INTELLIGENCE REPORT - POLAND: THE ECONOMY UNDER GIEREK

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000500200020-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 24
• Document Creation Date: December 16, 2016
• Document Release Date: November 9, 2004
• Sequence Number: 20
• Publication Date: October 1, 1975
• Content Type: IR

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Confidential
Intelligence Report
Poland: The Economy Under Gierek
Confidential
ER IR 75-19
October 1975
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Poland: The Economy
Under Gierek
Giere,k's economic policies have been aimed at modernization of the economy
and increasing economic growth. At the same time, more resources have been
devoted to improving consumer welfare than under Gomulka.
? Industrial policies have been geared toward modernizing Polish industry,
developing raw materials, and increasing consumer goods production.
? Agricultural policies have been centered on increasing food production
and improving agricultural efficiency.
? Consumer policies have been focused on increasing real incomes and
supplies of consumer goods and services.
? Gierek has borrowed heavily in the West to finance purchases of Western
machinery and agricultural products, but he continues to rely on the
USSR for raw materials and export markets.
Gierek's policies, together with favorable economic trends - particularly in
agriculture and Western credit availability - have led to a surge in economic growth.
Since Gierek assumed power in 1970
? growth in GNP hac; averaged 7% annually;
? industrial production has soared - averaging 10.5% a year - with iihe
growth in consumer goods output exceeding the growth in producer
goods;
? livestock inventories and crop production have registered strong gains,
enabling the regime to boost domestic supplies of foodstuffs - especially
a 6.4% average annual increase in meat supplies; and
e personal consumption growth has doubled, averaging 10.7% annually.
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Note: Comments and queries regarding this report are welcomed. They may be
directed to the Office of Economic Research,
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Ont entia October 1975
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Although Gierek has achieved notable success with his policies, problems have
developed that may dampen future growth and lead to consumer dissatisfaction.
? Rapid increases in purchasing power and investment growth, coupled with
rising import prices, have increased inflationary pressures.
? Rising consumer expectations have resulted in considerable excess demand
for high-quality consumer goods, including foodstuffs, automobiles, and
housing.
? Soaring imports of Western goods have boosted Poland's indebtedness
by $4 billion; high debt-service payments may limit import capacity.
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Gomulka Gives Way to Gierek
1. Gomulka's failures to anticipate the intensity of adverse popular reactio:;
to austerity measures - necessitated primarily by policy blunders - led, in part,
to his demise as First Secretary of Poland's Communist Party in December 1970.
His policy initiatives seemed reasonable enough at their inception - (a) an
industrial reform that tied wages more closely to productivity and (b) increased
procurement prices to promote self-sufficiency in grain production. Ultimately,
however, these policies resulted in a slowdown in wage and employment growth
and higher prices for food, a combination that sparked widespread riots.
2. In the winter of 1969-70 Gomulka announced a reform aimed at
improving industrial efficiency by tightening controls over employment and
establishing more incentive-based wages and bonuses. The reform was designed to
reduce overemployment in factories while tying basic wages and bonuses more
closely to production. These changes were long overdue, because productivity in
Poland had declined to the lowest level in Eastern Europe in the 1960s as the
result of "extensive" growth policies made possible by a large labor supply. Some
of the immediate consequences, however, were a reduction in overtime work and
a slowdown in the growth of factory wages from 4.3% in 1969 to 2.8% in 1970
3. Gomulka's problems with farm policy began in the mid-1960s, when he
reduced grain imports and called for self-sufficiency in grain production in response
to a cutoff in US PL 480 credits. Grain procurement prices were then raised to
stimulate domestic production. To offset the cost of higher procurement prices,
the government boosted feedgrain prices, but livestock procurement prices were
not raised as much. The consequent squeeze on the livestock sector had its inevitable
effect: growth slowed sharply and hog numbers actually declined between 1966
and 1970. The decline in meat supplies that followed coincided with increasing
demand - owing to rising incomes and a lack of sufficient alternative consumer
goods - and created severe shortages of meat and dairy products.
4. Gomulka's response to these shortages - his last major policy decision,
in December 1970 - was to boost prices of food and other consumer items,
representing about one-third of all retail sales. Prices of meat and meat products
in particular were increased by 18%. These actions provided sufficient provocation
to spark riots among shipyard workers in Gdansk, who were already upset with
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the proposed incentive plan, and among housewives, who were trying to lay in
extra food for the Christmas season.
