External Debt Cycles of the Turkish Economy: Is it Possible to Escape the Crisis?

The prevailing view on the debt crises experienced by peripheral countries is that their economies are primarily exposed to shocks arising from existing internal dynamics and defaults follow a unique process. However, parallel to the development of financial capital, most debt crises in the peripheral countries have a systemic structure shaped by the dynamics of the core countries. The aim of this study is to investigate the structure in question through debt cycles and to shed light on the political economy dynamics of these cycles. Hence, foreign borrowing in Turkey is examined from a historical perspective. In the present analysis, interest rates in core countries are identified as the main determinant of boom periods and consequent debt crises. The presence of a hegemonic power in the world economy is a major political dynamic behind the debt cycles. At the same time, the determinants of the debt crisis were empirically tested by considering 21 developing countries between 1970 and 2017. Interest rates, high inflation, GDP growth, the ratio of foreign direct investment to GDP, and the ratio of short-term debt to reserves are determined to be the main dynamics. In this context, we discuss contrasting views on the sustainability of external debt and whether it is possible for a heavily indebted economy like Turkey to escape recurring debt crises.