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Konu Basligi CANDIDACY PROCESS ''2003 Year NPAA''(political&economic criteria)
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Alt 07-04-2008, 08:00 PM   #1
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BİLGE KAĞAN
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Standart CANDIDACY PROCESS ''2003 Year NPAA''(political&economic criteria)

Decision of the Council of Ministers Dated 23 June 2003 No. 2003/5930




I- PREAMBLE


Forging a strong and prosperous modern state for the information age, united as a nation based on the principles of the rule of law, democracy and secularism, and firmly founded upon the basic tenets of the Republic, is a historic responsibility towards future generations.
Turkey has always regarded progress as its fundamental principle. Since the foundation of the Republic, Turkey has always been a part of renewal movements in politics, economics and law. This inclination has been given substance through progress and visionary reforms, and has been driven by the principle of secularism based on freedom of conscience, and a compact of citizenship that transcends language, religion, race or gender, in such a way as to reinforce the territorial integrity and political unity of the Turkish Republic.
Turkey is determined to continue its development until it reaches the ultimate stage of civilization. Turkey is making efforts to become a capable and creative 21st Century state, with world class production, a just distribution of wealth, human rights guarantees, the rule of law, participatory democracy, secularism, and the freedom of religion and conscience.
Accession to the European Union is the principal project that will carry Turkey to its goal of prosperity. Turkey’s aim of integration with the European Union is a social reform project that will affect both the present and the future of every citizen. It is a great reform movement that will bring universal standards and practices to all areas of daily life, from production to consumption, from health to education, from agriculture to industry, from energy to environment, from justice to security. Every political, legal, economic or social reform on the path to membership, whilst increasing the living standards of the individual, also increases international economic influence, democratic respectability, and the security of the country, in line with international standards.
Accession to the European Union is a national target, which is supported by and reflects the common purpose of the vast majority of the people. This aim, which is also an integral part of Turkey’s strategic vision, fully corresponds to the founding philosophy of the Republic and Atatürk’s vision for the nation’s integration with contemporary civilization.
Turkey has been a fundamental component of European political, economic and cultural geography throughout history. The confirmation of Turkey’s candidacy by the Helsinki European Council in 1999 has ushered in a new era of relations after forty years of association with the European Union. The developments since the Helsinki Council have brought Turkey closer than ever to membership. The European Union, at the Copenhagen Council of 12-13 December 2002, committed itself to starting accession negotiations without delay if it determines, on the basis of European Commission’s reports and recommendations, that Turkey has fulfilled the Copenhagen political criteria by December 2004.
Turkey is going through a dynamic process of legal, political and economic reforms on the road to European Union membership. The purpose of this process is to guarantee the functioning of the democratic system with all its rules and institutions. Participatory democracy, the rule of law, human rights and fundamental freedoms are not only universal values, but are also the most reliable bases for political and economic stability and development. Turkey has adopted the Copenhagen value system and proven through the reforms and alignment work made to date that it has the will to achieve a more liberal, more participatory, more modern democracy.
In addition, Turkey has a stable functioning market economy, which is reinforced by the economic programme under implementation. The Customs Union has demonstrated Turkey’s capacity to cope with the competitive pressures and market forces within the European Union.
A Turkey that has completed its grand social project and is a focus of democratic power in the 21st Century offers a priceless opportunity for the establishment of regional and international peace and stability, as well as a singular source of inspiration for those who, in our turbulent region and beyond, seek progress.
In international relations, Turkey’s EU candidacy advances its position in strategic, security and political terms. Turkey shall continue to develop its relations with its neighbours and adjacent regions in accordance with its peace loving foreign policy objectives. In the same vein, Turkey will continue to undertake initiatives and efforts for the settlement of bilateral problems with Greece through dialogue. As a part of the enhanced political dialogue, Turkey will continue to support the efforts of the United Nations Secretary General in his good offices mission aimed at a mutually acceptable settlement, with a view to establishing a new partnership in Cyprus, based on the sovereign equality of the two parties and the realities on the island. Turkey supports the steps taken by the Turkish Cypriot side, which will foster an environment of confidence and pave the way for a comprehensive settlement.
The steps taken by Turkey on the path to European Union membership are measures that directly accelerate the raising of economic and social standards and ensure a society with high democratic and legal norms. For this purpose, with an approach that preserves the founding principals of the Republic and Atatürk’s legacy, Turkey has the resolution and determination to rapidly fulfil its obligations in order to start accession negotiations at the earliest time and participate in the European Union’s enlargement dynamics. The responsibilities set out in the National Programme reflect the stance of the Turkish nation.




II- POLITICAL CRITERIA

Turkey has completed comprehensive constitutional and legislative reforms that reinforce and safeguard fundamental rights and freedoms, democracy, the rule of law, and the protection of and respect for minorities, as set out in the Turkey National Programme for the Adoption of the European Union Acquis of 24 March 2001.
In this context, the death penalty has been abolished. Comprehensive legislative and administrative measures against torture and maltreatment have been put into force. The right to retrial in the light of the decisions of the European Court of Human Rights (ECtHR) has been introduced. Rules concerning conditions in prisons and detention houses have been brought in line with the norms of the European Convention of Human Rights (ECHR), and the recommendations of the European Committee for the Prevention of Torture (CPT). The state of emergency has been lifted in all provinces. Freedom of thought and expression, and the freedom of the press have been expanded. Provisions concerning associations, foundations and the right to assembly and peaceful demonstration have been advanced. Legislation has been amended to reinforce gender equality, and to protect cultural diversity and guarantee cultural rights, and to enhance the right to learn and broadcast in different languages and dialects. Legislation concerning non-Muslim communities and foreigners have been improved. The Human Rights Advisory Board, which constitutes an effective platform for dialogue between state and civil society in the area of human rights, has become operational. The advisory role of the National Security Council has been redefined.
In addition, several conventions relating to the political criteria have been signed or ratified, among which Additional Protocol No. 6 to the ECHR Concerning the Abolishing of the Death Penalty, the UN Convention on the Elimination of All Forms of Racial Discrimination, the UN Covenant on Civil and Political Rights, the UN Covenant on Economic, Social and Cultural Rights, the ILO Convention Concerning the Prohibition and Immediate Action for the Elimination of Worst Forms of Child Labour (No. 182), and the UN Convention on Prevention of All Types of Discrimination Against Women and its Optional Protocol, can be cited.
Efforts to implement the reforms effectively and simultaneously continue. Numerous administrative measures have been put into effect in order to reflect fully the spirit of the reforms in practice. In this respect, bylaws on broadcasting in and teaching of different languages and dialects have been adopted and put into practice. Bylaws on the acquisition and disposal of real estate by community foundations, and on associations, have entered into force, and the administrative restructuring has been completed. Circulars have been issued to raise the awareness of civil servants on the prevention of torture and maltreatment. Human rights training programs for civil servants, particularly law enforcement officers, have been intensified and broadened. Comprehensive training programs for judges and prosecutors, especially on ECHR provisions and ECtHR case law, continue in collaboration with the Council of Europe and the European Union. Solid progress in practice, parallel to the reforms, has been registered in all these areas. The EU Harmonization Commission was created in the Turkish Grand National Assembly in order to increase the efficiency of the process of legislative harmonization.
The complete redrafting of all basic legislation is a long-term legislative process which will also continue during the accession negotiations. The Government has opted to harmonize various laws in order to fulfil the political criteria, the prerequisite to the opening of accession negotiations, through “harmonization legislation packages” to accelerate the process. However, the ultimate aim is to renew basic legislation in the long term through an integrated approach.
The Government is resolved to complete legislation referred to under the various headings below during the 1st legislative year of the 22nd legislative session of the Turkish Grand National Assembly. The Government is determined, in principle, that the impact of all concluded reforms will be observed simultaneously, in letter and spirit, by June 2004.



1- Freedom of Thought and Expression
The Government attaches importance and priority to both the continuation and the expansion of freedom of expression, in line with the EU acquis based on universal values, and with the practice in EU Member States, within the framework of Article 10 of the ECHR, which specifies the protection of territorial integrity and national security; and on the basis of safeguarding the secular and democratic nature of the Republic, the unitary structure of the state, and national integrity. Consequently,
- Legislation delineating freedom of expression will be reviewed in the light of the ECHR, especially with regard to the letter and spirit of Articles 10, 17 and 18 of the said Convention.
- Legislative and administrative measures expanding freedom of expression will be implemented effectively.
- Measures will be taken to ensure that the freedom of the press will be applied according to universal norms.
- The provisions on broadcasting in, and learning of, different languages and dialects used by Turkish citizens in daily life will be implemented.
- Training of members of the judiciary on human rights, the European Convention on Human Rights and the jurisprudence of the European Court of Human Rights will be continued and expanded to ensure consistency in implementation.

