The Creditworthiness of Eastern Europe in the 1980s

by Keith Crane

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This report develops various scenarios to analyze the hard currency debt problems of Poland, Hungary, and Romania. It considers the effect of adjustment policies on (1) those countries' struggles with their balance of payments; (2) their ability to generate more rapid increases in output through increased hard currency exports; and (3) their levels of military expenditure while there is so much pressure on their balance of payments. It concludes that if Romania and Hungary manage to service their debts in the next few years, they should be creditworthy borrowers by the end of the 1980s, but that Poland has little prospect of restoring solvency even in the 1990s. Output growth in all three countries will be constrained by their ability to finance hard currency imports and to increase hard currency exports. Western credit policy is not likely to affect either the independence of these countries from the Soviet Union or their military expenditures.

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