November 7, 2003—The World Bank yesterday discussed a new Country Assistance Strategy (CAS) for Turkey, which envisaged a lending program of up to US$4.5 billion for the next three years. As a document that details the Bank’s work plan to assist client countries in achieving their development goals, the CAS describes all of the Bank’s planned activities in the country—lending, analytical work and technical assistance. On this occasion, DevNews spoke with Andrew N. Vorkink, World Bank Country Director for Turkey.

What are the objectives of this CAS?

Turkey is a country where progress is occurring but there are still a number of vulnerabilities, in terms of natural disasters, the country’s ability to service its debt, and ensuring that it does not returning to the cyclical nature of economic progress. This CAS is designed to minimize and mitigate these vulnerabilities and help Turkey sustain strong growth for the future.

This CAS has three objectives. First it intends to lock in several elements of stabilization and structural reform. The Turkish government is coming out of the crisis situation the country faced in 2001, and has been undertaking a successful stabilization program. The CAS is designed to support reforms that will help avoid some of the cyclical problems Turkey has had in the past so that growth can continue at a steady pace, inflation can come down and interest rates can be lower.

Second, this CAS has an important element directed at improving people’s living conditions. It is supporting social programs, such as education, health, and social assistance for those who are most vulnerable in society.

A third aspect of the CAS is aimed at supporting Turkey’s aspirations to join EU. As discussions between Turkey and EU increasingly turn toward economic dimensions, the Bank will provide complementary activities to help Turkey itself prepare for EU membership.

We are certainly focusing on the stabilization element, the regulatory climate and other elements which complement the acquis requirements. But we are also focusing on areas for which there are no acquis, such as education, health and social assistance. Turkey’s progress in those areas is extremely important. If the reform program isn't balanced, then Turkey will be ready for the acquis, but it won’t be ready to function within a competitive market like the EU. This way, Turkey will be ready to function within the EU, when the EU is ready for Turkey.

You’ve mentioned Turkey’s cyclical economic problems? What are they?

Since the election a year ago, Turkey has had improved political stabilization, which has had a positive impact on the way markets see Turkey. The country has made significant strides on the macroeconomic front: there has been disinflation, the deficit has been stabilized, and progress has been made in restructuring debt payments which are quite high. In the past, if any of these three elements didn’t function well, this would have had the potential to create major disruptions in the market, in the value of the currency, and in the level of confidence in the government's economic programs. As a result, the government would have difficulties in borrowing and rolling over its debt, the currency could fluctuate and institutions, businesses and individuals could be adversely affected by these swings in the economy. In 2001 the Turkish economy dropped almost 10%; in 2002 it increased almost 8%. Reforms are aimed at stabilizing these swings and sustaining growth over the longer term, while improving living standards.

The issue of Turkey’s debt is significant?

Turkey’s debt is very interesting because nearly two-thirds is short term domestic debt at high interest rates, which requires a large amount of debt rollover each month - about $7 billion monthly. Turkey’s internal markets are very sensitive to what the government does, because the government mainly finances its activities on local markets. They are sensitive to how things are going in Turkey, how Turkey is perceived internationally, how are Turkey’s relations with major partners, what’s happening in Turkey and with its some of its neighbors. All these issues affect the local market, which in turn affects the government’s ability to raise money at reasonable interest rates.

How’s the Bank involved in helping Turkey resolve this internal debt issue?

We are approaching it by helping the country with stabilization, which leads to a more predictable response by the market and through reforms which reduce the cost of servicing the debt. If the market feels positive about government reforms, including its ability to keep the budget under control, then the perceived risk goes down and lenders are more willing to lend money to the government for longer terms and at lower interest rates. This frees up budget funds for more productive purposes like investment and social expenditures.

Turkey has experienced some serious earthquakes in the last few years. Does the CAS take these natural disasters into account?

The environment and disaster mitigation figure prominently in the CAS as development themes. Turkey has had more than its share of natural disasters, particularly earthquakes. Istanbul is among top 5-10 large cities in the world in terms of earthquake vulnerability. When you have so many people living in a large metropolitan area, this becomes both a social and economic issue. The earthquake in 1999 caused a major downturn in the economy because it disrupted economic activities in the Istanbul area, in addition to costing thousands of lives and untold suffering.

No one can prevent earthquakes, but we can ensure that buildings are built according to standards to withstand earthquakes better.

Earthquakes can also be insured against, so that risk isn’t concentrated on one individual, one family, one business or the government, which has been the case in the past. With earthquake insurance, risk can spread across a wide number of people. We will continue to support the Marmara Earthquake Mitigation Project and intend to expand these kinds of activities under the CAS in the Istanbul area.

Earthquakes are also emergencies. We currently have a project that will help Turkey create an agency similar to the U.S.'s Federal Emergency Management Agency (FEMA), so that the country is prepared when an emergency strikes. Global experience shows that if you have good preparedness for an emergency, then relief activities can reach people in need much more quickly, reducing death, injury and damage.

What are the prospects for Turkey in the future?

While Turkey faces many challenges, one cannot be but bullish on Turkey's future. It has a vibrant private sector, it stands at the door of Europe, it has nearly 70 million energetic people and the economy is on the move. While much remains to be done, very significant reforms have been undertaken by Turkey in the past few years, including in the past few months. If Turkey can sustain these reforms, the potential for it to integrate into Europe, raise the living standards of all its people and play an even larger role in the world is definitely there. Our CAS aims at supporting these goals.

Click here to read the full press release on the CAS.

 

 

While Turkey faces many challenges, one cannot be but bullish on Turkey's future. It has a vibrant private sector, it stands at the door of Europe, it has nearly 70 million energetic people and the economy is on the move, said Andrew N. Vorkink, World Bank Country Director for Turkey