VIII. TRADE AND PROJECT FINANCING

DESCRIPTION OF BANKING SYSTEM

One of the main results of the economic stabilization and
financial liberalization measures undertaken by former President
Turgut Ozal in the 1980's was the complete restructuring of the
Turkish banking system along Western lines.  Even though still
dominated by a few large state and commercial banks--some 75
percent of all assets are held by six or seven banks--and
suffering from a lack of transparent accounting practices and
credit-rating agencies, the Turkish banking system offers the
same services found in Western Europe in terms of project
finance, letters of credit, and correspondent relationships.
There are around 67 banks in Turkey.  Twelve of these are
investment and development banks, and 55 are commercial banks.
Banks are permitted to engage in regular banking, securities
brokering, and other businesses.  US and US-affiliated banks in
Turkey include: Bank of New York, Banker's Trust, Chase
Manhattan, Chemical Bank, Citibank, and Saudi American Bank.

The Istanbul Stock Exchange, formed in 1986, is still a minor and
somewhat unsettled player in the capital market.  The Central
Bank of the Republic of Turkey is located in Ankara and is
responsible for the integrity of the banking system.  As part of
the government's stabilization package, steps are being taken to
make the Central Bank more independent.

The Central Bank of the Turkish Republic supervises bank
activities in order to guarantee that they meet liquidity
requirements and operate in a responsible fashion.  While the
Central Bank's Bank Supervision Division acts as the government's
supervisory authority, the Undersecretariat of Treasury is
responsible for the enforcement of banking laws.  Treasury's
Banking and Exchange Division conducts criminal investigations
against banks and is the government agency which determines
punitive actions taken against institutions violating banking or
securities laws.  Treasury also determines the disposition of
insolvent banks.

FOREIGN-EXCHANGE CONTROLS AFFECTING TRADING

There are no known foreign-exchange limits placed on importers by
the Government of Turkey, and there are no restrictions on the
transfer of funds in or out of the country.  Although the Turkish
lira (TL) is fully convertible, most international transactions
are denominated in US dollars or German marks due to these
currencies' universal acceptance and the continuing monetary
uncertainty caused by Turkey's high inflation rate.  Banks are
allowed to deal in foreign exchange and to borrow and lend in
foreign currencies.  Foreign exchange is freely traded and widely
available.  Foreign investors are free to convert and repatriate
their Turkish Lira profits.

GENERAL FINANCING AVAILABILITY

Traditionally, Turkish corporations have satisfied most of their
financing requirements through the banking industry.
Corporation/banking relationships are close.  Locally, commercial
banks account for about 80 percent of the credits outstanding in
the Turkish financial system.  However, given the continuing gap
between Turkey's extensive needs and its limited internally-
generated resources, external financing of public and private
project investment will be a crucial factor in this and coming
years.  Because of high inflation and high public- spending
requirement, the availability and cost of local currency funds
are very high.  Exporters are advised to provide financing for
their exports.  In addition to short- and medium-term credits
available from commercial banks in local and foreign currencies,
lower-cost TL credits are also available from Turkish Eximbank.

FINANCING EXPORTS/METHODS OF PAYMENT

Letters of credit (LC's) are traditional import instruments for
private-sector transactions.  LC's are always irrevocable and are
usually confirmed.  As Turkish importers develop long-term
contacts and prove their credit-worthiness, suppliers are usually
willing to accept cash against documents and cash against goods
shipments.  Deferred payment schedules are not common except in
cases of large transactions where supplier financing plays a
role.

Sales to Turkey are influenced by the availability and cost of
supplier credits.  Unfortunately, in early 1994 there was a major
change for the worse in Turkey's international credit standing.
As a result, international funds which were available for
financing Turkish trade have decreased substantially.  Suppliers
should consider unconventional project financing packages (e.g.,
forfeiting, factoring, and utilization of third-country export
credits) when bidding on major government infrastructure
projects.  Exporters should be flexible and try to accommodate
customers' needs, building any additional associated cost into
the offer price.  Foreign commercial banks, which have been
supplying Turkey with short-term credits for the last several
years, are somewhat unwilling to do so this year.  However, a
stand-by letter of credit was approved between Turkey and the
IMF.  Credit availability is expected to improve hereafter.