5. On 20 December, Gomulka was replaced by Edward Gierek, a tough,
efficient Party boss of heavily industrialized Katowice Province. Gierek acted
quickly to calm consumer and worker complaints by freezing food prices, arranging
for meat imports to alleviate shortages, and raising minimum wages, family
allowances, and pensions. Then, in March 1971, amid continuing strikes by Lodz.
textile workers, he rescinded the December 1970 food price hikes and froze them
for two years. By midyear, Gierek's planners had redrafted Gomulka's 1971-75
plan into a more consumer-oriented document.
6. Gierek has continued Gomulka's pc ~ticies of rapid industrial growth. He
has been more cautious than Gomulka in instituting economic reforms but bolder
in promoting economic modernization through an expansio;: of imports on credit
from the West. Perhaps most important, Gierek has been more attentive to consumer
needs - and complaints.
Industry: Priority Shifts and Western Technology
7. In a departure from Gonjulka's industrial policies, Gierek imported large
amounts of Western machinery and equipment to modernize industry and improve
efficiency, and he accelerated the growth of consumer goods production. Gierek
has pumped more investment into the food, light, and heavy machinery industries -
more recently mining and energy. He also i iade adjustments in the industrial
management system, but slowly and cautiously because the memory of Gomulka's
abortive measures was still fresh.
8. In 1972, in an effort to improve industrial efficiency, Gierek endorsed
limited experiments to give greater responsibility to the enterprise. Enterprises
would be permitted to undertake certain investments independently, using bank
credits and their own profits, and would be given more flexibility in the use of
the wage fund. Eventually the size of the fund would depend on enterprise
profitability.
9. Following the first experiments at the beginning of 1973, the system
spread to enterprises accounting for almost one-half of industrial production, and
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by the end of 1975 is was to cover enterprises accounting for about three-fourths
of production. The leadership has also tried to move younger and better qualified
people into positions of responsibility at the economic ministry and enterprise
levels. For example, in late 1974 Gierek replaced the heads of the Ministries of
Foreign Trade, Finance, and the Chemical Industry with younr'_r, pragmatic
technocrats of proved administrative and managerial abilities.
10. A more recent policy initiative has involved the energy sector. Poland
emerged from the world energy crunch in a much stronger position than most
East European countries because of its heavy dependence on domestic coal supplies.
Nevertheless, at the beginning of 1974, Gierek introduced energy conservation
measures as strict as any within Eastern Europe, including price increases for oil
products and cutbacks in heating fuels. Gierek also initiated plans to develop the
Lublin hard coal basin in southeastern Poland. An ambitious program also has been
undertaken to exploit brown coal deposits in the Belchatow region, which will
enable Poland to boost electric power production for domestic use and for export.
Agriculture: More Material Incentives
11. To boost crop production, Gierek raised procurement prices for grain,
abolished compulsory deliveries to the state, lowered the prices of fertilizer and
some agricultural services, and sold state land to the largest and most productive
private farmers. Private farmers - who account for about four-fifths of agricultural
production -- were also given legal title to their land and were brought under the
national health service.
12. At the same time, to raise livestock production, Gierek reversed
Gomulka's policy of curtailing grain imports. By 1974, grain imports had risen
to about 4 million tons, nearly double the level in 1970. As in the case of grain,
livestock procurement prices were raised and compulsory deliveries abolished.
The Consumers: More Goods, Higher Incomes
13. In addition to shil,lug priorities toward consumer goods production,
Gierek increased imports of consumer manufactures and selectively reduced prices
of some consumer durables. The latter was necessary to reduce stocks that had
accumulated rapidly under Gomulka. The price freeze on basic foodstuffs was
extended in 1973 for two more years. In redrafting Gomulka's 1971-75 plan, Gierek
accelerated growth of money incomes for both rural and urban workers.
a
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Foreign Trade: Greater Reliance on the West
14. Gierek reversed Gomulka's policy of restraint in trade with the West to
facilitate achievements of his domestic economic goals. Imports of Western
machinery and equipment would provide the technology needed to modernize'
Polish industry and eventually to increase exports to hard currency are-- Imports
of attractive Western consumer goods would help stave off the workers' discontent
and absorb excess purchasing power generated by his wage policies. Gierek also
has expanded trade with the USSR to assure supplies of critical raw materials and
markets for Poland's low-quality machinery exports.
15. To promote exports, Gierek especially sought imports of machinery and
complete industrial plants from the West for the chemical, transportation, food
proeeseing, telecommunications, and light industries. He also looked to the West
for assistance in developing Poland's raw material strengths - particularly the Lublin
coal deposits and the Lubin-Glogow copper deposits. Cooperative ventures with
Western firms have also been encouraged to secure Western technology and to
promote hard currency exports.
