Turkey and the IMF |
Press Release: IMF Approves US$701 Million Disbursement Under Stand-By Credit to Turkey
April 18, 2003
Country's Policy Intentions Documents
Use the free Adobe Acrobat Reader to view Annexes A-N (746 kb PDF file).
Mr. Horst Köhler
International Monetary Fund
Washington, D.C. 20431
Dear Mr. Köhler:
1. The new Government is determined to strengthen and implement the ongoing economic reform program of Turkey. After the November 3rd elections, Turkey's 58th Government won the vote of confidence in Parliament and took office on November 28, 2002. Financial markets reacted favorably to the election of a strong single-party government, helping to reinforce trust in Turkey's economic prospects. The decision of the European Union leaders at the Copenhagen Summit in December also provided impetus to stabilization and reform efforts on the way to full membership of the European Union. In the early part of 2003, the 58th Government established the main policy framework for the completion of the fourth review under the Stand-By Arrangement. Building on this progress, the reshuffled Government which won the vote of confidence in Parliament on March 23, 2003 will expeditiously continue with program implementation.
The objective of our Government is to unleash Turkey's development potential
by providing a stable macroeconomic environment and implementing fundamental structural
reforms. The Government's main goals are disinflation, debt reduction, and
lasting rapid growth. We are committed to sustaining the reduction in inflation
and we will continue with our disinflation policy to further enhance the prospects
for rapid growth in the economy. Our public sector primary surplus target of 6.5
percent of GNP for 2003 is of paramount importance both to fuel confidence in
our program and to reduce the high net public debt to GNP ratio. For 2004, and
over the medium term, we remain committed to our 6.5 percent primary surplus target.
Should prospects for debt reduction change significantly we would be prepared
to adjust the target, in close consultation with the Fund, provided that this
is consistent with our goal of reducing the public debt ratio to levels specified
in the Maastricht Treaty. We also attach special importance to increasing the
private sector's role in the economy. We believe that a well-functioning market
mechanism and private sector led economy are the main pillars that will underpin
sustainable growth. Accordingly, our Government will particularly focus on a renewed
privatization effort, measures to attract foreign direct investment, fighting
corruption, and improving corporate governance and transparency in the public
sector. We also believe that sustainable growth requires adequate safety nets
to prevent exclusion of those parts of the society that are most vulnerable to
the externalities of a market based economy and globalization. |
3. The program strategy and macroeconomic targets of the Stand-By Arrangement covering 2002-04 are sound and feasible. The economic performance of 2002 has demonstrated the Turkish economy's ability to recover quickly and the responsiveness of the economy to sound policies. The original macroeconomic objectives for 2002 have been well exceeded. End-year consumer price inflation fell to 29.7 percent, well below the original program target of 35 percent. The Central Bank's independence played an important role in reaching the inflation target, and the Government will continue to ensure the Central Bank's independence and support its goal of price stability. In 2002 economic activity also picked up strongly, with GNP growth reaching 7.8 percent, well above the original target of 3 percent and even the revised target of 6.5 percent. Our balance of payments position was also comfortable, with gross international reserves rising substantially and the external current account deficit limited to 1 percent of GNP. The net public debt to GNP ratio is estimated to have fallen to below 80 percent at end-2002 from more than 90 percent at end-2001.
4. Although the general framework of the program has been kept in place, over the past several months fiscal policy has been weaker than envisaged (Annex A). On the monetary policy front, the monetary aggregates have been within program limits, as end-September and end-December performance criteria for base money and net international reserves have been met. However, on the fiscal front the end-December performance criterion for the primary surplus of the consolidated government sector was missed. This was largely due to the increased spending and weaker than expected revenues in the budget arising from declining tax compliance in the months surrounding the early elections. The divergence from the originally agreed fiscal framework for 2002 could not be compensated by our Government's actions in the little time left before year-end. Under these circumstances, the Government concentrated its efforts on improving the fiscal balances in the period to come. As the first step, the Government passed the interim budget for 2003—covering the first three months—on December 27, 2002, which kept real expenditures constant relative to the corresponding period last year. This Letter describes our subsequent efforts and commitments to get fiscal policy back on track.
