The rapid rise and fluctuation observed in the exchange rates in recent months have partially been restrained thanks to several economic measures taken by Turkey and the release of US Pastor Brunson, which had almost brought Turkey – US relations to the point of severing tiesCertainly, the dollar and euro rates against the lira did not return to previous levels, but the dollar rate which at one point had soared to TL 7,10 stabilized at around TL 5,60-5,80 while the euro which rose to TL 8,5 stabilized at around TL 6,60-6.70. However, shortly after this, Turkey, which during this time concentrated only on the exchange rates had to confront a brand new problem. Just like the real damage left by tsunami waves after a storm is revealed after the waves pull back, the real damage brought along by the fluctuations in the exchange rate came to light after the waters receded: The inflation rate soared, the rate of unemployment also rose along with interest rates. But perhaps more importantly due to the the high foreign-currency debt of private sector, Turkey was introduced with the reality of “composition with creditors,” or “concordat agreements.” This word was in the press most frequently recently. But what exactly is a “concordat agreement?” It can be briefly described as a legal method for companies to employ in order to restructure their debts with creditors at times when they are unable to flow their cash flows before filing for bankruptcy.
More than 1500 companies file for composition agreements
Company after company has been filing for this bankruptcy-protection scheme with analysts saying this has the potential to significantly increase troubles in the real and banking sectors. Some sources say as many as 3,000 companies have filed for composition with creditors arrangements, while according to unofficial figures cited by sources from the Istanbul Chamber of Commerce (İTO), this figure is 1500. In either case, it is quite obvious that there is a major economic problem at hand. Experts say companies this method was introduced after many companies abused the previously existing systems for delaying bankruptcy but it is likely that an increasingly higher number of companies will be applying this method. This is why the banking sector is now extremely careful in issuing loans, which leads to a narrowing in the total credit volume, creating the risk to stop the revolving cogwheels of the economy. But at the same time, many groups, primarily the banking sector and politicians, are skeptical about many of the pre-bankruptcy composition agreements filed by companies.
Firms using composition terms to be placed under scrutiny
Republican People’s Party (CHP) Hatay deputy Mehmet Güzelmansur recently submitted a request in Parliament asking for an inquiry into companies potentially abusing the composition system. According to backroom talk, the country’s economy management is also leery of the situation and has plans to scrutinize companies filing pre-bankruptcy composition claims closely.
Experts say it is a positive development that both the opposition and the government are eyeing concordat claims suspiciously, because it might not be before long that this pre-bankruptcy system might cause serious trouble to the entire economy of the country unless measures are taken. As head of the Union of Chambers and Commodity Exchanges (TOBB) Rifat Hiarcıklıoğlu stated in late October, saying the “Emperor has no clothes”, “There is a conspicuous slow-down in the market, the money isn’t flowing,” it is likely that the number of companies filing for composition agreements will continue to increase.
