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The World Bank

FOR OFFICIAL USE ONLY

Repor No. 9342

PROJECT COMPLETION REPORT

TURKEY

SECOND AGRICULTURAL CREDIT PROJECT(LOAN 2318-TU)

FEBRUARY 12,1991

Agriculture Operations LivisionCountry Department IEurope, Middle East and North Africa Region

This documeLt has a restricted distributioa and may be used by recipients only In the performance o-ftbeir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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WEIGHTS AND MEASURES

1 kilogram (kg) - 2.20 pounds1 metric ton - 1.000 kilograms

1 metric ton - 0.98 long ton

1 meter (m) - 1.09 yards1 kilometer (km) - 0.62 mile

1 hectare (ha) - 2.47 acres

1 decare - 0.1 ha - 0.25 acre1 square kilometer (km2) - 100 ha - 0.386 square mile

1 liter (1) _ 0.264 gallon

ABBREVIATIONS AND ACRONYMS USED

ACAP Agricultural Credit and Agro-Industries Project

AEAR Agricultural Extension and Applied Research Project

AP Action ProgramFAO Food and Agriculture Organization of the United Nations

FAO/CP FAO/World Bank Cooperative ProgramIAEE Igdir-Aksu-Eregli-Ercis Irrigation ProjectMAFRA Ministry of Agriculture, Forestry and Rural Affairs

MIS Management Information SystemSACP Second Agricultural Credit ProjectSAR Staff Appraisal ReportSEE State Economic EnterpriseTCZB Turkiye Cuinhuriyeti Ziraat Bankasi (Agricultural Bank of Turkey)

TKK Agricultural Credit CooperativesTZDK Agricultural Supply OrganizationWB World Bank

FISCAL YEAR

Government of Turkey - January 1 to December 31

TCZB - January 1 to December 31

World Bank - J3uly 1 to June 30

FOR OFFCAL US ONYTHE WORLD SANK

W.shington. D.C. 20433U.S.A.

Oik. of Ov.cutcv.G.mvOpmalmm Ivulmtntn

Feiruary 12, 1991

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECTt Project Completion Report on TURKEYSecond Agricultural Credit ProJect (Loan 2318-TU)

Attached, for information, is a copy of a report entitled ProjectCompletion Report on Turkey - Second Agricultural Credit Project (Loan2318-TU)" prepared by the Europe, Middle East and North Africa RegionalOffice. This project has not been audited by the Operations EvaluationDepartment at this time.

Attachment

This document has a rstricted distribution and may be used by recipients only in the performanceor their official duties. Its contents may not otherwise be disclosed without World Bank aulhofintion.

FOR OMCVL4 USE ONLY


TURKEY


Table of Contents

Page No.

' PFEFsACE i

EVALUATION SUMKARY jjj

pART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE

A. Project Identity 1B. Background 1C. Project Objectives and Description 2

- Project objectives 2- Project description 2

D. Project Design and Organization 3- Design 3- Organization 3

E. Project Implementation 4- Loan effectiveness and project start-up 4- Implementation schedule 4- Credit program 4- Institutional aspects 5- Procurement 6- Project costs 6- Disbursement 6- Loan allocation 6- Covenants 7

F. Project Results and Impact 7-Project objectives 7-Physical results 7- Institutional impact 8-Financial impact b

G. Project Sustainability 10H. Bank Performance 10I. Borrower Performance 11J. Project Relationships 11K. Consulting Services 12L. Project Documentation and Data 12

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank ̂uthorization.

Table of contents (Cont'd) Page No.

PART IIs PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ............... 13

PART III: STATISTICAL INFORMATION ................................ 15

Tables.1. Rela:.ed Bank Loans and Credits ........................ 152. Basic Data ................ ................ . 16

Loan Disbursements .................................... 174. Project Costs ......................................... 18S. Project Financing .................................... 196. Pro"ect Results .................. ... ........... 207. Status of Covenants .. ..... ..... . .. ... 218. Staff Input and Mission Data .......................... 228a. Staff Inputs ................................... ... 2 39. TCZB - Loan Collection Performance 1980-88 ............ 24

ANNEX 1

Tables:1. TCZB: Comparative Balance Sheets 1984-88 252. TCZB: Comparative Income Statements 1984-88 263. TCZBs Key Financial Indicators 1984-88 274. TCZBs Disbursement of Loans to Sub-Borrowers .......... 28

ANNEX 2: EXCERPTS FROM PCR PREPARED BY TCZB

I. Introduction .......................................... 29II. Project Identification, Preparation ................... 29III. Implementation ................................... 32IV. Operating Performance ......................... .. 35V. Institutional Performance Development ........... *. .... 40VI. Evaluation ......... 0.*............................... 44VII. Conclusion .. ................... ....... 45

ANNEX 3s Letter of the Government of Turkey datedSeptember 27, 1990 *****........****....*.*.......... 46

MAP - !BRD 17071


TURKEY


PREFACE

This is the Project Completion Report (PCR) for the SecondAgricultural Credit Project (SACP) in Turkey, for which Loan 2318-TU, in theamount of US$150.4 million, was approved on June 27, 1983. The loan wasclosed on June 30, 1988, six months behind schedule. It was fully disbursed.

The PCR was prepared by FAO,CP. The Borrower, Turkiye CumhuriyetZiraat Bankasi (Agricultural Bank of Turkey, TCZB) prepared its own PCRexcerpts of which are given in Annex 2.

Preparation of this PCR was initiated during the Bank's finalsupervision mission of the project in October 1987, and is based, inter alia,on the Staff Appraisal Report; the Loan, Guarantee, and Project Agreements;supervision reports; correspondence between the Bank and the Borrower;internal Bank -emoranda; and information gathered by the FAO/CP mission whichvisited Turkey in November 1989. The report was updated and appropriatelyedited by Bank staff. The Government's and TCZB's comments to the PCR wereconveyed to us by letter of September 27, 1990 from the Undersecretariat ofTreasury and Foreign Trade (see Annex 3). The text has been revised in lightof these comments.

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TURKEY


Introduction

1. The Second Agricultural Credit Project (SACP) was appraised inNovember 1982 and approved by the Bank's Board in June 1983. Project cost wasUS$363.5 million toward which the Bank provided a loan of US$150.4 million.The loan closing date was extended once by six months from December 1987 asstipulated in the Loan agreements to June 1988. The loan was fully disbursed.

Obiectives

2. The main objectives were to: (a) increase agricultural productionand to raise the productivity and income of farmers by supporting TCZB in itslending activities in those areas where the Government has undertaken tointensify support services to farmers; (b) further encourage institutionbuilding of TCZB through: (i) an agreed Action Plan for its reorganization andstrengthening, and (ii) provision of staff training and equipment; (c) addresssectoral issues of on-lending interest rates and strengthening of creditcooperatives through seeking agreement with the Government to: (i) achievereal positive on-lending interest rates in the agriculture sector by end 1984,and (ii) arrange for a study to develop a 5-year plan for development of thecredit cooperative system, which may form the basis of a future project forpossible Bank financing.

ImRlementation Experience

3. The loan became effective after 10 months in April 1984 followingtwo delays involving a total of six months. Despite initial delays, thecredit program was successfully implemented. Disbursements by TCZB under theon-farm development component expressed in 1983 TL terms exceeded appraisalestimates by 345% in the short-term credit category and 57% in the medium-term credit category. Conversely, credit demand in Government-assistedspecial schemes was far less than anticipated at appraisal. Accordingly,funds from the slow-moving special schemes components were reallocated to theshort-term credit category in the on-farm development component.

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4. There were initial delays by TCZB in implementing theinstitutional reforms stipulated in the project. However, after 1986, TCZBstarted in earnest to implement the reforms and, by the end of the project, ithad carried out most of them. Of the US$4.7 million allocation for vehiclesand equipment only US$147,000 was actually used for procurement, the remainderreallocated to the on-farm development component. TCZB's request forreallocation of proceeds was based upon a reduction in the number of armoredvehicles required. While this request may have been influenced by earlierBank refusal to modify Bank procurement requirements, the Bank chose not toquestion the reasons given for the request and agreed to reallocate funds tomeet the larger than expected demand for short-term credit funds.

Results

5. The project was successful in attaining its principal objectivesof providing credit for increased agricultural production and strengtheningTCZB. About 200,000 farmers or 74% of the appraisal target benefited from thecredits under the project, and there was substantial increase in production ofagricultural crops financed, particularly cereals. TCZB's lending policiesand procedures were modified to facilitate adequate credit flow to f.armers,its organization made more functional and steps taken to introduce improvedmanagement information and accounting systems. The project, however, did notsucceed in its sectoral objective of raising preferential on-lending in1:erestrates to positive levels in real terms by end-1984. Interest rates wereraised to positive real levels in 1986 (the revised target) but acceleratedinflation made rates negative again thereafter. A study of .ne agriculturalcredit cooperative (TKK) system with a development plan was completed.However, the institutional development component proposed for inclusion in theThird Agricultural Credit Project was dropped because TCZ;3 refused to bear thecredit risk for onlending to TKK for such purposes.

Sustainability

6. The sustainability of the credit program supported under theproject will depend on TCZB ensuring that farmers continue to get timely andadequate loans. More cooperation will a4lso be required between TCZB and MAFRAif farmers are to get the full benefits of credit and extension. Thesustainability of institutional reforms will depend on TCZB's ability tocontinuously review its policies and procedures and introduce changes wheneverdeemed necessary, even if it involves departure from traditional practices.

Findings and lessons

7. The main lessons learnt from this project concern institutionalaspects. The project has shown how institutional reform is particularly slowand difficuit in a government-owned organization with a long history andestablished practices and traditions. Timely implementation of key decisionsrequires the full involvement and commitment of senior officials whichsometimes proves elusive. The project has also shown that, in order to effectbasic changes down the line, the mere issuing of instructions from head officeis not adequate. The branch staff need to be educated and convinced about thebenefits and advantages that will be derived from the changes.


TURKEY


PART I: PROJECT REVIEW FROM BQAK'S PERSPECTIVE

A. Project Identity

Name: Second Agricultural Credit Project (SACP)Loan No.: 2318-TURVP Unit: EMENA RegionCountry: TurkeySector: Agriculture

B. Background

1. The Second Agricultural Credit Project (SACP) was one of severalprojects identified for possible Bank financing by an agricultural sectormission which visited Turkey !n early 1981. The project, which was tocontinue the efforts started under the first Agricultural Credit and Agro-industries Project (ACAP), was prepared by TCZB with FAO/CP assistance inSeptember 1982, appraised by the Bank in November 1982, approved by the Bank'sBoard in June 1983, and became effective in April 1984 after a delay of sixmonths. It closed at the end of June 1988 after a six-month extension. Afollow-up project, the Third Agricultural Credit Project, became effective inNovember 1989.

2. The agriculture sector in Turkey plays a significant role ingenerating employment, meeting domestic food requirements, supplyingindustrial raw materials and generating foreign exchange. Throughout the1970s, the country's agricultural policies stressed self-sufficiency in foodproduction and, between 1972 and 1975, sought to achieve this throughsubsidized inputs and producer prices. These policies stimulated rapid growthin production. However, the sectoral growth rates slowed down to l.5X peryear in the late 1970s, largely due to a sharp reduction in the incentives,ineffective investment policies, weak technical services and inadequatemarketing and credit systems. Beginning 1980, the Government, with Bankassistance, started taking steps to carry out policy reforms and improve theagricultural support services, including the credit delivery system.