2- Freedom of Association, Right to Peaceful Assembly, and Civil Society
The Government will continue to support the development of the civil society and its participation in democratic life. In this vein, the relevant legislation will continue to be reviewed in the light of the European Convention on Human Rights and Fundamental Freedoms, especially with regard to compliance with the letter and spirit of Articles 11, 17 and 18.
In this respect,
- Legislation concerning associations as well as meetings and demonstrations will be reviewed. Provisions in various legislation will be collected into as few laws as possible to provide consistency.
- The legislative and administrative reforms concerning associations, foundations, meetings, and demonstration marches will be implemented effectively.

3- Prevention of Torture and Maltreatment
The Government is determined to prevent torture and maltreatment and to allow zero tolerance in this regard. The legislative and administrative measures for the swift execution of justice will be implemented fully. All envisaged legislative and administrative measures, including legal and penal reforms, will be taken with sensitivity to the prevention of torture and maltreatment. During the implementation of the measures special account will be taken of Article 3 of the ECHR and the recommendations of the CPT. Added emphasis will be given to mechanisms for monitoring, supervision, and reporting.

In this connection,
- Allegations of torture and maltreatment will be investigated immediately and thoroughly, and the offenders will be punished rapidly.
- Provisions on the rights of persons arrested, detained or charged to communicate with their lawyers and inform their relatives will be fully implemented.
- Modern investigation techniques and medical monitoring systems to prevent maltreatment and human rights violations will be implemented effectively.
- Human rights training for law enforcement officials will be intensified and expanded.
- Implementation of the measures in the Code of Penal Procedure and the Bylaw on Arrests, Detentions and Interviews will be monitored effectively and immediate legal action will be taken against those failing to comply with their provisions.
- The recourse mechanism against responsible personnel for the compensations paid in compliance with the decisions of the ECtHR on cases of torture or inhumane or degrading treatment will be applied effectively.
- Public awareness will be raised on the rights of individuals during arrest, detention, and custody and the procedures for complaint if these rights are denied.

4- Human Rights Training of Public Officials
The ongoing human rights training of public officials, especially members of the judiciary and law enforcement officials, will be expanded, and training programs designed to raise awareness on ECHR and ECtHR case law, as well as EC law, will be developed further.

5- Functioning and Efficiency of the Judiciary
In this area, the overriding goal of the Government is the entrenchment of the principle of the rule of law in Turkey, as it exists in modern nations that embrace such universal values, and which constitutes a leading pillar of the State. Furthermore, the provision of effective justice required by modern society is also a priority. Legal reforms that will take place within this scope will constitute the basis of the democratisation process. In this regard, as a matter of priority, ongoing training programs on human rights and ECHR and ECtHR case law, designed to provide conformity in implementation, will continue in a broadened manner encompassing members of high courts.

6- Prison, Detention and Custody Standards
The Government will ensure the effective implementation of the measures adopted for the improvement of conditions in prisons and detention houses. In light of the recommendations of the Council of Europe and the Committee for the Prevention of Torture, the aligning of prisons with international standards and the effective functioning of the Judges of Enforcement and Prison Monitoring Boards will continue. Furthermore, legislation on the execution of sentences will continue to be reviewed.

7- Full Enjoyment of All Fundamental Rights and Freedoms by All Individuals without Discrimination
The Government is convinced that ensuring the full and equal enjoyment of all fundamental rights and freedoms and cultural rights by all individuals without discrimination is its fundamental duty. In this context, it will continue to fulfil its obligations stemming from all international agreements to which Turkey is a party. The freedoms of thought, conscience, religion and belief will be strictly safeguarded in accordance with Article 9 of the ECHR. Ensuring gender equality in practice will be a particular priority. Consequently,
- The legislation concerning freedom of worship will be simplified in implementation in light of the ECHR and its Additional Protocol No. 1, with a view to addressing the needs of different religions and faiths.
- The provisions on the learning of and the broadcasting in different languages and dialects used by Turkish citizens in their daily lives will be implemented.
- Appropriate measures will be taken in line with the ILO Convention No. 159 for the Vocational Rehabilitation and Employment for Disabled Persons.
- Emphasis will be given to the application of the ILO Convention for Prevention of the Worst Cases of Child Labour.

8- Functioning of the Executive
The consultative status of the National Security Council (NSC) was redefined through constitutional and legislative amendments. The functions of the NSC and the Secretariat-General of the NSC shall be harmonized with this definition.

9- Agreements
The procedures for the signing of Additional Protocol No. 13 to the European Convention on Human Rights and the Optional Protocol of the International Covenant on Civil and Political Rights shall be initiated.

III- ECONOMIC CRITERIA

1- Priorities of Economic Policy

The main objective of economic policy is to increase the welfare level of Turkish society. Within this policy framework the priority target is to attain macroeconomic stability. After reaching this target, the implementation facilities for social policy will be improved.
In this context, the basic objectives of Turkey’s macroeconomic policies are to ensure a sustainable growth environment, to decrease the inflation rate permanently, and to align the public debt stock and budget deficit to Gross Domestic Product (GDP) ratios to EU averages.
Fulfilment of the Copenhagen criteria and convergence with the Maastricht criteria are the main perspectives of economic policy during the accession period. Strengthening the market economy and improving the competitiveness of the economy are priority targets. Within this framework, special emphasis will be given to reducing the role of the public sector through privatisation, transferring the regulatory role of state to independent regulatory bodies, strengthening the private enterprise system, and removing the legislative obstacles and economic uncertainties which adversely affect the operation of the free market economy. Therefore, measures for improvement of the investment environment both in the legislative and economic sense, full liberalisation of the free movement of capital, and promotion of foreign investments will be maintained. Moreover, financial sector reform, the efforts to increase the competitiveness of the sectors under state monopoly and implementation of the privatisation programme will also continue. Another essential objective of economic policy is the reduction of disparities between Turkey and the EU.
Special importance will be given to strengthening the dialogue with the EU in the determination and implementation of macroeconomic policies. In this context, and within the framework of the Pre-accession Fiscal Surveillance Procedure, efforts for Fiscal Notifications, which are composed of indicators regarding public debts, budget deficits and GDP values, and the Pre-Accession Economic Programme which consists of economic reforms required for EU membership and policies for participation in the Economic and Monetary Union after accession, will be carried out in efficient coordination with the related institutions, and updated documents will be submitted annually to the EU. At the same time, improvement of economic dialogue channels in order to strengthen the dialogue with the EU will also be an important priority for Turkey.
In addition, the economic reform programme, agreed with the International Monetary Fund (IMF) and the World Bank, and covering the 2002-2004 period, will be strengthened and implemented strictly. The envisaged policy framework is consistent with the 8th Five-Year Development Plan (2001-2005), the National Programme for the Adoption of the Acquis, and the Pre-Accession Economic Programme, and will contribute to the transformation required for Turkey’s EU membership.

Fiscal Policy

The main objectives of fiscal policy are to reach a functional budget structure by permanently decreasing public deficits, to ensure the sustainability of debt stock and thus to contribute to the formation of a sustainable growth environment, and to support the efforts towards disinflation.
In accordance with these main objectives, implementation of tight fiscal policy will be also continued and fiscal discipline will be ensured in the following years. In this framework, tax revenues will be increased via broadening the tax base, and efficiency in public expenditure will be attained within the scope of public expenditure reform.
In order to facilitate the borrowing requirements and to reduce the interest expenditure of the consolidated budget, implementation of policies regarding a decrease in the real interest rates through the stable environment ensured in the financial markets, the extension of borrowing maturity terms, and the primary dealer system will continue. In the framework of the measures to reduce public expenditure and efforts towards disinflation, wages and salaries in the public sector have been determined according to the inflation target since 2000. In addition to the budgetary limits imposed by related budget laws, the Public Finance and Debt Management Law No.4749, which was published in the Official Gazette No.24721 dated 9 April 2002, has brought a further limitation to expenditure. With this Law, the enhancement of public expenditure through borrowing is also limited to a considerable degree by restricting the net borrowing limit in a fiscal year. The Public Procurement Law, which aims to increase the transparency and efficiency in public procurement, came into force on 1 January 2003. There will be continuous efforts for the elimination of the bottlenecks which appear during implementation, to ensure harmony with EU legislation.
The draft law on Public Financial Management and Control, aiming at a more transparent and efficient financial system, is expected to be adopted in 2003. The efforts for the rationalisation of public investment programme have been carried out since 2001. A new Framework Law that aims to bring all social security institutions under the same roof will come into force by the end of 2003, and thus social security deficits will be reduced. Reforms that provide the sustainability of each social security fund in the medium term will also enter into force by this Law. In addition, budget transfers to the social security system will be decreased by effective control of medicine and treatment expenses and increasing the premium collection ratios. Policies that aim to restrict employment in the public sector will continue.
In 2002, a tax strategy which includes various arrangements to be carried out during the 2002-2004 period, was put into effect to restructure the tax administration and tax policy. In this context, with the introduction of Excise Duty Law in August 2002 (Official Gazette No.24783 dated 12 June 2002) by removing 16 different taxes and extra-budgetary fund deductions, the tax system has been simplified and harmonized with the EU Acquis to a considerable degree. A three-level value added tax (VAT) system, which is in parallel with EU legislation, was adopted by the Council of Ministers Decision No.2002/4480 on 17 July 2002. Activities for the improvement of the indirect tax system still continue. In order to achieve this target, Law No.4842 came into force on 24 April 2003 to simplify tax exemptions on investment and to abolish double taxation in corporate incomes and shares in profits. Direct taxation will be further rationalised by the harmonisation of taxes on financial instruments and the re-arrangement of exemptions and allowances. The administration of revenues will be re-organised in accordance with the functional structure and hence its effectiveness will be enhanced. The necessary infrastructure will be established so as to achieve an efficient and institutionalised tax auditing process. In this framework, the “Coordination Council for Auditing” was established in the Ministry of Finance to prepare annual auditing plans, and the 2003 General Plan on Tax Auditing has started to be implemented. In order to reduce the amount of unregistered economy and increase the efficiency of the auditing process, the scope of the ongoing process of giving each citizen a tax identification number, which came into force on 3 July 1995, was enlarged on 1st of September 2001 and the adoption of a tax identification number in financial activities was become compulsory. The full automation process of all the sections of tax administration, which will increase efficiency in implementation of tax identification numbers, will be completed in the medium term1.
Constituting an efficient and transparent fiscal system is one of the main transformation targets in the public finance sector. Considerable progress in this field has been achieved since 2000. The adoption of a new Law on public procurement, establishment of a Public Procurement Authority, abolishment of all but 5 Funds, and restriction of revolving funds are the main steps in this process. Efforts for the improvement of efficiency and transparency in public financial system will continue in the upcoming period.

