantep and the remaining 6 are at Ankara headquarters. SIDO's presentmanagement has considerable experience in small industry development. SIDO'soperations are reviewed by a governing body chaired by the DeputyUnder-Secretary of MOIT and including a representative of Halk Bankasi.However, SIDO's organization and staffing need substantial strengthening toimplement its new development strategy.

68. The proposed project component would provide assistance to SIDO overa three-year period to initiate the development of-Wi) an effectivedecentralized organization structure with stronger management and staffcapabilities; (ii) an effective extension service; (iii) a computerizedinformation system to (a) monitor and manage the decentralized technicalextension program and (b) meet the information needs of SMI and promoteinter-firm production and marketing linkages; and (iv) a program that wouldhelp SMI to utilize the services of specialized consultants from the privateand public sectors. It has been agreed that the impact of SIDO's newdevelopment strategy as well as the range and cost-effectiveness of itsoverall activities, including the role of two demonstration centers atGaziantep and Ankara, would be reviewed by the Government with SIDO inmid-1987 and end-1988 and its findings and conclusions will be discussed withthe Bank, with the object of adjusting the strategy and activities of SIDO, ifnecessary.

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69. The proposed work program would be a substantial addition to SIDO'sexisting activities. In order to ensure that the technical assistancecomponent of the project is adequately implemented, a supplementary projectmonitoring procedure would be instituted in addition to normal projectsupervision.

Main Features of the Loan

70. The proposed Bank loan of $100 million would be made to the Republicof Turkey, which would cnlend *80 million to SYKB and $18.4 million to HB forrelendiLg to SMI. The Government would also onlend the technical assistancecomponent of $35U,000 to HB and allocate the technical assistance funds of$1.25 miil.on to SIDO. The definition of SSI, SMI, and the cost per jobcriteria for assistance by SYKB and HB would be the same in real terms asunder the Labor-Intensive Industry Project. Thus, SSI sub-projects wouldinclude new projects with a maximum investment limit, excluding land andbuildings, of $500,000 and expansion projects with a limit of $650,000 1/.For mediumrscale industry projects, the respective maximum investment lLmitswould be $2.5 million and $3.5 million for new and expansion projects. SYKBhas agreed that at least 80 percent of its portion of the loan proceeds wouldbe reserved for financing SMI projects and, within this limit, at least30 percent of the loan would be onlent to SSI. All eligible sub-projectswould have a maximum average capital investment (excluding land and buildings)of $18,000 per job. A small number of non-SNi projects which satisfy the costper job criteria and are considered export-oriented based on Certificates ofEncouragement would also be eligible for financing under the loan. Experiencehas shown that such sub-projects could be somewhat bigger than typical SMIsub-projects because of the need to achieve economies of scale. As aconsequence of SYKB's policy guidelines, the sub-project and sub-loan sizesfor these larger sub-projects are expected to be in the range of $4-5 millionand $2-2.5 million respectively. The amount onlent to HB ($18.4 million)would be used by RB for financing labor-intensive sub-projects in the SSIcategory only. Furthermore, within the SSI category, HB has agreed toconcentrate its assistance on very small enterprises and, thus, use at least70 percent of its share of the Bank loan for assistance to sub-projects withtotal fixed assets, excluding land and buildings, not exceeding t20O,000. Itis anticipated that most of the sub-projects to be financed under the loanwould be for the manufacture of food products, ready-made garments, furniture,leather products, and metal works and engineering.

71. SYKB has undertaken to calculate economic and financial rates ofreturn for all sub-projects receiving term financing and having totali7vestment in fixed assets exceeding $750,000 equivalent. Eligiblesub-projects would have a minimun economic rate of return of 12 percent and aminimum financial rate of return which would be not less than the CentralBank's prevailing rediscount rate for loans for industrial investments.

72. The Borrower wou'd repay the loan to the Bank over a fixed period of15 years including a grace period of 3 years. SYKB and HB would makesub-loans normally of 8-10 years but in no case would final repayment bebeyond the final repayment date of the Bank loan. They would repay the loansto the Government on a schedule commensurate with the aggregate amortizationschedule or indiviYC-&- 3ub-loans. HB would repay the technical assistance

,&' All 'Limits iL this paragraph are expressed in end-1984 prices.

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component of $350,000 over 15 years. The execution of subsidiary loanagreements, acceptable to the Bank, between the Government and SYKB and HB,would be a condition of loan effectiveness.

73. The proceeds of the Bank loan would be onlent to sub-borrowers eitherunder FERIS or in foreign exchange with the sub-borrowers bearing the foreignexchange risk. Under FERIS, the Government would lend Bank funds denominatedin TL to SKEB and HB at a fixed rate equal to the onlending rate tosub-borrowers minus an intermediation fee of 4 percent. The margin availableto FERIS for coverage of foreign exchange risk would be the difference betweenthis rate and the interest rate payable on the foreign borrowing.

Alternatively, Bank funds would be lent in foreign exchange to SYKB and HB ata fixed interest rate equal to the then prevailing Bank rate plus 0.75 percentto compensate the Government for bearing the risk arising from the variabilityof the l3ank's interest rate. The onlending rate to sub-borrowers would befixed at 5 percent above the Bank rate.

74. The free limit for SYKB would be $1.25 million. It is estimated thatthe total number of sub-projects to be financed by SYKB under the proposedloan would be about 200 of which about 10 percent by number and 35 percent byamount would be above the free limit and would require the Bank's priorapproval. The free limit for HB has been established at a lower level of$150,000 because it would be financing small sub-loans and this would be thefirst Bank loan to RB. MB has agreed to submit for the Bank's approval theappraisal reports of the first five sub-projects irrespective of the sub-loanamount. It has also agreed to make available to the Bank's supervisionmissions 10 percent of the sub-projects with loan amounts of$100,000-4150,000, to be selected by the Bank's staff, for ex-post review. Itis estimated that HB would use the loan proceeds to finance about 500sub-projects, of which 10 percent by number and 30 percent by amount would beabove the free limit.

75. It has boan agreed that the long-term debt/equity limit of SYKE wouldbe increased from the present 9:1 to 10:1 in view of the satisfactoryfinancial position and quality of loan portfolio of SYKB. HB would continueto be subject to the total debt/equity limit of 20:1 applicable to comnercialbanks.