3. In mid-1982, a World Bank (WB) agricultural sector missionconcluded that there was a need to more than double in real terms the existingflow of credit to the farming community by 1990 if production and exportgrowth targets for the agriculture sector were to be realized. The creditrequirements would consist mostly of short-term production credits at leastuntil the mid-1980s, but a strong investment credit demand could develop laterin the decade. The magnitudes clearly exceeded the existing capabilities of

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the formal agricultural credit system to service, and probably exceeded thefinancial sector's resource mob.'lization cap: ility as construed. Remedialactions were therefore called for both to generate additional funds for on-lending to farmers, and to improve the loan generation, processing andsupervision capabilities of on-lending institutions. Because of its size andimportance TCZB - the largest bank in the country and the only one withbranches ir all rural areas - was to remain a key element of this strategy,and strong mepsures were needed to improve its internal efficiency and expandits resource base so that it could extend loans to more farmers on a timelyand adequate basis. The SACP was conceptualized with the above strategy inmind.

C. Proiect Objectives and DescriRtion

4. Proiect objectives. In furtherance of the initiatives taken underACAP to build up th( a&icultural credit system in Turkey, the SACP objectiveswere to: (a) increase agricultural production and to raise the productivityand income of farmers by supporting TCZB in its lending activities in thoseareas where the Government has undertaken to intensify support services tofarmers; (b) further encourage institution building of TCZB through: (i) anagreed Action Plan for its reorganization and strengthening, and (ii)provision of staff training and equipment; (c) address sectoral issues of on-lending interest rates and strengthening of credit cooperatives throughseeking agreement with the Government to: (i) achieve real positive on-lending interest rates in the agriculture sector by end 1984, and (ii) arrangefor a study to develop a 5-year plan for development of the credit cooperativesystem, which may forr the basis of a futv'f project for possible Bankfinancing.

5. Project descriRtion. The SACP provided for:

(a) On-fam development. Medium-term loans for farm machinery,livestock, etc. to 6,500 farmers and short-term loans for workingcapital needs to 70,000 farmers, in 10 selected provinces ofTurkey, where Government planned to intensify general extensionservices;

(b) Second croRs scheme. Short-term loans to 60,000 farmers to grow asecond crop on about 220,000 ha of irrigated areas in 15provinces;

(c) Fallow reduction scheme. Short-term loans to 50,000 farmers togrow crops on about 265,000 ha of land in 12 provinces, which wereleft fallow;

(d) Igdir-Aksur-Ereghi-Ercis (IAEE) Irrigation comnonent. Short- andmedium-term loans to 2',000 farmers, to meet their on-farminvestment and production credit needs in the areas covered by theGovernment's irrigation development scheme (Loan 2433-TU);

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(e) Corum-Cankili =.RgU=. Sbort-term loans to 6C,,000 farmers inareas covered by the Bank-assisted Corum-Gank4.ri Rur4l DevelopmentProject (Loan 1130-TU);

(f) Inatitutional strengthnLng of TCZB through: (i) implementation ofthe Action Plan for its reorganization arid improvement in itsoperatic-i; (i) provision of consultant services in carrying outa system and procedures study, an accounting system study and anyother studies to be agreed between the Bank and TCZB;(iii) provision of training abroad of selected TCZB staff; and(iv) provision of -vehicles and equipment for TCZB.

6. Total project costs were estimated at US$?63.5 million, of whichthe Bank was to contribute US$150.4 million or 41X; TCZB US$138 million or38X; and farmers the remainder amounting to US$75.1 million or 21X, as equitycontributions.

D. Project Design and Organization

7. Desig. The project concept and design were appropriate for thepurpose of facilLtatil.g increased and timely flow of credit to the farmers aswell as improving the efficiency in the operations of TCZB. However, at thetime of project design it was expected that inflation would continue itsdownward trend. Therefore, the possible impact of inflation on the farmers'decisions to borrow was not analyzed nor was it identified as a project risk.With the advent of rapid inflation during project implementation, the loansizes stipulated at appraisal became inadequate for short-term loans. Thiswas remedied by linking loan amounts to the cost of inputs through farmbudgets. This was one of the reasons why disbursements of short-term creditby far exceeded expectations. In the case of medium-term borrowing, thislinkage proved difficult and, in the early years of the project, many farmerspostponed their decisions to borrow because of the rapidly chaAlging priceswhicn meant that by the time the loan was approved, the amount would beinadequate and TCZB's branch manager did not have the authority to change theinvestment models which were accepted as basis for medium/long-term lending.Also, in retrospect it appears that the arrangements in the protocol betweenthe Ministry of Agriculture, Forestry and Rural Affairs (MAFRA) and TCZGguiding the cooperation of the two institutions in implementing the specialschemes financed under the project should have envisaged coordination atdifferent levels. The protocol envisaged only semi-annual meetings at thefield level. A coordination committee for periodical review of overallprogress in financing of schame beneficiaries and redressal of difficultiesidentified at the lower level may have helped in better utilization of fundsprovided for these schemes.

8. Organization. TCZB was responsible for implementation of theproject. At the time of appraisal of SACP, TCZB was managing the creditcomponents of five Bank-assisted proj cts in the agriculture sector. Despitethis experience, TCZB took considerable time to organize itself adequately formeeting the increased responsibilities under SACP. Guidelines forimplementation of the credit component of the project were issued to the

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branches in the project provinces in February 1985 (effective from ."Iril1985), nearly one year from the date of effectiveness and about two years fromloan signature. This delay affected disbursement of loans by TCZB under theon-farm development component in the initial years.

9. For the special Government schemes (second crops and fallowreauction), TCZB had limited responsibility. The actual administration of t'heschemes lay with MAFRA. Under a protocol with MAFRA, TCZB was only requiredto provide finance under SACP to the extent iLdicated by the MAFRA officialsfor the schetmes. This arrargement did not work satisfactorily. The MAFRAofficials complained of lack of cooperation from TCZB branches in financingscheme beneficiaries and the difficulties faced by the latter in obtainingadequate credit. As noted in para 7 above, a coordination committee at thenational level could have contributed to alleviating the difficulties.

E. Pro:.-sct Implementgtion

10. Loan effectivelness and project start-uD. Loan effectiveness wasdelayed twice for a total period of six months from September 22, 1983 toApril 1, 1984, ten months after the loan agreement was signed. The delay waslargely due to: (a) slowness by both TCZB and MAFRA in finalizing theexecution of the protocol on their respective responsibilities under theproject and (b) the conflicting legal opinions within the Government as towhether it had a legal right to guarantee foreign exchange losses on loans toentities when Government is not the direct borrower. r.. latter issue took aparticularly long time to resolve and the Government could .tot ratify the loanagreements until this issue was settled.

11. Imnlementation schedule. The slippage of six months in projectstart-up put the project time-table behind and was not subsequently made up.Therefore, although the project was originally scheduled to be completed byDecember 31, 1987, it had to be extended by a further six months to June 30,1988 so as to allow for the futll disbursement of the loan and the completionof the remaining project programs.

12. The credit program, accounting for 83X of the project cost, wassuccessfully implemented despite about a year's delay in the issue of projectguidelines and in preparation of investment models. However, within thecredit program the implementation of different components varied. The on-farm development component performed very well and TCZB loan disbursements foron-farm development during the project period, expressed in 1983 TL terms,exceeded the appraisal estimates by 57X for medium-term loans and by 345X forshort-term loans (Annex 1, Table 4). The much larger relative increase in:sbursements for short-term production loans within the on-farm developmont

component resulted from: (a) the switch-over from the system of rationed,norm-based credit to adequate, farm plan-based credit; (b) relaxation insecurity requirements for loans; and (c) the changes in the agriculturalsector. Although medium-term lending was restrained by a depressed investmentclimate resulting from inflatioa and price uncertainty. under tae on-farmdevelopment component it still posted a 57X increase (in real TL terms)compared with appraisal estimates. For reasons explained in para 13 below,

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the performance in all other credit categories was poor. This resulted in thereallocation of fin¶ds from these components to the on-farm developmentcomponent (para 19).

13. The TCZB loan disbursements (in 1983 TL terms) under other creditcomponents tied to special schemes ranged from 16% of the appraisal estimatefor the Second Crops Scheme to 52% for Corum-Cankiri Project. The majorreasons for the short-falls were:

(i) possible overestimation of credit demand at appraisal;

(ii) excessive credit security requirements;

(iii) inadequate cooperation between TCZB and MAFRA officials at fieldlevel;

(iv) use of normal TCZB credit funds instead of project funds forSecond Crop and Fallow Reduction Schemes by farmers in certainareas; and

(v) delays in the implementation of the Irrigation and AgriculturalExtension and Research Projects.

14. Institutional aspects. Despite considerable delay due tolegislative and management changes in 1984 and other factors, TCZB carried outmost of the institutional reforms expected of it under the Action Plan. Theimplementation of the reforms gained new momentum during preparation andappraisal of the Third Agricultural Credit Project. The more importantreforms include the introduction of appraisal and lending on the basis of cropbudgets and investment models in 10 provinces covered by the on-farmdevelopment program, substantial increase in the loan approval powers ofbranch managers, relaxation in security requirements for loans, introductionof annual and 5-year financial planning, and improvement in the frequency ofaudit intervals of branches. Consultants were appointed through FAO in 1986to carry out studies, agreed with the Bank, on systems and procedures,accounting system and electronic data processing. The studies were completedin June 1988. Taking into consideration the suggestions of the consultants,in November 1988 TCZB radically changed the head office organizationalstructure, regrouping the various units on a functional basis. Action on theother recommendations of the consultants and on the remaining items of theAction Plan will be pursued during the period of the on-going ThirdAgricultural Credit Project. TCZB sent selected staff for external trainingat institutions in USA and Europe recommended by the FAO consultants.

15. A study of the agricultural credit cooperative system was alsoundertaken by a team of international and local consultants. The preliminaryfindings of the study were discussed with the copsultants during thepreparation and appraisal of the Third Agricultural Credit Project andincorporated in the project design. An additional proposed component underthis loan for technical assistance and training to carry out an institutionaldevelopment plan for the TKK was agreed in principle with the TKK. However,

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this proposed component was later dropped with the agreement of the Bank whenTCZB refused to take the credit risk for onlending to TKK for such purposes.The Bank decided that the proposed TKK strengthening component, whiledesirable, was not essential to the success of the project.

16. Procurement. Goods and services for farmers financed by TCZBloans were procured as envisaged through normal commercial channels withoutdifficulties. For vehicles and equipment, US$4.7 million was allocated, mostof which was to be used for the procurement of armored trucks under ICBproceduros (Part III, Table 5). However, only 10 vehicles were actuallyprocured for US$147.000 in part because the Bank was not willing to waive ICBrequirements contained in the Loan Agreement, and in part because not as manyarmored trucks were needed as originally envisaged. TCZB's request forreallocation of proceeds was based upon a reduction in the number of armoredvehicles required. While this request may have been influenced by earlierBank refusal to modify Bank procurement requirements, the Bank chose not toquestion the reasons given for the request and agreed to reallocate funds tomeet the larger than expected demand for short-term credit funds.

17. Project costs. At appraisal, total project costs (principally thecredit program) were estimated at US$363.5 million. As shown in Part III,Table 4, the actual costs came to about US$382.7 million. The higher cost ofUS$19.2 million or 5% is attributable largely to inflation.

