ANNEX-B

Table 2. Turkey: Performance Criteria and Indicative Floors on the Cumulative
Primary Balance of the Consolidated Government Sector

1. The primary balance of the consolidated government sector (CGS), Table 2, items 1 and 2, comprises the primary balances (primary revenue minus noninterest expenditures) of the consolidated central government (consolidated budget), the extrabudgetary funds (EBFs) identified below, the eight state economic enterprises (SEEs) identified below, the social security institutions (SSIs), and any new government funds and institutions established after November 1, 2000. The CGS will also include the unemployment insurance fund during 2001. The floors on the primary balance of the CGS will be monitored:

• For the central government from above the line on a modified cash basis (the so-called consolidated budget-adjusted balance)
• For the EBFs, SSIs, and the unemployment insurance fund from above the line on a cash basis;
• For the SEEs, from below the line as described in paragraph 8.

2. For the purposes of the program, the primary revenues will exclude interest receipts of the consolidated central government and the unemployment insurance fund, profit transfers of the Central Bank of Turkey (CBT) and proceeds from the sale of assets of the CGS (privatization proceeds or transfers thereof). Interest receipts of EBFs, SEEs, and SSIs will not be excluded. As well, the floor on the primary balance will be adjusted upwards for any increase in revenues arising from changes in the revenue sharing agreement between any components of the CGS and other elements of the public sector, including local authorities. The floor on the primary surplus will be adjusted upwards (downwards) in line with the projected surplus (deficit) of the primary balance of any fund or entity that is incorporated in the CGS after November 1, 2000.
3. A separate annual performance criterion (Table 2, items 3 and 4) is established on the primary balance including proceeds from privatization to be received by the CGS.
4. Privatization proceeds received by the CGS exclude any privatization receipts in cash of the central budget for the sale of a GSM license to Turk Telecom.
5. For the purposes of the program, revenues of the CGS will exclude payments-in-kind and other nonmonetary forms of payments. As well, net lending of any component of the CGS will be considered as a noninterest expenditure item. In 2000, payment of guaranteed debt by treasury on behalf of other components of the public sector will not be regarded as net lending; in 2001 it will not be regarded as net lending up to the quarterly baseline reported in Annex I.

Extra budgetary funds

6. The EBFs included in the definition of the performance criterion for December 2000 are: the defense fund, the privatization authority’s budget, the public participation fund, and the mass housing fund. The EBFs included in the definition of the performance criterion for 2001 are: the defense fund, the privatization authority’s budget, and the mass housing fund.
7. The balances of the following budgetary funds and EBFs—which do not have the legal authority to borrow, and will not be given such authority during the duration of the stand-by arrangement—are excluded from the definition of the performance criterion: petroleum consumption fund; revenue improvement administration fund; support stabilization fund; resource utilization fund; fuel price stabilization fund; budget education health tax fund; and social aid and solidarity fund.

State economic enterprises

8. The eight SEEs whose primary balances will be included in the definition of the performance criterion are: TTK (coal company), TSFAS (sugar company), TMO (soil products office),TEKEL (tobacco and alcoholic beverages company), TCDD (state railways), TEAS (electricity), TEDAS (electricity distribution), and BOTAS (natural gas). The primary balance of these SEEs will be monitored as the sum of net financing minus accrued interest made by the SEEs. For December 31, 2000, net financing will be monitored as: net financing from the banking system (excluding pre-export financing from the Eximbank) plus net external borrowing (excluding normal trade financing) plus the net increase in arrears on tax liabilities. For the performance criteria and indicative targets in 2001, the net change in arrears on tax liabilities will be excluded, while the change in net arrears to and net advances from the private sector and to/from the non-CGS public sector (including subsidiaries and joint ventures), as well as net interest payments undertaken by the Treasury, will be added.
9. Net financing from the banking system (excluding pre-export financing from the Eximbank) is defined as the change in all claims of these institutions on the SEEs listed above, including loans and capitalized interest arrears, less the change in deposits and repos of SEEs in these institutions, as reported by these SEEs. Changes in claims and deposits denominated in foreign currency will be valued at the average of the exchange rates between the Turkish lira and each corresponding currency prevailing during the quarter in question. As of September 30, 2000 the stock of net banking claims on SEEs as defined above stood at TL 216 trillion, valued at the exchange rates on that day.
10. Net external borrowing is defined as the receipt of external loans (including guaranteed debt and on-lending, and excluding normal trade financing) less amortization (excluding repayments of guaranteed debt and on-lending undertaken by the Treasury), valued at the exchange rate at the time of transaction. As of September 30, 2000 the stock of external loans stood at TL 2,415 trillion, valued at the exchange rates on that day.

