COMMUNISM IN DEFAULT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000601460029-9
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 1
• Document Creation Date: December 20, 2016
• Document Release Date: May 9, 2007
• Sequence Number: 29
• Publication Date: December 23, 1981
• Content Type: OPEN SOURCE

Wall Str e~v d F or Release 2007/05/10 ' CIA IDgi4B00049R000601460029-9
RJ 1V W &. OUTLOOK
.Commuriisth' in Default
Top U.S. officials are engaged in a
la
n
i
yi
g
ii divisive tendencies' within
debate-both within the administra; p
NATO,- There.. is of course reason to.--.'
lion and with our allies-over what,:. hold open. aome`pros pect:of arms re-',
steps to take in reaction to the Soviet ductions :when`ihe' Soviets are. 'read '
inspired reimposition of . totalitarian but their actions in Poland rnanifestl , r
rule in Poland. The reaction, when it,
Y i
.
does come, should meet certain tests:.
that it punish the Soviets rather than
the Polish people, that it serve longer-
suggest that time is not now. (As do
their violations of existing arms con-
trol:'. treaties ` by supplying. .chemical i
d b
an
iological weapons tor use in ,
term ti estern interests and that it
Asia.) The Madrid talks, intended to i
give the West more, rather than less
,
leverage over the Soviet. bloc in the follow up the Helsinki human-rights=-4
future, agreements, are simply a travesty in
What we most fear Is that the cur
'Declaring a default un Polish credit
from the U.S. government would trigger a general default on the $27 billion
of loans accumulated by Western gov-
ernments and banks in the last dec-
ade. American banks hold about S1.7,
I
loss and have already made handsome
profits on the loans. West German
banks, with upwards of S4 billion it,
debt,-., would 'be in more serious
trouble, but surely the Bundesbank
and Fed'could shore'up the severely
threatened
though it might b
,
e good to
~
than a repetition of the Carter admin # ish crackdown was held off until the allow an exemplary hanging or two.
istration reaction against-the invasion ? Soviets could wrap up their , gas pipe- In any event,. declaring a default
of Afghanistan: That is, that searching 5 line deal ? with- Western Europe. The ? 'would simply 'acknowledge what
deal not only wlll
franticall
`ab
i
.
h
g
y
ve
t
out for somethin t d
e Soviets blI everybody kno t b a-
goowsoe factthat
the administration will reimpose the'a lions in ' much-needed foreign .ex ' I there is no realistic prospect of Poland
h
e
i
ang
,
grain embargo it only recently .lifted: ..1 c
t will help them develop vital paying its debt. From the standpoint
When the Carter people.. declared a resources that the Communist eco- of the Polish people, the burden of the
grain embargo, we branded it as a fu- nomic system is incapable of develop- debts would be off their ba
k Thi
c
.-
s de
file substitute for real action. And 'as lag itself. The more we learn of this : fault would raise the price of capital
transaction th
we
r
di
d
p
e
cte
e more we recognize to the falteri Sit blo
in practice it wl
,as easiy,ngovec; indeed, we
evaded, becoming a nuisance for the that its collapse would be one of the
doubt you would' see much Western
Soviets and an embarrassment for the most damaging single blows to the So capital flowing to finance the develoo-
L'.S. viet- economy and military-industrial ment of the Soviet Union. This woud
rent debate will lead to nothing more'`
Unlike the Carter administration
,
the Reagan administration has em-
barked on a serious rearmament ef-
fort. This gives its anti-Soviet stance
some standing, and we could support a
new grain embargo provided it were
part of a package symbolizing a new
page in Soviet-American relations,
and carrying real costs for the Soviet
bloc. We have in mind something like
this:
All negotiations with the Soviets
would be suspended indefinitely; our
representatives would return neither
to the Madrid human-rights talks nor
the Geneva arms talks. Further and
truly concerted efforts would be made
to stop the Soviet gas pipeline deal.
And to hit the Soviets where it really
hurts-in their credit standing-the
U.S. government should declare in (le-
fault the government credits extended
to Poland, and proceed to attach as-
sets accordingly.
We think it is no coincidence that
the long-prepared crackdown in Po-
land came only a few weeks after re-
sumption of the Geneva arms negotia.
tions. These negotiations are a symbol
complex. be a punishing price. Its creaky ecan
the wake of Poland.
The administration should refuse orgy can no.longer feed the country's
export licenses to the American com- people and must depend on Western
panics supplying machines and mate technology for what little productivity
rials for the gas pipeline project, and it can muster.
study the withdrawal of U.S. govern
Short of the repression in Poland it
- I
ment contracts for key foreign sup- self, nothing has been more reprehen-
pliers if they sell to the project. It sible these last few weeks than the
should stress to the West German gov sight of Western bankers cheering on
er?liment the now-budding U.S. feeling `` the Communists in their "austerity"
that the European allies are not 'a help program in the hopes that slave labor
but a liability. And it should stress to will bail out their ill-advised loans.
both. governments and banks the risky Ironically, the most important single
nature of the subsidized loans that are thing we can do to punish the Soviet
the heart, of the pipeline agreement. Union is to get our bankers to behave
The pipeline, loans, like the Polish like bankers. If they charged a price
loans now at dire risk, are far from commensurate with the real risk we
strictly economic deals subject to the now see in Poland, Western capital
normal credit processes of Western would no longer be siphoned into the
banks. The German banks, in particu- Eastern bloc, and the Communist
Jar, were dragged into them by a Bonn economy would creak into bankruptcy
government intent on "detente" at all not only in Poland and Romania but
costs. The banks' implicit calculation in the Soviet Union itself.
is that if such loans cannot work eco
nomically. they will be bailed out by
governments-by the? Soviet govern-
ment, and failing that, by the Western - -
governments. The perceived riskless-
ness of these loans has assured the So-
viet bloc of a ready supply of cheap
credit
nothi
;
ng would hurt those co
un-
zronar community, help freeze into po ' tries as much
sition the Soviet milita su riorit ride cutting off this free
I>e.;iittdtifex Release 2007/05/10: CIA-RDP84B00049R000601460029-9