Procurement and Disbursements

76. SYKB and HB would require their sub-borrowers to obtain at leastthree quotations from suppliers eligible under the Bank's guidelines, exceptthat small items costing less than $10,000 and proprietary items may bepurchased by direct contracting. The proceeds of the Bank loan onlent toindustrial enterprises would be used to finance the full foreign exchangecosts of directly imported machinery and equipment, and the initial stock ofimported raw materials and spare parts. Bank funds would also be used tofinance 70 percent of the cost of imported machinery and equipment procuredoff-the-shelf in the domestic market, and 50 percent of the cost ofdomestically produced machinery and equipment, net of taxes, reflecting theimputed import content of such items. As regards SIDO, bid packages valued atbelow $250,000 would be procured through international shopping by comparingprice quotations obtained from at least three suppliers. Items estimated tocost $250,000 or more would be procured according to the Bank's ICBprocedures. Consultant selection by SIDO and RB would follow Bank guidelines.

- 21 -

77. Disbursement of funds would be made against standard documentationand statements of expenditure. In order to ensure that Turkey would haveready access to foreign exchange, it has been agreed that a Special Accountwould be established in the Central Bank of Turkey to which the World Bankwould make an initial deposit of $6 million. The Special Account would bereplenished periodically against withdrawal applications. On the basis ofprevious experience with comparable loans in the region, the disbursementperiod of the proposed loan is expected to be about six years.

Status of Project Preparation

78. Both SYKB and RB have a well-developed project pipeline and sub-loancommitments are expected to commence immediately upon loan effectiveness. Theterms of reference of the study for the institutional strengthening of HB havebeen agreed and the selection of consultants is expected to be completed byJune 3U, 1986. SIDO has already got core staff in position and does notforesee any difficulty in the recruitment of additional staff to implement thetechnical assistance program for SMI. The terms of reference for the advisorsto be employed by SIDO under the project have been agreed, together with atimetable for their selection.

Reports and Audit

79. SYKB would submit periodic reports to the Bank, which would include aslunary of operations, progress on utilization of the loan, and annualaccounts and audit reports. Similar reports would also be submitted by RB.SIDO would submit quarterly reports on progress in implementation of variouscomponents of the TA program for SMI. SYKB, HB and SIDO would also submittheir audited accounts and a project completion report.

Project Benefits and Risks

80. The project would support the development of labor-intensive SMI insubsectors in which Turkey has a comparative advantage. This would, in turn,create productive jobs at relatively low cost and contribute to exports ofmanufactured goods. Although the maximum limit for the cost per job(excluding land and buildings) is $18,000, it is estimated, based on theexperience under the Labor-Intensive Industry Project, that the average costwould be about $10,000 as compared to the average of $120,000 in themanufacturing sector as a whole. About 18,000 new direct jobs are expected tobe provided by sub-projects to be financed under the project. The projectwould also use, for the first time, HB as a financial intermediary. As aresult, investment funds would become accessible to SSI and artisans locatedoutside the main urban centres. This would contribute to balanced industrialdevelopment at the regional level. The project would also assist in overallinstitutional strengthening and efficiency improvement in HB through technicalassistance. This can lead to a much bigger role for RB in future assistanceto SSI. Technical assistance for SMI would be the first major effort inTurkey to develop institutional capability to provide extension services toSMI and to facilitate sub-contracting on a national basis. This would resultin improved productivity and efficiency of SNI and the development of amuch-desired complementary relationship between SSI and larger industries.Upon the completion of the TA program, SIDO would be able to provideassistance and guidance to about 350 SMI enterprises, train about 200entrepreneurs and develop about 900 company profiles per year.

- 22 -

81. The project risks relate mainly to two areas: meeting of investmenttargets by the intermediary banks and implementation of technical assistanceby SIDO. The private sector investment situation has been uncertain in Turkeyin the recent past and any decline in investment would slow down theutilization of the proposed loan by SYKB and HB. However, the Gove:nmert isfully committed to the promotion of the private sector. Also, the proposedloan is expected to meet only a part of demand for funds on SYKB and HU. Itis therefore unlikely that SYKB and 1B would experience significant delays inthe utilization of the proposed loan. As regards SIDO, it has been operatingin only two areas of Turkey with a relatively small staff who have generallylimited practical experience. Also, the equipment and information resourcesat SIDO are inadequate. These factors introduce an element of risk in theproposed technical assistance component of the loan which calls for asubstantial increase in staff and may strain the management resources ofSIDO. However, the program has been so designed as to minimize the risks. Inaddition, Bank staff would closely monitor the implementation of technicalassistance and SIDO's activities. The risks are therefore consideredreasonable and acceptable, considering the potential benefits of the project.

PART V - RECOMMENDATION

82. I am satisfied that the proposed loan would comply with t-. Arti:lesof Agreement of the Bank and I recomnend that the Executive Directors spprovethe proposed loan.

A. W. Clausen

President

AttachmentsDecember 12, 1985Washington D.C.

-23- ANNE I

Page 1 of 6T a a * e 3A,

TUKT-SOILljYCTu DATAUI USS?

JurST CST R T UTtJU) lb

196OLb S/b UNOM INWSAM TIIEUXAAD IQLN L

StTAL 780.6 70.6 7 0.bAGRICULIURAL 368.7 381.9 36.8

- apitCan(OU) *- .- 1240.0 214.3 11062.9

(KThacma Of OXL F461VALU) 170.0 362.0 570.0 1119.9 4991.3

POPULATIOU.-VEX (ITOUSADSl) 27509.0 35321.0 47279.0533aM FOPULATCE CZ OF TOMU) 29.7 32.5 £5.1 47.5 76.7

YPOULATEOS IROJECTOUSPOPUATIOE 3 13TM 2W00 OWLL) 65.4STATIOWAS POPULLTIOP (lILL) 111.0

POPULA3209 Knoxm ~~~~~~1.8uouuo anmou

rPVULATIO nsrm SQ. a. 35.4 45.2 60.6 84.7 140.6M SQ. ML AxR. LAND 74.4 92.5 126.3 166.9 sZZ.2

FOUATMIOAc t STR E CZ)0-14 TM 41.2 41.0 37.A 31.2 ZL1.3

15.64 13 55.2 54.3 579 61.5 66.665 M MROV 3.5 4.6 4.3 7.2 t2.0

FOPULATIPMo1s RATE CZ)TOTAL 2.6 2.5 2.2 1.6 U6URl 6.1 3.6 4.8 3.7 1.3

mu aCm 1TZ (mx 240w) 43.1 37.9 30.6 23.4 13.5CHD OAIR RATE (C MM) 15J 12.2 9.6 9.9 8.9CIOSS MISOOOCrUM 3A5 2.9 2.6 2.0 1.5 0.1

