Courtesy Reuters

Debt and the Banks: East Europe's Debt to the West: Interdependence is a Two-Way Street

We have come a long way from the excesses of "Western economic warfare" against Eastern Europe. The past five years have seen an explosion of East-West trade and Western lending to Eastern Europe, including the U.S.S.R., with Western governments, banks, and exporters competing strenuously for East European business. In the atmosphere of détente, a wide range of political and economic forces generated opportunities for profits, which competitive capitalism exploited with characteristic alacrity and flexibility. The sum total of these diverse initiatives has been large-scale Western export of capital, both financial and real, to Eastern Europe. This new East-West economic interdependence now clearly demands the policy analysis which ideally should have preceded it.

The implications of the current situation are obscure even to many of the participants. Central planners are in principle able to use their "foreign trade monopoly" and centralized banking systems to coordinate their international trade and payments, in the light of their political and economic objectives. Even they, however, can be carried along by forces they do not fully understand. For mixed economies and their governments, the problems of international economic policy are that much greater. Neither technocrats nor politicians have yet appreciated the extent and implications of Western capital flows to Eastern Europe, and current attitudes and policies toward East-West economic interdependence could lead to consequences not desired by either side. The debtor-creditor relation can be a difficult one even with the best will in the world, and it is all too easy for miscalculations and misapprehensions to generate tensions which economic interdependence might otherwise alleviate. Whatever the ultimate form of the "new international economic order," the centrally planned economies of Eastern Europe will have an important role in it, and we should seek to ensure that the resulting East-West economic and political relations will be harmonious and mutually beneficial.

My primary concern here is therefore not with the creditworthiness of East European borrowers, although I do conclude that some countries may encounter serious

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