Monetary and Exchange Rate Policy

Price stability is determined as the primary objective of the Central Bank of the Republic of Turkey (CBRT) and the implementation of an autonomous monetary policy is guaranteed with Law No.4651 Amending Law No.1211 on The Central Bank of The Republic of Turkey (Official Gazette Date: 5 May 2001, No.24393). Monetary policy will be implemented to decrease the inflation rate in the short term, and maintain price stability in the medium term. The inflation target for 2003 has been set at 20% jointly by the CBRT and the government. It is also aimed to decrease the inflation rate to 12% in 2004, and to the levels of EU member countries’ average inflation rate in the forthcoming years. In this framework, if the necessary pre-conditions are achieved, the CBRT will switch to an inflation targeting policy in which short-term interest rates will be the main policy instrument. The CBRT has already completed the technical infrastructure for transition to inflation targeting policy. In this context, short and medium term inflation estimation models have been set up, surveys have been conducted to evaluate the expectations of economic agents regarding inflation and the general course of the economy, detailed studies have been conducted on inflation developments, and the results have been made public. Therefore, in terms of its duties and responsibilities, the CBRT is institutionally ready for inflation targeting regime
The determination of monetary policy in this way is also in parallel with the aim of fulfilling the Maastricht Criteria within the EU membership process. Permanently reducing chronic inflation, one of the main causes of macroeconomic instability in Turkey, will contribute to macroeconomic stability and the creation of a predictable economic environment. This process will assist the convergence of inflation to the levels of the EU average.
With Law No.4651 Amending Law No.1211 on The Central Bank of The Republic of Turkey (Official Gazette Date: 5 May 2001, No 24393), inflation targets will be jointly determined with the Government, but the Central Bank will be autonomous in implementing monetary policy and determining policy tools to achieve these targets. As a result of the determination of the inflation target with the government an efficient and highly reliable policy framework will be achieved through accelerating the coordination between monetary and fiscal policy. In the Turkish economy the direct effects of the public sector on both prices and wages are considerably high. Therefore, the determination of inflation targets with the government will also assist in the adoption of the inflation target by the government.
With the amendment made to the Central Bank Law, the financial independence of the Central Bank was also attained. According to this amendment, it was agreed that the Central Bank would not grant advances and extend credits to the Treasury and public institutions/establishments, and would not purchase debt instruments issued by them in the primary market. Nevertheless, in case of a state of emergency and where the Savings Deposit Insurance Fund (SDIF) is not adequate, the Central Bank is allowed to grant advances to the SDIF. In the framework of the lender of last resort function of the Central Bank, the said possibility of an advance, the conditions for which will be determined by the Central Bank, can be provided only to the banks that cause systematic problems in the financial sector because of liquidity problems. Therefore, it is aimed to prevent the liquidity problems of financial institutions which may cause problems for the whole financial system.
Furthermore, the Central Bank will step back gradually from intermediary activities in the monetary and exchange markets in order to deepen and develop financial markets and to increase the risk evaluation capacity of the banks. As a result of these arrangements, transparency and accountability for the implementation of monetary policies have been aligned with the national central bank practices of developed countries.
In the following period, implementation of the floating exchange rate regime will continue. The exchange rates will be determined according to supply and demand conditions in the market. However, the Central Bank will only be able to intervene to eliminate excessive fluctuations if it does not affect the long-term equilibrium level. As macroeconomic stability becomes permanent, it is aimed that the TL will gain stability under the floating exchange rate regime.

Incomes Policy

Incomes policy will be determined by respecting inflation targets in the short term in order to support disinflation policy. In the medium term, incomes policy will be determined by considering parameters such as price stability, productivity and profitability. Within the public sector wage policy of the current economic programme, it was foreseen to adapt a forward-looking wage indexation system instead of a backward looking wage indexation system. Since the year 2000, wage increases in the public sector have been determined in accordance with inflation targets. Moreover, the gap was compensated for when inflation exceeded wage increases during the period between 2000 and 2002. Furthermore, at the beginning of 2003, some important improvements have been realised in the pension salaries of the lower income retired people in order to improve income distribution. The government will utilise the Economic and Social Council and similar platforms in order to reach a compromise between social partners, and in order that the private sector will follow this policy.

Policies for Structural Reform

Structural reforms will have a determining role in reaching economic targets, while also achieving and maintaining macroeconomic stability. Through structural reforms a sustainable growth environment, a competitive economic structure based on market principles, and fulfilment of the Copenhagen Criteria will be attained.
In this context, the main goals are reducing the role of the public sector and improving efficiency in the economy with a special emphasis on privatisation, developing a transparent and efficient public administration, reforming the banking sector so as to provide the necessary financial requirements for the real sector, strengthening the market mechanism with the establishment of regulatory bodies in various areas, and increasing the role of the private sector in the economy. In addition, reforms in the agricultural and infrastructural services sectors will be intensified.
By increasing the share of education, health, research and development (R&D) and other social expenditure in GNP through improvements in public finance, considerable progress will be made in raising the quality of life, raising the quality of human resources, improving income distribution, and alleviating poverty and regional disparities. In the context of the programme implemented with the World Bank, the commitment to increase the share of social expenditure (including education, health and social protection) in GDP to more than 14.5 % has been undertaken. In this framework, the share of social expenditure in GDP increased from 14.5 % in 2000 to 16.5 % in 2001, and to 17.3% in 2002. This ratio is envisaged to increase to 18 % in 2003.

