Anadolu Agency: News in English, 99-12-23

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[01] AA News

23 December 1999 Thursday

[02] FM CEM ADDRESSES PARLIAMENTARY GENERAL ASSEMBLY

Addressing the General Assembly meetingof the Parliament, Foreign Minister Ismail Cem said a correction was made in the Helsinki decision about Cyprus as a result of Turkey's warning.

''The government's policy for Cyprus may be true or wrong. It may have a dimension to criticize. However, our consent to these words with a bargaining, concession and promise is out of question,'' he said.

Cem noted that the European Union (EU) member countries entered their own opinions about their relations with the Greek Cypriot administration into the document but Turkey clarified that those opinions were wrong.

''Thus we did not made concession and bargaining. Also Turkey explained its own opinions. All of us have the same sensitivities about the Cyprus issue, '' he said.

Cem said that a great success was achieved lastly in the U.N. Security Council decision, and the sentence saying, ''Greek Cypriot administration does not have any influence on the northern part of Cyprus'' was officially registered in the document

Cem stressed that the honor of this success belonged to Rauf Denktas, the President of the Turkish Republic of Northern Cyprus (TRNC).

Foreign Minister Cem said Turkey should be on a concrete political basis to record accurate and healthy progress within the EU.

''Turkey is not impromptu concerning the EU issue. Turkey is not a just any candidate country. Turkey has not embarked on this issue recently. The EU is composed of 29 parts. A total of 60 percent of the 110-page document was classified by our governments. As a member of the Customs Union, Turkey has been carrying out this four four years. Turkey finalized 18 of the current issues. We completely finalized 13 of them and annexed them to the progress report. Turkey has already started to carry out these works. There are many things to fulfil. As the Parliament, we have to adopt many laws but we are not at the beginning of the issue. Actually, all of our governments have fulfilled these since 1996, and we continue to do so,'' he mentioned.

Pointing out that Turkey, with its own history and peculiar civilization, would enter the EU, Cem said Turkey constituted the single model of modernization in the whole Islamic world.

Stressing that the EU did not make a statement to Turkey about capital punishment, Cem said, ''such statements can be made at the European Parliament but there is not such an official sentence in the document.''

The Foreign Minister said Chechnya could be said as it was Russia's domestic problem concerning territonial integrity but human rights couldn't be domestic problem of a country.

''Violation of Chechens' right of living by Russia is the issue of all of us,'' he emphasized.

Cem said that defining Chechens as terrorists in the protocol signed with Russia was out of question.

''What Prime Minister Bulent Ecevit signed with Russia was the protocol for struggle against terrorism. Actually, the same protocol has been signed with more than 30 countries up until now,'' he said.

Stressing that the first aid to Chechen refugees was carried out by the Turkish Red Crescent and the aid to them still continued, Cem said, ''it is an injustice to say that Turkey did not fulfilled its responsibilities concerning this issue. The Republic of Turkey is doing its utmost to share the grief of the Chechen people.''

[03] IMF APPROVES STAND-BY AGREEMENT

The IMF Press Center told A.A correspondent that the IMF Executive Board Council decided to give financial assistance of nearly four billion U.S. dollars to Turkey for three years.

The Council announced that it approved the letter of understanding which was submitted by Turkey within the framework of the standby agreement and provided four billion U.S. dollar financial support, the Press Center said.

The Press Center noted that the Council also announced that it supports Turkey's economic policy.

Stanley Fischer, the Deputy Director of the IMF, said that 300 million U.S. dollars will immediately be given to Turkey.

Turkey's economic program is strong and well-balanced, Stanley noted.

Stanley added that Turkey's credibility will increase as the program is fully implemented.

[04] FISCHER, IMF DEPUTY DIRECTOR: - ''TURKISH OFFICIALS DECIDE TO IMPLEMENT A STRONG PROGRAMME TO OVERCOME HIGH INFLATION PROBLEM''

Fischer issued a written statement after the IMF Executive Directors Council approved the standby agreement.

Fischer emphasized that the non-interest balance will play an important role in fulfilling the financial liabilities and decreasing the inflation.

It is necessary to reduce the burden of the tight budget policy, privatization and the public finance and to diminish the interest rates, Fischer noted.

Fischer stated that the earlier announcement of the rate of exchange in the monetary and rate policy will play a key role in reaching the target inflation rate.

The financial adaptation, being loyal to the rate of currency policy and the structural reforms prevent the risk of decrease in the real value of the rate of exchanges in the near future, Fischer recalled.

Fischer stressed that the structural reform programmes are comprehensive and far-reaching.

Defining the privatization programme as an ambitious programme, Fischer emphasized that the social security reform represented a major turning point.

The agricultural policies will produce important efficiency gains and allow the government to keep fiscal costs in check, Fischer pointed out.

Drawing the attention to the full implementation of all the structural reforms, Fischer said that the structural reforms can contribute to Turkey in ensuring the financial balance in the medium term and increasing the economic efficiency and growth.

The IMF will provide 1.5 billion U.S. dollar financial support to Turkey in the first and second year and 1 billion U.S. dollar financial support in the third year within the framework of the Stand-by Agreement.

The first instalment of 300 million U.S. dollars would be available immediately.

The IMF will control whether or not Turkey fully implements the performance criteria every three months.

Following the controls, the IMF is expected to give Turkey the other 300 million U.S. dollar instalments.

