The debt crisis and adjustment responses in Eastern Europe: a comparative perspective

Abstract

The responses of East European states to changing international economic opportunities and constraints during the 1973–84 period are examined and contrasted with a sample of newly industrializing countries, including Korea, Taiwan, Singapore, Mexico, Brazil, and Yugoslavia. The effects of external economic shocks and internal policy choices on balance-of-payments difficulties and borrowing requirements in the mid-1970s are assessed. With the exception of Korea, all the countries that chose to borrow heavily at this time, including all of the East European countries, confronted a debt crisis by the early 1980s and were compelled to introduce austerity measures. Economic performance under austerity is compared in terms of the policy instruments different countries used and their effects on output growth, distributional goals, the balance of payments, and debt levels. Long-term effects of the debt crisis on development strategy and economic and political structure are also considered.