PANx n.aazACUnS. AMAL CTHS) .. 65.6 UaRs CZ or F cRx H J 5.3 Ic 32.0 d 38.0 f .. 71.1

alow ar oo moo. oorINDEX OP FOOD MlD. FM CAPITAC1969-71-100) 96.0 100.0 110.0 109.1 107.2

r! CAPI sUFnx OFCALORIES CX OF qUXIEKT) 109.0 112.0 25.0 131.5 132.9PROTEIN CAms 7R DAY) 84.0 80.0 0.0 92.4 101.0

OF MaCH 5wUL AND PULSE ; 5.0 23.0 25.0k 34.5 61.4

CHILD (CAGS 1-4) D1A1 RAE 42.5 27.5 8.0 4.7 0.'

LIFE EXPECT. A DUim (YEARS) 50.5 55.S £3.2 61.2 15.5IrFANT MM. RATE CPSR 20WS) 177.6 13b.2 92.0 53.3 9-9

ACCESS 20 SaP VtAim (lOIP)TOUAL . 52.0 76.0 lb 70.2UDllt .. 51.0 95.0 l 9.4 RAmL .. 53.0 62.0W 57. )

ACCM TO UCRETA DISPOSAL(Z or roP¶LLTIOS)

TOrAL .. .. .. 5.,

035*3 .. .. 60.1b 65.9rAL .. .. .. 47.6

POPULATIoN PER SICAN 2800.0 2230.0 1630.0 /b 1070.6 553.2PO. PER RSIIC PERSON 16300.0 /1 LN0.0 1130.0 7W 769.5 1bb.8POI. FM OSPITAL RD-

TOTAL 600.0 490.0 0.0 /f 328.3 12U.9011 340.0 L 270.0 /1 270.0 201.9 :43.2FELAL 5100.0 1 6510. f 5650.0 L 4519.7 771.6

ADHISSIOUS SPIAL BED .. 20.2 22.3 /a 20.0 17.t

mmINAVERAGE blE OF HOUSEHOLD

TOTL 5.7 Ih 5.9ass ........

a .. .. . ..

AVNuACE 3O. OF PErS0s/FERATOrAL 2.t In 2.2URIB 2.0 o7 .9 .RaL -2.7 7 ...

moRuZrAG OF UNELLIUSM WIm atC.TOTAL 29.0 41.1URI .. 78.2

RURL 2.0 18.0

-24 - ANNE IPage 2 of 6

TA L E 34

T1U1t -SOCIAL INDICATORS DATA TOUt .EmIIc CRoUFs (uEtClU AMIRAGES) /a

MOST OUST SCEr ESTIMTE) JbRICENT MITDDLE rNCIL

19601k 1970ab ESTNTL.o mAnT iCONmun

ADJUSD ENROLUME RATIOSPIKAItY: TOTAL 75.0 110.0 102.0 101.9 101.2

KALZ 90.0 124.0 110.0 106.2 102.6-FEMALE 58.0 95.0 95.0 97.5 102.4

SICOIIDARY: TOL 14.0 27.0 39.0 57.5 87.1ALE 20.0 38.0 50.0 64.9 80.3

FEMALE 8.0 15.0 27.0 50.0 84.1

VOCATIONAL (C OF SECONDARt) 17.7 13.7 21.9 2L.0 18.4

PUPIL-TACER RATLDPaDz" 46.0 38.0 21.0 25.1 16.7SECONDARY 19.0 28.0 19.0 19.1 11.6

PASSEGEIL CARS/IHOUSAND POP 1.7 3.9 11.5 1I 54.2 366.3RADIO RECIVERSNOIUS POP 49.1 87.7 93.0 170.7 1093.2TV REEIVERS/TwIOUSAD POP 0.0 :.8 105.8 149.3 492.3NEWSPAPS ("AILT GCUSAL

W) CXRCULUXOVPER S1OUSARD POPULATID 51.3 40.6 89.1 97.0 320.4

CINElM ANUAL AZTTNDABCZICAPTT 1.1 7.0 1.4,i 2.7 3.3

TOTAL LAB0O FORCE (TIS) 13782.0 15S29.0 20660.0PEtALE CPERCENT) - 40.2 37.0 36.3 36.3 36.2ARCUCLURE (PERCENr) 78.5 67.7 53.5 lb 40.8 6.2INDUSTRY CPERCENT). 10.5 12.1 12.8 7b 23.3 37.7

PARTICIPATION R (PERCENT)TOTAL 50.1 44.8 43.7 43.1 46.0HKtz 58.7 55.7 54.8 55.1 5S.5FEMAILE 41.2 33.6 32.2 31.4 32.7

ECONUIIC DEPENDENCY RATIO 0.9 1.0 1.0 0.9 0.7

311XS DISMINUIOPmCENr O PIVATE XNCRG

EmilS 5Z 0F OSENOLDS 33.0 Ic 32-.8 IdRICLEsr 2010 HOSEO1 61.0 7T 60.67W .. T. 43.1LOWEST 201 O OUSENLDS 4.2 7c 2.9 7 i . 5.4

1WES? 401 OF BDUSEROLDS 10.6 7g 9.4 Z . .16.4

CSISA1 AB150LUT OET nICOKILEveL (055 PER CAPI)

UR .. 342.0 /fRIRAL .. _. 270.0 7 F

DSTAZ RELATrVE POVRT rICHLEVEL CUSS PER CAPITA)

RBA ..

RURAL .. .. 220.0 /f

ESTIMATED POP. BELOW A501.POVERnT ZICKE LEVEL (Z)

URBA ..

RURAL ..

NOT AVAILALENOT APPLICABLE

N O T L S

/I The group arages for each indIctor - popnIstion-valgted arSlttlc man. Coerap of eoutrieamong cbe Intcatore depends an availablIty of data and Is ot uniform.

lb Unless otberwise noted. 'Data for 1960" refer to any year between 1959 ci 1961; "Dt for 1970" betwee1969 ad 1971; and data for "1Mot Reent Ketteat" betwen 191 and 1983.

