According to achieved empirical results main conclusions are as follows: (1) a direct causal relation exists from budget deficits to trade deficits as expected in conventional theory. This causality has alsa feedback; (2) the relations among exchange rate, inflatian and money supply indicate a vicious circle explanation; (3) treasury interest rates have direct impact on the trade balance. Financing method of budget deficits caused interest rates to be the most im portant variable w i thin the economy; ( 4) there is a sensitive balance among real domestic income, money supply and infiation; (5) there is no any direct connection between exchange rates and foreign trade balance. Exchange rates have impact on the trade balance only through budget balance. An important implication of this study is that the fundamental problem of Turkish economy stems from internal imbalances. For this reason, a stabilization program should begin with correcting the internal aspect of the issue. An improvement in internal balance would have a positive effect on the external balance as well.