Foreign Relations of the United States Diplomatic Papers, 1932, General, Volume I

800.51W89 Poland/87

The Polish Embassy to the Department of State ²⁴

1. The Polish Government acknowledge the receipt of the note of the Department of State dated November 26, and highly appreciate the desire of the American Government expressed therein of arriving at solutions which would be satisfactory to both Governments and Nations.

2. Poland, on her part, is mindful of the friendly action of the American people, who, by advancing on credit food articles, clothing and medical supplies, had assisted the Polish Nation in overcoming the difficult period following the conclusion of the Great War. To satisfy this obligation has been Poland’s constant and earnest ambition.

3. The Polish Government has spared no effort in order to provide the country with a sound and permanent financial basis. The achievement of this object was fraught with great difficulties owing to the devastation of Polish territory by war, and by the presence of armies of occupation also to the fact that the country was entirely deprived of capital. The country’s finances were, nevertheless, gradually put in order with the notable aid of private American capital, the currency was stabilized, and, thanks to the prudent policy of the Polish Government, which knew how to adapt itself to the exigencies of the world crisis, it was possible to avoid restrictions on the freedom of remittances payable abroad, although in most countries neighboring with Poland such restrictions have been imposed.

4. Poland is ready to do her utmost in order to fulfill her obligation. Yet, being aware of the practical sense guiding the United States and convinced that the permanent liabilities accepted in the agreement of November 14th, 1924, have been too burdensome,—as witness the fact that the rate of interest on Poland’s debt is three per cent and three and one half per cent, while debts of several other countries whose capacity to pay exceeds that of Poland, bear considerably lower rates, amounting in some instances to one-eighth per cent,—requests that, until such time as the entire matter of Poland’s indebtedness to the United States is reconsidered, the payment of interest due on December 15, next, be postponed.

5. In view of the tenor of the sixth paragraph of the State Department’s note dated November 26, the Polish Government affirm that they are prompted to such action because of the grave effects which the remittance of such payment might produce on Poland’s economic structure and balance. The danger of such consequences will be clearly apparent if the economic and financial situation in which Poland has found itself in consequence of the universal economic difficulties, are taken into consideration.

6. As a country of predominantly agricultural character Poland has been particularly severely affected by the present crisis. The decline in prices of farm products has made unprofitable a branch of production, which forms a means of livelihood for over seventy per cent of Poland’s population. The catastrophic condition of agriculture has reacted unfavorably on all other branches of national production, already affected by difficulties of disposal in foreign markets. The incomes of the vast majority of citizens are today considerably below those which should be regarded as a reasonable minimum for existence. The expenditures of the State and of local government bodies have been reduced to the very low limits.

7. The Polish Government are conducting a policy of strict economies. A monthly budgeting system which had been suggested by American experts is being applied. Far reaching economies have been effected in all branches of the budget. The number of officials has been reduced, several government departments, including two Ministries, have been suppressed. Salaries of government officials have been reduced by twenty to thirty per cent. As a result of these efforts the actual expenditure of the State—which in the budget period of 1929/30 amounted to 335 million dollars (2,991 million zlotys), and in the period of 1930/31 still reached the sum of 315 million dollars (2,810 million zlotys)—was reduced, in the budget year of 1931/32, to only 277 million dollars (2,466 million zlotys) and, in the first six months of 1932/33,—to 126 million dollars (1,128 million zlotys). Important economies have also been effected in the expenditures of local government bodies. But the decline in the revenue of the State and of local government bodies was even greater, notwithstanding the several new taxes which were introduced during that period. The actual revenue of the State for the budget period of 1929/30 was 339 million dollars (3,030 million zlotys), in the period of 1930/31—308 million dollars (2,748 million zlotys), while in the 1931/32 period it was 254 million dollars (2,262 million zlotys), and during the first six months of 1932/33—113 million dollars (1,007 million zlotys). It is apparent from the above figures that the deficit for the budget period of 1930/31 amounted to 7 million dollars (62 million zlotys), for the 1931/32 period—to 23 million dollars (204 million zlotys) and for the first half of the current budget year—to 13 million dollars (121 million zlotys) which necessitates the adoption of still further economies.

8. It is imperative for Poland to maintain a budget balance not only within the yearly but also within the monthly budget limits, firstly because of a shortage of cash reserves and, secondly, because of the condition of the Polish money market, disallowing, as it does, the coverage of expenditures by means of even short term credit operations—a remedy which is at the disposal of governments elsewhere. To a large extent this difficulty is caused by the withdrawal of short-term foreign investments, which have hitherto been engaged in the country. As stated above, Poland did not impose currency restrictions; the imposition, however, of such restrictions in neighboring countries caused a comparatively considerable egress of foreign short term credits, amounting to over 30 per cent as compared with the year 1930. Under such conditions of the Polish money market any larger expenditure, resulting in an increase of the monthly budget deficit, would necessarily cause a disorganisation in the machinery of the State.

