European Security and Debt Finance in Poland

The nations of Central and Eastern Europe as well as the newly independent states of the former Soviet Union have undertaken an ambitious plan of transforming their economies and polities in conformity with the liberal capitalist model. The task facing the Western Europeans and the United States has not been the relatively simple one that faced the United States in the immediate post-war period, namely, the economic reconstruction of war-ravaged states. Rather, the Western Europeans and the United States have faced the less tractable problem of recasting the economies and polities of Central and Eastern Europe (CEE) in their own images. The transition to a market-driven and entrepreneurial economy requires large and sustained capital inflows. But capital inflows to the CEE states had been offset by sustained capital outflows in the early 1990s, a development which reflected not only the uncertainty of individual economic agents about the pace and final destination of economic and political reform, but also the need to service external hard currency debt, the majority of which was incurred prior to 1989.