POLAND: APPROACH TO PARIS CLUB

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000500350001-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 11
• Document Creation Date: December 22, 2016
• Document Release Date: July 13, 2010
• Sequence Number: 1
• Content Type: MEMO

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Poland: Approach to Paris Club
Summary
The Poles are putting final touches on their proposals
for rescheduling and new credits, and may present them soon
to Western governments. In the Paris Club--the group of
Western government representatives which negotiates
rescheduling of debts to official creditors-- Warsaw has the
support of some neutral West European governments who might
break ranks and initiate rescheduling talks. At this time,
however, the governments are still unwilling to extend new
loans to Poland unless they are offset by Polish payments.
If negotiations begin, whether by the entire Paris Club or a
part of it, they are likely to be complicated by the
conflict between Warsaw's desire for new loans and the
creditors' interest in receiving long overdue payments.
Western banks are proceeding with their own rescheduling
talks with the Poles. Warsaw's payment capacity is not
large enough to satisfy the likely minimum demands of both
governments and banks.
This memorandum was prepared byl (East European Division, ZDAI
Office of European Analysis. It was requested by NIO/Economics for a SIG-IEP
meeting. Research was completed on 2 February 1983. Comments and questions
are welcome and should be addressed to Chief, East 25X1
European Division, EURA,
EURM 83-10019
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Paris Club: Gradual Erosion of Unity
As a sanction against the martial law regime, government
creditors refused to reschedule 1982 obligations, and Warsaw has
not repaid any of the debt service due last year. Although the
group remained fairly unified through 1982, some West European
countries have grown impatient with the stalemate. The Paris
Club is now divided roughly into three camps on the rescheduling
issue.
The US has refused to meet with the Poles to discuss
rescheduling because the regime has not met the original
political conditions. As for the European NATO countries, some
appeared to be leaning toward rescheduling a few months ago, but
disappointment over the lack of real change in Poland has eased
these pressures recently. There remains considerable diagreement
within the NATO governments. Foreign ministries are taking a
harder line against meeting with the Poles, while economic
ministries are generally anxious to resume rescheduling in order
to receive payments. They have been frustrated by the Poles'
failure to pay debt service to governemt creditors while banks
have proceeded with rescheduling and received all payments the
Poles are able to make.
The French Ministry of Foreign Affairs has prevailed in
taking a strong stand in NATO and in public statements against
rescheduling, although the Ministry of Finance has argued for
negotiations. The US delegate to the Paris Club meeting in
October noted that the chairman of the Paris Club--a Ministry of
Finance official--encouraged opposition by other governments to
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Paris' position, possibly in an effort to undermine it. West
German support for the US position firmed somewhat at the Paris
Club meeting in October. The delegate from Bonn indicated that
the change in government last fall was responsible for the
tougher stand.
Among the major Allies, Great Britain seems most
uncomfortable with the position against rescheduling. The
British government's view, expressed consistently in NATO and the
Paris Club, is that continued failure to discuss debt relief
affords Warsaw a total, if informal, moratorium on debt to
governments. The British want to meet with the Poles to discuss
performance under the 1981 agreement and to consider rescheduling
1982 debt, but they have not pressed these views forcefully
enough to threaten creditor unity.
Non-NATO government creditors--Switzerland, Austria, and
Sweden--advocate moving forward quickly with the Poles. Before
the Paris Club meeting on 11 January, Switzerland, supported by
other neutrals, threatened to break ranks and reschedule
separately. The Swiss delegate objected that Paris Club policy
against rescheduling is based on political conditions set by NATO
members. Rather than proposing a break with other creditors,
however, he recommended at the meeting that the neutrals
constitute an advance negotiating group that would be joined
later by the remainder of the creditors. In any case, the group
ruled against the neutrals in favor of continued unity along the
lines of the US position.
The issue of Polish rescheduling remains alive, however, and
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the neutrals are likely to continue to search for ways to advance
rescheduling. The Paris Club planned to discuss Poland again on
2 February.
Warsaw's Goals
The Poles hope that rescheduling will be a first step to the
granting of new loans by the West. In a 6 January interview,
Polish Deputy Premier Madej indicated that Warsaw's rescheduling
terms will include requests for new credits to invigorate the
economy. For rescheduling to carry immediate economic benefit
for Warsaw, it would have to be accompanied by credits in excess
of payments to Western governments. Poland probably will seek
near-total debt relief from Paris Club members; the 1981
agreement with the governments covered 90 percent of principal
and interest. The Poles also may request a multi-year
rescheduling, possibly for 1982 through 1985.
Poland also is likely to use the resumption of rescheduling
talks as an opportunity to dust off its IMF application, which
was nearly completed when martial law was declared. A successful
bid for membership could lead to some $600 to $800 million in IMF
credits annually.
membership in turn might bolster creditor confidence.
Warsaw apparently is not ready to present its specific
requests to the government creditors. The Director of the
Foreign Department of the Ministry of Finance postponed an
appointment scheduled for 24 January with the chairman of the
Paris Club to respond to questions posed by the creditors last
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It is not clear whether the delay is just a short pause to
allow plans to be completed, or whether Warsaw is stalling in
order to exploit tensions within the Paris Club.
Poland is playing on
creditors' fears about possible cooperation with other debtors
and Polish willingness to honor its debts. Clearer indications
of Warsaw's strategy will be the urgency with which the Poles
press to schedule a new meeting with the chairman of the Paris
Club, and the proposals the Poles raise at the meeting.
