The accumulation of the Eastern European convertible-currency debt continued in the second half of the 1980s. Poland and Hungary remained the most indebted CMEA countries and two of the most indebted among the developing countries. The Soviet Union increased its borrowing on the international capital markets. Bulgaria's external disequilibrium rapidly rose during 1987-8, in contrast with its previous conservative borrowing policies. The Eastern European region's debt which in the early 1980s marked the beginning of the international debt crisis is still considered to be of certain concern for the international financial markets. This chapter attempts to discuss the question as to whether the convertible currency debt servicing difficulties were (and are) inherent in the economic development of Eastern Europe in the late 1980s.

Is there a region-wide debt problem in Eastern Europe?

In order to answer this question an analysis is required of the main developments in the balance of trade, the current account, capital flows, terms of borrowing, and the main indicators of the debt burden and creditworthiness since the beginning of the 1980s.

Trade balances. In 1983-7 the aggregate visible trade balance (Table 2) of the Eastern European countries was positive but was negative with market economies in 1986-7 due to increased imports (Bulgaria, Czechoslovakia, GDR, Hungary) from the West (Table 3) and the deterioration of the terms of trade (Table 4). Hungary, the Soviet Union and Bulgaria ran the biggest trade deficits with developed market economies in 1985-7 (Table 2). Romania continued its policy of restricting imports, reducing them from the West by 30 per cent in 1987 (Table 3).