Foreign Relations of the United States, 1964–1968, Volume XVII, Eastern Europe

125. Telegram From Francis M. Bator of the National Security Council Staff to President Johnson, in Texas¹

Washington, December 26, 1966.

CAP 661333. FYI: I am sending by wire because it may be useful for John² to have a decision by tomorrow, Tuesday, December 27, when he returns to Warsaw.

Subject: Polish currency package.

You will recall that in your October speech to the editorial writers³ you announced that “the Secretary of State is reviewing the possibility of easing the burden of Polish debts to the U.S. through expenditures of our Polish currency holdings which will be mutually beneficial to both countries.”

At Tab A is a Katzenbach memo⁴ asking you to approve a package for negotiation with the Poles. Specifically:

• —We would postpone $21.75 million of the $39.2 million the Poles owe us during January 2, 1967–January 2, 1968. (The $39.2 million they would have to pay if we did not postpone represents a big hump in the repayment schedule—it is four times what they had to pay us in 1966, and twice what they will have to pay annually after 1968.)
• —They and we would agree to use the postponed $21.75 million, over the next several years: (1) for a $9.5 million/10 year English language teaching program in Poland, perhaps manned by young Americans and administered by our universities; and (2) to help pay for U.S. cultural exchange programs in Poland and elsewhere; for the operating expenses of the U.S. Embassy in Warsaw; international travel by U.S. officials from and through Poland, etc. The Poles would also agree to a firm date for negotiations on defaulted prewar bonds; to concessions on the use of other U.S.-owned zloties by U.S. tourists and businessmen, and on some other minor issues between us.

A short precise account of the proposed deal is at Tab B.4 The only part that would show up explicitly as a line-item appropriation in the budget is the English language training program, at an annual $950,000 in Polish zloties.

Balance of Payments

We would by and large neutralize the balance of payments effects by a side agreement with the Poles that they would increase imports from the U.S. during 1967 by an amount equal to the postponed payment. We would use their recent level of U.S. imports as a base. This is not fool proof protection, but we can police it well enough to reduce the likely leakage to negligible amounts.

Executive Branch Positions

The package has been formally approved by all the NAC agencies, with Treasury in the chair, as well as Agriculture. Gronouski—who has been pushing very hard for something like this—thinks we are offering too little and asking too much. (An English language program, perhaps with young Americans running around Poland, would be a hard pill for Gomulka to swallow.) John may turn out to be right, and if so, we will come back to you. But the rest of us think that the proposal is balanced enough to be worth a try.

The Congress

We know that Senator Mansfield thinks “this a modest program … in the right direction.” On the other hand, Senator Gruening has written State opposing any such deal.⁵ His letter was full of misconceptions, and State will try to straighten him out—at least on the facts. (He will not be back in town until January, but his office knows we have been trying to reach him about this.)

In addition, and not surprisingly, Paul Findley is opposed.⁶ Otherwise we know of no Congressional reactions—despite the reference in your speech. To avoid the risk of stimulating opposition—especially since you have already given a public signal that you are planning to do something like this—Nick Katzenbach decided against taking further soundings before asking for your approval.

Timing

I am afraid we need your decision on whether we can begin negotiating with the Poles before January 2. The first ’67 installment of the Polish debt ($9 million) is due on the 2nd. If you authorize us to start talking with the Poles, we will offer them a three month postponement on $4.7 million—the portion which would become a part of the final rollover package if the negotiation is successful.

Recommendation

As a bridge builder I would vote for this. The English language program is a first-rate idea and the cost of the entire package is not great. Politically, we face the usual risk of helping a Communist country which is making a fuss about Viet Nam, and giving Hanoi some help—the usual dilemma of maintaining a balanced Presidential posture. (If, during the course of the negotiations, the Poles go in for unusual pyrotechnics on Viet Nam, we can always back off. They will be told that no U.S. proposals are final until a deal is struck.)

Francis M. Bator

OK to open negotiations with the Poles on the package as outlined

No

Speak to me⁷

1. Source: Johnson Library, National Security File, Country File, Poland, Memos, Vol. 2. Secret. The telegram, sent through Rostow, was received at the LBJ Ranch at 12:45 p.m.
2. Ambassador Gronouski.
3. See footnote 3, Document 124.
4. Not printed.
5. The letter was not found.
6. On October 18, Representative Paul Findley (R–IL), leading a coalition of Republicans and Southern Democrats, inserted language in legislation for the charter of the Export-Import Bank that prohibited the Bank from guaranteeing loans to any Communist nation. In a subsequent legislative conference with the Senate, the language of the Findley amendment was modified to permit a Presidential waiver in cases where the President judged a loan to be in the national interest.
7. There is no indication on the source text of President Johnson’s decision.