Nazan Diri Bal, Managing Partner at Diri Legal in Istanbul, reflects on the turbulence of the last six months in Turkey. "There was a slowdown in the market before the June elections," she recalls, "and post-election things remained quiet for a short time, which was followed by dramatic overshooting in exchange rates, resulting in further discomfort in the market. At the beginning, no immediate actions or measures were observed, which caused fears that it was unstoppable. This affected everyone. The lira plunged to a record low, and everyone began moving very cautiously.”
Fortunately, Diri Bal reports, the immediate crisis seems to have been brought under control. "Some political and legal measures were introduced, and currently the rates seem to have stabilized a bit." Still, that doesn’t mean all is well. "The inflation rate is still increasing — today it was announced that, for October, it was 24.25%. That rate of inflation doesn’t suggest that everything is fine."
Despite the economic crisis, lawyers in Turkey are fairly busy, Diri Bal says, in part tied to changes in the Bankruptcy Law. "There were some changes introduced in February 2018 to Turkey’s Enforcement and Bankruptcy Law," she says, "removing postponement of bankruptcy process from the law and substituting systematic changes in composition/concordat rules," which she describes as “the last exit before the border, for companies wanting to avoid bankruptcy.” According to her, "a lot of companies are taking advantage of it, including some major players, and it’s believed they’ll weather the storm. But we’ll see." Either way, she says, "all these measures are keeping firms busy." In addition, she notes, "there are companies exploring other options, and that’s generating work as well."
"Certain other measures are being introduced as well to keep the players in the game" Diri Bal says, "including, significantly, a mid-September Presidential Decree (and amendments to an existing law, Decree No. 32 on Protection of the Value of Turkish Currency), which placed restrictions on the use of foreign currency on certain agreements, including lease agreements, certain sales agreements, and employment agreements, and which included rules for revising already-executed agreements." According to Diri Bal, "the scope was too broad, and that was unexpected, because it took immediate effect, and provided only thirty days as a compliance period.” She rolls her eyes. "It was nearly impossible to prepare everything in thirty days, especially for big players, because the parties to many agreements were obliged to enter into entirely new negotiations." In addition, she points out, "there were many employment agreements concluded in foreign currency here in Turkey.” As a result, she reports, "there was a lot of frustration and confusion in the market."
"The amendment said that certain exemptions and clarifications would be issued,” Diri Bal notes, but those explanations and guidelines did not come quickly. "They finally appeared in about a month, and now the picture is clearer. It’s now possible to use foreign currency in certain agreements, including those for companies where majority shareholders are foreigners.” Instructions were finally issued for how to establish appropriate exchange rates in those agreements, and some guidance has been provided for this year, but ultimately, she says, "there are still so many questions."
Needless to say, "this created a lot of work for law firms, because in addition to reaching out to alert your clients to the new laws, you had to respond to their questions, and that was not easy, because the clarifications had not been made, and we only had thirty days to revise all contracts." According to Diri Bal, "we were running out of time, so we were calling the Ministry every day, and they were telling us to wait. Lawyers had to be creative in order to find quick interim solutions."
“Measures can be necessary for the market to breathe,” Diri Bal says. "However, choices and methods should be laid out carefully as such measures may also lead to counter-productive results, and when you rush them, it is simply not possible for all the players to immediately comply. So I think market players should be counseled and involved in the creation of these measures. As it is, a new amendment is coming out almost every day."