International debt crises and sustainability of external debt of Turkey

External borrowing is a source of financing that especially devoloping countries which have low economic performance and scantiness of resources apply. Developing countries and developed countries have tried to raise their national economics with external borrowing for years. But some of countries could use external debt actively, some of them couldn?t use.In this work, external borrowing, developments in Turkey?s debt along with the sustainability will be examined with theoretical framework. The debt crises of the late 1970s in Turkey and developments since then and the trends in foreign debt indicators are analyzed. In addition developments in foreign debt stock of developing countries since 1970 and the causes of debt crises are studied.Turkish Lira was made fully convertible in 1989 by the issuance of decree number 32 the decree started the period of capital account liberalization which allowed the residents to borrow from the foreign markets. Higher real domestic interest rates and overvalued Turkish Lira yielded a higher return than the average return in the world markets: thus, attracting speculative short-term capital inflows which chased high yields on treasuries rather than fixed investment options, and rapidly turned into outflows in times of instability. As a result, starting in 1989, private sector foreign borrowing rose sharply.The issue of external debt sustainability has gained importance by the effect of huge amount of increase in using external debt in 1980?s a few developed countries prolonged balance of payments deficits and the debt crisis of developing countries.Key Words: World Debt Crises, Foreign Debt Sustainability, Intemporal Solvency, Cointegration, Unit Root, Turkey