ISSUE PAPERS FOR NSC MEETING, AUGUST 28

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CIA-RDP86M00886R000300140007-0
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RIPPUB
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S
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13
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December 22, 2016
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December 1, 2010
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7
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Publication Date: 
August 25, 1984
Content Type: 
MEMO
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Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 EXECUTIVE SECRETARIAT ROUTING S1.1 P . 3 y EXDIR b IDDA 10 Gc.:. X11 I IG .. 12 Compt 113 ID/Pens 14 j D/OLL rl ++D/P,~O ISA/1A rte' IAO/DCI 13 C/1?D/015 10 I-S ~h //`V L? SUSPENSE Ex c rve Secretor 2 D& Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 ~ W 0 %f~ UI bXb-l-t.N 1L 11 q 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 SECRET Dec assify on: OADR SECR T 25X1 Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 III I j' II I ~. STAT DEPARTMENT SECRET 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." SECRET DECLASSIFY ON: ADR Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 i Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 SECRET -2- 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. SECRET DECLASSIFY ON: OADR Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 SECRET -3- 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. SECRET DECLASSIFY ON: ADR Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 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. Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 i I Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 CONFIDENTIAL 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 CONFIDENTIAL DECLASSIFY: OADR Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 i Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 2 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 CONFIDENTIAL Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 CONFIDENTIAL 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 CONFIDENTIAL Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 CONFIDENTIAL 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. CONFIDENTIAL Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 CONFIDENTIAL 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 CONFIDENTIAL Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 CONFIDENTIAL (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 CONFIDENTIAL IDECLASSIFY:OADR ble Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0 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 Sanitized Copy Approved for Release 2011/09/06: CIA-RDP86M00886R000300140007-0