[05] TURKEY-PRESS SCAN

HURRIYET (LIBERAL)

WINTER HAS COME AT LAST
Turkey which experienced the hottest November and December of the recent years, will face cold and rainy days. Snow started in Thrace. The rain will fall to the west part of Turkey today, and will fall throughout Turkey tomorrow.

MILLIYET (LIBERAL)

UNREST IN ULUCANLAR PRISON
There was unrest in the Ankara Prison yesterday. A total of 39 guards and 35 people were taken hostage in the riot which was uprose by prisoner Bulent Aramaz and his friends. Five guardians and one prisoner were injured in the end of the riot while 17 prisoners were sent to other prisons.

SABAH (LIBERAL)

INTERROGATION IN JUSTICE MINISTRY
Hikmet Sami Turk, the Justice Minister, launched an interrogation within the framework of his ministry regarding the developments about the extradition of Alaattin Cakici, the notorious mafia boss. Turk said that most of the Cakici case occured before his term in office. Turk said, ''I have charged three justice inspectors. They will investigate the procedures which were followed before my term in office. If there is a neglience, they will revail it.''

CUMHURIYET (LEFT)

CHIEF PROSECUTOR SAVAS: ''OCALAN SHOULD BE
HUNG WITHOUT WASTING TIME''
Vural Savas, the Supreme Court Republican Chief Prosecutor, said that Abdullah Ocalan, the head of the terrorist organization, should be hung without wasting any time. Savas said, ''although we have the opportunity to hang this man, we postpone it. As long as we keep on waiting, our soldiers will die and get injured. Regardless of the abolishment of the capital punishment, the PKK will continue its terrorist activities.''

RADIKAL (LEFT)

PREFABRICATED HUTS WORSE THAN TENTS
The quake survivors who got used to living in the tents, said that they face difficulties in moving to the prefabricated huts which do not have electricity and water infrastructure. The quake survivors struggle not to settle down in these prefabricated huts while the officials try hard to evacuate the tents.

TURKIYE (RIGHT)

ZAMAN (CONSERVATIVE)

The government said that it transfered the ownership of these five banks to the Central Bank because the financial structures of these banks deteriorated. The government appointed new administrators to these banks.

YES TO EU BUT...
Those who support and those who oppose to Turkey's European Union (EU) candidacy started to become clear. The conservative side which did not welcome the union a short time ago, started to say 'yes' to the EU. However, those who said they were modern and western, started to oppose to the union. The sensitive part in the Islamic world accepts the EU within the framework of democracy.

[06] STATE MINISTER ONAL STAGES A PRESS CONFERENCE: - ''WE HAVE STARTED A RECONSTRUCTION AND REFORM PROGRAMME IN ECONOMY''

Onal together with Selcuk Demiralp, the Undersecretary of the Treasury, and Gazi Ercel, the Chairman of the Central Bank, staged a press conference to brief journalists about the Stand-by Agreement signed with the International Monetary Fund (IMF).

Addressing the press conference, Onal said that they targeted to enter the new century without inflation, and added that every one should do their utmost to reach this target.

Referring to the transfer of the five banks, Onal noted, ''only administrations of these banks have been changed. All the shares of the banks have been transfered to the Savings Account Insurance Fund of the Central Bank. They will continue their normal activities under their new administrations and under the ownership of Savings Account Insurance Fund of the Central Bank, without any limitation. New directors of the banks have been appointed.''

Onal added that 45 of 61 budget funds would be liquidated till August, 2000, and most of the non-budget funds would be liquidated till June, 2000.

[07] STATE MINISTER ONAL STAGES A PRESS CONFERENCE

Onal together with Selcuk Demiralp, the Undersecretary of the Treasury, and Gazi Ercel, the Chairman of the Central Bank, staged a press conference to brief journalists about the recent developments in economy and the Stand-by Agreement signed with the International Monetary Fund (IMF).

Addressing the press conference, Onal said, ''the IMF which found our policies positive, has pledged to support us.''

Onal told reporters, ''we believe that banking sector which came to a deadlock as a result of recent policies, would begin to carry out their classical functions with the latest arrengements in the banking sector.''

Onal underlined that the government was determined to make overall legal and financial arrangements to have a modern finance system.

He noted, ''we will attribute importance not only to the consolidated budget, but also to the balance of consolidated public sector budget. We aim at disciplining spendings by providing general balance in public as a whole. The consolidated budget is a part of it.

To this end, the Finance Ministry will issue a circular next month for a 2 percent deduction in budget appropriation.''

Onal added that 45 of 61 budget funds would be liquidated till August, 2000, and most of the non-budget funds would be liquidated till June, 2000 within framework of the transparency principle in the budget.

Referring to the Banking Law which was recently passed from the parliament, Onal said that the most important feature of this law is that it removed all the political intervention and influence on the banks.

Onal noted that the law aimed at fortification of the public control over the banks and widened the authority of the institution which will audit the banks on behalf of the state.

This institution will start its works till August 2000; Onal stated.

Onal stressed that the government planned to transfer a banking system, most of the problems of which were solved, to the Banking Arrangement and Audit Council.

It was necessary to have a serious political determination to take decisions to reduce the existing problems of the banks, Onal emphasized.

They had indicated their determination by the new arrangement in the banks which was declared yesterday, Onal pointed out.

Onal recalled that they had to take some tax measures to ensure the public revenue-expenditure balance in an economy which experienced two massive earthquakes.

Their determination to ensure a disciplined public sector was indicated by the tax law which was passed from the parliament, Onal noted.

