NSC MEETING ON THE POLISH SITUATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000200320005-5
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 21, 2016
• Document Release Date: July 30, 2008
• Sequence Number: 5
• Content Type: REPORT

Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5
State Dept. review completed
NSC Meeting on the Polish Situation
Overview
As the Polish government, with Soviet support, begins
the second week of its crackdown on Solidarity, the U.S.
faces several important choices. We need to be able to act
with our Allies to penalize the Polish and Soviet
governments for their actions to date, and to be prepared to
cope with a range of contingencies, including massive
repression by the Polish government and Soviet military
intervention short of a full scale invasion.
The most immediate task is to make clear to the Polish
and Soviet governments that their actions will not be cost
free. The three attached papers discuss the economic issues
involved in imposing costs on both governments. Decisions
needed are as follows:
-- Rescheduling Polish Debt.
-- Not to invoke the "exceptional circumstances"
clause in the 1981 agreement
Whether to communicate to the private banks
U.S. government desire not to have default
proceedings at this time
-- Food Aid.
-- Authorize suspension of shipment of remaining
6,000 tons of surplus dairy products
Authorize continuation of shipments for CARE
pre-school feeding programs provided Polish
government guarantees end-use checks
-- Economic Measures.
-- Impose costs on both Polish and Soviet
governments and give U.S. representatives a
firm negotiating position to take with our
Allies.
We feel that popular support for the Polish people in
Western Europe, especially from labor organizations, will
make our Allies increasingly receptive to our firm
approach. The key next step in consultations with Allies
will be a Quadripartite meeting of Political and Economic
RDS-3 12/18/01
Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5
 Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5
Directors of the U.S.,'UK, France, and the FRG on December
22 in London. U.S. willingness to follow through on
meaningful punitive measures will of course be an important
element in gaining Allied agreement to similar measures.
On the basis of the Quadripartite discussions, we hope
to be able to recommend additional unilateral and
multilateral steps suitable for contingencies and as
leverage for promoting a compromise settlement in Poland.
The AFL-CIO has decided that U.S. dockworkers will
refuse to handle any cargo bound for Poland except
humanitarian assistance. Organized labor is willing to work
with us on defining what constitutes humanitarian assistance.
Finally, the fourth attachment to this paper is a
memorandum on the legal implications of recent governmental
actions in Poland.
Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5
 Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5 TAB 1
SECRET,
1981 POLICY DEBT RESCHEDULING:
THE "EXCEPTIONAL CIRCUMSTANCES" CLAUSE
On April 27, 1981, Poland's 15 major Western creditors
reached agreement on the tr.rms for rescheduling Poland's
official and officially guaranteed debt service payments which
were due and unpaid as of May 1, 1981 and which fell due
between May 1, 1981 and December 31, 1981. This agreement
provided debt relief of approximately $2.4 billion, of which
the U.S. share was $380 million. We believe that all partici-
pating creditor countries have now completed the necessary
bilateral negotiations with. Poland to implement this multi-
lateral recommendation on terms.
The Agreed Minute signed in April included an "exceptional
circumstances" clause. This clause provides for the suspen-
sion of the agreement by any participating country. There is
a gentleman's agreement for consultations among the creditors
prior to any country exercising this right. "Exceptional
circumstances" were defined orally by the chairman of the
meeting as the invasion of Poland by external forces or the
use of Polish forces to suppress the Polish citizenry.
If the U.S. exercises its right to invoke the "exceptional
circumstances" clause, the full amount of $380 million will be
due. The Poles do not have funds available to meet these
payments. Furthermore, other countries would invoke the clause
to assure that the U.S. was not treated as a preferred creditor
at some future date if and when the Poles could pay. The
private banks for the same reason would end their rescheduling
negotiations and demand full payment on the $3 billion owed
them. As a result, the Poles would be called upon to pay
approximately $5 billion immediately. There is a high likeli-
hood in this situation that. one of the 460 Western banks with
Polish liabilities would enter default proceedings in court to
place liens against Polish property. This would produce a
legal asset freeze and seriously disrupt (but not stop) Polish
trade.
Policy Issue:
Should the U.S. invoke the "exceptional circumstances"
clause of the 1981 debt agreement?
Pro
--
Would indicate that the U.S.
Polish military suppression.
takes
seriously the
--
Would
their
severely hamper Polish economic recovery
economy is dependent on the West for key
since
inputs,
both
for the industrial and agricultural sectors.
SECRET
Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5
 Approved For Release 2008/07/30 :CIA-RDP84B00049R000200320005-5
Con -- Would end any Polish payments on their Western debt
and eliminate an economic lever we can use later.
-- Could cause instability in the German banking system.
given that some middle-sized banks-wars are over-
exposed w fail.
-- Would reduce the possibility of recovery of U.S.
interests and principal.
It is recommended by State and Treasury that it would not
serve U.S. interest to invcke the "exceptional circumstances"
clause at this time.
Agree Disagree
Policy Issue: (Only if the above is dtsagree)
The private banks are to conclude the 1981 rescheduling
December 28. The Poles do not have the $350 million due in
back interest to close this deal. The banks may declare a
default or leave the issue open for further negotiation. If
they declare a default and go into court, the governments to
protect their claims would have to follow suit. Declaration
of default by the banks would have the same effect as the U.S.
invoking the "exceptional circumstances" clause.