16. To finance Polish imports from the West, Gierek was willing to draw
heavily on Western credits, and recently has used coal as a bargaining lever in
negotiations with Western countries to secure additional credits. For example,
Poland received a $150 million Belgian credit in 1975 and has demanded a $300
million credit from Finand - both in exchange for guaranteed coal deliveries. To
help finance the development of the Lublin coal fields, West Germany was asked
for $100 in credits for each ton of coal delivered, in addition to the purchase
price.
17. Gierek has, out of necessity, continued to ;,4y on trade with countries
of the Council for Mutual Economic Assistance (CEMP) for supplies of vital raw
materials and a market for machinery. CEMA partners still provide more than half
of Poland's imports of crude iron ore, petroleum products, and rolled metals. In
1973 the USSR supplied large shares of Poland's imports of key materials - natural
gas (100%), pig iron (98%), crude oil (95%), and cotton (64%). In 1973 the Soviet
market alone absorbed more than two-fifths of Polish exports of machinery, while
the other CEMA countries absorbed another two-fifths.
18. Expansion of trade with the USSR also has involved cooperative ventures
within the CEMA framework. These projects, nearly all in the Soviet Union, include
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a cellulose plant at Ust-Ilimsk, a metallurgical combine at Kursk, and the Orenburg
natural gas pipeline. For the Kursk project, Poland will deliver railroad cars, cranes,
and other equipment to the Soviet Union in return for deliveries of enriched iron
ores and ferroalloys. Poland also agreed in 1975 to help build an oil pipeline linking
the Polotsk refinery in Belorussia with the Mazeikiai refinery in Lithuania in
exchange for additional supplies of Soviet crude oil.
Outcome of Gierek's Policies
19. The acceleration ? of Poland's economic growth since 1970 can be
attributed 'argely to Gierek's policies. Growth was spurred by the rapid pace of
industrial investment, which in part was made possible by a rapid growth in imports
from the West of machinery and technology. In some respects Gierek was lucky:
four straight years of favorable crop weather yielded a succession of record grain
harvests.
Industrial Growth, Investment, and Wages
. 20. Industrial investment more than doubled between 1970 and 1974, with
growth averaging 23% annually - the highest rate in Eastern Europe. Investment
growth has been higher under Gierek than in Gomulka's last five years in every
industry except nonferrous metals. Reflecting Gierek's shift in priorities, the share
of total investment earmarked for food and light industries increased from an annual
average of 14% in 1966-70 (see Table 1) to 19% in 1971-74. The 35% investment
growth rate for the food industry was the highest of all (see Table 2).
21. Although many large investments made under the 1971-75 plan will not
result in production until 1976-80, Gierek's investment program apparently is
beginning to pay off. More than 100 priority investments will be completed in
1975 or early 1976. Projects scheduled for completion include two powerplants,
copper mines, lead-zinc mines, seven large cement plants, a refinery at Gdansk,
and new harbor and dock facilities at Gdansk and Gdynia. Many of these
investments actually will be completed ahead of schedule.
22. Industrial output grew at an annual rate of 10.5% annually in 1971-74,
compared with 8.4% in 1966-70 (see Table 3). During this period - for the first
time since 1958 - the growth of consumer goods output exceeded the growth
of producers' goods. Major factors contributing to faster industrial growth since
1970 included massive increases in investment, sufficient supplies of raw materials
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Poland: Distribution of Industrial Investm':nt
Percent
Amfual Average
1966-70
Total
100.0
100.0
100.0
:00.0
100.0
Fuels and power
26.1
27.5
24.1
22.7
20.9
Coal
9.5
9.8
8.9
7.8
6.6
Other fuels
6.5
6.2
5.3
5.6
6.1
Electric power
10.1
11.5
9.9
9.3
8.2
Ferrous metals
6.7
7.9
7.4
6.3
8.2
Nonferrous metals
5.0
6.0
4.4
3.6
4.4
Machinery
19.5
20.6
21.6
22.9
24.7
Chemicals
15.6
11.4
11.3
11.0
10.2
Construction materials
7.3
7.2
7.4
7.5
7.0
Wood and paper
3.8
3.5
3.6
3.6
4.1
Light industry
6.0
7.0
f.4
9.0
7.6
Food
8.4
7.8
10.6
12.0
11.4
Other
1.6
1.1
1.2
1.4
1.5
and energy, and sharp gains in labor produc-
tivity. The industrial branches contributing
most to the good performance were
Table 2
Poland: Industrial Investment
Average Annual Growth Rate (Percent)
? machinery, especially motor ve-
hicles, shipbuilding, and elec-
tronic, electric, and agricultural
equipment;
? metals, with refined copper out-
put doubling and steel products
up 30%;
? food processing, led by a doubling
in pork and canned pork pro-
ducts; and
? light industry, paced by sharp
increases in knit goods.