Onal continued, ''by this law, the real revenues of the public domestic borrowing instruments which are subject to taxation, will be at least 25 percent. This real revenue is 'the least' one. If we take into consideration the nominal interest rates of various tenders, this revenue can increase to 40 to 45 percent after the tax.''

''The basic principle of our government is to collect the costs of the restructring and reform process equally from all the sectors of the society. This tax should be considered within the framework of this basic principle.''

[08] STATE MINISTER ONAL STAGES A PRESS CONFERENCE

Onal together with Selcuk Demiralp, the Undersecretary of the Treasury, and Gazi Ercel, the Chairman of the Central Bank, staged a press conference to brief journalists about the recent developments in economy and the Stand-by Agreement signed with the International Monetary Fund (IMF).

Addressing the press conference, Onal noted, ''we are determined to eradicate the vicious circle in the public finance. Turkish economy has been suffering high rates of inflation for years. High inflation reached 91 percent in 1997 in the Wholesale Price Index (WPI), and 100 percent in the Consumer Price Index (CPI). Economy was on the threshold of hyper- inflation. Within framework of the Staff Monitoring Programme signed with the IMF in 1998, a considerable diminish was recorded in the inflation. It has become stable since April, 1999. As you know, long-standing high inflation prevents full usage of the growth potential of the economy, and causes permament diminish in real growth rate. As a result of our measures, the annual increase in WPI is expected to be about 57-58 percent, and that of CPI to be about 64-65 percent. Our target is 20 percent in WPI, and 25 percent in CPI next year.''

Onal noted, ''the average annual growth was 3.3 percent in the Gross Domestic Product (GDP) in the past 12 years. Having regard to the rate of increase of population, it is inevitable for Turkey to remain behind the other countries if this growth rate continues.''

Referring to the public finance, Onal said that the privatization target of year 2000 is 7.6 billion U.S. dollars.

Onal said, ''the burden of the foreign debts will increase. We target a foreign borrowing which is more than five billion U.S. dollars in 2000, except the IMF resources. We will give priority to the varified borrowing administration policies like the issuance of the floating rate bonds.''

The basic principle of the economic programme is to provide a full transparency in the decisions to be taken and in the implementations; Onal noted.

Onal stated that they tried to inform on time and without making any discrimination, the public opinion about the developments in the recent five months.

They will also continue this sensitivity and pay attention to inform the public opinion on time, Onal stressed.

Onal continued, ''the government is concious that the policies which are pursued until today led to stagnation of the growth potential of economy in the long-term and that they caused lasting damages in the production sector.''

''With this consciousness, we have launched a restructuring and reform programme covering the issues which were postponed for many years,'' Onal added.

[09] STATE MINISTER ONAL STAGES A PRESS CONFERENCE

Onal together with Selcuk Demiralp, the Undersecretary of the Treasury, and Gazi Ercel, the Chairman of the Central Bank, staged a press conference to brief journalists on the recent developments in economy and the Stand-By Agreement signed with the International Monetary Fund (IMF).

Addressing the press conference, Onal noted that cash transfer was appropriated to the 2000 year budget to meet these banks' losses that would caused by subsidized credits.

Onal said, ''in accordance with the programme, consolidated public sector basic surplus including the consolidated budget, four main non-budget funds, eight public economic enterprises, unemployment insurance fund, and three social security organizations, will be 4.5 quadrillion Turkish Liras in the year 2000. This amount is 3.6 percent of the Gross National Product. Within this scope, most of the budget funds and non-budget funds will be liquidated in the first half of next year.''

Onal added, ''the main target of the reform which would be brought onto agenda next period, will be redefinition of public's role in the economy, and further strengthening of the existing infrastructure for the market economy. We expect a serious increase in foreign capital investments after these changes. As a result of the increase espacially in infrastructural investments, Turkish economy will gain a considerable dynamism in coming years. The main target of our programme is to provide budget discipline in public sector, and to provide a permament non-interest surplus together with the decrease in real interests..''

[10] STATE MINISTER ONAL STAGES A PRESS CONFERENCE

Noting that there wouldn't be any surprising development about the issue, Onal said all the things to be fulfilled in future, would be completely about the rehabilitation.

State Minister Recep Onal answered the questions of reporters during the press conference he staged together with Treasury Undersecretary Selcuk Demiralp and Central Bank Governor Gazi Ercel.

When asked what kind of activities would take place in future concerning the banking sector, Onal said, ''when we observed the banking sector, we saw that there were five banks facing problems, and we took these measures. It has been completed with today's figures for the time being. From now on, all of these will be completely about rehabilitation. There is not any remaining points to take a decision for next period concerning the transfer of five banks to the Savings Deposit Insurance Fund of the Central Bank. There won't be any surprising development about the issue.''

''All of the decisions that can be taken at this stage have been taken. The decisions in future will be about the recovery of the system,'' he said.

Responding to another question, Onal said, ''the banks operation was not late, it was launched just in time.''

Onal said they needed specific data, and they decided to make this operation after the final results about the financial structures of the banks.

When asked whether the banks were emptied, Onal said, ''the issue concerns the judgement. We are now only interested in the health of system and recovery of financial structure.''

Stating that the banks had problems stemming from financial system, global crisis and high inflation, Onal said the high inflation led to shrinkage especially in bank assets and bank capital resources.