/c 1963; Id 1968; /c Apo 1544; /f 1978; A 1977; A 1980; 11 1962; ft 1972; / 195; tl 1976;

Ic, 1979

- 25 - Anne-c IPage 3 of 6

DlFVaOl' OF SOCIAL N1ICATORSNoses Aloude datate drun rom omsmnrllyjudid th mm aathorive ad mdu6k. it should sio be moo tht they may nox be mwntmomlycemI abk b1m ef h lck ofAndd bdeudnma and bIy mdhy daffeuAnnimcollacthe daus The dami noneheless ltoducrike ord d pmiu im.ai mL and chm ia mmmjor dffa b hm cn cmnThe Ic 111grOp at iithe- counitroohsubjftry and (21 cont u rh somewhat h4her *an inm thn the cotfn

pdathewlc osnatry (lmp for -higb nosmOil Eaporuwbp *heMiddkl Incom North Arnaand Midd Eans- cin beueof strangersodecwltal adlni. In Dthefe ence roup da dh asage an populatlin weighted aritmetic mum for ach indcatr and shown onL when mejontqof *ecoiuim a grop has daa far that indmewr. Since ih coverage o counties among the indcato dependson he atalabiity fdat ad i nrot untfn.cammion mst leise rd ati rara ofone ndic atorto aodaar Theeaerasao useful in comprng t Mlu ofone in or at tImamonthe county ad reernc gop

AREA (tbousand sq.km.) CGud, Bith Rot (per th.mud)-Number orlive births in the yearTed-Total surface area comprising land area aod inland w s per thousan of mid-year population: 1960. 1970. and 1923 data.1960. 1970 and 1983 data. Cmr Dah Raw (per tie us.an-Number of deaths in the yearA arow Ewdimate or agricultural area used temporadly or per thousand of mid-year population: 1960. 1970. and 1983 data.perma ly for aops. psures. market and kitchen Sardens or to Gros Reptedoctio Rate-Average number of daughters a womanlie allow. 1960. 1970 and 1982 dat. wil bear in her normal reproductive period if she expeiences

prsent ae-specific fertility rtes; usually five-year aveages endingGNP PER CAPITA (USS)-GNP per capita estimates at cwrret in 190. 1970. and 1983.market pnrces calcalated by sanc conversion method as World FINOW Anna (thousaud,)-Annual num-Ba* Atlas (1981-83 basis): 1983 data ber of acceptors of birth-control devicrs under auspices of national

ENE1tGY CONSUMPTION PER CAPITA-Annul apparent fiuly plnning program.consumpion of commecl pnrmary enerw (coal anmd lignite. ly Plino,-Users (pect of mwrsed wome)-The peren-peroleum, naturd gs and hydro- nuclear and gotbdrml deec- tage of married women orchild-bearing age who are practicing ortricitv) in kilograms of oi equivalent per capita; 1960. 1970. and whose husbands ar prcticing any form of contraception. Womnen19g data. of child-bearing age are generally women aged 15-49. although ror

some countries contraceptive usge is measured for other agePOPULATION AND VITAL STATISTICS groups.Jet PepU_U fMrn M.i-Year (Shu alk, -As of July 1; 1960 1970. FOOD AND NUTRITIONand 1983 data.

wcwRte of Fod Pmrwdu Pr Cpita (1 369-71 - 10- Index of perlin differetd (pmeot of toearmsma ofurban to totma capita annual production of all food commodities. Productionpopulationf deurnt definitons of 0rban areas may afect cor- dudes aimal feed and seed for agriculture. Food commodities

indude pnmary commodities (eg. sugarcane instead of sugarnApO _ioiPec&e which are edible and contain nutrients (e.g. cofrer and tea arePopulat in tvwr 2Wn-The projection of population for 2000. ecdudedg they compnse cercals root crops pulses. oil wedc..made for ach economy separately. Starting with information on vegetble fruits, nuts. sugarcane and sugar beets, livestock, andtotal population by age and sex ferility rates, mortality teus and livestock products. Aggregate production of each country is 'used

ternat l migration in the base year 1980. these parameters on national averae producer price weights 1961-65. 197u. andwere projected at fiv-year intrvals on the basis of gneralized 1982 data.assumptions until the populaion becae stationary. Par CapfitaSpp of Cafor*s (percen qffeqairmensj-Corput-Srauiinar' popuation-4s one in which age- and sx-specific mor- ed from calorie quivalent of net food supplies available in countr.tality rates have not changed over a ong period, while age-specifi per capita per day. Available supplies comprise domestic pr.duc-fertility rates have simulteously remained at replacment level tion. imports less exports. and changes in stock. Net suppliec(net reproduction rte- 1). In such a population. the birth rate is exdude animal feed. seeds for use in agriculture, quantities used inconstant and equal to the death rate. the age strucure is also food procesing. and losses in distnbution. Requirements wereconstant, and the growth rate is zero. The sationary popuation esfimated by FAO based on physiological needs for normal actii it%sin was stimated on the bais of the projectd characteristics of and health considering environmental temperature. body weights.the population in the year 2000 and the rte of decline of fertility age and sex distribution of population. and allowing In percent forrae to replacement levd wase at household level: 1961. 1970 and 1982 data.Pop.ation Momenmni-ls the tendency for population growth to p. Capita Suppl of Prwein (ra0ns pr day)-Protein content ofcontnue beyond the time that replcement-klv fetlity has been per capita net supply offood per day. Net supply of food is definedacbeved; that is. even after the net reproduction rate has reached as above. Requirements for all countries established bs USDAunity. The nmmentum of a population in the year r is measured as provide for minimum allowances of 60 grams of total protein pera ratio of the utime stionary poptilatton to the population in day and 20 grams of animal and pulse protein. of which 10 gramsthe year r. given the assumption that fertilty remans at place- should be animal protein. These standards.are lower than those ofment lvel from year r onward, 1985 da 75 grams of total protein and 23 grams of animal protein as an

pato Dansity avera for the world, proposed by FAO in the Third World Foodhr sq.km.-Mid-year population per square kilometer (100 hec- Supply: 1961. 1970 and 1982 data.tars) of total area; 1960.1970. and 1983 data. Pr Capitar Proein Snppil, hro Animsd ad Pke-Protein suppl)Per sqkm agncdzwral land-Computed as above for agrictural offood derived from animals and pulses in grams per day 1961-65.blnd only. 1960.1970. and 1982 data. 1970 and 1977 data.Poplaimfon Age S nwetw (pecatJ )-Children (0-14 years). work- Cud (os I-4) Death Rate (pjer housand-Number of deaths ofngage (15-64years). andretired (65 yearsandover)as perentage children aged 14 years per thousand children in the same ageof mid-year populatio 1960. 1970. and 1983 data group in a given year For most developing countries data derivedPopulation Giiowth Rate (peruemj-eotol~-Armual growth rates of from life tabks; 1960. 1970 and 1983 data.total mid-year population for 190-60. 1960-70. and 1970-83. HEULTHA'puar G"roth Rat A(potrJ ai-m'ha-Annual growth rates Life Expectawy at Brt (years)-Number of years a newbornof urban popuation for 195040. 1960-70. and 1970-83 data, infant would live if prevailing patterns of mortalit -for all people

