ESTIMATING EAST EUROPEAN DEBT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000100220001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 44
• Document Creation Date: December 22, 2016
• Document Release Date: September 2, 2010
• Sequence Number: 1
• Publication Date: January 1, 1980
• Content Type: REPORT

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National Secret
Foreign
Assessment
Center
Estimating East
European Debt
A Research Paper
Secret
ER 80-10001
January 1980
Copy 3 9 5
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Foreign
Assessment
Center
Estimating East
European Debt
Research for this report was completed
on 3 December 1979.
The author of this paper i
USSR/East European Division, Office of Economic
Research. The paper was coordinated with the
National Intelligence Officer for Political-Economy.
Comments and queries are welcome and may be
addressed to Chief, USSR/East European Division,
OER
Secret
ER 80-10001
January 1980
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Estimating East
European Debt 25X1
We have developed new procedures for estimating Eastern Europe's hard
currency debt from financial statistics collected by NATO, the Organiza-
tion for Economic Cooperation and Development (OECD), and the Bank for
International Settlements (BIS). The 1978 yearend gross debt and net debt
estimates for the six East European countries surveyed are as follows:
Gross Debt' Net Debt'
Total
46.9
42.3
Poland
17.8
17.0
East Germany
8.9
7.5
Hungary
7.5
6.5
Romania
5.2
5.0
Bulgaria
4.3
3.7
Czechoslovakia
3.2
2.5
' Gross debt equals Eastern Europe's liabilities to Western govern-
ments, commercial banks, suppliers, and other lenders. Net debt
equals gross debt less Eastern Europe's financial assets. These assets
consist of deposits placed with Western banks. The East European
countries have also extended export credits to hard currency buyers,
but we lack adequate data to include these amounts in the estimates
By 1978 debt service equaled 79 percent of Polish exports to non-
Communist countries. The comparable debt service ratios for the other East
European countries were 51 percent for East Germany (GDR), 36 percent
for Hungary, 20 percent for Romania, 46 percent for Bulgaria, and 20
percent for Czechoslovakia (CSSR).
According to these estimates, Eastern Europe's gross debt to the West grew
by $40.8 billion between yearend 1971 and yearend 1978; net debt rose by
$37.3 billion over this period. Poland alone accounted for 43 percent of the
increase in East European hard currency obligations. Hungary and East
Germany also recorded a steady growth in debt between 1971 and 1978, but
at a lower rate than Poland. The CSSR, Bulgaria, and Romania have
generally been more cautious in their borrowing. Practically all of the
increase in Eastern Europe's debt to the West has resulted from commercial
borrowing, principally from Western banks.
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procedures should increase in accuracy accordingly
The totals derived by these new procedures do not differ substantially from
previously published CIA estimates. The estimates for Poland and Romania
are also reasonably consistent with the debt and balance-of-payments
statistics reported by these two countries. By using BIS, OECD, and NATO
data bases, however, we gain greater insight into each country's relative use
of Western commercial bank financing, Western officially backed credits,
and other borrowing sources. Since the quality of Western financial
reporting continues to improve, the estimates derived from our new
other communitywide bank.
In addition to estimating debt to the West, we have also computed each
country's hard currency obligations to the International Investment Bank
(IIB) of the Council for Mutual Economic Assistance (CEMA); the IIB has
raised $2.8 billion on Western financial markets for the bloc. The lack of
data on hard currency lendings by the International Bank for Economic
Cooperation (IBEC) prevents us from estimating borrowings from CEMA's
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Estimating East European Commercial Debt
2
Estimating East European Debt Backed by Western Governments
Assessing the Accuracy of the Estimates
13
Comparison With Previous CIA Estimates
16
East European Hard Currency Borrowing From IIB and IBEC
17
1.
Methodology for Estimating Commercial Debt
2.
Eastern Europe: Promissory Notes Placed in the West
3.
Eastern Europe: Gross and Net Hard Currency Debt to the West
9
5.
Comparison of Debt and Debt Service Estimates With Polish Data
15
7.
Comparison of Debt and Debt Service Estimates With Romanian
Data
16
10.
Eastern Europe: Net Hard Currency Exposure to the IIB
18
A.
Summary Tables for East European Debt
B.
Estimating East European Obligations to the International
Investment Bank
37
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Estimating East
European Debt
The East European countries ' have traditionally
treated statistics on their hard currency trade and
payments-with the exception of some trade data-as
classified information. Prior to 1979, only two coun-
tries had provided any information on their hard
currency finances: Romania on a confidential basis to
the International Monetary Fund (IMF) and World
Bank (IBRD) and Hungary in support of its foreign
borrowing. Early in 1979, Poland reported extensive
data on its hard currency debt and balance of
payments to obtain a desperately needed syndicated
loan.' The other bloc countries have not yet given any
1974, the BIS has steadily widened the coverage and
content of its reporting on international lending by
Western banks.
To reduce the number of assumptions underlying our
estimates of Soviet bloc debt, we have developed
procedures that make maximum use of the improving
statistics reported by NATO, the OECD, and the B IS.4
In this way we hope to gain greater insight into the
Soviet bloc's use of various sources of financing and to
measure more accurately the debt burden shouldered
sign of providing similar information.
Because of the scarcity of data from the borrowing
countries, estimates of East European hard currency
debt have relied largely on Western financial report-
ing. These estimates rested on many tenuous assump-
tions since Western reporting was long deficient in
both scope and quality of coverage. The need for better
data became increasingly apparent as concern rose
among Western banks and governments about their
growing financial exposure to Communist nations. In
response, several international organizations have ini-
tiated measures in recent years to improve the collec-
tion of statistics on Western lending to Communist
governments.
The new and upgraded reporting programs are provid-
ing increasingly useful data. Recent reports by
NATO's Economic Directorate and the OECD have
given new detail on officially backed credits extended
by member governments to the Soviet bloc.' Since
' The East European countries covered in this survey are Poland,
East Germany, Hungary, Romania, Bulgaria, and Czechoslovakia.
We did not apply this methodology to estimating Yugoslav and
Albanian debt since neither NATO nor the OECD report the
required statistics.
by each country.
Our estimates apportion debt between that amount
covered by Western government guarantees-offi-
cially backed debt-and that portion which does not
have such backing-commercial debt. We estimate
the size and maturity structure of each category
separately by taking a basic time series and making
necessary adjustments to account for gaps and double
counting in the data. Since our data sources still suffer
from some lack of clarity and consistency, we must
continue to resort to a few assumptions in deriving
these estimates. Consequently, the totals presented for
each country should be viewed as falling within a range
of error.
This paper will first present our procedures for
estimating Eastern Europe's commercial debt and
government-backed debt. It will also describe some
standard measures of debt burden derived from the
available data. We will then examine each country's
financial position separately. We will assess the
accuracy of the estimates and compare them with
previously published CIA totals. Finally, we will
discuss the role of CEMA's international banks as
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hard currency lenders to Eastern Europe and review
information regarding each country's hard currency
obligations to these banks.
Estimating East European Commercial Debt
Reporting by the BIS on the assets and liabilities of
Western commercial banks with Eastern Europe
serves as the basis for our estimates of commercial
debt. The BIS data cover external assets stemming
from (a) bank-to-bank credits, (b) bank participation
in syndicated loans, (c) time deposits placed with
Soviet bloc national banks, (d) trade drafts, drawn on
foreign buyers, discounted by the banks, and (e) a
forfait claims held by banks.' We adjust the BIS series
to account for (a) Western bank positions not reported
to the BIS before 1977, (b) Swiss, Japanese, Canadian,
and US bank positions reported to the BIS but not
broken out with respect to each of the East European
countries, (c) supplier credits held in the West but not
included in the BIS reporting, (d) nonguaranteed
Western bank assets not reported to the BIS before 1977
Western bank assets estimated from the USSR-East European
residual given in the quarterly BIS reports
Supplier credits held in the West but not included in reporting to the
Government supported credits included in member bank submis-
sions to the BIS
borrowing from outside the BIS area, and (e) reported Plus:
bank lending supported by official credit guarantees.
The methodology employed is outlined in table 1 and
described below.
BIS Reporting
BIS summary data for 1971-73 consisted of annual
reports of the positions of Western commercial banks
vis-a-vis the Soviet-East European group as a whole.
The only complete country-by-country breakout for
this period is reporting by the Bank of England on the
external foreign currency liabilities and claims of
banks in the United Kingdom. We allocated the BIS
totals to each country in accordance with that coun-
try's share of UK bank claims and liabilities for the
1971-73 period.
In 1974, the BIS initiated an expanded system of
quarterly reports in which member bank positions are
made explicit with respect to each East European
country. Initially, this coverage included the claims
and liabilities of commercial banks in France,
' Aforfait or nonrecourse financing is a form of supplier's financing
whereby the bank or other financial investor accepting bills or notes
from an exporter for discount absorbs the risks of collecting a ment
from the importer. See discussion on pp 3-4.
Austrian bank liabilities for 1971-76
Western bank liabilities estimated from the USSR-East European
residual given in the quarterly BIS reports
Belgium-Luxembourg, West Germany, Italy, Sweden,
and the United Kingdom. (West German banks have
not reported their position with the GDR to the BIS,
but we have no evidence of West German bank lending
to the GDR before 1976.) By 1975, coverage was
extended to banks in the Netherlands and foreign
branches of US banks in the Caribbean and the Far
East. In 1977, explicit coverage for all East European
countries began to include the positions of banks in
Austria, Ireland, and Denmark, of Japanese banks
with Poland and Romania, and of US domestic banks
with Poland. The 1977 statistics also included for the
first time some domestic currency claims of banks in
France and the United Kingdom. By the end of 1978
explicit coverage for all East European countries
encompassed banks in the United States and Canada.
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Bank Positions Not Reported to the BIS Before 1977
The BIS prepared two reports for yearend 1977; one of
these surveys covered the same banking positions as
the 1974-76 quarterly reports while the second in-
cluded for the first time the claims and liabilities of
banks in Austria, Ireland, and Denmark vis-a-vis
Eastern Europe as well as some supplier credits held by
UK and French banks which are denominated in
pounds and francs, respectively. The second report for
December 1977 showed an increase of approximately
15 percent in East European liabilities over the first
survey.
