Created: 6/19/1982

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POLAND: Bleak Financial Outlook

Poland's hard currency debtajor obstacle to economic recovery. Scarce foreign exchange has to be spvnt on debt serviae rather than on imports. Ben credits are not available toeficit, and paymenta arrears are mounting by moreonthly. The Polev have not begun paymenta due this year, and rescheduling negotiations on obligations2 are offlow etart. Poland almost certainly will not be able to obtain auffi-aiently generous rescheduling terms to close its financial gap this year, H H

Little Progress in Rescheduling

Poland owes western8 billion in debt service due2 under original loan contracts, andillion in debts carried over from last year and in payments due under debt relief agreementsgainst this totalillion, the regime projects for this year at0 million trade surplusositive balance0 million on current account items other than trade andillion.

Although Western governments are requiring certain political steps as preconditions to talking about additional rescheduling, some are quietly anxious to open negotiations in order to^stake claims on whatever debt service payments re made.I


Negotiation of the terms for any agreement2 will be difficult. The agreement1 with thebanks rescheduledercent of principal ments but gave no relief from interest payments.


Approved for Release

redit guarantees extended by Westernallowed Poland torade deficit and toarge part of the debt service that was not Western governments, however, are unwilling to extend new money this year and banks are unwilling to increase their exposure.

Bankers are counting heavily on Warsaw's0 million trade surplus to pay interest due this year. Althoughurplus is possible, the bankers are likely to be disappointed, interest charges this year are estimatedillion* on unguaranteed debt.

Moreover, the surplus earned early this year was earmarked to pay overdue interest The Poles may choose tomaller trade surplus. The Polish press in Aprilpercent increase in planned im-irts_in the secondbalanced trade.

Rescheduling Possibilities

The rescheduling outlook is so uncertainide range of outcomes is possible. Warsaw could barely close its financial gap this year if it1 billion surplus on its current account, obtains credits of SI billion, and concludes rescheduling agreements with all creditors covering all of the debt serviceore likely possibilities based on incomplete rescheduling leave Polandinancial gap of8 billion to as muchillion.

Default Remains Possible

A few banks might benefitolish default by seizing Warsaw's meager assets in the West,ormal default would require large loan writeoffs and end the


trickle of payments coming from Polo:>d. Although the hank, group has been able to keep In line the smaller creditors who favor default, the bleak financial outlook couldpressureormal declaration in several ways.

Disagreement and disorganization among banksthe likelihood that creditors will try to cut separate deals with Warsaw, leading excluded banks to retaliate.

Mounting unpaid debts, especially on Interest payments, will result in pressure from bankto order writeoffs for loans to Poland.

The unsettled situation in Poland could yet lead to events that would induce government creditors toormal default.

Original document.

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