Conference on

“Privatisation, Employment and Employees”

PRIVATIZATION IN TURKEY: ISSUES REGARDING PUBLIC BALANCE, SOCIAL SECURITY AND EMPLOYMENT

Gülsüm YAZGANARIKAN10-11 October 2002

Ataköy, IstanbulTurkey

OUTLINE:OUTLINE:

• THE PRIVATIZATION PROCESS IN TURKEY:A BRIEF THE PRIVATIZATION PROCESS IN TURKEY:A BRIEF OUTLOOKOUTLOOK

• EFFECT OF PRIVATIZATION ON PUBLIC BALANCE, EFFECT OF PRIVATIZATION ON PUBLIC BALANCE, MARKET EFFICIENCYMARKET EFFICIENCY AND AND PENSION FUNDS PENSION FUNDS

• OBSTACLES TO PRIVATIZATION IN TURKEYOBSTACLES TO PRIVATIZATION IN TURKEY

• CONCLUSIONCONCLUSION

THE PRIVATIZATION PROCESS: A BRIEF OUTLOOK

• Privatization implementations have started in 1984.

• Since 1985, 219 companies have been put into the privatization portfolio.

• 166 companies have been completely privatized. • Total sales since 1985 have amounted to 8 billion

dollars. • Out of this amount 2.7 billion dollars were

realized in 2000.

TARGETS OF PRIVATIZATION

• With privatization, it is aimed to reduce the role of the state in the market, establish a market mechanism based on competition, improve productivity and service quality and diminish the role of the SOEs in the economy.

EFFECT OF PRIVATIZATION ON PUBLIC BALANCEPUBLIC SECTOR BORROWING REQUIREMENT (Share in GNP, %)

DISTRIBUTION OF PRIVATIZATION REVENUES

1986-1989 2.01990-1994 21.91995-1997 16.8

1998 20.81999 0.52000 36.42001 1.6

1986-2001 100.0Source: Privatization Administration

1985-1989 1990-1994 1995-1997 1998-2001

TOTAL PUBLIC 4,7 9,6 7,1 13,5

TOTAL PUBLIC (EXC.INTEREST PAY.) 1,7 4,7 -1,2 -2,6

SEE'S 2,5 2,8 -0,4 1,5

-Nonfinancial SEEs 2,5 3,0 -0,2 1,4

-Financial SEEs 0,0 -0,2 -0,2 0,1

SOCIAL SECURITY INST. -0,3 0,3 0,2 0,4

OTHER 2,5 6,5 7,3 11,6

(1) 2001 figures are estimate

Source: SPO

1986-2001

EXPENSES 100.0

Payments to the Organizations Within Priv. Adm. Portfolio 50.0

Capital Participation 34.7

Debt payments as credits 10.1

Social Aid Payments 0.6

Severance Payments for Job Losses 0.4

Severance Payments After Privatization 0.7

Premium Payments for Early Retirements 0.2

Transfers From Privatization Revenues to Related Organizations 3.3

Transfers To Treasury 35.2

Debt Payments 11.2

Other Expenses 3.6Source: Privatization Administration

EFFECT OF PRIVATIZATION ON PUBLIC BALANCEUSES OF THE PRIVATIZATION RESOURCES(In Percentage Of Total Expenses, %)

CONSOLIDATED BUDGET REVENUES(In percentage of total budget revenues)

1991-2001TOTAL REVENUES 100TAX REVENUES 78.0NON-TAX REVENUES 21.3REVENUES FROM PRIVATIZATION* 0.7*Assumed as an above the line item.Source: Ministry Of Finance, Privatization Administration.

SOCIAL SECURITY SERVICES ARE PROVIDED BY THREE DIFFERENT SOCIAL SECURITY SERVICES ARE PROVIDED BY THREE DIFFERENT PUBLIC INSTITUTIONSPUBLIC INSTITUTIONS FOR THREE DIFFERENT EMPLOYMENT TYPES FOR THREE DIFFERENT EMPLOYMENT TYPES

SOCIAL SECURITY INSTITUTIONS (SSI’s)

Social Insurance Institution (SSK)

WORKERS

BAĞ-KUR

SELF-EMPLOYED TRADESMEN, CRAFTSMEN

FARMERS

Civil Servants Retirement Fund(ES)

CIVIL SERVANTS

(Thousand) 2002 Q2Total Population 65,910Active Insured 9,975 SSK (56% of active insured population) 5,551 Emekli Sandığı ( 20 % of active insured population) 2,045 Bağ-Kur (24 % of active insured population) 2,379

Active Insured / Employment 48%

FUNDS (ESTABLISHED

UNDER SSK LAW)

BANKSINSURANCE &REASSURANCECOMPANIES CHAMBERS

EFFECT OF PRIVATIZATION ON PENSION FUNDS

OCCUPATIONAL PENSION SCHEMES (FUNDS) IN TURKEYOCCUPATIONAL PENSION SCHEMES (FUNDS) IN TURKEY

• Present only in banking and insurance industries Present only in banking and insurance industries

Sponsored by employersSponsored by employers

• Cover only less than 0.5 % of public employmentCover only less than 0.5 % of public employment

• SOEs in the privatization portfolio of the Privatization Administration SOEs in the privatization portfolio of the Privatization Administration do not have such pension schemesdo not have such pension schemes

•Long term liabilities and actuarial valuation of pension funds of the Long term liabilities and actuarial valuation of pension funds of the public bankspublic banks,, which are to be privatized in the coming years which are to be privatized in the coming years,, should be should be evaluated accurately. evaluated accurately.

