800.51W89 Poland/62

The Chargé in Poland (Flack) to the Secretary of State

No. 1481

Subject: Poland’s action in regard to the debt postponement agreement.

Sir: With reference to the Department’s cablegram No. 16 of April 23, 1 P.M., on the above subject, I have the honor to report that immediately following the receipt thereof on April 25 I called at the Foreign Office and in the absence of M. Lipski, Chief of the Western Division, saw M. Orlowski, Chief of the Anglo-American Section, which handles American affairs. He said he had personally handled the matter at the Foreign Office and that following the delivery of the note the Polish Ambassador had cabled its pertinent parts from [Page 631] Washington. The Polish Ministry of Finance had been unwilling to make a decision until the full text of the note was at hand. The full text was received on Saturday, April 23, and immediately transmitted to the Finance Ministry with the recommendation of the Foreign Office that it be agreed to. However, in the absence of Vice Minister Koc and M. Nowak, Chief of the Section of the Movement of Funds in the Finance Ministry, who had gone to Paris earlier last week, no one was left in the Ministry competent to pass on the matter and no decision concerning the reply could be forthcoming until their return this week. I informed M. Orlowski that the Treasury Department desired quick action as the date of the next payment was June 15 and asked him to advise the competent authorities. I inquired again today by telephone whether there was any prospect of an answer as to when a reply would be forthcoming and he informed me that he had communicated what I said to him yesterday to the Finance Ministry and it had been reiterated that nothing could be decided until the return from Paris of Messrs. Koc and Nowak and that he would keep me informed of developments.

During my conversation with M. Orlowski, he remarked in passing that he did not know what the ideas of the Finance Ministry were, but if Greece and Austria failed to continue to make payments this might be a bad example leading to a landslide of failure to pay.

It is well known that Poland has been endeavoring to obtain either a private or state guaranteed loan in France in lieu of the delayed Franco-Polish Railway Company funds, the flotation of a bond issue for which market conditions in France have temporarily rendered impractical. The success or failure of Vice Minister Koc in Paris may very greatly color his decision concerning a reply to the note from the State Department.

It is a matter of common conversation in diplomatic circles in Warsaw that reduced revenues and feeble sources of taxation are rapidly bringing about a serious fiscal situation for Poland. These matters have been reported in detail by the Embassy in previous and current despatches. The budget, as already reported, has been enacted with a deficit of 74, 000,000 Zlotys, in the hope of an extension of the Hoover Moratorium. Should this Moratorium not be extended it is not improbable that Poland may urge its difficult fiscal and economic situation as reasons for not continuing payment, unless a foreign loan is forthcoming in the future to temporarily offset these unfavorable factors.

Upon the receipt of a reply to the Department’s instruction, it will be transmitted promptly.

Respectfully yours,

Joseph Flack