18. Disbursements. Part III, Table 3 sets out the loan disbursementsas estimated at appraisal and what was actually disbursed duringimplementation. Loan disbursements in the first 3 years to 1985/87 were belowappraisal estimates due to late project start-up and delays by TCZB to adoptproject guidelines for on-farm development lending. There were also delays byTCZB to submit loan reimbursement applications. Most of the handicaps wereresolved after 1986 and project disbursements picked up significantlythereafter. Following project extension by 6 months to June 1988, the loanwas fully disbursed.

19. _oan allocation. The overall demand for short-term credits,particularly those for on-farm development, far exceeded the appraisal target.However, as explained 'n para 13 above, there was 'imited demand for projectcredit by farmers in the Government Special Schemes. Therefore, in 1987 and1988, part of the funds allocated to them and to medium-term loans were re-allocated to on-farm development activities. Specifically, from the specialschemes US$8.5 million was reallocated from funds for medium-term credit andUS$38.4 million from funds for short-term credit, all to the short-term creditcategory under the on-farm development component. To permit a Rari gassudisbursement of funds until the Closing Date, there was also a reallocation ofUS$20 million within the on-farm development component from the medium-termcategory to the short-term category. Also the loan allocation to the purchaseof equipment under the strengthening of TCZB component (see para 16 above) wasreallocated to the credit program. The re-allocation of the loan proceedsbetween various expenditure categories is shown in Part III, Table 5.

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20. Covenants. As shown in Part III, Table 7, TCZB and the Governmentmet all but two of the covenants set out under the loan and guaranteeagreements. The notable exceptions were the ones whereby Government was to(i) raise preferential on-lending interest rates to a level equal to or higherthan the prevailing level of inflation; and (ii) compensate TCZB on an annualbasis for losses resulting from failure of the sales cooperatives to servicetheir debt to TCZB. As shown in Part III, Table 2 (D), after initial progressand achieving positive interest rates in mid-1986, Government introduced a newsubsidized interest rat- of 22% for livestock and fertilizer loans in December1986 and May 1987, which made rates effectively negative when compared toinflation as measured by the wholesale price index (Part III, Table 2 (C). Asinflation gathered pace in 1987 and 1988, the interest rates becameincreasingly negative. The Government's measures of 1986 and 1987 weretherefore a retrograde step which was partly corrected in 1988 wnen interestrates were increased again. The Bank followed the interest rate development,which were also covenanted in the Agricultural Sector Adjustment Loan(2585-TU) and the Financial Sector Adjustment Loan (2714-TU), very closely andprocessing of the Third Agricultural Credit Project (3090-TU) was suspendeduntil a time table for reaching positive rates had been agreed upon.Regarding the compensation covenant, the Government failed to pay TCZB for thelosses resulting from price support programs of the sales cooperativesfinanced by TCZB under Government guarantees in 1985-88. At the end of 1987,TCZB's claims to the Government stood at TL 762 billion. Due to budgetarydifficulties, they were settled only in 1989.

F. Project Results and Impact

21. Proiect objectives. Overall, the project was successful inmeeting its principal objectives of providing credit support for increasedagricultural production and of strengthening TCZB. The credit funds werefully utilized and helped in raising agricultural production and productivityin the project areas. TCZB's lending policies and procedures were reformed tofacilitate adequate credit flow to farmers, its organization made morefunctional and steps taken to introduce improved management information andaccounting systems. The project, however, did not succeed in its sectoralobjective of raising preferential on-lending interest rates to a positivelevel by end-1984 or to adjust them periodically to take account of the rateof inflation. Interest rates, charged by TCZB to farmers and the TKK remainednegative during most of the project period and currently range between 34% and55%, well below the prevailing rate of inflation as measured by the WPI (70%end-1988 and 68% end-1989). Interest rates were in fact brought to positivereal levels by 1986. However, subsequent increases in inflation exceededcompensating interest rate adjustments. The other sectoral objective ofarranging for a study to develop a five-year plan for development of thecredit cooperative system which may form the basis of a future project forpossible Bank financing was only partially met (para 15).

22. Physical results. Key appraisal targets and what was actuallyachieved during implementation are set out in Part III, Table 6. The projectsubstantially achieved its main lending target, reaching about 200,000 farmersor 74% of 271,000 farmers estimated at appraisal. The incremental production

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in industrial and cash crops was lower than anticipated at appraisal becauseof the shortfall in lending tied to special schemes (see para 13) which wasexpected to have a lar&er effect on production increases for these cropsbecause of effects on increases in cropped area and introduction of doublecropping. There was, however, a significant increase of about 1 million tonsin the key cereal crops. Eighty-eight staff or 68X of the appraisal targetwere able to go for overseas training. All the staff trained are still withTCZB. For reasons explained in para 16, most of the equipment was neverbought; for example only 10 trucks were purchased vis-a-vis an appraisalestimate of 74. The shortfall was partly due to the Bank's unwillingness towaive ICB requirements and partly because not as rany armored trucks wereneeded by TCZB as originally envisaged. No reliable data is available as tohow many permanent full-time jobs the project created but taking the lendingprogram as a guide, these could be in the region of 46,000 of whom 370 wereemployed by TCZB.

23. Ingtitutional impaet. The most important impact of the projectwas in institutional building of TCZB. Increasing loan approval limits ofbranch managers has enabled farmers to get credits more adequate to theirneeds and without much delay. The introduction of computerized crop andinvestment models has encouraged a more focussed appraisal of loanapplications. The introduction of 5 year budget cycles will enhance medium-term financial planning while the eventual computerization of accounts andintroduction of a cost accounting system will facilitate the availability ofprompt and better management information.

24. Financial imnact. The farmers who participated in the projectenjoyed improved income levels. As shown in Part III, Table 6 (C), based onthe appraisal estimates for illustrative farm models under the ThirdAgricultural Credit Project in 1986, the farmers achieved satisfactoryfinancial rates of retdrn ranging between 26X and 52X. This was significantlyin excess of the appraisal estimates which ranged between 19X and 29X and mayhave been conservative in assumptions on yield increases. The economic ratesof return achieved by various activities varied between 371 and 711. Thesetoo exceeded the appraisal estimates which ranged between 141 and 381. AlsoTCZB calculated financial rates of return for investments financed withmedium-/long-term loans (page 21).

25. Sin3e the total credits funded by the project were relativelysmall compared to the global TCZB resource base and because of lack of aproper cost accounting system, the project impact on TCZB's financial positionand performance cannot be accurately evaluated. Indeed, the bigger financialimpact of the project may not come from its credit funding but from theinstitutional reforms it initiated. Over time, these reforms have taken rootand will continue to improve TCZB's management and operational efficiencywhich in the end will be reflected in a stronger financial position and betterfinancial results.

26. Annex 1, Tables 1, 2 and 3 show TCZB's financial position,performance and key indicators, during the project period. As no financialprojections of TCZB were done at appraisal, there is no yardstick against

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which to compare the figures in Annex 1. However, overall, the financialposition has improved. As shown in Table 1, in 1983 constant terms, TCZB'stotal assets have increased by 31X from TL 1.6 trillion (US$8.7 billion) in184 to TL 2.1 trillion (US$11.5 billion) in 1988. This improvement islargely attributable to the increase in both agricultural and commercialportfolios which have posted increases of 82% and 90X respectively in realterms during the period. Resource mobilization has also increased withdeposits increasing by 191 in real terms from TL 0.9 billion in 1984 to TL 1.1billion in 1988. During that period, TCZB's net worth has steadily improved,more than doubling in real terms from TL 46 million in 1984 to TL 93 millionin 1988. Although, as shown in Table 2, TCZB's financial performance has notbeen spectacular, it too has generally improved during the project period.Total income increased by 126% from TL 253 million in 1984 to TL 574 millionin 1988. This, coupled with a proportionate decline in personnel costs (until1987) and interest on deposits, resulted in an improved net income positionwhich topped TL 27 million in 1988, almost a six-fold increase over the 1984level.

27. Under the project, Government gave TCZB a spread of 3.51 onproject funds. This was to cover TCZB's overhead costs in administering theproject activities. Without a functional cost accounting system at TCZB it isdifficult to assess whether the above spread was adequate in relation toTCZB's actual project-related costs. Data collected at the appraisal of theThird Agricultural Credit Project indicate that the staff expenditure toaverage portfolio ratio was 3.91 in 1983, fell to 2.41 in 1987 and increasedagain to 3.41 in 1988 due to the transfer of staff to contract status. Theincrease in staff remuneration for staff willing to give up civil servicesecurity is expected to increase staff incentive and motivation leading toimproved efficiency over the medium-term. However, when trying to assess theadequacy of the administrative spread of TCZB it should be kept in mind thatTCZB is called upon to act as collecting and disbursing agent for theGoverr- in areas where the central bank is not represented. These servicesare co. nsated by giving TCZB access to low-cost deposits of Governmentinstitutions. The cost of these services adds to the administrative cost ofTCZB while the access to low-cost deposits reduces the funding cost.Therefore, the spread may well have been sufficient for the administrativecost directly related to making project subloans. In any case, the spread hasbeen increased to 41 in the next project.

28. Information or. loan recovery is not separately available for theloans made under the project. However, Table 9 of Part III shows thecollection ratios'/ for al: agricultural credit activities. Project loans areincluded in the category 'cncouragement and Development Credits" which show aconsistent percentage of 641 in the years 1982-84 and improved to 751 in 1985.After a slight decline to 741 in 1986, recoveries in this category improved

! Defined as ratio of principal and interest collected to principaland interest overdue at the beginning of the year and falling dueduring the year.

- 10 -

further to 79X in 1988. This trend is partially the result of improvedappraisal and supervision that was introduced during project implementation.

G. Project Sustainabilitv

29. During the project, considerable achievements have been made inimproving the organization and operational procedures of TCZB. To furtherimprove its efficiency, the institutional reforms started by the project willneed to be continued. The reorganization that took place in 1988 and 1989 isa continuation of this process. The loan administration procedures willrequire constant review as circumstances change. The computerization of theaccounts processing and the introduction of a cost accounting system need tobe implemented urgently to facilitate timely and more diverse managementinformation. In order to sustain the on-farm benefits which have beenattained with the help of the project, TCZB will have to ensure that farmerscontinue to get adequate levels of credit and in a timely manner.Additionally, more contacts with the technical staff of MAFRA will be neededso that the farmers get the full benefits of extension advice.

H. Bank Performance

30. Bank performance during project preparation, appraisal andimplementation has been satisfactory. The consequences of rapidly increasinginflation in the disbursement of medium/long-term credit (para 7) pointed moreto the inability of TCZB to change procedures than to any omission in projectdesign. A total of 8 supervision missions visited the project to monitorimplementation. As shown in Part III, Table 8, the missions comprised largelyof financial analysts, and credit specialists. As an agricultural program, itwould have been prudent to include agriculturalists in supervision missionsmore often than was the case so as to technically address the agriculturalaspects of the project. Otherwise the missions were useful particularly inprodding the borrower to implement the AP. Toward the end of the project,supervision missions became less frequent based on the fact that in 1986 apre-appraisal and an appraisal mission for a follow-up project were fielded,which clearly also assisted supervision although no formal supervision reportswere written in all cases. In 1986/87 there was a gap of almost one yearwithout a supervision mission. This was due to the fact that all missionefforts during this time were concentrated on attempts to resolve the interestrate issue which had re-emerged when interest rates were lowered in December1986 and May 1987 and became negative in real terms. During this period, theconcerned staff were able to keep abreast of events relating to the project,although the Bank's reorganization in 1987 caused some unavoidableinterruption.

