TURKEY COUNTS THE COST.

The economic consequences of be August earthquake are only just emerging. Jon Gorvett reports from Istanbul.

While it is impossible to quantify the human costs of the earthquake that devastated north-western Turkey on 17 August, the degree of damage the disaster has inflicted on Turkey's economy is now being assessed by both Turkish and international authorities.

The picture that emerges, as with much else regarding the tragedy, is one of major disruption and dislocation, the effects of which are likely to be far reaching.

Estimates of the damage vary, with the World Bank putting the cost at $6 billion while the Turkish State Planning Authority (DPT) puts the figure at between $9-13 billion. State Minister Recip Onal explains that the discrepancy is due to different methods of calculation, dependent on estimates of lost output. This is undoubtedly considerable, as the earthquake hit Turkey's most industrialised zone -- the Marmara region. The region includes not only the quake-hit shipping, automotive, petroleum products and manufacturing hubs of Izmit and Adapazar, but also Istanbul, and accounts for some 35 per cent of the entire country's economic production. Turkish Treasury Undersecretary Selcuk Demiralp says that the country lost 1.5 per cent of its national output as a result of the earthquake.

In addition, the head of the IMF's Turkey desk, Carlo Cotarelli, said after meeting government officials in Ankara in September that the earthquake would have a significant effect on Turkey's growth potential, already in decline following years of eight per cent expansion in the early and mid-90s. Last year saw this growth falling foul of recession due to the Far Eastern and Russian economic crises, with zero growth registered in the last quarter of 1998.

The scale of lost production also emerges from the statistics regarding the actual physical damage to factories and workplaces. The Prime Ministry Crisis Centre, set up following the quake to coordinate the rescue and relief operation, which was widely criticised at the time for being in crisis itself, says that in the disaster zone, 10,901 workplaces either collapsed or were heavily damaged, while 9,927 workplaces were moderately damaged and 9,712 more were slightly damaged. Loss of manpower has also hit production: some 16,000 people were killed and many thousands more injured according to the latest government figures, while UN estimates put the toll at around 30,000. And a recent report by the independent consultancy IBS indicated that the figure for people leaving the earthquake zone to live elsewhere could be as high as 28 per cent.

This loss of personnel is highly damaging for the region's industry. Ercan Tezer, the secretary general of the Turkish Automotive Industry Association (OSD), said: "Many of our personnel who emerged from the earthquake alive and uninjured have either lost their loved ones or suffered the loss of their property ... The loss of manpower and lack of morale are quite prevalent. It is also expected that experienced personnel will move to other parts of the country."

The automotive sector was well established in the quake zone, with some 90 percent of Turkey's total automotive output originating in the region. In the medium term, the automotive sector will sustain the greatest damage from the earthquake, compared to other sectors, Tezer claims. His association is pressing the government for relief in the form of VAT and tax breaks for employees affected by the disaster. Automotives were already in trouble in Turkey, with demand declining due to the general recession and declining capacity utilisation rates. The situation was so bad that, combined with the effects of the earthquake, Tezer claims production may drop "below feasible levels".

Many other sectors are also badly affected. Cahit Normer of the Turkish Insurance and Reinsurance Companies Union says total property damage caused in the quake has been estimated by insurers at $700-750 million, and that Turkish companies, which in the insurance sector are almost all tied to larger foreign partners or parent companies, have already starting paying out without support from their foreign sponsors, which will undoubtedly result in a significant drop in end of year balances.

Tourism, in the past another major foreign currency earner for Turkey, has also been badly hit -- although it too was in trouble before the quake due to adverse publicity regarding Turkey following the detention of Kurdish rebel leader Abdullah Ocalan. "We estimate that after the 17 August quake ..., nearly 150,000 foreigners decided not to visit Turkey," says Turkish Travel Agencies Union (TURSAB) chairman Talha Camas. A report from his organisation puts the loss from cancelled conventions alone at $65 million, with the industry as a whole facing an estimated $173 million deficit for 1999.

State Minister Recip Onal admits that the state budget for 1999 had "no provisions" for dealing with a disaster of this magnitude and that "costs cannot be absorbed through an additional budget". The government is attempting to introduce an earthquake tax and to increase charges for government-controlled services. Yet Turkey has a notoriously narrow tax base, with evasion endemic. Tackling the crisis is likely to have to involve a mixture of aid and loans.

For the first of these, after visiting the earthquake zone in late September, the IMF recommended the largest ever emergency aid loan for Turkey -- $490 million. A total of around $4 billion has so far been pledged or received in terms of aid or loans.

Around $1 billion has also been earmarked for quake relief from the World Bank. The Bank's chief economist responsible for Turkey, James Parks, says: "Out of the $1.05 billion, $300 million will be lent by reallocating funds remaining from previous projects.

"These funds will be used to construct health centres and schools in the quake-hit region. The remaining $750 million will be used for reconstruction and infrastructure activities in the quake region and for the needy."

With the IBS report indicating that only 17 per cent of the buildings in the quake zone are structurally sound, reconstruction is an immense and urgent task -- subsequent tremors and after shocks from the quake have already added to the death toll as buildings that withstood the 17 August shock have subsequently collapsed.

Yet the IMF remains officially optimistic on Turkey's chances of recovering from the economic effects of the quake -- provided the government follows its recommendations for wider structural reforms. In particular, the IMF and the World Bank have pressed Turkey to commit itself to reforming its banking and agricultural sectors. In the latter case, agricultural subsidies are the target, as currently prices for agricultural commodities are fixed by the government, with the level increasing often as a method of increasing support for the administration amongst farmers. As a result, official prices are often way above market levels and there is a considerable drain on public finance in supporting them.

Onal also puts a brave face on things, saying that Turkey's year 2000 projections have not changed, the country's privatisation programme will continue as planned, and a reform of the agricultural sector, including the pinning of prices to world market levels, will be a cornerstone of the government's future programme. With such commitments, the chances of Turkey obtaining a stand-by loan agreement from the IMF are much improved, and with that its chances of being able to raise the money it needs abroad.

Yet to some extent too the economic effects of the quake may be shaped by factors on a much more local level. With reconstruction contracts already being handed out -- often to the contractors who local people blame for building the shoddy apartment blocks that collapsed in the first place -- and widespread fears that aid to central government will not be distributed fairly or properly, how the recovery will be managed on the ground still remains open to question.