2- Macroeconomic Developments

In order to strengthen the current programme, which was implemented after the financial crisis, a new three year programme was envisaged at the beginning of 2002. The aims of this programme were: to establish a strong financial system which will enable the economy to be more resistant to crises, to provide sustainability of the public debt, and to decrease inflation to single digit numbers. Within this framework, the new programme has supported structural reforms that will provide healthy and sustainable growth.
Gross Domestic Product (GDP) and Gross National Product (GNP) increased by 7.8 % in 2002. The value added growth rates were 7.1 % in the agricultural sector; 9.4 % in the industrial sector, and 7.2 % in the services sector. While the recovery in domestic demand was sluggish, growth was stemming mainly from the stock exchange and external demand. While total domestic demand increased by 1.7 % and private consumption increased by 2 %, private fixed capital investments decreased by 7.2 % in 2002.
In spite of the recovery in 2002 the unemployment rate increased from 8.4 % in 2001 to 10.3 % in 2002 as a result of insufficient increases in employment.
The Consumer Price Index (CPI) increased by 30.8 % and the Whole Sale Price Index (WPI) increased by 29.7 % in 2002. The annual target in CPI was achieved approximately, but WPI realisation was 5.3 % lower than the target. In respect of 2001, CPI and WPI declined by 57.8 % and 38.8 %, respectively. Therefore, the lowest levels for 20 years in CPI and for 16 years in WPI were achieved. The main reasons for the important decrease in inflation in 2002 were the sluggish increase in domestic demand, stable fluctuation of the exchange rate, and in addition a decline in the cost of imported goods as a result of the real appreciation of TL. Generally, protection of fiscal discipline, regulation of salaries and wages in the public sector in line with the programme targets, and decisive implementation of the monetary programme by the Central Bank have been very effective in decreasing the inflation rate and future inflationary expectations.
With respect to the previous year, in 2002 the net labour wage of labourers in the context of the Collective Labour Agreement in the public sector increased at an annual average of 31.7 % in nominal terms, however, it decreased by 9.2% in real terms. The wages of civil servants increased by 53.3 % in nominal terms, and by 5.7 % in real terms in the same year. Furthermore, the minimum wage increased by 56.6 % in nominal terms and by 8 % in real terms.
Due to the high growth rate, imports (CIF) increased by 22.8% in 2002 over the previous year, reaching 50.8 billion US Dollars. Exports (FOB), increased by 12% over the previous year reaching 35.1 billion US Dollars, due to protection of the competitive strength acquired in 2001 and limited recovery of domestic demand. Accordingly, the foreign trade deficit in 2002 (as it exists in the balance of payments) increased by 4.1 billion US Dollars with respect to the previous year reaching 8.6 billion US Dollars. The share of EU countries in total exports maintained the same level – 51.5 % - as in the previous year and the amount of exports to EU countries reached 18.1 billion US Dollars. In addition, the share of EU countries in total imports increased by 1.3 points reaching 45.5 % (23.1 billion US Dollars). In addition to the rise in foreign trade deficit, due to the net revenue decrease in the other assets and services revenues and unrequited transfers, the current account reached a deficit of 1.8 billion US Dollars in 2002. The ratio of current account deficit to GDP reached 1%. Due to the utilisation of IMF credits, total foreign debt in 2002 increased by 17.6 billion US Dollars with respect to the previous year, reaching 131.6 billion US Dollars. The ratio of the total foreign debt to GDP reached 71.7 %.
The main objective of the fiscal policy implemented in 2002 was to provide sustainability of the public deficit stock by achieving high levels of primary surplus. Nevertheless, due to the increase in public expenditure and transfers to the social security institutions, and as a result of the general elections at the end of the year, the primary surplus was lower than targeted. In 2002, the ratio of consolidated budget deficit to GDP reached 14.5 % and the ratio of primary surplus to GDP was 4.3 %.
The ratio of public sector borrowing requirement to GDP is expected to decrease by 3.9 points with respect to the previous year and reach 12.4 %. Decline of the ratio of consolidated budget deficit to GDP affected the decline of the public sector borrowing requirement. It is expected that the public sector surplus, excluding the interest expenditure, which was 8 % of GDP in the previous year, will reach 7.3 % in 2002.
The ratio of domestic debt stock to GDP declined from 68.5 % in 2001 to 54.3 % in 2002. Although the average tender and public offer interest rate in cash borrowings was 99% on a compound basis in 2001, it decreased to 57.2 % in 2002. In addition, the average maturity period for borrowings was extended from 4.8 months to 9 months in 2002.
Monetary policy was executed in harmony with tight fiscal policy in order to decrease inflation during 2002. The Central Bank pursued a future-based inflation policy with the support of the short-term interest rate, which is a basic tool of monetary policy. In the framework of this policy, decisions of the Central Bank regarding interest rates are determined by taking into account the inflation expectation survey, domestic inflation estimations of the Central Bank, exchange rates, public prices, employment and wages, total supply and demand, fiscal and monetary policy indicators and the international situation. Parallel to the favourable development in the aforementioned situation, in 2002 overnight borrowing interest rates were reduced from 59 % to 44 % and weekly borrowing interest rates were reduced from 62 % to 44%, by reducing the short term interest rates 6 times. As of December 2002, targets for Monetary Base, Net Domestic Assets and Net International Reserves, had also been met.
In 2002, the floating exchange rate system was operated successfully and the Central Bank did not make any intervention to the exchange rate equilibrium. As a result of the developments in the exchange rate and inflation, according to the 1$+0,77€ weighted real exchange rate index, the TL appreciated by 17 % in 2002 with respect to the previous year.

3- Studies Made Within The Framework Of Harmonisation With The Copenhagen Economic Criteria

Since the beginning of the 1980s Turkey has taken important steps in order to create a competitive and open macroeconomic structure by adopting principles of market economy parallel to the developments in the world situation. Trade barriers were eliminated, capital movements were liberalised, and privatisation was accelerated in order to decrease state dominance in the economy. Consequently, important steps were taken in order to achieve the main dynamics of a functioning market economy. Nevertheless, in the last 20 years of a market economy, instability in economic growth, continuing public deficits, and high inflation have remained serious problems.
In the pre-accession period it is expected to fulfil the Copenhagen Criteria with the introduction of structural reforms to provide a sustainable growth environment, and with the establishment of a competitive economic structure based on market principles.

3.1 Existence Of A Functioning Market Economy

Privatisation

The main medium term objectives of privatisation, which is one of the essential elements of the economic programme, are to integrate into world markets, to increase the efficiency and competitiveness of the economy with a view to EU membership by decreasing the dominant position of the state in the economy, and to ensure free market conditions. The aim is to limit the economic activities of state to monitoring and regulation by ensuring that the state concentrates on its main responsibilities while moving away from being the producer of goods and services.
As of the end of 2002, the State has withdrawn completely from certain sectors such as petroleum distribution, animal feed, milk processing, the cement industry and airport handling services. Moreover, in sectors such as textiles, tourism, meat and fish products, and maritime transportation, the decisive role of the State has been transferred to the private sector. In addition, the privatisation process for public banks has been launched and significant steps have been taken with a view to reducing state influence in the financial sector.
On January 13 2003, the Government announced a short-term privatisation plan for the State Economic Enterprises (SEE), which is a part of the privatisation programme. In this respect, it is envisaged that the state withdraws completely from certain sectors such as textile, paper, fertilizers, petrochemistry, tobacco, beverages, crude oil processing, and also withdraws partly from certain sectors such as mining, port operation, distribution of natural gas, and banking.
Through the privatisation of institutions such as TEKEL and TÜPRAŞ, which are monopolies in their sectors, and in accordance with the privatisation programme, it is aimed to ensure the entrance of new domestic and foreign producers into these markets and consequently to establish competitive market structures.
Efforts to privatise Halk Bank continue together with independent inspectors. The studies of the Commission are expected to be finalised in September 2003 and privatisation will be completed in 2004, if there is a demand for it. Following the unsuccessful attempt to sell Vakıflar Bank the bank was restructured. An agreement with the World Bank has been reached to complete the sale in October 2003.

Regulatory Reforms

Certain independent regulatory institutions, in areas such as public procurement, radio and television broadcasting, banking, energy, telecommunication, tobacco, and sugar were established to ensure the state carries out its regulatory and supervisory activities in the market economy, without intervening in the functioning of the market.
While establishing these institutions, certain basic objectives were considered, such as performing surveillance and regulatory activities, preventing monopolies in the markets, preventing restriction or distortion of competition, securing non-discrimination of the services of the service providers functioning in the market, and ensuring free market principles following the privatisation of the state-monopolised sectors.
In 2002 the regulatory authorities issued additional arrangements and implementing regulations in accordance with basic objectives in their relevant markets. In addition to the medium term targets such as increasing efficiency, product variety, service quality, competitiveness and innovation through regulatory institutions, it is also aimed to leave price formation to market dynamics, to regulate entering into the market and common consumption, and to control illegal behaviour by removing the monopolistic structure of the market. In the upcoming period the independence of the regulatory authorities will be preserved in accordance with international norms, and their transparency and accountability will be increased.

