No. E 35A/~ - I _........,tl: -r'.• \ ., .. RESTRICTED J This report is restricted to use within the ·aankl 66881 -11 ... ,.. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ECOl'lOMIC REPORT ON TURKEY April ZZ, 1949 . :-t· Economic Department Prepared by E. Harrison Clark TURKEY Administrative Divisions _, ..,,. ..... { ·....__~ ZMIJ!@) ' ··,f'....."\ SEA !'tote: ln most ~ cases cent.er. I ECONOMIC REPORT ON TURKEY Table of Contents Map Selected Statistics i Summary I. The Country Page 1. The Government and Foreign Policy 1· 2. The Structure of the Turkish Economy 6 a) Topography and Cl:Lilate 6 b) Population 7 c) The National Income 8 . u) I"and Use and Distribution ll e) Transportation and Comnunications 15 3. The Burden cf Defense 18 4. Agriculture and Allied Occupations 20 a) The Goverw.ent and Agriculture 20 b) At:r:i..cul tural Production 24 c) Fisheries 27 d) :Forestry 27 e) Agriculture and the State Invest- ment Program 29 5. Indus try and !lining 31 a) State Industrial Poli~J 31 b) Financing of Dtate 2nterprises 36 c ) Manpower 37 IIo Internal Finances 6. The State Budget 7. Banki..'rlg, Credit and Prices 48 8. Internal Debt 52 Table of Cor·~: ..,··.~ts - Continued Page III. External Position 9. :xternal Iebt 55 10. Gold, Foreign Exchange and Credits 57 11. Foreign Trade 61 12. Balance of Pa~"l''lents 64 TABUlAR DATA TABLES I (A) - Distribution o:f Land in Turkey I(B) - Land Cultivation ~J Principal Crops II Agricultural Production in Turkey III(A) Private and State O·rnership of Industrial ,and Mines in Turkey III(B) - Estimates o:f State Investments in Turkey IV Production in mning and Manufacturing V Government's Budget VI tefici ts in Turkish Budget VII The T-~kish Internal Debt VIII - The Turkish :_jA'ternal :i)ebt IX - F:··· ·eign and L'o:nestic Debt X Changes in Turkish Gold and Foreign Exchange Holdings XI Foreign Credits Drawn bJ Turkey i.n 1948 XII Credits Available to Turkey for 1949 XIII Turkish Foreign Trade XIV - Comrnodity EX',t)orts and Imports : Turkey, by Percentage X\l Hages in Turkey XVI Humber of Animals in Turkey TURKEY Selected Statistics (Data are 19L.8, except where noted) Population a) Total 16.2 m. (193.5) 19 •.5 m. (est. 1~)48) b) Population in cities over 10,000 17% (1935) 18% (194.5) Area - Thrace (European Turkey) 25, 000 sq. Ian. Anatolia (Asiatic Turkey 752,000 sq. km. Rate of Exchange: 2.8 TL = $1 ~i-.357 : 1 TL National Income: a) Total $2.8 b. b) Per capita $143 Exports: a) Total ;;p197 m. b) To u.s. $ 50 m. c) To U.K. $ 25 m. J.mports: a) Total ;:~275m. b) From U.S. (recorded) ~ 79 m. c) From U.K. :) 68 m. Trade De fie it: a) Total ~P 78 m. b) vvi th U.S. {,; 29 m. c) Tlith U.K. ) 4.? m. Balance of Payn.ent:~ Deficit (current as recorded by Central Banl{) a) Total b) With u.s. (plus) c) With U.K. A Selected Statistics - Continued Budget: ~) Ordinary Expenditures $489 m. Receipts $446 m. Deficit $ 4.3 m. b) Annexed Budget Expenditures $134 m. Receipts $111 m. $ 2.3 mu Total Deficit ~; 66 m. National Del:,t (long-term) Domestic $588 m. Foreign $341 !il. Industrial and ulinerals P~oducti~~ (000 metric tons) 1938 1947 1948 Coal 25.90 3945 4020 Lignite (small) 675 Y80 Chrome Ore 156 (1935) 100 234 Iron Ore 77 146 185 Cement 286 344 355 Cotton Yarn 19.6 28.8 27.2 Yvoolen Yarn 4.4 7.8 8.6 Electric Power (m.h.-wh) 135 620 62S A~ricultural Production (000 :metric tons) 1934/38 :!947 1948 Cereals 6985 5542 6613 Tobacco 61 90 80 Vegetable Oilseeds 157 233 336 Pulses 319 194 263 Olive Oil 37 63 33 Potatoes 181 349 470 Cotto!'l 60 47 51 ;:>ugar 54 97 118 Gold and Foreign Exchant=£e •] 1 ~1o., d' 7 ~ngs (Gross at' end of :rear) 1938 1947 19L~8 :~14 m" $269 m. $192 m. SUMMARY In strength and stability, Turkey is unique among the nations of the Balkans and loliddle &st. Mainly for that reason, there is an absence of any fear complex in Turkey in spite of her strained relations with the U.s.s.R. Internally, she has a long trad:i.. tion of authoritarianism, but in the post-war period, she has been moving increasingly in the direction of greater internal freedom •• In part this development has been a natural growth; in part it is the result of the increased post-war influence of the -ilest. The Government is increasi11gly coming into the hands of a democratic, western educated, and technically competent group of Y'~unger men, entirel~r trained under the Republic. Turkey's population of 19.5 rrdllion, occupying an area as large as the Balkans (except Greece) is growing rapidly. About 82% of the population is agricultural, a percentage that has remained unchanged for at least two de- -cades; ·-in spite· of -a substantial degree of industrial d.eveloprrent. Practically all the farms are smaller than 50 hectares; a million of the two million and a half peasn.nt families ovm dwarf holdings. Population pressure on the land >as been increasing. Possibly hs many as 800_,000 to one million peasants are on small holdmgs in a status of disguise,:d unemployment. However, Turkey has substantial ~ounts of cultivable land and the Government ha.s already beg~"'l settlement on a small scale. 3xcept for certain industrial and fruit crops, agricultural techniques are bacl~.r.rard and prinitive. There are 40,000 "pockets" of villages anci i'arns with hi_,hly inadequate, or non- existent, road ~onnections. Costs of lJroduction and transportation are high; only 25% of Turkey's cereal crop reaches a market. Before the y;ar, Tm:·key 1 s per capita national income 1·ras approximately on the same level as in the 3alka.ns. In 1948, national income was about $143 per capita. The agricultural sector, which received only 45% of the i national income, has a much lower than average income - probably not over $80 per head. At present about 7% of the national income is devoted to gross in- vestment (3 - 4% net) and another 7% to milita~r expenditures. The Government takes a further 16% for non-militar,y expenditureso Government outlays for military purposes, public works and investments, and sanitation and health, have risen rapidly since 1946. These expenditures have been financed through increased consumption expenditures and taxes on moderate incomes, but also, particularly in 1948, through substantial borrovrin;:; from the Central Bani.. In 1949, the ordinary budget shOYfS a deficit of c"~43 m.' with expendi- tures of $489 m. There is a further deficit of ~;~23 m. in the annexed budgets. The deficits are mainly for capital expenditures. The deficit presents a serious problem becru~e of the almost complete absence of a long-ter.m capital market in Turkey~ In 1948, for example, over half the deficit had to be fi- nanced by the. Central . Bank ··- ..... - ... - .. - ~ "' because the bond ~- ... ~arket absorbed only 1~ the -· - ·-- ---- --...- ····-··-·····-·- -·-· ... Government's bond issues of $36m. The country's savings go, in the main, into hoards, land, real estate, and inventories, and,. only to a limited extent, into banks or Government bonds. During 1948, the Goverr~ent's internal debt rose by 25%. The external debt of Turkey is relatively small- $JL:l. m., of.which $87 nj.llion· is in dollars. The sterling debt is tho largesii· cor;tponent, ($199m.) and may prove troublesome since interest and amortization paJ~aents ri~e to ~?23. 7 m. in the fi.fties. The dollar ·pQ.yments (including those on present ECA loans) recLch peak of ~10.8 m. in 1950 an~ then fall off rapidly to Although Turkey has undergone a considerable development during the past twenty-five years, this development has been one-sided. ii Industr.y (largely State-sponsored since 1933) has been over-favored as co~ pared with agriculture, forestr.y and fishing; railroads have been developed at the eA'"Pense of roads. OVer 90% of Turkey's State expenditures for invest- ments in the past twenty-five years have been for purchases of foreign-owned inQustries and communications, and for the development of State~o~~ed indus- tries, mines, communications and public works. As a result, the basic econonu of the countr.y remains to this day largely in its ori8inal primitive state. Moreover, in spite of the relatively large expenditures, manufactur- ing industrt employs only 240,000 persons today. Because of the large invest- ment per vvorke:r required in industry and Turkey's small resources, the indus- trial sector c~, absorb o~Jy a small fraction of the rapi~ increasing rural populatioll. In 1948, through stringent import licensing Turkey was a91e to achieve a slight surplus in her pa;,rments vvith the dollar area. Her sterling df:ficit was excepti.onally larg3, hov;ever - $55 m. - because nf heavy impel ts from, and a curtailment of exports to, the sterling area. Turl~ey's dollar exports have been stable for the past tvro years and may show some moderate increase in the next two years. The sterling problem seems likely to be more difficult of solution. ~ecause of Turkey's potentialities in cotton, cereals, citrus fruits, canned fish, oilseeds, and minerals such as chrome and copijer, the Turkish development program should, if carried out. on rational lines, be increasingly able to supply ti:1e European and British markets. :..;ventually, therefore, Turkey should be able to meet its European cleficits, and debts, and to obtain from Eurcpe an increasing supply of capital goods for longer-run industrial development. iii I. THE COUNTRY 1. The Govern"'lent and Foreign Policy In its strength and stability, Turkey is unique among the. nations of the Balkans and the lviiddle :Sast. Its external relations ha1re been charactE)r- ized for many years by a mature respect for the rights of its neighborsJ a policy the more remarkable since its vigorous people who had long dominated most of the surrounding area might well have developed aggressive tendencies after the renaissance of their power. The Turkish State is completely stable internally and th~re is not ti1e slightest evidence of any effec~ive internal opposition on fundamental issues; foreign policy has practically unanimous support. LXcept for the U.s.s.R. and Bulgaria, Turkey's foreign relations with its neighbors are good. There is some slight friction with 3-reece (in ·vrhich the United King- dom is indirectly involved) over Cyprus but this is not likely to become a major issue. Even the acutely strained relations with the U.s.s.R., which have brought postwar mobilization, have not produced in Turkey the fear com- plex so prevalent in Vlestern Europe. To IP.ake clear the character of the present Turkish Government, a few vrords on the past are necessary. •• l.".ihiJ.e the Government established by Ataturk in 1923, and the subsequent constitution of 1924 ~v-;ere theoretically demo- cratic in concept, the Government was authoritarian in The Government practice. •• c.nd his staff brought military coi'l- Ataturk cepts of efficiency and discipline to a decadent Turkey. Opposition was feeble or suppressed. AtatUTk did much for Turkey; the international pres- tige of the count:rJ Tras restored, its educational stc.ndards raised, anc1 the development of various parts of the economy stimulated. Partly for rn:ilitar.r and strategic reasons and partly because of the depressed status of agriculture .. -2- in the thirties, the major resources of the Government an.d of the country, particularly after 1930, were devoted to industry and to public works, including a modest development of railways. The economy, apart from industry, was largely neglected, however, and there is little evidence that living standards for most of the population rose very much during the fifteen years of Ata~drk's rule. Ataturk's successor, Ismet !non~, now President of the Republic, though powerful, has never had the strong hand of Ata~Urk. The death of Atatiirk in 1938 openedr1the way for Turkey1 s postwar development towards greater democracy. The passage of power to less autocratic han.ds would have led more quickly to a relaxation of authoritarianism had the war not intervened to strengthen the hand of the Government and the General Staff. In the four years since the end of the 'tve.r, Turkey, still a backward coun- try, with the major part of the population illiterate, has made fai~ly rapid progress towards greater internal freedom. In part, this has been a natural growth, in part the increased influence o~ the West. The first effective opposition to the long-dominant People's Party, was organized in 1946. The Democratic Party, though new, and operating under handicaps in the election, ~on 64 seats of the 465 seat unicameral Grand National Assembly in 1946. A third small party Has subsequently organized. While th~ Democratic Party, theoretically more liberal in the 19th century sense than the People's Party, is free and vocal in its criticisms of the Government's policy, particularly of' the State capitalism Hhich has been the basic tenet of the dominant party, the real opposition in Turkey comes from within the People's Party itself. The party is divided into t"t-ro major sections: the old Ata.tUrk follo-vrers and a group of what are, literally, " "Young Turks". There are, in addition, individual dissidents. The younger section of the Party is of especial interest, for it has been rapidly coming to povYer. The post-Atat\irk young Turk, novv- in his thirties, or, occasionally, early forties, is a product entirely of the Republic. Largely educated abroad, in ·~Jestern ..:!;urope or the United States, he is intelligent~ ambitious, patriotic and technically competent. This group, progressive and generally democratic in outlook, is increasingly gain- ing responsibility, with each shuffle of the Cabinet. Although the division in the Party is not entirely clearcut,· it reflects basic differences in out- look; both wings favor state intervention, but the Conservative wing is con- cerned with maintaining the traditional pattern of State ownership of industr,y, comm~~ications and mining, the ~iberal wing with raising the standards of living and providing a better distribution of incomes while curtailing Government ownership, and providing somevihat greater opportunity ::.'or private investrrent, both domestic and foreign. The present Government, which came into existence in January of 1949 under the Prime Minister, Semseddin Gunaltay,though a one-party Government, is essentially a compromise Government. The Deputy Prime 1ilinister, Nihat Erim, now 37, is generally regarded as the leader of the Young Turks. Another 37 year old former Civil Servant is the competent Einister of Fi- nance. Members of the younger group - not yet strong enough politically to take full control - are to be found in many of the key post in the pe~ manent Civil Service. A current proposal to establish ;. bicameral legis- lature is based in l~~ge part on the division in the Party. The younger group hope that the 'Jonservative 1-ring can be pushed into the upper house, leaving the liberal wing in control of the lower house. Political prospects for the.next election are uncertain. A few ob- servers believe that the Democratic Party has a chance of a majority in the -4- next election but this is not the general opinion. The electoral machinery still tends to give control to the dominant Party. The criticisms of the Government by the Democratic Party are largely negative; the Party does not appear to have a positive programo The Turkish press, while still operating under restrictive lav;s, ~ives little evidence of being inhibited in its criticisms of the Govern- r~nt; the Government's fiscal, monetar,y and other internal policies are the subject of strong, and often informed and intelligent, criticism. Both w·i thin and without the People 1 s Party, the deputies of the Grand National Assembly give the cabinet a rough time. ~ro ministries have fallen within seven months. Turkey, in spite of its long tradition of authoritarianism, i~norance and illiteracy is making progress t~vards the western European type of democracy. With this evolution, Turkey is. getting some of the dis- advantages of ministerial instability. Her internal policy is ~~ a state of flux. It is too early to predict the exact lines of her future political developmento The major preble!