June 17, 2004 – The World Bank’s Board of Executive Directors approved today a US$1 Billion Third Programmatic Financial and Public Sector Adjustment Loan (PFPSAL III) for Turkey.
The main objective of PFPSAL III is to provide support during 2004 to the Government of Turkey’s financial and public sector reform priorities while ensuring that social programs are adequately funded and increasingly better targeted. Key reform priorities in the financial sector include:
(i) strengthening the regulatory framework for banking;
(ii) building institutional capacity at the Bank Regulation and Supervision Agency (BRSA) and Savings Deposit Insurance Fund (SDIF);
(iii) further restructuring of state banks in preparation for their privatization; and
(iv) improving the corporate insolvency regime.
Key reform priorities in the public sector include:
(i) deepening of structural fiscal policies in support of sustainable fiscal adjustment;
(ii) implementing public expenditure management reforms covering budget planning and execution, financial accountability, and public liability management; and
(iii) strengthening public sector governance and continuation of civil service reform.
Priorities for social spending include:
(i) adequate expenditure for health, education and social protection in the 2004 budget; and
(ii) better targeting of social protection.
The principal benefits of the Loan will be to support the Government’s efforts to create conditions for sustained growth and macroeconomic stability, ensure adequate social expenditure and better targeted social protection, consolidate the current stability of the banking system and positioning it for accession to the European Union (EU); and establish a better foundation for more effective government in line with EU directives and international best practice.
„Approval by the World Bank today of the Loan on the $1 billion PFPSAL III operation represents a major step forward for Turkey on its reform path,“ said Andrew Vorkink, Country Director for Turkey. „The program supported by this loan, many of the components of which have already been put in place, represents significant efforts by the Government over the past year to implement structural reforms in the economy of Turkey which will help lead to sustained growth and economic stability as well as better social protection.
„PFPSAL III is visible evidence of the Government’s commitment to structural reforms and of international support to the Government’s program which will have a lasting and positive impact on economic and social standards in Turkey in the years ahead,“ Vorkink noted. „The Loan also represents the World Bank’s confidence in Turkey, the Government’s reform program and the prospects for growth and stability in Turkey.“
The loan terms to Turkey for the proposed $1 billion PFPSAL III are a maturity of 17 years and 4 years grace with interest at a fixed spread of 50 basis points over LIBOR. The Loan, which consists of two tranches of US$ 500 million each, is expected to be signed on June 18th, 2004. The first tranche is expected to be released within the next two weeks.