This study analyses the problems of Eastern Europe's convertible currency external debt situation and its impact on the financing of East-West trade in the late 1980s and in the 1990s. A discussion of the present CMEA economic reforms provides the background for this approach to East-West financial relations. Throughout the study I seek more to raise relevant questions with appropriate background information, rather than to draw specific conclusions. In this book I do not aim to project on the basis of a computer model Eastern Europe's trade balances, current account balances and balances of payments, as I did recently (Zloch-Christy 1986, 1988), but to present an analytical framework for a discussion on the present and future trends in the CMEA external balance and East-West trade and credit relations. The study addresses the following questions:

1. 1 What are the main trends in reforming Eastern Europe's economic system and in the East-West political dialogue?

2. 2 Were convertible-currency debt difficulties inherent in the economic development of Eastern Europe in the late 1980s?

3. 3 How the problems arising from indebtedness have affected the financing of East-West trade and what are the main financing forms?

4. 4 What are the medium and long-term debt prospects?

The structure of the study is as follows. Chapter 1 explores the changes in Eastern Europe envisaged by the recent reforms. It focuses on the economic and political aspects of perestroika, reforming the foreign trade mechanism and the concept of capital markets in Eastern Europe. Chapters 2, 3 and 4 turn specifically to the discussion of Eastern European debt and forms of financing East-West trade. Chapter 2 examines debt trends in the second half of the 1980s, asking three main questions.