~ of Turkish post-war foreign policy are too well knovm to require lengthy exposition. In march 1945, the Uos.s.R. denounced Foreign its treaty of friendship with Turkey and informed Turkey that it Policy would conclude a new treaty only if a) Turkey ceded the frontier districts of Kars, Artvin, and Ardahan b) granted bases in the Straits c) agreed to a revision of the i:Iontreux Convention eoverning the administra- tion of the Straits. Turkey rejected the first two demands, but agreed to discuss the i,~ontreu.x Convention, provided that all nine signatory powers participated. In August 1946, the u.s~s.R. again renewed its request for a revision of the Montreux Convention and reiterated its vievr that the regula- tion of traffic moving thrortgh the Straits must >..~e carried on by tl:.e Black Sea powers alone, with the defense of the btraits or~anized jointly by the -5- U.s.s.R. and Turkey. The Turkish Government again rejected this proposal and, since then, relations with the UaS.S.R. have been very strained. The financial burden of the mobilization proved too heavy for Turke,y and the count~J turned to the u.s. for assistance. The authority for this was 2,p1.)roved by the Uo s. Congress on 1iay 22, 1947. An oriJinal appropria- tion of $100 million for the fiscal year 1947-48 was later increased, and u.s. aic for the two years 1947-49 is likely to be in the neighborhood of $170 million. Y Turkey is a participating nation of OEEC, and the Turks in a semi- serious way refer to themselves as the 11 extremite orientale de ltEurope occidentale". Turkey's whole orientation is westlvard and Turkey is a strong bulwark for vvestern Europe in the IVJ.iddle East. Turkey bas advocated a Medi-' terranean Pact, similar to, and liruced ~ith, the Atlantic Pact. Turkey's geographic position will continue to ~ake her a potential trouble spot. Turkey is however becoming increasingly well prepared to defend itself, but the price is a continuing heavy economic burden. 1/ As of March 1, 1949, $158 million had been transferred to Turkey 0 .. - 6- 2. The Structure of the Turkish Economy a) Topography and Climate Turkey extends some 1570 kilometers ( 97 5 miles) from East to "\!~est and some 680 kilometers (420 miles) from North to South. Its total area of 777,000 square kilometers is approximately as large as Albania, Bulgaria, Hungary, Rumania and Yugoslavia combined. It is confined almost entirely ",o Asia; only 3% of its land area is on the European continent. Turkish Thrace is a rolling country, rising from the coast of the Aegean and the Sea of Marmara to a range of hills along the Black Sea Coast. Its climate is mild and humid along the sea but somewhat harsh in the upland interior. The interior of Asiatic Anatolia is a high plateau, with altitudes ranging ·upward of 1000 meters, surrounded by a ring of mom1tains. The Central Plateau is the major grain-producing area of Turkey. The coastal plains on both the North and South are narrow but broaden out where Turkey's few streams reach the sea. The valleys in the South are semi-tropical delta country centering on Adana and Antalya. The valleys of the Aegean plain to the ·west constitute another important agricultural area of Turkey. The climate of Matolia varies widely. 'l'he Aegean region has a Medi- terranean climF,te; in the Southern rebions around Adana and lffitalya, and in the Northeast around Trabzon, the climate is semi-tropical, so that cotton and citrus fruits can be raised in the South and tea and semi-tropical fruits around Trabzon. The Central Plateau has a harsh steppe climate 1:vi th cold winters and hot summers; rainfall is scarce and serious droughts frequent. Eastern Anatolia has more rainfall, and an Alpine climateo - 7- b) The Population Turkey's population is now estimated at 19.5 million. The rate of growth has been rapid but has declined from 2.2% in the thirties to around 1.1% at present; the annual incre~ent of population is around 220,000. Though ... the population has been increasing rapidly, the density is low compared with neighboring European countries. In 1938 it was 22.3 persons per square kil- ometer in Turkey, compared with 54.6 in Greece, 60.9 in Bulgaria and 67.3 in Rumania. Density varies considerably from region to region. It Density is much greater in European Turkey than in Asiatic Turkey. In 1945, 8% of the population - 1.5 million persons - lived in Thrace w~~ch in- eludes only 3% of the land area. In Asiatic Turkey, population density is greater along the seacoasts than in the interior* In 1945, 3.6 million per- sons lived in the relatively small area along the coasts of the Aegean Sea Distribution : and the Sea of !.Iarmara, 4.2 million along the remaining coasta, and·9.5 million in the interior of the country. About 18% of the population in 1945 lived in cities over 10,000 as against 17% in 1935 and 18% in 1927 indicating very little change in rural- urban distribution over the past two decades. The rural population has con- tinued to rise (from 14.3 m. to 15.9 m. in ten years) at a rate sufficient to offset the small growth in the cities and to mainta:Ln its relative posi- tion. The main urban expansion has been in Ankara and the eleven industrial centers; the cities as a whole have gained around 800,000 people in fourteen years. Literacy is very lc)i:r, but the country has made great strides in short periods ~~th male literacy increasing fro~ 13% in 1927 to 36% in 1945 and fe- male literacy from 3% to 15% in the same period. Howev~r, of those under 25. - B- in the towns, 60% are literate. The population is 98% llahometan; 86% speak Turkish as their mother tongue. The largest minority group is the Kurds (9%). The active population (excluding the armed forces) is somewhat over 9 million, divided roughly as follows: Primary Industries (practically all agriculture) 7.5 million Secondary Industries 850JOOO Tertiary Industries 850,000 The breakdown of secondary and tertiary industries is only partly available - since no census data has been issued since 1935- from odd sources. The.mcst reliable statistics available are those for the civil service, transportation, and establishments (including manufacturing and mining) operating under the Labor Law.1f The remaining data are extrapolations 1 with adjustme~ts to kn~1n economic trends in Turkey. Estimated kctive Labor Force in ~~rkel Handicraft 400,000 Banufacturing 24ls000 l.iining 32,000 Civil service - national and local 146,000 Building -.1orkers 150,000 Professional and religious 275,000 Com."ilerce 275,000 Transportation and com- munications 1421000 Domestic and personal ser- vices 50,!000 Total 1,711,000 c) The National Income Since Turkey 1 s population is 82;i agricultural and its agricultural statistics are incomplete, the available natior.al income data, based in large part on agriculture, are inadequate and far from reliable. y This lav.~ covers 6, 700 establishments (generally with 10 but occasionally with 5 workers or over) employing 302,000 persons. - 9 - At least four separate calculations of t~e national income in the postwar period have been made; these have varied widely. The two most re- liable calculations, while differing for earlier years, are fairly close for 1948. The two estimates set gross national product in a range Income . for between 7.6 b. T.L. and 8.0 b. T.L. There seems to be consider- 1948 able justification for accepting the higher of the two estimates for 19lt6 -about 7.5 b. T.L. -which would indicate that there has been only a slow growth in the national income during the post-war period (from 1946 to 1948) to about 7.8 b. T.L. ($2.8 bo) or possibly 3lightly higher. The national income per capita is roughly 400 T.L. ($143). The dis- parities in the various calculations revolve primarily around agriculture and its share of the national income. a rough general average, struck Per Capita: by the various estimates, of the share going to agriculture is 45%. For 1948 this amounts to 3.5 b. T.L. or approximately 225 T.L. ($80) per head - a rather low per capita incomes and much of this is in kind rather than cash. The most appropriate internation~:ll comparisons of national income for Turkey are vrith the Balkans and the I.liddJ.e East. Comparing .!'aulty data 'VI.rith faulty data, it is probable that pre-war national per capita income in Turkey was about equal to Bulgaria and Yugoslavia and slightly lower than Greece. Turkey's per capita income was certainly substantially higher than that of any of its Hiddle Eastern enighbors, including Lebanon. The distribution of the national income among the several groups is not in proportion to their size. It is est~mated to be.: • - 10 - %of National %of Popul~ Income Distribution by Groups Agriculture 82 45 Industry 8 12- 15 Commerce and Finance 3 20 - 2.5 Remainder 7 15 - 23 It is possible that the percentage going to agriculture before the war was less than 45%, since the peasants have generally benefited from higher world and Turkish prices in the war and post-war period. The price movements have brought about shifts in income distribution in Turkey. The share of agriculture tended to shift upward during the war years. It has recently sho~~ a declining tendency, but is probably still close to 45%. There has have a probably been a post-war tendency for the commercial classes tojlarger share of the national income than before tr ·; ar b't!t no reliable estimates have been made. lJo calculation has been made in Turkey of the percentage of the na- tional income devoted to investment. However, it is est.i- Investments mated that about 7% of the national income is devoted to gross investment of which between 3 and 4% is in net investment. The net in- vestment was distributed between the public and private sector in 1948 ap- proximately as follows: Public sector 175 m. T.L. Private sector 1/ (including housing) 75 m. T.L.- 2/ 250 m. T.L.- There is a complete absence of data in Turkey on priva.te construction or pri- vate agricultural investments. These estimates are, therefore, only approxi- mations for the private sector. Of the remaining 96% of the national income, 1/ One estL~ate gives 100 m. T.L. for the private sector, g( Planned investment in 1949 is expected to rise to about 300 m. T.L. or 4% of the national income. For an estimate of past state investments, see Table III. - 11 - the Government, for military and civil service expenditures, takes around 1250 m. T.L. (other than for state investments) or 16% of the national income, leaving the remainder for non-governmental consumption and maintenance. No estimates are available on the total volume of savings. Institu- tional savings (savings and time deposits and public purchases of Savings bonds) amount to less than 1%' cf the national income. The newly instit~ted State Pension Fund will add &tether 1%. The bulk of the remaining savings - another 3 to 4% - goes into cash or gold hoards, construction, real estate and private industrial and commercial enterprises. The absence of a capital market, and of controls over private investment, as well as a cen- turies old tradition in 7urkey of concealing vrealth from the Government, make it difficult to channel sa-vings into Government planned investment. The pub- lie sector, the main factor in capital formation in Turkey, has to rely, in the main, for its investment progra-rn on t.':.~.e curtailment of dones+,ic con- sm;1ption. The expansion of Government expenditures (military, sanitation, health, and investr.1ents in public v.rorks and state enterpri~es) has been rapid since 1946.1/ These expenditures have been financed through increased con- sumption taxes, taxes on moderate incomes, profits of state enterprises and, particularly in 19h8, through substantial Central Bank financing. Consumption taxes and inflationary price increases have been the major methods used to limit cons~mption and to finance increased Governn1ent investments and military and civil service expenditures. d} Land Use and Distribution The distribution of cultivated lane in Turkey is estimated as follows: !