The journal of Hasan Köktaş, the former Directorate of Privatization Administration from ruling AKP party, gave the ‘good news’ before Sunday's polls: Government and Turkish Banking Regulation and Supervision Agency (BRSA) are working on a ‘rescue plan’ that will be put in the process after the June 24 elections. It is stated that the plan will cover many sectors, especially the energy sector as one of the riskiest with its USD 51 billion debt. While refinancing the debts became more difficult with the recent developments of credit rating agencies lowering the grades of Turkish banks and increasing risk premium of Turkey, the first job of the new government, independent from which political parties form it, is going to be transferring the private sector’s debt burden to the public.
One of the most important consequences of 2001 crisis was restructuring of private sector debts and ‘rescue operation for the companies’. Six billion dollars total debt, a substantial number at the time, was restructured. Some companies operating in the same groups with insolvent banks were rescued. Some of the insolvent banks and companies were taken over by the SDIF (Savings Deposit Insurance Fund) and sold after financial restructuring.
“The Istanbul Approach” is now returning with the name of “Ankara Approach” as a much bigger package that will probably cover a total debt of at least USD 100-150 billion.
The former Directorate of Privatization Administration Hasan Köktaş is currently the head of Turkish Energy Foundation (TENVA). TENVA published the June edition of their journal Enerji Panorama with a cover titled “The Ankara Approach will solve the problem of the energy sector with USD 51 million debt”
The journal article states that the privatization and investment expenditures of the energy sector in the last 16 years were financed with borrowing in dollars. 43 billion dollars of the energy sector’s total debt belongs to electricity production sector and the remaining 8 billion dollars is electricity distribution sector’s debt. The annual repayment of the energy companies’ debt including interest payments amounts to 6.9 billion dollars.
According to the article, 2.9 billion dollars of 6.9 billion annual payment belongs to thermal plants that don’t have dollar incomes or guarantee of purchase. It is stated that the income of these plants after subtracting their expenses doesn’t cover their credit repayments and create 2.5 billion dollars of deficit.
The article also mentions transportation and construction sectors being in a debt spiral besides the energy sector.
DEBT RELIEF AND PARTIAL DEBT CANCELLATIONS ARE ON THE AGENDA
The article mentions a rescue plan prepared by government and BRSA for indebted companies particularly in the energy sector that will be put in action after the elections. Although the details of the plan are not given in the article, it seems likely that the rescue plan will include debt relief and partial debt cancellations for the companies. The envisioned rescue plan will be called as “Ankara Approach” referring to “Istanbul Approach”, a legal framework for the restructuring of insolvent banks and companies’ debts in 2001 crisis.
However, the current size of debt and cost of debt restructuring is much bigger than the cost of restructuring covered by Istanbul Approach 16 years ago. As the article states, the cost of Istanbul Approach which became effective in 2002 with a legal agreement signed by 25 banks and 18 non-financial institutions was about USD 5.5-6 billion. Today the debt of only energy sector exceeds USD 51 billion. If we consider the facts that the total debt of private sector amounting to USD 450 billion when banks included and USD 300 billion without banks, currency mismatch between revenues and expenditures, and the cost of repayment exceeding USD 180 billion only in 2018, financial restructuring under the Ankara Approach would cost at least USD 100-150 billion.
For the energy sector, asset liquidation and mergers are also on the agenda besides financial restructuring. Although the article doesn’t explicitly mention it, this might mean turning part of the debt into public-private capital partnership with financial institutions. This is what happened in 2001 when SDIF took over company shares to sell later. However, this operation became much more difficult, complicated, and politically costly at this point.
DEBT RESTRUCTURING CAN BE NEW GOVERNMENT'S FIRST JOB
It is possible to argue that the rescue plan article mentions were in practice behind the scenes for a while now. Particularly, the debt restructuring came up in the last six-month, part of which was not known by the public, regulations related to borrowing in dollars, credit guarantee fund’s (KGF) recent support for the companies were all pointing out a quest for a compromise between banks and the government. The article in Enerji Panorama shows that the foundations of a more comprehensive and open rescue operation are prepared. This also means that a rescue plan favouring capitalist is going to be the main focus of new government after the elections. The reason behind the uncontrollable increase in currency is not speculative exchanges but the maturing debts of the companies who don’t have any or very little revenues in dollars. To help some of these companies, government fixed the currency for export credits at 4.2 ($1=4.2 YTL) last month. But it is clear that these kinds of precautions can’t go beyond being palliative solutions.
A few recent developments made administering the rescue plan behind the scenes difficult. First of them was credit rating agencies deciding to closely monitor Turkish banks and lowering their grades. The second one was the rapid increase in Turkey’s risk premium. These two developments made it difficult for Turkish banks to borrow and increased the cost of borrowing for them.
“Ankara Approach” doesn’t only cover a few investment groups prospered with their ties to AKP. 51 billion dollars rescue package for energy sector includes groups such as Sabanci and Anadolu. The big groups and their supplier chains in manufacturing could also be included in the package. The direst part of this picture is that different from 2001, independent projects are being formed under “public responsibility” with models such as public-private partnerships in energy and construction sectors. The projects that could pay back their debts under a capital group are going to be rescued from public budget using the legislation.
Turkish working class spent the period between 2002 and 2007 by paying the debts of companies and banks restructured under the Istanbul Approach. No matter which combination of parties form the government after the elections, the first job of the government is being declared as shifting the debt burden of the private sector on workers. No political party has declared that they will reject paying private debt with public resources yet. The only political actor which openly rejects shouldering private sector debt was the Communist Party of Turkey supported by This Social Order Must Change platform
WHAT WAS ISTANBUL APPROACH?
Under the “Istanbul Approach” a total of 6 billion and 163 million dollars debt was restructured between 2002 and 2005. 219 large-scale companies and 101 small-scale companies that belong to 35 different groups benefited from debt restructuring.
In order to help private sector companies, which became insolvent due to the financial crisis, continue to operate and re-gain solvency, a legal framework for the restructuring of their debts to the financial sector was introduced in 2002. The “Financial Restructuring Framework Agreement” (FRFA), prepared by BRSA and the Banks Association of Turkey (BAT), was signed among 25 banks and 18 non-financial institutions and Istanbul Approach took into effect on May 14, 2002.
Istanbul Approach (Ankara Approach with its new name) was designed with the inspiration from London Approach that was used by the Bank of England first. Similar programs were used in Mexico, Thailand, Malesia and Indonesia later. However, Istanbul Approach stroked out among these examples as the most comprehensive package in terms of the number of companies covered and the total costs.