Social security institutions

11. The deficits of the social security institutions (SSIs) are covered by transfers from the central government budget, and their primary balance is projected to be in balance in 2000 and 2001. The floor on the primary surplus of the CGS will be adjusted upwards for any increase in the expenditure arrears of the SSIs. Arrears of the SSIs are defined as those payments overdue by more than one month, and in the case of Bag Kur exclude arrears to the common retirement fund. Regarding the 2000 performance criteria, the stock of arrears of Bag Kur stood at TL 300 trillion on October 31, 1999, while ES and SSK had no expenditure arrears. Regarding the 2001 performance criteria, the stock of arrears of Bag Kur stood at TL 140 trillion on September 30, 2000, while the two other institutions had no expenditure arrears.

Adjusters

12. For the purposes of the program in 2000, earthquake-related expenditures are defined as all expenditures related to the earthquake in the consolidated central budget (excluding increased transfers to the SSIs), as well as in the budgets of all other EBFs included in the CGS, excluding the mass housing fund, as reported in the reporting form introduced specifically for this purpose.
13. For the purposes of the program, the floor on the primary balance of the CGS (Table 2, items 1 and 3) will be adjusted downwards for earthquake-related expenditures up to a limit of TL 1,360 trillion for December 31, 2000.
14. The floor for the end-December 2000 primary surplus will be adjusted upward for any issue of noncash debt in excess of TL 1,700 trillion. The floors for the primary surplus for 2001 will be adjusted upward for any issue of noncash debt other than for bank recapitalization and securitization of duty losses and for the restructuring of the Agricultural Sale Cooperative Units. It will also be adjusted upward for any off-balance sheet expenditure of any component of the CGS.

ANNEX-C

Table 3. Turkey: Performance Criteria on the Cumulative
Primary Expenditure of the Central Government

 

	Ceilings (In trillions of TL)
Cumulative primary expenditure from January 1, 2000 through:
March 31, 2001 (performance criterion)	5,830
June 30, 2001 (performance criterion)	12,950
September 30, 2001 (performance criterion)	20,880
December 31, 2001 (performance criterion)	29,870

1. The primary expenditure of the consolidated central government (Table 3) comprises the cumulative non-interest expenditure of the consolidated central government (consolidated budget). The quarterly ceilings will be monitored from above the line on a modified cash basis (the so-called consolidated budget adjusted non-interest expenditure).
2. For purposes of the program, primary expenditure (Table 3) will exclude tax rebates, transfers to Eximbank, and treasury payments of guaranteed debt up to the quarterly baseline reported in Annex I.
3. The deficits of the social security institutions (SSIs) are covered by transfers from the central government budget. The ceiling on the primary expenditure of the central government (Table 3) will be adjusted downward for any increase in the expenditure arrears of the SSIs. Arrears of the SSIs are defined as those payments overdue by more than one month, and in the case of Bag Kur exclude arrears to the common retirement fund. On September 30, 2000, the stock of arrears of Bag Kur stood at TL 140 trillion, while the two other institutions had no expenditure arrears.
4. The ceiling on the primary expenditure of the central government (Table 3) will be adjusted downward for any off-budget expenditure of the central government.