We have adjusted our 1971-76 series to make it as
consistent as possible with the expanded surveys for
1977-78. Using data compiled by the Austrian Na-
tional Bank we have added Austrian bank claims on
and liabilities to each of the East European countries to
the BIS series for 1971-76. Since we lack data on the
positions of Irish and Danish banks as well as on the
amount of domestic currency trade claims held by
French and British banks, we increased our estimates
for 1971-76 by the percentage difference between (a)
the totals of the first survey for yearend 1977 plus 1977
Austrian bank positions and (b) the totals of the second
BIS survey.
Swiss, Dutch, Japanese, Canadian, and US Bank
Positions in the BIS Residual
In its quarterly reports, the BIS has reported a residual
category for the Soviet-East European group. This
category encompasses Western banks that have not
broken out their position by individual country. For all
years covered by the quarterly reports, the position of
Swiss banks has been reported in the residual. The
residual also included Dutch banks until 1975 and
Canadian banks until 1978. The position of Japanese
banks vis-a-vis all East European countries was part of
the residual until 1977 when explicit coverage for
Poland and Romania began to include Japanese banks.
The position of banks in the United States was not
broken out by country until 1977 when US domestic
bank assets and liabilities vis-a-vis Poland were in-
cluded in the explicit reporting. By 1978, coverage for
all East European countries included US domestic
banks
Beginning in December 1976, the BIS started to report
the maturity structure of member bank lending to
individual East European countries. These reports
survey banks in the same Western countries as those
included in the quarterly reports; however, the
maturity structure reports do not have a residual
category for lending, meaning that all reporting banks
provide an explicit country-by-country breakout. Since
the total number of banks surveyed in the maturity-
structure reports is somewhat smaller than the number
reporting in the quarterly position reports, we could not
use the maturity structure statistics directly. We
assumed, however, that each country's share of East
European liabilities (including the residual) reported
in the quarterly survey equals its reported share of total
East European liabilities in the maturity survey. To
determine each country's share of the residual, we then
subtracted its explicitly reported liabilities in the
quarterly report from its estimated share of total East
European liabilities. For 1974-75, we allocated the
residual in proportion to the countries' shares in the
explicitly reported totals.
Supplier Credit Financing
A considerable volume of supplier credit extended by
Western firms is neither reported as commercial bank
lending to Eastern Europe nor included in statistics on
Western government-backed lending. These credits
include both claims held by exporters at their own risk
and trade paper discounted in secondary financial
markets.
Supplier credits may be extended by a trade draft, or
the East European buyer may issue a promissory note
to the Western seller. To generate cash and to avoid
the risk of interest rate and exchange rate fluctuations,
exporters generally sell the paper at a discount in
secondary financial markets. Some countries such as
France and the United Kingdom provide extensive
government-backed schemes for refinancing medium-
term supplier credit. In some other countries, govern-
ment discounting facilities may be inadequate or
expensive or they may require the exporter to bear
some of the risk of nonpayment by the importer. Under
these circumstances, recipients of promissory notes
often make use of the aforfait market
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Forfaiting is a method by which a series of promissory
notes or trade drafts, usually maturing over a period of
five years, is discounted. The aforfait market permits
an exporter who is the recipient of a promissory note to
sell the paper to a bank or other financial institution
with the provision that there can be no recourse to the
exporter in the event of default by the importer. The
sales are usually made at a fixed discount rate.
Because of their relatively high yield to maturity, the
discounted notes often enter the investment portfolios
of nonbank financial institutions, private investors, or
commercial bank trust accounts.
With the exception of Hungary, all East European
countries use promissory note financing to some
degree. A considerable volume of Polish, East German,
Czech, and Romanian paper has been discounted in
the aforfait market; there is little trading in Bulgarian
notes since these are normally refinanced through
bank-to-bank credits from Western banks to the
Bulgarian Foreign Trade Bank. The amount of new
East European paper entering the market grew during
the early and mid-1970s, but has declined since 1976.
The dropoff reflects (a) the availability of lower cost
direct financing from highly liquid Euromarket banks
and (b) the concern felt by East European foreign
trade banks about the existence of large secondary
markets in their paper and the impact that this may
have on their overall credit rating
Estimates vary for the total value of East European
supplier credit outstanding in the West. A portion of
these credits is held by Western banks and is reported
to the BIS as claims on the respective East European
countries. Our estimates for supplier credit financing
refer only to the remaining portion, which we assume
to be held by Western exporters, nonbank financial
institutions, or private investors. Our time series for
this category of borrowing reflect (a) estimates of the
amount of outstanding notes made by individuals
active in the aforfait market, (b) the value of each
country's imports of Western machinery and equip-
ment, (c) each country's relative use of government-
backed credits in financing machinery and equipment
purchases, and (d) the comparatively greater reliance
by most borrowers on direct bank financing in the past
few years. (See table 2 for estimated promissory note
placements outside Western banks.)
Other Borrowing
In addition to the use of supplier credits, the East
European countries have obtained loans from sources
that neither report to the BIS not are included in
summary reporting of government-supported credits.
Middle Eastern financial centers rank among the most
important of these sources. Bulgaria, Romania, and
Poland have received project development loans from
Iran. On a number of occasions since 1974, the Kuwait
Investment Company has managed bond and private
placement issues for Hungary, Poland, and Romania;
Poland and Hungary have also raised loans from the
United Arab Emirates. In all likelihood, there have
been additional unpublicized credits from the Middle
East to the East European countries.
Besides the Middle Eastern placements, the East
European countries have floated bond and note issues
in the international bond market. Since Eurobond
issues and notes are sold primarily to government and
private institutions and individuals rather than to
commercial banks, we assume that little of this
borrowing is covered in the BIS surveys.
Other borrowing for East Germany also includes
estimates of West German commercial credits without
guarantees carried in the intra-German trade clearing
account. We have information on total GDR debt to
West Germany which consists of (a) credits backed by
West German official agencies, (b) the swing balance,
and (c) nonguaranteed commercial credits. We cannot
simply add the full amount of GDR debt to West
Germany to our estimates of total GDR debt since
export credits with official guarantees are included in
our aggregated data on officially backed lending to the
GDR. Thus we developed estimates for nonguaranteed
commercial credits from a small amount of data on
West German commerical bank positions with the
GDR.
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Eastern Europe: Promissory Notes Placed in the West'
Bulgaria
25
25
25
25
50
125
75
50
50
Czechoslovakia
75
75
100
125
175
200
175
200
175
East Germany
75
100
100
125
150
175
175
175
150
Poland
50
75
125
250
375
475
350
325
225
Romania
100
100
125
125
150
150
100
75
75
' Notes neither held by Western banks nor covered by official credit
guarantees.
Other possible borrowing sources not covered by
current BIS reporting include Finland and Spain as
well as the Singapore branches of European and
Japanese banks. These lenders probably hold some
claims on the East European countries, but the
amounts involved almost certainly are small. [_
Double Counting
An unresolved problem in interpreting BIS statistics is
the possibility that some portion of assets reported by
member banks to the BIS are backed by government
credit guarantees. The BIS itself seems to be in the
dark on this question because it has provided
conflicting information to different researchers. Ap-
parently reporting procedures vary by country, and
various official credit guarantee programs impact
differently on member bank accounting practices
We have indications that banks in a number of
Western countries include credits with official backing
in submissions to the BIS. Some portion of official
lending from Belgium, Sweden, France, Japan, the
Netherlands, Switzerland, and Canada possibly ap-
pear in the BIS statistics. All officially supported
nonsterling credits held by British banks and all
officially guaranteed US credits are reported to the
BIS. Guaranteed West German and Italian bank
lending, on the other hand, apparently is not included
in bank positions with Eastern Europe.'
'Our information on possible double counting of government-backed
credits in BIS statistics is drawn from BIS responses to a Bank of
England questionnaire on the content of BIS reporting.
Although the OECD and the BIS are investigating the
amount of possible overlap in their respective statistics
on government-guaranteed and commercial bank lend-
ing, neither organization has as yet published an
estimate for the amount of double counting. Our
adjustment for double counting is based upon esti-
mates of that portion of French, Japanese, Belgian,
Swedish, Dutch, Swiss, and Canadian reporting that is
included in our estimates of officially supported debt.
We do not attempt to adjust for nonsterling lending by
British banks since the amount of such credits with
official guarantees reportedly is small. With respect to
US guaranteed lending, only Poland and Romania
were eligible for such guarantees through yearend
1978; furthermore the amount of guaranteed US bank
lending to these countries has been small.
For countries other than Japan, we estimate the double
counting at 10 percent of guaranteed credit commit-
ments reported to the OECD. Examination of the
terms of Japanese credit lines to East European
countries suggests that roughly 25 percent of guaran-
teed lending is probably contained in Japanese bank
submissions to the BIS.
Structure of Commercial Debt
Our estimates for the structure of East European
commercial debt derive principally from the BIS
survey of the maturity structure of Western bank
assets. The total number of banks surveyed in these
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semiannual maturity structure reports is slightly
smaller than the number covered in the quarterly BIS
reports on bank claims and liabilities. Thus, to
estimate the structure of East European debt, we apply
the percentage distribution of debt by term obtained
from the December 1978 maturity breakout to the BIS
quarterly report statistics for the same date. Using this
imputed term structure as a base, we then adjust for
residual liabilities, promissory note financing, other
borrowing, and double counting to derive the structure
of commercial debt at the end of 1978. For Swiss bank
claims and double counting, we adopt the same
maturity distribution as that of the BIS survey. We
assume a five-year maturity for our estimates of
promissory note drawings, except for Poland in 1978
where the term of forfaited notes has shortened to
three years. For other borrowing we assume that bonds
and project loans have maturities of over two years
while other liabilities are less than one year.
In interpreting the maturity structure of commercial
debt, one must realize that debt due in 1979 includes
not only repayments on medium-term credits but also a
sizable amount of short-term time deposits and trade
drafts. Since the latter credits are normally rolled over
on a continuing basis, the maturity distribution may
give an exaggerated view of debt burden. The amount
of debt due in 1980 and after 1980 provides a
somewhat clearer indication of whether a country's
repayment obligations are bunched or stretched out.
OECD's because of more complete reporting by
member governments and more useful summary statis-
tics. Since we worked with two basic data sets, we
made separate estimates for the NATO group, Japan,
Austria, Sweden, and Switzerland
Estimates for the NATO Group
From the NATO reports, we compiled for each East
European country time series covering (a) new com-
mitments of guaranteed credits, (b) total exposure
(debt and undrawn commitments), (c) drawings on
commitments, and (d) debt service payments. NATO
does not report a total for debt on drawn commitments
from member governments. Furthermore, we could not
directly compute debt from the reported data because
the NATO credit statistics include both principal and
interest costs in one figure.