Warsaw's Payment Capacity
If Warsaw meets its 1983 trade and borrowing targets, it
would have $1.9 billion available to pay debt service this
year. The socio-economic plan for 1983 approved by the Polish
parliament in December calls for a hard currency trade surplus of
$700 million, a surplus on services (excluding interest) of $400
million, and new credits of $800 million. The credit figure
presumably includes short-term credits from banks as part of the
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1982 rescheduling agreement and more credits from a prospective
similar agreement for 1983. Warsaw also is negotiating for
government credit guarantees to finance grain imports. Since
most of these credits have not been committed yet, we believe
that the credit plan is overly optimistic and that actual debt
service payment capacity thus is likely to be lower than Poland
projects.
If Western governments agree to reschedule, the regime will
face a tricky problem in deciding how much to pay governments
versus banks. Warsaw, as it has in the past, may agree to
obligations it cannot meet. According to terms of previous
agreements and current creditor motivations and expectations,
Poland will not be able to pay the governments and banks even the
minimum amounts that each group wants. (See table attached)
-- Governments: Warsaw owes government creditors an
estimated $7.7 billion this year, including $7.2 billion
in unrescheduled obligations due in 1982 and 1983 and
another $450 million in interest on the 1981 government
rescheduling agreement. Governments may insist that the
interest payments on the 1981 agreement be honored as a
down payment for further rescheduling. On the further
assumption that terms for rescheduling 1982 and 1983 debt
are the same as those in 1981, Warsaw would have to pay
about $720 million in unrescheduled debt service this
year. In sum, under this rescheduling scenario Poland
would have to pay $1.2 billion to governments in 1983.
-- Banks: Payments owed to banks this year total $4.7
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billion. If government creditors are paid, the Poles
would have at most $700 million to pay the banks--enough
to cover only Warsaw's interest and other charges under
the terms of the 1981 and 1982 rescheduling agreements
with the banks. Poland would be unable to pay any of the
estimated $1.1 billion in interest to banks on loans that
have not yet been rescheduled. In practice, Warsaw could
be expected to pay only part of each group's minimum
requirements.
If Rescheduling Talks Resume
The Poles and their official creditors will have much
catching up to do if and when meetings are resumed. Warsaw is
far behind on interest payments on the 1981 rescheduling
agreement with governments. Progress on rescheduling is likely
to be slow, whether negotiations are with the entire Paris Club
or a small group. Even the creditors most anxious to reschedule
have not yet addressed terms of a possible rescheduling.
The creditors' desire to receive Polish payments is certain
to clash with Warsaw's goal of obtaining large new credits. Even
before martial law was declared, Western governments were
reluctant to extend additional credits. Their reluctance is
likely to be strengthened now by the fact that export credit
agencies are financially strapped because of other
reschedulings. Governments are not likely to see enough
political and economic progress in Poland in the near term to
meet Warsaw's requests.
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A Canadian embassy officer informed a US official in late
January that after months of negotiations with the Poles and
heated debate in Ottawa, the Cabinet had just approved a $100
million credit for grain--the first substantial new loan to
Poland by a Western government since martial law. The credit,
however, is contingent on payment by Poland of $150 million to
Canada. The British reportedly also are considering lending ne,:i
money only if it is matched by Polish payments. These bilateral
arrangements would not provide the net flow of hard currency that
Poland wants, but they could impose further strains on Paris Club
unity.
Position of the Banks
Western banks delayed rescheduling in the first months of
1982, but then proceeded with negotiations and signed an
agreement in November. The Poles presented their 1983 plans to
the International Economic Committee of the bank group in mid-
January, and the first meeting to negotiate the next round of
rescheduling was held on 27-28 January. The US banker who chairs
the Committee told Embassy Warsaw that European banks seem
willing to reschedule 1983 to 1985 debt in the next round, while
most US banks want to reschedule 1983 debt only.
European banks also favor relending a
higher percentage of interest payments than do US banks.
banks generally want governments to
resume rescheduling so that government credits will be available
to improve Warsaw's payment prospects. Like the Poles, these
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banks are probably overly optimistic about the volume of new
credits that the West would provide.
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without substantial new credits, 25X1
payments to governments required by rescheduling may make the
banks and governments rival claimants for Polish payments.
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POLAND: PAYMENT PROSPECTS
(Million $US)
Projected hard currency available to pay creditors in 1983a 1,890
Earnings surplus 1,100
Trade 700
Services, Net (excluding interest) 400
New Credits 790
Payments Due in 1983 12,406
To Paris Club creditors--total 7,695
To banks--total 4,771
Minimum payments required under rescheduling agreements 3,032
To Paris Club creditors 1,171
Interest under 1981 rescheduling agreement 450
Due but not paid in 1982 200
Due in 1983 250
Unrescheduled obligationsb 721
10 percent of 1982 debt service 416
10 percent of 1983 debt service 305
To banks 1,861
Payments under rescheduling agreements
1981 agreement
1982 agreement
Interest on unrescheduled loans
From Paris Club
From banks
b ficia Polish projections
Assuming rescheduling of 90 percent of debt service
725
268
457
1,136
9,374
6,524
2,850
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Ourside
Distribution List for: Poland: Approach to Paris Club
#EURM 83-10019
Rober Porter; Exec. Sec Cabinet Council on Econ Affairs
Bailery and Robinson; Nat'l Security Council
Wallis
Morris
McCormack
Hugh Montgomery
Ikle
Perle
Bryen
Marc Leland & Rober Cornell; Sent to Douglas Mulholland
Omer, Liikala & Vargo: sent to Mr. David Peterson
Brock & Whitfield; US Trade .Representatives
Inside.
D/EURA/
DD/EURA/
D/DDI
DDI registry
NIO/Econ
Branch files
Author
C/E[.JRA/EE/EW
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