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ANNEX-D

Table 4. Turkey: Indicative Floors on the
Cumulative Overall Balance of the Consolidated Government Sector 1/

	Floor (In trillions of TL)
Cumulative overall balance from December 31,1999 to:
December 31, 2000 (indicative floor)	-18,750
Cumulative overall balance from January 1, 2001 to:
March 31, 2001 (indicative floor)	-2,620
June 30, 2001 (indicative floor)	-5,780
September 30, 2001 (indicative floor)	-7,310
December 31, 2001 (indicative floor)	-8,670
1/ See Annex B for the definition of the consolidated government sector.



1. The overall balance of the consolidated government sector (CGS), Table 4, comprises the primary balance of the CGS as defined in Annex B, the net interest payments of the consolidated central government and the unemployment insurance fund and gross interest payments of the EBFs, SEEs, and SSIs, and the overall balance of any new government funds and institutions established after November 1, 2000. The monitoring of the different components of the overall balance will be as indicated in paragraph 1 of Annex B. Revenues of the CGS will be defined as in paragraph 2 of Annex B; i.e., excluding privatization proceeds.
2. All the adjusters specified in Annex B to apply to the primary balance of the CGS will also apply to the overall balance of the CGS (Table 4).
3. In addition, the floor on the overall balance will be adjusted downward for any interest payment on securities issued to cover the state banks’ duty losses.

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ANNEX-E

Table 5. Turkey: Performance Criteria on the
Net Domestic Assets of the Central Bank of Turkey

	Ceilings (In trillions of TL)
Outstanding stock as of September 30, 2000:	-1,308
December 31, 2000 (performance criterion) 1/	1,650
January 31, 2001 (performance criterion) 2/	900
February 28, 2001 (performance criterion) 2/	800
March 31, 2001 (performance criterion) 2/	650
June 30, 2001 (performance criterion) 2/	200
September 30, 2001 (indicative target) 2/	480
December 31, 2001 (indicative target) 2/	950
1/ The performance criterion shall be calculated as the average of the stocks prevailing on December 11, 2000 and January 11, 2001. 2/ The performance criterion (indicative target) shall be calculated on the average of the stocks prevailing during the five working days immediately preceding each of these dates.



1. The net domestic assets (NDA) of the Central Bank of Turkey (CBT) are defined as base money less the net foreign assets of the CBT valued in Turkish lira at end-month actual exchange rates.
2. Base money is defined as currency issued by the CBT, plus the banking sector’s deposits in Turkish lira with the CBT. As of September 30, 2000 base money amounted to TL 4,802 trillion.
3. Net foreign assets of the CBT are defined as the sum of the net international reserves of the CBT (as defined in Annex F), medium-term foreign exchange credits (net), and other net foreign assets. As of September 30, 2000 net foreign assets of the CBT amounted to TL 6,776 trillion.
4. The cumulative net change in the devaluation account from its balance at end-1999 (excluding any distribution of unrealized foreign exchange profits) will be subtracted from the end-quarter NDA stock as calculated above.
5. The NDA ceiling for end-2000 will continue to be subject to the adjuster specified in Annex D of the December 1999 Letter of Intent. The NDA ceilings for 2001 in Table 5 take into account the lowering in the reserve coefficients to be implemented as of January 12, 2001, as described in the letter of intent. No further change in reserve or liquidity coefficients will take place in 2001. The NDA ceilings for 2001 will be adjusted for any change in the definition of the aggregate to which the reserve requirement applies according to the following formula:



where: R denotes the 4 percent reserve requirement plus the 2 percent liquidity requirement coefficient and D B denotes the change in base generated by a change in the definition of the reserve aggregate. Neither this coefficient nor the averaging period will be changed during 2001.

6. The NDA ceilings will be adjusted downward for any waiver of reserve requirements for any additional bank intervened by the BRSA. The adjustment will be equal to the existing reserve requirement coefficient times the amount of liabilities at these banks subject to reserve requirements.

ANNEX-F

Table 6. Turkey: Performance Criteria on Net International Reserves

	Floors (In millions of US$)
Outstanding stock as of November 30, 2000	11,096.4
December 31, 2000 (performance criterion) 1/	10,400
January 31, 2001 (performance criterion)	10,700
February 28, 2001 (performance criterion)	10,900
March 31, 2001 (performance criterion)	11,000
June 30, 2001 (performance criterion )	12,000
September 30, 2001 (indicative floor)	12,200
December 31, 2001 (indicative floor)	12,400
1/ The performance criterion shall be calculated as the average of the stocks prevailing on December 21, 2000 and January 11, 2001.

