IS THE DEBTOR SOLVENT : THE CASE FOR TURKEY

There is a broad range of literature on economic crises witnessed, with the recent experiences we had in Far East Asia, Argentina, Mexico, Brazil and Turkey. Although there are still debates on the triggering mechanisms, it is a common accepted fact that, large and consistent fiscal deficits, market imperfections, over burden of foreign debt and shallow fiscal markets are among the factors contributing. As in the case of Ricardian equivalence, a debt-financed reduction in government revenue should not effect the exchange rate or the current account shows very conflicting conclusions. This paper aims to explore economic growth, import demand, external debt, exchange rates and public debt linkages. Two alternative models have been explored which shows that among the given variables there is no long term impact. VAR technique had been adopted to find the impulse-response relations. For the 1990-2006 period examined data set shows that there is a meaningful linkage as hypothesized. Findings also show that there is a case of internationalization of external debt which is consistent with the Turkish experience.