DEBT/CREDITS - POLISH GOVERNMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000200410012-7
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 3
• Document Creation Date: December 21, 2016
• Document Release Date: August 13, 2008
• Sequence Number: 12
• Content Type: REPORT

Approved For Release 2008/08/13: CIA-RDP84B00049R000200410012-7
Ybt/Credits
The main instrument cf influence we have on the Polish Government (and
the Soviet Union) involves existing debt and possible future cr`dits.
On most l r: ad iai. Over :rte ON is On the i"Cscheduling Of Polish Geer,.
Without rescheduling, Poland is likely to remain in de facto default. If
Poland is finally declared in default, whether by a Western bank or by the US
government, either the Soviets, Poles, or other Eastern Europeans would have
to ante up about $7 billion this year, which would require increased oil and
gold sales and perhaps increased Soviet borrowing from the West -- all painful
actions or they would have to suffer the consequences of formal default.
These consequences would include no normal foreign trade with Poland as long
as it is in arrears and an increase in the risk premium charged to Eastern
European borrowers, vary likely including the Soviet Union. Moreover, forma,
default as well as the final puncturing of the "umbrella theory" would make it
far more difficult for the Eastern European countries to regain access to
credit in the longer term.
The main risk of formal Polish default for the test is not that a major
bank (e.g., the Drrsdner'l will become insolveii but that major losses
book might ripple through the Eurn-currency market cau?inq difficulties for some
other banks. Given the fact that Formal default could be declared at any time
it is urgent that contingency plans be in place for this possibility. It is
hard to believe that the central banks cant prevent serious damage.
The State/Treasury position is that (a) formal default will let
Poland/USSR off the hook of having to make payments and (b) we should maintain
the threat of calling formal default as a deterrent. (The problem of
consistency with this position has been much noted by other participants in
the debate.) In reality, formal default would be costly and its threat value
depends on our making it likely enough to be credible.
This analysis argues for taking steps that signal to the Poles and
Soviets that we are moving towards formal default and that this is likely
unless certain conditions are mot including the release of prisoners and the
restoration of Solidarity'sorights.t'
Yamal
All agencies except State hold that the December 30, 1931 sanctions
should apply not only to exports from the US but also to equip, ent made by
for e.iy0 subs id sac ins o US Firms aid by Iicc.iisnd . The issues o n0in a-
exception for controlled GE components already shipped or for the fulfillment
of existing contracts or letters of intent has arisen particularly in the case
of the UK where the estimated losses and layoffs are held to he especially
painful. This position is rejected by all of the agencies (hut the Vice
President's representative supports it).
The key points here are that the Soviets might in part or in total try to
switch to less satisfactory or unproven Rolls Royce turbines (R3-01s) which
State Dept. review completed
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would, in addition, seem to require switching to a not-US compressor. If
licensing problems could be overcome, the Soviets might try to get Alsthom-
Atlantique to build compressors using the GE design, but there would probably
be a delay of two or more years and there might also be problems in
replicating GE's cayputor; controls.
Finally, the Soviets might rearrange their priorities and shift some of
their substantial domestic compressor capacity to Yamal or an alternative line
at the expense of delaying domestic gas availability. Because Yamal will
apparently take only 12% of planned ;'tided con pressor capacity in the 1931-05
time period (3000 MY out of 25,400). this appears feasible although with o
loss of efficiency and probably soma delay. (However, the Soviets might be
able to start as exports from Ur engo y in Siberia befo,'e the completion of
Yamal by adding a segment to a new "domestic" line being built from Urengoy to
Novopskov. This line might he extended to, and through, Czechoslovakia by
1984-85.)
Although, it appears possible for the Soviets to complete Yamal with, some
delay or even to expect gas early via a non-Yamal route, the denial of US
technology would nonetheless he costly to the Soviets. By slipping, say, t'..'o
of the 56" pipelines, Moscow would delay the availability to the daqestic
economy of the equivalent of about 500,000 barrels of oil/day, abort 2 of
total energy consumption. Since domestic gas can ha and probably is
intended to replace oil, this goes delay could deprive the Soviets a
largely
around
05
billion in oil hard-currency savings.
In short, although we cannot he confident that our sanctions will delay
Yamal or a substitute for it, there is a good chance that our sanctions will
do one of the following: (a) delay the export of gas capable of earning about
$5 billion a year; (b) delay the expo -t of oil of comparative value 010
would be replaced by domestic oil; or (c) delay the availability cf gas to the
Soviet economy.
Grain sales
Section 1204 of the Agriculture and Food Act of 1981 states that any
controls on grain except as part of "a suspension or restriction of all" US
exports require compensation to producers through 1001 parity or direct
payments. About 5 million of the 11 million contracted for by the Soviets
were not shipped by the end of January. The cost of buying up this grain
would he around the if it were not part of a complete
embargo.
There would he some disruptive cost to the Soviets and they would end up
paying a bit more but this cost would not be very substantial.
A different approach to grain sales should be considered, the creation of
a grain cartel aimed at the Soviet Union and Eastern Europe. If the US, the
EC, Canada, Australia, and Argentina were to impose an export tax on sales to
the Soviet Bloc, the effect could be substantial. These four countries of the
EC export 90-95% of the grain traded internationally. Although such a cartel
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would leak and probably eventually break down, a very substantial tax could
probably be exacted from the Soviet Union. After three had harvests,. Moscow
could not afford to do without this grain; it would pay the price in hard
currency; even if it had to sell more gold or curtail other imports. For
instance, a $200 per ton tax would have generated this year an additional $7
billion in revenues, assuming 35 million tons of Soviet imports from these
four countries. Such a sum might in part be designed for Polish relief --
assuming certain political conditions were met.
Fertilizers, Pesticides, Other Chemicals
An embargo on these products would have a large impact on the Soviet
economy and a small one on ours. Combined with an import embargo, this would
sink the twenty year, $20 billion 0ccica2ntal deal with the Soviets.
Other Measures
The State paper includes a range of other possible measures including an
embargo on all industrial products, all Rports from the Soviet Union,
revolving licenses of high technology itews (including International Harvester
combine technology), plus lots of cats and dogs. There is merit in some of
these (e.g., stopping the IH deal) but the trouble with the largely symbolic
measures is that they are a substitute for truly effective action of the type
discussed earlier.
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