Factors affecting private financial flows to Eastern Europe, 1989-91

This paper aims at identifying and summarizing some of the factors which influence the market's differing perceptions of Czechoslovakia, Romania, Hungary, Bulgaria and Poland. Information on market perceptions was obtained as a result of numerous interviews with commercial banks and a few investors active in central and eastern Europe. The first section summarizes and compiles cross-country findings in the following areas: (a) the importance of the Soviet umbrella; (b) indicators of relative indebtedness; (c) a summary of funds flowing to the region, by source, from 1989 onwards; (d) a discussion of the maturity profile of commercial debt, in particular the magnitude of short-term debt; (e) project finance and direct foreign investment: who are other private creditors? What factors influence the amount of project finance available?; (f) the institutional setup of the emerging financial sector; and (g) long-term commercial flows, in particular bond finance: access to the Eurobond market for medium- and long-term funds. The rest of the paper contains further details for individual countries. All data have been provided by commercial banks or country reports issued by the Institute of International Finance, since these figures are used by private lenders when assessing the prospects of a particular borrower.