1. Net international reserves of the Central Bank of Turkey (CBT) comprise its gross foreign assets excluding encumbered reserves less its gross international reserve liabilities plus the net forward position of the central bank, denominated in U.S. dollars. Encumbered reserves are reserves that are not readily available.
2. For the purpose of the program, gross foreign assets include all short-term foreign (convertible) currency-denominated claims on nonresidents, monetary gold valued at the November 30, 2000 average London fixing market price of US$269.05 per troy ounce, foreign bank notes, balances in correspondent accounts, and any reserve position in the IMF. At present encumbered reserves consist of foreign asset holdings on accounts of the Turkish Defense Fund (amounting to US$425.8 million at November 30, 2000). The special Dresdner portfolio (amounting to US$897.6 million on November 30, 2000) is also encumbered, but is not subtracted from foreign reserve assets given the overlap with one-year foreign currency denominated liabilities (see below). Reserve assets as of November 30, 2000 amounted to US$19,428.1 million.
3. Gross international reserve liabilities include all foreign currency denominated liabilities (or TL-denominated liabilities indexed to any exchange rate) to nonresidents with an original maturity of up to and including one year, reserves against foreign currency deposits or any other short-term liability in foreign exchange toward the banking sector, claims from central bank, letters of credit, overdraft obligations of the central bank, and liabilities arising from balance of payments support borrowing irrespective of their maturity (including liabilities to the IMF). On November 30, 2000 reserve liabilities thus defined amounted to US$8,331.7 million.
4. The net forward position is defined as the difference between the face value of foreign currency-denominated central bank off-balance sheet (forwards, swaps, options, and any future contracts) claims on nonresidents and foreign currency obligations to both residents and nonresidents. As of November 30, 2000 these amounts were zero.
5. All assets and liabilities denominated in foreign currencies other than the U.S. dollar will be converted into U.S. dollars at the program cross rates specified in Annex J.

ANNEX-G

Table 7. Turkey: Performance Criteria on Contracting and
Guaranteeing of New External Debt

The limits specified in Table 7 apply to the contracting or guaranteeing by the consolidated government sector (as defined in Annex B) of new, nonconcessional external debt with an original maturity of more than one year. This performance criterion applies not only to debt as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (adopted by the Executive Board of the International Monetary Fund on August 24, 2000) but also to commitments contracted or guaranteed for which value has not been received. The term “nonconcessional” means containing a grant element of less than 35 percent on the basis of the currency-specific discount rates based on the OECD commercial interest reference rates in place at the time at which the contract is entered into, or guarantee issued. Excluded from this performance criterion are credits extended by the IMF, adjustment lending from the World Bank, long-term liabilities of the Central Bank of Turkey and sales of treasury bills and bonds denominated in TL or FX to nonresidents in either the domestic primary market or the secondary market. Debt falling within the limit shall be valued in U.S. dollars at the exchange rate prevailing at the time the contract is entered into, or guarantee is issued.

ANNEX-H

Table 8. Turkey: Performance Criteria on the Stock
of Short-Term External Debt Outstanding

The limits specified in Table 8 apply to the stock of debt of maturity of one year or less, owed or guaranteed by the consolidated government sector (as defined in Annex B). The term “debt” has the meaning set forth in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (adopted by the Executive Board of the IMF on August 24, 2000). Excluded from this performance criterion are sales of treasury bills denominated in Turkish lira or foreign exchange to nonresidents in either the domestic primary market or the secondary market, normal import-related credits, reserve liabilities of the Central Bank of Turkey, and forward contracts, swaps, and other future market contracts. Debt falling within the limit shall be valued in U.S. dollars at the program cross exchange rates specified in Annex J.

ANNEX-I

Table 9. Turkey: Program Baseline for Selected Variables 1/

ANNEX-J

Table 10. Cross-Exchange Rates for Program Purposes 1/