Insights on Privatization Dynamics in Turkey: Public Balance, Social Security, and Employment Issues

1. Conference on • “Privatisation, Employment and Employees” • PRIVATIZATION IN TURKEY: ISSUES REGARDING PUBLIC BALANCE, SOCIAL SECURITY AND EMPLOYMENT • Gülsüm YAZGANARIKAN • 10-11 October 2002 • Ataköy, Istanbul • Turkey

2. OUTLINE: • THE PRIVATIZATION PROCESS IN TURKEY:A BRIEF OUTLOOK • EFFECT OF PRIVATIZATION ON PUBLIC BALANCE, MARKET EFFICIENCY AND PENSION FUNDS • OBSTACLES TO PRIVATIZATION IN TURKEY • CONCLUSION

3. 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.

4. 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.

5. EFFECT OF PRIVATIZATION ON PUBLIC BALANCE PUBLIC SECTOR BORROWING REQUIREMENT (Share in GNP, %) DISTRIBUTION OF PRIVATIZATION REVENUES

6. EFFECT OF PRIVATIZATION ON PUBLIC BALANCE USES OF THE PRIVATIZATION RESOURCES (In Percentage Of Total Expenses, %) CONSOLIDATED BUDGET REVENUES (In percentage of total budget revenues)

7. EFFECT OF PRIVATIZATION ON PENSION FUNDS SOCIAL SECURITY SERVICES ARE PROVIDED BY THREE DIFFERENT PUBLIC INSTITUTIONSFOR THREE DIFFERENT EMPLOYMENT TYPES • FUNDS (ESTABLISHED • UNDER SSK LAW) • BANKS • INSURANCE & • REASSURANCE • COMPANIES • CHAMBERS

8. EFFECT OF PRIVATIZATION ON PENSION FUNDS • OCCUPATIONAL PENSION SCHEMES (FUNDS) IN TURKEY • Present only in banking and insurance industries • Sponsored by employers • Cover only less than 0.5 % of public employment • SOEs in the privatization portfolio of the Privatization Administration do not have such pension schemes • Long term liabilities and actuarial valuation of pension funds of the public banks, which are to be privatized in the coming years, should be evaluated accurately.

9. 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

10. 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

11. OBSTACLES TO PRIVATIZATION WORKERS & CIVIL SERVANTS ARE ENTITLED TO THE FOLLOWING RIGHTS AS A RESULT OF PRIVATISATION (LAW NO:4046) • LAID-OFF WORKERS; • Regular Severance Payments • Job Loss Compensation • Services provided by the Turkish Employment Agency in career development, vocational and apprenticeship training and in finding new jobs • CIVIL SERVANTS; • Transfer to another public institution • Receive 30% higher lump-sum payment at retirement if they are entitled to retirement according to the Turkish Pension Fund Law and if they accept to retire within two months

12. OBSTACLES TO PRIVATIZATION EMPLOYMENT FOLLOWING PRIVATIZATION Privatised Company Workers Civil Servants Civil servants + workers Workers Sign a contract with new employer State Personnel Department’s Pool Laid off Retire

13. OBSTACLES TO PRIVATIZATION PUBLIC SECTOR PROVIDES MORE FAVOURABLE WAGES, PENSION AND OTHER RIGHTS PUBLIC SECTOR EMPLOYMENT WORKERS • High wages and favorable rights • High severance payment • High trade unionism • Flexible working conditions • High pension payments depending on wages CIVIL SERVANTS • Better health services • Better pension payments • Life-time job guarantee PRIVATE SECTOR EMPLOYMENT • Low wages and limited rights • Low severance payment • Limited trade unionism • Low pension payments

14. OBSTACLES TO PRIVATIZATION

15. 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.

16. 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.