Further Perils for Poland

By Charles Alexander

A sputtering economy strains under $27 billion of debt

For almost a year, Poland's embattled Communist leaders have faced the twin threats of domestic social revolution and military invasion by the Soviet Union. Now another ominous specter looms: national bankruptcy.

Burdened by sporadic worker walkouts and bumbling bureaucratic mismanagement, Poland's economy is in a shambles. Industrial production is down 10% from a year ago, and coal exports to the West, one of the country's most important sources of trade revenue, are off 29%. As a result, Poland last March failed to make scheduled payments on the staggering $27 billion debt that it owes Western governments and banks and technically went into default. Moreover, the Poles urgently need as much as $4 billion in new loans merely to keep up with interest on their current debt and pay for vital imports, including grain, oil and iron ore.

Who will bail out Poland? That question has sparked a kind of pressure-packed international poker game involving 15 Western governments, some 460 private banks and the Soviet Union. Among the chief Western creditors are the U.S., where 60 banks have Polish loans on the books, plus West Germany, France, Britain and Austria. None of the governments or private players want to increase their stakes in the game, but none can afford to let Poland's economy collapse and lose all the money that they have already bet.

The 15 Western governments made the first move. Two months ago they agreed to let Poland postpone until 1986 all interest and principal payments on 90% of the $2.6 billion owed to governments this year. Later this month a task force of moneymen from eleven Western nations will huddle in Paris to discuss what to do about the $2.6 billion that Poland is scheduled to pay private banks this year. The bankers have little choice but to follow the example of their governments and give Poland some breathing room. One draft proposal being circulated among the banks would give Poland a 4 1/2-year grace period on principal payments, but still require interest to be paid during that time.

Even with these concessions Poland must have new loans to keep its economy going, and where they will come from is highly uncertain. Says an American banker deeply involved in the negotiations: "No new money will come from the banks. That's solely the job for governments." The West European nations are likely sources for rescue funds because trade with Poland is important to their economies. The U.S., however, has suggested that the Soviet Union and other Communist countries should supply the extra money to keep Poland afloat. The Soviets last year loaned their satellite $1 billion in Western currencies to use for imports and interest payments.

In its pleas for aid, Poland has promised to slash its imports and divert products from domestic consumption to boost exports. Those pledges will be hard to fulfill in a country where sinking living standards have generated social upheaval. Shops already stock no rice, jam or fruit, except for apples. Meat is rationed at a little over a pound per person per week. The seemingly interminable lines outside the stores are a constant source of black humor. One joke now making the rounds:

"Where are you headed?" one Pole asks another.

"To Cracow to get some meat."

"But there's no meat in Cracow. The only meat is in Warsaw."

"I know, but the line starts in Cracow."

Poland's government blames the strikes that accompanied formation of the new independent labor unions for much of the economic malaise. But the mammoth debt is a product of badly botched central planning and remarkably loose lending policies by Western banks. In 1971 Communist Party Boss Edward Gierek, who had just come to power in the wake of economic unrest, launched a headlong drive to make Poland an industrial powerhouse that would market its wares to the world. Borrowing billions of dollars from the West, Gierek dotted the Polish countryside with construction cranes and earthmovers to build new factories.

The pell-mell pace of investment was more than Poland's economy could rationally absorb, and much of the money is mired in unfinished projects. Since 1973, for example, the Poles have poured $1.1 billion into a paper mill at the town of Kwidzyn. Though scheduled to be completed three years ago, the plant is still not operating. Even when the factories open, markets for their products often do not materialize. The Poles built a $224 million plant in Piaseczno to make color-television tubes. Yet export sales of these tubes are now running less than 6% of what was planned for, and the factory suffered a loss last year of $19 million.

When the Polish Communist Party Congress convenes next month, tough economic reforms will be on the agenda. Government officials know they must cancel scores of grandiose construction projects and shut down factories that are inefficient or heavily dependent on imported raw materials. The official Communist daily newspaper, Trybuna Ludu, has acknowledged that more than 1 million Poles may temporarily lose their jobs. Such unemployment would be without precedent in a Communist country, but the Polish leaders seem to recognize that harsh measures are unavoidable.

--By Charles Alexander. Reported by William Rademaekers/Warsaw and Bruce van Voorst/Brussels

With reporting by William Rademaekers/Warsaw, Bruce van Voorst/Brussels

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