ISSUE PAPERS FOR NSC MEETING, AUGUST 28

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86M00886R000300140007-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: December 1, 2010
• Sequence Number: 7
• Publication Date: August 25, 1984
• Content Type: MEMO

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EXECUTIVE SECRETARIAT
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NATIONAL SECURITY CNCIL
WASHINGTON. D.G. 2050
SECRET
MEMORANDUM FOR:
August 25, 1914.
MR. DONALD GREGG
Assistant to the Vice President
for National-Security Affairs
MR. CHARLES HILL
Executive Secretary
Department of State
MR. CHRISTOPHER HICKS.
Executive Secretary
Department of the Treasury
COLONEL R. J. AFFOURTIT
Executive Secretary
Department of Defense
MS. HELEN ROBBINS
Executive Assistant to the
Secretary
Department of Commerce
DR. ALTON KEEL
Associate Director for National
Security Affairs
Office of Management and Budget
908?2 a q-Qnl
P-4 -
Cenral Intelligence
THE HONORABLE HARVEY
Was ington Represents
U S. Representative
MR. DENNIS WHITFIELD
Off ce of the U.S. Tr
R presentative, Win
MS. TERESA COLLINS
Chief, Secretariat St
Executive Secretariat
U.S Information Agen
BRIGADIER GENERAL GEO
Exe utive Assistant t
Chairman
Joi t Chiefs of;Staff
SUBJECT: Issue Papers for NSC Meting, August 28
Attached for your information are issu papers drafted b
Departments of State and Treasury, res ectively, for dis
at the NSC meeting on IMF membership f r Poland, to be h
11:00 a.m., on Tuesday, August 28, 198 , in the Cabinet
is)
Robert M Kimmitt -
Executiv Secretary
Attachments
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STAT DEPARTMENT
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BACKGROUND
U.S. Policy Towards Poland: The U.S., in cooperation with ite
All es, set sanctions against Poland after the impositio of
martial law in December 1981 in order to persuade the'Po ilsh
authorities to end martial law, releas all political
prisoners, and restore a genuine dialo ue between the re ip e
and the main components of Polish society. In a Decembe 10,
1982 speech, the President laid out his step-by-step approach
to relations with the Polish Governments: "If the Polish
Government introduces meaningful, liberalizing measures, we
will take equally significant and concrete actions of ou
own."
Pursuant to this policy, in October 1983 we decided o
resume Paris Club talks on Polish debt rescheduling and to
allow discussions on fishing cooperation and in January 9,B4
the U.S. granted a Polish request for 8 charter flights and
agreed that Poland could resume harvesting fish in the U .S.
exclusive economic zone. These steps ere taken in res n;se to
the release of the vast majority of political prisoners hen
under detention in Poland together wit the formal end t
martial law, the successful visit of the Pope to Poland in June
1983, and a December 1983 appeal from ech Walesa that o r
sanctions be eased.
August 3 White House Statement: In re~ponse to the July 21,
1984 amnesty declaration in oland, the White House anno need
on August 3 that the President had "au horized the lifti g of
the ban on landing rights for regu1arl scheduled flighti pf
the Polish state airline LOT, subject o regularization of our
civil aviation relatioriship, and the OV- ll reest.abl iehm-en of
scientific exchanges between the U.S. nd Poland." In
addition, the White House statement said that the President
"has indicated that complete and reasonable implementati n of
the amnesty decision will create a positive atmosphere that
would allow the reactivation of Poland's application for
membership in the International Moneta y Fund", stating that
"the U.S. would of course consider any final application on its
merits, including Poland's willingness to fulfill the
obligations of IMF membership."
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IMPLEMENTATION OF THE PRESIDENT'S DECISIONS
General Implementation: In carrying cut the President'
decision, we have briefed our Allies in Washington as w 11 as
NATO. We informed the Vatican, given the Pope's :special
interest in Poland. We of course als informed the Polish
Government in Washington and in Warsaw.
Reaction to the President's decision made public on August
3 has been generally positive. Our Allies, who all agree that
the amnesty is a significant step, have been supportive The
Vatican, which in May. gave us a note asking for the gra ual
elimination of sanctions, is pleased. Lech Walesa has said
that as a Pole the decision makes him happy. Reiterate n of
the language about IMF in the Preside is August 17 remarks to
a representative group of Polish Americans at a White H use
luncheon drew a prolonged round of applause. The mainstream
Polish American Congress has advocate for months that he U.S.
drop its opposition to Poland's membe ship in the IMF i eleven
prominent political prisoners, the KO Four and the Sol darity
Seven, were released. On the other hand, the AFL-CIO continues
to favor a cautious response, arguing that all sanction should
stay in place until trade union rights are fully restor d.