Noting that the economic programme brought several results about the problems in the system, Onal said, ''when the problems about the economic programme are mentioned, it is real that the public which could not realize any more borrowing orientated the banks toward languor, and withdrew them from the real banking activities. Our banks will return to their real duties and regain the opportunity to finance the real sector with appropriate conditions as long as the public enters less into these markets.''

When asked whether the off-shore banks that belonged to those banks made use of the deposit assurance, Onal said, ''I want to emphasize that the banks which were transferred were not closed. The boards and owners of these banks were changed. I mean to say that these banks continue to work with same officials. The off-shore banks are not included in the scope of our deposit assurance.''

Responding to a question, Central Bank Governor Gazi Ercel said, ''this operation was a part of our economic programme.''

[11] STATE MINISTER ONAL STAGES A PRESS CONFERENCE

State Minister Recep Onal answered the questions of reporters during the press conference he staged together with Treasury Undersecretary Selcuk Demiralp and Central Bank Governor Gazi Ercel.

When asked what he meant to say with the rehabilitation in banking system, Onal said, ''the latest revisions in the Banks Law brought one step forward the the arrangement made in June, and brought all of the European Union (EU) standards into Turkey.''

Noting that they had still many things to fulfil especially about deposit insurance, Onal said that the Treasury and the Central Bank were carrying out technical works to this end.

Stressing that they would continue to implement the 100 percent deposit insurance guaranty till the institution started to work, Onal said the banks would insure the deposits when the deposit insurance was revised, and this would regulate the competition among the banks to collect sources.

Onal said banks would start working in accordance with the EU standards, the defects in the system would be removed and the competition would bring productivity when those works were completed.

Responding to a question, Central Bank Governor Gazi Ercel said there was still a 1.1 billion U.S. dollars source in the Savings Deposit Insurance Fund.

Recalling that the money in the fund was created by the banks, Ercel said the money would be used for the health of the system.

Responding to a question about the ''programme for employment structure'' for the next three-year period, Onal said that the programme would actually aim at realizing the dynamism of the real sector and encouriging the real sector although it seemed as it was a monetary and financial programme.

Responding to another question, Onal said, ''in accrodance with the letter of intenet submitted to the International Monetary Fund (IMF) and the stand- by deal, the rate of increase in salaries of workers will be 25 percent.''

[12] LETTER OF INTENT SUBMITTED TO IMF

Following is the letter of intent submitted to the IMF on September 29, 1999:

1. The earthquake that rocked Turkey on the night of August 17 has been devastating, both in terms of human life and physical infrastructure, as it hit the most populous and industrial part of the country. The death toll has risen to over 15,000, with over 25,000 injured. Between 115,000 and 200, 000 housing units and business premises were damaged or destroyed, and around half a million people were left homeless. Numerous schools, health facilities, roads, bridges, water pipes, power lines, phone lines, and gas pipelines have been severely damaged. These numbers speak for themselves about the extent of the tragedy.

2. The outpouring of spontaneous, prompt, and generous support from the international community has been heartwarming and has gone a long way in alleviating the generalized sense of fear, loss, and bereavement. But the extent of the damage calls for even more support, which we hope will continue to be provided by friends of Turkey all over the world. Preliminary estimates suggest that official external financing to cover reconstruction costs, including from the World Bank, could reach 2.5–3 billion U.S. dollars. To supplement these resources, which are likely to become available only gradually over the next 15 months, and to help the government meet its immediate financing needs arising from the earthquake without seriously depleting its resources, we request a purchase in an amount equivalent to 361.5 million SDR (equivalent to 37.5 percent of Turkey's quota) under the Fund's guidelines for emergency assistance related to natural disasters. This purchase will help meet our immediate foreign exchange needs stemming from the crisis, ease potential pressures on the central bank's international reserves, and contribute to bolstering confidence in the currency.

3. This tragic event will not derail our macroeconomic strategy, nor shall we allow it to jeopardize the hard-won disinflation achievements realized so far. Furthermore, the government intends to continue to work closely with the Fund on reaching agreement before the end of this year on a strong disinflation program that could be supported by a three-year SBA. In the meantime, our economic policies will continue to be monitored under the Staff Monitored Program (SMP) in place since mid-1998.

4. In early 1998, the Turkish government embarked on a disinflation program centered around fiscal adjustment, structural reforms, and tight income policies. Significant progress was achieved in 1998, with the primary surplus of the central government rising to over 4 percent of GNP (excluding privatization receipts) and WPI inflation dropping to below 50 percent in early 1999, from more than 90 percent one year earlier. Further progress was hampered, however, by the fallout from the Russian crisis in mid-summer 1998, political uncertainties, and a significant deceleration in economic growth. Moreover, some fiscal relaxation in the run-up to the elections and the weakening of economic growth have led to a reduction in the primary surplus in the first half of 1999, while higher international oil prices have impeded further progress on inflation.

5. The majority government that took office last June announced from the outset its intention to reverse these slippages, set the disinflation program on a stronger and more durable footing, and revive growth on a sustainable basis. Accordingly, it set as an immediate objective for the balance of 1999 the containment of inflation to the range of 50–55 percent. This was to be achieved by realizing a primary surplus for the central government of at least 2.1 percent of GNP (against a baseline about 1 percent of GNP lower), and by adopting supportive monetary, exchange rate, and incomes policies. This, together with the formulation of an ambitious structural reform agenda and the setting of a tight timetable for its implementation, was designed to prepare the ground for launching a major assault on inflation in the following year, with the aim of bringing it to single digits by end-2001. Persistent high inflation during the last 20 years has limited economic growth and increased social tensions and inequality in income distribution. We are determined to reduce inflation, which is itself crucial for achieving a better economic balance across different components of society, and is a major condition not just for financial stability but also for social stability. At the same time, in framing its disinflation policies, the government will endeavor to protect low-income groups, and distribute costs across all groups, thus promoting social harmony. Economic impact of the earthquake.

