SPECIAL ANALYSIS - POLAND: SHOPPING FOR ECONOMIC AID

Created: 9/12/1980

OCR scan of the original document, errors are possible

SPECIAL ANALYSIS

POLAND: Shopping for Economic Aid

The USSfr and Poland signed an agreement yesterday in Moscow thai provides for increased Soviet deliveries of manufactured and food producte tc Poland in IMC. Although the details were not specified, the Poles will need muck more aid from both East and Vest to underwrite the substantial costs of the strikes and the eubsecuen settletrsnts.

The agreement came at the end of two days of talks between Soviet officials, including President Brezhnev,olish economic delegation headed by Deputy Prime Minister Jagielski. Theas

warm andthe agreementign of Moscow's endorsement of the Kania regime.

The well-publicized discussions between Western leaders about the need to increase economic assistance to Poland may have compelled the Soviets to move quickly. Moscow apparently recognized the possible political costs of delaying aid to tho new Polish regime. By movingthe Soviet leaders probably hope to increase their -evcrage over tha direction of events in Poland. vfBsmV

The size of the eventual total Soviet aid package, which also could include direct hard currency loans and additional raw material deliveries at preferential prices is likely to be determined by how closely Kania comes to enforcing the USSR's restrictive definition of themade to the strikers. Jagielski's meetings with chief Soviet ideologist Suslov on Wednesday and Brezhnev yesterday probably focused on the political-economic tradeoff .

The unrest in Poland this summer and the subsequent settlements have greatly Increased Poland's need forand financial assistance. The government estimates

approved for

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that these settlements will Increase wage and benefit payments by at least S3ear. Moreover, toavailability of consumerimports from theseriously jeopardizing Poland's ability to finance its already huge hard currency trade deficit and debt service obligations will require sub-st' -itial aid from abroad. 4aem*

Other Rid

Before the signing of the agreement, Moscow had taken some steps to assist Poland. To help salvage Poland's efforts toyndicatedwould have collapsed if the total pledged had fallenestern banks chippedillion last"month to bring the eventual5ast week, Polish officials noted that Moscow was0 million in short- and medium-term credits, but these credits were initiated in May. esmt*

Moscow also may-be pressuring East Europeanto assist Poland. Warsaw has announced thatand East Germany have promised to send Poland unspecified additional quantities of raw materials, food, and consumer goods. igh-level Czechoslovak official, however, stated that aid to Poland will be limited in order to avoid shortages of consumer goods ins economy.

Looking to the.

Poland will continue to look' to the West forassistance and appears to be increasing its efforts in that direction. For example, Warsaw has made anappealuick decision on its request for sub- -stantial Commodity Credit Corporation credits, fgg^

As Poland's borrowing needs are rising, however, its prospects for obtaining credits in the West have dimmed, -primarily because of growing reluctance of banks to lend without government guarantees. The5 million Polish syndication wasollover operation.

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with the participating westernfor tha Communist-country-controlledproviding only as much as was soon to fall due to them.

The strikes this summer tnd the regime's response to them have increased bankers' doubts about lending to Poland. Tho Western banks in the recent syndication told the Poles last spring that further lending depended on Poland's coning up with an effective stabilization Specifically, the bankers said the Poles must!

more rational criteria for allocating investment.

prices.

higher priority to Improving the balance of payments.

Poland may still be able to meet the first condition, but satisfying the other two has become virtuallyfollowing thc strikes.

Warsaw evident* is aware of the severity of its external financial plight and ha- now explicitly raised the possibility of formal debt rescheduling with foroign officials. *Ssssssssssssssm

last month,onaer

ot the Pol nihTovernment said that Poland probably would have to reschedule its debt.

In seeking aid from both the USSR and the Wost, Poland faces the possibility that success with one will mean rejection by the other. The USSa will make loans conditional on slowing or reversing the liberalization ushered in by the strike settlements, while some Western aid may depend on Poland's holding the line on

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