5. Progress has continued in structural reform, although falling short of fully meeting program conditionality (Annex B):
6. Several structural commitments were missed due to early elections, legal proceedings, or else due to the time constraints faced by the Government. These include the structural performance criterion on eliminating two thirds of the remaining redundant state economic enterprise (SEE) positions by end-October, and structural benchmarks relating to (i) resolving Pamuk bank and ownership in Yapı Kredi Bank, (ii) announcing the sale of part of the SDIF's loan portfolio, (iii) various elements of the tax administration reform, (iv) adopting a privatization plan for Türk Telekom, (v) passing legislation to establish a code of ethics for civil servants and public administrators, (vi) submitting to Parliament legislation to improve state enterprise governance, (vii) enacting comprehensive reforms of the Execution and Bankruptcy Act, (viii) including net lending as an appropriation in the draft 2003 budget (which was met only in part), and (ix) putting in place an integrated quarterly monitoring system of general government and SEE employment. Nevertheless, we remain committed to the structural reform agenda, and seek rapid progress in this area in the period ahead.
7. With this Letter of Intent, we provide the details of our action plan to strengthen and speed up the adjustment and reform process, and thereby request the completion of the fourth review under the Stand-By Arrangement. In support of our request for completion, we have formulated a macroeconomic framework and a structural agenda for 2003. The related monetary, fiscal, and external conditionality for 2003 is presented in Annexes C-M, and the new structural conditionality in support of our reform agenda is included in Annex B.
8. We also request waivers of nonobservance for the performance criteria on (i) the cumulative primary balance of the consolidated government sector for end-December 2002, and (ii) eliminating two thirds of redundant positions in SEEs by end-October 2002. As explained below, we are taking strong measures to bring fiscal policy back on track, including through adopting an annual budget for 2003 consistent with our public sector primary surplus target of 6.5 percent of GNP and supported by front-loaded measures. This will underpin the achievement of disinflation, debt reduction, and sustainable rapid growth. With respect to the elimination of redundant positions in SEEs, as of end-October, 17,801 redundant positions had been eliminated mainly through voluntary retirement. This performance fell short of the target set for end-October by 12,727 positions. Early elections, reluctance of workers to retire (in anticipation of January wage increases), delays in the privatization program and inadequate financing for the Privatization Administration (PA) were the main contributing factors to the shortfall. As of end-January 2003, 20,718 positions have been eliminated. We will meet program conditionality to eliminate all redundant positions—originally scheduled for end-June 2003—by end-2003, on the basis of our strengthened plan described in paragraph 22.
9. In addition, we request a rephasing of the purchases outstanding over the remainder of the program (Annex N). Our gross reserves position is stronger than envisaged under the original program, and now stands at about US$28 billion. At the same time, we have faced delays and difficulties in meeting some program commitments, as described above. Both these factors call for a rephasing of the remaining purchases that is better tailored to Turkey's financing needs.
10. While committed to disinflation and stabilization, the Government recognizes the vital importance of social protection of the most vulnerable segments of the population for the successful continuation of the reforms. To this end, we will strictly remain within the budgeted fiscal framework, while increasing the impact of social spending by better targeting the social support programs and channeling more of the available resources to the most vulnerable parts of the society.
11. We believe that the policies and measures described in this letter are adequate to achieve the objectives of the program. We will consult periodically with the Fund, in accordance with the Fund's policies on such consultations, about the progress being made in implementing the policies supported under the Stand-By Arrangement, and in advance of any revision to these policies. We will provide the Fund, through reports at intervals or dates requested by the Fund, with such information as the Fund requests in connection with our progress in achieving the objectives and policies set forth in this Letter.