31. One of the lessons learned from this project is that institutionbuilding, particularly for a 100-year old Government-owned organization likeTCZv, Is a long and cumbersome process. This is because over the years theinstitution would have adopted certain practices and ways of operation whichnaturally it would be reluctant to change within a short time. An aggravatingfactor was the civil service status of TCZB's staff throughout the project

- 11 -

period (this changed in 1988-89) which did not necessarily foster efficiencyof operations.

32. Two project design lessons have also been learned:

(a) In countries where fairly high inflation is a possibility, projectdesign should ensure that the credit institution's appraisal andlending techniques allow for flexibility to accommodate rapidprice changes during subproject implementation; and

(b) when project implementation involves complementary input from twoor more organizations, it is desirable to have coordinatingcommittees comprising of senior officials from the partiesinvolved not only at the field but also at all otherimplementation levels. These committees should meet regularly tomonitor implementation progress and smooth out any areas ofconflict. This view is fully shared by the Government (seeAnnex 2).

I. Borro-wer Perfo=armee

33. Both Government and TCZB showed continuous commitment to theproject. Besides the initial delay to meet the necessary conditions for loaneffectiveness which resulted in -.Aie delay of project start-up, both theGovernmerat and TCZB performed satisfactorily under the project. Mostcovenants were met. Exceptions were the ones relating to interest rates andcompensation for losses from loans to the agricultural sales cooperatives.The only major draw back experienced was in 1985 when, for reasons unknown,TCZB delayed by almost half a year the issuance of a new credit guideline forborrowers under the project. This seriously hampered the project creditprogram for that year.

34. In retrospect, the following lessons may be learned in thiscontext:

- full involvement of senior officials in reaching major decisionsaffecting the operations of the institution is necessary to ensuretimely implementation of such decisions; and

- basic change in operating policy and procedure cannot beeffectively brought about at the branch level by merely issuinginstructions from head office. The branch staff need to beeducated in advance of the proposed changes throughseminars/workshops and convinced about its advantages over theexisting system for successful implementation of the instructions.

J. Project Relationships

35. The relationship between the Bank, Government and TCZB wasgenerally satisfactory.

- 12 -

K. Gonsulting Services

36, The project provided consultancy assistance for a study of TCZBand that of the credit cooperative system. Although bureaucratic delaysresulted in the late recruitment of consultants, all the studies werecompleted and the reports respectively submitted to TCZB and Government. TheTCZB study was carried out by consultants under a trust fund agreement withFAO. According to TCZB, the FAO input was highly appreciated and steps havealready been taken to implement their recommendations. The consultants whocarried out the credit cooperative system study also performed satisfactorily.

L. Project Documentation and Data

37. Besides the lack of financial projections for TCZB during theproject period, the appraisal report was well prepared and provided a usefulreference and guide in monitoring project implementation. The loan andsubsidiary agreements were adequate but the protocol between TCZB and MAFRAwas in many instances not followed. At project level, the Encouragement andDevelopment Loans Department of TCZB kept adequate data to show projectprogress and performance at all stages.

^ 13 -

PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

TCZB prepared its own full PCR on this project. An excerpt fromthis PCR is attached as Annex 2. The Government and TCZB were requested tocomment on the analysis included in Parts I and III of this report and werealso invited to comment specifically on:

(a) The Bank's performance during the evolution and implementation ofthe project, with special emphasis on lessons learned that may berelevant for the future;

(b) the Borrower's own performance during the evolution andimplementation of the project, with special emphasis on lessonslearned that may be relevant for the future; and

(c) the effectiveness of the relationship between the Bank and theBorrower during the evolution and implementation of the project.

The Government and TCZB comments are included as Annex 3; it willbe noted that Government and TCZB chose not to elaborate further beyond thecomments in Annex 3.

TURKEY

SECOND AGUICULTtURAL CREDIT PROJECT

PROJECT COPIPLETION REPORT

fetated Bank Loans nd Credits

PROJECf TITLE PROJECT PURPOSE YEAR Of APPRAISAL SAW G6ROUP FUNING STATUS(USS million)

First Livestock Development to increase dairy breeding 1971 4.5 Compteted

Project (236-UlU

First fresh Fruit-Vegetable to increase the production 1971 23.2 Compteted cn

and Export Devetopeent and export of fruits :

Projects (257-lU, i6o-lU) and vegetables

Second Livestock Development To increase dbirr breeding 1972 16.1 Completed >* U

Project (330-U) T i

sorum-Cankiri Project (1130-lU) Rural devetopment 197S 37.8 Compteted 5- -

Third Livestock bevelopeent To increase dairy breeding 1976 20.7 Compteted 0 1n

Project (1265-lU) and fattening

First Agriculturat Credit Agricuttural production 1976 42.6 Compteted

and Agro-Industries Project and agro-processing(1248-TU)

four:h LivestQck Development To increase dairy breeding 1978 22.0 Compteted

Project and fattening

Fifth Livestock Development Dairy breeding and fattening 1980 24.4 Completed

Project (1862-lU)

Second fruit and Vegetabte To increase fruit and vegetable 1981 20.0 Compteted

Project (1961-lU) production and processing

Erzurum Rurat Development Rural development 1982 22.2 Completed

Project (2094-lU)

Second Agriculturat Credit Agricultural production and 1983 150.4 Compteted

Project (2318-lU) institutional building -J D

Ihird Agricutturat Credit Agricutturat production and 1988 250.0 Effective

Project (309fu-TU) institutione bustding Nowe4 ber IW98J9

.. .. . . (t..._ __Slfee:~~~~~~~~~~~~~~~~___ -j 0-

- 16 -

PAftT IIITable 2

TURKEY

SECOND AGRICULTURAL CREDIT PROJECT


A. PROJECT TIMETABLE

Activity Date Planned Revised Date Actual Date............. ............. (mont yi-87 ....... 0040 0.0

Identification - - 5/81Preparation - 9/82AppraisaL 11/82 11/82Negotiations 5/83 - 5/83Board ApprovaL 7/83 - 6/83Credit Effectiveness 9/83 10/83; 3/84; 4/84 4/84Credit CLosing 12/87 6/88 a/88Credit CompLetion 6/88 12/88 1 /88

S. AVERAGE EXCHANGE RATES

SAR Rate (May 1983) US S 1.00 a TL 1821984 3671985 5221986 6741987 8571988 1,400

C. WHOLESALE PRICE INDEX MOVEMENTS

AnnuaL % Changc (Average)

1984 50.31985 43.21986 29.61987 32.11988 68.3

D. NORMAL AGRICULT'URE ON-LENDING INTEC.- S ATFS 3Y TCZB

1984 22 - 281985 30 - 341986 22 - 341987 22 - 341988 29 - 501988 34 - 55

TURKEY



Loan Disbursements

Cumulative Estimated and Actual DisbursementsUSS *itllion)

WS FISCAL YEAR 1983/84 1984185 1985186 1986/87 1987188 U91/89

Appraisal estimate 20.9 56.0 98.6 150.4 - -

Actual 0.4 29.4 47.6 104.6 167.6 150.4

Actual as Z of estimate 1 53 48 70 98 1/ 100 1/

…. . . .…- - . . _ _ _. ._._._._._.___._..._._. _ _ _ _ _ . _ _ -- -

1/ Actual cumulative as a percentage of final target of USS 150.4.

Comment: lhe very low disbursements in FY 1983/84 are due to the six-month slippage in starting project iptlementation.Instead of starting in September 1983, the project commenced in April 1984.

Source: World Bark.

I..'-_

TURKEY



Project Costs

(US S MitLion)

COM4PONENT SAR ESTIMATES ACTUAL - VMIANE 2

Tocal foreign Total Local Foreign 10tal(S)

On-farm development 98.8 64.2 163.0 203.0 130.4 333.4

Second crops development 27.3 22.3 49.6 4.7 3.0 7.7

FatLow reduction 20.8 12.7 33.5 10.9 7.0 17.9

IAEE irrigation 18.5 13.5 32.0 2.3 1.5 3.8

£orum-;ankiri project 13.8 10.9 24.7 11.2 7.2 18.4

Strengthening of 1C0Z 1.2 4.8 6.0 0.2 0.9 1.1 __

Total base cost: 180.4 128.4 308.8 232.3 150.0 382.3 l

ntingenccies 32.7 21.6 54.3 - _ _

Front-end fee - 0.4 0.4 - 0.4 0.4 -

IOTAL COST: 213.1 150.4 363.5 232.3 150.4 382.7 * 5

. _ _ ..... . . .. . ... . : . . ........ ...... . . . . . . . ....__

1/ Includes contingencies.

2/ No meaningful variance anaLysis is possible at compouent levet because the former are base costs only

white the latter include contingencies.

Source: TCZB.

-41

.4?

TURKEY

SECOND AGARICULTURAL CREDIT PROJECT

PROJECT COPLETION REPORT

Project Financing

SAR ESTIMATE RE-ALLOCATIAN ACTUAL

USS siLlion I USS siltion USS siltion I

WB EXPENDITURE CATEGORY:7,() 6 ieditiu-fer' SubiLoans 70.4 -28.5 41.9

(b) Short-lerg Sub-Loans 74.1 +33.1 107.2

2. Equipmernt 4.7 -4.6 0.1

3. Consultants 0.4 - 0.4

4. Training 0.4 0.4

5. Front-End fee 0.4 0.4

Total WB Credit: 150.4 41 150.4 39

OTHER SOURCES:TCzb 138.0 38 149.1 39

Sub-borrower contributions 75.1 21 - 83.2 22

TOTAL: 363.5 100 382.7 100

N.B. - Both TCZB and sub-borrower total tundini weve higher than the SAR estimate because of the higher voLume

of agricultural tending.

3 D

- 20 -

SCCOr. AG:ICULTUIAL CeoZtt PJggt

onJitC? COMMON P01?ol!project 565.41

A. SiREy 11 rtt

Zadleatre wAnoraisat Estimate tual

- 14 of Loan bo,fIi$rios 2871,000 00,000* irfer of staff trained overseas 3SO s- 5mr of Pormanent fut4-tim jobs create 43,300 44,0 it* oe of trucks bought #4 10

Pulses (W00 tons) 320 139creatr. ('000 tens) 53 1.00

- Ir4trial srs '000 to") 455 127fad"? VO' tons) t n.a.

- veootabe t'000 tons 33 250- Fruit ('000 tons) 7 n..

Cottonf (lo00 tons) t5 3* Seof (tons l.w.) 14,818 n.e.

*Shes (tons 1....) 3,304 no&.- Orgefr (tons t.v..) 4,809 n.o.

IEg (No. N .) n.I.

S. ECoNoMic IMPAC?

Activity Econoinic Sate of et0urn (SRI u

- ef factenin, (20 steers) 23 71- Sho Datte1ning (100 labs) 3 47- IrOiter prodcttion (3,000 biPrd) 14 37- Ig" orodustio (8,000 ayers) 39- mechanisation (30 he) 29 50

C. '.% WLACT

Activity "~~oC ' BteoWItr PI*et1v1tt~~~~~~~~Aifait~5tUt (5) ActS iW_641N %S1"t '0 RI!t tu

_ Bef fettening (20 stears) 30- SheD fete91ing (100 tlmes: 34- Broietr oreb ct ion (3,000 birosS) 51- E9g orodwGtion (8.000 apers) 5t- echanizetion (30 he) 20

O. SSTDOI S

titLe Purpose as defined at aoeroislt Status 1.05et

TCtS Study To study the operstionSt and accounting iy5te :00o0tettd Many Of tne 'ecome0ne-and oroceures of TCZB wth a view for ieoiraemont Rcoort acoroved ations of tne resortof the tending systaes and oroceaures Fit' By TCZs 9uard. have started beingmanagent, monitoring and vewluetion anW ictaf ?eu ente.training.It would slso dovetog a managteant and costaccounting systea end recomeind the introdiCtionone use of electronic data orocessing in TCZUvooorations.