/ For details, see chapter on budget. - 12 - No. of Farms ~ 1,000,000 Under 12 hectares 700,000 12-32 hectares 800,000 32-50 hectares 57,000 50-500 hectares 418 Over 500 hectares Around 2-1/2 million farm families own farms .l.ess than 50 hectares, of whom one ~illion aw~ &varf holdings. The agGregate hectarage under 50 hecta~es is about 3.8 m. No exact infom2.tion is available as to lend cr-Nnership in T1J.rkey. As a result of hi1storic developments and the tenure provisions of the Ottoman Land Code, a large part of the land in llurkey is owned by State and 1ocal governments. The area held by the t)ta te and com.rtunes is in the neighborhood of two-thirds of the total area of the countrj. It includes most of the pastures, meadows and forests and at least half the cultivated land. Durine;; the past fifteen years, ti1e annual increment of the rural population (other than migrants to cities) ha.s been around Pressure of Population 1.80,000. The rural population has increased fror.1 just over on Lar.d 13 m. in 1934 to around 16 rn. · in 1948 '."ihile the urban centers have ~ained only Soo,ooo. lhe pre~1sure of the population on the cultiv·ated l.J.nd has been in- creasing; it has been in part relieved by mobilization but the Army at pre- sent holds a ;r~inc:'r fraction of the increased a;;ricul tural population arising from the grovvth of the past fifteen years. The bulk of ·che incre&se has been centered on sr.1all farms under 50 hectares, 1"Tl1ich account for tvJ'o-t:1irds of r.lurkey' s farl~lS. It is di.fficul t to determine t!:e exc:~ess population livin~ in sr:rall farm holdings in a sto.tus of disguised unemplo~rr:1ent, but, since the amount of arable land in smG.ll holdings - 13 - has increased around 15% over the past twenty years while the agricultural populc:.tion has risen by 20% (deducting those now in the Army), the excess agrarian yopulation, which has to be supported on a decrease~·-1. per capita acreage, should be in the nature of 800,000 to one million. Thc·tprospective· ..de- c;rease ·~ 1 in the size /of the .i-:..rmy v.d.ll add to the pressure, as v·rill any large-scale 1:1echanization. Of the total land area of Turlcey: only 17.8% was under cultivation in 1948 (13.9 million hectares) • .Ll.nother 57.3;~ was in ~leado-trm and grazing lands, vn.th 13.5% in forests. Only 16.1% of the land and lake area is eon- sidered to be totally unproductive. Land Use There are no very reliable data on arable land in Turkey but it is at least 60%, and nay be as much as double or more, the present cultivated area. It is estimated that there are 4 to 8 million hectares of land suitable for dry farmin~ in the Central Plateau, and perhaps an even larger hectarage in the S37ian saddle to the Southeast. Present Government plans call for 550,000 hectares of land in other parts of Turkey to be drained and irrigated • .i:Jotential hectarage for cultivation or irrigation exists in the Antalya, Smyrna, .z.dena, and Lrzeru."l'l areas. The district of Kars in the northeast is reported to be eminently suitable for grazing and stock-raising. Cereal production dominates in Turkey, ':d.th slightly ove:r 8 million hectares in cultivation.!/ ~~round l.L m~llion hectares is in truck farming, orchards~ vineyards and oliYe groves. Industrial crops account for another 100,000 hectares (oilseeds 516 1 000 hectares, tobacco 1001 000 and su6ar beets 48,000) ~ 1/ See 'Ec.ble I(B) for details. - 14- The number of farm animals in Turkey ,,rill be found in Table XVI. The major gains in the past ten years have been in milch cows, sheep and poultry. The development of annual husbandry as a main occupation is linked to the further development of cereal production in Turkey. The data in Table I(A) indicates that the cultivated land area of Turkey increased from 10.6 million hectares in 1934 to 13.9 million in 1948. Excluding fallow, the area under crops increased from 6.9 Land Reclamation: million hectares to 8.8 million hectares. Of this increase, approximately .300,000 hectares were added by the transfer of the Hatay from Syria to Turkey in 1940. The figure of 3 million hectares is open to question. During the past fifteen years agricultural reporting tec~~iyues in Turkey have improved; the data for 1934 are probably substantially underestimated.!/ The land brought under cultivation in the past fifteen years probably does not greatly exceed one million hectares: State Farms 300,000 Land Irrigated and Drained 117,000 Land Distribution under Land Reform Act 350,000 Other (Private and Communal) 500,000 1,267,000 The increase of privately ovmed and operatt~d cultivated land in smaller holdings is probably less than 500,000 hectares over the last fifteen J'cars. The remaining land brought under cultivation has been mainly State Farms (using farm labor) and larger private or commu.."1al holdings (vrith farm labor or share-croppers). L~~d reform has been under discussion since the foundation of the Turkish Republic. ~ law to limit the size of holdings The Department of was not re-established in Turkey until 1932 1 Agricul·~·ure and reporting agents were not appointed throughout much of Turkey until well after 1934. - 15 - was passed soon after the establisr~ent of the Republic but never enforced. In 1945 a law to provide land for farmers from existL~g Land Distribution State, communal and large private holding£, as well as drained and irrigated land, was passed by the Grand National Assembly. Im- plementation of the ilct has been rather slow. So far 350,000 hectares have been distributed among slightly over 4,000 families - a little under 90 hec- tc.·~es per family - which is above the average sized farm in Turkey. Since the land so far distributed is all State-o~·med, the costs to t~e State have been negligible. Sales of land have been ~.. an on Costs 20-year credits granted by the Department of Agricultureo aside from land costs, the pea~ants are provided vvith small amounts of implements and equipment and cash advances (per family) averaging 250 T.L. ($90).1/ It is probable that the total cost per fatrl.ly for resettlement does not exceed 500 T.L. ($180). e) Transportation and Communications ·rurkey 1 s inadequate transport facilities are probably its major economic handicap. Not only have large parts of the country never been pene- trated by railYvays or main highways, but many of the existing routes are cir- cuitous and few of the roads can be considered usable in all weathers. In spite of its long coastline, Turkey is ill-equipped for water transportation, since only three or four of its ports are able to handle heav-.r traffic. rl.Ccording to U.s. experts ':rho have studied the Turkish railways system, the pri.11e need is better organization and management Railways of eY.isting facilities. ~jhile Turkey requires certain addi- tional facilities, and replacements, the experts consider that the present system of 6, 836 km. of railways, could be broue;ht to first-class condition !/ No mention is made of farm ani.:nals in the available data. - 16 - 'With existing faci1i ties provided the railways had a more adequate adminis- tration removed from di-,r...ec.tc.Gav~nial control. The road system of Turkey is in extremely poor shape, but the pro- spects of creating an adequate system has been greatly improved by the Truman aid program, principally through its in""'igoration of the Turkish Roads Department o! Roads and Bridges vdth the estab~ishment of a technically skilled highway department. J~ccording to the u.s. Public Roads administration, the present condition of Turkey1 s National Highway System of 22,000 kilometers of highways is as foll~~st Asphalt 530 Passable Hac adam 7,426 Ruined iviacadam 4,676 Graded with bridges 2~610 Graded without bridges 1,935 Primitive Trails 4,461 21,638 Only 530 km! of highvrays are therefore in really first-class shape, though there are 10,000 kms. of passable macadam or graded roads which are usable during much of the year in the Central Plateau, and all year in the more temperate regions. First priority has been given by the ?ublic Roads A~~inis- tration to the restoration and mair.tenance of 6,395 krns. of existing highways. Turkey 1 s ports, like the roads 1 are ina de qua te. I.:os t. of the ports _End Izmir outside Istanbul;are open roadstet-"ls and even those like Iskenderun, Yrhich have some facilities, have very ~1efficient loading methods and Ports can be dangerous in bad 1-Yeather. The most important . ports . are: - 17 - Port tonnage in 1000 metric tons 1947 1948 Istanbul 2,143 2,148 Izmir 618 660 Iskenderun!f 541 626 Samsun 288 219 Trabzon 54 50 The port of Istanbul,which handles the major part of Turkey's internal and external commerce by sea is one of the principal bottlenecks in Turkish foreign and domestic commerce. The total tonnage of the merchant marine is now 301,636 G.R.T. of which 212,141 G.R.T. are operated by the State Seawa~~ Administration. 1( Largely 1nilitary imports and chrome exports. 3. The Burden of Defense Turkey's strained relations with the neighboring U.s.s.R. require her to maintain ar1~ed forces larger proportionately to her population than any of the countries of OEEC. The resulting economic drain is a serious handicap to Turkey's development. The Army C.oes give the Turks a feeling of security which is in contrast with the attitude of many of the 0.-jJ:,C con- t~ :::·~ ral states. For that reason the mili tarJr burden is borne uncomplaL"'l- inglY even though there is some feeling that the General Staff may not always exercise the utmost care in its expEn~ditures. The burden can be briefly summarized. Seven percent of the national income (ancl 39% of the ordinary budget) goes for non-productive militar,y expenditures as contrasted v-:ith the 3 to 4% of its national income (and ll% of the ordinary budget) which Turkey e:x'Pends on net investment. Truman Aid provides most of the foreign equipment required but the granting of the aid in 1948 ,·;as associated vrith an extraordina:r:r a}~Jropriation of 100 m. T. L. for internal expenditures, and this has since become a part of the ordinar; appropriation. Truman Aid ha.s not removed all of the financial burden from Turkey, either internal or external. The mechanizatio;:l of ·cLe Ar1:·ry, as ~:ell as the addition of various naval u.-r1its, have been a major ..::-·actor in requiring Turkey to import 65% more petroleum in 1948 than 1947. Turkey has also im- ported cement and various materials for military construction purposes -r;hich have adversely affected the balance of payments. Over-all agricultural productivity has not been seriously affected by mobilization since a substantial segment of the Army has been dravm from sur- plus agricultural labor in a status of dis~~ised unemployment. Ho~ever, at harvest ti;:1e, as v·rell as in such occupations as sugar beet grorring, where in- tensi~e hand labor.is required, the effects have been evident. The effects -19-· of mobilization on industr,y are moderate but noticeable in increasing the already high turnover of factory 1 abor which leans heavily on young workers. The mobilization affects the limited port and communication facilities of the country.· The Port of Iskenderun, for example, is predominantly used for militar3 imports, while the Turkish merchant marine is mainly engaged in haul- ing u. s. militarJ supplies to Turkey. Troop movements or movements of military supplies on the railw~s takes precedence over commercial traffic. The Government expects that with a fast mechanized army and good roads_, the A~ can be partially demobilized. · This will release workers and reduce some of the strain on Turke.y's corrmunication !acilitiesc Further, the road program will have direct benefits to the econo~ in reducing the costs of transportation of agricultural products.·· The effects of demobilization on ·the national budget are not likeljr to be great or i.rrunediate in vievr of the ~cw ·cost to the State of the Turkish infantryman. 4. A~riculture.~nd Allied Occupations a) The Government and. J.griculture Many observers of the Turkish econo~ have report~d at length on the weakness and backwardness of Turkish agriculture in general, but have failed to note the reason - that the Government of Turkey has concentrated so much of its limited resources on industr.y and public works that rela- tively little has been left for agriculture. Though ove~~ 80~:; of the population is aGric~tural (and 90% of the e~~orts); agriculture has beeri most decidedly the step-child of the Turkish Republic. ::.r..:trin._, the entire tw·enty-five years life of the new Tur.:ey, a;,;riculture has received on an average l~ss than 2% of the budget.~ f'or four of the t"TJventy-five years, the Department of Agriculture was abolished completely as non~essential~ Agriculture received only 6 to 7% of the State's investment resources in this period; these funds had to be spread so thin as to be of little benefit to most producers. In addition, the road system of Turkey ren;ained in its prim.itive 1/ state.- Probably because of the General Staff, there vras no adequate road development program because of the fear that this would facilitate the move.rrent of an invadinG i~rm.>r •· Very largely for this raason, only 25% of Turkey's cereals today reach a market at all, and then only at hec.vy cost. The basic economy of Turkey - cereals - '\''which occupy tl1e bulk of the population, rewa ins essentially untouched bJr tLe pro...;ressi ve r:evelop- ment of other parts of the economy. TLere is, in fact, re9.SO!'l to believe there has been retrogression in per capita agricultural productivity in vieVT of the lo·wer post-war output o~· cereals and the increasing rural population. ;ven 1/ ?rom 1923 +.o 1940 only 3,000 miles of wacadam road were built. This just about sufficed to offset roads lost throuc:h inadequate main- tenance. The 1923-38 road budgets ~so avera~ed less than 2~~ of the .C:t.~ +._.:, hnrl c.r~P+. _ - 21 - now, with the Turkish Government presun1ably increasingly a:wa·re of the import- ance of agriculture to the economy (largely O"Aring to pressu.re from OEEC), the Government has been slm~ in develo~ing a long-term program,!! Only 3% of the total state budget for 1949 is allocated to agriculture. There is no reason to believe that Turkey can develop a strong economy without a strong agricul- ture as the foundation; quite the cont~aljr, the past neglect of this prL~ary economic activity is a major cause of Turkey's present e~onomic weakness and export difficulties. The generally accepted criticisms of Turkish agriculture, in general, and a~ide from specific industrial crops, may be summarized as follows: a) agricultural techniques are pr~tive and bac~vard, b) mechanization is slight, and largely confined to State farms, c) chemical fertilizers are hardly used at all - only 10,090 tons a year in all of Turkey and potential animal fertilizers are used mainly as fuel, d) transport, storage and pro- cessing facilities are inadequate and there is much loss and 1-Yastage 1.'1 food, e) nutritional standards are lov; in the rural areas and the peasant subsists on a scanty diet, mainly bread,Y f) Turkish animal husbandry is very back- ward nrith inferior grades of cattle2/ and little development of grassland, g) s.oil conservation has been neglected a"'ld hundreds of thousands of hectares are lost by erosion each year, h) irrigation work has barely begtm and this is a problem of especial importance to Turkey because of inade~uate rainfall and periodic flooding, i) there is little knoYrledge or practice of land use and improvement, or selective seed practices, j) a lacx of fungicides and y A progran was submitted to o:c::...c which is merely a series of targets v.rith no real plan to achieve them. y Reported bread consumption: around 2'lbs. a day f-ler person in the rural areas. Jl Turkish cattle are extraordinaril:: thin and mang:y, co,rered ,d.th sores, and generally or very -poor breeds. - 22- insecticides is responsible for great losses (in 1948 a tlurd of the cotton crop '\·ras lost in this manner), ·k) the "Oroblem of better land distribution has hardly been touched, and the laws on the subject have just b~gun to be i.Y!lplemented. Agricultural credit is grossly inadequate. The Agricultural Bar~ (the oldest in Turkey) has en exceptionnlly energetic and competent staff,. but its funds are limited. Its paid u:9 capital is only 77 million T.L. of an authorized capital of 100 million, but the capital is increased by small grants by the Tu...'kish State each year of .5 to 6 million T.L., plus 2.5 million T.L. from its profits. Including its deposits {l~rgely rural) and reserve funds, it disposes of around 240 million T.L. for loans, mainly (?5%) for loans under one year, with smell amounts available for agricul- tural equipment loans up to ten years. The B~~k 1 s charges for short-term loans (5t to ?