Foreign Relations of the United States, 1969–1976, Volume XXIX, Eastern Europe; Eastern Mediterranean, 1969–1972

173. Memorandum From Helmut Sonnenfeldt of the National Security Council Staff to the Presidentʼs Assistant for National Security Affairs (Kissinger)¹

Washington, October 6, 1972.

SUBJECT

• Deferral of Polish PL–480 Dollar Debt

The State Department has been conducting negotiations in Washington this week with the Poles on deferring the 1973 and 1974 dollar repayment tranches of PL–480. The President agreed in his July 8 letter to Prime Minister Jaroszewicz on these postponements.²

The negotiations have revealed a wide difference in views between the Polish and US sides, and State is seeking guidance urgently (memorandum at Tab B)³—in time for a meeting at 10:00 a.m. tomorrow, Saturday, October 7.

The issue is whether the Poles should pay interest on the amount to be deferred (i.e. about $30 million).

Our negotiators take the view:

—that a deferral is equivalent to a $30 million export credit, on which the Poles should pay a 6 percent interest rate. We are arguing that the law prohibits a concessionary rate, i.e. less than 6 percent. Treasury and Agriculture in particular want to stick by 6 percent, although they would accept a “political decision” to shave the rate.

The Poles argue:

—that since the deferral was agreed upon at the highest political level it cannot be treated as a normal commercial loan. They have, however, agreed to discuss a nominal interest charge and requested new instructions, which should be in by October 7. State believes they might pay 3 or 4 percent ultimately.

Two other factors are involved:

• —the current negotiations in New York with the US Bondholders, where the two sides are also apart on the interest rate; State believes that an agreement on PL–480 debt deferral would help bring about a settlement with the Bondholders;—the US-Polish Science and Technology Agreement, which will likely be ready for signature in a few days; a schedule proposal for a high-visibility signature ceremony has already gone forward to the President (Log # 6886, Tab C).⁴

State points out that the Poles are not likely to agree to 6 percent and that if we insist on it, they are likely to break off the negotiations this weekend. This might in turn jeopardize a Bondholders settlement and a S & T agreement signing ceremony in October, which Dr. David believes the President wants.

In seeking guidance, State has presented two options for the October 7 negotiating round:

1. Stick at 6 percent but make concessions on other aspects of an agreement, such as deferring five rather than two annual tranches, extending the grace period of deferral from five years to perhaps seven or eight. If no agreement can be reached on this basis, we would tell the Poles that we should resume the discussions at a later date.

2. Shave the interest rate.

Pros and Cons

If we select option 1, we risk a breakoff of negotiations. The Poles may interpret our insistence on 6% as a negation of the Presidentʼs generous offer during his Warsaw visit to postpone PL–480 debt repayment.

If we select option 2, there may be Congressional criticism that a concessionary rate of interest is in effect an exaggerated subsidization of Polish imports from the United States. Selection of this option will also make us more vulnerable to criticism on what will be seen as concessions on different rates in our current trade negotiations with the Soviet Union.

State recommends option 1.

However, Peter Flanigan is adamantly opposed to any efforts of flexibility on deferring more than two repayment tranches or increasing the grace period to more than five years.

On balance, it seems feasible at present only to accept that part of Stateʼs option 1 which retains the 6% position, recommends that the Poles be told again that they should settle with the Bondholders (a hint that they might get ExIm Bank credit facilities in that case), and informed that we will reconsider the debt deferral later if they cannot meet the 6% interest rate.

This will be unpalatable to the Poles but on the other hand they may be taking a rigid position now because they think the President wants an agreement in this field before the election. In fact, we have several things going with the Poles as far as the Presidentʼs interests are concerned, including the Science and Technology Agreement and Cardinal Krolʼs forthcoming trip to Poland. So there should be no undue harm in telling the Poles, if no agreement based on our present position is feasible, that it will be better for both sides to review their positions and resume these talks later.

Recommendation

That you authorize General Haig to sign the memorandum to Eliot at Tab A,⁵ which accepts option 1 but without the offers of concessions on tranches and grace period extension which State recommends.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 699, Country Files—Europe, Poland, Vol. II 1972. Confidential. Sent for urgent action.
2. See footnote 6, Document 169.
3. Attached but not printed.
4. Not printed. Regarding the U.S.-Polish science and technology agreement, see Document 175.
5. On the evening of October 6, Haig signed the memorandum to Eliot regarding deferral of the Polish P.L.–480 debt. It reads as follows: “The recommendation in your memorandum of October 6, 1972, … that the US side retain the requirement for a 6% interest rate is approved. However, our negotiators should give no indication to the Poles that we are prepared either (a) to depart from our position that only two annual tranches will be deferred; or (b) to increase the grace period already offered.”