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we had to make assumptions about the average credit
pean country that yield debt service approximations 25X1
consistent with the actual figures reported by NATO.
terms extended by Western lenders to each East
European borrower. NATO does not report average
interest rates and maturities, but it does indicate the
proportion of annual new commitments and total
outstanding commitments having a maturity of over
five years. Combining these data with information
about the terms of official credit lines and guarantee
programs, we derived a range of possible maturities
and interest rates. After trial and error testing, we
determined average credit terms for each East Euro-
Estimating East European Debt Backed by Western
Governments
The primary data source for estimating East European
debt supported by official Western guarantees is
the series of reports by NATO's Economic Directorate
on officially backed export credits granted by
member governments to Communist countries. Data
on major lenders outside the NATO group have been
collected largely from reporting by the OECD Export
Credit Group. Although the NATO reports have
inconsistencies and do not report separate totals for
each lender, this series currently is superior to the
undrawn commitments.
Using the average credit terms, we computed directly l .
from the NATO time series (a) new commitments of
principal, (b) drawings on principal, and (c) total .
exposure on principal. Application of the average
credit terms against estimated drawings generated
repayment schedules for both principal and interest.
We estimated a beginning value for the debt series by
computing the level of debt that would produce-given
the assumed credit terms-NATO's published data on
debt service for 1971. We constructed the debt series
by adding cumulative drawings through each year to
the 1970 base value and subtracting cumulative
repayments of principal. Subtracting estimated debt
from the decapitalized exposure totals yielded
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undrawn commitments.
As yet we have only preliminary NATO credit
statistics for 1978. We extrapolated these data to
estimate total new commitments for the year.
Drawings were computed from the average ratio of
drawings to machinery and equipment imports ob-
served for 1970-77. We computed debt service in the
same fashion as in previous years. These estimates
permit computation of 1978 debt, exposure, and
Estimates,/or Lenders Outside NATO
Data collected and reported by the OECD's Export
Credit Group serve as the basis for estimating East
European borrowing from major government lenders
outside NATO (Japan, Sweden, Austria, and Switzer-
.land). The OECD annually reports the value of
contracts backed by commitments of officially sup-
ported credits exceeding one-year maturity. The value
of transactions backed by official credits of more than
five-year maturity is broken out by the lending and
borrowing country, The value of transactions backed
by credit's with a maturity of one to five years is
reported by individual lender, but non-Soviet CEMA
borrowers are grouped into a single category. The
OECD has also reported total outstanding commit-
ments from each Western lender to each East Euro-
We set new credit commitments of over five-year
maturity equal to 85 percent of the value of new
contracts backed by credits of this maturity. We
4ssume that, on average, official lenders guarantee 85
percent of a contract's value. We allocated the credits
t of one to five years' maturity-which OECD reports as
a total for non-Soviet CEMA-on the basis of changes
in total commitments from each lender to each
borrower.
We derived estimative relationships between the value
of each East European country's imports of machinery
and equipment from NATO countries and the
drawings series reported by NATO. In these computa-
tions we subtracted Polish and Romanian drawings on
US Commodity Corporation Credits (CCC) for im-
ports of agricultural goods which are included in the
NATO total..We assumed that these ratios applied to
the non-NATO lenders as well. With one exception,
application of the relationships to the value of East
European imports of machinery and equipment from
the non-NATO lenders yielded our estimates of
drawings on Japanese, Austrian, Swiss, and Swedish
commitments. The exception applied to Polish
drawings on commitments from Austria, which have
skyrocketed since 1976 as the result of credit lines for
the purchase of steel, chemicals, and consumer goods.
By using commodity trade data and information about
the terms of the credit lines, we computed an addi-
tional amount to account for Polish purchases of these
nonmachinery items. Repayments of principal and
interest on drawn credits were computed using
maturities of five years for credits from Austria,
Switzerland, and Sweden and seven years for credits
from Japan. We assumed an interest rate of 6.5
percent for credits drawn before 1976 and 7.25 percent
for subsequent drawings.
We assumed that the East European countries had no
officially supported debt outstanding to Japan, Aus-
tria, Sweden, and Switzerland at yearend 1969. All
debt to non-NATO lenders has thus resulted from
drawings beginning in 1970 less principal repayments.
We calculated undrawn commitments by subtracting
the estimated debt totals from total financial claims
reported to the OECD. We decapitalized the total
claims reported by each lender for each East European
country using our assumed average credit terms.' F_
Official West German Credits to Eastern Europe
In addition to guaranteed export financing, the West
German government has provided government-to-
government loans to several East European countries.
The Deutsche Bundesbank published in 1976 the total
amount outstanding on these credits at yearend 1975
to Eastern Europe! The amounts outstanding in other
years can be computed'from West German balance-of-
.payments statistics which show both annual repay-
ments and drawings. The official West German
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statistics do not break out these totals by individual
country; however, drawings and repayments by recipi-
ent can be inferred from press reports.
Bulgaria apparently borrowed 335 million deutsche
marks (DM) in the middle and late 1960s to refinance
a sizable debt to West German suppliers. It repaid 137
million DM in 1971-72 and probably an additional 80
million DM in 1977. Romania borrowed 100 million
DM in 1970 and 200 million DM in 1973 to meet
maturing obligations to West German suppliers. Of
the 300 million DM borrowed, an estimated 150
million DM have been repaid. Finally, Poland con-
cluded an agreement in late 1975 to borrow 1 billion
DM as help in refinancing its sizable amount of
outstanding West German supplier credit. West Ger-
man balance-of-payments statistics show official
credit drawings of 340 million DM in 1975 and 330
million DM in 1976 and 1977, presumably by Poland.'
East German Debt to West Germany
on the Swing Account
NATO reporting on member government-guaranteed
export credits reportedly contains West German
credits to East Germany insured and financed by
the official organizations GEFI (Gesellschaft
zur Finazierung von Industrieannagen mbH) and
Treuarbeit AG. However, these data apparently do not
include East German liabilities under the interest-free
swing account. The West German Government set the
swing credit ceiling at 440 million DM in 1970, 660
million DM in 1974, 790 million DM in 1975, and 850
million DM in 1976.10 The 1976 figure has remained
the ceiling through 1978. Statistics published by the
West German Government on interzonal trade with
East Germany provide the actual East German posi-
tion within the permitted maximum amount of credit.
Polish Debt to the United States
Under the PL-480 Program
Poland's debt to the United States under the PL-480
Program represents the unpaid balance on a very long
term interest-free line of credit totaling $520 million
used in 1957-64 to finance imports of US grain and
other agricultural products. By agreement, a portion of
the zlotys acquired by the US Treasury in payment for
the purchases have been used for paying expenses of
the US Embassy in Warsaw, for paying social security
pensions of US retirees who have returned to Poland,
and for financing US-supported projects in Poland.
Warsaw must repurchase the remainder of the zloty
balance held by the US Treasury with dollars. The
amount outstanding-$150 million at yearend 1978-
is included in Polish liabilities in hard currency
because even the portion not repaid in US dollars will
largely replace dollars that the United States would
have otherwise spent in Poland.
Romania's Use of IMF and World Bank Credit
Facilities
Romania is the only East European country belonging
to the IMF and World Bank. Since joining the IMF in
1972, Bucharest has made considerable use of the
Fund's credit facilities. Romania drew its gold tranche
of 47.5 million Special Drawing Rights (SDR) and
first credit tranche of 47.5 million SDR in 1973.
Bucharest added to its obligations in 1975 when it
acquired 40 million SDR under a standby credit
facility. Heaviest use of IMF facilities came in 1976
when the Romanians drew 150 million SDR consisting
of the remaining two credit tranches under its original
quota of 190 million SDR plus an additional 45 million
SDR from the standby credit facility. Additional
drawings of 72.5 million SDR and 39.1 million SDR
were made in 1977 and 1978, respectively. Romania
repurchased 40 million SDR in 1977 and 55 million
SDR in 1978, leaving repayment obligations at
yearend 1978 of 302 million SDR, equivalent to $392
million.
Romania has also received long-term project develop-
ment loans from the World Bank. Most of the loans
have 15-25-year maturities with grace periods of up to
five years and carry interest rates of 7.25 to 8.50
percent. As of 31 December 1978, World Bank
commitments to Romania exceeded $900 million for
17 projects with actual drawings equal to $418 million.
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The Results: East European
Hard Currency Debt to the West
year.
Based on the procedures outlined above, we estimate
that Eastern Europe's gross hard currency debt to the
West grew from $6.1 billion at yearend 1971 to $46.9
billion at the end of 1978 (table 3). During the same
period, East European hard currency holdings in the
West rose from $1.1 billion to $4.6 billion, yielding an
estimated net debt of $42.3 billion at yearend 1978.
The growth of debt was particularly fast in 1974-75,
when gross liabilities rose at an average of more than
50 percent annually. During the other years of this
period, the growth rate was less than 35 percent per
Practically all of the increase in Eastern Europe's debt
to the West has resulted from commercial borrowing,
principally from Western banks. In 1971, commercial
liabilities totaled $3.6 billion, or nearly 60 percent of
gross debt. By the end of last year these borrowings
had grown to $38.9 billion, or 85 percent of gross debt.
Official and officially guaranteed credits totaled $7.2
billion at yearend 1978 as opposed to $2.5 billion at
yearend 1971, but had fallen as a share of total debt
from just over 40 percent in 1971 to 15 percent in 1979.
Romania's use of IMF special drawing rights and
World Bank loans totaled $0.8 billion at yearend 1978,
less than 2 percent of East European debt.
Eastern Europe: Gross and Net Hard
Currency Debt to the West
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The policies of East European countries depended on a
substantial increase in hard currency debt in the 1970s
as governments sought to modernize their economies
with imported Western technology and equipment.
With the exception of Hungary, the East European
regimes probably intended to link a sizable share of
this planned borrowing to Western government-
backed credits which feature low (and often subsi-
dized) interest rates and lengthy repayment
maturities. But, a combination of soaring world prices
on needed commodity imports, disappointing export
performance, and extraordinary grain import require-
ments produced unexpected pressure on Eastern
Europe's payments position, necessitating sizable gen-
eral purpose financing. This financing need underlies
to a major extent the rapid growth in East European
liabilities to Western commercial banks since these
credits-unlike government-backed and other supplier
credits that are tied to specific purchases-can be used
to cover immediate obligations. On the other hand,
bank credits pose a greater threat of growing debt
service difficulties since they generally carry higher
interest rates and shorter maturities than government-
backed loans.