%) are consiQerably less than prevailing commercial rates, yet the Bank mru{es a profit of 10 million T.L. a year ~rl1ich goes to its capital and reserves. It is estimated that the I.,inimum short-term agricultural credit re- quirements of Iurkey are 400 million T.L. uith an even larger sum required for longer-term loans. O:f the t'·To and a half million land-o,·ming :pe~~sant famili~s in Turkey, only one million :1.ave access to credit facilities at all, a.nc~ very :fe,·r to long-term cr~dits. The Tu.rkish·GoYernDent -yroposes to use the EC.A counterpetrt funds from the sales of agricultural machinery to build up the capital structure of the ::Sanl~. This is an int e ~-li{?;ent decision but, since the credits to be giv~n to the :_:,easant s for mEi.chiner? are for 10 ~rear.s, tl:e increase of the capital re- sources 1f the :Be.nk ,,.rill be slo'··. It' ··culd be of major ~-ssistc-. nce to the Turkish econom~,.. if additional c&.pi t~..l ,.,ere forthcoming. Roads, of course, are a :9rime necessity for the rnarl:eting of - 23 - agricultural products and to link up the ·40,000 small agricultural ;1pockets" of 'I'ur.key•. The Public Roads Ad111inistration has data indicating that it costs 3 T.L. (a little over $1) to move a bushel of wheat thirty-five miles by the usual donkey, camel or cart. With adequate roads and trucks, the cost can be reduced to 45 kurus (15¢) a bushel. Turkey has very poor storage facilities for grains: the silo, warehouse and elevator capacity is only 420,COO tons whe~eas grain production is close to 7 million tons~· The highly inadequate po~t facilities, irivolvin.; hand labor and lighters, sends up the cost of ex- port. linch remains to be ·done before Turkey can be a fully competitive sup- plier to the world'; this will require a substantial diversion of investment resources from industry to agriculture. On the other side of the ledger, however, it should be noted that the Government has made certain notable contributions to agriculture ~ainly in industrial crops, but also to some extent in cereals: a) the State farms have brought about increased wheat yields in surroundin~ far.rns in the Central Plateau, through the in traduction of ·winter '~ltheat~ dry farming and improved seeds. The radius of area covered by nev\r methods, hcr:fever, is relatively small, b) tobacco is ,~rell controlled and production is fairly quickly ad- justed to demand; the increased concentration on quality has been of value to the economy, ~) the sugar factories, run at the outset by German techni- cians, are operated vri th efficiency and have aided the peasant in his beet- sugar production, and the dairy farmer through its by-products, d) truck farming, citrus fruit ancl vegetable oilseeds are becoming increasj.nbl3T import- ant to the economy because of bovern.rnent encouragement, e) cereals prj.ces are !:laintained at. a relatively high level th!ough Govern!!lent aid.!/ l/ Toprak, the Grain Purchasing Office, which buys approxiraately ha.lf the marketed grain (the other half goes to private purchases) sets the domestic price each year, theoretically with -vvorld grain prices as a basis. Export prices are determined by the Cabinet. - 24- (b) Agricultural Production Cereals nhere 25% only of existing cereal production is estimated to reach markets at allj data on production are likely to be; and are, znost inadequate and based an guesses of varying reliability~ The production data available are given in Table II. Although the acreage devoted to cereals has expanded substantially since 1934/38, and the Government has for many years had price ~upport measures for grains, post-war cereal production has been consistently bel~r the pre~war average. The 1948 wheat and oats crops exceeded slightly the 1934/38 averagej but total cereal production has shawn a marked falling off~ Turkey exported cereals in 1946 and 1947; but in 1948 was forced to im- port wheat while exporting other grains. The continued effects of the low crop of 19471 plus a passive revolt of the peasants against Government-~ixed prices~ resulted in an exhaustion of Government stocks~in 1948, and necessi- tated emergency imports. In order to forestall a recurrence in 1948-49, the Government ordered premium payments, on a descending seale, for 1948 wheat deliveries' with the highest premium paid to deliveries before November 15, 1948~ By the end of 1948) the Gover~~ent had acquired around 800~000 tons (at a top price of $2~ 70 a bushel). It is doubtful, in vieT_. of the severe and early ~vinter and the curtailment of fall planting and delayed spring planting, whether Turkey will resume exports of cereals in 1949. In anJr case, Turkey Yrculd have difficulty in selling abroad at her present internal prices. Industrial Crops ~obacco output was curtailed in 1948, through Government action, to Bo,ooo metric tons, in view of Turkey's difficulties in dispos- Tobacco ing of earlier surpluses. However, the quality was reported to be generally improved over 1947. During 1948, f'urkey vvas able to dispose of • - 25- tt~ro-thirds of her surplus tobacco through barter arrangements. · Additional stocks of low-5Tade tobacco vdll be sold to Germany in 1949 under draYdng rights. It 1rras originally eA."Pected that 1948 cotton production· woill.d exceed the pre-war average but insect infestation destroyed 35% of the Cotton·· : crop though leaving it higher than in 1947; Demand has been strong, especially from Eastern Europe, vdth the United Kingdom also inter~ ested. Cotton prices are slightly above world prices. Major advances over pre-war production have been made in a) citrus fruits, b) vegetables, c) vegetable oilseeds and d) sugar beets·. Othe:r_: Crops : Turkish citrus fruit production declined during the war but is now expanding. Around ~ nillion citrus fruit trees have been planted in recent years, mainly 1946 and 1947. Lemon production has tripled since before the war, while the newly introduced grapefruit is expanding rapidly. Turkish citrus fruits are notable for their superior quality and flavor. Turkey is also grm,dng more than double the pre-war number of potatoes and exporting some (especially to Palestine), while its output of onion~ has gone up 50% over the 1934/38 average and production of other vegetables has probably in- creased proportionately. Vegetable oilseeds have been making rapid advances. The now famous groundnut and the soybean have been recently introduced into Turl:ey (the former as a rotation crop) but flax and sunflo~.:~_rer seeds have shoVI.rn the greatest e:h."})a.nsion. Vegetable oilseed production in 1948 was 336,000 tons conpared n~th 157,000 tons in 1934/38, and 233~000 tons in 1947. They are becoming an increasin~ly important export to the U.K. Beet sugar production re2ched 118,000 to~2 in 1948 as abainst 54,000 tons in 1934/38. Current 1-roduction is still well below potential demand and • the Governmen~ has had to tax sugar at a sufficiently high level to hold con- sumption dovm to the production level.· . Sugar cane has recently veen intro- duced in the Adana re.gion. 1stimated yields, ac~ording to infomation sup- plied in the area are 8 tons per hectare; costs of production of c~ie sugar are lower than for beet sugar •. The expansion o~ sugar c.ane is regarded as important for that reason, and because of the stimulus it vdll give to rota- tion crops (rice and groundnuts). Approximately 15,900 hectares are planned !'Or sugar cane·,. of which 7 1 000 would be in rotation crops~ The ~ajor improvements have come in industrial crops in which Tur- key's fertil coastal areas are becoming increasingly important as, a source of potential exports. - 27 - c) Fisheries Turkey's potential as a fish producer is extremely high·. '.iith proper development the Turkish fisheries could rank third in ::urope (neA.'t to Norway and Britain)• Such a fisheries would be of particular importance since it would be complementar.y to the fish produced in northern European waters. The Turkish fisheries fall into two catezories, surface and deep sea. The for~er are dependent on the movement of fish from the Mediterranean to the Black Sea during the spring and bacl: in the fall (estimated at .500,000 tons). The latter, which is non-seasonal, is primarily in the seas contiguous to Turkey, which are notably rich in fish. Surface fishing yields roughly 30,000 tons a year - primarily mackerel, sardines, tuna fish, svvordfish, whales, pilot fish and sprats. The deep-sea fisheries (very little worked at present) i!lclude mullet, hake, herring, turbot,tongue fish and crustaceans. The present total fisheries catch is only 35,000 tons a year, thanks t.o extremely inadequc.;..:,e equipment, primitive methods of transportation, and the absence of refrigerating facilities. The FAO report on Turkish fisheries est:l_mated that production could be expanded to 300,000 tons Yihich Yfould rank Turkey above Iceland as a producer. Fish processing, refrigeration, and re- frigerated transport facilities offez) opportunities to Turkey. It is worth noting that th~ Germans organized refrigerator car services during the war for the shipment of fish from Turkey to Germal:'rJ• · Presently existing markets (other than internal :uropean markets which can be developed later) i...'1clude Italy, Greece, Israel, S;rria and ErrJPt .c Iian:r of these are important in view of Turlcey' s e.xtrerr.ely large sterl:L't'}g deficit. d) Forestry A visitor to Turkey is struck by the extent to which the country is denuded of .forests. All of .hsia :~inor was once covered vrith thicl-: forests - 28- but seven thousand or more years of human habitation have reduced the forests almost to non-existence. The FAO mission est:.wated ti!at only a little over 1% of the land area of Turkey is co~J'ered by hic.:;h f crest. Another 3~"h is of 1/ good quality and the remaining 9.%, while productive, is of bad c_:uality.- The FAO noted that the forests are "quite insufficient to meet either the forest product needs of Turkey, or to exercise those necessary functions of soil conservation, erosion control and climatic amelioration particularly important in a region of generally low· precipitations" •. The fevv forests left to Turkey are, in fact, suffering increasing de- vastation. A report of a ~vedish forestry expert in 1948 indicated that urgent and immediate steps are required nif the remainder of Turkey 1 s old forests" were net to be destroyed "within the near future v~rhich would. do un- reparable damage to the country". He proposed a long-range plan for the re- habilitation of Turkey's forestsy in view of the "c;reat national quc.:.lifi- cations" of Turkey for a profitable forest production.· The Turkish forestry service is Sl;;all and competent but hanuicG.)ped be- cause of lack of funds. Its budget runs around 14 m. T.· 1. a year, Yrhich cozr.es entirely fro:m its ovvn operations - largely sales of wood to state enterprises at exorbitant prices. The buclget is insufficient to stem the denudation of the forests. The lack of forests has affected agriculture net only directly through soil erosion but indirectly t1J.rough the lack of fuel which forces the peasants to use animal fertilizers for fuel rather than for soil. The Turkish investment in the pulp and paper mill is equivalent to three years budget for the forestrJ service. 1/ Total forest area 10.5 m•. hectares. Report of Forestry Cm:1Hi. ttee, PAO, Ankara, February ~' 1949. · Y Report (.\vailable. - 29 - e) Agriculture and the State Investment Program There are seven basic factors in the Turkish econornwwhich should be con- sidered in relation to the State investment program: a) The population is growing annually by around 220,000 of which the cities (ru1d non-agricultural occupations) absorb only 40 1 000 leaving the increase in rural areas around 180,000. The prospective reduction in the size of the arrr~d .forces will further add to the pressure of population on the lando b) The State's investment resources are limited; at present they do not exceed 225 million T.L. per a~~um. c) Invest.T!lents per worker in industry (w·hich can absorb only a very small part of the growing population) are substantially higher than for agriculture. In textiles, they are probably around 2500 T.L. per worker in fixed capital alone, of which nearly ha:f represents foreign exchange. In the iron and steel industry it is over 9,000 T.L. Int..ustry can therefore absorb only a verJ small fraction of the growing population because of the large capital e~)enditure. d) The average costs of land settlement per family have L>G:en un' "\YOl.lld b€ favorable, but costs of e:~!)lora- tion and drilling will be heavy and vrill represent a serious finl=.ncial -~urden for the Turkish State under its present policy of maintaining eJ-;:ploration and drilling in its ovrn hands. The main production increases in Turkey in the past ten years have been in cement, textiles, electric povrer, coal, iron ore and lignite •. Industrial and • • Fuller details will be found in Table IV. Production shov;ed Mining Production little change from 1947 to 1948, apart from chrome ore, whose output increased because of U.S. demand.and coal and lignite in which Y About half the capital of the stimer Bank is for the iron and steel and pulp P..nd paper industries .