12. The recently started military conflict in neighboring Iraq will not derail achievement of our key macroeconomic and structural reform objectives. In the event of a swift conclusion to hostilities we believe our macroeconomic framework and objectives for 2003 will remain viable. At the same time, we recognize that there are uncertainties, reflected in our financial markets, as to the magnitude and duration of the economic impact of the conflict. Accordingly, we are taking fiscal actions to promote a smooth rollover of government debt, by blocking central government budgetary appropriations for discretionary spending (except defense) until further notice. We are prepared to continue this blockage, with annual savings of at least 1 percent of GNP, as long as is required by our budget financing program. Moreover, if prior to the Fifth Review developments point to significant changes to the macroeconomic framework or in financing prospects, we stand ready, in close consultation with the Fund, to (i) revise the program's macroeconomic projections, (ii) adopt on a timely basis additional fiscal and other measures necessary to safeguard our program objectives, and (iii) agree to revised program modalities.
13. Any use of additional bilateral financing will be fully in line with our program commitments. The U.S. government has proposed economic support for Turkey in the grant-equivalent amount of US$1 billion that could be converted into loans of up to US$8.5 billion. Should this or other bilateral assistance materialize, we will use it primarily to strengthen our debt reduction strategy through lengthening maturities and lowering interest rates. Additional spending to address temporary costs arising from the Iraq conflict will be financed by grants or by taking offsetting fiscal measures, thereby preserving our primary surplus objective.
14. The better-than-expected outcomes for 2002 are clear evidence that our targets for 2003 of 5 percent growth and 20 percent inflation are appropriate and feasible with the strict implementation of our program strategy described in this Letter. The strong recovery in 2002 bodes well for growth in 2003, which we continue to project at 5 percent, in light of strong performance in the early months of the year for industrial production and notwithstanding downside risks resulting from the war in Iraq. On the inflation front, the CPI inflation rate declined to 29.7 percent in 2002 from 68.5 percent in 2001, suggesting that our 2003 target of 20 percent remains feasible. In 2002, the main source of growth was stock building. However, in 2003 we expect growth to be driven by private fixed investment and consumption. The low base for private consumption and steadily increasing capacity utilization rates in private industry support these expectations. But regaining consumer and investor confidence with strict program implementation will be the most crucial factor in fostering final domestic demand.
15. In support of these targets, we will continue to pursue our strategy of fiscal discipline, gearing monetary policy to achieve the inflation target, and instituting deep structural reforms. We remain resolute to maintain a tight fiscal stance, including prudent public sector wage and employment policies and fitting any additional spending program within the public sector primary surplus target of 6.5 percent of GNP for 2003 and beyond. This underscores our strong commitment to maintaining sound debt dynamics. A move to formal inflation targeting will further strengthen the monetary policy framework, while implementation of our comprehensive structural reform agenda will enhance medium-term prospects for economic growth and employment.
Fiscal policy and public sector reform
16. Our 2003 public sector fiscal program is designed to yield a public sector primary surplus of 6.5 percent of GNP. Given the policy slippage in 2002, this implies fiscal adjustment equivalent to about 2½ percent of GNP from the outturn of 2002. In the interim budget covering the first quarter, we held discretionary spending constant in real terms. We have since specified a number of measures, totaling 4.9 percent of GNP, to bring us to a position consistent with our full-year target (see Annex C for a more detailed discussion). Key measures include increases in tobacco and alcohol excises (already implemented), increases in motor vehicles and property taxes, rationalization of the public investment program, tight wage restraint, and steps to limit expenditure growth through efficiency gains in health care and social security. On March 3, we submitted to Parliament a central government budget consistent with our primary surplus target. Prior to passage, we identified and incorporated into the budget further expenditure cuts needed to meet our World Bank supported targets for Direct Income Support and social aid transfers. On March 29, Parliament passed the budget, which is consistent with the primary surplus target, meeting a prior action for the review.
17. Our fiscal program for 2003 will fully protect social spending. We have already provided pensioners with an additional support payment for 2003 (amounting to 0.9 percent of GNP). Overall, social spending (comprising health, education, and social protection) will show an increase to 17.9 percent of GNP in 2003 from 17.5 percent of GNP in 2002. As discussed below, we will also reform social security with a view to improving the efficiency of administration and targeting of benefits.