Credit Coo@erstive Study To furtmle dsveo.D aned stengthen the agricultur&t c2pi2Letva. ko d sct'"'ote 0actcredit coosernativ system in urey. the study teoor suon itIc let.woutd evaluate rnc ofeformance of the credit t* Sovernetnt.COoOeret'ves cver the bast fivevea g erioo andoro*ose a oew0koeent otan cowering the neat5 yeS9.

1/ Estimate based on Landing Drogr*Me.

2/ Per Third Agricultural 'e1dit °,ojCCt.

- 21 -

PART t I I

SItCON AGAtCULTURAL CuuDIT PtOJECT

PROJICT COMPI.ETION m00O6T

Status of Covenants

t 14tl29 _ wt *'^~~~~~~~~~~~TAUS

1 To Carry out a study of oestWreS for imeroving the Agricutturat Complied.

tredit ceo w ptivOs system.

T. To geniu*o * poetocot betwen MAFIA and TChU for their Complied.

Copseration in projIct erSCution.

3 to 6djust its preforential inteetst rates to agriculture Satisfactory progress towatds oositive interest

so as to attain positive Interest ratos O ogricutturat rates was n * titl 1986 when Government intro-

tanfdig by tCez. duced tower Subsidized interest rates forlivestock and fertiliaerg toan. With higherinftation. interell ratse have bercomincreasingty negative.

4. to compensate *CtO on an annuat oasnis for losses resulting Cooolod ts I94. Gao-cagpIi&acto 1* 193568.

f.m faiture of s&leS cooperatives to service their debts.

S. To permit *CZU to increase the minimum toan amount reoquring Coptlied.

aporoval by the Board of Dire:tors.

1. To conCtude a protocot with MIAPRA setting out their respective comptlid.

roapansibillties under the project.

T. To conctude a subsidiary agreement with Go6vrnaent about Comotied.gains afn Losses from foreign eacharn fluctuation.

3. To furnish to the lank, not tater than t1 March of each year, Comotied.its aneat londino orogreme for that year.

4. To submit to the lank semi-annuol prooress reports on the Submitted but stways tlter then the stiputated

imptementation of the oroject. deadlines of Aprit 15 ond October 15.

S. to ongag conswltants to carry out a study of TCZtUs Done, though late. Consuttants' report given

operationat and accounting system and procedures. to TCZSBI at the end of 1967.

6. To oroopre a completion reoort for project within 6 months Conolied. Cooy submitted to we.

of the comapetion of the projeet.

7 Within s1i months, furnish to the Snk Certified cooies and ALways subaitted Late.

audit roeort for the previous year's financial position

and project expendituros.

8. Deposit in a.revotving fund SOX of ALL sub-Pton reopyments h5t comotied but agreed with WS that this

by the borrowers undor the project. *as not necessary.

TURKEY



Staff Input and Mission Data

iIssioN Month/Year No. of Days Specialisation Performance RatingPerssons in field representedT/ Status 2/ Trend / Type of Probl4m I

Not yetidentificationPreparation (WU) 9/81Preparation (fAO/CP) 5/82Preparatiorn (FAO/CI) 9/82Appraisal 11/82 5 24 FA, E, CS, A, L

Pre-Implementation follow-up 12/83 2 10 FA, ESupervision 1 7/84 4 8 FA, E, CS, A 2 2 0

Supervisiofi 2 12/84 1 1 fA 2 1 0

Supervision 3 2/85 2 14 FA, CS 2 1 MSupervision 4 7/85 2 2 FA, CS 2 1 N

Supervision 5 11/85 2 n.a. FA, CS Not availabLe because report format changed;upervision 6 4/86 2 n.a. fA, CS;upervision 7 11/86 2 n.a. FA, CS.upervision 8 11/8? 1 10 CS

fA: Financial Analyst; t: Economist; CS: Credit Specialist; A: Agriculturist; L: Livestock Specialist.

2: Moderate problems.

1: Improving; 2: Stationary.

0: Other; M: lanagerial.

a.: information not available. Supervisions done in conjunction with preparation and appraisal of Third

Agricultural Credit Project. a

- 23 -

PART II ITable 8a

TURKEY



Staff Inpu

FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 TOTAL

Identification 8.01/ - - - 8.0Preparation 24.01/ - - - - - - - - 24.0Appraisal - 34.0'/ - - - - - - 34.0Negotiations - 2.01/ 2.0Supervision - - 11.4 23.6 9.3 4.7 4.5 7.5 - 61.0Other - - - - - - - - 13.0 13.0

Total 142.0

;/ Estimated. Figures for FY82 and FY83 are no longer in the Bank'scomputer.

-IC

TCZll - Loan Colle tIo .rfzina 06-

100 198 1 12 1tU83 19 in laY,' 196 1967 1o"

Direct Loans to Fpomers

(a) Porml credits 02.0 91.0 74.9 76. 7 77.3 74.6 78.1 *A IA(b) Controlled credLts 68.0 B1.0 71.8 70.2 69.1 63.7 86.4 73.0 86.0

Of above:- Supervised credat

short-texr MA 87.4 83.5 77.9 75.6 72.6 75.5 MA a- Supervised inve5Y*St*t

credit NA 61.3 71.8 70.1 66.8 61.9 65.5 I Ub

(c) Encourement. andDevelopmntL Credats 59.0 66.0 64.3 64.4 64.2 74.8 73.6 74.0 75.0

Loans to Credit Coouerctiv.s 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Loans Lo Sales Cooperatives/ 3 80.0 63.0 85.2 71.7 81.5 62.6 62.5 IA I .

Loons to Supply Axercv 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

/t Dfined 4s ratLio of principal nd Interest collected to ptincpaol end 1At.eraat aowuds at the beuola1% of the yeat *d tfUl dsme &clng theYear.

/2 Widespr-ad dzousht in 1985 l,dd negativ& oft f.t on collection.

/3 Losss oh ountored throuGIi lauJani. to s4lea cooperatIVes *ro coverod by Cbvzrenmat uezntLeee.

NA a Not Available

Sour. TCZB. Accountisa Deoprteiast

%4112*I.

- 25 -

ti7~~~~T MONS ANIVARIM Ck'tlAN MAW

UU AU IM. INn NMOJICIreit nL6710 6

teas UIWMIIW iAAUn =Its (1M-111).......... ...............----.-........... -...

Asap. zs In 1. twt 190 tL bittire)... ¢-----.---*-----*--*..................*- .. .....-*--... ...-.............................. ..........................

146 low 1t66 1967 19.I at, ?. t t uw I X t I

................... ................................--- .....-..-.......- -.......

to N 4 2.7 a? 393.s a 452.0 2 417.6 19 MA6.6 ZsI" vtflsie 161.4 11 162.3 l2 m2.1 14 20.4 1t '13.6 IS

AIPaluA t CreitSI"tu ayWit S16.6 1 . 114.9 13 332.6 17 MA.6 19 A iA1U 71.? 4 77.7 5 92.6 s 2iJ.3 4 M VAset" OMpenti 1 5.3 4 137.4 10 0le .6 10 13.7 6 NA "AU6 (siItrA?UN 0.0 0 0.3 0 0.0 0 6.1 0 MA 1NAAreul 42.5 3 42.4 3 13.6 1 11.1 I 0 0

.Tout 393.0 as 474.4 30 445.4 33 740.3 33 713.4 34

"In * 5.0 0 e 6.0 0 9.4 0 9.1 0 u NALe" 3. 4 109.6 r 301.1 15 50.4 n a M Otit t1i_ 33.9 65.9 5 0.0 0 0.0 0 NA UA"W$ 54.7 3 49.7 3 14.6 1 5.4 0 01,t.t 10.6 lO 2 51.1 16 325.3 l? 533.1 23 303.0 1s

0Iitty iusmfttWe 6.2 1 9.3 1 7.6 0 13.4 1 7.0 0f uixedm _2.9 I 24.4 2 30.1 2 3.? 2 O0.4 0Otas meset 403.0 a azp. 1s 251.1 13 240.3 ¶1 169. *

F.F.... v*... @v.v* .............. *@... . *.s^9. .................. ......................

tot* l 1594.1 100 Is4.& 1o0 19.1 100 2 A. 100 20.1 100

......... ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ .8u888883888U8

OWosits 66.2 14 1009.1 44 1107.7 54 10s.6 47 1011.2 50Petoip rseutinu¶, _isgaS 4U.9 * 114.6 7 233.9 12 307.3 Is 291.2 tl60rinr. Itre CST 26.3 a 3.' 5 91.t S 349.7 Is 236.6 ¶1ttip bmrowlrS 11.3 1 2S.? 2 34.0 a 92.0 4 44.S 2Otlwr tiabilitlus 156.6 3S 297.e 19 "42.3 21 391.7 1t 37.1 ti

..........................................................................................

total 1550.S 96 IS22.M 97 1911. 97 222.5 97 199.7 94

>tMS#1h

Pg*q .0ital MS. 1 11.5 I 24.0 1 27.1 30.4 I* _erm 19.2 I 22.7 I 21.3 1 29.7 1 35.3 2

Nit i for the VWg 4.1 0 5.? 0 5.6 0 e.9 0 27.5 1..........................................................................................

ttalt 4S.6 2 43.6 3 54.9 3 63.9 3 93.4 4..........................................................................................

total LiabiltteO owortm 1594.1 100 114s.6 100 1970.3 10 229.4 100 208.1 100

oteten to 16 csMtaths 0.47 0.46 0.36 0.a7 0.16

t3 D *iffwb we *A to rewdings

- 26

ANNEX ITabLe 2

16COMC, A081LtLILUAL CREDIT *50J1CTPitOgCt CieLI7Ii X2iNt

tells dlRWATIVI INC"8 STA4tNWTs (096.6)........................................ I.....

(ADatS *eioes In coitgnt 19U3 TL billien)..............................................................................................................................

196i 195 t9i6 lnr ¶938MO1t S 3 1Oult S LsI t S AMOM S N1w1t S.................................................................... ..........................................................................

INCOi

Inueroet afi cemleclenAgriegltursi Credit

Dreest credit 54.? 22 54.3 18 *.5 16 61.8 13tI 15.4 6 18.3 6 20.4 5 22.7 S 142.9 2SSas co erstive 35.8 14 59.8 19 61.0 20 95.6 20UIKs tlinly t7ot) 0.0 0 0.0 0 0.0 0 0.0 0ArrercS 6.2 2 13.9 4 24.9 6 22.2 5 76.7 IsToteto 12.1 44 149.6 47 192.9 47 201.? 41 219.5 38

Commrciat creditNotes recieveate 1.0 0 0.9 0 2.6 1 112.6 23 107.2 19LOGMS 27.' 11 17.3 5 75.2 1U 13.9 3Credit tinco 5.' 2 28.3 9 0.0 0 0.0 0Arrears 1.2 0 3.6 1 0.0 0 0.0 0 43.0 itoil 35.2 14 S0.0 16 77. 19 126.5 26 155.8 7

0.0 0lrw Portftolio 50.0 20 68.1 21 89.7 22 77.8 16 96.6 I?Other incmw 47.1 19 43.4 14 .2.5 10 73.3 1S 94.' 16fotot 2u.5 96 311.1 96 .03.2 98 479.3 99 56.? 99

Profit from foreignexchange tranoction 3.0 t 2.3 1 3.8 1 2.0 0 0.6 3

Othet incme 6.0 2 *.0 t 6.1 1. 5.1 1 7.S 1..........................................................................................