• "'" -.)o- production is now at an all"!!"time peak. b) The Financing of State Enterprises The financinG of the following state ente~prises~ a) BUrner Bank (industries) b) Eti Bank (mining and power) c) The Agricultural Bank d) Agricultural enterprises - sugar factories, state far:m.1J and Toprak (grain purchases and opium monopoly) is under the general direction and control of the State Control co~L~cil, a~ tached to the Prime llinister .t·s off:.tce. The reports of the Council are secret and the rurldsh Govermnent was not in a position to ~~e ~h~m available to the mission. The following description is therefore incomplete~ The state enterprises, taken as a whole, are self~financing, In the past, there were substantial subsidies fron the state budget, but in the 1949 budget, except for 6.7 m, T. L. for the Agricultural Bank, 2,5 m~ T~ 1. for the agricultural enterprises, and 3 m. T. L. for Eti Bank, the State enter~ prises receive no subsidye The enterprises now pay substantially more in taxes than they obtain each year from the budget. The determination of profit and loss is extraordinarily difficult be- cause of the intricate bookkeeping metl1ods. It is doubtful r:"hether the Turkish Control Office itself is able to provide an accurate estimate in view of the policies followed :- high prices to the public in certain instances, coal subsidies, special prices to other state enterprises, to the Ar.my for supplies, etc. -37- The following is a ver.y rough estimate of profit and loss,. and of taxes paid in 1948, in million Turkish lire: a) Profits of State epterprises, (used for reinvestment) 58 b) Taxes paid to State 1/ 98 Subsidies paid by State ...12 Net to State 86 Total 144m. 'I'.L. c) Manp~wer The newest Government Department, the ;.:inistry of Labor, 1'ras organized in 1946. It has the smallest budget and this was reduced by one-third in 1949 as compared with 1948. The Department administers social insurance, the employment exchanges, ~~d the Labor Law on indQetrial accidents; etc. The :.Iinist:ry is generally 17ell informed on social ma.tte~s in other cou.'1tries and has fairly large-scale plans for social legislation in Turl~e,y, but it has f~r funds and is not likely to be able to implelrent its plans for some time to come. Turnover of labor in Turki~.~:~ industrial and mining establishments has been notably high, running at one time in coal mining, to 80% a month. Infer- mation from specific plants sh~is considerable variation. A private te~~ile plant in Istanbul reported its turnover as 20% a year, another private plant in Adana gave 30% a year, 1i{hile the Govern'Tlent-ov..'!led plant in !~dana noted that its turnover was only 15%. In the JovernL:ent shipyards tur.1over is also around 20% a year but it is especially serious there because it is hit:;lwr among the skilled than the unskilled. The greater social services provided t.y the y Includin~ taxes o~ sugar and electric·p~ver. -38- State plants (meals and medical and recreational facilities) tend to keep the turnover lo",ver than in private plants, but the latter tend to Labor Turnover attract skilled labor through more flexible wage scales. The liiinistry of Labor is ~"tious to extend the system of social insurance as rapidly as possible as a partial solution to the problem of turnover. Acci- dent insurance and maternity benefits are now in force, and other benefits, such as old-age pensions, are planned. The Ministry indicated that a small but noticeable decrease in labor turnover has resulted from benefits alreadY instituted. The ililinist21r is also developing training programs under the em- ployment exchanges, in cooperation with the unions, to meet the serious lack of skilled workers and the turnover of the unskilled.!/ Excessive turnover and lack of training affects labor productivity. It was estimated by one plant manager that the productivity Productivity of the average Turkish textile worker ,,ras about 60% of that of the Italian. :iages are low and form only a small part of the cost of pro- duction: 4% in the pulp and paper mills and 10% in textiles, with social services adding another 2 to 3% to total labor costs. Since costs of produc- tion ih Turkish industry are higher than in Europe, it is apparent that the low wage scales generally do not offset the low labor productivity. There is no index of wages, nor any indirect measuring rod. Data earlier provided the Bank s1.1In.-na.rized in Table XV show a general rise during !/ It should be noted that the Truman aid road program has resulted in a very efficient and effective training program for mechanics and operators. D-11ring 1948, 519 skilled operators and mechanics were trained for the construction program. Of these, 10% were "completely satisfactory" and were used as instructors, 60~b were "excellent and efficient" and 30% were "satisfactory." Only tv..ro or three were considered unsatisfactor~r, ac- cording to the report· of the Public R.oads .Administration which noted that a sufficient supply of operators' for the progr~~ was assured. The progrnr.-1 '>'fill be expanded in 1949. -39- 1947 in wages in the principal industries... There is reason to believe that under the pressure of rising·pr~ees~ wages rose further in 1948. ~/ages : Turkey will continue to face shortages of skilled and semi-skilled labor, as well as supervisors drawn from these gr~ps~ unless measures are taken similar to those o~ the road program. The cut of nearly one-third in this year's budget of the Labor Department, whose most important functions lie in the reerui tment and training of workers and in measures to reduce turn- over, may have an unfavorable influence on the development pre gram of the Turkish Government. -40.. II • . INTERNAL FINANCES 6 •. The State Budget· (. The financial accounts of the ':'urkish State are in three parts: a) the General Budget {the Government Departments) b) the Annexed Budgets (State Communications, Forests, · Monopolies, Universities and one or two small bureaus) c) The State Economic Enterprises 11 Only the first two form the state budget. The divisions are not 'Water-tight. An agency or enterprise may be transferred from one group to another ~ or may receive aid from another group. i'-1onoply profits in the annexed budgets, for example, are transferred a~ revenue in the general budget, whj_le the general budget in turn.in- eludes grants to both the State and Annexed Budget Enterprises, The State enterprises· pay taxes to the Government. From the point of view of fiscal burden, there is no real distinction bet"Ween them and they wi11 therefore be considered together J( The fiscal year corresponds with the calendar year, and the budget is generally voted prior to January l, with - very customary - supplementary appropriations voted periodically throughout the year. The prese"t rather acute internal financial situation in Turkey brought about a ministerial crisis and a new Government in January .. For the first tvo months of the year, the Government limped along on month~. . to-month appropriations. The final budget for the ye_ar was not i7 See pre~ious section. [/ Bills are now before the Assembly t·o tr.ansfer the State Comr1unications Administrations to the third group, in order to remove them from direct political control. The most likely to be transferreJ this year is the State Seaways Administr~tion. ~/ Monopolies in this presentation have been excluded from the State enter- prises, since they are essentia~ly a revenue producer .for the ordinary budget. -41- voted until February 28. A deficit. has been so customary fn the Turkish budget as to be Budget normal; except for one year, there has been a defieit. since Deficit-: Cause·s : 1931. The deficits, other than those of the war years, have been small, and generally for capit.al expenditure·s; ordinarily in the past they have been financed. in non-inflationary ~.rays - usually through the sales of bonds to institutional or private holders ot savings. ThH deficit of 1948, ho,vever, was the largest in Turkeyrs history; the Government for the first time had great· dlfficul ty in financing the dericit both because of its size and the failure of the market to absorb Government bonds. A major, though not the only reason for the growth of expenditure, has been the military situation. Under Russian pressure,, Turkey has increased its military·budget (for the Army, gendarmerie and public secu:ritjl··) from 404 m.T .. L. in 1946 to 545 m. T. L. in 1948 and 536 m, T. L. in 1949. Adc1.itional expenditures not appearing in the military budget (e.g. road construction) also reflect the military situation. The incree.s~expenditure for military purchases is somevrhat over 240 m. T. L. out of a total budgetary increase in four years of 349m. T. L. The State's investment program and the debt service have ab- sorbed part of the rest; there have also been additional e~:.penditures for education, the civil service and health. 1946 1947 194.8 ~ Hilitary 40 32 40 39 Debt Service 15 15 16 12{:- Development & Construction 1 2 8 11 Education & Health 7 8 10 16 Agriculture 2 2 2 2 Other Government .22 ~ 21t 20 TOTAL 100 100 100 100 ~} Reduced by bookkeeping methods. 'VJi thout this would be also ~round 16%. -42- Hilitary expenditure-s and the debt service have absorbed con- s.istently half or more of a constantly growing budget. The J.Uost striking feature, .which indicates a ce-rtain grim determination on the part of the Turks to improve their stand·ards of living, production and health, in spite· of the rise 'in military expenditures, is the even larger growth in expenditures for the development of the country a1,d on ·education and health. These have jumped from 8% of a budget of 1022 m•. T .L. to 27·% of a 1371 m. T .L. budget •.. The Turks are having great di::rficulty in financing both a defense program and the develop- ment of the economy but they are struggling with considerable courage to do both. The budget, on whic..:1 the Government fell in January, provided for the largest expenditure in Turkey's history 1{ 1.416 m. 'J\ L. in The 1949 the ordinary budget and 379 m•.. T .L •. for the annexed budgets, Budget for a total of 1795 m. T.~. (The ordinary budget for 1948 was 1371 m. T.L. and the annexed budget. around 370 rn. f.L.). Hith combined revenues of 1605 m. T.L., the deficit was expected to be 221 m~ T .L. In the ordinary budget capital expenditures ·. ere estimated tc) Capital be 150 m. T .1. (railways, por·ts, road$, and irrigatiqn Expenditures projects) and in the annex-ed bu.dgets 52 m. T.L. (airways, seaways, post and telegraphs). for a total of 208m. T.l... The deficit as originally proposed \¥as approximately the equivalent of J.:.he 'Iurl':ish Government in-~.·~:; t:·1~nt progra."Tl for 1949, other than for industry, -, -·--·----- 1/ See Table VI for Turkish budgetary deficits 1944-1949. -43- The Government proposed "'\io meet the increase in 1949 expendi- tures as crJmpare-d with 1948 as follows: Financing the Deficit 25 mr road tax 25 m. luxury tax 50 m. additional personal income taxes 100 m.. T .L. The remaining deficit was to be covered as follows: SO m. sales of three-year notes to State Pension Fund 40 m. Long-term bond issue 69 m. discount of notes at Central Bank (Seaways, P. T • T. and Airways) 189 m. T .L .. The Grand National Assembly overthrew the Government primarily on the proposed additional personal income taxes on salaried groups~ already very heavily taxed, and the luxury taxes. ThP new Government reintroduced the budget retaining a modified road tax, leaving the proposed deficit at 195 m.. T .1. fer the ordinary budget, and 69 m. T.L. for the ~~nexed budgets. The latter remained practically unchanged through the debates. The new Government also faced critical attacks in the Assembly. In consequence, it was forced to present at least the appearance of cuts in expenditure. The Final Budget Around 18m. T~L. was trimmed from the budgetary expenditure; the Government also wiped out its debt to the Central Bank for the note issue of earlier years, on which there has been a statu- tory requirement that the Central Bank be reimbursed 1% of the budget -each year as amortization. By this method the Government nsaved" 12 m. T.L.; other adjustments iu the debt payments- also largely to the Central Bank- brought forth an additional 16m. T.L. Finally, the -44.. Government carried over certain :Monopoly profits of 1948 to its 1949 budget- A gasoline tax of 15.5 m. T.L, was voted for the rodd pro~am. The final deficit is nominally 120m. T.L. plus 69 m, for the annexed budgets or 189 m. T .L. but the actual deficit - taki ~~g account of the bookkeep~ng transactions- is closer to 220m. T,L. The Govern- ment will probably have to finance a sizeable, and perhaps the major part, through the Central Bank. Inasmuch as supplementary appropria- ti.ons in Turkey are normal, it is quite possible that the deficit may be much larger by the end of the year. The 1948 deficit was financed approximately as follows: 48 m. T.L. Govt. Bonds sold to Public and Commercial 1948 Banks Deficit 52 m. T.L. Govt. Bonds sold to Cent~al Bank Financing 14 m. T.L. Govt., Notes sold to Central Bank 57 ma T.L. Govt.·-guaranteed notes sold to Central Bank 87 m. m .,. J. • .u. miscellaneous ( ir.:.cl uding Pension Fund no+es of Treasury and accounting sur- pJ.t:~zs. l4ost of this is funds not jret eA'J>ended.) 