In this book, Iliana Zloch-Christy analyzes the causes and consequences of the massive Eastern European debt to the West accumulated in the 1970s. In assessing the region's convertible-currency debt problem, the author addresses five main issues: the origins of the debt was essential that such a debt was essential to Eastern Europe's economic development; the effects of the countries' own adjustments to the problem; Western policies toward resolving the Eastern European debt during the rest of the 1980s. During the 1970s, Eastern European countries increased their borrowing from the West considerably in order to modernize their economies and improve the competitiveness of their goods in Western markets. The degrees of liberalization of convertible-currency imports and borrowing in the individual countries differed depending upon internal political choices. Poland, Hungary, and German Democratic Republic (GDR), and Romania borrowed heavily, whereas Bulgaria, Czechoslovakia, and the Soviet Union were comparatively cautious. It was expected that the resulting debts in all of these countries would be re-paid through increased exports in the late 1970s and early 1980s.
However, as with the developing countries of Latin America, economic mismanagement, the oil-price shocks, and the weaknesses of the international lending system led to serious debt problems: Eastern Europe's aggregate gross convertible-currency debt grew rapidly, increasing from USD8 billion in 1970 to USD77 billion in 1979 and peaking at USD93 billion in 1983. Poland and Romania suspended payments to Western creditors in 1981. Hungary and the GDR experienced serious liquidity crises in 1982. The Eastern European debt problem marked the beginning of an international debt crisis that, by the end of 1982, had engulfed many other countries, especially in Latin America. This book evaluates the flaws of the centrally planned economies that led to the crisis, as well as the countries' lack of effective structural adjustment. The author also covers the roles of the International Monetary Fund and the World Bank, and looks at the potential debt consequences of resurging East-West trade.