POLAND: PROSPECTS FOR SERVICING DEBT

Created: 12/8/1982

OCR scan of the original document, errors are possible

Special Analysis

POLAND: Prospects for Sorvicing Debt

The decline of the Polijk economy apparentlynrecovery ta not likely onj lime .tookf thehard curr-.noy dctt. The fblejull*,invata bank* in Xov^nbur, tut foreijnnot reoehaduled the debtoverdue rawnte of v.

eujjt**w. certainly uiJi nor oeto.

/ Jtiii reliefu crvdttj it naffjj

leantbillion arc likely atnd of the tear, xJ io lifted thij month ej anticipated, the PoUj are certain to ir*avernmcntc to lift ewtienj and begin debtu.vinnj. Poland jlmmm*illion

msmmmm^

Warsaw has been forced torado surplus this year co try to pay interest owed to Western banks. Polish data show that exports in the firstonths of2 were equal to tho pace1 but that imports were downercent. The trade surplus, however, meetsmall part of Warsaw's largo finan^ clal needs.

The reductions in imports have hindered economic recovery. Grain ieoorts have been slashed, leading to declines in livestock production. Manufacturinghave been hurt by shortages of importod spare parts and raw materials. I

Status of Roschedull.ig

-Uiji JtLltH

financial condition has continued

and overdue debts have soared, relations lus and the bankers are somewhathe year. Polish officials who argued um on Poland's debt seem to have lost

threats by Western bankers toofault have subsidod. There areowover, that banks in several Western uiotly and gradually writing off their

end

of IMS.

Tho Polos nowinancial gap2 of as much7 billion, moot of which is unreschedulodowod to Western governments and to CEMA creditors Arab banks, Brazil, and suppliers. Debt relief from those creditors may cover SI billion to S2 billion, but gap probably jnll still be about S5 billion at the

to Wostorn Governments

Warsaw will owo Western governments S7 billion next year, including unpaid debts due this year, and, inof tho lifting of martial law, pressure already is building to 'bpon debt relief talks. Sweden, Austria, and Switzerland announced to the Paris Club last week that thoy wore considering splitting from tho other creditors to begin such discussions.

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Approved for Release

If tho creditor governments decide to resumenegotiations with the Poles, both sides will start far apart. Warsaw's anticipated request for total debt relief will bo a first seep in its efforts to secure resumption of large Western credits to revive tho Polish ccono-y. The governments, on the othor hand, are primarily interested in getting Poland to mako debt payments, smmmsal

payme.'

Both sides are likely to be disappointed. Even before martial law. Western governsents had stopped providing new money. Moreover, they will bo competing with the banks for what promises toery limited amount of hard currency available for debt service.

Outlook3

Moreillion in debt service is duo next year. This includos:

illion in arrears

S5 billion in principal payments on mediuir-and long-term loans under original loan

bout S4 billion in interest, including charges on rescheduling agreements.

Assuming industrial production does noturrent-account

sinancing requirementillion. Since the outlook remains poor for new credits, however, the financing requirement for IMS will have to bo covered by debt relief, whether under formal agreements or by creditors' continued tolerance of overdue payments. TJ *s^

Original document.

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