Annex I-26- Page 4 of 6

at the oror its birth mm to sy the ouout it life; P ^AM er RAt - prbwy. aud sc&,dy-Tota studeu en-IQ 1970 and 1983 daa. rU In prmay ad ucondary leves divid by oumber or4Mwvalu Rare f(p ,hmod-Number of nfants who die thm in th orrepondg klvelb1fome racin o y of pe pr housn liv birh in a geyur 10%.1970 and 133 datm CONSLMPTIONAmew to b So W (pevmm dfp~iu-ie wim. mud hAaeqe Cz (per ehmmud p.pIlarla)-paseenser Car corniwd-Nulber or peo (totL ubl ad rul wit reasonable preim motor can mting le da got pemsons: exclud ambul-mmrn to sie water upply (Includes atsurface wates or anc earnes and militr vehicles.

untreated but uncontamina ser suc tt frn _ from te J atd A. Ratehr (pw rhenudpop.lWmuJ-All types o recavrsboeohae, spnnp and unitry wDs)u purage of theep- far radio broadau to eneral public per thfousnd of population;dnve populatons. In an urban ama a public fountai or standpoin excdudes un-iicensed recoivers in countries and in year whenboted not more dn 200 met fm a house may be condered resadono r r dio u ineffect dat for rect ye maya beinS within reasmobe m or thst house. In a arme not be comparble since most countries abolied licasing.reasonble acoess ould imply dhat the housewife or members Of th Yeae prtdAsealu-Vrmr o racsbouseid do not have to qsd a disproportionate pen of the day * - P r dpopulation: exues ulcnrosedcTi eh te&uWs wtr, needs. to Iau pubbc per thoust popuLlmon; cmuesd ubclsd TVAc ceto hingthew Dbf815111r o fU) -toorc wev n es in countries and in yas when registration of TV se wasmd rwal-Number of people (total. urba, and rnr) srved by in effec.exceu disposal - peurags of their respie populations muWwCb'-bs (per ,hhudpqpWW=-5_bows the av-Exca disposal may include the oecton and diposL inth or age cmlto or Adaly geeral intt newspaper. defined as awithout tetment. of humn excreta and wate-watr by water- p-Idic p aub devoted prmaiy to rwordin genal .bon systems or the use of pit privin and simuar insuiadon. It is considered to be "daily ifit apper at lan our times a week.Aluein- - divided by number of prc- Aem t C p Yew d on thesing ph sid d a dilsbool at university leveL number of tckets sold dwing the year. induding admissions to

Phpakria per NurAn Palo-b1pulation divided by number of drive-n amma nd mobile unitspactcing malc and femak pduate nurses, assistant nurse.practical nurse and nursing auxdiiris. LABOR.e. ]FORCE(husd-comiayatveernsi-purim per Howt &d-rer4 MM ad wadi-t1 opulation cid Lor ( d Econonucally active pasons in-

(toal, urban, and rual) divided by tbeir spetv number of duding armed forces and unempbyed but excluding housesie.bospital beds available- in public nd privac, 1nera and spaHized cstudents etc.. covering population of all ags. Definitions inhospital ds aeabilabeation pubtl Hospitat s ger and specilz various countries arm not comparable; 1960. 1970 and 1983 dau.permanenty staffed by at least one physicn Establiments proi- (pcw i-Femae labor force as percentage of total laboriding pnipally castodial ca ar not inuded. Rrl hospils. fionhowever. include helth and mdilceta s not pmerneny saffed 4Aviehwe (powutir-Labor forc in furming forestry. huningby a physician (but by a medical asst t. nurse, midwifk et) and fishsing as percentage of total labor force; 1960. 1970 and 1980which ofrer in-patient accommodaton and provide a imited rang datauof nedical facilities. Adasry (pereaent-Labor force in mining, construction. manu-Aduiu pr Hposptal Red-Total number of admissions to or fauring and elecricity, water and gps as percentage of total labordischarges from hospitals divided by the number of bed forcr. 1960. 1970 and 1980 data.

Jridle RaN mk.rJb , e ndfeaak-ParticipattonHOUSING or a mras are omputed as total mal, and emnale labor forceAwiqe Sat of HoNehol (per,n per I- hen, as prentas of totaL male nd female population of all asJdwi-A householdconsist of agroupof individualswhoshare rspecy 1960,1970. nd 1963 data. These am based on ILOsEving quarters and their main mS. A bouder or lodge may or partcipation rates reflecting age-x structue of the population. andmay not be indiuded in the household for statstical purposes long time teL A few estimaes ae from naional sourceAvera Number of Pers per R1_-r4 when, _nd rua- Ecan D_er endec RPoe-Ratio of population under IS. andAverage number of pesons per room in all urban, and rurl 65 and ovm to tbc working age population (those aged 15-64).occupied conventional dwellings, respectively. Dwdlins excludenon-permanent stuctres and unoccupied parts. INCOME DISTRIBLTONPlwmaga of Dwe wh Eaft rdy-.it rdal. , and. frul- Peet of Torsl Dipoibk lacm (bmrA in cask nd kindj-Conventional dwelingswthelecty in living quartersas percen- Accruing to percentile groups of households ranked by total house-tage of totaL urban. and rural dwelings respectively, hold income.