The size of debt reveals little about a country's ability
to meet its financial obligations and to sustain needed
imports. To provide perspective on each country's debt,
we have calculated several indicators of hard currency
debt burden (table 4).
The debt service ratio is the customary measure of
solvency. For each country, we have computed debt
service ratios with respect to earnings from merchan-
dise exports to all non-Communist countries. Service
payments comprise estimated interest on total out-
standing debt plus estimated repayments of principal
on government-supported debt and estimated repay-
ments on medium- and long-term commercial debt.
To calculate annual interest payments on commercial
borrowings, we assume an interest rate of 0.75
percentage point over the annual London Interbank
Offer Rate (LIBOR) and apply this rate against
average debt for the year. We applied fixed interest
rates in calculating interest payments on officially
supported debt; an average annual rate of 6.5 percent
was assumed for credits drawn in 1971-75 and an
average annual rate of 7.2 percent was used for credits
drawn in 1976-78. We estimated repayments on
medium-term commercial credits largely from the BIS
maturity surveys. Repayments on official credits were
estimated principally from the NATO statistics as
described above with average maturities falling be-
tween five and seven years depending upon the
borrower.
The debt service ratio, however, does not address the
question of future debt burden. Debt to export ratios
are often used as a benchmark for the burden of
1972
1978
1972 1978
Percent
Percent
Million US $
Bulgaria
36 46
198
271
46
80
212 183
Czechoslovakia
10 20
46
104
56
67
106 309
East Germany
18 51
95
247
85
70
53 1,024
Hungary
14 36
140
295
37
43
243 1,194
Poland
15 79
87
324
44
64
352 2,410
Romania
27 20
99
120
125
41
-68 1,263
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outstanding debt over time. We have estimated debt to
export ratios for the 1972-78 period, using earnings
from non-Communist merchandise exports as the base.
Two additional indicators reflect the impact of new
borrowings and debt service payments upon a country's
import capacity. The net transfer measure-new
drawings less repayments of principal and interest-
reflects the increase (or reduction) in a country's
ability to import goods and services as a result of debt
financing. We also calculated that portion of new
drawings used to service existing debt to measure the
extent to which a country is rolling over its hard
currency debt. These two measures move together; a
large positive net transfer implies borrowing in excess
of roll-over requirements, while a negative net transfer
implies borrowing below the amounts required to meet
debt service obligations.
The following sections briefly review each country's
financial position as reflected in our estimates of debt
to the West and debt burden. Appendix A contains
complete tables summarizing the estimates of debt,
debt burden, and maturity structure for each country.
Poland
Polish gross debt grew from $1.1 billion at yearend
1971 to $17.8 billion ($17.0 billion net) at the end of
1978. Polish borrowing grew at a particularly high rate
between 1972 and 1976, when it rose from $1.6 billion
to $11.5 billion, or by an average annual rate of more
than 60 percent. Although Warsaw's obligations grew
by an additional $6.4 billion in 1977-78, Poland at
least slowed the rate of increase in its liabilities to less
than 25 percent a year, less than the average for the
other East European countries.
Over 70 percent of the growth in Poland's debt
between 1971 and 1978 resulted from commercial
borrowings. Warsaw has been the leader among the
East Europeans in the use of syndicated credits, raising
more than $2.2 billion from this type of borrowing. The
Poles have borrowed $500 million from the Eurobond
market and placements with Middle Eastern investors.
Official and officially backed credits make up nearly
one-fourth of Warsaw's gross debt-the largest share
of any East European country. Poland's $4.4 billion in
official debt at yearend 1978 consisted of $3.7 billion
in government-backed export credits (including
obligations to the United States under the CCC
program), $0.6 billion in West German government-
to-government credits, and $150 million in outstanding
PL-480 obligations to the United States.
The measures of debt burden graphically delineate
Poland's mounting difficulties in managing its debt. In
1971, Poland enjoyed low debt to export and debt
service ratios in comparison with the other East
European countries. The heavy borrowings of the
mid-1970s yielded a sizable net transfer of resources,
but the rapid growth of debt in relation to the increase
in non-Communist exports presaged worsening prob-
lems in servicing debt. By 1978, repayment and
interest obligations equaled 79 percent of non-Com-
munist exports-by far the highest ratio among the
East European countries. Although new credit
drawings remained sizable, Warsaw's ability to effect
a positive resource transfer deteriorated in 1976-78. In
effect 64 percent of every dollar borrowed went to
servicing debt in 1978-and not to acquiring real
resources-compared with roughly 35 percent in 1973-
The sheer magnitude of the obligations scheduled to
mature over the next several years will strain Warsaw's
finances. Fortunately, the Poles have some $4.8 billion
in undrawn credit commitments from Western govern-
ments. Of course, almost all of these commitments are
tied credits and thus of little help in servicing debt.
However, these available credits-particularly if War-
saw can arrange to use them for purchasing its most
necessary Western imports-can help the Poles as they
struggle to sustain needed imports and service out-
standing debt over the next several years.
East Germany
At yearend 1978, the GDR's gross debt totaled $8.9
billion, the second largest amount among the East
European countries. The East Germans had the largest
holdings of hard currency in Western banks-more
than $1.3 billion-leaving a net debt of $7.5 billion.
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Roughly three-fourths of East German debt stems
from borrowing from Western commercial banks,
much of which has been in the form of medium-term
credits. Syndicated loans to the GDR between 1972
and 1978 totaled $2.1 billion. While government-
guaranteed export credits account for less than 10
percent of East German debt, the GDR increased its
use of these credits in 1977-78 and the amount of
outstanding commitments nearly tripled between 1975
and 1978. Having accumulated over $2 billion in
undrawn commitments, the GDR may be planning to
step up its use of this financing source in the near
future. About $1.8 billion of the GDR's debt is owed to
West Germany; approximately 25 percent of this total
is GDR obligations under the interest-free swing
account.
With the exception of 1976, the GDR has increased its
hard currency debt at a much higher rate than its non-
Communist exports since 1972, pushing the debt to
export ratio from 95 percent in 1972 to 247 percent in
1978. The GDR's debt service ratio has jumped
sharply since 1976, reaching 51 percent last year.
Mounting debt service has cut the GDR's net resource
transfer from a high of $1.7 billion in 1975 to $1.0
billion in 1978.
Hungary
Hungary's gross debt was $7.5 billion at yearend 1978;
net debt totaled $6.5 billion. Almost all of these
liabilities are owed to Western commercial banks.
Approximately $1.6 billion of the $5.9 billion raised by
the Hungarians from Western banks between 1971
and 1978 were syndicated credits. Budapest has also
tapped the international bond market, raising $500
million since 1971 through Eurobond issues and note
placements with Middle Eastern lenders. The Hungar-
ians apparently have avoided the use of medium-term
supplier credits and made only minimal drawings on
government-backed credits.
Despite a sizable debt to export ratio, Budapest had
succeeded up to 1978 in holding its debt service ratio
below 30 percent. Because of heavy reliance on
Eurocurrency financing, the runup of Euromarket
interest rates boosted Hungary's debt service costs
sharply last year, bringing the debt service ratio to
36 percent. Nevertheless, Hungary does not seem to
face any immediate problems in managing its debt, as
repayments on its medium-term borrowings from
Western banks appear to be well stretched out.
Czechoslovakia
Czechoslovakia has the lowest level of debt ($3.2
billion gross, $2.5 billion net) among the East Euro-
pean countries. Between 1971 and 1975-when the
other bloc countries were experiencing sizable in-
creases in their hard currency indebtedness-the
Czechs held to a cautious borrowing policy and had
accumulated a gross debt of only $1.1 billion at
yearend 1975. Prague's financial conservatism was
particularly evident with respect to commercial bank
borrowing. Before 1976, the Czechs were either net
creditors of or virtually in balance with Western banks.
The CSSR relied primarily on supplier credits and
Western government-guaranteed loans to finance its
trade. Since 1975, the Czechs have been much more
active borrowers, increasing their total outstanding
liabilities by $2.1 billion. In contrast with Prague's
earlier practice, roughly 75 percent of recent borrow-
ings has come from Western banks.
Thanks to its financial conservatism, Prague enjoys the
lowest debt service ratio in Eastern Europe. Although
the upswing in borrowing has boosted the CSSR's debt
borrowing to export ratio from 43 percent in 1973 to
104 percent in 1978, the Czech position is quite healthy
in comparison with that of bloc allies. The debt service
burden will increase in the future as repayments come
due on the $560 million in syndicated credits raised by
the CSSR between 1975 and 1978. But-as the
maturity structure data demonstrate-the greater
portion of Czech bank liabilities are short term, and
repayments on medium-term borrowing will not be
sizable in the near future.
Bulgaria
We estimate Bulgaria's yearend 1978 gross debt at
$4.3 billion and net debt at $3.7 billion. Up to 1974,
Bulgaria managed to hold down the growth of its debt
which had risen at a high rate in the mid-1960s. In fact
Sofia was able to repay in 1971-72 nearly half of the
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335 million DM of West German official credits
borrowed in the middle and late 1960s to cover
payments to West German suppliers. Beginning in
1974, Bulgarian debt again began to rise at a high rate.
Practically all of the $3.2 billion increase in 1974-78
resulted from commercial borrowings. Bulgaria has
made particularly heavy use of syndicated credits,
which account for nearly 40 percent of the increase in
its commercial liabilities since 1973.
Throughout the period covered by our estimates
Bulgaria has shouldered comparatively high debt
service and debt to export ratios. These ratios reflect to
a large extent Bulgaria's low export earnings since the
actual value of debt service costs is not high by East
European standards. While the country's external
financial position-as measured by these ratios-had
worsened somewhat between 1972 and 1978, Sofia
may take some comfort from the fact that its allies
generally have experienced greater deterioration. In
fact, the Bulgarians have succeeded in boosting hard
currency exports sufficiently to cut their debt to export
ratio from 302 percent in 1976 to 271 percent in 1978,
and they have prevented a sharp increase in the debt
service ratio despite higher Euromarket interest rates.
