IN WARSAW, the government is on the verge of recognizing an independent labor union. In Budapest, opposition political parties function in all but name. In East Berlin, Soviet publications are banned as subversive. In Prague, dissidents are sentenced to jail.
As striking as the speed of change in Eastern Europe is its growing diversity. Driven by financial necessity and encouraged by the Soviet Union's tolerance, Poland and Hungary have embarked on dramatic reforms that are frankly designed to turn them into West European-style social democracies. In Bulgaria, Czechoslovakia, Romania and East Germany, economic and political liberalization remain dreams. The success of reforms in Poland and Hungary will have much to do with future developments in the region's other countries, where Stalinist regimes still rule. The United States has supported reform in principle, but the time is drawing near when it will have to put up its money.For Poland, that means debt relief. Poland owes $38 billion to Western banks and international institutions, and its productive capacity has deteriorated so greatly that it is plainly unable to earn enough foreign exchange to service that debt. Living standards are in decline, and the government's recognition of the Solidarity trade union will not by itself make things better. Hard currency, either in the form of smaller debt service obligations or greater foreign investment and lending, is urgently needed.
The Hungarian economy has not deteriorated so severely, but the underlying facts are much the same. Western capital and capital goods are needed if the country's newly encouraged private enterprises - some listed on the nascent Budapest Stock Exchange - are to improve Hungarians' standard of living. The United States has encouraged Hungarian reform by trying to establish links between Hungarian institutions and those in the West; it needs to help with money.
That does not mean that the United States should offer investment guarantees without restriction or encourage the World Bank to write out blank checks. Loans, by themselves, are no assurance of economic growth; Poland managed to invest little of the billions of dollars it borrowed abroad in the 1970s and early 1980s. Lending to Eastern Europe must be tied to further economic reforms, without which the region's economies will fall even farther behind.
It is no longer enough for America to cheer from the sidelines. The reform of the Polish and Hungarian economies is a matter of major importance to the United States, for geopolitical as well as economic reasons. But unless those reforms can be translated into meat and potatoes, the unfortunate citizens of the region's more repressive governments will hear only the lesson that reform does not pay.