6. The August 17 earthquake is the most devastating natural disaster that Turkey has suffered in the past 60 years. In addition to the human suffering, it has inflicted serious damage on the economy. While a full assessment is yet to be completed, preliminary estimates show the following:

-Damage to infrastructure (roads, schools, health facilities, bridges, water pipes, power lines, phone lines, and gas pipelines) could be in the range of 0.5–1.0 billion U.S. dollars (0.25-0.50 percent of GNP);

-Damage to productive capacity resulting in a loss in value added for the remainder of 1999 equivalent to 0.5 to 1 percent of GNP; on this account, despite the signs of recovery of economic growth during the second quarter of this year, we now project a decline in GNP this year of around 1.5 percent;

-Extensive damage to buildings, with an estimated 115,000–200,000 housing units and business premises completely destroyed or requiring repair. Although assessing the value of this loss is difficult, the cost of these destroyed and damaged buildings is estimated over 2.5 billion U.S. dollars (1.25 percent of GNP).

-Indeed, the loss is likely to be even greater in light of the continuing aftershocks.

7. The earthquake will also have implications for our balance of payments. We expect a weakening of the external current account in the order of 0.3–0.5 percent of GNP this year relative to the baseline (resulting in a deficit of about 0.8–1.0 percent of GNP), owing to higher imports, lower exports, and lower tourism receipts. In addition, the earthquake has led, at least in the short run, to increased capital account volatility, with an immediate loss of some

1.3 billion U.S. dollars of capital outflows in the first week after the earthquake, though these flows have partly reversed following the announcement of the availability of international official support and the strong policy response adopted by the government.

Policy response Government plans to deal with the aftermath of the earthquake.

[13] LETTER OF INTENT SUBMITTED TO IMF

Following is the letter of intent submitted to the IMF on September 29, 1999:

8. The government has taken a number of steps to address the most immediate economic needs of the population. A draft bill requesting the appropriation of 500 trillion Turkish Liras (TL) (0.6 percent of GNP) has been sent to parliament. In addition to immediate disaster relief, these additional expenditures will include higher transfers and personnel costs (100 trillion TL), infrastructure repairs (200 trillion TL), and housing and other related expenses (200 trillion TL). We have also introduced measures to alleviate the debt burden of enterprises, farmers and individuals affected directly by the earthquake. To this end the three state banks will reschedule amortization and interest payments coming due over the next 12 months over a three-year period. These banks will also provide investment and working capital to small- and medium-term enterprises at preferential rates. The cost of this program will be borne by the budget, and we will ensure that this relief is well-targeted to those firms and individuals particularly afflicted by earthquake-related losses. Temporary tax relief has also been provided to affected individuals and enterprises. Altogether, the fiscal cost of the earthquake for this year is provisionally estimated at 750–800 trillion TL (about 1 percent of GNP), of which 500 trillion TL is additional expenditures, and the rest is revenue losses from lower output and tax relief.

9. Based on preliminary damage reports, the World Bank's Marmara Earthquake Assessment Report estimates the fiscal cost of the earthquake including housing and infrastructure rehabilitation, revenue loss and credit programs, social assistance, disaster mitigation at approximately 1.7–2.3 billion U.S. dollars for 2000. The government is seeking external assistance, including from the World Bank and the Fund, to help cover the fiscal and balance of payments costs of the earthquake in 1999 and 2000. All such assistance will be used either directly for earthquake-related expenses or to replenish foreign exchange reserves following earthquake-related losses, and the government will ensure that there is full transparency and public accountability in the use of earthquake assistance. Fiscal and macroeconomic implications

10. The earthquake has not reduced our resolve to pursue sound fiscal and financial policies, and to proceed speedily with our structural reform agenda. At end-August, we sent to parliament a tax package which is expected to raise revenues by about 0.4 percentage point of GNP for the remainder of this year. The government is committed to securing passage of this package by parliament in the very near future. The package includes:

(i) an extraordinary surcharge on personal and corporate income taxes;

(ii) a one time doubling of the motor-vehicle tax; and

(iii) a special temporary tax on the use of mobile telephones. We will also submit to parliament a bill allowing individuals to reduce the duration of their military service in exchange for a payment to the government. This measure is expected to yield about 0.3 percent of GNP in 1999 and 2000. In addition, the withholding tax on repurchase agreements and deposits has been increased.

11. Moreover, we intend to implement additional revenue and expenditure measures sufficient to bring the primary surplus of the central budget (excluding privatization receipts) to 900 trillion TL (1.1 percent of GNP)—short of the targets set in the SMP by around 1 percentage point of GNP. The overall deficit this year is projected at 11.7 percent of GNP. This deviation, however, is expected to be financed mainly by external resources, and to be reflected partly in a widening current account deficit. Taking also into account that the Turkish economy is currently working below capacity, the inflationary consequences of the earthquake should be modest. Thus, in spite of recent increases in international oil prices, we do not expect a major deviation of inflation with respect to the target range of 50–55 percent for the WPI indicated in the SMP.