1966-70
1971-74
Total
7.6
23.2
Fuels and power
3.3
15.9
Coal
-0.5
12.5
Other fuels
3.7
21.1
Electric power
7.3
15.4
Ferrous metals
7.5
30.5
Nonferrous metals
15.3
12.1
Machinery
11.5
28.9
Chemicals
6.5
16.2
Construction materials
11.9
19.4
Wood and paper
5.3
27.1
Light industry
15.6
28.8
Food
5.9
35.1
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Table 3
Poland: Industrial Production'
Average Annual Growth Rate (Percent
Total
8.4
8.2
10.7
11.3
11.6
10.5
Fuels and power
7.0
6.1
7.6
6.4
5.3
6.5
Coal
4.3
4.4
4.4
4.2
3.5
4.1
Other fuels
10.6
6.7
10.2
5.7
7.7
8.1
Electric power
8.6
8.9
11'.2
11.0
6.0
9.3
Ferrous metals
5.4
6.5
6.1
8.9
7.3
6.9
Nonferrous metals
9.8
15.b
13.4
i 6.7
19.3
16.3
Machinery
12.3
12.4
13.1
14.9
16.0
14.2
Chemicals
13.1
9.0
12.2
13.0
13.9
11.9
Construction materials
7.1
7.3
9.1
6.8
9.1
8.4
Wood and paper
5.5
5.5
7.3
11.0
11.2
8.6
Light industry
7.3
6.1
9.3
9.5
10.8
8.8
Food
3.0
7.3
11.0
9.9
8.6
8.9
23. Earnings of workers increased by an average of 6.8% during 1971-74,
compared with 3.5% in 1966-70. Earnings differentials among branches of industry
were maintained practica'..y intact except for the coal and metals industries (see
Table 4). Even though Gierek shifted investment priorities to consumer and
machinery industries, he felt that there was little need to disturb relative wage
incentives.
Agricultural Success
24. The expansion of farm output included steady growth in both meat and
grain production see Tables 5 and 6). Freed from onerous compulsory deliveries
and favored by higher procurement prices, Polish farmers reacted quickly. Thanks
to the relatively short hog breeding cycle, pork supplies were the first to show
improvement. By the end of 1972, hog production was up 29% over 1970 and
pork procurement 46%. Between 19711 and 1974, livestock production increased
by 27% compared with a growth of less than 1% in 1966-70. Meat production
increased at a 9% average annual rate during 1971-74, and hard currency earnings
from meat exports more than tripled.
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Table 4
Poland: Industrial Workers' Earnings Compared to the Average
For Total Industry
Total Industry = 100
1960
1970
1973 1974
Total Industry .
100
100
100 100
Fuels and power
143
152
149
157
Coal
148
164
160
172
Other fuels
105
103
104
105
Electric power
114
113.
117
111
Ferrous metals
123
125
124
129
Nonferrous metals
123
125
125
132
Machinery
103
98
100
98
Chemicals
94
93
93
94
Construction materials
91
92
94
96
Wood and paper
85
84
84
83
Light industry
80
82
82
79
Food
85
86
89
88
Other
92
88
87
86
Poland: Inventory of Livestock Herds and Production of Selected
Livestock Products
Annual Ave, age
1966-70
1971
1972
1973
1974
Livestock
Hogs'
14.0
15.2
17.3
19.8
21.5
Cattle'
10.4
11.1
11.5
12.2
13.0
Poultry2
83.7
88.9
92.9
94.2
96.6
Livestock products
Meat3(carcass weight)
2,101
2,215
2,485
2,735
3,072
Of which:
Beef
433
456
439
478
636
Pork
1,396
1,313
1,590
1,771
1,888
Milk
14,615
15,147
15,765
16,187
17,352
1. As of 30 June.
2 As of 31 December.
3. Official Polish Yearbook statistics.
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Poland: Production of Selected Crops
Million Metric Tons
Annual Average
1966-70
1971
1972
1973
1974
Grain
17.0
19.9
20.4
21.8
22.8
Wheat
4.3
5.5
5.1
5.8
6.4
Rye
7.5
7.8
8.1
8.3
7.9
Barley
1.7
2.5
2.8
3.2
3.9
Other
3.5
4.1
4.4
4.6
4.8
Potatoes
47.9
39.8
48.7
51.9
48.6
Sugar beets
13.6
12.6
14.3
13.7
13.0
Fodder (root)crops
7.8
6.8
8.0
8.5
8.0
Vegetables
3.8
3.5
3.6
4.0
3.5
25. As a result of the higher procurement prices, money incomes of private
farmers increased between 1970 and 1973 by more than 50% and probably rcse
further in 1974. The jump in rural purchasing power was absorbed to some extent
by higher prices for building materials, fodder, and seeds, but incomes were
sufficientiy high to allow private farmers to increase their land holdings and to
buy more agricultural machinery. In 1971, stocks of unsold farm machinery had
equaled the value of yearly sales; by 1974 demand for tractors and other agricultural
equipment exceeded supplies.
26. Despite these successes, the fragility of Poland's livestock base was
demonstrated again by meat shortages this year. Excessive rains during the harvest
in 1974 had led to poor fodder crops, which, in turn, forced large-scale slaughtering
of hogs by farmers.' Domestic storage and processing facilities were inadequate,
so Warsaw stepped up exports of pork. In February 1975, when shortages of pork
and dairy products led to disturbances in Poland's major industrial cities, Gierek
acted quickly to increase supplies of pork through imports - reportedly from the
Soviet Union and East Germany - and by drawing down stocks slated for export
to the West. Meat shortages were reporter' again in June and were eased by a
further drawdown of stocks.
Consumer Gains
27. Consumer gains have been most noticeable in the consumption of meat,
alcoholic bevt.rages (see Table 7), and consumer durables. Total consumption has
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Table 7
Poland: Per Capita Consumption
Average Annual Growth Rate (Percent)
1974
Total
5.6
7.5
8.8
10.9
11.9
Foodstuffs
3.9
7.8
4.4
6.9
7.6
Alcoholic beverages
8.7
7.1
9.4
16.0
27.4
Nonfoodstuffs and services
6.5
7.4
11.9
12.8
12.2
Based on Kilograms
Meat1
Of which:
1.8
4.4
5.2
4.9
4.7
Pork
0.4
8.7
12.0
4.5
0.9
Beef
5.5
-1.0
-14.0
6.3
13.4
1. Including animal edible fats.
increased rapidly - averaging 10.7% a year since 1970 - as a result of a 12%
average annual growth in real incomes and sharp increases in supplies of consumer
goods. The rapid growth in real incomes reflects above-plan wage increases, a 50%
boost in the minimum wage, and increases in pensions and family allowances.
28. Increased meat supplies rest!:ted in increased per capita meat consumption
from 117 pounds in 1970, to 145 pounds in 1974. Consumption of pork the
meat most preferred by Polish consumers - wr s up more than 28% during 1971-74.
The quality of the Polish diet also improved with a decline in the consumption
of cereals and potatoes in favor of eggs and fish. Larger supplies of nonfood items
stimulated retail sales, which grew at an average of 8.4% annually in 1971-73.
The leading items sold were furniture, up by 15%, electrical appliances, by 16%,
and passenger cars, by 21 %.
29. Housing has been the major exception to the general advance in
consumption, as Gierek is apparently reconciled to the constraints imposed by an
outmoded construction industry. During 1971-74 the average number of families
per 100 dwellings fell only from 113 to 112. Even after the 1971-75 plan was
revised, Polish economists estimated that the 1.1 million dwellings to be built were
still 600,000 below requirements for the expected increase in population.
30. A more rapid increase in incomes than in supplies of consumer goods
has exacerbated inflationary pressure, particularly for basic foodstuffs, for which
prices have been frozen since 1971. Prices for goods and services remained relatively
stable during 1971-73 except in private food markets (see Table 8). In early 1974,
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Poland: Index of Retail Prices of Goods and Services
1965
1971
1972
1973
1974
Total
G
d
93.4
99.S.
99.8
100.3
106.5
oo
s
F
d
ff
94.6
99.8
99.7
99.9
106.2
oo
stu
s
S
i
li
d
92.5
102.5
102.4
102.7
109.1
oc
a
ze
trade
C
t
i
93.0
101.5
100.7
100.6
102.2
a
er
ng establishments
P
i
88.4
101.6 ?