Romania
Romania's gross debt for yearend 1978 is estimated at
$5.2 billion and its net debt at $5.0 billion. Gross
liabilities to the West grew steadily from $1.2 billion in
1971 to $2.9 billion in 1975. Debt was held constant in
1976 but climbed sharply in 1977-78. Romania's
borrowing from Western banks-particularly before
1977-was comparatively small. In 1977-78, however,
Bucharest tapped Western commercial banks for
nearly $1.9 billion, a tripling of its debt to banks. Much
of this borrowing came from the longer term end of the
market as Romania raised $125 million from syndica-
tions in 1977 and $725 million in 1978. Through 1975,
government-backed export credits accounted for a
significant share of liabilities, but Bucharest's reliance
on this financing has declined subsequently. Outstand-
ing liabilities to the IMF ($392 million) and the World
Bank ($418 million) now account for slightly more of
Romanian debt than Western officially backed credits
Our estimates indicate that Romania improved its
financial position appreciably between 1972 and 1976.
Bucharest cut its debt service ratio from 27 percent to
18 percent by taking advantage of (a) the IMF's
concessionary balance-of-payments financing, (b)
long-term low-cost West German official credits and
World Bank development loans, and (c) Western
government-backed credits. Romania also cut its debt
to export ratio from 99 percent to 87 percent by
increasing hard currency exports faster than debt
accumulation. The heavy bank borrowings of the past
two years have produced some increase in debt burden,
but at yearend 1978 only the CSSR had a more
favorable position
Because of the improving quality of Western statistics
on the Soviet bloc's financial activities, we believe that
our estimates are reasonably accurate, particularly for
more recent years. We acknowledge that the lack of
summary data on a few significant debt components
(for example, promissory notes and other commercial
borrowings not reported to the BIS as well as officially
backed credits from non-NATO lenders) and the need
to make assumptions in interpreting some of the
available reporting introduce the possibility of error.
For this reason, our estimates are more properly
viewed within a range of error of roughly 10 percent. In
other words, we estimate Poland's gross hard currency
debt at $17.8 billion, but believe that the true value
probably falls between $16 billion and $20 billion.F_
In interpreting and comparing these estimates with
those of other researchers, one should keep a few
caveats in mind. Because of (a) the gradual expansion
of the BIS reporting area, (b) more complete country-
by-country breakouts, and (c) the widening scope of
financial transactions captured by BIS statistics, our
estimates of banking positions are not entirely consist-
ent on a year-to-year basis. For example, the source
from which we adopted the estimates of pre-1974
commercial banking claims and liabilities suggests
($800 million).
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understate Romanian liabilities."
The lack of data on supplier credit financing makes the
estimates of East European indebtedness on this
account highly tentative. In comparison with the
estimates of other researchers, our totals tend to be low
because we believe a sizable share of discounted notes
appears in BIS reporting. If we are overly conservative
in this judgment our estimates for Czech, Romanian,
and Polish debt-particularly before 1976-may be
understated.
Comparison With Reported Debt Service Payments
The quality of our estimates of government-backed
debt hinge upon (a) the accuracy of our assumptions
about average credit terms and (b) the validity of
applying drawing-to-machinery import relationships
computed from NATO statistics to estimating
drawings from lenders outside the NATO group. The
totals for government-backed debt are computed by
determining the amount of debt that would generate
the debt service totals reported in NATO's statistics
using the assumed average credit terms. The more
closely that we can replicate the reported debt service
payments, the greater our confidence in the estimates
of government-backed debt.
The computed time series for debt service compare
very closely with NATO's statistics for Poland and
Czechoslovakia while the differences for East Ger-
many, Hungary, and Bulgaria are not large overall. In
the case of Romania, however, we were less successful
in bringing our estimates in line with NATO data. The
major discrepancy occurs in 1973 when NATO
statistics show a very high level of repayment in
comparison with other years. We suspect that some
payments due in earlier years may have been deferred
until 1973 because of Romania's problems in meeting
obligations in 1970-72. If this in fact happened, our
estimates of officially backed debt for Romania in the
early 1970s may be somewhat too low.
" Brainard, Lawrence J. "Criteria for Financing East-West Trade,"
Tariff, Legal and Credit Constraints on East-West Commercial
Relations, edited by John Hardt (Ottawa, Canada Institute of
Soviet and East European Studies, Carlton University), pp. 10-11.
Since the OECD reports no statistics on credit
drawings and repayments, we lack a benchmark for
assessing the accuracy of the estimates of government-
backed lending from Japan, Austria, Sweden, and
Switzerland. Collateral information on Poland's debt
to Japan in 1975 and Austria in 1976 indicate that our
estimates may be slightly low. The ratios of estimated
outstanding debt to total reported commitments from
the non-NATO lenders compare closely with similar
ratios computed from the NATO data. Although not
conclusive evidence, this suggests that our estimates of
Switzerland are not far out of line.
outstanding debt to Japan, Austria, Sweden, and
Comparisons With Polish and Romanian Data
The best benchmarks available for measuring the
accuracy of our estimates are the balance-of-payments
and debt statistics provided by Poland in connection
with its March 1979 Eurodollar syndication and by
Romania to the IMF in recent years. The data
reported by Hungary are not useful for comparison
since they apply only to debt on syndicated credits.
Table 5 compares the estimates of gross debt, repay-
ments of principal and interest, and drawings com-
puted by the procedures described above with those
derived from the Polish data. Table 6 compares the
estimated maturity structure for total debt with the
repayment schedule for medium- and long-term debt
reported by Warsaw. It should be noted that the totals
for gross debt, principal, repayments, and drawings
computed from the Polish statistics required some
estimation since (a) only medium- and long-term debt
as of yearend 1978 is reported, (b) only the net change
in medium- and long-term debt-not total drawings
and repayments-is shown for 1970-75, (c) reported
drawings in 1976-78 relate only to medium- and long-
term credits, and (d) only the net change in short-term
debt is given. Nevertheless, the statistics reported by
Warsaw provide an adequate basis for estimates of
debt and debt service and for comparison with
estimates derived from Western financial data.
borrowing in 1977-78.
On balance the differences between the two series are
10 percent or less. The two data sets do show, however,
a somewhat different pattern of debt accumulation.
The Polish statistics indicate a faster growth of debt in
1973-76 while the Western data show more net
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Comparison of Debt and Debt Service Estimates
With Polish Data
Million US $ One factor in this discrepancy may be the fact that the
Due in Due
in Due After
1979' 198
0 1980
Reported in
Polish data 4,100 3,84
0 7,080
Estimated from
Western data 3,64
7 7,869
medium- and long-term debt whereas Western data (BIS statistics)
include short-term liabilities as well.
BIS survey before 1977 was understating commercial
bank claims on Eastern Europe. A second factor may
be a difference in the timing of credit drawings on
government-backed credits as reflected in the Polish
data and in NATO statistics
.
The drawings reported
by NATO do not rise as sharply as total drawings in
Warsaw's balance of payments until 1976-77 when
credit drawings reported by NATO increase rapidly.
Since we apply relationships derived from NATO data
to estimate the timing of Japanese, Austrian, Swiss,
and Swedish lending to Poland, our estimates of
government-backed debt may grow too slowly before
1977. Furthermore, the lack of complete NATO
statistics on credit usage in 1978 may cause our 25X1
preliminary estimate of credit drawings to be too large
since we extrapolated the 1976-77 trend in computing
this estimate. If our data understate government-
backed drawings in 1973-75 and overstate the
drawings in 1976-78, our estimate of debt repayments
due after 1980 may also be exaggerated. F 25X1
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Table 7 presents the comparison of our estimates of
Romanian debt, debt service, and drawings with the
totals reported by Romania to the IMF. Since Bucha-
rest does not include its SDR borrowings in its reported
debt, we added the relevant totals to make the two
series consistent. We used the Romanian data only for
1976-78 since the content of reporting for earlier years
is less complete.
The totals for yearend gross debt and principal
repayments match up reasonably well. The estimates
for interest payments are greater than the totals
reported by Romania, particularly for 1978. The
interest expenses reported to the IMF for 1978 seem
too low given the level of debt and the rising trend of
Euromarket interest rates. The drawings series shows a
substantial discrepancy in 1976. We cannot explain
this difference since the BIS and NATO statistics do
Comparison of Debt and Debt Service Estimates
With Romanian Data
Interest payments
Romanian data
148
176
215
Estimated from Western data
174
203
351
not show the level of borrowing reflected in the
Romanian data.
Comparison With Previous CIA Estimates
The estimates of East European hard currency debt
derived by the above procedures do not differ signifi-
cantly from previous CIA figures (see table 8). The
principal difference in the two methodologies lies in
the approach to estimating Western government-
guaranteed export credits. In the absence of adequate
data on credit commitments, drawings, and debt
service-such as those now reported by NATO-
previous estimates of officially supported debt were
computed by matching the terms of known sales
contracts against Western statistics on machinery
exports to Eastern Europe. Estimates for other types of
Eastern Europe: Comparison
of Net Debt Estimates
Previous 0.7 - 0.7
0.8 1.2
1.8
2.3
2.6
3.0
New 0.7 0.9
1.0 1.4
2.3
2.8
3.2
3.7
Czechoslovakia
Previous 0.4 0.6
0.8 1.1
1.4
2.0
2.6
3.0
New 0.2 0.2
0.3 0.6
0.8
1.4
2.1
2.5
Previous 1.2 1.6
2.1 2.8
3.8
5.2
6.0
7.3
New 1.2 1.2
1.9 2.6
3.5
5.0
6.2
7.5
Previous 0.6 0.8
0.9 1.5
2.1
2.8
3.8
5.8
New 0.8 1.1
1.1 1.5
2.2
2.9
4.5
6.5
Previous 1.0 1.2
2.5 4.8
8.0
11.5
14.2
16.7
New 0.8 1.2
2.2 4.1
7.4
10.7
13.5
17.0
Previous 1.4 1.7
2.0 2.6
3.0
3.3
3.8
4.5
New 1.2 1.2
1.5 2.5
2.4
2.5
3.4
5.0
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official credits were computed in virtually the same
? The estimates of Romania's officially backed debt in
the early 1970s may be inaccurate because of
possible deferment of repayments during this period.
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fashion as that discussed in this paper.