TotAl 253.5 100 317.5 100 13.1 0oo 48.4 100 S73.8 '00.SOSSS.$.USwS6608.S".u..g.SSUVSS,SSOOSa.|.Sww .sS 8ss. SU SUESSUUSS"S|.USSSSIOgS***S

EXPiWSE

PerWsanl costs 22.7 9 21.3 3 2t.- 6 29.6 6 38.4 7;rtor*st on aoosits 196.6 78 253.1 37 298.2 t2 261.0 54 265.3 46

Interest on CaT borrowings 8.0 3 0.0 0 /A Il/A n/A ni/A h/AOtrer AOeapnSIS 22.0 9 9.7 1 83. 20 128.3 26 194.2 34Totet 249.& 98 27.? 4 4*3.4 98 419.0 6 497?.9 67

Provisione 0.0 0 0.0 0 *. I 60.5 12 46.' 8..........................................................................................

totat costs 249.4 95 311.6 .5 .37'5 09 479.5 99 56.3 es.s s. *s.a .... .as3 ... a,*ls8.aa-.s.N8.ss.a*-ma-t..* ....... s.s.......................u.a.3.s .w... -8o*.$.u8@

nET InCdoE 4. 2 5.7 I 5.S t 6.9 1 27.5

Deftators to 1963 constants .67 0.46 3.36 0.2? 0.16

nI: Di"ereve re o e to rodgsmfs.X|-a....U*U*@SS*S-.Os*a..aI....

TURKEY



TCZB - Key Financial Indicators, 1984-1988

1984 1985 1986 1987 1988

Net Income/Net Worth (X) 9.0 13.0 10.2 10.8 2P.5Net Worth in Real Terms (1983 TL) 47.0 44.0 55.0 64.0 93.0Total Assets in ReaL Terms (1983 TL) 1,596.0 1,567.0 1,971.0 2,290.0 2,088.0Net Worth/Total Assets (2) 2.9 2.8 2.8 2.8 4.5Net Worth/Average Total Assets (M) 3.5 3.3 3.4 3.4 5.4Staff Expenses/Total Income (X 9.0 7.0 5.8 6.1 6.7Staff Expenses/ATA (X) 1/ 1.7 1.6 1.5 1.6. 2.2financial Expenses/ATA (X) 15.7 19.7. 18.5 13.9 15.4Total Expenses/ATA 19.2 23.4 25.5 22.2 28.9Total Income/ATA (2) 19.5. 23.9 25.9 25.8 33.3Net Income/ATA 0.3 0.4 0.4 0.4 1.6Interest Earned/Interest paid (Ratio) 1.2 1.2 1.2 1.6 1.8Arrears/Net Loans Outstanding (2) 21.3 14.5 3.0 5.2 0 4/Return on Gross Assets (Z) 0.3 0.4 0.3 0.3 1.3Short-term Liquidity 2/ 0.5 1.0 n.a. n.a. n.a.Current Ratio 3/ 0.9 0.8 0.9 0.9 n.a.

1/ AIA: Average Total Assets.V/ Cash and baLances with other banks divided by demand liabitities.3/ Based on an estimate of current assets and liabilities expected to be

realized or liquidated in the next 12 months.4/ Arrears of TL 87 million in 1983 constant terms have been fully provided for and

excluded from the assets.

Source: TCZ8. 3)D

SECOND AGRICULTURAL CREDIT PIOJEC1

)CZ8: Disbursement of loans to Sub-Borrowters

Credit Protard lo0tal Loan Disbursements Actual asAnorassal Estimate 11 19S4 1985 .128t 1987 11 I of ALPI

loaw tstlwte................................ .Constant 1983 Ilt million) ...............................

A. On- l-; 0ewvviolow!It(,) mdrnsm lera i.in% 18.237 7.227 1.972 S.580 8.618 5.102 ?8.699 "7 4

3m,) shorl lee. It..ui.. 5,199 17.101 1.441 1.73B 21.821 23.119 23,119 JI 444.7

B. Short tern Isi.ms*'. tur secnLld cuiUn 1.134 779 1.047 1.106 1.041 a.a.I l 1.106 jJ IS.5

C Short-teva IownS fur lallow sedistAiu 4,819 589 S86 1.552 1952 n.a. _t 1.9S2 J1 40.5

0. lAtt liru.lation Phnoit.(i) medaim lore loans 3.?b9 234 25 104 ISO lSS 198 21.3

(it) %hboi term lodu'. 1,321 454 45 220 199 189 4S4 J1 34.2

E. Short te$" lIsan., i.n_tus (.L.sw _s.u Pnsled 1.t48 1.736 1.835 1.491 1.480 966 1.635 .t 53t.

j1 11% .5 P.t.p3.t .1.11 S Sito.., .. .r y I,.11s

t/ 6535 too .Isuis- II. I ll"J ".6No iwn i . 311 .t ,s * sIl$# 1-*u1 111i- pis4. gig t p1- fSI o t

41 Rt.*p4nr te. lts d I.-i *..w I.1Im

- 29 -

29

EXCERPTS FROM PCR PREPARED BY TCZB

I. INTRODUCTI0N

The agricultural credit requirements of Turkey have increased inparallel with the developments in the agricultural sector. Work towardsincreasing resources in order to meet the requirements of this sector has beencontinuing since the early 1970s.

The relationship between T.C. Ziraat Bankasi, the main provider ofinstitutional agricultural credits in Turkey and the World Bank, began anddeveloped during this period. Agzeements between the Government, T.C. ZiraatBankasi, and the World Bank led to the implementation of 11 projects whichaimed at contributing to the development of Turkish agriculture for a total ofUS$384 million in Bank loans and credits.

The purpose of the Second Agricultural Credit Project (SACP) wasto meet the increasing requirement for agricultural credit parallel to thedevelopment of the agricultural sector. The project which became effectivewith the agreements dated 27.6.1983 is comprised of two parts as (A)Agricultural Development and (B) Institutional Development. The breakdown ofthese parts is as follows:

(A) Agricultural Development:

- On-Farm Development- IAEE-Irrigation Completion- Second Crop Scheme- Fallow Reduction Scheme- Corum Cankiri Rural Development Project

(B) Institutional Development

- Consultancy- Training- Equipment

The agreement foresaw the completion of the project on 31.12.1987.

II. PROJECT IDENTIFICATION. PREPARATION

The discussions held in 1981 between the World Bank, our Bank andour Government representatives aimed at the purpose of meeting the everincreasing demand for agricultural credits, led to the unanimous decision thatSACP would be prepared by our Bank. On the other hand, the World Bank agreedthat the funds allocated for the project would be made directly available toour Bank under Government guarantee.

30 -

AMEX aPage 2

Subsequent to discussions among the World Bank, the Ministry ofAgriculture, Forestry and Rural Affairs and the State Planning Organization,the topics of the Project were determined as follows:

1. This project would provide complementary financing for thealready existing projects funded by the World Bank, and further,would enable the continuation of the Corum-Cankiri Project at thesecond stage, within this project.

2. The credit requirements of the other World Bank financedprojects the implementation periods of which coincide with SACP,would be handled in an integrated manner, and the agriculturalcredit requirements of the Irrigation Completion Project, preparedjointly by Devlet Su Isleri and Topraksu General Directorate,would be handled within this project. It was planned thatagricultural credit requirements resulting from irrigationinvestments in the Konya-Eregli, Antalya-Aksu, Kars-Igdir, andVan-Ercis regions would be met within this project.

3. Agricultural credit requirements of the Second Crop and FallowReduction Scheme both of which have Government priority and ofwhich the Ministry of Agriculture, F;restry and Rural Affairs hascompleted preliminary studies, were planned to be handled and metwithin the framework of this project.

4. It was envisaged to handle the credit requirements forinvestment and operational credit of producers located in the 10provinces (Afyon, Ankara, Balikesir, Burdur, Denizli, Diyarbakir,Isparta, Kotahya, Mardin and Sanliurfa) in which the Ministry ofAgriculture, Forestry and Rural Affairs had been developingagricultural extension services, within the framework of thisproject.

5. The provision of funds within this project to the out-of-country training of some bank personnel and the purchase ofvehicles and equipment was approved.

Project preparation groups were formed with TCZB. The workrelated to the technical aspects of the project was carried out by projectgroups formed at MAFRA in cooperation with our Bank.

In May 1982, FAO experts working on the World Bank/FAO CooperativeProgram joined the project. According to the disposition determined by thethree-member FAO team, relevant sections and their annexes would be preparedby our Bank; the section dealing with Agricultural Expansion Services and theannexes regarding the subject matter of projects mentioned above would beprepared by MAFRA and the other sections would be prepared jointly by the FAOgroup.

- 31 -

ANNEX 2Page 3

In the same year, it was decided that the preliminary draft reportabout the project would be prepared and that the final draft report would bepresented to the World Bank according to the results obtained from the workdone by our Bank, MAFRA and FAO.

The experts' documents were presented to the World Bank and theresult of their review of these documents their counter views were stated asfollows:

The World Bank has asserted that interest rates applied toagricultural credits would cause problems and that interest subsidy,preferential credit policies and low interest rates to agricultural creditswould result in the utilization of these credits in other areas. It wasrequested from the Government that short-term interest rates be set accordingto the inflation rate and that the interest rate be adjusted according to thewholesale price index thus obtaining positive real interest rates; and thatlong- and medium-term interest rates be equal to or 2 points lower than theshort-term interest rate and that changes in these interest rates be appliedto all loans.

The World Bank required that its approval be obtaineJ in thereorganization work to be carried out to strengthen TCZB and that anappropriate action plan be approved by the Board of TCZB and sent to the WorldBank. Among other views, raising of the loan limits of individual Branches toTL 20 million and increasing this limit automatically according to theinflation index, were also expressed.

It was also suggested that MAFRA have a seat on the Board ofDirectors of TCZB so that cooperation between MAFRA and TCZB could beachieved.

The fact that agricultural sales cooperatives were supporteddespite the insufficient amounts of agricultural production credits wasmentioned and hope was expressed that TCZB would avoid deterioration of itsfinancial viability and the already limited credit resources, and that theGovernment would immediately pay the overdue debts of the sales cooperativesto TCZB.

It was alsn indicated that the Agricultural Credit Cooperativesystem should be strengthened.

Our Bank's response to the views of the World Bank was as follows:

- It was indicated that TCZB determined its interest policies inaccordance with selective credit policies and in line with theviews of the Government. It was further stated that in the year1982 the interest rate of 22% was not low compared to an increaseof 251 in the wholesale prices and that since higher interestrates were applied to overdue accounts, the desired results wereobtained.

- 32 -

Page 4

- Within that context, plans regarding the reorganization ofauthority and responsibilities of the General Directorate andbranches and the working princlples and responsibilities of eachone of them were prepared.

* Delegation of some of the authorities of the General DLrectorateto Regional Directorates started during this period.