EDUCATION POVERTY TARGET GROUPSAjsed Eur.iaer Radis The folowing esima are very approximate measures of povertyAwuwy sdioe - toid male ad -~ totnL mal leves and should be interpreted with consideable cauticn.female enrolmet of aO ages at the primary evd as perentages of EsrxuuedAhrot ftrep Ibhom Leed (L5 pr copka)-wauprespecive primary scwool populations Whie many countries ad mm&-Absolute poverty icome leel is that income Lvelconsider pnmary chool age to be 6-11 yar others do notL The below which a minimal nutritionally adequate diet plus essentialdiffernces in country pactices in the ags and duration of school non-food requiements is not affordableare refted in the tios given. Foi some countries with universal fijow,d Ps&jv Pober Iycas. Lee (bSS per cmapetai-heducation, gross enroltment may exceed 100 pernt since some and rnt-Rural relative poverty income lvd is one-third ofpupis are below or above the country's standard priary-school average per capita personal income of the country. Urban lvel isage. derived from the rural levl with adjustment for higher cost ofSecondair msool - tota mae and fmak-Computed as above: living in urban areas.secondary education requires at least four years of approved pri- Eiom.rd PopAoi Bkow Abslue APorty I1con Level (per-mary instruction; provides general. vocationL or tacher traning cen i-whm nd rral- rcent of population (urban and ruralinstructions for pupils usually of 12 to 17 yars of a correspood- who ae -absolute poor.-ence courses argeneally exluded.Vocatioa Eroilmei (permr of secandarly-Vocational institu- Comparative Analvsis and Data Divisiontions include technical. industrial, or other programs which operate Economwi Analysis and Projecions Deparunentindxpendendy or as departments of secondary institutions. June 1985

- 27 -

hC t

- - OmN OM

ta1ion: 48.8 mflij (190)GNP iw CP- -51 (Wf)

Aw_ne _ AwmpAmua lom... CZ) Saw Of GM P iem (2)hi .ia U4 (at emut 1910 pria ) (ae cur pn )

Imifrator at crac pria..)1964 1916-70 1970-75 197540 1960M4 1965 1970 95 1960 19.

NaML A5IM

Q t d ic bcc 49.40 b.6 7.5 2.8 4.7 100.0 10.0 I.0 100.0 I1.0£pric' 9.19 3.1 4b 2.7 .5 30.7 26A 26.2 21.4 1.51Aq bl,y 13.952 9.5 9.5 2.8 7.4 I1.6 17.2 16. 3B.6 B.1SN;vi~ 26,S3) 8.2 8.0 3.7 4.6 42.9 46.5 46A 44.3 46.9

~qaeim 41,90 5.8 7.0 L7 3.5 84.6 e8m L 81.8 8.5GM= in..t 3100 IL7 12.9 0.1 2.9 16.7 2D.1 2.3 26.4 2.2EvceE of mods ad WS .8615 7.9 7.3 44 3.8 6.1 5.8 6.1 7.1 17A1izt af g Rd. WIS 11,685 1L2 13. -3.1 L1 74 8.7 14.5 15.2 Z2.1

tjul #,G 8,63D 1L6 IL9 9.8 10.8 15.6 18.8 1LI 16.3 17.

Av Azmr 1=M (2) Ctmptima of Ibmdin -- (2)(At act 1910 1iD u) (at amt prim)

1972-27 1975-W 190-. 1972 17 19D

_~diniiue ~iae ts 7.3. -. 1 2.8 33.2 110.0 1.0 I2.O 1mOPrmy 1,989 -6.3 4.0 15.5 72. 64.1 6S.0 27.9xaiu.tdal PUB& 5,145 -5.8 0.9 45.3 27.4 35.9 36.0 72.1

ftihmcit iocs 1W.757 11.2 L2 10.7 1OL.0 1.O 10.0 100.ApI-A.M ad liwatock 416 27.9 -23.8 67.1 2.2 43 0.7 3.9

gmini ad y 271 17.4 6.8 22.2 L2 L6 La 2.5p me 3,373 5.4 1LO -L2 9.9 1.1 4S.8 3L3HAam-. eln ap- 2,252 14A.0 -12.1 1tL5 45.0 3S.6 18.2 20.1Oc iustrim p ts 4.443 9.9 4.5 15.1 4L7 4L4 3.5 42.2

918 199 19 191 19e I93 19W

PnS D N6 (1 DIE

:; defLtor (1D0- 10) 29.0 49g 1O.O 142.1 181 233.3 3511Eiduz roe .3 311 76.0 llL2 162A6 2.5 366.7

E az prim im 63. 7B.2 IULO. 95.8 94S UA6 83.6iatt pc iee; 61. 7L9 10O 101.2 10.3 93A 9 .O

T Of et icl- IS].9 lLS 2.IDO 9S.7 9.1 68.4 88.9

As oCf GP

1g65 1910 1975 lYI 19W.

Cugac mvm_ 15.0 2.6 22.0 9.8 15.5t -ra e10.0t iL 118 IL6 1L5 UID.

saplq3l (+) or defici 1-) -2.0 -23 -OC -4.8 -4.9i3matzi np.fiZe 4.7 5.7 4.2 3.9 3.7faufem 5.0 7.5 5.5 9.2 6.6Fozua fiism L8 L6 0.3 U.2 L8

1-70 193F75 1975-4 1SE'46

m nDM

OP gmtb zre 1Z) 6.8 7.7 2.6 4.7QP pwr cat gmmb me (2) 4.1 5.0 03 2.1

MR L29 2.9 5.7 4.7)bzgiml mvi p cam ) 2L2 19.5 318 27.5lan e laticity L7 L8 0.5 L8

. At mdut pim; c_p_: - azmed at F coot ad vn tat ad to mchviai of Mt imndlct ti ad subidies.b/ 1aw1udm m_i_a,A quuyug. -afabwi. ad elactd^ty, Sm. ad mwt.e/ acemm with Tmdh Cov.ats swaficatom. shich am nAt cawitibl vid S11s.

ftp,W;iam 4L& m-mai irmum'l aL 917L. 83

- ~ ~~~~~~~~~~~~ ~ ~~~~~ 418.11610.

er ftr QvLrat tam CM360m lU=k

Pat st5ofD CIE a & 60W -174 -442 -XW5 -15b? -M .0170 -Ml -160b -04 -13 -1W3Kw1.' et p.1 b Wu0 U31 4171 Mb Wu0 791 don1 9512 lSUE U70 1003 17721IqLit. at .mo I Ws1 112 871 971 ga1l 1310 11013 3133 11 1019 I"* 1951

wKkt. amtm is0 amL am ala 3331 1791 2190 2321 am2 195 amhr 31.5.1. 01 - - - - 73 250