201 m" T.Lo Only a quarter of th~ deficit waa financed by sales of Uovernment long-term bonds because of the failure of the very· slim capital market to absorb them during the year. The amount is large, particularly when to these are added another 116 m. T .L. i "1 Central B~""lk financing of the State Fconomic Enterprises v!hich a.re not included in the budget, The pressure in 1949 ~or Central Sank financing will not be so great because of the use of the State Pension F~~d. In a count,ry of lovJ income levels, it is not surprising to find that the Government raises its revenue mainly from indirect Source of Revenues taxes. The Turkish tax system, however, is unusually re- gressive, antiquated and cruel. The Government derives a -h5- third of its income from sales and consumption taxes (over 9% from the sugar tax alone) and a~other quarter from monopolies and customsc The tax revenues for 1948 and 1949 are given below in m. T.L. Income and Inheritance Taxes Income 373 397 Inheritance __l __l 375 (31%) .399 (32%) Other Taxes Sales and Consumption Taxes 266 272 Sugar Tax 51 119 Monopolies 1/ 142 173 Customs Duties 100 113 Stamp Tax 28 26 Tax on Livestock 31 32 Special Gasoline Ta>: for Roads 16 Miscellaneous 97 104 Total Other 715 (G9%) 855 (68%) Total Taxes 1190 1252 The income tax at present in force, is a motley patc.ht.,rork of seven different taxes, hitting primarily earned incomes and salaries. Unearned incomes escape entirely; professional, and co~~ercial incomes largely escape, since the basis for the tax is the rent paid for busi- ness premises. This is particularly noticeable in commerce which has over a quarter of the national income (2 b. T.L. or more) while income taxes on this source probably do not exceed 118m. T.L. The remaining taxes are particularly burdensome on salaried groups as well as the peasants, vlhich together have had to bear the brunt of increased Government expenditures in the form of taxes or 1/ Tobacco, matches, tea, coffee, spirits, and salt. higher sale.s prices for gasoline, salt, sugar, matches, etc. The whol-e burden of Government financing on the lower income gr· J.ps does not appear in the budget. The Government finances the States in- dustries in part, for example, by high profits on low-grade textiles. the national income has shown sotne, but not very muchJ grovrth since 1946. The budget is therefore taking an increasj.ng Relation of Budget to share of the national income, roughly a rise from 13% for National Income the ordinary budget in 1946 to 18% in 1948. To the latter must be added another 3% for the deficit of the subsidiary budgets not financed out of revenues, giving approximately a rise from 14% for the combined budgets in 1946 to 21% in l948. If the Government is to carry out its development program and avoid the continued use of deficit financing, increased Need for Fiscal revenues will be required. These cannot continue to come Reform from consumption taxes which have now reached a point o.f decreasing returns; nor can the Governml9nt bond rnarket bear the bur- den. An adequate, p~ogressive, ~ax sys~em is Turkey's most urgent requirement. Fortunately the Government is aware of this, and an income tax law designed to broaden the basis of taxation, has novr been approved by the Financial Committee of the General Assembly. The bill is faulty in that - for political reasons - the large agricultural incomes will not be taxed, but the bill will neverthe- less be a first step forward in establishing an adequate system of revenues. 3stimate of its yield are 550- 600 m. T.L. as against the present income tax rf~turn of 397 · m~ T.L. It will take some years, however, before it is fully effective. -47- Since the State deficits and the State loans are for capital expenditures the Government should consider the adoption of a capital and current budget, rather than the present artificial division into ordinary and annexed budgets, in order to define more clearly the n&ture and extent of its revenues, investments and assets. It would also be desirable for the Government to coordinate more closely the financial and investment requirements of the State Economic Enter- prises with the investment program of the State budget. The latter groups are autonomous and technically self-financing, though they rave also recently had to rely increasingly on the Central Bank. '.(!lese enterprises compete with the State budget for the country's limited financial resources. Certain of the enterprises are a po- tential source of additional funds for the .state finances. -h8- ?o Bankin~. Credit and Priees Turkey, like the Hiddle Eastern countries, has a seriot.:.~.s in- ternal credit problem. There is no organized capital market, only a rudi- mentar.y stock exchange, no investment banking and only ltmited commercial banking facilities, Corporate law is advanced and modeled on 1:Jestern Europe, but little advantage is taken of the potentialities of cor- porate finance. Savings exist but are mainly channeled into land, inventories, buildings or hoards, and only on a lLmited scale into banks. The Government, as the largest entrepreneur, suffers most he~yily but the lack of credit faciliti6s seriously affects the en~ tire economy, Effective rates of interest are high, According to the Treasury, the yield on Government bonds is 6,3%, tl:·,x free (yearly average for 194S), but this includes the lottery bonds, The real yield is closer to 6.6%. Even with this rate the Government was able to mar- ket to the public and banks only half its 100m, T.L. bond issues in 1948. Mortgages are given on only 40% of the value of property, and there is little ether long-term capital, Commercial rates are high - 8 to 12% for prime paper ~ and these rates have shown a recent tendency to rise to the upper limit. "Unoffici.a.lu rates go oo!lsic1erably higher.. During 1948 much prime paper had difficulty in finding an outlet and the shortage of liquid capital has been generally so severe that the comme· ~ial banks have taken to such extraordinary measures as lottery tickets and door prizes to attract depositors. 11 1/ The main result has been an increase in the number of depositors, but not of deposits, with single accounts being split among several banks~ -49- Money and savings do not reach the banks in substantial degree~ In spite of a level of prices and of money in cir~ulation Time and Demand over four t;.imes the pre-war, savings and time deposits in Deposits June 30, 1948 (latest data available) were only 131 m. ~.L. {agai~st 93 m. T.L. in 1938) and demand·deposits only 645 m. T.L. compared with 198 m. T .L. in 1938. A partial eXplanation for the different r.ate:s of inc+ease lies in ·the very small dispa~i ty between the rate·s of' i:,~tere.st paid ·on demand deposi ~~ (.3t%) and three months time d.ep9s~ts .(4%) in Istanbul. Nearly half the demand deposits are in savings bank~, however, so that the volume of actual savings has probably risen from 156m. T.L. to 443 m. T.L, since 1938. Nev~r- theless, the vo~·~e of savings lags well beh~nd the rise in prices. The slow growth in saving is probably attributable to tb~ following factors! a) the peasants who benefited from wartime price rises used the funds first for debt payments and, later, mainly for hoarding (gold or notes) and only to a mach smaller degree for de- posits in the Agricultural Bank whose branches cover only a small number of the larger rural towns; b) the sal~ied groups have been toQ much squee~ed by taxes and price rises to save; c) the comnercial and other classes have preferred various other forms of saving - land, houses and inventories ... as well as ·speculation and building, to bank deposits or Government bonds;·· fn part ·because of greater profits in a period of rising prices and in part from a traditional fear of letting the Goverrnnent know the extent·' of their wealth. Savings deposits increased'during the period from the middle of 194? to the middle·of 1948 by 38m. T.L. (including in this figure, demand deposits in savings bank). The volume of channeled savings is there- fore extraordinarily low and represents a most serious problem for the Turkish Govermnent which plans state j.nvestments of 225 m. T.L. in 1949. The Government deficit financing through the Central Bank, plus the extraordinary grain movement, and the decline in foreign Currency in Circulation : exchange reserves were the main factors affecting the volume of money in circulation in 1948. Currency rose from 924 m. T.L. at the be- ginning of the year to 998 m. T.L. at the end of 1948; in spite of the contract- ing influence of the decline in currency ~eserves of 134 m. T.L. The directly inflationa~J increase of currency in circulation was in the nature of 100 m. ToLo, over and above the grain purr;hases. Grain sales will be a factor tending to contract currency cir.culation during 1949. The seasonal withdrawal of currency in circulation may.temporarily obscure the long-term expansion of the volmne of money during the first few months of 19Le. l~oney in circulation in T11rkey is notably lethargic, and much goes to hoards. If it were not for tl1is factor, the pressure on prices of the increase in the volu~e of money would be considerably larger; even so, prices rose as much as 10% during 1948. Turkey has only one type of index - prices (v1ho.lesale and cost of Prices living). They are re1aarkable for their serenity in t.he face of changes in world prices, Turkish production, the state finances, the devaluation of the lira, and the volume of money. -51- The index of wholesale prices did move up moderately from the end of 1945 vhen it was 444 (1938 • 100) to 491 at the end ._f 1948. The cost of living, however, had changed only from 330 to 335 in the same period. Since Turkey has no rationing system and only a modest system of price controls, the indexes are obviously faulty. The cost of living index, in particular, is based on officially approved prices : i.e., rents at the legal price, textiles at the Government selling price, coal at the vholesal~ price. The actual prices paid are well above the official prices, e.g., coal is sold delivered in Istanbul at 65 T.L. per ton, while the index continues to list the price as 40 T.L. Two non-official price indices exist which reflect somewhat more accurately changes in prices. A University of Istanbul re- calculation of the cost of living has arrived at a preliminary esti- mate for December 1948 at around 420 - 430 as against the official index of 335, An additional index - not so accurate - is available from the Shell Oil Company which shows an index of 530 for December 1948 (with 1939 as 100). -52- 8. The Internal Debt The domestic debt in 1945 was 1191 m. T.L.1/compared with 366 m. T.L. in 1939; the increase of 307% was substantially smaller than the rise in the official wholesale price index which in 1945 stood at 444 (1939 =100). The major part in 1945 was floating or short-term debt. The devaluation of 1946 gave the Government the opportunity, through the revaluation in 1947 of the geld stocks and foreign ex- change, to consolidate a substantial part of the floating debt and to pay off a part of the short-term debt by a) issuing long-ter.m bonds to replace the Treasury notes held by the banks b) applying 260m. T.L. of the revaluation profits to the extinction of a part of the Central Bank advances to the Treasury. ~/ In spite of a budget deficit of 103 m. T.L. in 1947 and an increase in short-term advances to the State Enterprises, the State's internal debt (in- eluding State enterprises) dropped from 1482 m. T.L. to 1324 m. T.L. during 1947. The State debt proper (other than State enterprises) declined 225 m. T.L. Primarily this was the result of a bookkeeping transaction; without the devaluntion, the str1te debt would have shotm a sharp rise. In 1948 State finances worsened sharply, and the 3tate debt rose nearly 25% during the year. The main causes, discussed in the Rise in chapter on the budget, vere additional military expenditures, 1948 increased state investment, and a rise in budgetary allocations for sanitation and health. The Turkisn Government, in endeavoring to 1/ Not including short-term debts of the State Economic ~nterprises. ~/ See Table VII for changes in internal debt. -53- move forward on several fronts, ended up the year with a sharp in- crease in the debt which reflected the financial crisis. Responsibility for the rise in the State debt-in 1948 can be attributed mainly to the following:_ Deficit in ordinary budget 181 m. T.L. Investments, Annexed Budget enterprises 95 m~ T.L. Extraordinary Grain Purchases 74 m. T.L. State Economic Enterprises - Notes guaranteed by Treasury 41 m. T.L. 391m. T.Lt! The actual rise in the internal debt was 325m. T.L~~ but there was also an increase in the external debt of 121m. T.L. The extraordinary grain movement is discussed more fully in the chapter on agriculture. Receipts from grain sales will reduce the internal debt by a corresponding a~ount during the year; it is likely to be a very ~hort-term debt but it involves a Treasury obligation. Approximately 250m. T.L. of the 317m. T~L~ going for the three ~ther enumerated purposes represents investments by the State in pro- ductive enterprises. Since this was exactly the amount of the State debt financed directly by the Central Bank during 1948, it is apparent that the Central Hank is financing the investment program of the Government. In order to provide for continued financing of the in- terna1 debt by this means during 1949, and to reduce the nominal value of the debt, the 1949 budget provides for a writing off of the 112m~ T.L. consolidated debt of the Treasury to the Central Bank for the note issue assumed by the latter. This directly "saves" the Treasury 12m. T.L. in 1949 in payments to the Central Bank, andre- duces the internal debt by 112m. T.L. -54- Most of the State's internal debt c' ::1 be attributed to invest- ment purposes over the past tvYenty-five years. The direct t~·dgetary financing of State investments for 1923 - 1938 is estimated as S22 m. T.L. which is roughly the equivalent of the outstanding consoli- dated internal debt. · -55- III~ LXTERI@.L POSITION 9. The External Debt The external debt and its history is cc)vered in a separate annex. The following summary presents the main concl'J.sions on. future payments~ The long-term external debt at the end of 1948 amounted to $303 m., to which must be added $38 me in ECA loans now· being utilized, for a total of $341 m. This is a relatively small external debt particularly when three factors are considered a) fifty-six percent is payable in Turkish goods or lira b) the dollar debt is only $87 m~, including the unutilized portion of ECA and Exim Bank loans and c) the Turkish gold holdings now amount to $162 m. That part of the loan payable in goods or lira still represents a substantial burden on the Turkish economy because of the relatively small export surpluses available.