99.6
99.8
117.2
r
vate markets
Al
h
l
92.5
107.6
111.9
114.3
135.1
co
o
ic beverages
N
f
d
97.5
100.0
100.0
100.0
124.6
on
oo
stuffs
S
i
97.4
97.2
96.9
97.1
98.4
erv
ces
84.5
100.3
100.9
102.8
108.2
prices were raised on restaurant meals (22%), internal air fares (75%), vodka (40%);
and gasoline (80%) and caused a 6.2% jump in the retail price index. Continued
excess demand for consumer goods was underlined by the high savings rate during
1971-1974 - 28% of personal income in 1974, compared with 21% in 1970 (see
Table 9).
Poland: Disposition of Net Personal Incomes
Billion Current Zlotys
1970
1971
1972
1973
1974
Total
Consu
ti
f
473.4
522.5
593.3
677.3
777.8
mp
on o
material goods
Consum
tio
f
409.8
442.2
485.3
546.6
626.8
p
n o
services
Outla
s fo
h
i
26.2
27.7
28.9
32.1
35.8
y
r
ous
ng construction
Other expenditures
8.1
17
3
8.4
17
8.8
10.0
10.8
Increase in money balance
.
12
0
.3
28.6
29.6
34.7
.
Total savings!
.
26.9
41.7
59.0
69.7
97.2
112.5
139.6
174.4
216.2
1. Including prepayments for Polish Fiat) 26s and downpayments on cooperative apartments.
31. To dampen inflationary pressures, the government has tried to soak up
some of the excess purchasing power by
? encouraging savings for downpayments on cooperative apartments,
1 11
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? requiring advance payment in full for the new Fiat 126 for delivery in
1976-78,
? assessing a one-time tax in 1975 on personal wealth and businesses outside
the socialized sector, and
? increasing turnover taxes for enterprises with windfall profits earned from
higher export prices.
Foreign Trade
32. Imports from the developed West are a key element in Gierek's policies,
providing machinery and technology for modernization and supplementing
consumer goods supplies. Huge trade deficits and soaring hard currency debt have
resulted. Imports from the developed West increased from a share of about 25%
of the total in 1970 to about 50% in 1974 (see the chart).
33. Small trade surpluses with the West during 1970-71 were followed by
large deficits-as purchases of machinery and equipment - totaling more than
$4 billion during 1971-74 - led the import binge (see Table 10). By 1974
machinery and equipment accounted for almost 40% of total imports from the
developed West, compared with 25% in 1970. Among important purchases were
meat processing plants, a 300,000 ton per year ethylene plant, a bearings
manufacturing plant, a rolling mill, and a sodium carbonate plant.
34. Under Gierek, Poland has incurred the largest hard currency indebtedness
in Eastern Europe. Outstanding indebtedness ballooned from $0.9 billion in 1970
to an estimated $4.9 billion at the end of 1974, as the result of mounting current
account deficits (see Table 11). Aside from the increased import volume, the
growtl of Poland's indebtedness also reflects Western inflation and currency
exchange rate changes.
35. Almost half of Poland's hard currency trade has been financed by private,
nongovernment-guaranteed credits. Many of these credits have been short term (one
year or less), accounting for an estimated 15% of total hard currency indebtedness
in 1973 and probably a much larger share in 1974. Short-term credits generally
cover purchases of raw materials and small machinery and equipment; in some
cases they are used to refinance debts.
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Confi ontial
POLAND: Foreign Trade, by Major Area
Billion US $ and percent of "9tal
$2.3
38%
$4.0
$5.3
$7.9
$6.4
$4.9
$2.2
28%
28%
$10.5
3% 1-'---t OTHER COMMUNIST
LESS DEVELOPED
COUNTRIER
DEVELOPED
COUNTRIES
1974
$8.3
LESS DEVELOPED
COUNTRIES
34%.
DEVELOPED
COUNTRIES
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Table 10
Poland: Trade with the Developed West'
Million US $
Imports
Exports
B,,Ignce
1965
548
607
59
1970
901
962
61
1971
1,075
1,099
24
1972
1,772
1,397
-375
1973
3,431
2,063
-1,368
1974
5,158
2,816
-2,342
1. Including Australia, Austria, Belgium-Luxembourg, Canada,
Denmark, (inland, France, Iceland, Ireland, Italy, Japan, Netherlands,
Now Zealand, Norway, Sweden, Switzerland, the United Kingdom, :he
United States, and West Germany.
Poland: Hard Currency Balance of Payments
1970
1971
1972
1973
1974'
Exports, f.o.b.2
986
1,122
1,434
2,104
2,828
Imports, f.o.b.2
-1,009
-1,182
-1,938
-3,693
-5,543
Services, net
3
4
4
-9
37
Interest income, net
-43
-40
-45
-83
-240
Transfer payments, net3
110
)41_
221
295
450
Current account balance
47
45
324
.1,386
-2,468
Medium- and long-term capital, net
-5
24
137
545
771
Basic balance
42
69
-187
-841
-1,697
Short-term capital, net4
-17
-7
149
897
1,393
Errors and omissions
-25
-62
38
-56
304
1. Preliminary.
2. Polish official trade statistics have been adjusted for understatement of imports and a slight overstatement
of exports.