1.1em= amm is -3212 -M -U1N -212 -1*16 -73 -73 .1 23 M

Vinc pri.3. immo a1 139 11 so 143 81 lo 33 1152 me 13

JIOic MrZ (p... & 3 2330 737 so1 us3 an1 33 3116 333 33 DIIhmmu3xeim an MM -11 *436 .63 -94 -3313 122 -6.0 0173 -01 -am7 -23m93*5kM 2hz CmLe w 177 1911 1 Om 1220 01 amW 93 103 99 3%JUIr ait.1 / IA 1V? 012 3) Lin .31 763 U 31 .41 670u.p i darn C- - immma. -Sib 401 43 -'4 -82 in -43 -482 -47 413 .13

(8tauintim ~~~~ ~~1325 121 ill 113 13 216 mu7 3301*ON 312 MMdg a~~9 2 2 3 2 3 3 4 4

- -~~~~~~~~~~~~~~~~~~~~~~n

(km. dim~~~~~~~s 33 ____~~~~zi 2148 2211 1336 16

I2mgmimL Ill 02~~~~~~~~~~~~~~3 43 ISO 5

UUral ~~~ ~~~~~~~~~28 ml on9 43 33 73

,la

ocher nItilmbL 17 23 23 27 21 13

ibriwconumi l no ,, 1, 3 12, 20Mudlffini3D - j1 1 20 - MG183 25 33u 4e SW Aft 3m52 ikiin. 27 154 II7 Ni 12 1sm4 el iw 47 n1 33 1 GU M 122

' a 7,1 am a S s nz

ML* -so - - - -

is 99 33 Ws 15 U3L 3W

auk l 1 2i01 n73 2173 131I S 3 J:1K

PEadm 3?I 51 4m 49 "63a 4151

af :rt mcomi,il~ul m z U I 7 W iOn law aml Db

ral dwe mrm ic 2D 13 1315 13 as 2

14_m IAL~ Go SW Ws lo" UNl44<1q_ UD 9Z3 516 31I 1 1

humnat 63~~~~~~~~I 13 19 g1m 1125 1Ms_ogl de a 2 2U o2 3o an

* dw akn tmlm. 11.8 11. 148 17.7 2.0 21.4

Iiw 0nua~a no lam. CO) 4. L.2 7.6 ILL 61.3 9.0slaidaL 4.3 3.9 6.7 10.0 7.7 6.3

pdmm ~ ~ ~ ~ ~ ~ ~ ~ ~ 16A 17.5 MS. 14.9 9.4 11.2Abf -- f eIm at ty=W 2.1 10 3 D.2 1-.2 12

Officia MA. 19.1 10.3 13.8 16.0 14151dmm 11.0 4.5 3. 3.3 1.3 9.1

I= MLYtoLIl L3D 3.7 78 30.0 2. 13.1 17.9U7 di _htati l D d 1w 167 1. 2.0 22.3 2.8 79

z ciclmiL d . Le 3.1 13. 12. 1.9 3. 1U.3ML n bw 311 4;3.9 2.3 1.2 1. 1. 1la dLA1ot__ ca_ diI7wo LL - - - - -ML dib inrvitou.1 mmmL / 0.4 0.2 0.2 0.2 0.1 0.2

0 pd G Ii iIm

2k.gW amucbm of d*t OD 1 t7 D3CZihr..da. dn .wS 73 Y 47.2N jwin 6. d 1o wI1 10 y 62.

1m..l 051531 ofS dit OKa1=ic 13Lueone d io tc f46t 7w 4.1

*AUl h.t - .1nm c351.1 dot e.0m - d11imd - in the am.o *ft flq.ms Si-mb Iml p.11k ad pdv.nc gwm mm )l.135 wm kibm= of piumn elmsifk3ia. hwr 1k pe.110119043.

lari , ~ ? Mb[ 1 - K 1. 71

* 15m sc ? ad hdde nfr pmjm5?yw Vi ircI. ML 130. 0.mt A .11 udi.tfi cqi8s1 1d16.T_s W of .3 b iad 6. ga C31 mm*Wd,1g. m? melan V 2 12 .21d MM I I df.

- 29 -

A. sOMMW OF NM L0. ANDID£113 Is(A of UoIt2b 30,11I83)

Law Fiscal Aut C ml1imus) l

bww W limt 3061m Badn 11F mlrI.

listywa nlo -o hwmcwn, Credits ,ully dlskml 3D64.9B 9.15

18- 1975 mmp of nT q r m 86 39.65

15bU¶ I3 qml= of Twny LiUCok 11 2f#= U1.1

140543 S13 smia Of Tni.y Edgar l az Step II 95.00 17A2

1743v'l 1929 _Iic Of uly Quin Stae 79.O0 74.58

D354J WU b*3tia1 D11mI-mmt ImmcofT1aft Cs" PMi0 StSU M Tilm 65. 4.15

U5343 E setdal 1a 6

(6) hrive SAta Tadin IS.00 3.4

14*-'fl 190 gpblic of Toow Kr*I. ISJd& -r 12.0 3.65

15-'3 1960 Kqmlic af Tar*a $mlsic Cotto tuds 83.00 1D.2

1IN260 10 bpbli Of AV* Liwatack V 5LUG 3L42

191im 21 BMc f aIeMgy %tvaln, bixni.i 2.0 9.83

I9J4 IM Nwb1i af Tuta 0.L Imoey 6L00 16.55

1.9-0 I1 Bsbl= ad 1ay LoEia ni.' Lwk.rz 40.00 7.22

19671- 196n1 B_J)= at of r sinad 1it ad VgpthIb 40.00 -.50

1%sas9 1961 avic of Tsu y F=tiliar Ijiatly= mblkIcion 10O. 56.47

9*m i sa tae hRA~m ste MMdatziul tuardaa-O (WI) FiVwm 7L. 37.6

2093-41 M TW 1R PrtCwwrid laducdm IM3D 2.L75

2-641 ISM NAplic at aME y DComma E l uma1net 40.W 28.76

7 315-419 Bubli of Mtugy Sw: Fae tilisaA- ;;r.min 3L.0 3L21

2137 E,iU Vmb1i of twEW _ ay 711 27.03

2L9H' IU Sraoa1 vaad Smpcomin

Diinctm?a LCM) lstsbLd Smerp 8320 83.3

73'4 EU I5 SusiAda 1 5 t Xit 150dr . LOL.2

m2-w 19T83 TM" u -t-; -Aaicity MO 3dId ml Tlisuisa 163m0 143.0

2574 E9 b -aqma - iGCI ) 1 .a CGm ziesatim 55.20 48.27

23--991 195 kPi of 74kdy Tzim MaiaziX 36.10 3A33

m01m1 159W SmIic of Muigy ?IcalAaiatEa far s itE 4.65 4.