· Their principal advantages is that in times of crisis in world markets, Turkey will have a less difficult transfer proolem. The effects on the economy should, in fact, at that time be generally bene- ficial in providing a market for Turkish aoods~ At the present moment, how- ever, paynents in goods for external indebtedness have a somewhat dampening effect on commercial exports by holding up or raising the prices of the latter, and by usurping a part of the ordinar.y commercial market. The main burden of indebte~ness is to the U. K. ($199 mo) of which around two-thirds is payable in goods; with a smaller amount to Srvitzer- land ($34m.) entirely pa3rable in goodso· To these must be -56- added $65.9 m. to the U.S., payable in dollars. The remaining in- debtedness is small. Turkey has for the period from 1949 - 55 a fixed burden of $13~6 m. in interest and amortization to the U.K~ payable in goods plus a steadily rising ($3.5 m. to $10ol m.) fixed charge payable in sterling. The problem of payments in sterling is especially severe because of Turkey's present sterling deficit," her present and future payments for oil and freight,- and the limited range of imports the U.K. ~s at present taking from Turkey. The u.s. debt burden has a bulge in interest and amortization paj~ents from 1950 - 52 (ranging from $10.8 m. in 1950 to ~9.4 m. in 1952) and then it drops off ~apidly to $3-·5 m. in 1956, thereafter declining to ~1.9 m. Except for the bulge which arises from short- term Exim Bank loans repayable in 1950-52, ·the Turkish dollar debt problem is one of very manageable proportions, as far as the present indebtedness goes. The effects of future ECA and IBRD loans will require separate consideration. - 57 - 10. Gold Forei~ E~g~ge and F~reign CrP4its. Turkey, because of preclusive buying by the Allies during the ~~r, the acc~.J.lation of stocks during the 't~r and the high post-~·rar :prices in 1945 and 1946 for these stocks, and thr3 surpluses for ex,ort of the :post- \~.r years (with the accentuating effects.of the devaluation on the nominal value of the reserves) had accumulated net foreign exchange reserves and gold at the end of 1946 . . f 728- m. T.L •. C$260 m,) •. This 't·.Ta.s a res1)ectable sum ,:.rhen contrast~d 'l.l!ith the difficult foreign exchange position of Turkey before the 1.Jar, At tL·2' end of 1938, Turkey 1 s net e~ch?.nge and gold hold- ings, for exam:ple, \·Jere only 21.5 m. T.L. ($l?m).l/ Turkey's trade balance, the main component of her· balance of pay- ment s, '\'IJS.s favorable through 1946 and into the first three Changes in months of 1947. It th~n turned abr-uptly 1.m.fe:vorable firr;t 1947 •ri th the U.s. , then 1·d th other areas.y During 1947, Turkey lost 239m. T.L. ($67 m.) in gold, including subscriptions to the ]ank and Fund of $52 m~, and gained in foreign exchange 102m. T.L. ($29m,) for a net loss in the year of 137m. T.L. (~38m.). Turkeyr s dollar balances dropped from $53.3 m•. (net as reported by the Federal Reserve S~rstem) at the end of 1946 to $19.9 m. at the end of 1947. However, this latter figure does not include a debit for the short- term Federal Reserve gold loan of $20 m. contracted in 1947 by the Central :Bank, '~:rhile it does include certain illegal bank holdings in the T.T, s. of private persons. The net debit in dollars as re~orted by the Central Bank at the beginninr: of 1948 '~:ras $13.3 m. J../ ~----~~~.-----~--.---~--------------~----~--~~-----------------~;~.-----_.--. 1/ Golo. $ 29 m. Foreign Exchange (debit) 12 m. Total $17 m, gj See section on Foreig~ Trade and 3alance of Pa~~ents, As noted there, trade tends to lag 6 to 12 months behind pa~~ents, J} See 1'able X for full breako.oi·m of chan.ses in foreign exchange holdings during 1948. - 58 - Other foreign exchange held by the Central :Sank at the beginning of the year included ~14.6 (164m. T.L.) ,1us 17.5 m. T.L~ in various European currencies. .There·. . was a -small. debit'":to S. . ~eden. During 1948 Turkey's gold holdings declined by 22m. T.L. (37.9 m.) Changes in Tranaactions included: Gold Reserves: in 1948 Sales 29 m. T.L. on Repayment of Fe~eral Reserve loan. 1.1 m. T·. L. Purchase of ·0ounds sterling in Ne'\·r 30.1 m. T.L. York Recei~ts 3m. T.L. (est~) From France under trade agreement 5 m. ToL. (est.) Other transactions The outstanding feature of Turkey's foreign exchange transactions in 1948 was the precipitous drop in sterling reserves~ Turkey turned to the Changes. in : United Kingdom in 1948 as a major su~~lier, and at the sa~e Foreign Exchange in: time ,. ,i thheld exports to the sterling area. 3y the end of 1948 the year sterling holdings had reached the bare minimum of ~673~900 (7.6 m. T.L.). Total foreign excr~n~e holdinGs came to only 28m. T.L,, including, in addition to sterling: 11 m. T. L. in dollars ( '"i th dollar debits to Poland anct the French zone and a debit to Italy and. a credit from Finland denominated in dollars) 5.7 m. T.L. in French francs 5.2 m. T.L. in S\1edish cro\·ms 1. 5 m. T. L. in S~·ris s francs Turkey dre~:r do~·m $11.6 m. in Export-Import :Bank credits in 1942 and Credit£! ~ 1.6 m. in U.K. commercial credits!1/ Total credits dra~m Drat·m in : 1948 in 1948 amounted to 5·1 m. 'l'.L. She had also begun dra\·rings on her ECA loans. The decline in gold and·foreign exchange ~ms lJ9 m. T.L. Gold and foreign exchange expenditures a.."'ld credit dra,:rings together totaled 203m. T.L. ($56.8 m.). A further discussion ui11 be found in the section on bala'lce of payments. ----------------~----------------~~--~--~~~·.--w--~--~--~----------- 1/ See IJ:'able XI for ctetail.s - 59 - The credits available to Turkey for 1949 \Ifill be found in Table XII. A favorite topic for discussion in Turkey is the extent to which ~ . . .. . . . ~ '" Illegal. ; evasions of the currency control take place. Nearly every Transactions and ~oldings foreigner and many Turks are convinced tbat huge sums ·Abroad • ==' are illegally banked abroad, and the question ~~s raised in the Grand National Assembly during the Mission's stay~ The nature and relatively small size of Turkey 1 s foreign trade, however, are prima facie evidence that it would be difficult for these reputed sums to have escaped from Turkey. A careful examination of the Central Bank's holdings of dollars, together with all commercial bank holdings on AUgust 31, indicated that there \·rere, legally held, appro~imately $15.5 m. in Ne\"1 York. In addition there \-;ere probably aJ.so some '\-torking balances of commercial firms on which no records are available. The gross holdings of Turkey in New York on the same date were $22m., indicating that illegal holdings may have been in the nature of $6 to $7 m. There are other holdings in Switzerland and elset1here on the continent. Probably the total is not above $15 m. - not ellough to be of major importance to Turkey 1 s balanc.e of payments. There is a black market for foreign currency, in part arising from Black Narket: 11 private com:pensation 11 sales abroad. The changes in the Rates rates are given below: Official Rate :Black Harket Rate Fnd of i947 End of lG48 Dollars 2 •.81 3.58 -·3.65 3.85 - 3.88 S"~:ri s s Francs .657 .90 .98 Po'tmds Sterling 11.28 9.20 11.?5 The plentiful sup,ly of sterling at the beginning of the year, together with the fact that compensation sales against sterling were not permitted, caused. the rate to fall t..rell belo\·r ·the official price, and the cross-rate 't-tas very much to sterlingls disfavor. By the end of the year sterling had - 60 - become scarce and the rate rose slightly above the official rate. The unofficial cross rate is still '~rell belo't.; the official rate. Gold is bought and sold freely and legally in Turkey. The price for gold varies according to the coin but the average price at the end of 1948 t·ras 5.,98 T.L. per gram (official rate 3.13 T.L.). The export e.nd import of gold is forbidden but transactions occur l.,rith Syria, Lebanon, and Greece. A favorite and profitable form of arbitrage is the importation of ~old coins from Lebanon in exchange for Turkish exports. These are then sold to Greece at a high gold premium. and the proceeds are used to buy dollars at a lo,,rer ra. te in Greece 't'lhich are then sold on the Turkish black ma.rkete Exchange controls in Turkey are not fully effective, in part be- cause the officially approved compensation trading tends to lead to ille- gal transactions, and in part because the Levantine merchant is often shre~~er than the Government. It is not so much a question of funds banked abroad9 as the encouragement it gives to non-essential imports. A tight- ening up of the Turkish exchange controls 't~rould be highly desirable for Turkey 1 s economy. . . 61 - 11. Foreign Trade The foreign trade position of Turkey is basically fairly '·reak, be- cause the economy is weak. Turkey yields relatively small export sur- pluses at best~ and even these not1 tend to be 't1hi ttleo a'\-~ay by the infla- tionary domestic demand, t~Fhich has first call on local :production. Tuxkey 1 s· foreign trade is small in relation to its :potential; as a result, the Turkish development program is hampered because Turkey has to gear imports to such exports as she has, or to such foreign exchange or credits as may be available. Turkey has a further foreign trade problem in that two-thirds of her foreign debt i~ payable in lira or goods; pa~~ents for this purpose in 1949 t1ill be aro1md 54 m. T~L, or 10% of Turkey's total 1948 exports. It is especially troublesome in relation to trade 't·rith the (incluclin 7 sterlino-) U.K~ since 1949 payments~qual 70~of Turkey's 1948 exports to Gre Britain. 1 . The Government has neglected the promotion of e~~orts and has taken inadequate measures to control imports. Turkey is no't:T increasingly in the position (which she experienced before the ~rcar) of ~~ving a cost-price structure out of line ".~rith the external price level and of bei:ng forced to resort in part to barter deals, In the immediate post-,.~r years, Turkey had only moderate difficul t~r t1i th exports, in spite of t~rar-accumulated "~urpluses. The difficulties '·rere less a question of price than of the type of exports: there was particular difficulty ,.ri th dried fruits, nuts and poorer quality tobacco. liore rer.- cently, TurkeJr 1 s prices have played a more irn,ortant role in affecting exports. Turke~r ~~rould have been in a difficult position ~:rithout OEEC, whose operations have been invalua~le in helping to promote sales (parti- cularly in opening up the German market to lm·rer-grad.e to·ba.cco). In addi- tion, Eastern Europe has helped to provide markets for tobacco and cotton, because of the dollar shortage. - 62 - Turkish trade difficulties have increasingly f'Jrced her to turn to barter. She is still far from her pre-t-rar posit it·r.~, ,,rhen she \'laS dratm in to the German orbit and 42% of her trade took place ~ri th Germany: as yet, only 15% of Turkeyrs trade is in the form of barter or so-called "priv~te compensations 11 , but the percentage is tending to in- crease. This form of trade usually occurs under trade agreements (par- ticularly ".·ti th Italy and Eastern Europe, though they are used else~.-1here to some extent). The merchant may legally dispose of products such as lo\1-grade tobacco, o·r dr-ied fru.i ts, in a foreign market at 't-thatever price he ean get and in exchanee import foreign goods for sale in Turkey at a price sufficient to recoup his losses.· These transactions tend unfor- tunately to shade off into illegal forms. Turkish products are sold abroad for dollars or other currencies, ,·rhich are then resold in Turke;.r at the black market premium. These latter sales result in a loss of for- eign exchange to the Government, or in non-essential imports. ·probably 6-7% of Turkish trade trutes an illegal form and another 7-8% is a fully legitimate form of barter. Turkeyrs foreign exchange and import controls are not fully ade- quate. The Government, in addition to permitting barter transactions, is slow to adjust its import licenses to its ·exchange reserves. So long as 1 there is a supply of exchange, the Government grants licenses freely, uith- out particular examination as to the need ·of the economy for the imports, and then, as the exchange runs out, clamps do'm on all imports, essential and non-essential. This happened ~:rith dollar imports first • and in 1948 \·lith sterling imports •. The dependance of Turkey on a fe,·r·exports: cereals, dried fruits, nuts and tobacco has dangers for the economy since markets are not assured and prices fluctuate. Exports of these four products dropped fron 410 m.T.L. - 63 - in 194·7 to 276 m. T.• L. in 1948..1} Tobacco, of the four, alone held u;p fairly ,.,ell and tobacco is the most im:portan t (JO%) of Turkish exports. Additional exports of chrome and cotton helped to mru~e up the loss in these four. The loss of cereal exports, o~nng to the bad crop, particularly af- fected trade 1.-1i th the U. X. and accentuated the .sterling deficit. ~·!hile exports were declining, Turkey increased her imports from the U. X. from 13% of the total in 1947 to 24% in 1948. The deficits 't·rith the U. s. in 1946 and 1947 '\·.rere important but Turkey, by strenuous efforts, succeeded in approximately balancing the licenses issued in 1948 for U. s. imports ,,rith exports to the dollar area. Exports to the U. s. have been very stable, ~ith good quality tobacco and chrome tending to hold exports at a constant level of around $50 m. for the pa·st t\·lo years. The Turkish Government is not fully cogn:~.zant of the importance of exports to the economy. The Government does relatively little to pro- mote or stimulate exports (except in tobacco \1hich is '\·rell con trolled), to find markets, or to assure adequate quality or processing standards. The Government does intervene rather erratically to forbid or to license ex- ports in order to protect the r1omestic sup:pl;r ( t·rhich has first claim on production) but these actions result in fluctuating prices 'l.·rhich make ex- ports more difficult. It is particularly in the field of foreign tra·ie that the Government can take action to promote e}..'J)Orts as an essential part of its development program 'f.;rhich de}?ends primarily on fc,reien im::_:>orts of machinery, eq_ui:pment and many ra''' materials. 1/ See Tables XIII and XIV for Foreign Trade data. - 64 - 12. The Balance of Paymenta The Turkish Government is no,·r engaged in revising completely its reporting system and data for its balance of payments. The ne\'1 report, much more accurate than any so far presented, trill be given to the Fund in April or May. In the meantime, the Government provided the Hission ~nth the preliminary information which was available but this l~S still in~ complete~ No fully adequate assessment of the Turkish balance of payments ean therefore be made until the fina~ report is given to the Fund. The Turkish balance of payments data present four problems: 1) Though trade is the main component in the balance of pay- ments, there is a serious time-lag of six to twelve months in merchandise movements behind payments. This is particu- larly true of imports. 2) Turkish trade is increasingly on a barter basis t1i th no :pay- ments being made. 3) Turkey has fe,·.r inYisibles. The largest invisible, :foreign debt payments, turns into a visible item (though not so far to the Turkish Treasury) since the major part is ~ay­ able in Turkish goods. 4) Another important invisible, shipping receipts, is almost entirely for the transport of military supplies t·rhich do not a:ppear in the trade balance~ - 65 - An approximate reconstruction of Turkey's 1948 balance of pay- ments foll0\1s in million T.L. !