Reforming External Debt Governance in Turkey To Reach External Debt Sustainability

What is it about?

The paper examines the sustainability of external debt in Turkey utilizing the stochastic approach, according to which external debt is said to be not sustainable as long as there is a non-negligible risk, that the ratio of external debt-to-GDP ratio under existing and likely future policies will steadily increase over time leading to default at some point in the future. The paper argues that attainment and maintenance of external debt sustainability in Turkey is challenging, but that it is not a choice. Since a country whose government fails to respect external debt sustainability would eventually default on its external debt leading to disaster, the paper argues that the best way to avoid a disaster is not to face external debt default by introducing appropriate legal reforms, implementation of inflation reduction policies, and devaluation of the real exchange rate. Finally, the paper emphasizes that the achievement of sustainability of external debt should be left to an autonomous public advisory institution, External Debt Council, with sufficient financial and technical resources to carry out the tasks assigned to it.

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Why is it important?

Most of the developing problems face problems in achieving sustainability of external debt. The paper discusses these problems and studies how to solve the problems.