TURKEY WENT into its own foreign debt crisis five years earlier than the Latin American countries did. Now, a decade later, it is emerging as an example of success. A good many people in Congress think that Latin America is being forced by its enormous debts into a downward spiral from which the only escape is to cancel the debts on a grand scale. But the Turkish case argues persuasively that, with good internal management, even a country that has borrowed far too much can restore itself to strong growth and normal access to credit.
In 1977 Turkey ran out of money to service its debts. Its first response was simply to devalue its currency to improve its competitiveness. But devaluation alone accomplished little -- a point that uneasy Americans are beginning to suspect may also apply to the United States. After several years of floundering and a military coup, Turkey set itself on a course of rigorous economic reform. As in many of the Latin countries, the tradition there had been inward looking, nationalistic, highly protectionist and suspicious of the rich countries. For seven years a turnaround has been under way. The International Monetary Fund recently published an illuminating description of it by George Kopits, one of its economists.
First, the Turks cut their budget deficit nearly in half, and the inflation rate dropped sharply. Then, with demand under control, they peeled the restrictions off imports and exports, letting the market set the exchange rate. Exports soared, and by last year the foreign deficit, even after all the payments for debt service, had dropped to one-fourth the 1980 level.
Some economists have argued that Turkey is a special case because its NATO allies, in view of its strategic location, were willing to keep lending heavily as it embarked on this transition. It's true that the IMF, the World Bank and several governments put up a lot of money to ease the process. But that's also an answer to those senators who oppose further lending to the Latin countries, arguing that it merely piles up unpayable debts more hopelessly than ever. It hasn't worked out that way in Turkey.
While Turkey now owes more than it did in 1977, its economy is stable and growing rapidly. The commercial banks will lend to it without coercion, as they will not to most of the Latins. Turkey's government is becoming less undemocratic and heavy-handed. It's still a country under strain. But it has demonstrated that many things are possible that Americans had often thought -- and sometimes still think -- were not