18. In 2003, we will pursue a prudent incomes policy, to help both our fiscal adjustment and disinflation efforts. Civil service wages were increased moderately in January. Any further increase later in the year will be in line with the initial budget appropriation. For public workers, we expect the ongoing negotiations to result in an agreement that reduces the difference between the public workers' wages and civil servant salaries, the ratio of which is currently around 2. Moreover, civil servant salaries and public worker wages will not be subject to backward-looking indexation. More generally, the Economic and Social Council will be instrumental in conveying the government's commitment to breaking the cycle of backward-looking indexation to all parties involved in wage setting in the economy. The Council will next meet in April 2003.
19. In the context of the 2003 budget, we are taking several measures to ensure that the budget is implemented as specified, without expenditure overshooting and revenue underperformance as in 2002:
20. To support medium-term fiscal target of a continued 6.5 percent of GNP public sector primary surplus, we will pursue reforms to raise the efficiency of the public sector. As outlined in the Government's Action Plan, we will focus on two key issues:
21. With a view to strengthen our medium-term fiscal planning, we will also improve our management of contingent liabilities in the energy sector. By end-April 2003, we expect to have prepared a detailed estimate of contingent liabilities arising from BOT (build, operate, and transfer), BO (build and operate), and TOOR (transfer of operating rights) contracts and the contracts for the mobile plants. Based on the findings of this report, the electricity BO, BOT, and TOOR contracts and natural gas take or pay contracts will be reviewed with the relevant parties to reduce the medium- and long-term financial impact of these contingent liabilities.
22. To support the fiscal program in 2003, we will pursue fiscal-structural reforms vigorously:
23. We continue to make progress in improving debt management:
Financial sector reform
24. Progress has been achieved in all four main pillars of the BRSA's banking restructuring strategy. The private banking sector is further strengthened, efforts are continuing on the resolution of the SDIF banks and disposal of the assets held by its Collection Department, restructuring and privatization of the state banks is progressing, and the regulatory and supervisory framework is being strengthened.
25. The soundness of the private banking sector is improving with increases in capital adequacy ratios and reductions in risk exposures. The average capital adequacy ratio of private banks has increased to 16.4 percent as of September 2002. Banks are further reducing their vulnerability to risks as open foreign exchange positions remain well below the regulatory limits and interest rate risk is declining due to the issuance of floating rate notes by the Treasury. In addition, the recapitalization program and the three-stage audit process have ensured that non-performing loans are properly provisioned for.
26. We will also be taking the following measures to support the rapid resolution of the overhang of nonperforming assets of the banking sector:
27. The SDIF is continuing efforts to resolve the remaining intervened banks, although in some cases progress has been hampered by legal challenges. Since no investor expressed an interest in its purchase, Toprakbank's license was revoked by the BRSA as of September 30, 2002 (meeting a structural benchmark). The bank's bad assets were transferred to the SDIF's Collection Department, and remaining good assets and liabilities were merged into Bayindirbank, which remains as a bridge bank. Tarişbank was sold to Denizbank on October 25, 2002. Türk Ticaret Bank was put into voluntary liquidation by the vote of its General Assembly on August 9, 2002. However, the Istanbul Commercial Court has issued a preliminary injunction halting the liquidation, and final resolution will depend on the outcome of this legal case.