- Studies to increase loaning limits of the General Directorate andbranches, to be within the limits granted by the law of bankingwere started.

- It was indicated that the arrangements regarding all thecooperatives in the country had begun.

The World Bank, in its telex dated 15 Jurne 1983 informed that aloan of US$150.4 million had been allocated for SACP. In the same telex, itwas indicated that the request of the Government of Iran (an interested partybecause of riparian issues) regarding the delaying of talks on theimplementation of the IAEE-lrrigation Project for one month was accepted.

III. IMPLEMENTATION

The loan agreement regardlng SACP was signed between the WorldBank and TCZB on 27.6.1983. The project became effective on 1.3.1984.

The following factors caused the delay in project implementation:

1. The protocol between the parties regarding the sections of theproject (The Second Crops and Fallow Reduction Schemes) that were to bejointly implemented with MAFRA.

2. Time required to obtain legal advice regarding the project.

3. Formalities regarding the Treasury's undertaking of theexchange rate risk at the drawings from the project of TCZB as the directdebtor.

On the other hand some factors which adversely affected theimplementation of the Project are as follows:

1. US$24 million were allocated from the project to the SecondCrops Scheme which aimed at providing vegetable oils and relatedly animal feedmaterials. Although the fund was suitable to credit approximately 640,000 haof Second Crops production according to informaticai from MAFRA with loans madeavailable to the Second Crops Scheme outside this project, because the schemewas included in the project after the agreement, and including the provinceswhere loans were provided outside the project, in 1982 5,591 ha, in 1987

- 33 -

ANNEX 2.Page 5

20,684 ha and in 1988 13,792 ha were credited, giving a five-year average of16,417 ha. For this reason only US$3.0 million of the allocated funds couldbe utilized and the balance was used in the other categories.

2. The same situation is true for the Fallow Reduction Scheme.Since credits of TCZB are extended to farmers for fields sown during the year,some of those fields not left to fallow were able to util4ze credits outsidethe project and these credits were .aot handled within tthe program. Of theUS$16.5 million allocated for this purpose US$7.0 million was utilized and thebalance was channeled to the other categories.

3. The purpose of the IAEE-Irrigation Completion Project was tomeet the credit requirements of increased production that came about throughthe construction irrigation facilities by Devlet Su Isleri in the Igdir, Aksu,Eregli and Ercis regions. However, delays in the construction of irrigationfacilities adversely affected performance of this part of the project and notall of the allocated funds could be utilized. For reasons described aboveonly US$1.5 million of the allocated US$10 million for medium-term loans(category I-a-2) could be utilized. Our proposal to reallocate the balancefor short-term loans in the Farm Development Section (category l-b-2) wasaccepted by the World Bank. Only US$1.5 million of the initial allocation offunds amounting to US$4.6 million for short-term loans (category 1-b-4) wasutilized, again due to the reasons mentioned above. The balance wasreallocated for use in the short-term loans of the farm development component.

4. Initially it was found appropriate to allocate funds amountingto US$60.4 million for category l-a-l use the medium-term loans of the farmdevelopment component. Hcwever, besides changes after 1981-1982 in theproducer investment preferences, with equity investments in livestocksupported by HAFRA by 25 to 30X incentive premium, only US$40.4 million of theallocated funds could be utilized. US$20 million was reallocated to theshort-term loans (cat. 1-b-l) of this project.

The original allocation for the short-term loans (cat l-b-l) ofthe Farm Deveslopment Project %s US$17 million. However, due to increases inthe annual expenditures of agLIcultural operations and changes in investmentpriorities the allocated amount was completely utilized by the beginning of1985. Transfers from other categories of US$17 million in 1985 and laterUS$31 million and US$23.4 million in 1988, the closing year of the projectwere made bringing the total drawings from the fund for this category up toUS$88.4 million.

5. The Corum-Cankiri Project was planned to be a continuation ofLoan 1030-TU which was implemented in the period prior to SACP. The purposeof the project was to meet the seasonal expenditures of producers and toreduce fallow land in these provinces. The US$12 million allocated by theLoan Agreement was reduced to US$7 million. The credit finally drawn from theWorld Bank amounted to US$7.2 million for this category.

- 34 -

ANNEX 2Page 6

6. In the institutional section of the project, of the US$4.7million funds initially allocated for equipment US$146.997 was utilized forpurchasing armored vehicles. Due to changes and increases that occurred inour Bank's equipment requirements and due to the fact that planning was madeat the macro level and that it was decided to meet equipment requirements fromour Banks own resources, US$4.55 million remaining in the (B-3) equipmentcategory was transferred to the farm development component.

7. Spending of the allocated US$800.000 fund for "Consultancy"(Cat. B-1) and "Training" (Cat. B-2) in the institutional developmentcomponent was realized as US$801,467.

According to the Loan Agreement dated 27.6.1983 the project was tobe completed by 31.12.1987 but because of the following reasons was extendeduntil 30.6.1988:

- Delays in the beginning.

- In some of the provinces where the project was implemented, fundsfrom the Third, 'ourth and Fifth Livestock Projects, which lasteduntil 1987, were utilized first.

In 1988 the final drawings from the allocated funds were made andthe US$150.4 million fund was fully disbursed.

Final figures showing allocated funds and realized drawingsaccording to categories in the agreement are given in the table below:

- 35 -

ANNEX 2.Page 7

Table 1: Project Realization Figures(S million)

Medium-Term Loans Original Reallocation Realization

Front-end Fee 0.4 - 0.4(1)(a) (i) On-Farm Development 60.4 - 20.0 40.4(l)(a)(ii) IAEE-Irrigation

Project 10.0 - 8.5 1.5

Short-Term Loans

(l)(b) (i) On-Farm Development 17.0 71.4 88.4(l)(b) (ii) Second Crop 24.0 - 21.0 3.0(l)(b)(iii) Fallow Reduction 16.5 - 9.5 7.0(l)(b) (iv) IAEE-Irrigation

Project 4.6 - 3.1 1.5(l)(b) (v) Corum-Cankiri Project 12.0 - 4.7 7.3

Equipment B-2 4.7 - 4.6 0.1Consultant B-1 0.4 - 0.4Training B-2 0.4 -04

150.4 0.0 150.4

IV. OPERATING PERFORMANCE

The basic purposes of SACP were to increase agriculturalefficiency boy financing productive investments at the farm level and todevelop the sources of TCZB.

The agreement was signed in 1983 became effective in 1984 andcompleted on 30.6.1988 by an extension of 6 months.

Operating performance of the proj'ect with respect to agritulturaloperation for this period came about as follo*s:

A. Agricultural Credit:

1. On-Farm Development Component for farmers in the 10 provincesto which agricultural extension services were provided:

The project aimed at the following.

- Mechanization- Cattle and sheep fattening

- 36 -

ANNX 2&Page 8

- Orchard establishment- Approximately 6500 medium-term sub-loans form financing the

investments in broiler and egg production.- Approximately 70.000 short-term sub-loans for financing seeds

fertilizers, animal feed and other seasonal expenditures for cropand livestock production.

The loans allocated during the project application are shown indetail in Annex II.1/ As can be seen from the information in the tables inthe annex, during the 1983-1988 period a total of TL 95,122,404,000 medium-term sub-loans was allocated to the producers in 71,004 loans.

The distribution of these loans for categories was as follows:74.92 for agricultural machinery and equipment, 7.1X for stable facilities forcattle fattening, 2.0X for stables for sheep fattening, 9.32 for fixedinvestments of egg production, 2.62 for broilers and 4.2Z for orchardestablishment and repair expenses. Total investment amounts and loansdistributed regarding these categorie& are given in Table 2 below.

Table 2: Loans Allocated under On-Farm Deyelopment Scheme(TL million)

Investment FarmerAmount Contribution Credit

Orchard Establishmentand repairs 5,640 1,693 3,947

Broiler 3,760 1,316 2,444Egg Production 13,160 4,305 8,855Sheep Fattening 2,962 1,037 1,925Cattle Fattening 10,384 3,635 6,749Agricultural equipment 94.936 23J734 71.202

TOTAL 130,842 35,720 95,122

Short-term sub-loans in the Farm Development Component during the1983-1988 period amounted to TL 305.5 billion for 846,467 loans.

Out of these sub-loans the credit distribution in percentages gasas follows: 17.36X for cattle fattening, 10.26X for sheep fattening, 3.26Xfor egg production, 0.6Z for broiler, 15.622 for fertilizer, 0.222 forpesticides and 52.682 for seasonal expenditures of vegetable production.

1 The Annex number refers to the main report.

- 37 -

ANNEX 2Page 9

Under the project medium-term loan drawings from the World Bankamounted to US$40.4 million while short-term drawings amounted US$88.4million.

2. The Second CroR Scheme:

In accordance with those participating In the Second Crops Scheme,Decree No. B/4535 dated 2 May 1982, 60,000 short-term sub-loans wereallocated. These sub-loans are shown in the tables in the Annex-IV.'/ Theyearly distribution from this category is given in Table 4 below.

Table 3: Loans under the Second CroR Scheme(TL million)

Year Number of Loans Amount of Loans

1983 6,367 8111984 4,955 1,1521985 6,190 2,2761986 4,963 3,0721987 8,391 3,8571988 19.415

30,584

3. Fallow Reduction Scheme:

In order to reduce the area of fallow land, which currently makesup approximately 1/3 of sowable land in Turkey, 50,000 short-term sub-loanswere planned to finance the purchase of seeds and fertilizers and otherseasonal expenditures.

It was seen that not all of the initial allocation of US$16.5million would be utilized and portions of the allocation were transferred toother categories and the final utilization was realized as US$7.0 million fromthe World Bank.

Details of the loan allocated to farmers in provinces within thescheme, for the period of 1983 to 1987 are shown in Annex III.'/ Totalamounts of the loans for fallow reduction scheme are given in Table 4 below.

X The Annex number refers to the main report.

- 3C -

ANNEX 2.Page 10

Table 4: Loans Allocated Under Fallow Reducing Scheme(TL million)

Year Number of Loans Credits

1983 7,759 6431984 10,710 8791985 14,064 1,2731986 26,156 4,3111987 - 7.230

14,337

4. IAEE-Ireigation Comnletion Scheme:

The State was to allocate (a) US$10 million in medium-term loans,and (b) US$4.6 million in short-term loans so that approximately 25,000farmers could benefit from the advanced irrigation schemes in the Igdir, Aksu(Antalya), Eregli (Konya) and Ercis districts for procurement of machineryfinancing of orchards and green houses in medium-term sub-loans for purchasingrequired materials for vegetable production and financing of other seasonalexpenditures in short-term sub-loans.

However, as ind,cated in the previous section, only US$1.5 millionfrom the medium-term loans (Cat. l-a-2) and US$1.5 million from the short-term loans could be used because of the delays in irrigation investments.

Details of loans allocated to producers within this scheme, forthe period 1983-1988 are shown in the Annex V. Annual summaries are given inthe following table.

- 39 -

ANNEX 2Page 11

Table 5: loans Allocated Under IAEE-Irrigation Scheme(TL 000)

Years Number of Loans Credits

Medium-Term Loans

1983-84 408 3501985 23 551986 85 2901987 143 6661988-1 iu 967

801 2,328Short-Term Loans

1983-84 10,784 6781985 379 971986 2,480 6121987 3,736 7361988-1 4.634 14180

22,013 3,304

The study of the loans distributed under this scheme shows that93.6X of the mid-term loans were used for agricultural machinery and equipmentand 6.41 was used for orchard establishments and repair expenditures. Short-term credits were distributed as follows: 73.31 for crop production, 26.4Xfor fertilizers and 0.3X for pesticides.