36004 EU u%FM= of Today Aribtsiom ad nbmla 72.20o 67./A4

3334 18 fl1ic of Mg an Izrimimz 115.30 1 s86

33941 1981 bP6lk of d Seao li_s 186.40 174.5-

2M5l4 15 iSApic of .uw l a 13S.3D - /c

2WD 1955 YAie of Ta- Isa l Sao1s 57.70 57.70

37613 9S5 EU blic of OiW Rwwmu 3l Uzbm Dhut 9.2D 7.17

25&411 1195 Flmie of T9w Vp aid P Y Rl. 55.150 5.10

295'l 1985 a1 c of Tl7d Apic. SarAdjubt 30.OD 250A41

2Z5641 1W55 3zkis 83*ddtyA.deuJy (CO POxUa IM _uAdiim 14L2.0 - /d

25U Li6b M F£W -lCeet

Aselucity (0 Pw Sym Opsztims Aet. 140.00 - /e

Sa99.63 196.15 160.74

of ucdhabusmupid 733.42 17.3bTuaLm s. mtstadis 525621 17879

ALt So2d 3.55of iichh bm kid 3.55 -0- -0-

taL u blid by Bm and I /f 5256.21 178.9

Total tudiibgued 1605.74 -0-

/a mst of the cEjwjts listed in Part A is d_c:ib.d ii a snparmt

an all DmRA fimd PCO!*rt in mamca, iAich is updated bte ymaly

ad cia to de Ducati Ductora a^AaA 3D ad x:tabw 31.

/b No of ceamlUtio.r Son Ap as b ef1/rtiw ID4MI.rd LamApn bbw efSm WM7/85.r I Am beam effetxu 1/W85.rf Mac to 1beo adjamjts.

- 30

ANEC Pp 2 of 2

sai 1C am GM =aTG DI 1uEmY

B. SIMP: F IPC DIISNlWJ'(&s of Septieier 30, 185)

Fiscal Ahoumt $ illicuwYear T* of &ziueu loin t Total

1964/67/69/ TS(B 1 60.00 4.77 64.7772/73175/76/77/3/831966/69/ S!: I Nylon Yam 3.15 L42 4.5771/721970/71/ Vikig I NIlpuIPqa er 2.50 0.82 3.3282/1831970 ACS Gls 10.00 L58 U.5819711761 N %S Aluiin 8.58 146 10.0483/841973 Akdeiz Toori. 0.33 0.27 0.601974/77 Borwun Stee Pipes 3.60 0.49 4.091974 Tectiles 10.00 - 10.OD1975 Kartaltepe Tactile. L30 - 1.3D1975 Sasm Nylarn 15.00 - 15.OD1975 Aslai Caint 10.60 - 10.601975/78/83 DQUES Steel 7.50 L53 9.031976/79 hsil Celik Steel 12.00 4.00 16.001979 ED mosan Egines for bpeds 2.15 - 2.151979/80/82/ ISS Motor Vehiles & Acce 8.85 2.34 11.1984/851979/81/ Trakya Cm Glass 33.15 323 36.3883/841980 Tectiles and Fibers 4.00 - 4.001981 Kixklareli

Cm SuyiiA.S. Glass Teblewaz 12.95 - 12.95

1982 MA.N.motors MotOr Vehicles &Access. 7.88 - 7.88

1984 Pi]NW Food and Food Pmnessivg 3.90 - 3.901985 HUS Motor Vehicles & Aces. 6.47 6.47

Total Gross c lxest 223.91 2L91 245.82Less C(dellatixa, Ten ,natioas,

I=bm MAdjustuts. Pepaymmntsand Sales 172.20 9.78 18L.98

Total Comdrx ts nR held by IC 5L71 12.13 63.84

Total Unisburs ed

- 31 -

Annex III

REPUBLIC OF TURKEY

SNALL AND MEDIUM SCALE iLNDUSTRY PROJECT

Supplementary Project Dara Sheet

Section I - Timetable of Key Events

(a) Time taken to prepare the project Three months

(b) Agency which prepared the project Government, SYKB andHB assisted by Bank.

(c) Project first identified September, 1984

(d) Date of Bank appraisal mission November 1984

(e) Date of completion of negotiations November 22, 1985

(f) Planned date of effectiveness April, 1986

Section II - Special Bank Implementation Action

None

Section III - Special Conditions

(i) All sub-projects to be financed under the proposed loan to belabor-intensive with an average cost per job (excluding land andbuildings) not exceeding $18,000 in 1984 prices (para. 70).

(ii) SYKB to onlend at least 80 percent of its share of the loan toSMI and to onlend at least 30 percent to SSI within the abovelimit (para. 70).

(iii) HS to onlend its share of the loan entirely to SSI and to onlendat least 70 percent to very small SSI (para. 70).

(iv) The free limit to be $1.25 million for SYKB and $150,000 for HB;the first five sub-projects of HB to be treated as above freelimit irrespective of the size (para. 74).

(v) SYKB to maintain its debt/equity ratio at or below 10:1(para. 75).

IBRD 11656 RI30. r.' \ sOe $|* ' 40-BULGARgA BI ck Sea a c

E dirn, (lthbtreii InebOki loop , U. S. S. R.

r M o d ~~~i erk r oIn e an Sea..;;.t OPLTOCEER

J dql BOiCOvu~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t

''~~~~ - Kas '' am R B Eo61u

Karosu Er411 * - Aitwiji~~~~~~~~wirsu

I I / Ks '-*','''' 1 W f W0-t'SS tUIG

* uir' **r

BinurOF

I; MWI' 1,A KA. ., AMoIya't -. Ad".

TRNPRTTO ADMO

Medite pranean Sea POPULATION CENTERS~~~~~~~~~~~~~~~~~~~~~~~~~4'j~~. ARAB REPUBLIC 40~~~riyto

kk&f~

~~ovmSl baidiu IWAOOO [~~~~fi I

KILONSYCK ~ ~ ~ ~ ~ ~ ~ ~ TRNPOTTONAD AO

YPR YRIAN~~~~~~~~~~~~~~~~~ECMER18