28. The resolution of the ownership issues surrounding Pamukbank and its sister bank, Yapi Kredi is underway. While we had originally hoped to complete Pamukbank's sale in December of last year, this had to be suspended temporarily following the injunction of the General Assembly of the Administrative Lawsuit Chambers of the Council of State (Daniştay). Following agreement with Pamukbank's former owner on January 31, 2003, we now have implemented a comprehensive solution that will underpin the future of these two banks. Reflecting our commitment to transparency, the main details of the agreement have been published. As a result of the agreement:
29. Compliance with the above agreement will be closely monitored. To safeguard the public interest, we have developed a matrix defining responsibilities for implementing all parts of the agreement. To monitor the process and to assess the bank's financial condition and capital adequacy, a special committee has been established, which will report quarterly to the SDIF and BRSA boards, and publish a summary of its findings, including the efforts to sell the bank. External auditors will be required to monitor the compliance of all parties to the agreement and to assess the bank's financial condition and capital adequacy annually. If either assessment reveals a shortfall of capital, SDIF will provide the capital needed to maintain a CAR of 10 percent in the event the majority shareholder fails to inject the capital needed. Yapi Kredi's violation of the single borrower lending limit will be resolved in the context of the sale of the bank.
30. The SDIF has developed a detailed strategy for disposal of assets held by the SDIF Collection Department (meeting a structural benchmark). The strategy announced on September 20 is in line with international best practice. However, the end-October structural benchmark for putting loan portfolios with face value of at least US$250 million up for sale, with bids to be submitted by end-2002, was missed. Initial market soundings also revealed that going ahead with the auction prior to the enactment of the bankruptcy and foreclosure law would negatively impact the results. To expedite the process, the SDIF will complete all technical preparations (including selection of the loan portfolio, and ensuring that all data and documentation issues are resolved) and announce the sale by end-June 2003 (a new structural benchmark), by which time the comprehensive bankruptcy reform will have been passed.
31. With assistance from the World Bank, we have made good progress in the financial and operational restructuring of Ziraat and Halk and are proceeding with our plans to prepare them, together with Vakif, for privatization:
32. We are also taking the necessary measures to further strengthen the regulatory and supervisory framework. In this context:
33. We will strengthen the BRSA's financial and operational independence in light of its fundamental mission of strengthening Turkey's banking system. The BRSA needs regulatory independence to bring international standards to the Turkish banking sector; supervisory independence to perform its operations and to grant and revoke licenses; institutional independence to manage its personnel and develop the careers of its personnel; and financial and operational independence in managing its resources. Accordingly, the Government will make every effort to preserve the BRSA's independence. As a first step, we will prepare legislation that will strengthen the effectiveness of the BRSA, including amendments to the Banking Act and related laws that will set out clear grounds for legal appeal of BRSA decisions, with firm deadlines and time limits for their consideration, by end-June 2003 (a new structural benchmark). These amendments include: (i) setting up a specialized chamber at the State Council that will only consider the administrative cases against the independent institutions; (ii) accelerating the consideration of administrative lawsuits against the BRSA by shortening the time limits and declaring such cases as priority cases, and (iii) informing the BRSA about temporary injunction appeals and calling both sides for a hearing before the decision regarding a temporary injunction is made. The Government is ready to pass these into law by end-October 2003 (a new structural performance criterion). The Government will also ensure the BRSA's financial independence by providing it the freedom to make spending decisions to carry out its operations.
34. The BRSA has taken steps to improve the transparency and accountability of its operations. The BRSA's accountability is already enshrined in Law. Each year, the BRSA must report on its activities to Parliament, and its expenditures are audited by representatives from the High Audit Board of the Prime Ministry, and Inspection Boards of the Prime Minister's office and the Ministry of Finance. The Minister responsible for the BRSA also reports on the BRSA's activities to the Council of Ministers. BRSA operations can also be examined by the State Supervisory Commission, which is under the control of the Presidency of the Republic. The BRSA has improved its accountability and transparency through issuance of regular reports on the strengthening of the private banking system, and through press releases clearly explaining its actions. Looking forward, we will improve this further, in the context of the new Public Financial Management and Financial Control Law.
Monetary and exchange rate policies
35. The objective of monetary policy is to reach the inflation targets, with a view to bringing inflation down to single digits over the medium term. In 2002, the CBT has met all monetary performance criteria and indicative targets. Adherence to the program, and the adoption of the new Central Bank Law in 2001, have helped to reduce inflation expectations. This has allowed the Central Bank to significantly lower overnight interest rates, from 80 percent (compounded) in January 2002 to their current level of 55 percent. Inflation ended 2002 at less than 30 percent—its lowest end-year level in two decades—and by February 2003 fell further, to 27 percent. This year the goal of monetary policy will be to reduce inflation further, to 20 percent. Sustained disinflation efforts should bring Turkish inflation rates to single digits over the medium term, which will be more closely in line with Turkey's trading partners and will also promote sustainable economic growth.