3. Including net transfer payments, both private and government, and other government transactions.
4. Including "untied" bank loans of one to four years.
36. The primary source of private, nongovernment-guaranteed credits has
been Eurocurrency borrowings, which have grown markedly since 1973. Poland's
net liabilities on the London Eurocurrency market alone more than doubled
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Confklontial
between the end of 1973 and the end of 1974 to $900 million. In addition to
short-term Eurocurrency borrowings, Poland has obtained syndicated Eurocurrency
bank loans with repayment periods up to 12 years and interest A 0.5-1.5 points
above the six-month Eurodollar interbank rate. Recent syndications include a $100
million loan in October 1974 for development of the Lubin-Glogow copper deposits
from a consortium of US and Canadian banks and a $240 million loan in May
1975 for copper resource development.
37. Private, government-guaranteed credits from NATO countries have also
been an important source of hard currency financing. By the end of 1973 the
amount outstanding on such credit extensions was about $1.4 billion. Recent
extensions include a $185 million Belgian credit for a variety of items and a $1.7
billion Fiench line of credit to cover purchases of French capital equipment. West
Germany also signed a preliminary agreement in August 1975 to provide Poland
with a 25-year $400 million credit at an interest rate of 2.5% a year. Non-NA'T'O
Western countries - Austria, Japan, Sweden, and Finland in particular - have also
extended credits. In October 1974, Austria extended $175 million in credits to
buy Austrian machinery. Poland also obtained a $300 million credit from Finland
to cover deliveries of machinery and equipment for the Kwidzyn pulp and paper
complex.
38. Poland has also turned to the CEMA International Investment Bank (JIB)
and Soviet-owned banks in the West to pay for hard currency imports. The JIB
extended credits to Poland of about $90 million between 1971 and 1974 -
including at least $46 million for hard currency purchases to build and modernize
industrial plants, mostly in the machine building industry. Recent extensions include
a hard currency loan of at least $30 million to finance purchases of Western
equipment for the Orenburg gas pip Mine.
39. Trade with the United States increased almost fourfold to $730 million
between 1970 and 1974 (see Table 12). Polish imports from the United States
surged from $58 million in 1970 to $4,9 million in 1974. Most of the increase
stemmed from Polish purchases of US agricultural products - mainly feedgrains
and meals. In addition, extension of E..ximbank credits in 1972 enabled Poland
to increase its imports of US machinery and equipment. Polish exports to the
United States - primarily processed foods such as hams and miscellaneous
manufactures - increased more slowly, from $93 million to $261 million.
Consequently, Poland recorded trade deficits with the United States in 1973 and
1974 after registering surpluses each year between 1964 and 1972. Poland is
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Million US $
Imports
Exports
Balance
1960
84.1
31.5
-52.6
1965
30.4
68.9
38.5
1970
58.3
92.8
34.5
1971
80.9
106.3
25.4
1972
109.9
128.0
18.1
1973
314.7
190.2
?124.5
197:
468.6
260.9
-207.7
expected to purchase large quantities of US feedgrains again in 1975 to support
its planned expansion of livestock production, to compensate for shortfalls in grain
and fodder crops, and to offset cutbacks in grain deliveries from the USSR.
40. Imports from the United States have been supported in part by Eximbank
and Commodity Credit Corporation (CCC) credits. Extensions in 1975 include a
$15 million CCC credit to cove; Polish imports of wheat. Poland has received
authorization for $125 million in Eximbank credits since 1972, including a $22
million credit for the purchase of two meat processing plants, a $20 million credit
for the purchase of copper processing facilities, and a $14 million credit toward
the purchase of a foundry for the machine tool industry.
41. Gierek's policies have been relatively successful in raising living standards
and modernizing industry and will likely continue in the future. Some reevaluation
of long-range economic goals has been necessary in light of price increases for
Soviet raw materials and the need to import a growing share of raw materials
from high-priced Western sources. Unlike other East European regimes, however,
Poland has not announced any major cutback in growth plans. In fact, fragmentary
information about the 1976-80 plan indicates a continuing drive for rapid economic
gro'v th by Gierek.
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42. To continue rapid growth, Gierek will need good years in agriculture.
