External debt, fiscal policy, and sustainable growth in Turkey
van Wijnbergen, Sweder | Anand, Ritu | Chhibber, Ajay | Rocha, Roberto
Policy-makers in developing countries who try to reduce external debt are engaged in a complicated balancing act. Domestic spending programs could be curtailed to free up funds for the repayment of debt. If less money is invested in industry and infrastructure, however, the growth of industrial output - essential to a healthy economy - could be compromised. The challenge is to determine the set of policies that will maintain solvency and creditworthiness while allowing for investment and economic growth. Governments, with the support of international financial institutions, must decide such issues as how much debt can be sustained, what internal policies will foster solvency, and what exchange rate will best encourage exports. Turkey's external debt is high, yet it has fared better economically than most highly indebted countries. This book examines the policies followed by Turkey to navigate its way through a debt crisis. The authors show that Turkey's drive to increase exports made it more competitive in the world market, and the concomitant depreciation of the real exchange rate increased its creditworthiness. They conclude that policy-makers in other highly indebted countries could learn much from Turkey's experience.
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