/ Receints Disbursem~3nts Current Herchandise, F.O.:B. 4?5 2J 600 125 Interest a) Cash 5 5 b) Goods 13 13 Shipping 3 40 J? Miscellaneous 22 485 ? - 29 687 - 202 r· Canital Amortization 18 18 Net Gold Sales 22 22 Net'l Credits 50 50 Foreign Exchange Sold 116 116 170 Errors and omissions )~· Turkey occupies a rather unusttal position in that its sterling prob- lem is far more serious than its dollar problem. Nor is this merely a --------------~~ Payment :Balance. a current :problem, arising out of Turkey 1 s especially ::Sy Areas . : large sterling deficit in 1948. It is rather a fundamen- Sterling : tal maladjustment, at least semi-long term in character, arising from the fact that the sterling area offers only a limited market .,.,.. .... ' t mr == == 1/ The Table is based on data supplied by the Turkish Government, including monthly sales ~"ld purchases of foreign exchange and golo., and dra,·tings on foreign credits, togetl1er t1iti1 estimated shiljping and miscellaneous paj~ents and receipts. Total shipping receipts were in the nature of 17 m. T.L. in 1948 but only 3 m. T.L. t-ms included as an estimate of net receipts on non-military shipments. The errors and omissions ma;:i ·oe due to 1) military expenditures abroad, and 2) the confusion on goods or local currency payments, in !urkish external debts. 2:./ ~""tcluding exports of goods in :payment of interest, ,,.rhich are included as interest disbursements. - 66 - for Turkish goods (e~g~ tobacco is .~ust beginning to develop a market in :Britain) l'lhile Turkey bas a heavy .sterling·debt (almost 60% of its ex~ tarnal debt") and 1rrroorts oil from ·the-sterling area. Only partially com- pensatory is the trade su.rplus t1ith the I~Iiddle East. In 1948 Turkey's trade deficit t·ri th the U. K. alone \'las around 120 m. T. L. or not too far from double its trade deficit with the U. ~. (68 m. T.L.~. Its total (trade and non-trade) deficit with the sterl~ ing area as a \·thole \'fa.S around lSb. m~ · T. L.; in contrast, Turkey per- / formed the remarkable feat of ·.· balancing its dollar account in spite of paying off a $20 m.• credit. Sterling licenses are no\'t given as sparingly a.s dollar licenses but it \·rill be .sev- eral months before this affects sterling imports. In the meant~e Turkey \1ill continue to have heavy payments to the sterling area uhich cannot be avoided. The follo't;ring is an estimate of the 1948 sterling balance of :pay- ments: Pa"t11nent§ Recei-ots 1itl U. K. - merchandise 190 70 - 120 Sterling .Area - I1erchandise 43 29 14 Oil 14 14 Interest a.n.d amortization a) Goods (Export) 48 48 b) In sterling lO 10 Dra'm on U. K•. credits 23 23 Third Country Transfers 23 23 Other Invisibles 6 6 305 1.51 -154 Uhile Turke:l" '·.rill be able to curtail U. K. imports, and is not·r doing so, her payments for oil are likely to increase steadily ~nd interest and amortization payments fairly· alJr~";>tly. In 1949 the~r ,·rill be 48 m. T.L., and by 1953 they 'vill amount to .66 .m. T.L. It is true that the major part _; 1' It is necessary again to emphasize the lag of tracle behind pc;.:nnents. Licenses for dollar im:;>orts \·Jere issued ·v·ery spa.ringlz.r in 1948, - 67- will be in the form of goods or Turkish lira and the transfer problem will not be quite so acute as if they were payable entirely in sterling. Nevertheless it is noteworthy that four years from now they will amount to approximately as much as the present commercial exports of Turkey to the sterling area. The dollar position is much better. Turkey in fact achieved the Dollar: rather remarkable feat of converting a dollar deficit in 1947 of Area : around ~'p77 m. into a small surplus of ~~l m. in its current dollar account in 1948. The following is the approXimate dollar position in 1948, in million T. L. Receints Pavments ~ Merchandise 179 1741/ 5 Shipping 8 - s Interest 6 - 3 ECA Offshore Procurement 13 13 192 lSS -l Short-ter.m Loan Repayment and Amortization 67 - 67 Gold Sales 29 29 Drawn on Dollar Credits 42~ 71 -- 67 ...k2: 4 Turkey thus repaid 25 m. T.L. more than she borrowed in the dollar area in 1948 and ended up the year with a slight surplus on capital and current account, Future imports from the dollar area will be pretty well governed by dollar receipts from exports, plus EGA and Bank financing. The future dollar position looks favorable. Exports for the past two years have been running around ~:~so m. a year and there is every prospect of some small in- crease in the next year or two. Turkish ·dollar payments on invisible items l.}Hay include some non-Truman aid military supplies. -68- are not likely to climb very rapidly.. .. Taking account of all available credits, including ECA 1949/50 credits, the Foreign Investments Section estimates that the debt service will reach a maximum of $10.8 m. (30.2 m. T.L.) in 1950 and will thereafter decline with increasing rapidity, to a low of $2.8 m. (8.2 m. T•.L.) in 1955. The total will reach a maximum of 23% o! present dollar receipts, with a decline to 7% in 1956. By that time Turkey should be finding the major part of her equipment in Europe, and should have a dollar surplus. TABLE I (A) Distribution of Land in Turkez 1934, 1944, 1948 Area in thousand hectares Percent of Total 1934 ~ 1948 1934 1944 ~ I. Cultivated Land (including fallows) 1. Cereals 5903 6975 8090 7.6 9.0 10.4 2. Leguminous {dr.y vegetables) 477 .363 ) o.6 0.4 ) 3. Industrial crops 497 594 ) 752 0.6 n.s ) leaD 4. Other crops 6 155 ) o.o 0.2 ) 5. Fallow 3674 4814 5017 .it.& 6.2 6.4 Total 10556 12901 13859 13.7 16.6 17.8 II. Meadows and Grazing Lands 1. Meadows 3421 3551 n.a. 4.4 4.6 n.a.. 2. Grazing Lands 2877 2665 n.a., 3e7 3.4 n.a. 3. Pastures 38032 32804 !h.!.:. 49d: 42.2. !h.!.:. Total 44329 39021 37781 57.3 50.2 48.8 III. Merket gardens snd truck farms,_£!chards, vineyards, olive groves,~ 1. Market gardens and truck farms 143 151 n.a. 0.2 0.2 n.a.. 2. Orchards 286 465 n.a. 0.4 0.6 n. e. 3. Vineyards 345 473 n.e.. 0.5 0.6 n.a. 4. Olive groves 346 296 !h.!.:. ...Q.:.2 0.4 !h.!.:. Total 1121 1385 n.a. 1.6 1.8 n.a. rv. Forests 9170 11893 10500 11.8 15.3 13.5 v. UnEroductive LGnds and Lakes 12028 12.429 12499 15.6 16.1 16.1 Gr6nd Total 77234 7769sY' 100.0 100.0 1/ Change in area due to incorporation into Turkey in 1940 of the Sanjak of Alexandretta (The Hat5y) Source: Small Statistical Abstract of r~rkey, 1942-1946 and data supplied by Turkish Government for 1948 TABtE I (B) Land Cultivation bv Princi~al Cro~s (thousand hectares) 1934/38 l.2i& Wheat 3,623 4,590 Rye 3,380 457 l-1ixture 128 233 Total bread grains 4,131 5,280 Barl~y 1,855 1,807 Oat 259 285 Corn 448 542 Others 188 176 Total Coarse Grains 2,750 2.,810 Total Grains 6,881 8,090 Rice 30 24 Potatoes 55 64 Sugar beets 28 48 Oil seeds 440 516 Fodder 10 17 Tobacco 79 100 Fallow and other plants 5,000 5,017 Grand Total 11,613 13,859 Source: Toprak Office, Ankara, 1949 Agricultural Production in Tw:·l~ey (Thousand metric tons) 1934/38 1947 1948 Cereals T.neat 3,708 3,648 3,001 3,825 Rye 368 442 350 365 3arley 2,075 1,654 l,i~85 1,630 Corn 587 595 530 600 Oats 2h7 230 176 193 TotaJl/ 6,985 6,569 5,542 6,613 Tobacco 61 90 90 80 Cotton 60 59 47 51 Ve~eta.ble oil seeCis Sunflower 20 70 80 Sesame 29 26 32 33 IIenp 2 3 4 L~ Flax 9 8 18 46 Cotton 107 111 93 135 .i?eanuts 4 Soybeans 1 2 Others 10 12 15 33 Total 157 178 233 336 Pice 60 n.a. 51 60 Pulses 31~ 283 194 263 Olive oil 37 32 63 33 Potatoes 181 n.a. 349 470 Onions 98 n.a.• 120 146 Fruits (non-citrus) .:_pp1es 109 (1939) n.a. 61 QO ,/./ Pears 90 ( !I ) n.a. 46 59 D • • .aa:LSJ.l1S 61 (1936-45) 61 28 75 Grapes 941 (1940) n.a. 861 1,000 Figs 146 (1936/38) n. a. 155 50 ---continued !/In 1947 ai1d 19 48 there vrere 260-290,0COm.t. of mi:~ed·r.rhec:t and spe1 t T!E~E II (continued) Agricu::l±. ural Production in Turkey ( Theus and m~tric tons) 1934/38 1947 1948 Citrus Fruits Oranges and tangerines (tons) 1,343 0.935/39) 1, 265 1,300 n.a. Lemons ( 'l:U1i ts) 37n·. (l9 39) llhm. 114m.· n.a. Grapefn1it , !"". (units) less than_.lm .. ..~. • .:J~n. n.-a • 54 97 118 Source: Preliminar-y Report on Tul"key, I.J;::..:u., Dec. 1948, e>,nd .u •.s.·~griculturcl ~tta.che, "nler 21 9 ll I.Ianuf acturing (thousand tons 1938 1947 1948 (est.) Cement 286 344 355 Cotton yc.rn (a) State 7.1 13.3 12.2 (b) Private 12.5 15.5 15.o 19•6 28:"'8" 2'7:'2 I• 1joo1en yarn (a) State 1.8 3.9 4.5 (b) Private 2.6 3o9 4.1 4.4 7:1! o.5 Paper 8.9 18.6 19.1 Pig iron ..;. - 100 100 I:lectric pow·er :Jroduction (m • r.-:-~) -~··.L· 135 620 617 Source: Tur.Y.ish Goverrnnent .. T:illLZ V Govern111ent' s :3udget 1949 (" m L ) l.l'l •• .Ue:le • Expenditures PropQsed Passed Ordinary l,l.Jl6 1,371 .hnne.:ced 379 319 1,795 1,750 Revenues Or din~ 1,295 1,252 Annexed 310 310 1,6o5 1.,562 Deficit Ordinary 121 119 /.nnexed ;;0 ..-./ 69 190 188 ·The e.nnexed budgets presented here e:;{clude (a) 1:1onopolies (b) ordin~j oudget grants. Source: Turkish Treasury T.~.BLE VI Deficits in Turkish :SUdget 1944-1949 (m! lire) :Jeficit r ~Cj_)endi- ~nne:\:ed ~otal Fiscal Years Jevenues tt~es Deficit Bud~ets1/ Deficit 0 - (ordinary budget) 1944/45 1017 1079 - 62 n"a. n. c.• 1945 538 603 - 65 n.a. n.a. 1946 949 1022 - 73 n.a. n.a. 1947 1217 1320 -103 -19 -122 1948 (est.) 1190 1371 -181 -61 -242 1949 (proposed Oct.) 1295 ll.W.6 -121 -69 -l;c ( a.-nended J 2n. ) 1221 141.6 -195 -69 -264 pas sed I Iarch 1252 1371 -119 -69 -188 y That part of the deficit not covered by grants from ordinary budget Source: Turkish Treasury Tfll3LE VII The Turkish Internal Debt (million lire at end of year) J.939 1946 1947 1948 (I-.Iay .31) Sta.te Consolidated 182 LJ..5 704 780 Floating 184 73(·. 221 243 Total 366 1,153 925 1,023 Sta.te EnterPrises in '\.nnexea BUdget---- Consolidated (less than .? ) 2 1 5 Floe.ting none 63 99 206 Total (less than .5) 65 100 211 Other State Enterprises!~ lloating n.C'.. 264 299 415' Total State Debt 366(plus)l,482 1,32h 1~649 ( ''~lso: Local Goverm11e nt Debts, :Jec, 31, 1948) Domestic 55YJ. Foreign ?m. 62.~~ l-/ In the Tu:rldsh State i·.ccounts, tl1ese do not c.~)pea.r as o. part of the - public debt, thoubh they a.:re gn-;.rantE:ed by the Trea.sU."''Y• The~r are held by the :entre.l Banlr in a nanner similc-.r to that of a large ~Ja.rt of the floatinb debt oS.' the Annexed Judr,et enterprises 1 -~Jhich do · appear ~s a )art of the debt~ Source: Turkish Treasury T_\BLE VIII The Turkish External Debt (million lire at end of year) ... ·. .. 19'39 1946. 1947 1948 (' (ITasr-31) State Consolidated 55 578 552 615 Floating 58 113 578 552 615 State Econor.rl.c Enterprises Consolidated 79 63 99 131 Floating 36 62, 79 63 135 193 Total Foreign Debt 192 641 687 ~.'J8 Source: Turkish Treasury T.ABLE IX Foreign and Domestic Debt (million lire at end of year) 1939 1946 1947 1948 (l:ay 31) Foreign Debt 192 6LW. 6; 7 808 Dor.1estic Debt 366 1,482 1,324 1,649 558 2,123 2,011 2,457 ( Source : Turkish 'Ireasury T.~LE X Changes in Tur'{ish Gold. cmd :rorei '311 ZXchange HoldinGs 1948 Foreign Exchange Jcnuary 3~ 19h8 December 31,_ 1948 ( Held by Central Ba~~ Value in V~ue in Turkish Lire Turkish J..,ire United States ''.. ,,_, 13,257,200(D) 37,120,000(D) 3,930,600 11,oo6,ooo Srri tz·erland rs 8, 767,900 5,734,000 2,281,900 1,L.93,ooo \ Slreden Srr. Cr. 705,000(D) 549,000(D) 6,659,800 5,186,000 United Kingdom = 'T 14,567,400 164,379,000 673,900 ?,6o4,ooo Finland \( 436,400 1,222,000 Czechosloval~ia cz, Cr. 69 ,~27, 900 3,871,000 47,264,700(D) 2,647,000 (D) France :?F 34o;5Bo,ooo 8,oo4,ooo 53h,584,ooo 5,677,000 French :-::.one Germany .. 89,500(:J) 25'1,000 (D) Turk-Polish . _'\greemen t ,/ l39,900(D) 392,000 (D) Turk-Italian .'\greement .. 317,000(0) BRJ,ooo (D) Turlc-Delgian ~_greement BF 162,700 10,000 (D) - Debit 144,319,000 20,020,000 Gold lie1cl by Central Bank, in Jcn. 3, 1948 Jec. 31, 1948 Turkey and .\broad T.L. 476,331,424 454,458,214 O.f Yrhich Gold Jelonging to Central Jank .:.e.we 324,528,980 301,423, 09L~ Source: Central Bank of Turk~r TABLE 1.'1 Foreign Credits DraYm by Turl~ey in 191.!.8 P".ceviously l)ra1~m ntil1 ~ted by ·.mo'I..U'lt Drav-·m in l$48 ·'.vailnble 1) ECA :.-30 m. none none . :30m 2) u.~~. :,10 m. J:s7.277 m. ~1.6 m. ;,1.093 - I!l .3) Surplus P.roperty )10m ::::6' 041' 90 J 83,091 ,::~ 3,9.'58,097 4) ~ort-Import Bank ( \ a) Ct~.te AirYv~ys ~.> 3,181,143 ..' 471,412 2,709,731 b) State Seaways 8 m. 2,11-!.0,671 5,859,329 c) ~.:Ionopoly Administration 4,192,000 192,000 3,648,000 352,000 d) State Railways lO,ll3,500 3,9o8,5oo 4,584,000 1,621,100 e) :Stibank 4,122, 762 2,236,597 211,000 1,675 ,o65 f) 8umerbwJ~ 1, 71)-!.,5'61 1 ~7 '"' 0 2 1 ,..b.) ~-~, ..,..,9 :;>~o, I I ' {U Tot~l ~:-Irn 3l,J2h,o56 7, L~, 1 ol o7o 4, 7 / 11,611,862 12,217' 225 i Source: Turkish Treasury TABLE XII Gredits.Availabl~. to Turkey for 1949 Export-Imp~rt Bank ~12~217,225 ·', I Surplus P.,L-operty !P 3.,958,097 United Kingdom E.G. C.D. t, 1,09.3,000 E CA (1948/49): ( Conditional Grant $11,700,000 J. Loan ~38,000,000 11 E C A dra"t-.rl.ng rights: Benelux l;i; 2.0 m. Italy ~ 5.:0 m. Netherlands $ .s m. Sweden i~ 1.0 m. United Kingdom ~ 8.0 m. ~P 16. S m• ?:.I ECA 1949/50 - tentative allocation $ 30 m., (loans) plus conditional grants to be decided, - 1/ Utifized as of February 28, 1949: ~ 9.3 m, y Turkey is scheduled to accord drawing rights on her to Greece ( ::;; 13 m.), Denma!·k ( ~1. 5 m.) Norway ( <;+>. 5 m.) the Bizone (~12m.) and the French Zone (~1.5 m.) Source: Economic Department TABLE XIII Turkish Foreign Trade EXPORTS 19.47 1948 Value 625 MTL Value 551 MI'L Geographical Distribution Geographical Distribution 1/ u.s. 16.4% u.s •. 22.0% U.K. 23.6% U.K. 13.5% Italy 10.6% Greece 5.4% ( Palestine 7.4% Italy 7.2% Egypt 4.9% Palestine 4.4% Czechoslovakia 5.6% Czechoslovakia 7.1% Others 32.5% Others 40.4% IMPORTS Value 685 NTL Value 770 HTL u.s. 33 .4,% U.K. 23.9% Italy 14.0% u.s. 24.1% U.K. 12.6% Italy 9.4% Czechoslovakia 4.97.b Czechoslovakia 5.6% Others 35.1% Others 37.0% l '• 1/ First eleven months. Source: Turkish Trade Statistics TABLE XIV Commodi~v Exports and Imoo~ts: Turkev, by Percentage 1947 and 1948 Exports 1947 _1948 1/ Tobacco 29.1 % 30.0 ~b Cereals 20.7 5.~ Nuts 9.2 7.2 Cotton 5.1 Figs and dried raisins 6.7 7.8 Live animals 4.3 2.4 Chrome 2.3 5.2 Others 27.7 37.1 100.0 100.0 Imports ~ 1948-y Cotton., Yarn, Fabrics and Products 25.0 13.6 Wool and Hair Yarn and l-ianufacture s 6.0 6.6 Paper and Products 2.6 2.8 Iron and Steel 10.3 8.9 Hachinerie~ 10.5 14.7 Transport Equipment 8.0 4.7 Petroleum ~nd Products 4.2 5.4 Others 34.4 .J.t3.3 100.0 100.0 1/ F" - ~rst eleven months. Source: Turkish Trade Statistics. TABLE XV (lira per day) January 1947 January 1948 Unskilled. Textile 1.87 2.03 (' I Iron and Steel 2.34 2.03 Paper 3.28 3.41 Ceramics 2.38 2.60 Skilled Textiles 3.79 4.22 Iron and Steel 4.36 4.80 Paper 4e~62 4.75 Ceramics 3.76 4.12 Source: Turkish Government Report to I.B.R.D. TABLE XVI ,Number of An~ma~s in Turkev . thousands) (in . . 1938 1948 Horses, l'-1ules, Donkeys . 2,668 2,820 Cattle: Milcb"""Cows 2,365 4,179 Others 7,300 6,821 Total of Cattle 9,665 11,000 Sheep 25,053 27,334 Goats 12,594 13,666 Pigs 4.1 5 Camels 11.6 95 Poultry 18,600 20,000 Source: Toprak Office, Ankara, 1949