An Uneasy Vigil on Poland

By John S. DeMott

Bankers can do little but wait and hope for payment

"If you get into anybody far enough," said failed-then-jailed Texas Wheeler-Dealer Billie Sol Estes two decades ago, "you've got yourself a partner." By that reasoning, Poland should have more partners than a square dancer on a Saturday night. So it does. Poland is in debt to world governments and banks by about $28 billion, but its external debt crisis has become an agonizing waiting game controlled largely by the debtor, Bank Handlowy, the foreign trade bank.

Next week, for example, $240 million in already overdue 1981 interest payments is supposed to go to a group of 501 banks in Europe, the U.S., Japan and Canada. They are owed a total of $7.5 billion by Poland. Said Zbigniew Karcz, director of the foreign department of Poland's Ministry of Finance, last week: "We are continuing to negotiate with banks, and we really hope to conclude an agreement in late February to reschedule payments of principal that were due in 1981." The Poles are expected to get the money to make the payment by somehow rustling up enough foreign exchange credits-from slightly improved coal exports, for example.

That payment will be late, but the financiers are likely to take the money and be happy. They will also be showing Poland far more lenience than that given to a laid-off Detroit auto worker if he missed a few payments on his wife's washing machine. That is because the Western bankers know that if they demand too much too soon and declare Poland in default, they will stand hardly any chance of receiving even part of what is owed to them.

Western governments do not want the Poles to be forced into default any more than the bankers. At a Senate subcommittee hearing last week on the Polish debt issue, Marc Leland, Assistant Treasury Secretary for International Affairs, said: "What good would a default do? It would tend to reduce pressure on Poland to pay, just like when debts are discharged in bankruptcy."

Finally, the Soviets do not want default, because they would then find themselves with the burden of being Poland's only friend. The Soviets, in fact, are making it a little easier for the Poles to meet their interest payments by shipping large quantities of oil, iron ore, food and cotton, thus freeing some precious Polish hard currency to go toward the payment.

So while the ingredients for a Polish financial disaster are present, they are not likely to be combined. Three weeks ago, Western bankers had their first direct communication with Polish officials since the declaration of martial law in December. Hans Friderichs, chairman of Dresdner Bank, made a one-day visit to Warsaw, representing a 20-bank task force that negotiates for the 501 creditor banks. That was followed the same week by another meeting between Western bankers and Polish officials in Vienna, then a telex from the Poles to all creditors later in the month promising that next week's interest payment would be made.

The bankers have a little leverage to pry some money out of Warsaw short of provoking an international default. They could delay signing an agreement that would stall the repayment of $2.4 billion in debt principal. That rescheduling agreement is badly wanted by the Poles. It would at least formally attest to their creditworthiness and help to reopen the door eventually to still more credit that Poland needs to get its economic system working again after a 19% drop in industrial production and martial law.

Private American banks hold only $1.7 billion of the Polish debt. While they extended credits easily to that country prior to 1976, they then stopped making loans when the Polish economy began turning sour in the late 1970s. The U.S. Government is owed another $1.9 billion. While all the American creditors are sticking to their story that the Poles will eventually pay up, Marine Midland Bank of Buffalo and Fidelity Bank of Philadelphia, among others, have classified the Polish loans in their books as "nonperforming assets." That means that the debtor is not now paying any interest on the loan, but that the bank still hopes eventually to be paid back.

West German banks, on the other hand, have lent Poland $4.5 billion, almost three times as much as the U.S., and other European banks are also heavy creditors to Warsaw. Washington officials blame Poland's current financial position squarely on the reckless policies of Europe's bankers during the late 1970s, when they sought to boost exports of their countries.

While the Polish debt to the West has received great attention in recent months, several East bloc countries face financial problems that are nearly as bad. Rumania, for example, owes $10 billion to Western banks and has been pleading for relief for months. Hungary, East Germany and Czechoslovakia have also been big borrowers in the West. The economies of those countries are sluggish at present, and all are having difficulty keeping up with their interest payments.

The present standoff between the bankers and the Poles could go on interminably. If its economy continues to function inefficiently and export earnings from coal and shipbuilding orders do not improve, Poland will be hard-pressed to pay just the $3.3 billion annual interest for 1982 on its debt. Eventually, the U.S., the greatest source of the world's capital, might have to come to the aid of the Poles. No one else, certainly not the Soviets or the Eastern bloc, has the $28 billion Poland will need. That, says Lazard Freres Partner Felix Rohatyn, puts the U.S. in its strongest position in relation to Communist countries since World War II. Meanwhile, no bankers or government officials are even thinking about complete repayment of the principal on the loans any time in this century. Billie Sol Estes would understand perfectly.

--By John S. DeMott.

Reported by Erik Amfitheatrof/Warsaw and Bruce van Voorst/New York

With reporting by Erik Amfitheatrof/Warsaw, Bruce van Voorst/New York

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