Financial Sector

Banking Sector
In the framework of financial sector reform, banking regulation and supervision units, which were previously dispersed in different institutions, are incorporated within the Banking Regulation and Supervision Agency (BRSA), which started its operations on August 31, 2000, with respect to Banking Law No.4389. The BRSA, which was established to operate as a regulatory and surveillance authority in the Turkish Banking Sector in accordance with international standards, began to implement the Banking Sector Restructuring Programme with respect to the solutions of the structural problems in the sector in May 2001. The main aim of this programme is determined so as to ensure transition to an effective, internationally competitive, and healthy banking system.
The Banking Sector Restructuring Programme rests on four main pillars: financial and operational restructuring of state banks; finding a solution to the banks within the Savings Deposits Insurance Fund (SDIF) as soon as possible; strengthening of private banks which had experienced distress in the latest crises; and completing the legal and institutional framework aiming at enhancing the efficiency of surveillance and supervision.
The priority in the restructuring of state banks was given to strengthening the financial structures of these banks. Legal arrangements were realised in order to prevent interventions to the commercial decisions of these banks. Thus, any subsidised credit provided through state banks will need to be appropriated in the budget and state banks will have to be provided with the necessary funds. Studies for operational restructuring were launched simultaneously by strengthening the financial structure. Within the framework of the operational restructuring of state banks, it is aimed to build the organizational structure of these banks in line with the requirements of modern banking and international competition. Following the finalisation of these studies, the privatisation process of the state banks will be launched.
In the context of this programme, the Strengthening of Bank Capital Programme was put in practice in May 2001 in order to supply the capital needs of the private deposit banks. Moreover, with the Law for Restructuring Debts to the Financial Sector No.4743, entered into force on 31 January 2002, the Istanbul Approach has been implemented for solving bad asset problems in the banking sector, ensuring real sector companies - that lost their paying power due to the financial crises - to gain paying power by supporting their activities, and strengthening the banking sector.
Furthermore, the Ministry of Justice submitted a comprehensive reform package to the Turkish Grand National Assembly (TGNA) regarding the Execution and Bankruptcy Law. An effective bankruptcy system, providing sufficient incentives for voluntary resolution based on good will, will be established through this reform package. The legal environment provided through this framework will not only increase the collection capacity of SDIF but also encourage mechanisms such as asset management companies that are intended to be introduced for the resolution of problematic assets. Moreover, the said amendment will contribute to the formation of market discipline.
Substantial consolidation has been realised in the banking sector and thus the number of the banks in the sector decreased considerably in 2002. Likewise, the number of banks has decreased from 81 in 1999, to 54 in 2002. In the context of restructuring the SDIF banks, during the last five years 20 banks transferred to the SDIF, 12 of them have been merged, 5 banks were sold, and one bank was liquidated. As end of December 2002, one of the remaining 2 banks fulfils the asset management function, and the other is in the process of sale.
At the same time as financial and operational restructuring of the banking sector, considerable progress has been achieved in the implementation of the legal and institutional arrangements which provide strengthening of the surveillance and supervision framework, establishing a more effective and competitive system, improving the resistance of the sector, and permanent sectoral confidence. The legal framework has been harmonized with international standards to a great extent.
The arrangements on surveillance and supervision frameworks concentrate on capital adequacy, risk management, limitations on credit and participation, credit provisions, harmonisation with international accounting standards, independent auditing, and cooperation with supervision institutions of foreign countries.
The next objective of the restructuring in the banking sector is to complete the transition to real banking with a strong capital structure functioning as an effective intermediary for market discipline. In this context, scrutinizing deposit insurance systems and reaching international norms, decreasing intermediary costs in the sector and strengthening the regulatory, surveillance and supervisory structures of the sector are the main priorities.
Moreover, terminating the full guarantee application with a pre-announced government schedule, provided that stability is ensured within the financial system and financial indicators, aiming to improve the deposit insurance system, strengthening banking supervision by transposing a risk based supervision application, and accelerating the collection of the Savings Deposit Insurance Fund, are also among the main objectives.

Capital Market
Capital markets have achieved substantial progress since the establishment of the Istanbul Stock Exchange (ISE) in 1986. While the number of the companies quoted on the ISE was 80 in 1986, it increased to 288 as the end of 2002, and the market value of these companies had increased from 938 million USD to 34.4 billion USD at the end of 2002. constituting 19 % of GNP. The companies trading on the ISE are large-scale companies. However, a suitable environment for the establishment of markets in which securities of small and medium sized companies (SMEs) can be traded, and SMEs can provide financial resources, has been created by the Implementing Regulation on the Principles Regarding Establishment and Operation of Organised Securities Markets Other Than Exchanges published in the Official Gazette No. 25052 dated 18 March 2003.
The Investors Protection Fund established in 2001, based on the main principle of protecting the investors, is operating in the capital markets. A certain amount of the investors’ receivables can be paid off though the Fund when the brokerage firms are not able to fulfil their obligations. The Communiqués on consolidated financial tables and drawing up of financial tables in an inflationary environment will be implemented as from January 2003 and these adjustments will contribute considerably to the transparency of the capital markets. Comparability of the financial statements will be provided through the implementation of accounting standards which was opened to the views of participants in the market and prepared in line with international accounting standards. Moreover, it is expected that the establishment and operation of Pension Funds, which were regulated in 2002, will contribute strongly to the markets in the forthcoming period by strengthening the demand side of capital markets.
In the arrangements made within the framework of changing conditions in the capital markets and market requirements, not only EU Directives but also draft directives and working documents prepared in parallel with the objectives of Financial Services Action Plan are taken into account. In this context, studies for amending the regulations on issues such as investment services, public informing, investor protection, and clearing systems will continue.

Non-Banking Financial Institutions
The necessary measures have been taken in order to strengthen the regulation and supervision framework of the non-banking financial institutions. The Undersecretariat of the Treasury is currently responsible for the supervision of the insurance sector, leasing, factoring and consumer financing companies. It is expected that the law regarding the transfer of the authority of regulation and supervision of non-banking financial institutions from the Undersecretariat of the Treasury to the Banking Regulation and Supervision Agency will be adopted by Turkish Grand National Assembly by the end of 2003. The Banking Regulation and Supervision Agency has completed the studies for reorganization with respect to this restructuring.

Insurance Sector
Efforts for strengthening the regulation and supervision of insurance companies and the harmonisation of insurance legislation with the relevant EC acquis continue. The Law on Regulation and Supervision of Insurance Activities that is prepared in line with the EU acquis to a great extent, is expected to be enacted by TGNA within this year. With regard to this, preparation of the secondary legislation, envisaged to come into force in conformity with the relevant EU Directives, is ongoing.
Within this framework, a comprehensive project, “Reinforcement of Institutional Capacity of the General Directorate of Insurance (GDI) and the Insurance Supervisory Board (ISB)”, has been proposed in the context of the EU’s Pre-accession Financial Assistance to Turkey, and is aimed at the harmonisation of Turkish insurance legislation with the relevant EC acquis and ensuring its proper implementation. It is envisaged that the project will be launched in April 2004.

Administrative Reforms

Financial Control
Turkey has accelerated the efforts for harmonizing the public internal financial control system with European Union and international standards. In this context, the Ministry of Finance is preparing a Draft Law on Public Financial Management and Control by taking the opinion of relevant public institutions, international institutions and the European Commission. This law aims to increase responsibility, accountability and transparency in public financial management, to enhance the efficiency of ex-ante control, to align ex-post internal and external fiscal control systems with European Union standards, to expand the initiatives of the expenditory institutions regarding ex-ante control and ex-post internal control. The said draft Law is expected to be enacted in 2003.

Transition to Strategic Planning in the Ministries and Public Sector Institutions
Public Institutions which operate under a strictly centralized structure and are frequently exposed to political interferences, have in general been deprived of the capacity to develop policies. As a result of preparing strategic plans at institutional level, institutions will be able to clarify their mission in the framework of national plans and strategies, to put forward their policies and priorities, and to measure their progress through improving performance indicators. These plans will be prepared in a participatory manner on the basis of internal (employees) and external (citizens) customer satisfaction, and all relevant parties will be included in the planning process. Following the preparation of the strategic plans of institutions, budgets of these institutions will be prepared in accordance with these plans. This structure, which is being implemented in many developed countries, will be adapted to our country through pilot implementations.
The commission established within the Undersecretariat of the State Planning Organization (SPO) has prepared the final draft of the “Strategic Planning Manual” which will guide Public Institutions in the implementation of strategic planning. The final draft of the Strategic Planning Manual has been publicized on the web site of the Undersecretariat of the SPO and comments of the public institutions and agencies were requested by official letter. The comments have been evaluated and the final version of the Manual has been completed. The Manual will be reviewed continuously in the framework of the results of the implementations. After the realisation of pilot implementations, the Strategic Management Approach will gradually be widespread among all public institutions. Studies for selecting pilot institutions are at the final stage and the strategic plans, prepared by the selected pilot institutions under the guidance of the Undersecretariat of the SPO, will set the basis for their budget proposals.

“Performance based Budgeting” in Public Financial Management
Approval of approaches such as increasing the quality of public services, increasing the resource utilisation capacity, providing effectiveness, efficiency and economy in resource utilisation, developing political and managerial accountability mechanisms and the transparency, performance and quality management of public administration, has been gradually increased in recent years.
Performance based budgeting is a budgeting technique which formulates the preparation of spending plans (budgets) consistent with mission, vision, strategic goals and targets of the strategic plans prepared by public institutions, and controls whether the performance criteria determined in these strategic plans could be provided by this budget structure or not.
After the training programmes conducted within the context of performance based budgeting, pilot implementations were started in six institutions in 2002 and these institutions submitted their budget proposals for 2003 in accordance with the principles of performance based budgeting.
Studies on the Performance Based Budgeting Manual, which sets out the objectives, principles and procedures that public institutions should follow in transition to performance based budgeting in public financial management, have reached the final stage.

