During the 1960s and the early 1970s, Turkey followed an economic strategy of 'inward oriented' growth based on protectionism and import substitution. This commercial policy was directed toward the ultimate goal of 'economic independence' for Turkey. The reliance on extensive foreign loans to finance this strategy in the 1960s led to a 'minicrisis' of payments in 1968-69. To resolve the crisis, Turkey imposed further restrictions on international trade (for example, restricting foreign exchange for some kinds of imports, increasing prior deposit requirements for importers, extending delays of import authorization).1 Prior to 1973, the deficit in the trade account was largely compensated for by increases in workers' remittances, which led to record surpluses in the current account. Thereafter, the Central Bank of Turkey was able to accumulate foreign exchange reserves (for example, US$2 million in 1973) sufficient for twelve months of imports.2 A new and more serious payment crisis occurred in 1977-78, Turkey facing a severe shortage of foreign exchange, announced that it could not meet its foreign obligations. The crisis discredited the country's inwardoriented development programs and growth policy. Turkey found itself in a desperate economic situation. The shortage of foreign currency threatened the continuity of imports and led to unemployment and inflationary pressures that weakened the national currency. In 1978, Turkey entered the first round of negotiations for rescheduling its foreign debt. The aim of this article is to analyse the process by which the Turkish debt of 1977-78 was generated and to examine how Turkey was able, in such a short period, to recover from its debt crisis and re-establish its financial credibility in the international market. The analysis emphasizes the importance of the foreign debt, particularly the debt service burden and the constituent elements of the debt (short/long-term and official/private debt). The crisis in Turkey is compared with debt crises in other developing countries in an attempt to learn some lessons from the Turkish success. The importance of Turkey's geo-political position is highlighted.