12. Monetary and exchange rate policy has been managed during the third quarter of this year in line with our commitments under the SMP, with the NDA quantitative benchmark for September likely to be met. Looking ahead, we will continue to manage monetary and exchange rate policies prudently, with the aim of containing the resurgence of inflationary pressures, maintaining competitiveness and stemming any pressure on reserves.

13. Before the earthquake struck, we had made considerable progress in structural reform. First, a constitutional amendment allowing international arbitration in contracts involving the state and foreign investors—which was the major bottleneck facing the government's ambitious privatization program—has been approved. The passage of this constitutional amendment will, among other things, allow quick progress in transferring operating rights for power plants and distribution grids and in attracting vital foreign investment in the energy sector. We now intend to move speedily in enacting all the necessary supporting legislation to allow privatization in energy and telecom sectors. Second, a long-awaited new banking law, establishing an independent regulatory and supervision agency, has been passed. This new law will strengthen bank regulation and supervision and raise supervision standards in line with international norms. In coming weeks and months, the government will take specific steps to strengthen the financial position and institutional structure of the banking system, through a comprehensive plan of action. The limit on the banks' open foreign exchange position has been lowered from 30 percent to 20 percent (effective September 30, 1999).

14. But the most telling sign of the government's resolve to forward structural reform has been the recent approval of the social security reform, which was completed soon after the earthquake. The passage of this new law is a major breakthrough. The deficit of the social security system had grown rapidly in recent years and was set to reach almost 20 percent of GNP by the middle of the next century. This new law:

(i) introduces a minimum retirement age of 58/60 (female/male) for new entrants to the system and 52/56 for current contributors, with a ten-year transition period;

(ii) increases the minimum contribution period for new entrants to SSK (the largest of the three existing systems) from 13.9 years to 19.4 years, with a lower, but still sizable, increase for current contributors, and also increases in the ceiling on contributions;

(iii) raises gradually the reference period for calculation of pensions to the employee's entire working life; and

(iv) establishes an automatic indexation of pension benefits to the CPI. According to our estimates, the reform will not only prevent the trend deterioration in the accounts of the pension funds, but bring about a steady and sizable improvement in the social security balances: over the next ten years, instead of increasing by some 2.5 percent of GNP, the deficit is projected to fall by 1 percent of GNP.

15. Our policy objectives for 2000 and beyond are to achieve rapid disinflation, promote sustainable growth of output and employment, and strengthen the structure of the external capital account to reduce the economy's vulnerability. We intend to achieve these goals through a macroeconomic and structural adjustment program that could be supported by a stand-by arrangement from the Fund.

16. In the meantime, the government will continue to cooperate with the Fund in the context of the existing SMP. The government does not intend to introduce new or intensify existing restrictions on the making of payments and transfers for current international transactions, introduce new or intensify existing trade restrictions for balance of payments purposes, or enter into bilateral payments agreements which are not consistent with Article VIII of the Fund's Articles of Agreement.

[14] FOREIGN DEBT PAYMENTS - 12.1 BILLION U.S. DOLLARS PAID IN FOREIGN DEBT SINCE JANUARY 1, 1999

The Central Bank data shows that the Treasury paid 10 billion 410.56 million U.S. dollars; the Central Bank repaid 438.94 million U.S. dollars; the Ministry of National Defense and the Defense Industry paid 829.15 million U.S. dollars and the Defense Fund paid 59.61 million U.S. dollars in foreign debt between January 1 and December 22, 1999. Meanwhile, the International Monetary Fund (IMF) was repaid 401.97 million U.S. dollars.

Meanwhile, a total of 561.94 million U.S. dollars of foreign debt was repaid between December 1 and 22.

[15] FOREIGN EXCHANGE RESERVES OF CENTRAL BANK INCREASE TO 23.9 BILLION US DOLLARS

The Central Bank data shows that the foreign exchange reserves, which climbed by 923 million U.S. dollars between December 10-17, increased to 23 billion 992 million U.S. dollars as of December 17.

The Central Bank's foreign exchange reserves were 23 billion 69 million U.S. dollars on December 10.

Meanwhile, according to the 3 December-based statistics, Turkey's total international gross reserves increased 242 million U.S. dollars to 36 billion 277 million U.S. dollars between November 26 and December 3.

The international gross reserves of Turkey were 36 billion 35 million U.S. dollars on November 26.

As of 3 December, Turkey's international reserves were composed of 1 billion 11 million U.S. dollars in gold reserves; 22 billion 639 million U.S. dollars in the Central Bank's foreign exchange reserves; and 12 billion 626 million U.S. dollars in the commercial banks' foreign exchange reserves.

[16] U.S. CONGRESS ALLOWS JOINT PRODUCTION OF ARMOUR-PIERCING 25 MM BULLETS IN TURKEY

Defense industry experts in Washington D.C. told the A.A correspondent that permission for joint production of armour-piercing 25 mm bullets was an important development.

Meanwhile, final contract between the Alliant-Tech Systems and MKEK is expected to be signed within two months.

In accordance with the contract which is expected to be nearly 28 million U.S. dollars, millions of 25 mm bullets are planned to be produced in Turkey.

The bullets will be used by armoured vehicles moving on a caterpillar tread, produced by the FNSS, a Turkish-American joint organization.

The armour-piercing bullets are also being used as an anti-aircraft.

The Norwegian government agreed to sale Penguin missiles which are being used in Seahawk helicopters, to Turkey.

[17] TURKEY-GEORGIA JEC SECOND TERM PROTOCOL SIGNED

Devlet Bahceli, the Deputy Prime Minister and Minister of State, and Bakur Gulua, the Georgian Agriculture and Food Minister, signed the protocol.