Extending the Scope of Budget and Financial Transparency
In 2000 and 2001, with the aim of extending the scope of the budget and increasing financial transparency, 69 funds, excluding 5 funds, were abolished by liquidation. All budgetary funds were closed, except for the Support and Price Stability Fund, through which the World Bank’s Agricultural Reform loans are channelled in the framework of the Agriculture Reform Project. In addition, extra-budgetary funds were closed, except for the Defence Support Fund, the Social Aid and Solidarity Fund, the Savings Deposit and Insurance Funds, the Privatisation Fund and the Promotion and Publicity Fund, which are considered to work more efficiently in the Fund system. The number of revolving funds within the general and annexed budgeted institutions was 2.548 in 2001 and decreased to 1.498 at the end of 2002 and to 1.457 in March 2003.
In the forthcoming period, it has been planned to realize the necessary arrangements for legal and administrative procedures in order to provide the approval of fund budgets by the Turkish Grand National Assembly, to make fund accounts subject to external auditing, and to report fund accounts together with consolidated budget accounts on a monthly basis.
The Public Debt Management Report is envisaged to be produced quarterly according to the Law on Public Finance and Debt Management No.4749, in which provision of financial discipline and transparency, realization of effective debt and claim management is targeted, was issued at the end of April 2003.
In order to form accrual based accounting standards and government accounting standards, pilot implementations were conducted in 2002 and positive results were achieved. It is programmed that in 2003, the General Implementing Regulation on Government Accounting and the Implementing Regulation on the Accounting of General and Annexed Budget Administrations will be prepared to form the necessary legal base, and the new accounting system will be applied in public institutions subject to the consolidated budget in 2004 and in public institutions within the scope of general government in 2005. It has been planned that by the end of 2006 common accounting and reporting standards and frame calculation plans will be implemented in all public institutions of the general government, after the finalisation of procedures and principles on the enumeration, accounting, calculations of amortisation, and revaluation methods of tangible fixed assets. Thus, the outcomes will be consolidated easily and in line with international standards, and government financial statistics will be produced, reported and presented to the information of interested parties according to the principles of transparency and accountability.
On the basis of the need for a budget classification that complies with state activities and the analysis of the effects of these activities on the national economy, efforts for the implementation of functional budget classification (analytical budget code system) have been started within the scope of the Public Financial Management Project, and the aforementioned budget code system has been introduced in six selected pilot institutions since January 2002. It has been decided that in 2003 in addition to the continuation of these pilot implementations, parallel practices will be applied in selected units of general and annexed budget administrations, and pilot implementations will be expanded comprising social security institutions and local administrations. The structure of the new budgetary classification code will be applied in all public institutions subject to the consolidated budget in 2004, and in all public institutions within the scope of the general government in 2005. With the analytical budget code system, it is aimed that government financial statistics will be available in a more organised, reliable and convenient form that enables analysis and international comparisons. As the same coding system can be applied to all institutions, including institutions subject to the consolidated budget, and will enable the determination of responsible personnel for the programs, the analytical budget system will help to increase transparency and develop accountability.

Strengthening the Governance of State Economic Enterprises

In the framework of strengthening the governance of State Economic Enterprises it is intended to clarify the objectives of State Economic Enterprises, to set new accountability standards, and to enhance management autonomy and internal governance. It is expected that the legislation on the realisation of these objectives will be approved by the TGNA during 2003.

Strengthening of Governance in Public Administration
The process of rapid and multi faceted changes being experienced in the world and in our country and the increasing demands of Turkish society have led to fundamental restructuring, especially in our understanding of bureaucratic structures and governance. The Urgent Action Plan, adopted by the 58th and 59th governments, introduces schedules and clarifies the public administration reform that is based on increasing efficiency and democratisation.
Basic Law on Public Administration: A comprehensive public administration reform will be implemented to develop the necessary legal and institutional environment for the provision of public services in a more effective, transparent and participatory way. At the first stage, a framework law, which will introduce the basic principles in public administration and clarify the distribution of authority and resources, especially between local and central administrations, will be enacted. At the second stage, laws on the establishment of all related public institutions will be revised by taking into account the data obtained from the study of the General Institutional Revision in Public Sector. Necessary measures will be taken in order to prevent the negative effects of the local government reform on fiscal discipline.
Institutional Revision: The main purpose of the General Institutional Revision of the Public Sector study is to restructure public administration by focusing on the demands of citizens and sectors, to accelerate decision making process by simplifying the organizational structure, and to decrease public spending. By revising the mission, authority and functions of all public institutions in accordance with the changing role of the state, the structure of public institutions has to be reshaped to enable them to carry out their main duties.
The Undersecretariat of the State Planning Organization carried out the study on General Institutional Revision in Public Sector. In this context, comprehensive surveys were conducted in public institutions, and in the light of determined priorities face-to-face meetings were held with various institutions. The final stage in preparing a draft report has been reached. Following the finalisation of this study, the results of the General Institutional Revision in Public Sector report will provide analytical input to various legal and institutional changes and regulations.
State Personnel Regime Reform: State Personnel Regime Reform will be prepared in accordance with the General Institutional Revision in Public Sector and the Central and Local Administration Reform, by taking into consideration the following principles:
- The practice of employing permanent staff will be implemented in all public institutions,
- Recruitment and promotion will be made according to objective criteria, the number of posts will be reduced, and economic and social differences between similar posts will be eliminated,
- The salary and wage system will be simplified and imbalances will be removed. Flexible employment procedures will be introduced,
- In the long term, a performance-based wage system will be introduced,
- Fundamental and permanent duties of the state will be determined and those who are not performing these duties will be subject to the Labour Law; the number of personnel working in fundamental and permanent duties will not exceed certain a ratio of all civil servants.
Local Administrations Reform: Restructuring of the local administration, currently performing their duties within a strong centralised structure with inadequate resources, has been envisaged in accordance with the European Charter of Local Self-Government, to which Turkey is a party. In this context, instead of defining explicitly the duties and responsibilities of local administrations, the duties and functions of the central administration will be determined and all remaining duties and services that are considered as local or common will be under the responsibility of local administrations.
After the completion of these reforms, in meeting the local and shared needs, local administrations will be restructured as modern administrative bodies capable of taking their own decisions, developing their own resources, implementing projects and being open to the supervision of their fellow citizens, in accordance with the principles and standards determined by the central administration and within national and regional plans.
Regional Development Agencies: Up until now, allocation of resources from the centre not only caused waste of resources through useless and ineffective investments, but also broadened the disparities between regions and between cities. In order to use resources appropriately and more effectively, to lessen the disparities between cities in the same region, and to strengthen local administration, new service regions and units at the sub-regional level will be established consistent with the Nomenclature of Units for Territorial Statistics (NUTS), which has been identified for our country according to EU norms.
While policies to decrease regional disparities will be implemented by the central administration, Regional Development Agencies will conduct studies to mobilise regional potential and eliminate disparities between cities.
By using participative methods and bringing all related parties in the region together, Regional Development Agencies will form a “regional development strategy” and will mediate the utilisation of national and international funds in compliance with the regional strategy.
Citizen’s Right to Obtain Information: Studies have been initiated to facilitate citizens’ access to the information generated by the public, and if necessary, to provide the reasons behind public activities and to arrange the right to obtain information.
The Ministry of Justice has prepared a draft Law on “Right to Obtain Information” to determine the principles and procedures regarding the right to obtain information by the beneficiaries of public services. This draft Law, sent to the Prime Ministry on February 26, 2003, will be improved with the contribution of all stakeholders and will be enacted in a short time.
E-Turkey Project: Studies on the e-Turkey project covering both public and private sector, have begun to accelerate the activities and operations of citizens, to enhance the scope of public services reaching citizens in parallel with the developments in information technologies, to prevent red tape, and to provide transparency and efficiency in these services.
A Prime Ministry circular regarding objectives, phases and institutional structuring of the E-Turkey Project was issued. The Department of Information Society was established within the Undersecretariat of the State Planning Organization to carry out the activities in the scope of this project. Moreover, studies for the establishment of a Consultancy Committee, which will coordinate and monitor the project at a higher level, have been finalised. An Action Plan was prepared with the contribution of various working groups and necessary steps for the implementation of the Plan have started to be taken.
Definition of Ethical Rules in the Public Sector: One of the studies carried out to fight against corruption and to increase transparency in public administration is the determination of occupational and ethical principles and rules which public officials must obey. For this purpose, a draft Law has been prepared by the Prime Ministry. It is expected that the draft Law will be enacted in 2003. With this draft Law, prevention of discrimination among citizens, ensuring citizen satisfaction, increasing transparency and respect for principles such as honesty and reliability of civil servants in the course fulfilling their duties will be attained.

