Foreign Relations of the United States Diplomatic Papers, 1937, The British Commonwealth, Europe, Near East and Africa, Volume II

860C.51/1118: Telegram

The Secretary of State to the Ambassador in Poland (Cudahy)

Washington, February 11, 1937—6 p.m.

9. My No. 6, February 5, 2 p.m.¹⁵

(1) The Department is informed that negotiations between the Polish Financial Mission¹⁶ and the Foreign Bondholders Protective Council¹⁷ are in danger of terminating without agreement as to a plan of action satisfactory to both parties. The Council has definitely informed the Mission that it cannot recommend to the favorable consideration of the bondholders the Polish offer of 35 per cent interest service,¹⁸ and in support of its request that a better offer than this be made it has submitted to the Mission data indicating Poland can well afford to pay more than 35 per cent.

(2) The Council has made to the Mission the following counter-suggestion:

1. The payment in cash of 50 per cent of the full interest service provided for in the bond contracts,¹⁹ for a period of 18 months (covering 3 half-yearly coupons of consecutive maturity) beginning with the first coupon remaining unpaid in consequence of the suspension of payments by Poland.

2. Or in the alternative, at the option of the bondholders, a 20-year 4 per cent funding bond for the full interest service.

3. The Polish Government shall carry in its budget in the regular normal manner the full service, interest and sinking fund, on all of its dollar bond obligations.

All budget sums not needed to make the 50 per cent cash service on the original bonds and the full cash service on the funding bonds shall be held in the Polish Treasury during the operation and until the end of this temporary plan and then used in accordance with an arrangement then to be made in consultation with the Council.

(3) According to data compiled by the Council, payment of full interest on Polish dollar bonds at present held in the United States would require transfer of slightly more than 4 million dollars per annum. The Council contends that payment of 50 per cent of this amount, or a little more than 2 million dollars annually, is well within Poland’s capacity.

(4) It is understood that the Polish Mission stated, in reply to the Council’s counter-suggestion, that it already had presented the maximum offer of the Polish Government (i. e., the offer reported in the Department’s telegram No. 6, February 5, 2 p.m.), that it had repeatedly taken up the matter with Warsaw, and that it would be embarrassing for it to make any further representations to the Polish Government. The head of the Mission states that he must sail for Poland on February 20.

(5) You are requested to bring most informally to the attention of the appropriate Polish authorities the benefit to Poland’s future credit in the United States of obtaining favorable recommendation by the Council of the terms that may be submitted to it, and the unfortunate effect of the alternative of the termination of the negotiations without an offer which the Council could recommend to the bondholders. You should express the hope that the Polish Government will make every effort to submit an offer that would avoid the latter development and you may say that this Government would be happy to see the conclusion of a settlement satisfactory to both parties.

Hull

15. Not printed.
16. The members of this mission, who were endeavoring to reach new arrangements with regard to Polish bonds held by American investors, were Adam Krzyzanowski, professor at the University of Cracow; Janusz Zoltowski, Financial Counselor of the Polish Embassy in Washington; and Jozef Rucinski, Counselor of the Polish Ministry of Finance.
17. A non-profit, semi-public organization incorporated on December 18, 1933, formed at the request of the Secretary of State, the Secretary of the Treasury, and the Chairman of the Federal Trade Commission of the United States for the protection of the rights and interests of American holders of public securities of foreign states and other governmental sub-divisions. See Foreign Relations, 1933, vol. i, pp. 934 ff.
18. For text of the Polish offer as published on February 24, 1937, see Foreign Bondholders Protective Council, Inc., Annual Report, 1936 (New York, 1937), p. 702.
19. For detailed descriptions of the various issues of Polish bonds referred to here and hereafter, see Annual Report, 1937 (New York, 1938), pp. 580 ff.