The protocol envisages establishment of a free area between Turkey and Georgia, purchase of electrical energy from Georgia, improvement of relations in the field of contractorship, and further cooperation in agricultural, industrial and mining sectors.

Husnu Yusuf Gokalp, the Agriculture and Rural Affairs Minister, and Kursat Tuzmen, the Undersecretary of Foreign Trade, were also in attendance at the signature ceremony.

[18] CENTRAL BANK GOVERNOR: ''WE PURIFIED THE SYSTEM''

Addressing the annual regular meeting of the Ankara Chamber of Industry (ASO), Ercel said the banks operation was launched secretly as some rumours could totally destroy even a concrete bank or a company.

Ercel said the operation was in connection with the monetary and currency policy of the Central Bank, and the operation stemmed from the determination in not endangering the programme.

Stressing that such rumours should not be allowed to remove the question marks like 'is there another bank after these?', Ercel said they removed all question marks with the latest operation.

''Currently, the Central Bank has a 23.6 billion U.S. dollars foreign exchange stock, and 116 tons of gold reserve. This indicates the power. We will rehabilitate these banks. There is a 1.1. billion U.S. dollars in the Savings Deposit Insurance Fund. I think we will not need this. Actually, these banks do not need liquidity. We have the money equivalent to assets of the banks,'' he said.

Ercel emphasized that the money-currency policy of nthe Central Bank was not a stability programme but an anti-inflationist programme.

Noting that a 5.5 percent growth rate was foreseen for the year 2000, Ercel said they targeted to increase production and employment in agriculture sector, and increase the real income in this sector.

Stressing that the many foreign funds would flow into Turkey after Turkey's European Union (EU) candidacy, Ercel said, ''firstly, short-term funds will flow and later long-term funds will come to Turkey. At last, direct foreign capital will come to Turkey.''

[19] CHHIBBER, REPRESANTATIVE OF WORLD BANK TO TURKEY: - ''AMOUNT OF CREDIT WHICH WILL BE GIVEN TO TURKEY BY WORLD BANK, WILL INCREASE UP TO 3 BILLION U.S. DOLLARS''

Addressing a press conference in Ankara, Chhibber described the programme which was announced by the government, as a very strong programme.

He underlined that implementation of the financial programme in year 2000 would bring forth a great success.

Chhibber said that they would come to Turkey in January again to finalize the negotiations as soon as the World Bank approves it.

He stressed that they fully supported the historical programme of the government.

Noting that the World Bank would give 3 billion U.S. dollars of bank loan under the titles of economic reform and financial sector,

Chhibber said that the details of the bank loan would be announced in January.

Ajay Chhibber also added that financial aid worth of 757.5 million U.S. dollars which was signed on November 23, was not included in the 3 billion U.S. dollars package.

[20] CHHIBBER, REPRESANTATIVE OF WORLD BANK TO TURKEY: - ''FINANCIAL PROGRAMME IN YEAR 2000 WILL BRING FORTH A GREAT SUCCESS''

Turkish government's new economic programme with a bank loan of 3 billion U.S. dollars.

Addressing a press conference in Ankara, Chibber pointed out that the implementation of the financial programme in year 2000 would bring forth a great success.

Noting that the World Bank would give 3 billion U.S. dollars of bank loan under the titles of economic reform and financial sector,

Chhibber said that the details of the bank loan would be announced in January.

Indicating that they would support the economic reform in Turkey with the economic reform credit, Chhibber they would also give the financial credit to support these reforms.

Recalling that Turkey has begun privatization in the energy field, Chhibber said that the privatization in the agricultural sector would start soon.

Chhibber expressed profound satisfaction over recent progress in the banking sector, and described it as very positive and important.

He added they thought that the banking sector would become more healthy and more successful.

Chhibber underlined that the programme which was announced by the government, was a very strong programme.

He noted that privatization programme would be more successful compared with the past, adding that the interest rates were expected to reduce in year 2000.

Chhibber also emphasized that Turkey would fulfil economic criteria of the European Union (EU) by implementing the programme.

When asked about transfer of five banks, Chhibber noted that the timing of the transfer was perfect.

[21] CHHIBBER, REPRESENTATIVE OF WORLD BANK TO TURKEY: - ''TURKISH GOVERNMENT'S REFORMS ARE VERY POWERFUL''

Chhibber said they trust the government because of its past achievements and believed that the government is able to materialize the economic reforms.

At a press briefing, Chhibber told reporters that the Turkish economy has needed such a radical reform for a very long time. The financial programme, privatization and structural reforms are very important he noted. Chhibber also added that all the structural reforms cannot be completed in the first year, but important steps could be taken during this time.

The telecommunication and energy law will be discussed in the first months of 2000, Chhibber reminded and said the two laws were closely related with each other.

When asked if the Japanese government would support these reforms by giving credits, Chhibber said he didn't exactly know the Japanese government's plans but added that if the IMF and the World Bank support the Turkish government's programme, other world countries will also extend their support.

The World Bank, in addition to the two credits, will later give another two credits to Turkey which will altogether add up to 3 billion U.S. dollars, he reminded.

This 3 billion U.S. dollars amount will be used in three years. The World Bank is giving the credit to the government, not directly to the banks, and the government can use the credit for various activities including using it for the banks, Chhibber explained.