Rationalisation of the Public Sector Investment Programme
As foreseen in the 8th Five-Year Development Plan and in the Annual Programmes, rationalisation studies continue to increase efficiency in implementation and planning of public investments so as to ensure the contribution of projects to economic growth and social welfare. In this context, on-going projects in the 2001 and 2002 investment programmes were revised by considering the priorities at sectoral, regional and project level, and the projects that have lost their priority and feasibility were identified.
In 2001, 1,002 projects comprising 353 major and 649 sub-projects with a budget of 12.4 quadrillion TL, according to the prices of the 2001 programme, were removed from the 2001 Annual Investment Programme, either because they had lost their priority and feasibility or because it is impossible to launch them in the near future due to lack of financing. Thus, the total number of projects was reduced to 4,414 for the 2002 Annual Investment Programme. With these changes, the average time for the completion of a project decreased from 12.5 years to 8.5 years in 2002, indicating a 32.1 % decline as compared to 2001.
Rationalisation efforts continued in 2002 and 600 projects comprising 230 major and 370 sub-projects with a budget of 4.9 quadrillion TL were removed from the 2002 Annual Investment Programme. As a result of these studies, the total number of projects, which was 4,414 in 2002, decreased to 3,851 in 2003, and the average time for the completion of public investment stock, which was 8.5 years in 2002, decreased to 7.6 years in 2003.
In addition to decreasing the number of investment programme projects, rationalisation efforts continued through further improvements in the framework of investment programme preparations, and current funds were assigned to the projects which had immediate priority.
Rationalisation efforts aiming to increase the efficiency of public investment programmes will be continued.
In this framework, technical and administrative measures will be taken in order to sustain the rationalised structure of the public investment program.

3.2 The Capacity To Cope With Competitive Pressures Within The Union

Improvement of the Investment Environment

In addition to the policies which have been implemented to restore macroeconomic stability, the Reform Programme for the Improvement of the Investment Environment, which foresees improvement of the investment environment in Turkey for both domestic and foreign investments, was adopted by the Council of Ministers and put into force in 2001. The programme envisages the acceleration of investment procedures through the elimination of administrative barriers and the reduction of red tape.
The 9 Technical Committees established within the framework of reform program are as follows:
- Company registration
- Employment (work permits for foreigners)
- Sectoral licensing
- Land access and site development
- Taxation and state aids
- Customs and technical standards
- Intellectual property rights
- Foreign direct investment legislation
- Investment promotion
In the framework of the Reform Programme, the Law on the Work Permit of Foreigners was published in the Official Gazette No.25040 dated 6 March 2003. The Law will come into force six months after its publication. This Law simplified legislation in this field by introducing a single authority for granting of work permits, and it repealed Law No.2007 on the Arts and Services Allocated for Turkish Citizens in Turkey. Within this framework, the requirement to be a Turkish citizen for certain professions, such as interpreters, guides, photographers, drivers and waiters is removed.
Law No.4842 on the automatic provision of investment allowance without the need for an investment incentive certificate, which is one of the most important instruments of investment incentives, was published in the Official Gazette No.25088 dated 24 April 2003.
Moreover, the company registration procedure, which had 19 steps and lasted more than 2 months, has been simplified by Law No.4884, which was adopted by the TGNA and then published in the Official Gazette No.25141 dated 17 June 2003. This Law aims to decrease the registration procedure to 3 steps in one day through filling out a standard company establishment form.
In the framework of improving the business environment, studies on the preparation of the necessary legal changes regarding activities of the Turkish Accounting Standards Board continue in order to improve company management and to support banking reform. Moreover, preparation of the circular regarding implementation of the 30 accounting standards that have already been put into force and are compatible with International Accounting Standards (IAS), is in the final stage. Adoption of the draft law proposal on the establishment of the Turkish Auditing Standards Board by the TGNA is expected by October 2003.
Law No.4875 on Direct Foreign Investment, which abolished the permission procedure and minimum capital requirement for foreign capital companies that will be established in Turkey, was adopted by the TGNA and then published in the Official Gazette No.25141 dated 17 June 2003. This Law broadens the definitions of “investor” and “direct foreign investment” in accordance with international standards. Additionally, with the said Law principles such as the freedom of transfer of investment shares abroad in the cases of national act, transfer of profits and dividends and company liquidation or sales, and the freedom of employing foreign technical staff, which are established in the current Law No.6224 on Encouragement of Foreign Investment, are protected. Furthermore, current provisions of the Constitution and other laws concerning acquisition of real estate, international arbitration and protection against expropriation are also confirmed with this new law.
In the framework of the Reform Programme, preparations for the establishment of an Investment Promotion Agency, which will carry out activities to improve the image of Turkey’s investment environment, to increase foreign investment, and to broaden the current investment fields, are in the final stage.
The Technical Committee for Sectoral Licensing, set up within the framework of the Reform Programme, has established sub-committees in the mining, foodstuffs, chemistry, pharmaceuticals and tourism sectors, determined the problems in these sectors, and proposed solutions to these problems. In this context, certain proposals regarding shortening of the licensing procedures for investors and simplifications of the operations in the mining sector were reflected in Draft Law No.3213 on Mining and Amendments Regarding Certain Articles of Various Other Laws. The draft law that is still pending in the TGNA is envisaged to be enacted in the short term.
Moreover, in addition to the 9 technical committees composed within the framework of the Reform Programme, a “Technical Committee for SMEs” was established and started to work for the removal of barriers to the development of SMEs, which is crucial for economic and social development. Three sub-committees were established under the mentioned Technical Committee and their tasks are defined as follows:
- Development of “twinning” of SMEs
- Training of Turkish SMEs to benefit from the EU financial assistance
- Informing SMEs about state aids provided for SMEs
Since the related technical committees undertake issues such as increasing financing resources for SMEs and providing tax convenience, they are not being duplicated in this committee.
In order to make Turkey an attractive zone for foreign investment, a meeting of the Investor Council, which is composed of top-level managers of leading international companies, is planned to be held in the autumn of 2003.
Moreover, the SME Strategy and Action Plan have been prepared in order to develop a strategy and perform actions in compliance with the SME policy of the EU and to introduce measures to cope with competitive pressures within the EU.

Labour Market

Basic features of the labour market in Turkey include the rapid increase in the working-age population, a large percentage share of employment in the agriculture sector, and limited capacity of the economy to create employment. The unemployment level has increased markedly during 2001-2002 with the effect of the economic crises, and the fight against unemployment has gained greater importance.

The solution to the problems in the labour market depend mainly on the creation of a sustainable macroeconomic environment and increasing productive investments. In addition, regulations are required to increase the capacity of the economy in creating employment. In this context, the employment capacity of SMEs will be used to the utmost. In addition, the change of the employment structure in favour of sectors other than agriculture and the steps to be taken in order to facilitate the transition from agricultural sectors to non- agricultural sectors are crucial.
The main objectives of employment policy are to change the employment structure in favour of non-agricultural sectors, to increase the qualified labour force needed by the economy, to raise the quality of the labour force in line with the requirements of the information age, and to increase the efficiency of the labour market.
The New Labour Law No.4857 was approved by the TGNA on May 22, 2003 and came into force on 10 June 2003 in order to reduce the non-registered work force, to provide the flexibility needed by the labour market, and to regulate new working methods. This new Law was prepared by taking into consideration the effects of globalisation and transition to the information society on the new working methods and organisation, and to reflect new working methods like part-time working, on-call working, lent working, shared working models, fixed-period service agreements, and broadening of sub-contracting practices. A positive impact is envisaged in the employment market with this new law, which establishes an important legal framework for the fight against unemployment, and for the efforts to increase employment via increasing the flexibility of the labour market.
Studies on strengthening the database on the labour market and business environment continue. It is envisaged to give support to public institutions and non-governmental organizations which contribute to this database.
It is planned to take measures to increase employment opportunities, particularly for young people, women, and the disabled.
SMEs provide input to industrial development and have an importance in increasing employment and reducing unemployment. Thus, in order to utilize SMEs’ capacity for creating employment, it is planned to increase support in the areas of training, project preparation, financing, organization and technology.
It is envisaged to complete studies on legal regulations on the establishment of occupational standards, examination and certification system.
The Law No.4904 on the Turkish Employment Agency was published in the Official Gazette No.25159 dated 5 July 2003. This Law aims to strengthen the capacity of the Turkish Employment Agency in developing active labour market policies, and to develop a national employment policy compatible with the European Employment Strategy.