36. While base money targets are still our main monetary policy anchor, we expect to supplant these with a formal inflation targeting regime soon:
37. We remain committed to the floating exchange rate regime. However, as before, the CBT could intervene in the foreign exchange market in a strictly limited manner to dampen excessive volatility. The CBT also stands ready to reintroduce foreign exchange purchase auctions, depending on developments in the balance of payments and currency substitution, given our longer-term objective of strengthening our international reserve position.
38. In support of the floating exchange rate regime and the move to inflation targeting, we continue to make progress in strengthening foreign exchange and money markets:
Enhancing the role of the private sector
39. The Government regards independent regulatory boards operating in line with international best practice as essential for a well-functioning market economy. These boards include the Capital Markets Board, the Competition Authority, the Banking Regulation and Supervisory Agency, the Telecommunications Regulatory Authority, the Energy Markets Regulatory Authority, the Tobacco Board, and the Public Procurement Agency. The independent boards have helped de-politicize economic management in Turkey by creating a level playing field and transparent rules of the game for investors and protection for consumers in strategic sectors of the economy. They have also contributed to improved public expenditure management and more effective government. The Government is committed to protect the financial and operational independence and specific regulatory authorities of the boards as set out in their respective establishment laws. At the same time, the Government is committed to ensure full accountability of the regulatory boards. This accountability will be enhanced by the Public Financial Management and Financial Control (PFMFC) law to be adopted by end-June 2003. The PFMFC law will also provide for audit of the boards on behalf of Parliament by the Turkish Court of Accounts (TCA) following an appropriate transition period during which the TCA will implement its own internal reforms. In parallel with establishment of this framework for enhanced accountability, the Government will remove unnecessary ex-ante controls on expenditures by the boards—including visa approvals by the Ministry of Finance—and will ease restrictions on salaries of their staff.
40. In 2002, the privatization targets were not fully met, in part because of the elections. Total sales reached US$540 million, of which cash proceeds accounted for US$260 million, against an indicative target for cash proceeds of US$700 million. Among the privatization activities since the previous program review in August, in November 2002 PA shares in DITAS (crude oil transportation) were transferred to the other major existing shareholder, TÜPRAS, for US$16.5 million. In addition, in the third quarter of 2002, we tendered out the sale of four TDI ports, TAKSAN (machinery), GERKONSAN (iron and steel), IGSAS (fertilizer), TZDK (agricultural equipment) and four facilities of SEKA (paper and pulp). Negotiations regarding the four TDI ports and two facilities of SEKA, initiated in 2002, have been finalized, and will be submitted for approval by the Privatization High Council by end-April 2003. The rest of these tenders were renewed in February 2003, as no sufficient bids could be collected during September 2002 tenders.
41. In 2003, privatization is a top agenda item in the Government's program. The Government has conveyed its strong intentions by announcing the 2003 privatization program on January 13. Annex L lists the companies to be sold under this program in detail. Moreover, the Privatization Administration (PA) is examining the related legislation to include the Istanbul Stock Exchange, the Istanbul Gold Bourse, the National Lottery Agency, and Halk Bank in its portfolio. The new program aims at attracting a wider range of investor interest and is expected to yield US$4 billion in 2003. The Government will concentrate on privatization of large public companies, but will also sell some medium and small-sized public assets. To highlight the main efforts:
42. In the electricity sector, we will move decisively with the preparation for sale and privatization of key assets. As a first step, distribution will be reorganized into 33 entities. The number of distribution entities may be further consolidated. Similarly, power plants will be grouped into multiple-plant entities by end-April 2003. These distribution and generation entities (excluding those subject to legal process regarding TOORs) will be transferred under the scope of privatization by mid-May 2003. Following preparatory work—by the PA to ready the companies for sale and by the Energy Market Regulatory Authority to ensure a well-functioning energy market—the distribution entities will be transferred to the PA portfolio by end-September 2003. The tenders for the distribution entities will start in December 2003. To complement this process, the government will determine the best way to resolve the outstanding transfer of operating rights (TOOR) contracts expeditiously, based on a review and estimate of the contingent liabilities attached to such contracts to be completed by end-April 2003.