So far this year the outlook is inauspicious - drought threatens to reduce the
fodder crop. If fodder crops decline - as they did last year - increased feedgrain
imports will be necessary to maintain livestock production.
43. Anticipating the financial burden of growing imports to support his
agricultural program, Gierek in 1974 announced a program to achieve agricultural
self-sufficiency. Unlike Gomulka's plan for self-sufficiency, Gierek's program is long
range and concentrates on improving efficiency. The gc...l is to double agricultural
production by 1990 through more efficient land use, expanded supplies of
agricultural machinery and fertilizers, improved transportation and storage facilities,
and greater research on protein and high-yielding grain varieties. Although Gierek
emphasized that his plans would not necessarily involve accelerated collectivization
of farms, the socialization of agriculture remains official policy.
44. Industrial growth will continue to be paced by output in the machinery
and consumer goods sectors, with mining and petrochemicals zlso deve!oping
rapidly. Production of hard coal is scheduled to increase to 200 million tons by
1980, from "l62 million tons in 1974. Gierek apparently hopes to draw heavily
on Eurocurrency financing and government-guaranteed credits from the West to
develop the Lublin coal fields.
45. Despite the surge in world and Soviet oil prices, Gierek is still committed
to an expansion of oil refineries and petrochemical plants in 1976-80. Poland
imported 215,000 barrels of crude petroleum per day in 1974 and is expected
to double its imports by 1980. These purchases will increase the oil import bill
from $230 million in 1974 to an estimated $1.9 billion in 1980. As a result of
Soviet supply constraints, Poland will have to turn more to non-Soviet sources
for its oil. It already has concluded deals with Algeria, Iran, Libya, and Iraq and
is searching for additional supplies.
Trade with the West
46. While the economy under Gierek depends increasingly on imports from
the West, prospects for exports to the West are dim. Except in shipbuilding, Poland
does not produce much high-quality machinery and manufactures that can be
marketed in the West. Improvements in machinery based on imports of Western
technology will not be realized for some years, so sales for some time will be
limited mainly to raw materials, light manufactures, and foodstuffs. The Western
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recession and the EC ban on meat imports already have cut into Poland's hard
currency earnings and caused problems in formulating the 1976-80 plan. Even when
economic recovery takes place in the West, hard currency earnings may be held
down by the need to use more Polish raw materials to pay for Soviet raw materials
at the higher prices introduced this year.
47. Poland's demand for Western machinery and high prices for imported
raw materials and agricultural products will lead to increases in the -]ready spiraling;
debt with the developed West. Poland will likely draw on Western
government-guaranteed credits and Eurocurrency loans and seek greater assistance
from OPEC countries. Foreign trade officials admit that the rapidly growing
indebtedness to the developed West may make it difficult to secure fareign credits
at favorable rates. At the same time, Warsaw will continue to push exports and
seek coproduction arrangements to expand hard currency earnings ar.u meet debt
service payments.
48. Recent large orders for machinery and equipment suggest that the Poles
are still on a buying binge in the West and apparently are having little difficulty
obtaining additional credits. In fact, on a recent visit to the United States, Minister
of the Machine Industry Wrzaszczyk discussed with US businessmen and Ex-
imbank officials the purcha ;e of more than $1 billion worth of machinery and
equipment for the 1976-8C plan period. Polish officials seem to be convinced that
Poland can maintain its l'.,gh credit rating in the West even in the face of spiraling
indebtedness; mainly because of its coal, copper, sulfur, and zinc deposits.
Domestic Political Stabilitr?
49. Gierek's retention of political power will depend in large part on his
ability to satisfy rising consumer expectations. Despite substantial increases in
supplies of food and consumer goods, considerable unsatisfied demand remains for
quality goods of all types, especially foodstuffs. The key link between foodstuffs
and political stability was underlined by consumer reaciion to the meat shortages
earlier this year. Although the basic demand for some consumer durables has been
satisfied, car ownership by the average citizen is still a far-distant goal. Housing,
moreover, probably will continue to be a thorn in Gierek's side, reflecting his
regime's low priority for housing construction.
50. The need to increase exports to both the West and the USSR will curb
the growth of supplies of domestic consumer goods - a fact the Polish consumer
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knows all too well. To curb consumption growth, Gierek will likely have to restrain
the rise in wages and increase some retail prices. The Poles have already announced
plans to reduce the growth of real wages in 1975, and Gierek has hinted that
some prices probably will be increased by the end of 1975. But Gierek will have
to tread carefully in making changes in his economic policy to avoid a slowdown
in growth and increased consumer dissatisfaction.
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