The earlier estimates also relied on BIS statistics to
compute Eastern Europe's commercial assets and
liabilities. Adjustments similar to those described
above were made to account for (a) assets and
liabilities carried in the BIS residual and (b)
nonguaranteed supplier credits and other borrowing
not covered in the BIS survey. The main distinction
between the estimates of commercial debt in this paper
and earlier totals stems from improvements in BIS
reporting. Thanks to more explicit information on the
content of BIS statistics, we have adjusted the previous
totals to make them as consistent as possible with the
recently expanded surveys of commercial bank
lending."
Given the uncertainties and data problems underlying
any approach to measuring Soviet bloc hard currency
debt, the surprising result is not that there are some
differences between the two series, but rather that the
estimates are close for the majority of cases. If one
views an individual estimate as the midpoint of a range
containing the true value, even when the two series
differ they may in fact represent the same debt total.
In comparing the two sets of estimates, one should
remember some of the factors that may explain part of
the discrepancies:
? We do not yet have complete NATO statistics on
government-backed financing for 1978.
? Differing judgments about the amount of supplier
credit financing to be added to BIS totals-for which
practically no data exist-could account for much of
the difference in the estimates.
? The procedures described in this paper may
understate Romanian and Czech debt before 1974
because of a possible overestimate of Czech commer-
cial assets and underestimate of Romanian bank
borrowings.
East European Hard Currency Borrowing
From IIB and IBEC
CEMA's two international banks-the International
Investment Bank (IIB) and the International Bank for
Economic Cooperation (IBEC)-have borrowed sub-
stantial amounts of hard currency from the
Euromarket on behalf of the CEMA community.
Their combined gross hard currency liabilities stood at
$6.4 billion at yearend 1978, up from $637 million in 25X1
1971 (table 9)."
Table 9 Million US $
Gross Hard Currency Liabilities
of the CEMA Banks
Total 637 1,6
54 1,9
39 2,385 3,720
4,609 5,538 6,425
IBEC 637 1,6
54 1,8
89 2,250 3,036
3,198 3,399 3,675
IIB 0
0
50 135 684
1,411 2,139 2,750
Neither bank has reported detailed information on
how its borrowings have been distributed among the
CEMA member states. Nevertheless, in the case of the
IIB, enough information is available to estimate each
country's obligations to the bank.
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IIB
The IIB provides medium- and long-term credits to its
member countries for projects of joint interest to the
CEMA community. These credits may be granted
either in hard currency or in CEMA's transferable
rubles. Table 10 presents our estimates of East
European hard currency exposure to IIB. (Appendix B
explains the method for determining these estimates.)
We have not included these obligations in our esti-
mates of hard currency debt given in table 3 and
appendix A because they are indirect obligations of the
individual countries to the West.
The lion's share of this indebtedness resulted from
construction of the Orenburg gas pipeline-the pre-
mier project funded by the IIB. In 1975-78 the bank
raised $2.5 billion in five consortium loans, ostensibly
to cover the hard currency costs of pipe and equipment
for building the pipeline from the Soviet natural
gasfields at Orenburg to the USSR-CSSR border. In
return for long-term Soviet natural gas deliveries, the
East European countries agreed to finance the hard
currency costs, receiving the necessary loans from the
IIB.
The debt service costs to Eastern Europe associated
with this borrowing are not insignificant, but repay-
ments of principal will be extended over a lengthy
period of time. IIB Chairman Belichenko recently
informed US Embassy officials that the bank makes
only a small "symbolic" profit over Eurocurrency rates
on its lending to Eastern Europe. However, even a
symbolic profit would have produced total interest
costs of, for example, $50 million in 1978 for Poland,
according to our estimates.
Furthermore, each country faces principal repayment
obligations. An IIB official has stated that East
European repayments for the Orenburg loans are
spread over 15 years and amount to $10-20 million a
year per country. These totals are in line with our
estimates of 1978 repayment obligation on all IIB hard
currency credits, which range from $11 million for
Romania to $28 million for Poland and the CSSR.
Eastern Europe: Net
Hard Currency Exposure
to the IIB
Capital
contribution
6
12
12
12
12
12
13
Borrowings
6
13
26
95
202
331
271
Capital
contribution
7
16
18
18
18
18
20
Net exposure
-1
-3
8
77
184
313
251
Borrowings
3
6
12
83
193
324
374
Capital
contribution
10
22
25
25
25
25
27
Net exposure
-7
-16 -
13
58
168
299
347
Borrowings
5
11
21
89
198
327
364
Capital
contribution
5
10
12
12
12
12
13
Net exposure
0
1
9
77
186
315
351
Borrowings
3
6
17
87
196
327
496
Capital
contribution
7
15
17
17
17
17
19
Borrowings
6
13
26
63
121
192
193
Capital
contribution
3
6
7
7
7
7
8
Net exposure
3
7
19
56
114
185
185
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Until recently these extended repayment terms seemed
inconsistent with the fact that the bulk of the $2.5
billion borrowed by IIB for Orenburg would fall due
for repayment between 1978 and 1984. In recent
months, however, the IIB has prepaid and refinanced
or is in the process of refinancing virtually all the
1975-77 borrowing at new extended maturities and
lower interest spreads than those of the original loans.
The primary objective of this maneuver is almost
certainly intended to stretch out Eastern Europe's
repayment obligations and lower interest costs on
outstanding debt rather than to finance new projects.
Chairman Belichenko stated that new IIB credits in
hard currency will fall markedly now that borrowing
for the Orenburg project has been completed."
IBEC
I BEC extends two types of credits-settlement and
term credits-to help member countries finance their
trade. Settlement credits are revolving credits issued to
cover temporary earnings shortfalls. Term credits, on
the other hand, carry fixed maturities of up to three
years and are used to finance more fundamental trade
disequilibriums.
IBEC's hard currency lending has risen steadily during
the 1970s from $0.7 billion in 1971 to $3.7 billion in
1978 (see table 11). Although IBEC has taken shares
Hard Currency Lending by IBEC
Total hard currency lending
741
698
1,733
1,990
2,359
3,153
3,386
3,534
3,714
Time deposits placed in banks
681
569
1,392
1,532
1,772
2,426
2,744
2,856
2,966
Credits extended
60
129
341
458
587
727
642
678
748
in consortium loans for several developing countries
and holds some cash on deposit in Western banks, the
bulk of its hard currency claims undoubtedly represent
lending to CEMA members. Roughly 80 percent of
these funds are time deposits which probably carry
maturities of less than one year; the remainder are
subsumed under "credits provided" on IBEC's balance
and probably carry maturities of one to three years.
The growth of IBEC's hard currency lending has
closely followed the rise in overall Soviet bloc indebted-
ness to the West. Unlike the IIB, IBEC has not
released any information on the distribution of its
credits by countries. Undoubtedly, a given country's
level of borrowing may fluctuate widely over time since
much of IBEC's hard currency lending appears to be
short-term deposit placements used to cover a mem-
ber's temporary payments deficits. Nevertheless,
IBEC's borrowing pattern on Western markets sug-
gests some possibilities about the exposure of individ-
ual countries to the bank.
Since Western bankers apparently view the USSR as
the guarantor of IBEC solvency, the bank has probably
been able to raise funds on more favorable terms than
CEMA's more financially strapped members. In other
words, IBEC may be a source of concessionary hard
currency balance-of-payments financing for Eastern
Europe. If this is true, one might conclude that
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Bulgaria and more recently Poland have made
recourse to the bank's "good offices." Indeed a recent
article in a Soviet financial journal stresses that IBEC
credits have played an important role in helping Poland
manage its balance of payments. This suggests that
Poland has accumulated a sizable hard currency debt
to IBEC.15
The CSSR, because of its generally healthy financial
position, and Romania, because of its often maverick
stance toward CEMA institutions and its access to the
IMF's facilities, have probably made less use of IBEC
hard currency credits. The GDR and Hungary would
fall somewhere in between, but apparently neither has
yet encountered severe problems in meeting financial
needs from its own resources.
The USSR would seem to derive less advantage from
using IBEC as a borrowing front-except possibly as a
vehicle to circumvent Western legal limits on bank
exposure to a single borrower at a time of heavy
borrowing by the Soviet Foreign Trade Bank (VTB).
In this connection, IBEC's heaviest borrowing-more
than 60 percent of its debt accumulation since 197 1-
occurred in 1972 and 1975. In these years, the USSR
ran large current account deficits and needed sizable
short-term credits, primarily to finance unexpectedly
large grain imports. In fact, 1972 stands out in our
estimates of the USSR's hard currency balance of
payments as the only year in which reported Soviet
borrowing was insufficient to cover the USSR's
payments deficit. The errors and omissions term for
this year shows a net funds inflow of nearly the exact
size as IBEC's hard currency lending for the year. 16F
An open question is what-if any-role IBEC's
convertible currency operations play in CEMA's hard
currency trade. This trade apparently involves mainly
the barter of above-plan quantities of so-called hard
goods-for example, commodities that the partners
could otherwise market for hard currency. Given
Eastern Europe's mounting need for Soviet oil and raw
materials as well as the growing cost to the USSR of
providing such potential hard currency exports in soft-
currency trade, the volume of intra-CEMA hard goods
trade has almost certainly been increasing in recent
years. The total amount of outstanding IBEC credit-
in both transferable rubles and hard currency-has
been rising in step with Eastern Europe's accumulating
trade deficits with the USSR since 1974. Since the
amount of hard currency credits in total IBEC lending
has been rising, some portion of the growing volume of
intra-CEMA hard goods trade may be financed
through IBEC.
Although the CEMA countries probably strive to keep
their hard goods trade in balance, imbalances evidently
occur. Only Hungary publishes trade statistics which
give an indication of intra-CEMA hard currency
trade; according to these data, Budapest has run
surpluses in recent years. Although these statistics do
not break out hard currency trade with individual
CEMA partners, a Hungarian press report indicated
that more than one-half of Budapest's hard currency
trade turnover with CEMA in 1978 resulted from
trade with the Soviets. Hungary recorded a $68 million
hard currency deficit with the USSR, approximately
20 percent of its total 1978 trade deficit with the Soviet
Union."
The financing of surpluses could involve a credit entry
in favor of the surplus holder on IBEC's books which
the deficit partner must liquidate through future
additional deliveries-a procedure analogous to the
granting of transferable ruble credits. If surpluses
become a regular occurrence, the resulting accumula-
tion of future claims rather than cash receipts would
reduce the creditor's interest in hard goods exchange.
Consequently, a portion of IBEC's hard currency
operations may involve the transfer of hard currency
deposits to holders of surpluses from intra-CEMA
hard goods trade-with the deficit partner being
responsible for repayment to the bank.
