Foreign Currency Debt And Economic Growth In The Region Of The Black Sea Economic Cooperation

Year 2017, Volume: 3 Issue: 2, 1 - 22, 04.10.2017

Zelha Altınkaya

Abstract

Foreign currency liabilities are often considered as a financial risk factor in

the economies. The developing and newly emerging economies had great

experiences on the effect of this risk.Mexico, Russia and Turkey were

just a few of those countries who suffered from the foreign currency risk

in 1994 and 1997. Later, Turkey had one more experience in 2001. The

Euro crises which started in 2010, have unexpectedly changed policies

in Greece. Foreign currency risk and foreign currency liabilities have a

special importance for the member countries of the Black Sea Region.

Current paper analyzes the risk which has emerged due to foreign currency

volatility in foreign currency liabilities for the economies of the Black Sea

Economic Cooperation (BSEC) members. The regional cooperation was

started by Turkey’s initiative in 1991 and the organization was found in

25 June, 1992. However, after the 2007 global financial crises, firstly for

Greece, economic stability became the primary objective. The BSEC did

not offer governments with alternative tools to finance their economies, for

instance, by using local currency denominated debts on international bond

markets. Emerging economies had more liquidity than before. Expansion

of financial markets increased their reserves. However, it is argued that

foreign currency debt contracts and their potential financial risks have not

been eliminated. In this paper, foreign currency debt management of the

BSEC and its effect after 2008 financial crisis will be analyzed.

Keywords

foreign currency debt, economic growth, Black Sea Economic Cooperation Region

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