[22] TURKEY-GEORGIA

Addressing the signature ceremony for the Turkish-Georgian JEC Second Term Protocol, Devlet Bahceli said they reached a consensus to increase the commercial relations between Turkey and Georgia in accordance with the principle of mutual interests and balance.

Bahceli said Turkey would extend every kind of technical information and experience in free areas to Gerogia.

Bahceli stated that the memorandum of understanding, which would impose a reciprocal supervision on textiles and ready-to-wear products of Georgia, would be signed in the shortest time frame within the framework of the Customs Union deal between Turkey and the European Union (EU).

Devlet Bahceli said Turkey would continue to purchase electricity from Gerogia with annual agreements as long as it was able to give electricity with reasonable quality and stndards.

''Our two countries will also cooperate in the Baku-Tbilisi-Ceyhan oil pieline and Turkmenistan-Georgia-Turkey natural gas pipeline projects,'' he added.

[23] CHIEF OF IMS'S TURKEY DESK SAYS GOVERNMENT'S MACROECONOMIC AND PRIVATIZATION TARGETS ARE FEASIBLE

Cottarelli also said the transfer of the five banks debts to Saving Deposits Insurance Fund was a positive move.

Following the approval of the stand-by agreement between Turkey and the IMF, Cottarelli answered reporters' questions in a press briefing.

Political issues like Cyprus negotiations could not affect the stand-by programme, Cottarelli noted but declined to answer how much deviation from the economic targets would be tolerated by the IMF.

When asked to comment how long the coalition government would stay in power and how a government change would affect the IMF's stand-by programme, Cottarelli said there was always a risk of uncertainty in such issues but added that he didn't see much risk regarding the coalition government. The government looks very unified and this was also reflected in its actions in the last months, he said. Whichever government comes to power, the economic policies that need to be followed are the same, he also stressed.

The inflation rate aimed by the Turkish government is realistic and feasible and the IMF has full confidence that the government will succeed to reach these targets, he noted. Cottarelli also said privatization was a key factor for the success of the economic programme and stressed that transparency was essential in privatization.

The transfer of five banks to Savings Deposit Insurance Fund was a positive move and it was a part of the banking reform Turkey is trying to adopt, he said and added that a strong banking system was necessary for a successful economic programme.

When asked how the IMF's programme would be affected if Turkey fails to reach an agreement on Cyprus negotiations, Cottarelli stressed that the IMF was completely an economic institution and had nothing to do with politics.

[24] TURKEY MAKES CONSIDERABLE PROGRESS IN ADJUSTING TO EU LAW

Turkey, like other candidate countries, has to adjust to ''Acquis Communautaire'', the EU's law, in the framework of relations with the EU. Following are the 31 points included in the EU law:

''Free flow of capital, companies law, competition law, agriculture, fishing, transportation policy, tax policy and employment, energy, industry policy, small and medium scale enterprises, science and research, education, communication and information technologies, cultural policy, regional policy, environment, protection of consumers, cooperation in justice and domestic affairs, customs union, foreign relations, joint foreign and security policy, financial control, finance and budget laws, institutions and other areas.''

Turkey examined the sixty percent of the EU law which covers more than 100 thousand pages.

Turkey which applied to the EU for full membership for the first time in 1987 joined customs union in 1995 and it started to examine the EU law in these years. As of October 3, 1999, Turkey examined 1972 out of 3277 regulations.

In the first days of 2000, experts from the EU Commission will come to Turkey to carry out scanning activities.

[25] TRNC ECONOMY AND FINANCE MINISTER BAYRAM: ''ALL BANKS ARE UNDER CONTROL OF OUR MINISTRY AND CENTRAL BANK''

After the transfer of five banks to Savings Deposit Insurance Fund in Turkey, Bayram, in a written statement, said people should not pay attention to the speculative news that appear about this subject. He also noted that the general liquidity structure of the TRNC banking sector was not currently experiencing any problems.

''As of December 22, our Ministry, considering the sensitivity of our people about this issue, has been closely following the daily liquidity movements in cooperation with the Banks Union and the Central Bank,'' Bayram explained.

Yurtbank authorities in TRNC said they had no organic link with Yurtbank in Turkey and noted that there was a correspondent bank relation between the two banks.

[26] PANEL DISCUSSION ON ''TURKEY'S ECONOMY IN 2000-2001''

The first speaker of the panel which was held at Ankara University, Zafer Yukseler, the Research Director of the Central Bank said the stand-by agreement would help to change Turkey's domestic borrowings to foreign borrowings.

Yukseler said there would be an increase in agriculture in 2000. The economic growth would be about 4-5 percent by the decrease in real interest rates.

Mentioning the exchange rate and monetary programme, privatization and financial policies, Yukseler said that policies of supporting agriculture and public expenditure reform will come to agenda.

[27] PARLIAMENT ADOPTS TOURISM AND PUBLIC WORKS MINISTRIES' BUDGETS

Responding to questions of deputies in the parliament, Tourism Minister Erkan Mumcu said that the expectations from tourism didn't come true in 1999 due to the artificial security problem created and the earthquake disasters.

''We lost 5 billion dollars, this is more than the credit provided by the agreement signed with IMF and which will be valid for three years,'' he said.

Mumcu said that in the countries which earn an income 5-10 folds of the income Turkey earns from tourism, there is only one tourism undersecretariat having a personnel of 250 people. Mumcu stressed that there are 2,200 personnel employed in Tourism ministry.

''I propose closing the Tourism Ministry till the next financial year,'' Mumcu added.

A.A

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