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Largely because of sharply increased prices for its raw
material and energy exports, the USSR has accumu-
lated substantial trade surpluses with Eastern Europe
(except Romania) since 1974. Soviet trade statistics
provide no indication of the amount of hard goods
trade involved in total commerce with Eastern Europe.
Nonetheless, assuming that (a) some of the USSR's
surplus results from hard goods trade and (b) IBEC
plays a role in crediting intra-CEMA hard goods
exchanges, Eastern Europe presumably has built up
some hard currency debt to IBEC as a result of trade
with the USSR. The Hungarian trade data indicate
that Budapest has been able to offset hard currency
deficits with the USSR by surpluses with other CEMA
partners. For the other CEMA countries, the size of
accumulated deficits since 1974-with both the USSR
and other East European countries-suggests that the
GDR and to a lesser extent Poland, the CSSR, and
Bulgaria hold some hard currency obligations to IBEC
resulting from intra-CEMA hard goods trade.
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Appendix A
Summary Tables for
East European Debt
The tables summarizing the country debt estimates
developed by the procedures discussed in this paper are
presented in this appendix. The first table in each
country's section analyzes yearend gross and net debt
into various components: (a) commercial liabilities
including borrowing from banks, promissory note
financing, and unspecified other borrowing less the
adjustment for double counting of officially supported
credits; (b) hard currency assets held in Western
banks; (c) Western officially supported credits; and (d)
for Romania, borrowing from the IMF and World
Bank. The second table of each section presents our
measures of debt burden. The third table distributes
debt by maturity. As discussed above, the maturity
structure breakout includes short-term as well as
medium- and long-term debt.
The fourth table summarizes our data on Western
officially supported export credits: new commitments,
drawings, debt, undrawn commitments, debt service,
and total exposure. The values for commitments,
drawings, debt, and exposure refer only to the principal
of the loan and not to the stream of interest the
borrowing country is obliged to pay on that principal.
These tables are not internally consistent, because of
minor discrepancies and gaps in the original data. For
example, undrawn commitments in 1971 should equal
undrawn commitments in 1970 plus 1971 new commit-
ments less 1971 drawings. Since we do not know the
reasons for these discrepancies, we have not adjusted
our computed series to make them totally consistent.
For the GDR, we include a separate table covering
East Germany's net debt to West Germany for
1973-78.
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Table A-1 Million US $
Poland: Hard Currency Debt
Commercial debt
420
856
1,951
3,586
6,547
9,159
10,393
13,430
Liabilities to Western banks
318
660
1,573
2,970
5,397
7,947
9,274
12,441
BIS series
307
644
1,492
2,450
4,567
6,422
9,076
11,723
BIS residual
NA
NA
NA
377
598
932
198
718
Austrian banks
11
16
81
144
232
593
NA
NA
Promissory notes
115
215
415
690
990
1,080
1,090
960
Other
NA
NA
NA
NA
327
381
409
507
Double counting
-13
-19
- 37
- 75
-167
-249
-380
-478
Officially backed debt
718
708
845
1,057
1,467
2,324
3,574
4,414
Guaranteed export credits
370
384
543
783
1,091
1,849
2,921
3,700
Other
348
324
302
274
376
475
653
714
Commercial assets
374
414
583
523
633
803
435
872
BIS series
361
398
564
407
508
643
399
808
BIS residual
NA
NA
NA
85
89
96
36
64
Austrian banks
13
16
19
31
36
64
NA
NA
Poland: Measures of Hard Currency
Debt Burden
Non-Communist exports
1,796
2,529
3,883
4,123
4,441
4,882
5,499
Gross debt
1,564
2,796
4,643
8,014
11,483
13,967
17,844
Principal repayment
200
299
508
738
1,213
1,968
2,869
Interest
74
188
395
481
655
919
1,467
Drawings
626
1,531
2,355
4,109
4,682
4,452
6,746
Net transfer
352
1,044
1,452
2,890
2,814
1,565
2,410
Debt service as a share of exports
15
19
23
30
42
59
79
Gross debt as a share of exports
87
111
120
194
259
286
324
Debt service as a share of drawings
44
32
38
30
40
65
64
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Due in
1979
Due in
1980
Due After
1980
Million US $
Commercial debt
5,318
2,697
5,415
Government-backed debt
1,010
950
2,454
Total
6,328
3,647
7,869
Poland: Summary Statistics on
Government-Backed Debt
Total New
Commitments
Total
Drawings
Undrawn
Commitments
Government
Guaranteed
Debt
Debt
Service
Total
Exposure
1970
92.8
416.5
208.5
333.3
110.3
541.8
1971
179.7
147.3
146.0
370.0
144.3
515.9
1972
350.4
151.6
298.2
383.7
169.9
681.9
1973
562.1
343.2
840.1
543.0
237.6
1,383.1
1974
1,240.7
501.8
1,532.5
783.3
336.9
2,315.7
1975
1,067.6
571.5
2,008.8
1,091.1
366.7
3,099.8
1976
2,215.6
1,186.8
2,897.4
1,848.8
594.1
4,746.2
1977
3,087.7
1,821.2
4,763.4
2,921.4
996.3
7,684.9
1978
2,028.6
1,807.0
4,837.3
3,700.0
1,368.1
8,537.3
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Commercial debt 855 945 1,510 2,495 4,485 5,043 6,140 7,729
Liabilities to Western banks 722 746 1,242 2,152 4,058 4,461 5,299 6,793
BIS series 688 695 1,161 1,682 3,350 3,611 4,870 6,193
BIS residual NA NA NA 302 398 402 429 600
Austrian banks 34 51 81 168 310 448 NA NA
Promissory notes 160 225 295 365 430 475 505 495
Other NA NA NA NA 55 155 408 522
Double counting - 27 - 26 - 27 - 22 - 58 - 48 - 72 -81
Officially backed debt 553 609 626 641 703 813 1,005 1,165
Guaranteed export credits 418 459 426 391 403 493 635 745
Other 135 150 200 250 300 320 370 420
Commercial assets 203 325 260 544 1,640 809 986 1,346
BIS series 198 318 250 422 1,324 616 882 1,195
BIS residual NA NA NA 89 231 92 79 111
Austrian banks 5 7 10 33 85 91 NA NA
Other NA NA NA NA NA 10 25 40
East Germany: Measures
of Hard Currency
Debt Burden
Non-Communist exports 1,642 2,230 3,014 3,062 3,643 3,395 3,600
Gross debt 1,554 2,136 3,136 5,188 5,856 7,145 8,894
Principal repayments 208 276 367 468 708 867 1,113
Interest 93 159 271 307 350 435 725
Drawings 354 858 1,367 2,520 1,376 2,156 2,862
Net transfer 53 423 729 1,745 318 854 1,024
Debt service as a share of exports 18 20 21 25 29 38 51
Gross debt as a share of exports 95 96 104 169 161 210 247
Debt service as a share of drawings 85 51 47 - 31 77 60 64
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East Germany:
Debt Maturity Structure
Due in Due in Due After
1979 1980 1980
Million US $
Commercial debt 4,058 1,526 2,145
Government-backed debt 184 162 399
Summary Statistics For East German
Officially Backed Debt
1970
1971
1972
1973
1974
1975
1976
1977
1978
Total New Total Undrawn Government Debt Total
Commitments Drawings Commitments Guaranteed Service Exposure
Debt
140.0
159.4
52.0
106.5
91.2
528.9
527.7
483.4
841.0
359.5 55.6 306.8 76.0 362.6
197.3 17.0 418.3 118.6 435.3
152.1 0 458.7 148.7 458.7
95.8 57.0 426.0 164.6 483.1
113.3 148.7 391.0 183.4 539.7
184.6 583.6 403.1 210.0 986.7
304.3 829.0 492.6 263.1 1,321.6
324.7 1,177.0 634.8 240.1 1,811.8
311.2 2,043.8 745.1 268.5 2,788.8
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East Germany:
Net Debt to West Germany
968
1,294
1,353
2,053
3,081
3,998
5,596
7,380
943
1,219
1,278
1,938
2,830
3,722
5,135
6,880
BIS series
911
1,171
1,205
1,512
2,216
3,082
4,772
6,449
BIS residual
NA
NA
NA
272
339
252
363
431
Austrian banks
32
48
73
154
275
388
NA
NA
Other
25
75
75
115
251
276
461
500
223
337
346
592
940
1,197
1,164
941
BIS series
207
318
324
468
748
899
1,068
899
BIS residual
NA
NA
NA
98
131
135
96
42
Austrian banks
16
19
22
26
61
163
NA
NA
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Hungary: Measures of Hard Currency
Debt Burden
994
1,407
1,688
1,691
1,945
2,185
2,535
1,392
1,442
2,129
3,135
4,049
5,655
7,473
62
84
115
120
172
218
287
Interest
78
140
207
204
230
330
624
Drawings
383
134
802
1,126
1,086
1,824
2,105
Net transfer
243
- 90
480
802
684
1,276
1,194
Debt Service as a share of exports
14
16
19
19
21
25
36
Gross debt as a share of exports
140
102
126
185
208
259
295
Debt service as a share of drawings
37
167
40
29
37
30
43
Due in
Due in
Due After
1979
1980
1980
Commercial debt
4,073
495
2,812
Government-backed debt
26
23
44
Total
4,099
518
2,856
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Hungary: Summary Statistics
on Government-Backed Debt
Total New
Commitments
Total Drawings
Undrawn
Commitments
Government-
Guaranteed
Debt
Debt Service
Total
Exposure
1970
57.1
118.9
28.3
101.8
24.8
130.2
1971
27.6
21.9
30.7
103.0
28.8
133.7
1972
7.3
19.1
23.4
98.2
31.9
121.6
1973
19.8
18.3
37.0
89.4
34.6
126.4
1974
27.0
16.5
49.4
76.0
36.8
125.4
1975
60.3
9.1
104.9
53.7
36.9
158.6
1976
19.4
33.6
88.3
50.5
42.7
138.9
1977
27.2
29.9
46.8
59.0
27.1
105.9
1978
55.0
62.5
36.8
92.7
37.5
129.6
Czechoslovakia: Hard Currency Debt
Commercial debt
284
435
558
821
926
1,575
2,290
2,798
Liabilities to Western banks
161
243
294
445
450
1,059
1,569
2,054
BIS series
156
235
281
286
300
901
1,519
1,976
BIS residual
NA
NA
NA
119
90
80
50
78
Austrian banks
5
8
13
50
60
78
NA
NA
Promissory notes