9. The continued stability of the currency necessitated and still necessitates a recourse to far reaching deflation. In accordance with this principle the Bank of Poland maintains the statutory ratio of cover to currency in circulation, thereby insuring the maintenance of the par value of the zloty and the capacity of meeting foreign commitments in the future. However, the balance in this field has been achieved on a very low level of both coverage and circulation; the value of Bank of Poland notes in circulation at the end of 1930 amounted to 183 million dollars (1,628 million zlotys), on November 20, 1932—to 108 million dollars (966 million zlotys); the coverage in gold and foreign exchange at the end of 1930 was 107 million dollars (957 million zlotys) and on November 20, 1932—60 million dollars (537 million zlotys); the ratio of cover to currency in circulation and obligations payable at sight was 63 per cent at the end of 1930 and 45 per cent on November 20, 1932. The maintenance of this ratio, on its present level at least, must be regarded as indispensable to the continued stability of the currency and to the capacity of making foreign payments. In this respect, the transfer of the sums due on December 15th might have very unfavorable effects.

10. In view of the complete stoppage of the international circulation of capital, Poland is able to cover its foreign payment only through the exportation of its produce. Polish exports meet with ever-increasing difficulties. The value of the Polish export trade which consists predominantly of agricultural products and raw materials is, because of the decline in prices, particularly depreciated. The figures of the Polish export and import trade illustrate this condition. Thus, the value of exports in 1928 amounted to 288 million dollars (2,508 million zlotys), in 1931—211 million dollars (1,879 million zlotys), for the first ten months of 1932—100 million dollars (890 million zlotys); the value of imports to Poland in 1928 was 377 million dollars (3,362 million zlotys), in 1931—165 million dollars (1,468 million zlotys) and for the first ten months of 1932—80 million dollars (713 million zlotys). In recent years favorable trade balances were attained by Poland only through a maximum limitation of consumption of imported merchandise. Thirty nine per cent of Polish exports are destined to markets where currency regulations are in force; twenty six per cent to markets, where, since 1931, currency has depreciated. It is important to note that the markets thus affected are those which form the natural outlets for Polish exports, the first as regards exports by land arid the second as regards exports by sea. Import quotas and embargoes as well as high tariff barriers are encountered by Polish exports in practically all their markets.

11. The commercial relations between Poland and the United States are such that Poland buys ten times as much from, as she sells in, the United States. In the years 1927 and 1928 the resulting balance in favor of the United States was offset by the influx into Poland of long-term American investments. At the same time an important item in Poland’s balance of payments was formed by remittances of Polish emigrants settling in the United States. Since 1929 the influx of American capital into Poland has ceased. The restrictions on immigration to the United States, which have existed since 1922, have been, apart from other important consequences for Poland, causing a decline in emigrant remittances. The service of market loans floated in the United States by the Polish Government and by local government bodies necessitates regular annual payments, amounting approximately to 14 million dollars (130 million zlotys) per year. Poland’s balance of payments in respect of the United States shows a very considerable surplus in favor of the latter. During the three years from 1929 to 1931, inclusive, the surplus in favor of the United States amounted to 103 million dollars (919 million zlotys). This sum is composed as follows: balance of trade—84 million dollars (744 million zlotys); service of market loans—43 million dollars (388 million zlotys) and payments on account of Poland’s indebtedness to the Government of the United States—14 million dollars (121 million zlotys), less the sum of Polish emigrant remittances during the same period which amounted to 38 million dollars (334 million zlotys). In the current year the balance of payments will remain in favor of the United States and will amount to 18 million dollars (162 million zlotys), of which the balance of trade is 11 million dollars (100 million zlotys), service of market loans—15 million dollars (133 million zlotys), emigrant remittances—8 million dollars (71 million zlotys). It is clearly apparent from these figures that, in order to cover its payments to the United States, which even without the installments on account of the indebtedness to the Government of the United States are already very considerable, Poland must obtain an equivalent in favorable balance of trade with other countries. As has been pointed out above, this is at present becoming ever more difficult. The general tendency displayed by nations, which up to now have had a surplus of imports to equalize their trade balances, must also be taken into consideration.

12. The concern over the continued maintenance of the country’s capacity to pay, and in particular over the safeguard for the future of the possibilities of further payments in full of all foreign obligations resulting from commercial relations and market loans—in the first place those contracted in the American market—forms the reason which prompts the present approach of the Polish Government to the Government of the United States on the subject of the postponement of the installment payment. In the light of the figures cited above, it becomes obvious that the benefits which will accrue therefrom to the citizens of the United States will exceed many times such burdens as might result for them from postponement. The Polish Government are deeply convinced that its attitude will meet with complete understanding in the United States and that the Government and Congress of the United States will be willing to consider favorably the postponement of the installment of interest due December 15th. The Polish Government express their readiness to communicate any further data and information, which might be found necessary, and will willingly consider with the Government of the United States, the form in which such postponement could be vested.

Washington , December 8, 1932.

24. Original Polish text and English translation transmitted to the Department by the Polish Ambassador, December 9, as enclosure to the Ambassador’s note No. 754/tjn. 32 of December 8.