Towards a sustainable debt burden: challenges facing Turkey at the turn of the new millennium

Abstract

Since the early 1990s, Turkey has been experiencing a major increase in its public debt. This contribution seeks to investigate the underlying causes of this deteriorating performance from a political-economic perspective. Our analysis, covering the 1990-2000 period, demonstrates that the current debt position of Turkey is unsustainable and that further fiscal austerity is needed. In establishing a link between budget deficits and inflation, one must adopt a very precise definition of the "budget deficit". Indeed, there appears to be a weak connection between the narrow definition of the consolidated budget deficit and inflation. Conversely, a strong connection has been established between the broad concept of the "public sector borrowing requirement" (PSBR) and inflation. In addition, the broad definition should be extended to include duty losses registered by public banks. The policy implications of our analysis are presented in the final section of the contribution. Copyright © 2003 Frank Cass and Co. Ltd.