Firms bidding on GOT contracts should pay careful attention to
the way proposals are prepared and should strictly follow the
administrative specifications; financing costs and foreign
exchange rate risks, wherever applicable, should be factored into
the bid price.  Bids which do not comply with administrative
specifications (which include financial aspects) are rejected
most of the time.  Generally, validity of a proposal is required
to be 3 to 6 months from the bid date.  Government tenders often
involve bid and performance bonds.  Bid bonds requested are
normally equivalent to 3 percent of the value of the tender,
while performance bonds are usually equivalent to 6 to 10 percent
of the contract value.  The bonds should not have an expiration
date.  The GOT only calls these bonds in cases of extreme bad
faith.  No case is known to USFCS/Turkey, although in one current
dispute, the Ministry of Interior has thus far refused to return
a bond.  All bonds have to be counter-guaranteed by a Turkish
national bank.

There are a large number of leasing companies in Turkey.  All or
most of them are owned by Turkish banks.  They finance purchases
of expensive capital goods such as aircraft, auto fleets, or
special equipment.  Financial leasing used to account for only 1
to 2 percent of capital expenditures in Turkey vs. 20 percent in
developed countries.  Because of funding difficulties, leasing
activities decreased substantially during the first half of 1994.
The terms of leasing are usually four years, with a balloon
payment at the end.  Turkish leasing companies are eager to work
with U.S. counterparts.

Turkish factoring companies (again, usually offshoots of banks)
generally belong to the International Factors Group based in
Belgium.  As with leasing companies, all factoring and forfeiting
companies are having funding difficulties.  Both factoring and
forfeiting maximize cash flow, reduce transaction risks, and may
enhance competitiveness by offering flexible payment terms to the
buyer.  All U.S. banks active in Turkey know and deal with at
least one of the major leasing and factoring companies.


TYPES OF AVAILABLE EXPORT FINANCING AND INSURANCE

The Export-Import Bank of the United States (Eximbank) is wide
open for business in Turkey and offers a variety of credit
facilities to U.S. firms exporting to Turkey.  The U.S. Trade and
Development Agency (TDA) is active in financing pre-feasibility
and feasibility studies and design work for major government
projects, while the Overseas Private Investment Corporation
(OPIC) insures many U.S investments in Turkey.  U.S. firms may
also compete for contracts financed by the World Bank.  Most
major government tenders still require suppliers' credits.

In December 1993, the Eximbank offered to increase its local
exposure by as much as $5 billion.  A Treasury guarantee is
necessary to obtain Eximbank project financing.  Eximbank
initiated discussions with the Turkish Treasury in April 1994 to
develop export credit facilities for the purchase of U.S. goods.
Exim is also considering the establishment of a credit facility
which would enable Turkish exporters to finance U.S. inputs for
manufactured goods produced in Turkey for export to third-country
markets in Central Asia.

PROJECT FINANCING AVAILABLE AND TYPES OF PROJECTS SUPPORTED

Turkey offers numerous major project opportunities in the areas
of telecommunications, energy, transportation, and building of
infrastructure projects such as dams, airports, harbors, roads,
and water and sewerage systems.  Supplier financing is the key to
winning these large projects.  Traditionally, U.S. Eximbank
financing, along with OPIC and TDA programs, have been available
to U.S. suppliers.  International financing institutions such as
International Bank for Reconstruction and Development (IBRD) and
Overseas Economic Cooperation Fund of Japan (OECF) have also been
providing large amounts of funds for major projects in Turkey.
IBRD is currently planning to give Turkey over $1 billion to fund
water supply and sewerage, gas distribution, health, education,
and other infrastructure projects.  OECF in November 1993
provided a yen 52,473 million (about $485 million) loan to the
Turkish Government for construction of the Melen project--a
potable water project, the value of the first construction stage
of which is $1.2 billion.

Offsets/Countertrade.  Large government procurement/coproduction
tenders (especially in the defense sector) frequently involve
language which stipulates that the bidder offer a countertrade
proposal.  Countertrade proposals often play an important role in
the decision to award a large contract.  Direct offsets are
preferred over indirect offsets.  While countertrade requirements
have not proven to be a serious obstacle in the past, they should
be factored into pricing.  A guidebook published on offset
requirements is available from Turkey's Undersecretariat for
Defense Industries.

LIST OF BANKS WITH CORRESPONDENT U.S. BANKING ARRANGEMENTS

Almost every Turkish bank, regardless of size, has correspondent
relations with American banks.  A few of these are:

Turkiye Is Bankasi A.S.
Turkiye Cumhuriyeti Ziraat Bankasi
Yapi ve Kredi Bankasi A.S.
Akbank T.A.S.
Turkiye Garanti Bankasi A.S.
Turkiye Vakiflar Bankasi
Turkiye Emlak Bankasi