External debt problem in developing countries and Turkey

One of the most important goals of developing countries is to materialize sustainable economic growth and development. In order to realize this aim the level of domestic investments and employment should be increased which is totally dependent on capital stock that developing countries usually lack. Foreign external debts play a key role in accelerating economic growth, investment and exports. Insufficient level of domestic capital accumulation generally forces developing countries to source finances by means of debts from foreign countries, banks and international organizations. The most fundamental problem facing developing countries today is the lack of domestic capital accumulation. Foreign debt is a common solution to increase investments in many developing countries. The growing level of external debt and its periodic servicing are indeed among the leading problems in the economy, which have a potential to cause frequent macroeconomic and financial instability. This study is concerned with the problem of foreign debts in developing countries. The reasons behind the growing amount of foreign debts from developed to developing countries and its consequences are especially emphasized. In order to develop a perspective to understand the foreign debt phenomenon, the first two sections of the study are devoted to related terms and definitions and historical development of foreign debt and aids after the Bretton Woods system. In the remaining sections, the foreign debt problem is analyzed on a case by case basis using data from several developing countries and solution proposals are discussed. In a separate section the problem of external debts in Turkey is examined in detail. Keywords : External Debt, Foreign aid, Debt Servicing Ratio, Foreign Debt, IMF