Created: 11/10/1981

OCR scan of the original document, errors are possible


POLAJXi Financial Crisis

The Polish scanomy continues to deteriorate, and the country cannot meet its international financialn the year ahead without masaive foreign assistance* There is no chance of reversing the sooncntio situation, moreover, until Warsaw puts its politicaloal toward whiah little progress has been made.

Poland will continue to look to the Vast forhelp in overcominglegacy of the Gierek years, in achieving the economic stability needed toalanced political framework, and in offsetting theloss of Soviet economic assistance. Foreigncan give the Poles more time to work out theirbi ems, but it would not ensure economic recovery.

For all practical purposes, Poland Is bankrupt. To complete the rescheduling of lta debts1 tobanks and governments, Poland must still come up0 million for Interest payments to the banks byecember--unless this sum also Is rescheduled or the deadllno extended. 4mmmmmm>

The Poles slso will need to rescheduleillion If governments and bankers are willing toon the same terms as th'i year, Poland would still have toinancial gap ofillion.

The USSR allowed Poland to2 billion trade deficit this year and provided more thanillion of hard currency assistance. Moscow has nadeit clear that it will not be as generous next year. emmmmaW

Except for grain credits. Western governments havs been unwilling since earlier this year to guarantee large export credits, and bankers are opposed to making loans of new money. The Soviets have refused to borrow hard Poland's behalf. evmmmmmV

for Release OatoAJG ISflu


Bleak Proapacta

Poland'a International financial conditionmore desperate when viewedthe economy'a

anility to cxpoit in order to service Its debts. This yeer'eercent decline in national Income will be follcwedurther .drop Inand no growth Inproduct I

The Polish Government's need to balance trade with tne West and moat of its East European trading partners will contribute to continuing shortages of raw materlsls, spare parts, and consumer goods. ood harvest this year, not enough food is making its way Into the state marketing system and Poland must continue to import food, it would atlll need sizable agricultural imports next year even if the domestic food market eltuatlon Improves. SsemmV

Obstruction by

There is no relief in sight and the Polish economlo predicament almost certainly will grow even more severs. Government stabilisation policies have been delayed,and often blocked by Solidarityhe union insists It be consulted on policy measures and

intends to protect interests which may conflict with national recovery. SaBBseanfe*

The regime has yet to complete the bills on economic reform or to negotiate them with Solidarity, andbetween the two continue to be governed by deep distrust. Ontil the workers can be convinced to go back to work and accept greater auater'ty, the economy cannot be turned around. SaeBBama%s>

Any type of reforms that might be agreed uponwould.be disruptive in the near term. Solidarity might seek reforms that would allowegree of worker control that they would be economically infeasible

the longer term. SSBBmBBess-

In the near term, Poland couldebtor be forcedormal default. oratorium would be preferable but would be difficult to organize on short notice. Formal default would have serious con-saquances:


would be able to Import even leia from tha West.

could have the spillover effect of reducing the access of other Sast European countries to western credits, thereby disrupting East-west trade.

international banking system could beerious blow, and certain West Europeanbanks might require government ossistAJica.

Government Actions

The Polish Government is expected to apply fortoday. In addition, its representativeswith bankers now to discuss how toillion payment duehewill meet withestern creditor-governmentsandovember in Pari* to discuss thethe payments',

Original document.

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