"Regulation on Restructuring of Debts to the Financial Sector" published in the Official Gazette constitutes the first legal framework of the AKP government’s extensive operation for bailing out big capitalist groups. The AKP intends to implement a debt restructuring plan resembling the Istanbul Approach implemented after the financial crisis of 2001. The Banking Regulation and Supervision Agency (BRSA) will be supervising the process.
Around 30 -40 percent depreciation of the Turkish lira since early August has brought many companies with high foreign exchange debt on the edge of bankruptcy while rendering the debts practically uncollectible for the banks.
Long-running repayment troubles experienced by certain industries and conglomerates have been known for some time.
References to a rescue plan for troubled companies and banks, named the Ankara Approach after the Istanbul Approach in 2001, were made prior to the presidential and parliamentary elections held on June 24 by Hüseyin Aydın, CEO of Ziraat Bank and President of the BRSA, who had mentioned preparations for a new legislation. The "Regulation on Restructuring of Debts to the Financial Sector," passed on August 15th, constitutes the first step of the plan.
Approximately $6 billion of debt had been restructured under the İstanbul Approach after the financial crisis of 2001. The current amount to be restructured is expected to exceed $100 billion.
AIM: RESTRUCTURING ALL DEBTS DEEMED PAYABLE
The aim of the regulation is stated as follows:
"To allow room for the debtors having loan relations with banks, financial leasing companies, factoring companies and financing companies operating in Turkey to fulfill their repayment obligations and continue to contribute to maintaining employment."
The definition related to the "scope of financial restructuring" is reminiscent of the Istanbul Approach implemented after the financial crisis in 2001. As the BRSA or an equivalent authority was nonexistent at the time, the "Istanbul Approach" was administered by a consortium under the secretariat of the Industrial Development Bank of Turkey (TSKB).
The regulation states that only loans with a determined ability of repayment will be eligible for restructuring; and outlines the designated authority and procedure for determining eligibility for debt restructuring.
In addition to this, the regulation obliges that the relevant authorities must be convinced that the debtors to be included in the scope of financial restructuring would gain a repayment solvency after their financial conditions and debts have been restructured by a new redemption plan.
Debtors who have been determined to unable to repay their debts cannot be included in the scope of financial restructuring, according to the regulation.
BDDK WILL CHOOSE AN INSTITUTION TO IMPLEMENT AND DETERMINE THE SITUATION OF THE PROCESS
It is stated that the works to determine the situation will be carried out by an organization deemed appropriate by the Committee linked to the BDDK. In the Istanbul Approach, this mission had been performed by the Industrial Development Bank of Turkey (TSKB) on behalf of the bank consortium.
In the new plan, it is expected that the determination of the situation will be carried out by one of those similar organizations such as the Development Bank of Turkey or TSKB.
"Regulation on Restructuring of Debts to the Financial Sector" underlines that following measures can be taken within the scope of framework agreements:
Extending the maturity of the relevant credit debts,
Renewing the credits of debtors,
Providing additional loans for the debtors,
Reducing all kinds of debts deriving from the capital, interests, moratory interests, and the relation between profit shares and credits, or abandoning all these debts,
Converting capital, interest or profit share debts to full or partial subsidiaries, and conveying them away against remuneration based on particular conditions in a dividend, in cash or in a receipt,
Signing protocols by acting with other banks and their creditors.
MAXIMUM 2 YEARS FOR THE RESTRUCTURING OF DEBTS
A maximum of two years is envisaged for the restructuring of debts in the "Regulation on Restructuring of Debts to the Financial Sector":
"Within the scope of Framework Agreements and from the date these agreements have been approved by the committee, [the relevant] debts can be restructured within two years providing that they must be attached to the financial restructuring agreements. The committee is authorized to extend the period of two years."
ARBITRATION BOARD FOR DISPUTES
In case of certain disputes due to the fact that the parties of the agreement fail to fulfil their obligations, an arbitration board will be responsible for the resolution of these disputes. According to the government’s plan for the restructuring of debts, the "arbitration board consists of non-partisan three persons who have the knowledge and experience in the line of their duty assigned by the Joint Executive Board."
WHAT WAS THE ISTANBUL APPROACH?
219 big companies and 101 small firms, belonging to 35 different capitalist groups, had benefited from the implementation of the "Istanbul Approach" which started in 2002 and ended in 2005. The amount of debt included in the scope of restructuring was approximately $6 billion.
The attempts for the Istanbul Approach had started in the second half of 2001. The Framework Agreement entered into force on May 24, 2002, as a result of negotiations regarding legislative regulations with public authorities and the context of the agreement with banks in Turkey, signed by 25 banks and 18 non-bank financial institutions.
The companies, suffering from "financial turnaround" whose survival is possible in case of restructuring of debts, had benefited from the "Framework Agreement on Financial Restructuring Program" prepared by the Banks Association of Turkey (TBB) and approved by BDDK.
'HEAVY BURDEN ARISING FROM CONSOLIDATION OF DEBTS WILL BE LAID ON THE PEOPLE’S SHOULDERS'
Speaking to Cumhuriyet daily on Tuesday, Professor of Economy İzzettin Önder had underlined that "If the Turkish government decides to implement a policy of 'consolidation of debts' including restructuring of short-term debts and undertaking the debts of private sector by the state, heavy burden arising from this policy will be laid on the people’s shoulders".
"Regulation on Restructuring of Debts to the Financial Sector" published in the Official Gazette on Wednesday revealed that an agreement has been reached between the political power and the international capital circles, indicating that the first step for this consolidation of debts, which will hit the people’s financial conditions, has been taken.
'THERE IS NO A STRONG ECONOMY'
Stating that there is no a strong economy in Turkey contrary to the claims of Turkey’s big capitalists, Önder noted: "It was this business circles that made import-dependent exports. There are tax debt cancellations up to 100 percent. At that time [when the debts of big capitalists were deferred in the past], the financial sources were coming to the country; there was plenty of money. Yet, we would have already come to this point one day. If your economy is not strong, you have to officially resort to IMF or you have to seek investors from abroad. You cannot claim that your economy is quite strong, while you are in need of foreign investments."
‘TURKEY MAY SUFFER FROM SERIOUS DISRUPTIONS IN PRODUCTION’
Önder emphasized that "If the resources available were used for education, the improvement of health services and development instead of transferring the funds to the mega projects as the AKP government did, Turkey’s economy would not have come to this negative point."
"In the following period, the increases in exchange rates will be reflected in wages. There will be many mechanical and psychological effects of it. Capitalist [business] circles may stop wage increases. The workers will probably not be able to oppose this decision to be taken by the business circles [because of the current financial crisis]. Quality in public services is already poor and it will further go down."
‘‘On the other hand, there can be very serious results and bitter fruits such as the inability to release some important health products to the domestic market. Turkey may suffer from serious disruptions in production; raw material purchasing may slow down. Interest rates will rise further. If the government does not take steps for the consolidation of debts, some kind of moratorium may be declared. And this might be the second big wave after globalization, while foreign countries might purchase companies in Turkey at cheap prices’’, İzzettin Önder concluded.