THE POLISH ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000400790005-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 19, 2016
• Document Release Date: March 29, 2006
• Sequence Number: 5
• Content Type: REPORT

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The Polish Economy
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The Polish economic crisis has deepened in recent
months, and the Party Congress has not produced an economic
program to bring recovery. (U)
-- The decline in industrial output has not halted.
-- Food shortages remain severe and are likely to
worsen.
--. Poland's hard currency squeeze has forced cutbacks
in imports of industrial materials and spare parts
needed to keep industry going.
-- Negotiations on rescheduling Poland's private, non-
guaranteed debt could drag on and the Poles, in
fact, may be stalling to avoid the payment of some
$1 billion due~on the signing of the agreement.
(C)
The nature of the Polish economic crisis and prospects
for resolving some of the problems are explored in the
following questions and answers. (U)
How bad is the food su plv situation~~
Food shortages--the worst in recent memory--remain
severe and are contributing to labor unrest. Meat
production in January-June 1981, for example, was more than
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shortened workweek, and lower productivity will contribute
to about a 17 percent drop in industrial production in
1981? All sectors of the economy--especialI.y the coal
sector--are experiencing declines in output. Production of
coal, a major hard currency export, will probably decline
Shortages of raw materials and spare parts, the
agriculture
with July. 1980. (C)
What are the near term ros ects for industrv and
i ~
20 percent below the level of first half 1980. Nationwide
rationing of meat, butter, sugar, grain products other than
bread, and infant food products has somewhat improved the
equitability of food distribution, but food lines remain
long. Although foodstuffs have practically disappeared from
state store shelves, apparently no one is going hungry since
more supplies are now handled through the thriving private
and black markets. The causes of the breakdown of the state
retail market system not only include supply side problems
but excess demand--spurred by rapid wage increases--and by
panic buying and hoarding. Shortages of most foodstuffs are
at least not likely to worsen this summer as seasonal
products--fruits, vegetables, and potatoes--continue to come
on the market. We estimate that in mid-summer 1981, per-
capita food consumption was down about 10 percent compared
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about 18 percent from~the 1979 high of 201 million tons.
The domestic economy as well as the export market will
suffer as a result. (p)
Prospects for Poland's 1981 grain crop are good.
Favorable weather and higher procurement prices point to
increases in most crops. The outlook .for meat supplies in
the coming years, however, is bleak since it will take 3
years for production to return to levels of the late
1970's. Earlier this month, the regime acknowledged that
meat rationing commitments for July will be satisfied only
by using the remainder of the meager state reserves.
Without meat reserves or the funds needed to buy large
amounts of meat from the West, Warsaw will be unable to
cover present allocations for the next several months. (Q)
? What is the status of ne otiations to reschedule the
unguaranteed debt
After six months of tough negotiations, Western banks
agreed in late July on rescheduling terms. The Poles'
preliminary reaction to the banks' proposal has been
negative, indicating that talks could drag on for some
time. In fact, the Poles now may be stalling to avoid the
payment of roughly $1 billion due on the signing of the
agreement.' Meanwhile, the informal moratorium on principal
payments in effect since 26 March continues in effect and
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?arsaw is falling further behind in interest payments. The
risk that a bank will declare Warsaw in legal default is
reduced somewhat by the fact that default could. hurt the
banks more than the Poles, and by the limited damage that
default could inflict on Warsaw's already desperate
financial position.
What does Poland need most from the West in the next several
months of 1981 and into 1982?
i~Yarsaw's most pressing needs are for 215,000tons of
meat (worth $452 million) to fulfill ration requirements in
September 1981-June 1982 (150,000 tone or $242 million
through December); b) 4.3 million tons of grain (in addition
to deliveries already arranged) and 1.5 million tons of oiI
meal and oil seeds (worth a total of $1.1 billion} through
June 1982 to sustain the recovery of livestock herds; and
c) about $1 billion in cash or credits to service its debt
and avoid default.
Agricultural Goods _
Some of the meat and grain imports have already
ordered and the financing arranged. Some 50,000 to 60,000
tons of meat contracts have been committed. by the EC but
.delivery awaits financing arrangements. Including the
recent US corn sale of 350,000 tons of corn, about 2.I4
million tons of the July 1981-June 1982 need for grain has
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been met. Poland also needs up to $1 billion in imports of
? raw materials and spare parts to overcome bottlenecks in
industry.
Industrial Materials
The im~ort picture is less clear for raw materials and
semimanufactures needed a inputs by Polish industry. The
Poles variously projected that they would need $3.0 billian,
$2.6 billion and $2.3 billion in 1981. These projections
may all be too high because of a sharper-than expected
decline in industrial production. Warsaw, however, probably..
need more than $2 billion for 1981 as a w~le and ~rhaps as
much as $1 billion in the last five months of the year.
West Germany and France each granted nearly $200 million in
credit guarantees for steel and chemicals, nearly all of
? which was used in the first half of the year. Polish data
show $600 million worth of imports of these commodities in
the first quarter, which was about on schedule for the
year: .With Western credits-for industrial materials largely
exhausted, the Poles have experienced problems in obtaining
deliveries. (C)
Spare Parts and Ca ital Goods
We have numerous reports that the lack of imported
spare parts is causing spot production bottlenecks. In most
cases, even though they are relatively inexpensive, the
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parts cannot be purchased because
currency.
T e t al value of
~~~
estimated b~ it may be small
of a shortage of hard
parts involved cannot be
relative to Poland's need for
food and industrial materials.
