Debtor-Friendly Bankruptcy Laws in a Financializing Economy: Explaining the Turkish Case

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Abstract

This paper attempts to explain how the apparently conflicting features of the Turkish economy, i.e. the prominence of finance on the one hand, and the debtor-friendly bankruptcy laws on the other, could come to coexist in the first place. The interesting disparity between Turkey’s boosting financial sector and its poorly functioning bankruptcy laws was created by the institutional changes in the same reform period. While the financial institutions, laws and regulations were being reformed after Turkey’s 2000-2001 financial crisis, new additions to the Turkish bankruptcy laws were made that formed the backbone of the current debtor-friendly bankruptcy law regime. How these institutional changes in Turkish economy could happen simultaneously with the involvement of apparently the same international (IMF and WB) and domestic (governments, businesses and banking sector representatives) actors? This paper uses the perspective of “critical junctures” and the methods of “process tracing” to solve this puzzle. The results of this research indicates the importance of the timing and sequencing of the negotiations between domestic and international actors in giving a direction to bankruptcy law reforms, and further suggests that it is the combination of a pro-business reform coalition and low level of interference by the international actors that leads to a debtor-friendly bankruptcy law regime in a developing economy.

Author

• Melike Arslan, Northwestern University