Agriculture and Rural Development

The main objective is to establish an organised, highly competitive and sustainable agricultural sector, which takes into account economic, social, environmental, and international dimensions as a whole within the framework of the principle of efficient use of resources, and is able to nourish the growing population in a balanced and adequate way in accordance with the food safety approach.
It is foreseen to develop agricultural policies in accordance with the obligations defined in the World Trade Organisation Agreement on Agriculture, and developments in the EC Common Agriculture Policy and in international trade.
In the framework of the Agricultural Reform Implementation Project, which is supported by the World Bank and is to be implemented by 2005, it is foreseen to provide agricultural support to farmers through the Direct Income Support (DIS) system instead of price and input subsidies, and to set up a registration system for farmers, to facilitate the transition to alternative crops instead of surplus supply, and to restructure the Agricultural Sales Cooperatives and Unions.
The Decision of Council of Ministers No 2000/2172 dated 12 December 2000 regarding Direct Income Support to farmers was issued, and direct income payments were started in 2001. In order to determine correctly the farmers who will benefit from the DIS System, and to complete the record of unregistered farmers and agricultural land, all farmers should be included in the Farmer Registry System. With the implementation of the DIS system under the designated conditions, payments were made nationwide per decare to every farmer who certified that he is engaged in agricultural production, and whose land cultivated in a year does not exceed 200 decares. Payments started to be made in December 2001 and were completed in May 2002. In 2002, direct payments per decare to registered farmers were increased in accordance with the expected rate of inflation, and the size of the cultivated land was increased to 500 decares. It is aimed to restructure the Ministry of Agriculture and Rural Affairs and the state economic enterprises in agriculture sector. In this context, it is envisaged that the Turkish Grain Board (TMO) will be scaled down and restructured as a market regulatory authority, and all state economic enterprises in the agriculture sector other than the Turkish Grain Board will be privatised after the necessary adjustments.
In rural areas, it is aimed to give support to non-agricultural sectors, encourage rural industry, create new employment opportunities for the population withdrawn from the agricultural sector, and improve the rural infrastructure.
Regarding the control of animal diseases, it is planned to complete studies to establish the animal identification system and border inspection posts.

Social Security and Social Assistance

In 2001, 85.1 % of the population was covered by social insurance schemes and 81 % was covered by social insurance schemes concerning health care services. 56.9 % of the total civil employment was covered by the social insurance pension schemes. The distortion in the actuarial balance of the social insurance institutions rendered the existing social insurance system unsustainable. In 2002, the ratio of the transfers from the budget to the social insurance institutions reached 4.1 % of GDP.
The main objective is to extend the public insurance programmes, which provide minimum social insurance protection, to cover the whole population.
It is planned to increase the share of the working population within the scope of social insurance schemes, to enhance the administrative and financial efficiency of the social insurance institutions, to establish basic principles in order to provide uniformity in norms and standards, to improve the technological infrastructure and human resources of the social insurance institutions, to establish a general health insurance system, to separate long-term and short-term insurance programs, to increase control over the health expenditure of the social insurance institutions, and to establish a unified social service, cooperation network and institutional structure.
Social security reform, which aims to ensure a sustainable social security system and administration, to establish long-term actuarial balances of the social insurance institutions, and to improve their administrative and financial efficiency, was planned as a two-stage process and has been implemented since 1999. At the second stage of the social security reform, necessary legal and institutional adjustments will be made and administrative and financial measures will be taken in order to realise the above-mentioned basic goals and objectives.
By the end of 2003, the Urgent Action Plan, which is on the agenda of the 59th government, envisages: separation of health services from the social security system and transition to the General Health Insurance system, which will deliver health services to every citizen; realisation of the unity of norms and standards in the Social Insurance Institution (SSK), the General Directorate of Social Security Agency for Artisans and the Self-Employed (Bağ-Kur), and the Civil Servants Retirement Fund; separation of long term and short term insurance services; bringing all social security institutions under a single organisation; abolishment of payments without premium. In this regard necessary studies carried out by the related commission continue.
In addition to the studies conducted in line with the above mentioned goals, institutional and administrative adjustments regarding SSK, Bağ-Kur, and the Turkish Employment Organisation (IŞ-KUR), together with the revenue increasing and cost decreasing measures, will be accomplished in the first half of the 2003, other issues will be legislated after conducting studies according to designated goals.
The main purpose of social assistance is the establishment of a new system in which social services and assistance will be delivered effectively to targeted social groups.
In the framework of the fight against poverty presented in the 8th Five-Year Development Plan and Urgent Action Plan, studies to determine the poor households according to the records of nationwide social aid and solidarity foundations have reached the final stage. Studies aiming to reach other poor households that still do not exist in the records of these foundations continue. In addition, in the framework of the Social Risk Mitigation Loan Project, scholarships have been given to the higher education students from poor families and aids such as books, stationery, clothing, and milk are provided to the primary school students from poor families.
Studies continue to take necessary measures in order to make the means of social aids and services attainable.
It is aimed to prepare a Main Plan for Social Services to decrease poverty, to provide effective social protection for individuals and groups in need, and to increase efficiency in the utilisation of resources.
It is planned to develop cooperation between public institutions, local administration, and the private sector and voluntary institutions that provide social aids and services. Establishment of the Social Protection Information System aims to determine objectively the persons who will benefit from social aids and services, and to monitor the results of their implementation.
In this field, cooperation with other countries might be developed by participating in the Fight against Discrimination (2001-2006) and Prevention of Social Exclusion (2001-2005) Programmes of the EU that are designed to support and develop activities in the fight against discrimination, and to support cooperation and increasing effectiveness of policies for fighting against social exclusion, respectively.

Education

The Turkish education system is in harmony with the education systems of EU member countries in terms of the principles upon which it is based. However, in Turkey the general education level has not yet reached EU standards. Studies on the improvement of qualitative and quantitative standards in the education system continue.
One of the most important aspects of Turkey’s economic potential is its young population. Nevertheless, utilisation of this potential depends on training the new generation in line with the qualifications that the economy requires. The most important steps that have be taken for this purpose are increasing the level of education, overcoming inequalities in accessing education, and providing the young generation with qualifications that support economic development. In this framework, the main priorities of the Turkish education system are increasing standards qualitatively and quantitatively, and eliminating inequalities in accessing education. It is estimated that the steps taken for this purpose will accelerate economic development by contributing to the improvement of human capital in Turkey.
There have been ongoing efforts to eliminate inequalities between cities in accessing education.
Given the fact that social, psychological and mental development begins at an early age, it is aimed to extend pre-school education nationwide so as to achieve equality of opportunity. Moreover, it is foreseen to increase the number of schools in the pre-school education system to the level of developed countries, especially to the level of EU member countries. In addition, it is aimed to enact a law concerning pre-school education to realise unity in pre-school education.
In order to create demand for students in occupational and technical education, arrangements have been made to offer them applied education other than internships in the relevant industry. Moreover it is aimed to organize the content of the education according to the needs of the private sector, and to encourage private sector investment in the field of education.
It is planned to develop a competitive structure in the higher education system, to provide institutional and financial autonomy that strongly guarantees academic freedom, and to strengthen scientific freedom through the finalisation of the studies on amending the Higher Education Law.
After the completion of basic structural adjustments foreseen in higher education, it is expected that R&D activities in higher education institutions will be strengthened, and the number of scientific activities and projects will increase in the fields that the economy requires. In addition, with the realisation of administrative and financial autonomy in higher education institutions, a competitive structure among universities will be established, thus the quality will increase. Increase in the quality of higher education will make Turkish universities more competitive with foreign universities. Universities, which will be more sensitive to social demands due to their increasing autonomy, will monitor business demands more closely and will be able to direct labour supply and quality of labour according to this demand.
The legal process concerning Turkey’s participation in Community Programs in the field of education and youth has been completed. Coordination of the aforementioned education and youth programs will be carried out by a National Agency, established within the Undersecretariat of the State Planning Organisation as the European Union Education and Youth Programs Department, with the decision of Council of Ministers No.2002/3547 published in the Official Gazette No.24655 dated 29 January 2002. The necessary infrastructure that will enable the National Agency to operate has been prepared, and the draft law that will provide administrative and financial autonomy to the agency has been sent to the Prime Ministry. Preparatory studies aiming full participation of our country in Community Programmes in 2004 are to be finalised in a short period of time.

Health

The main objective is to enhance the general health level throughout the whole society, to improve the span and quality of life, to reduce disparities in public health levels between regions and individuals with different income levels as much as possible, and to establish the necessary infrastructure relating to these objectives.
It is aimed to complete the studies on restructuring the Ministry of Health, to consolidate the management of all hospitals under a single framework, without making any distinction between state hospitals, insurance hospitals and institution hospitals, and to provide them with financial and administrative autonomy. In addition to this, it is also planned to implement a family medical practice, to develop an effective patient transfer system between health service units, to give high importance to mother and child health, and to extend the practice of protective health services.
After accessing the Network for the Epidemiological Surveillance and Control of Communicable Diseases of the EU, the necessary infrastructure will be established to follow-up designated diseases and to collect data, and hence, the fight against these diseases will be more effective. Moreover, with the accession of Turkey to the New Public Health Programme of the EU covering the years 2003-2008, cooperation in the health sector will be developed with participating countries.
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