Page 1 PROGRAM INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB5453 Operation Name RESTORING EQUITABLE GROWTH AND EMPLOYMENT PROGRAMMATIC DEVELOPMENT POLICY LOAN Region EUROPE AND CENTRAL ASIA Sector Central government administration (35%);Law and justice (25%);Sub-national government administration (20%);Health (10%);Other social services (10%) Project ID P112495 Borrower(s) REPUBLIC OF TURKEY Implementing Agency Undersecretariat of Treasury Inonu Bulvari, Eskisehir Yolu Emek Ankara Turkey 06530 Tel: (90-312) 204-6000 Fax: (90-312) 212-8550 hazine@hazine.gov.tr Date PID Prepared February 12, 2010 Date of Appraisal Authorization January 14, 2010 Date of Board Approval March 23, 2010 1. Country and Sector Background: Turkey is now passing through a transition from weathering the global financial crisis to re-establishing fiscal balance and sustainable, shared growth. The crisis has placed strains on Turkey’s economy and public finances. Manufacturing has been hard hit, with effects on unemployment and economic hardships at the household level. At the same time, fundamental strengths have kept Turkey on course to benefit from the global recovery. The first step to returning to growth is to move from crisis- related fiscal expansion to balance and avoid crowding out the private-sector led recovery. The second step is to reinvigorate the business climate reforms and human-capital investments that are central to Turkey’s long-term goals. 2. Operation Objectives: The program supported by the REGE-DPL focuses on the transition from managing the impact of the global crisis to fiscal consolidation and shared growth and aims to contribute to the following main objectives: (1) economic management; (2) PFM; (3) affordable universal healthcare and improved educational access; (4) employment; (5) improved investment climate; (6) increased financial intermediation, especially to SMEs. The proposed program supports all three of the CPS pillars, which are (i) improved competitiveness and employment, (ii) equitable human and social development, and (iii) efficient provision of high-quality public services 3. Rationale for Bank Involvement: The proposed operation forms part of the CPS covering FY2008-11. The CPS was endorsed by the Executive Board on February 28, 2008. Its goal is Page 2 for the Bank Group to partner Turkey in realizing the country’s development vision—fast and sustained growth with equity—through full integration with the Government’s development strategy. Accordingly, the CPS is shaped directly by Turkey’s Ninth Development Plan and by the Government Program: it aims to contribute to three of the Plan’s development pillars: (i) improved competitiveness and employment, (ii) equitable human and social development, and (iii) efficient provision of high-quality public services. 4. Financing: The loan will be financed by the International Bank for Restructuring and Development (IBRD). The borrower contribution is zero and total proposed amount is USD 1.3 billion. 5. Institutional and Implementation Arrangements: The proposed loan will follow the Bank’s disbursement procedures for DPLs. The untied finances will be disbursed against satisfactory implementation of the program and not tied to any specific purchases and no procurement requirements will be needed. Upon approval of the loan and notification by the Bank of Loan effectiveness, the Government will submit a withdrawal application. The IBRD will deposit the proceeds of the loan with the CBRT, which will form part of the official FX reserves at the request of the Undersecretariat of Treasury. The Government will utilize the proceeds of the loan in foreign currency for either foreign debt servicing or for crediting the local currency equivalent into the treasury single account for financing budgeted expenses. Prior to that, the borrower will pay a front-end fee amounting to [0.25] percent of the loan amount from its own resources. If, after deposit in this CBRT account, the proceeds of the loan are used for ineligible purposes (for example, for financing items imported from non-member countries or goods or services on the IBRD standard negative list), the IBRD will require the borrower to either: (a) return that amount to the account for use for eligible purposes; or (b) refund the amount directly to the IBRD, in which case the IBRD will cancel an equivalent undisbursed amount of the loan. 6. Benefits and Risks: With the stabilization of the Turkish economy, the proposed operation supports the Government’s focus on measures to return to fiscal balance in the medium term. The proposed operation supports the underpinnings of the government’s MTP, the key to this transition. Foremost among these are global health budgeting measures to rein in health spending and measures to curtail demand for more costly private health care. Also important is the continued implementation of the social security reform passed in 2008, key to maintaining long-term fiscal balance and thus confidence in the economy, and administrative reforms to social security. Third, public financial measures aim to improve fiscal control and transparency. There are four main risks to the program’s outcomes: (i) Global economic risk factors; (ii) Economic management risks which comes from the challenge to macroeconomic, especially fiscal, management in the face of the current slowdown; (iii) Political risks which relate to continuing domestic political differences and the possibility of declining public support for reforms due to the impact of the crisis; (iv) social risks of high unemployment and increased poverty, especially among young people. 7. Poverty and Social Impacts and Environment Aspects: The policies and reforms of the government in the REGE-DPL program are expected to have, overall, positive distributional Page 3 and poverty reduction impacts in Turkey. The current REGE-DPL operation has dual overarching themes; crisis response and transition to a long-term sustainable growth path. The crisis response measures supported by the operation mitigate the worsening in demand conditions and tightening global liquidity through fiscal and monetary measures as well as employment promoting measures, including temporary ones. The second set of measures focuses on the structural reform agenda, is longer term in nature, and supports long-term sustainable growth. The reforms supported by the proposed operation are not likely to cause significant effects on the country’s environment or natural resources. 8. Contact point Contact: Mark Roland Thomas Title: Lead Economist Tel: 5242+8359 / 90-312-459-8359 Fax: 5242+8500/ 90-312-446-2442 Email: mthomas1@worldbank.org Location: Ankara, Turkey (IBRD) 9. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: pic@worldbank.org Web: http://www.worldbank.org/infoshop