Mr. Hakan ÖZYILDIZ Deputy Undersecretary of Treasury

TL Borrowing

Improved capital structure in private banks Increased resilience of the financial system Financial restructuring of state banks completed No overnight borrowing Extremely high CARs Strong budget consistent with primary surplus target of 6.5 %of GNP Declining debt to GNP ratio Increased resilience thanks to floating exchange rate regime

Primary Surplus: 2.5 % of GNP short of target Weaker than expected revenues Expenditure overruns due to early elections Efforts concentrated on improving fiscal stance in 2003

Revenues Tax Revenues Non-Interest Revenues Expenditures Non-Interest Expenditures Personnel Other Current Investments Non-Interest Transfers Social Security Primary Surplus* (% GNP) E2003P E: Expectation P: Program * IMF Definition

Appropriate recording of investment expenditures in the budget Ambitious targets and conservative assumptions Substantial adjustment efforts Conservative assumptions on the yield of the measures Inclusion of in-kind credits in the primary surplus also implies a further adjustment in the order of 0.5% of GNP Increased transparency Budgetary discipline

Revenue enhancing measures (1.86 % of GNP) Raise property and motor vehicle taxes Increase the clawback on revolving fund revenues Raise revenue through disposition of state property Eliminate lags in corporate income tax collection Improve revenue collections in social security institutions Improve collection of tax arrears through Tax Peace Plan Expenditure reducing measures (2.53 % of GNP) Limit current expenditures Limit the real growth of health expenditures by preventing misuse Contain the growth of personnel expenses Rationalize the investment program Limit hiring to 35,000 in public employment

In order to keep the program on track and to ensure a smooth rollover of public debt, central government budgetary appropriations for discretionary spending, excluding defense expenditures, will be blocked. Annual savings of at least 1.2 % of GNP

7,7 1,2 6.5 Primary Balance (% of GNP)

USD billion USD billion Domestic-Market 46.4 Domestic-State 43.0 Foreign Market 29.8 External-Market 23.7 External-Market 23.7 External – Other 6.1 External – Other 6.1 External-Official 13.4 IMF Credit 19.7 TOTAL USD billion USD billion Domestic-Market 46.4 Domestic-State 43.0 Foreign Market 29.8 External-Market 23.7 External-Market 23.7 External – Other 6.1 External – Other 6.1 External-Official 13.4 IMF Credit 19.7 TOTAL As of March 2003 (prov.)

DOMESTIC DEBT COMPOSITION NON BANK As of March 2003 (prov.) MARKET HOLDING OF DOMESTIC DEBT PUBLIC 51% MARKET 49% LEGAL ENTITIES RESIDENTS AND NON RESIDENTS SEC.MUTUAL FUNDS BANK PORTFOLIO NON BANK

Floating Rate 42% Floating Rate 42% FX Linked / FX Linked /Den. 30% 30% FX Linked / FX Linked /Den. 30% 30% Fixed Rate %28 Quadrillion TL Bil. USD Quadrillion TL Bil. USD Fixed Rate Floating Rate FX Linked/Den Total Quadrillion TL Bil. USD Quadrillion TL Bil. USD Fixed Rate Floating Rate FX Linked/Den Total As of March 2003 (prov.)

Interest & Growth Based Scenarios Public Net Debt / GNP