Foreign debt of the Socialist Republic of Romania
The foreign debt of the Socialist Republic of Romania were loans made by Socialist Republic of Romania under Nicolae Ceaușescu from international creditors denominated in hard currencies. These loans were used to buy technology, equipment and raw materials needed for the industrialization of the country.
As oil prices increased during the 1979 energy crisis, together with the rising international interest rates, Romania found it difficult to pay it back, leading to the necessity to request the IMF a line of credit. As such loans had strings attached (structural adjustment), Ceaușescu decided that Romania should pay all its debts, leading to the 1980s austerity policy in Romania.
Loans and industrial development
Early in the 1970s, the Western countries were willing to fund Romania's acquisition of technology through loans given on political considerations.[1] The debts of Romania to Western creditors rose from just $1.2 billion in 1971 to a peak of $13 billion in 1982.[2]
1979 crisis
The 1979 energy crisis combined with the increase in interest rates made Romania incapable of repaying its debts.[1]
IMF involvement
In 1981, in order to pay its due debts, Romania requested the International Monetary Fund a line of credit[1] and adopted a policy to pay back all its debt.[3] The decision to repay the debt has been considered irrational, as other developing countries that were hit by the same problem were able to obtain debt rescheduling or "haircuts".[4]
Loan payments and austerity
As the IMF recommended, imports were reduced and exports were increased. The effect of the cuts in imports in Romania, a net importer of food from the West, was however not correctly estimated by the foreign analysts and it led to food shortages.[5]
By 1986, it paid half its debt[3] and it finished paying its whole debt early in 1989, ahead of schedule. Nevertheless, the austerity policy continued even after all the debts had been paid.
Notes
References
- Cornel Ban, Sovereign Debt, "Austerity, and Regime Change: The Case of Nicolae Ceausescu’s Romania", in East European Politics and Societies, 2012 26: 743
- Adam Burakovski (2011). Dictatura lui Nicolae Ceaușescu, 1965-1989 - Geniul Carpaților. Polirom. ISBN 978-973-46-1963-4.
- Henry F. Carey (ed.), Romania since 1989: Politics, Economics, and Society, Lexington Books, 2004, ISBN 9780739105924, Wally Bacon, "Economic Reform", p. 373-390
- Dennis Deletant, Ceauşescu and the Securitate: Coercion and Dissent in Romania, 1965-1989, M.E. Sharpe, London, 1995, ISBN 1-56324-633-3.
- Vlad Georgescu, The Romanians: A History, Ohio State University Press, 1991, ISBN 0814205119