Pomost, a group largely composed of recent emigres from Poland,
also opposes relaxation of sanctions.
Implementation of Air and Science Decisions to Date: Azi
eleven-page Polish diplomatic note, delivered to us on ugust
16, characterized the President's decisions as positive after
lengthy, familiar argumentation about the unjust and it egal
nature of our sanctions policy. The Polish note expres ed
willingness to enter into discussions on civil aviation and
science exchanges, but without precon itions. Both sid s
initialed but did not sign a new science and technology
agreement in October 1981; negotiations on that text or a
somewhat modified version should pose no major obstacle .
Discussion of a new civil aviation agreement will be mo e
contentious. We have told the Poles that they must dro their.
arbitration claim against the U.S. under the now expire
U.S.-Poland aviation agreement before we will sign a ne
agreement. It is unlikely that the Poles will readily gree to
do this. Dates for discussion of the 4e subjects will b set'in
diplomatic channels.
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Implementation of the IMF Decision: The prisoner-release phase
of the amnesty was scheduled to end within thirty days o the
announcement of amnesty and the question now is whether it has
been carried out in a reasonable and complete fashion, a the
President specified it must before we could in effect li t our
opposition to IMF consideration of Pol nd's membership i the.
Fund.
Under the provisions of the amnest passed by the Po ish
parliament on July 21, 1984, 35,000 pr soners were to be
released from prison, including the 65 prisoners Acknowledged
by the government to have been convict d of, indicted for, or
suspected of political crimes. Any am estied prisoner
convicted before December 31, 1986 of crime similar to the
one covered by the amnesty faces possi le reimposition o the
original sentence or charges. Undergr and Solidarity activists
may be spared formal punishment if the turn themselves in to
the authorities before the end of 1984 sign a detailed I
confession, and hand over any material or equipment use in
the underground.
Warsaw undoubtedly will soon claim that all 652 poli ical
prisoners acknowledged by the GOP have been released. O r
Embassy in Warsaw, in close contact wi h the Church comm ttee
that maintains rosters of political prisoners (this cont et
should not be referred to publicly), w 11 then attempt t
confirm that the 652 prisoners are in act out. To date all of
the leading activists (the so-called S lidarity Seven an KOR,
Four) have been released, and there ha e been no reports at
rearrests or blatant harassment of rel ased political
prisoners. One member of the Solidarity Seven, Jan Rule ski,
as well as another prominent activist,iWiadyslaw Frasyni k,
have been reprimanded by the authorities for addressing hurch
gatherings in a manner which could potIntially threaten yblic
order but neither has been incarcerate . So far the sec ct
police have watched closely but not in erfered with gath rings
at churches to welcome the released po itical prisoners.
Two underground activists arrested in June, Bogdan L ,a and
Piotr Mierzejewski, have been-accused of treason, a crim
explicitly excluded from the amnesty, but neither has be 4
formally indicted. It remains possible that the authori ies
will reduce the charges to an infraction included under ~ie
terms of the amnesty.
Next Steps: Once we have determined that the amnesty de~ision
has been completely and reasonably imp emented, we shoul
inform our Allies, the Polish Governme t, and subsequent y the
public that the positive atmosphere ha been created tha would
allow reactivation of Poland's applica ion for IMF membe ship.
A draft press statement along these li es is attached.
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DRAFT ANNOUNCEMENT
In accordance with the White House announcment of August 3,
the President has determined that implementation of the r lease
of political prisoners in Poland has created a positive
atmosphere that will allow the reactivation of Poland's
application for membership in the International Monetary upd.
As announced on August 3, the U.S. will consider any final
application on its merits, including Poland's willingness to
fulfill the obligations of IMF membership.
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Treasury Background Paper
on
Poland and the I F
Poland was an original member of the International Mo etary
Fund (IMF) and the World Bank (IBRD) but withdrew from the institu-
tions in 1950 rather than provide econom c and financial data in
-support of its application for an IBRD 1 an. At the time, Poland
charged that the institutions were American-dominated and serv-
ing U.S. international interests. A new application for membership
was submitted in November 1981 and some preliminary discus ions,
with IMF staff were held, but the discussions were.effecti ely put
on hold following the imposition of martial law.
Following the announcement by the P lish government o its
amnesty decision, the President's statem nt of August 3, 1 84
stated that:
complete and reasonable implementat
will create a positive atmosphere t
activation of Poland's application
the IMF. The U.S. would, of course
final application on its merits, in
willingness to fulfill the obligati
membership.
This paper provides background on t
IMF would follow in processing Poland's
is informed that the application could b
also addresses some of the issues that m
with the application.