43. We expect all the efforts described above to provide a major boost to privatization. We have already announced that our privatization program for 2003 is expected to yield sales of US$4 billion. Consistent with this, and taking into account the pipeline from last year, we have set quarterly indicative targets for cash proceeds, with a full-year target of US$2.1 billion (Annex M).
44. We are continuing our efforts to improve the private business environment. While there has been a pause since political uncertainty caused the postponement of the inaugural Investor Advisory Council (IAC) meeting scheduled for July 2002, the Coordination Council for the Improvement of the Investment Climate and the nine technical committees established last year resumed their meetings in mid-December 2002. A decision of the Council of Ministers has been issued on the organizational structure and the operational procedures of the Coordination Council for the Improvement of the Investment Climate. In 2003, the Council of Ministers will take further steps to improve the investment climate, as emphasized by the Action Plan of the Government, guided by the recommendations made in the Coordination Council's reports. Taking the calendar of events into account, we will try to determine the most appropriate timing for the inaugural meeting of the IAC. Moreover, we are preparing (i) a new draft law on Prohibition and Prosecution of Smugglers, (ii) legislative amendments to simplify and streamline the company registration process, and (iii) new legislation establishing an Investment Promotion Agency, so that all three are ready to be submitted to parliament in April 2003. Also the new draft law on Foreign Direct Investment has been resubmitted to Parliament, and we expect it to be enacted by end-April 2003 (a new structural benchmark). Moreover, to improve corporate governance and support banking reform, the draft regulation regarding the operations of the Turkish Accounting Standards Board was prepared and submitted to the Prime Ministry and related Ministries for review. In addition, a communiqué, regarding the implementation of 30 international accounting standards (in line with IIAS) previously put in force, was prepared and submitted to the related institutions for review. Similarly, we expect parliament to pass legislation to establish the Turkish Auditing Standards Board by October 2003.
45. Our steps to improve public sector governance will also enhance the private business climate. A national strategy to enhance transparency and good governance in the public sector was adopted in January 2002. The basic structure and actions of this strategy has been reflected in the Urgent Action Plan (UAP) of the Government. The Government is undertaking efforts to improve public awareness about good governance and is counting on the active contribution of national NGOs. The Government is committed to implementation of the UAP which is in line with the framework set out in the national strategy. A ministerial committee for enhancing transparency and improving good governance was established in March 2003. The committee will steer relevant actions of both the UAP and national strategy in this reform area The responsibility for implementation of each action is clearly specified in the UAP. The ministerial committee will prepare regular implementation reports for the national strategy within the context of the UAP. Among a comprehensive set of actions is the Law on "Freedom of Information for Citizens", which has already been drafted and sent to agencies for comments and is expected to be passed by end-September 2003. Legislation establishing a code of conduct for civil servants and public administrations is expected to be passed by end-July 2003, meeting a structural benchmark with delay.
Follow-up on safeguards assessment
46. We continued to strengthen the transparency and effectiveness of the CBT's control, accounting, reporting, and auditing systems, including in the context of the IMF safeguards assessment, which is required for all new Fund-supported programs. In particular, the CBT has taken further steps to reorganize its internal audit function, including the adoption of a new charter and the appointment of the head of the newly created internal audit department. By the end of 2002, the CBT formulated an implementation plan identifying staffing levels, reporting lines, scope of audits, risk assessment methodologies, and developing an internal audit manual and training programs. With these actions, an end-2002 structural performance criterion under the program was met.
Very truly yours,