5. Corum Cankiri Proiect:

60,000 short-term sub-loans were allocated for grain and livestockrequirements and other seasonal expenditures to farmers in Corum and Cankiriprovinces where the State was implementing an Integrated Rural DevelopmentProject. Details of the loans for the period 1983-87 are shown in the tablesin Annex VI. An annual totals are given in the Table 6 below.

Table 6: Loans Allocated Under Corum-Cankiri Project(TL 000)

Years Number of Loans Credits

1983 29,972 3,6891984 29,124 2,5911985 27,779 3,9891986 27,155 4,1421987 25,772 5,4831988 14.051 6.036

153,853 25,930

- 40 -

Page 12

The breakdown of the loans is as follows: 80.61 for seasonalexpenditures, 4.9X for chemical fertilizers, 0.3X for agricultural chemicals,7.3X for seeds and 7X for animal husbandry.

Of the US$12 million fund allocated for this section, US$7.2million portion was utilized and the balance was transferred to othercategories.

As a result, out of the allocated US$150.4 million, US$149.1million was used for agricultural loans and the remaining US$1.3 million forinstitutional development.

The Project Evaluation Department randomly selected 45 debtors anddid an economic survey of them. Three of the 45 were found to have noproduction activity, the satisfactory results of the other 42 are enclosed inthe Annex VII.1/

V. INSTITUTIONAL PERFORMANCE DEVELOPMENT

TCZB is administered according to Law No. 3202 dated 1937 andAddendum Law No. 2227 dated 1979. It is also subject to the stipulations ofDecree No. 107 dated 10.10.1983 regarding the establishment of TCZB.

With this decree full state ownership of the Bank wa.s preservedwhile the formation of the Board of Directors was changed. The Assembly ofManagers was also abolished.

With Decree No. 233 dated 8.6.1984 regarding State EconomicEnterprises the formation of the board of directors was again changed.

According to the stipulations of the previously implemented TU-1248 Agricultural Credit and Agro-Industry Project Loan Agreement, theconsultancy firm Touch-Ross Accounting and Consultancy was contracted to doresearch on topics selected by the World Bank on how to increaseorganizational efficiency pf TCZB. A further study on the application of theacceptable results of this study was required and Hacettepe University wascommissioned to prepare a "Development Program and Application Plan Project".This was prepared and submitted to the World Bank.

Those results of this study which could be categorizedchronologically were put in an "Application Calendar" and with the separationof the others, was sent to the World Bank in 1982. The views which were

The Annex number refers to the main report. Financial rates ofreturn for investments financed with medium-term loans were 26-661 for beef fattet.,Lng, 26-101 for egg production and 281 forbroiler production.

- 4i. -

ANEX_2Page 13

accepted by the World Bank were put in an "Action PlanH and were implementedby relevant sections from 1 July 1983.

The secretariat of the implementation of the Action Plans wascarried out by the Economic Research Department and information regardingdevelopments was collected and reported to senior management every threemonths. Reports were sent to the World Bank twice a year (April-October).

During the action plan implementation period the desiredperformance could not be fully achieved due to circumstances beyond thecontrol of TUB. Due to routine changes at the administrative and decisionmaking levels and the decision of the Council of Ministers to reorganize theState Economic Enterprises, new arrangements were required and revisedprograms were prepared on such issues as bank organization, determination ofinterest rates according to inflation and the determination of authoritylimits of lending units.

These studies and the consequent action plans have resulted in thetransformation of the management system of TCZB from being a problem-orientedmanagement system to a purpose-oriented management system.

Because of the fact that SACP was a means for institutionaldevelopment of TCZB the loan agreement included allocation of funds for"Consultancy Services, Training and Equipment". To ensure consultancyservices and to provide training abroad of the Bank personnel, agreementnumber UTF/TUR/030/TUR was signed with FAO on 12.2.1986.

US$400.000 were allocated for following subjects:

- Development of the Accounting System of TCZB- Revision of procedures and actions.

The following work was conducted on these issues:

- The investigation of the correspondence volume and flow,correspondence methods, forms and surveys and the preparation ofsuggestions for improvement.

- The investigation of methods and communications, especially frombranches to head office through regional management and viceversa, and preparation of suggestions for improvement.

- The investigation of credit operations taking into considerationthe responsibilities of Branch Regional and General Management andreduction of centralization.

- Preparation of suggestions for a management information system toensure flow of information for managers at various levels.

- 42 -

Page 14

- Investigation of credit application and evaluation forms used inthe branches and their simplification.

- Arrangement of the accounting system so that a reporting system tomanagement at appropriate intervals can be devised.

- The setting up of a cost accounting system at TCZB to determinecost and revenues.

- The determination of required machinery and equipment.

The project also aimed at training of personnel at every level forinstitutional development. This method of training was indicated in the basicproject of the World Bank and took place in the approved action plan of TCZB.W!.thin the Project, Senior and mid-level Bank personnel have been trainedabroad in accordance with the plan prepared with FAO.

The subject, location and dates of training are shown in Table 7below:

Table 7: Manchester Business School U.K.

Date Duration Participants Subject of Course

February/1987 3 weeks 15 Lending ProceduresFebruary/1987 2 weeks 15 BankingApril-May 1987 4 weeks 16 Management Accounting

and Information SystemJune 1987 3 weeks 14 Organizational

DevelopmentSeptember 1987 2 weeks 14 Management DevelopmentDecember 1987 1 week 3 Strategic Bank

Management

Harvard University. U.S.A.

June-September 1987 3 months 1 Project Appraisal andManagement

Study Tour U.S.A.

July 1987 2 weeks 10 Management DevelopmentTotal 88

The Project's equipment section aimed at the acquisition ofrequired machinery and equipment during the institutional development period.

- 43 -

ANNEX 2Page 15

US$4.7 million was allocated for the procurement of 74 armored trucks, 7minibuses, and various equipment.

Only US$146,997 was spent for 10 armored vehicles for moneytransport. The unutilized balance was later transferred to other categorieswith the approval of the World Bank.

The growth of TCZB in number of branches and personnel for theyears 1984-1985 is as follows:

Table 8: TCZB Performance in 1984-1987

ForeignExchange Service Representative

Year Personnel Branches Offices Offices Offices

1984 36,936 1,133 21 13 111985 37,208 1,151 22 20 111986 38,891 1,163 21 25 111987 41,653 1,201 25 26 10

In the period 1984 - 1987, the number of branches increased by 6%,the number of offices by 35% and the number of personnel by 131.

Furthermore, there was an increase in the personnel number workingin provinces an districts within SACP. The numbers are as follows:

Table 9: Number of Personnel related with the Proiect

Sub Project 1985 1986 1987

Farm Development 4,289 4,272 4,503Second Crop 7,150 7,255 8,040Fallow Reduction 3,046 3,256 3,387IAEE-Project 90 95 97Corum-Cankiri 286 277 337

In 1983, 290 technical personnel comprised of 118 agriculturalengineers and 172 technicians worked in these branches. By the end of 1987the total was 370 technical personnel comprised of 155 agriaLltural engineersand 215 technicians.

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ANNEX2Page 16

VI. EVALUAION

A questionnaire was prepared requesting information, observationsand conclusions to be used in the general evaluation of the project and forfuture reference. This questionnaire which included questions from the WorldBank's "Project Completion Report Guide" was sent to 400 branch managers andthe results based on information received from farmers and local farminginstitutions have been used in the general evaluation of the project. Theevaluation is as follows:

(a) Whether or not the project implementation was in line with therequirements of the regional producers: In the replies receivedfrom our branches 47.51 decided totally, 44.5X declared partiallyand 81 declared not at all.

(b) Whether or not production increased as a result of the project:64.4X declared production increased in the region and 35.61declared there was not much change in production.

However, as a result of studies conducted at regions where therewas no increase in production, it was determined that these were areas of lowagricultural potential with branches of low lending. Furthermore, the studyof the production of major crops in the selected 27 districts within the 11provinces of the project, in the Annex VIII shows that the project was indeedinfluential in the increase of production.

(c) Our branches came to the conclusion that small and medium sizefarmer groups benefitted from the project the most.

(d) Two major factors were named as those most adversely affectingproject implementation: the high prices of agricultural inputmaterials and the low level of the product prices. These werefollowed by high interest rates. It has been stated that highcost and low sales price has directed producers to produce otherlow cost products.

(e) In cases where the revenues of the farmers increased theyreinvested these revenues in agricultural investments. In caseswhere the revenues of the farmers decreased they were late inrepaying their loans and the demand for loans from our Bankincreased.

(f) Responses from low income regions showed that the project waseffective in slowing down migration from the area.

(g) In general, our branches indicated that this type of project wasuseful.

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Page 17

VII. GQNp WSION

In conclusion, it is determined that this type of project isbeneficial to Turkish agriculture and to Turkish farmers. The mistakes and

deficiencies seen in this project will be useful for future applications. Itis also determined that sufficient funds were provided in due time and that

TCZB's resources expended with the allocated funds. Positive results were

also observed in p:ovinces which were included in the project.

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THE REPUBLIC OF TURKEYPRIME MINISTRY

TdE UNDERSECRETARIAT OF TREASURY AND FOREIGN TRADE

27 SEP 1990

Mr. T.H. YoonDivision ChiefAgricultural OperationsEMENA IWorld BankWashington D.C.

Subject: Second Agricultural Credit Project(Loan 2318-TU)Project Completion Report

Dear Mr. Yoon,

The Draft Project Completion Report (PCR) of the above project has beenreviewed by the Treasury and participating organizations. Comments andfindings are summarized below.

The Treasury finds the content of the report satisfactory and reflectsthe project's effects on production and institutional changes. However, theexpansion of paragraph 22 and 24 would be more appropriate. That is, inparagraph 22 in setting achievement of the project, it is stated thatunrealized procurement of the Important amount of equipment was a fact of theproject, the reasons of it should also be placed in the paragraph in order tobetter understand the type of difficulties encountered in the project.

In spite of the statements made in previous paragraphs that unexpectedinflation increase affected input prices more than output prices, paragraph 24points out that realized financial rate of return of farmers is considerablyhigher than projected. An explanation about factors resulting high returnwould be more helpful to understand project outcomes which effect farmers'incomes.

We fully agree with the statement in paragraph 32 (b) indicating that inthe case of more than one organization involvement in a project coordinatingcommittees have important role in the sut.cess of the project. Setting upcommittees at each implementation level is considered necessary by us fortimely and successful implementation. Therefore, this statement could be moreemphasized.

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Page 2

Project Implementation General directorate (PUGEM) also agrees on theproject's contribution increasing livestock and rice productivity andproduction. The General Directorate has no further addition to the report.

TCZB, which was the main implementing agency of the project, states thatall the figures in the report matches with the Bank's (TCZB) records andreport's content are fully agreed except below corrections:

in paragraph 27 given spread to TCZB should be corrected as X 3.5

on page 12 part (A) should also include Corum-Cankiri RuralDevelopment Project.

The figures for the Sub-Loan credit distribution should becorrected as follows:

Cattle fattening : 17.36%Sheep fattening : 10.26XEgg production : 3.26XBroiler : 0.6%Fertilizer : 15.62XPesticides : 0.221Seasonal Expenditures: 52.68X

With Best Regards.

Murat KUDATDeputy Director General

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