Assuming the U.S. banks are not paid, should the U.S.
government communicate to the banks its desire not to have
default proceedings at this time?
Pro -- Would reduce the possibility of private banks
preempting a future U.S. Government action, thereby
preserving our leverage.
Con -- The U.S. Government should not be providing advice
to U.S. banks on commercial transactions.
-- U.S. approach to banks could leak and be seen as a
weak U.S. response.
There is no agency ag._eement on this issue.
Options:
1. Contact leading banks and express U.S. desire that
they continue to negotiate if there is no payment or agree-
ment rather than declare a default.
Yes No
Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5
 Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5
J LEI. tC.P~ I
2. Contact leading banks and indicate the U.S. Government
is not invoking the "exceptional circumstances" clause at this
time and therefore is not, seeking a default situation.
3. Do not contact U.S. banks in this issue.
Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5
 Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5
SECRET
FOOD AID,TO POLAND
All of the Agricultural Commodities that we have sold
to Poland on government credit programs this year have been
shipped. However, some of the surplus dairy products which
we sold to Poland this year for Polish currency remain to be
shipped. There are two categories:
(a) Last April we sold $71 million worth of dried
milk and butter. The Polish Government has been
taking delivery on this purchase in monthly
increments. Approximately 6,000 tons (roughly
10 percent of the total) has not yet been shipped.
(b) This fall we agreed to $29 million worth of
surplus dried milk and cheese to the Polish
Ministry of Health to be used in a program for
the feeding of children in pre-school day care
centers, administered by CARE through the
Ministry of Health. None of this has been
shipped.
The dairy products from the first category go into the
government distribution network for general use in Poland in
any way the Polish Government sees fit. It would be an appro-
priate sanction at this point to hold up the shipment of the
remaining 6,000 tons.
Agree Disagree
On the other hand, the surplus dairy products from the
CARE program are part of a large overall CARE program in
Poland, which also involves the distribution of tens of
thousands of CARE packages to the elderly and infirm, as
well as several million dollars worth of food commodities
to homes for the aged and to hospitals. CARE has an office
in Warsaw headed by an American citizen resident representa-
tive. The surplus dairy products destined for the CARE
program are humanitarian food aid directed to needy target
groups. The United States is clearly identified as the donor.
It would not be an appropriate sanction to suspend shipment
of this aid, but we should demand guarantees that we can
monitor its distribution.
Agree _ Disagree
SECRET
RDS-3 12/18/01
Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5
 Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5 TAB 3
SECRET
ECONOMIC MEASURES
There are a number of actions which we can take vis-a-vis
Poland if the current situation continues:
-- Seek agreement with our allies to recommend to the
IMF that consideration of the Polish request for membership
be suspended; we could also do this unilaterally. This would
be an important political signal; it would not have any
financial impact on the Poles in the immediate future.
-- Reconsider the access of the Polish fishing fleet to
U.S. waters. This may pose. certain problems, because Polish
and American firms have joint arrangements and contracts could
be cut across. But in any case, this is only a minor signal.
-- Seek agreement among our allies on a "no exceptions"
policy for Poland in COCOM. This would mean that no COCOM-
controlled items would be approved for shipment to Poland.
-- Suspend renewal of export insurance for Poland by the
Export-Import Bank. This would involve denying Ex-Im
insurance for about $25 million of U.S. exports to Poland.
There are also a number of things that can be done
vis-a-vis the USSR:
-- Suspend negotiations indefinitely on a maritime
agreement. The current agreement expires at the end of
December, 1981. If there is no agreement, we can require the
Soviets 14 days notice in advance of port calls, and make
approvals on a case-by-case basis, contingent on the purpose
of the call.
-- Refuse to set a new date for talks on a new long-term
grain agreement (LTA). This would be a major signal to the
Soviets, although there would be strong negative pressure from
the U.S. farm community. (However, if this drifts to September,
when the current agreement expires, it would work against us.
We would lose the only instrument we have to limit Soviet grain
purchases, other than a formal embargo.)
-- Encourage Western banks not to lend the $200 million
the Soviets now want to borrow.
-- Add the Polish situation to our arguments for a major
tightening of COCOM controls on exports to the Soviets.
Pursuant to agreement at the Ottawa Summit, we have planned a
high-level COCOM meeting in January for this purpose; but our
allies want a more general, political meeting, without a clear
focus on the specific areas of militarily related technologies
that we want to bring under control.
SECRET
Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5
 Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5
J LVI.L I
-- Work with our allies to seek a halt to the export of
oil and gas equipment to the Soviets, thereby halting work on
the West Siberian pipeline. This stage of the Polish situa-
tion, however, is probably not sufficiently threatening to
the allies to get them to change their minds.
-- Reconsider the International Harvester and Caterpillar
export licenses. This would be a strong signal to the Soviets
but also would hurt the American firms. We may wish to learn
first whether other suppliers would take similar action to
block their firms. (After Afghanistan, U.S. action blocking
exports by Alcoa and Armco was undercut by firms from Germany
and France.)
SECRET
Approved For Release 2008/07/30: CIA-RDP84B00049R000200320005-5