The external debt problem in world and Turkey and external debt sustainability

This paper aims at examining the relationship between economic development and external debt sustainability of various countries, considering their historical, social and economic characteristics, by using external debt ratios and econometric models. The last quarter of the 21st century witnessed the rise of the gloablization of capital flows, which encapsulates the emergence of financial economy phenomenon and liberalization of foreign trade. This process has caused the use of external resources to become a political preference in financing economic growth. However, foreign debt crises in developing countries that broke out in 1980?s showed that external financing would not be an unlimited resource and led the term of external debt sustainability to gain ground in economics doctrine.Although the countries that have lack of domestic savings could exploit the method of external finance the terms of foreign debt for various countries differ significantly. The reason of that divergence lies in the level of development which directly reduces the risk perception of creditors. Poor countries and developing countries that are severely in need of foreign debts to reach economic growth encounter the problem of credibility. This problem triggers the increase of the cost of foreign debt and, in turn, challenges debt sustainability. . On the other hand, developed countries can ensure debt sustainability through lower risk-premium owing to economic, political and historical advantages.As the analysis that has used main ratios in the foreign debt literature highlighted, external debt sustainability is a function of a set of factors that covers the level of development, the extent of comparative advantages and the quality of economy policies. However, the financial and economic crisis that the global economy comes through points out the concerns on debt sustainability that even developed and prosperous countries could face. Hence, a prudent economy policy framework that has a long-term perspective is regarded as a precondition for a country which needs sustainable external financing.Keywords:1. External Debt2. Foreign Debt Sustainability3. The level of Economic Development4. External Debt Management5. External Debt Crisis