This content is from: Local Insights

Turkey

As part of Turkey's efforts to build a stronger economy and also as part of fulfilling its undertakings to the International Monetary Fund (IMF), parliament passed Law No 4749 on Public Finance and Regulation of Debt Management on March 28 2002.

The new Law sets forth the principles and procedures for the state granting and obtaining domestic and foreign loans and the efficient administration and monitoring of guarantees. Furthermore, the Law regulates the repayment of all financial liabilities assumed by the Undersecretariat of Treasury (UT) and the coordination of relations between the UT and various public institutions, entities, public economic enterprises, and public investment and development banks whose payment obligations are guaranteed by the UT under the build, operate and transfer, build and operate, and transfer of operating rights modelled projects. According to the Law, the UT will not be liable for the debts of these entities and institutions under any agreement to which it is not a party.

The Law grants significant rights and sets obligations for the state minister in charge of the economy to determine the terms and conditions for borrowing from both domestic and foreign sources and is authorized to establish the principles regarding the types, sale methods, instruments, interest rates and due dates of domestic and foreign loans. Another novelty introduced by the Law is the "guarantee fee" whereby a party that has received a Treasury Guarantee must pay a certain percentage of the total guaranteed amount as a guarantee fee.

The Law introduces a limit for indebtedness, and therefore, during any financial year, public institutions and entities are allowed to obtain loans in an amount equal to the difference between their initial expenditures and estimated income set out under the Budget Law. This limit may be increased by up to 5% by the Council of Ministers.

Based on the Law, the state ministry in charge of the economy adopted two regulations, namely the Regulation on the Approval of Loans and the Regulation on Treasury Guarantees. In general, the Regulation on Treasury Guarantees sets out the principles and procedures for the issuance, monitoring, budgeting and reporting of Treasury Guarantees, whereas the Regulation on the Approval of Loans sets out the principles and procedures for the approval of foreign loans obtained by public entities and institutions with a guarantee by a public entity or institution to another entity or institution rather than a Treasury Guarantee.

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