Membership Procedures
on of the amnesty
at would allow re
or membership in
consider any'
luding Poland's
ns of IMF
e procedures that the
pplication once t e Fund
reactivated. The paper
ght arise in connection
procedural steps ~m con-
The IMF has established a series of
~
sidering all applications for membership These include:
-- submission of a written requestlfor membership
(Poland's 1981 application is sill on the table)
-- formation of an IMF technical t am to collect the
necessary economic data (includ'ng national incom
exports and imports, official r serves, balance of
payments, exchange rate and fin ncial arrangement;),
review the country's economic policies, and to cal-
culate a quota and the terms of!payment of the qu ta.
subscription;. -
-- formation of a "membership committee" of the
Executive Board, composed of 5-9 Executive
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Directors, to consider the appl cation and make a
recommendation to the full Exec tive Board;'
-- preparation of a membership rep rt for the Executive
Board containing the proposed t rms and condition
which the country has agreed to accept;
-- submission of a membership reso ution to the IMF
Board of Governors which must b approved by a 50
percent majority vote (the U.S. has about 20 perc rat
of the total IMF voting power); and
-- completion of the necessary leg 1 steps by the co r}try:
to allow it to fulfill the obli ations of members -tip
and make the quota subscription
In 1981, it was expected that the a plication process for
Poland might take 8 to 9 months to compl te. However, it s
likely that a somewhat slower pace may b required this ti 4 and
that the membership process could take a out one year beca se:
the IMF technical team on Polan has been
dissolved and assigned to other countries.
A new team will have to be asse bled with
technicians who were not involv d in the
earlier effort;
-- IMF staff indicate that a technical team could
not depart for Warsaw until Oct ber due to the
September Fund/Bank, meeting and other commitments
and
there has been very little IMF ontact with the
Poles for the past two years, a .d the process of
collecting data and assessing e onomic policies
would essentially have to start over, possibly with
Polish officials that are less eform oriented an
technically competent.
The attached table sets forth a pos ible schedule for the
membership application process.
Possible Issues Concerning Poland's Application
It is difficult to anticipate the particular problems that
might surface during the application process. Based on pa ;t
experience, including the 1981/82 IMF discussions with Pol nd,
the following issues may arise.
a) Data. As noted above, the IMF's data requirements
are quite comprehensive, and timely and complete informati n is
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critical in assessing the applicant's eco omic policies and
determining the appropriate quota. In the past, the Poles
been very vague regarding their current a d prospective polihave
cies-
and have lacked basic data which the IMF ould require. Failure
to provide comprehensive and timely infor ation could pose
problem in terms of Poland's ability to fulfill its members ip
obligation.
b) IMP obligations. The IMP req ices that a count y
agree formal y to fulfill all membership bligations. Thes
include:
pursuing policies that will promote orderly
economic and financial condition and avoidi
ng
manipulating exchange rates or its balance of
payments to obtain an unfair competitive advantage
-- permitting its currency to be used in IMF operations
by agreeing to convert IMF holdings of its currenc
into hard currency when it is in a relatively stro g
balance of payments and reserve position;
obtaining prior IMF approval befo e the member may
impose or intensify payments rest iction and/or
engage in discriminatory currency arrangements; an
-- providing any information which t e IMF
deems necessary for its activitie
It could prove difficult for Poland to acc pt fully these
obligations in light of its denunicatfon o the IMF at the time
of the 1950 withdrawal (the Fund may insis on a repudiation of
that statement) and questions about Poland s control over it
economic policies. Moreover, the failure of Poland to meet is
financial commitments to official creditors could also raise
questions about its ability to fulfill IMF obligations.
C) Quota size. Negotiations on the size of a new member's.
quota are usually difficult, because of the importance of quotas
in determining the amount of access to IMF financing, the share of
any SDR allocation, and voting power. Preliminary estimates
made in 1981 indicated a quota in the range of SDR 750 million (about
$765 million at current exchange rates). The Poles are likely
to press for a larger quota although subsequent economic develop-
ments could, in fact, point to a lower figure.
d) Quota subscription. The IMF Articles of Agreeme t
provide that a portion (about 25 percent) of the quota subsc iP-
tion be paid in reserve assets. The Poles may have difficulty
getting enough hard currencies (about $190 million) to make he
payment, although it is certainly possible that commercial banks
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would be willing to provide financing on a
hard currency quota subscription could be
by the Poles).
e) Representation. The Poles w
join an existing IMF constituency in order
the IMF Executive Board. (The Romanians a
Dutch and the Hungarians by the Belgians.)
in these groups could alter the voting pow
and affect the ability of the Dutch and Be
Executive Director. It is not clear what
willing to represent Poland. Subsequently
and Hungarians (and possibly Yugoslavia) m
their own constituency and elect an Execut
that could upset the present balance in th
create an Eastern European "bloc" with tro
for the IMF.
