The strange case of Romania’s Nicolae Ceaușescu: when the liquidation of sovereign debt results in country total damaging

Georgescu, George (2023): The strange case of Romania’s Nicolae Ceaușescu: when the liquidation of sovereign debt results in country total damaging.

Abstract

The study focuses on 1980s sovereign debt crisis in Romania under the impact of internal and external factors, intending to provide a more realistic image of this dramatic episode. The global economy faced a severe economic and financial crisis at the beginning of the 1980s, when more than 30 developing countries entered default or restructured the sovereign debt. In the case of Romania, the impact of the crisis triggered in 1981-1982 has proved extremely hard worsened by the domestic vulnerabilities accumulated in the previous decade and the external shock coming from the major changes in the global economic, financial and geopolitical context at the end of 1979. The FED monetary policy at that time (twenty percent funds rate in order to fight inflation), has led to the explosive rise in interest rates of the outstanding loans contracted from international commercial banks, to which Romania was highly indebted. The decision of simple-minded Nicolae Ceaușescu to liquidate the foreign debt and other errors concerning the crisis management had a destructive impact on the country, which degenerated in a system crisis ended with its implosion in December 1989. Some lessons from this crisis could be learned for the current indebtedness situation of Romania, amid international circumstances characterized by two-digit inflation, high interest rates and government bond yields, energy crisis, climate changes, Ukraine war, global geopolitical tensions.

• Item Type: MPRA Paper
• Language: English
• Keywords: foreign debt crisis; oil crisis shocks; IMF; FED monetary policy; inflation; interest rates; sovereign debt restructuring; Romania
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems; H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt ; Debt Management ; Sovereign Debt; N - Economic History > N4 - Government, War, Law, International Relations, and Regulation > N44 - Europe: 1913-

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