135
205
280
380
470
510
555
555
Other
NA
NA
NA
NA
30
30
193
243
Double counting
-12
-13
-16
-14
- 24
- 24
- 27
- 54
Commercial assets
325
454
484
408
305
428
495
693
BIS series
315
442
472
315
250
356
454
629
BIS residual
NA
NA
NA
66
44
53
41
64
Austrian banks
10
12
12
27
11
19
NA
NA
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Secret
Czechoslovakia: Measures of Hard Currency
Debt Burden
Non-Communist exports
1,382
1,776
2,301
2,379
2,329
2,745
3,079
Gross debt
630
757
1,048
1,132
1,862
2,616
3,206
Principal repayments
95
133
186
236
250
297
350
Interest
39
69
105
88
106
161
281
Czechoslovakia:
Debt Maturity Structure
Due in
Due in
Due After
1979
1980
1980
Commercial debt
1,621
188
989
Government guaranteed debt
144
119
145
1,765
307
1,134
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Czechoslovakia:
Summary Statistics on Government-Backed Debt
Total New
Commitments
Total Drawings
Undrawn
Commitments
Government
Guaranteed
Debt
Debt Service
Total
Exposure
1970
41.2
196.7
69.0
163.4
46.1
232.4
1971
70.7
88.2
41.3
200.8
67.2
242.1
1972
112.5
55.6
82.1
194.6
78.5
276.7
1973
103.6
82.0
156.1
198.8
95.7
354.9
1974
79.2
132.2
149.3
227.3
125.3
376.6
1975
337.9
96.5
401.1
206.1
138.9
607.2
1976
119.2
183.4
333.1
287.1
129.2
620.2
1977
185.9
157.6
421.0
325.8
150.3
746.7
1978
202.0
226.3
476.1
407.9
184.1
884.0
Bulgaria: Hard Currency Debt
Commercial debt
442
765
818
1,520
2,453
2,878
3,394
3,935
Liabilities to Western banks
412
719
765
1,435
2,063
2,470
2,898
3,457
BIS series
391
687
718
1,131
1,648
2,032
2,640
3,174
BIS residual
NA
NA
NA
199
278
258
258
283
Austrian banks
21
32
47
105
137
180
NA
NA
Promissory notes
45
60
70
100
195
220
210
195
Other
NA
NA
NA
NA
225
225
318
318
Double counting
-15
-14
-17
-15
- 30
- 37
- 32
- 35
Officially backed debt
301
244
202
183
187
320
313
328
Guaranteed export credits
208
177
129
101
111
236
262
269
Other
93
67
73
82
76
84
51
59
Commercial assets
20
100
23
343
383
442
538
553
BIS series
18
97
19
253
282
355
492
492
BIS residual
NA
NA
NA
53
49
53
46
61
Austrian banks
2
3
4
37
52
34
NA
NA
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Secret
Bulgaria: Measures
of Hard Currency Debt Burden
Non-Communist exports
509
679
921
937
1,058
1,270
1,572
Gross debt
1,009
1,020
1,703
2,640
3,198
3,707
4,263
Principal
128
125
158
149
233
336
352
Interest
54
92
149
164
181
236
373
Drawings
394
136
841
1,086
791
845
908
Due in
1979
Due in
1980
Due After
1980
Million US $
Commercial debt
2,128
471
1,336
Government-backed debt
84
71
173
Total
2,212
542
1,509
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Total New Total Drawings Undrawn Government Debt Service Total
Commitments Commitments Guaranteed Exposure
Debt
1970 89.3 220.5
104.8
176.5
58.3
281.3
1971 49.5 93.5
51.6
207.5
80.1
259.1
1972 50.2 39.8
49.5
176.9
86.4
226.3
1973 41.9 27.8
119.5
129.1
88.9
248.6
1974 75.5 58.1
165.5
100.5
99.0
266.0
1975 238.0 66.3
347.3
111.1
66.7
458.3
1976 135.5 196.3
241.0
236.4
92.5
477.4
1977 124.7 107.4
330.6
262.2
106.0
592.8
1978
122.0 100.9
394.2
269.0
120.2
663.2
Commercial debt
585
597
682
1,780
2,024
1,841
2,306
3,609
Liabilities to Western banks
440
361
395
1,016
1,149
986
1,456
2,862
BIS series
428
343
381
838
977
813
1,419
2,544
BIS residual
NA
NA
NA
131
136
137
37
318
Austrian banks
12
18
14
47
36
36
NA
NA
Promissory notes
180
265
325
385
415
385
330
285
Other
NA
NA
NA
420
520
520
597
632
Double counting
- 35
- 29
- 38
-41
- 60
- 50
- 77
-170
Officially backed debt
642
652
814
797
706
659
715
800
Guaranteed export credits
612
633
717
688
605
550
647
721
Other
30
19
97
109
101
109
68
79
Other borrowing
NA
NA
115
116
194
403
584
810
IMF position
NA
NA
115
116
158
331
368
392
IBRD loans
NA
NA
NA
NA
36
72
216
418
Commercial assets
NEGL
45
116
210
475
375
217
229
BIS series
NEGL
27
102
135
374
295
199
212
BIS residual
NA
NA
NA
28
65
44
18
17
Austrian banks
NEGL
18
14
47
36
36
NA
NA
Gross debt
1,227
1,249
1,611
2,693
2,924
2,903
3,605
5,219
Net debt
1,227
1,204
1,495
2,483
2,449
2,528
3,388
4,990
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Secret
Romania: Measures of Hard Curency
Debt Burden
Non-Communist exports
1,265
1,804
2,762
2,884
3,323
3,638
4,350
Gross debt
1,249
1,611
2,693
2,924
2,903
3,605
5,219
Principal repayments
247
321
399
460
420
496
528
Interest
90
126
208
207
174
203
351
Drawings
269
683
1,481
691
399
1,198
2,142
-68
236
874
24
-195
499
1,263
Percent
Debt service as a share of exports
27
25
22
23
18
19
20
Gross debt as a share of exports
99
89
98
101
87
99
120
Debt service as a share of drawings
125
65
41
97
149
58
41
Due in
1979
Due in
1980
Due After
1980
Million US $
Commercial debt
1,634
349
1,626
Government-backed debt
220
180
400
IMF, IBRD borrowing
13
36
761
Total debt
1,867
565
2,787
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Romania: Summary Statistics
on Government-Backed Debt
Total New
Commitments
Total Drawings
Undrawn
Commitments
Government
Guaranteed
Debt
Debt Service
Total
Exposure
1970 128.6
697.9
84.2
580.9
162.4
665.0
1971 228.3
178.9
127.6
612.2
196.9
739.8
1972 209.1
203.0
176.7
633.2
235.1
809.9
1973 331.5
320.5
329.6
717.3
298.4
1,046.9
1974 246.8
249.2
322.1
688.3
341.4
1,010.4
1975 288.4
228.6
472.4
604.6
372.3
1,077.0
1976 313.7
171.0
449.3
550.3
277.4
999.5
1977 328.7
348.1
573.0
647.0
313.9
1,220.1
1978 266.0
346.6
516.2
720.7
343.8
1,236.9
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Secret
Appendix B
Estimating East European
Obligations
to the International Investment
Bank
The 1978 annual report of the IIB stated that the bank
had provided the following amounts of credit (in
million transferable rubles-TR) to CEMA member
states since the bank's inception in 1971 through 1978:
Bulgaria 500.0; Hungary 518.9; East Germany 516.7;
Poland 625.5; Romania 294.6; USSR 158.0; Mongolia
5.5; and Czechoslovakia 445.0. The bank also reported
that 2.4 billion TR had been used to finance construc-
tion of the Orenburg gas pipeline
Early in 1979, a Soviet official told US Embassy
officials that Romania's share of the Orenburg financ-
ing totaled 225 million TR-of which 190 million TR
were hard currency-and that this amount was nearly
one-half the amount of credits provided to each of the
other East European participants.* We assumed that
each country's borrowing is proportional to its share of
future Soviet gas deliveries through the pipeline. Since
Romania's share is 10 percent and the others' share
roughly 18 percent, we estimated that the amount of
credits provided to each of the other five East
European countries equals 405 million TR of which
342 million TR are in hard currency. Subtracting the
total credits to Eastern Europe (2,250 million TR)
from the total IIB financing of Orenburg (2,400
million TR) leaves 150 million TR in credits to the
USSR.
Judging from the IIB data, each East European
country has drawn credits in excess of the Orenburg
financing for other bank-sponsored projects con-
structed on its territory. The Bank regularly reports
those projects for which it has committed credits.
Particularly before 1976, the IIB would also indicate
how much credit was approved for each project and
occasionally the amount of credit in hard currency.
Drawings by each East European country in excess of
Orenburg financing seem in line with the reported and
estimated credits used for other projects. Available
data suggest that roughly 70 percent of the credits for
projects other than Orenburg have been in hard
currency
The IIB's 1977 annual report provided credit drawings
by year from 1971 to 1977. Netting total drawings
through 1977 from the total member drawings re-
ported through 1978-3.1 billion TR-yielded 1978
drawings. Knowing the amount of credit outstanding
at yearend from the annual reports, we were able to
compute the amount of repayments in each year.
We allocated annual drawings by country on the basis
of known and estimated commitments to each CEMA
member. We assumed that no credits were drawn for
the Orenburg project before 1975 and that credits for
the pipeline accounted for 83 percent of the 2.9 billion
TR drawn in 1975-78. We estimated hard currency
drawings at 70 percent of the credits used on projects
other than Orenburg and 84 percent of the Orenburg
drawings. We allocated annual repayments on the
basis of each country's drawings, assuming 70 percent
of repayments were hard currency credits. Netting
estimated hard currency repayments against estimated 25X1
hard currency drawings yields the annual totals for
hard currency obligations to the IIB.
In computing net exposure, we subtract from each
country's gross liabilities the portion of its membership
quota paid in gold and hard currency. IIB's paid-in
authorized capital totals 374 million TR, of which
Bulgaria has contributed 29 million TR, Hungary 29
million TR, GDR 61 million TR, Poland 42 million
TR, Romania 18 million TR, and the CSSR 45 million
TR. Gold and convertible currencies account for 30
percent of each country's quota.
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 Secret
Secret
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