Module 1 - Turkey: Hybrid Adjustment/Investment Lending

The uptake of farmer transition grants has been slow, because farmers are uncertain that hazelnut and tobacco support prices are being removed permanently. As government credibility on this improves, uptake of this component should increase.

After a slow start, the Agricultural Support Cooperative Union reform program has had some success, but progress in two of the largest unions is uneven. Turning the unions into true member-owned cooperatives is still incomplete because this takes time.

Lessons Learned and Issues for Wider Applicability

In the political economy of reform, “a spoonful of sugar helps the medicine go down.” Combined adjustment and investment lending may provide the appropriate mix—drawing the attention of higher-level government officials through adjustment components while also providing needed long-term investment. Typically adjustment lending is negotiated through the Ministry of Finance, whereas policy (and painful reforms) are implemented by line ministries. Adding an investment component makes these often-painful adjustments more palatable to all parties involved and can prove particularly beneficial for reforms affecting the rural sector. In the past, hybrid lending was tried and discarded because of the mismatch in time frames for these two instruments, but the recent evolution in approaches increases the likelihood that they can prove positive complements for policy reform.

Lessons learned include:

• Laying a base for policy dialogue pays off, even if advice is not adopted right away.
  
  
• Conditionality must be clear and straightforward, with strong government ownership.
  
  
• Given the macroeconomic implications of agricultural subsidies, cooperation with the IMF and integration of other Bank operations is helpful. The Bank took part in all key meetings; the Fund integrated key agricultural policy reforms into its program.
  
  
• For policy reform, a hybrid loan has important advantages over pure investment or adjustment loans. Preparing and supervising investment components keeps Bank staff involved in program details and facilitates early resolution of design and implementation problems. The budgetary support aspect of an adjustment loan allows more Bank engagement in policy dialogue, compared to a pure investment operation.
  
  
• The investment portion of a hybrid loan makes it significantly more resource-intensive than a straight adjustment loan and requires “hands-on” attention by the Bank.
  
  
• Giving farmers a range of options, rather than selecting an alternative crop in advance, was wise. A selection menu encourages adoption of and participation in programs.
  
  
• Cooperatives financed and directed by government often degenerate and lose efficiency and member participation. Member ownership and participation and relevance of services are key to sustainable development of such cooperatives.