The deterioration of the Malagasy economy that peaked in the 1980s is clearly demonstrated by the evolution of balance of payments problems and a growing debt burden (see table 2, Appendix). In 1980 Madagascar experienced a trade deficit of US$328 million and a service deficit of US$286 million, the combination of which contributed to a record current account deficit of US$568 million for the year. After nearly a decade of implementing the structural adjustment demands of the IMF and the World Bank, the Ratsiraka regime reduced the current account deficit to US$128 million in 1989. Among the economic trends contributing to this were a sharp reduction in imports and significant increases in bilateral and multilateral foreign assistance. Progress in reducing the current account deficit was reversed at the beginning of the 1990s, however, because of disruptions caused by the transition to democracy.

A rising debt burden constitutes the most notable indicator of Madagascar's fiscal dilemmas. Whereas as late as 1978 Madagascar had only accumulated US$293.5 million in debt, massive borrowing on the international market during a three-year span led in 1981 to the quadrupling of this figure to US$1.37 billion. By the end of the decade, this figure had nearly tripled to US$3.94 billion. Even worse, Madagascar's external debt exceeded annual GNP after 1986, reaching its height in 1988 when external debt as a percentage of GNP exceeded 160 percent.

The downfall of the Ratsiraka regime and the turbulence associated with the subsequent period of democratic transition exacerbated the debt crisis and presented the Zafy regime with one of its greatest economic challenges. As of November 1993, Madagascar's external debt was estimated to exceed US$4 billion, with an outstanding initial debt of US$295 million and rescheduled debt of US$625 million being owed to Paris Club (see Glossary) members. Whereas the outstanding initial debt was owed primarily to France (US$138 million) and Japan (US$126 million), several countries were owed the majority of outstanding rescheduled debt, including France (US$182 million), Italy (US$96 million), Japan (US$84 million), Spain (US$76 million), and Germany (US$55 million). Approximately US$77 million was also owed to commercial banks in the London Club (see Glossary), including the Arab Intercontinental Bank (US$31 million), Chase Manhattan Bank of Paris (US$9.5 million), Banque Nationale de Paris (US$7.5 million), and Banque Nationale d'Algérie (US$7.2 million).

Data as of August 1994