EFFECT OF PRIVATIZATION ON PENSION FUNDS

EFFECT OF PRIVATIZATION ON MARKET EFFICIENCY

Various surveys on analysis of privatization show that:

• Privatization positively affected labor productivity and volume of output

• Privatized firm switches to a more capital intensive technology

• Both capital and capital labor ratio increase

• Employment decreases

REASONS FOR THE POOR PERFORMANCE

• Lack of legal framework• Macroeconomic conditions in and out of the

country • Objections coming from labor unions and

opposition parties

OBSTACLES TO PRIVATIZATION OBSTACLES TO PRIVATIZATION WORKERS & CIVIL SERVANTS ARE ENTITLED TO THE WORKERS & CIVIL SERVANTS ARE ENTITLED TO THE FOLLOWING RIGHTS AS A RESULT OF PRIVATISATION FOLLOWING RIGHTS AS A RESULT OF PRIVATISATION (LAW NO:4046)(LAW NO:4046)

LAID-OFF WORKERS;LAID-OFF WORKERS;

• Regular Severance Payments Regular Severance Payments • Job Loss Compensation Job Loss Compensation •Services provided by the Turkish Employment Agency in career Services provided by the Turkish Employment Agency in career development, vocational and apprenticeship training and in finding new development, vocational and apprenticeship training and in finding new jobsjobs

CIVIL SERVANTS;CIVIL SERVANTS;

•Transfer to another public institutionTransfer to another public institution

•Receive 30% higher lump-sum payment at retirement if they are entitled Receive 30% higher lump-sum payment at retirement if they are entitled to retirement according to the Turkish Pension Fund Law and if they to retirement according to the Turkish Pension Fund Law and if they accept to retire within two monthsaccept to retire within two months

EMPLOYMENT FOLLOWING PRIVATIZATIONEMPLOYMENT FOLLOWING PRIVATIZATION

Privatised CompanyPrivatised CompanyPrivatised CompanyPrivatised Company

Civil ServantsCivil Servants

State Personnel Department’s Pool

State Personnel Department’s Pool

Sign a contract with new employer

Sign a contract with new employer

RetireRetireRetireRetireLaid offLaid off

Civil servants + workersCivil servants + workersWorkersWorkers

WorkersWorkers

OBSTACLES TO PRIVATIZATION OBSTACLES TO PRIVATIZATION

OBSTACLES TO PRIVATIZATION OBSTACLES TO PRIVATIZATION PUBLIC SECTOR PROVIDES MORE FAVOURABLE WAGES, PUBLIC SECTOR PROVIDES MORE FAVOURABLE WAGES,

PENSION AND OTHER RIGHTSPENSION AND OTHER RIGHTS

PUBLIC SECTOR EMPLOYMENTPUBLIC SECTOR EMPLOYMENT

WORKERSWORKERS• High wages and favorable rightsHigh wages and favorable rights• High severance paymentHigh severance payment• High trade unionism High trade unionism • Flexible working conditionsFlexible working conditions• High pension payments depending on High pension payments depending on

wageswagesCIVIL SERVANTSCIVIL SERVANTS• Better health servicesBetter health services• Better pension payments Better pension payments • Life-time job guaranteeLife-time job guarantee

PRIVATE SECTOR EMPLOYMENTPRIVATE SECTOR EMPLOYMENT

• Low wages and limited rights Low wages and limited rights

• Low severance paymentLow severance payment

• Limited trade unionism Limited trade unionism

• Low pension payments Low pension payments

OBSTACLES TO PRIVATIZATIONOBSTACLES TO PRIVATIZATION

Workers Included by Collective Bargaining Agreements (%)

0

10

20

30

40

50

60

70

2001

%

Public Private

Gross Wages

0100000200000300000400000500000600000700000800000

1999

-1 2

2000

-1 2

2001

-1

TL

Public Private

Weekly Working Hours

41

42

43

44

45

46

1999

-1 2

2000

-1 2

2001

-1

Hou

r

Public Private

CONCLUSION -1

• Privatization has not been completely accomplished as programmed. Therefore, monetary impact of privatization on state owned enterprises, social funds and public balance in general were not significant.

• Being one of the main impediments, legal framework has been reformulated with the new laws and constitutional amendments.

• Employment considerations were the main issues in the privatization process.

• Although labor adjustment programs have significant impact on employment, they are not sufficient enough to fill the gap between employment conditions in public and private sector.

• Therefore, considering the importance of privatization on market efficiency, the monetary and non-monetary conditions of private sector jobs need to be improved to accelerate privatization in Turkey.

CONCLUSION-2

• With the economic reform program, that was started at the end of 1999, it was aimed to reduce inflation and enhance sustainable growth in the economy.

• With the determined implementation of the program, the role of the public sector in the economy will be diminished.

• Various regulations have been made to enhance privatization of big companies such as telecom, sugar, tobacco and natural gas etc.

• The impact of ongoing privatizations on the product and labor market will be significant. Therefore, unemployment insurance system, various re-deployment projects towards dismissed workers after privatization, social security reform to improve financial positions of the social security institutions and introduction of private pension system will be important in lessening negative consequences of future privatizations.

• A sustainable macroeconomic environment together with structural changes towards reducing the role of the public sector in the economy will let private sector to operate in a more efficient environment and the gap between public and private sector will be lessened gradually.