short-term basis. (The
mmediately reclai ed
uld initially hay to
to be represented on
e represented by he
However, members ip
r in the constitu ncy
gians to elect the
ther member would be
the Poles, Romanians
ght attempt to form
ve Director, an e ent
Executive Board nd
blesome implicati ns
IMF Financing
Upon payment of its quota subscription, Poland could as
indicated above, immediately withdraw its hard currency portion
although this would not provide any net new financing. Beyond
that, the completion of the membership pro ess would not mean any
immediate IMF credit to Poland. Traditionally, the IMF has resisted
providing financing to a new member for atileast six months tollow-
ing membership in order to be sure that thle country is fulfilling
the obligations of membership and to allow the new member time to
develop experience with the IMF's operation and lending req ire-
ments. Moreover, any substantial IMF financing for Poland ould
require the negotiation and implementation of a major adjustment
program to deal with the country's deep seated economic pro lems.
It would likely take six months to a year following members tip to
negotiate and obtain approval for such an IMF adjustment pr gram.
Under the IMF legislation enacted in,1983, the Secretary of
the Treasury is required to certify and document in writing upon
request and notify and appear, if requested, before Congress
that certain criteria have been satisfied before the U.S. supports
IMF financing for a communist dictatorship. The Secretary rust
determine, inter alia, that the IMF financing would provide a basis
for correcting the country's balance of payments problemI; r duce
the severe constraints on labor and capital mobility or oth r
highly inefficient labor and capital supply rigidities and d-
vances market-oriented forces in the country; and is in the b,esk
interest of the majority of the people in'the country. The i;nple-
mentation of this: legislative requirement for Poland could ose
serious problems.
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Relationship with IBRD (World Bank)
On joining the IMF, Poland would also
membership in the IBRD. Eligibility for
would depend, inter-alia, on a calculation
GNP in U.S. dollar terms and on Poland's
its economy. Should Poland be found eligi
additional domestic political issues in th
would seriously erode Congressional suppor
tions, particularly the IBRD which has co
sharp Congressional criticism in recent m
Paris Club
Poland's outstanding.debt totals $27
this amount is due this year including $11
from 1981-1984. In March, the Paris Club
become eligible olr
orrowing from the IBRD
of Poland's! per capita
illingness to lib ralizze
ble, this would r ise
e United States, nd
t for these ;insti u-
e in for extremel
nths.
billion; $17
billion of
billion in arrea ayes
creditors propose c, and
the Poles accepted, a payments schedule toy clear up outstan i4hg
arrearages under the 1981 rescheduling agreement. These pa ments
were a precondition to rescheduling the remainder of the ar earayes.
Currently, there is an impasse in the
Polish payments under the 1981 agreement.
disagreement regarding two issues: the c
the initial Polish payment and whether the
owed to the U.S. ($35 million, including
paid in full prior to the start of negoti
debts. The Paris Club creditors are will'
cutoff date but have insisted that the U.
Paris Club regarding the
The impasse is d e to a
toff date for corn uting
non-rescheduled mounts
ate interest) sho ld be
tions on Poland's 1982-84
ng to be flexible on the
. be paid in full
Recommendation
The IMF does not intend to proceed until it receives a clear
U.S. signal that the conditions in the Pr sident's August 3 state-
ment have been satisfied. Once these conditions are met an a
determination has been made that the amnesty has been completely
and reasonably implemented, the following steps should be taken:
(1) State and Treasury will coordina a the preparation
and release of a public statemen on the implemen-
tation of the Polish amnesty whi h would be released
following the consultations outl ned below;
(2) The Secretary of State will inform our Allies, the
Vatican, and the Polish Government of our decision
that the conditions for reactivation of Poland's
application for IMF membership have been met;
(3) The Secretary of the Treasury wi l inform the IMF
that: i
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(a) The U.S. considers that the'conditions for
reactivating the Polish membership applicatio
have been met;
(b) We would expect the IMF to ollow the normal
application procedures that apply to any coun ry
seeking membership; and
(c) The United States will cons der the final app ica-
tion on its merits, includi g Poland's ability and
willingness to fulfill the Obligations of mem ership.
Cleared by:
Statg/EB:Elinor Consta
Statg/EUR:Richard Burt
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E4 AT 25 P12:
WASHFAX REIPEIPT
r`
MESSAGE NO. 50--
CLASSIFICATION S 9 C R ET
FROM ROBERT M. KIMMITT
(NAME) (EX ENSION) (ROM NUMBER)
ISSUE PAPERS FOR NSC MEETING, AUGUST 28
MESSAGE DESCRIPTION
TO (AGENCY) DELIVER TO:
DEPT/ROOM NO.'
REMARKS LOG SYSTEM II 90892-ADD-ON-
)
EXTENS ION
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