For many
of these needed
imports, Warsaw could probably tap substantial unused lines
of guaranteed credits for capital goods; France alone has
undisbursed capital goods credits to Poland of more than
$500 million. Moreover, French officials recently inferred
that these credits could be used for imports of food and
spare parts.
(S)
With Pf~Slish investment sharply reduced and major
projects mothballed, Warsaw's immediate requirement for
machinery and equipment imports is small. Moreover, ample
credits for priority items are available :from Western Europe
and Japan. (C)
What form of aid would be most useful and effective--
credits, cash, agricultural goods. industrial materials
Rush shipments of meat and other food would do most to
directly reduce the risk of Soviet intervention. The
augmented market supplies should help calm the situation and
perhaps give a psychological boost to the population.
Provision of cash or financial credits probably would be
used to~neet debt-service payments to Western banks rather
than to buy the food and other imports which would
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contribute most to stability. West European countries could
? help substantially by eliminatin down a ments and
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broadening the commodity coverage of nearly $2 billion in
guaranteed credit lines which Warsaw is now unable to use.
Some countries have already approved same of these changes
but they may not be enough.
Are other problems so serious that aid will do little to
bring about an economic recovery?
Aid will not alleviate one of Warsaw's most serious
economic problems--the.. reduction in labor input because of
the reduced work week, strikes and worker unrest but it
For 1982 and the following three years, the bulk of
could improve worker morale. Other economic problems still
remain to be resolved, including structural and systemic
obstacles to improving economic performance. Moreover, aid
could allow the Kania regime to delay even longer the
economic reform needed to mount a meaningful and sustained
economic recovery. Finally, the Soviets could invade for
reasons not related to they economic situation. ~
Warsaw's needs will be debt relief of about $IO billion
annually, most of which presumably will be rescheduled. The
debt servic~is roughly evenly split between obligations due
to Westsern governments and those owed to banks. In
addition the Poles are likely to continue requests for aid
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and/or credits for food and other imports.- The size and'
commodity composition of the requests will depend on success
in economic recovery (which in turn is heavily dependent on
p~Political stability in Poland) and SYarsaw's ability to power
`export growth. Fluctuations in agricultural production
particularly will drive Poland's import requirements. In
any case, the need for financing for trade deficits will be
dwarfed by the requirement for debt relief.
`Vhat are the ros ects for growth and recovery in the medium
term?
Even if funds are provided, economic recovery will be
difficult to get started. The government has not yet
established the following internal preconditions for
renewal:
--As long as the populace views its leaders as self-
serving,
corrupt, and incompetent, it is unlikely to put forth
greater effort on the production line or accept a
standard of living that may stagnate in the next
year. (C)
--The failure of past abortive attempts to raise food
prices
without sufficient preparation or consultation with
workers point up the importance of Solidarity
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cooperation. Solidarity now appears willing to go
along with moderate and gradual retail price hikes
only if compensation is granted to lower paid workers
and other economic reforms -are implemented
concurrently.. (C)
--Warsaw must impose discipline on the investment
process,
which is still characterized by local and ministerial
defiance of central directives. In addition, the
success of the regime's agricultural policy depends
on preventing local party officials from undermining
programs to enhance the role of the private sector.
(C)
Warsaw nonetheless has the basic assets for restoring
the health of the overall economy. These include a skilled
labor force, abundant natural resources, and a capital stock
that a year of peaceful revolution has left underutilized
but intact. If the critical industrial inputs are available
and Polish workers can be motivated to move where .they are
needed and to work longer and. harder, economic activity
would respond fairly quickly. (C)
What measures are needed to stabilize the domestic economy?
Sharp curtailment of capital investment, with the
reduced share of investment in GNP reallocated to favor
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? previously neglected sectors such as transport, electric
power, and agriculture. This appears to be the best way to
free resources for boosting net exports and simultaneously
preventing a further decline in living standards.
Meanwhile, private agriculture must be encouraged through a
variety of means, including legal steps to allow enlargement
of individual holdings, more investment, a stepped-up flow
of vitally needed inputs such as fertilizer, and easier
availability of credit. To reduce the disorder in consumer
markets prices have to be raised, and the growth in wages
curbed. Again, these policies have to be screened by
Solidarity. (U)
What are the chances that the government will be able to
? implement these measures?
Reducing and reallocating investment, and bolstering
private agriculture--policies already underway--involve no
potentially destabilizing systemic changes. Restructuring
the price system and linking wages with productivity would
make good economic sense, but might be a political
disaster. Unless such policies are agreed to by Solidarity
they could trigger continuing serious unrest. (U)
What are the prospects that the leadership will introduce
far reaching, systemic economic reforms?
Since last year's unrest, the Polish leadership has
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strengthened its commitment to reforms of the existing .
system of economic management. The major directives appear
to be decentralization of economic decision making and
increased worker participation in the enterprise
management. At the same time, the leadership continues to
pay lip service to the importance of central planning.
Therefore, the regime will have to work out how to balance
the authority of the central plan with increasing
decentralization and workers' self-management. (U)
Progress on implementation of economic reform would be
regarded favorably by Western creditors and by Solidarity.
Progress on reform has inevitably been slowed, however, by
.disagreement over what reforms to adopt. Solidarity, for
example, wants enterprise property to be vested in the work
force while the government insists that the means of
production must belong to society in general. In any event,
the difficulty ,of performing=major overhauls on a seriously
weakened economy will slow the transaction to new economic
arrangements. The government needs to be able to intervene '
quickly in a bottleneck-ridden economy.
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