Memorandum by the Assistant Adviser on International Economic Affairs (Livesey)

Conversation: Mr. Zoltowski, Financial Counselor, Polish Embassy;
Mr. Ruczynski, Ministry of Finance, Warsaw;
Mr. Feis;29
Mr. Nielsen;30 and
Mr. Livesey.

. . . . . . . . . . . . . .

Mr. Feis said that the conversation of yesterday31 had been carefully considered and discussed in the Department and finally had been briefly discussed with the Secretary. As a result Mr. Feis had jotted down a little note on the position. He gave Messrs. Zoltowski and Ruczynski copies as follows: [Page 541]

“In the light of the fact that many important details of the negotiation between the Polish Government and the Foreign Bondholders Protective Council in the United States, and between the Polish Government and the Council of the Corporation of Foreign Bondholders in Great Britain still appear to be unsettled, the Department does not feel itself in a position at this moment to indicate whether the settlements under discussion would involve any serious question of discrimination.”

Mr. Zoltowski said that Mr. Ruczynski and he had twice been in telephone conversation with Warsaw during the day, after having telegraphed a report of yesterday’s conversation last night.

It had been rather hard to hear all particulars over the telephone from Warsaw, but it appeared that as time was so short before the October 15 coupons on the Stabilization loan become payable in New York and London, the Finance Minister had decided, subject to approval by the Polish Cabinet, that Poland should pay coupons due beginning October 1 at the rate of 4¼% of the principal instead of at the rate of 35 percent of the coupons as announced in Poland’s February proposal. That is, the October 1 coupon of the 6s of 1920, a dollar loan, will be paid at the 4¼% rate instead of the 2.10% rate (35 percent of 6 percent), and the October 15 coupons of the Stabilization Loan (both sterling and dollars) at the 4¼% rate instead of the 2.45% rate (35 percent of seven percent).

Mr. Zoltowski said that in view of the British attitude, this unilateral decision of Poland to pay British holders less than the British had demanded and to pay American holders the same rate although it was higher than the rate proposed [to] Americans, as announced by the Foreign Bondholders Protective Council last February without adverse recommendation, was an evidence of how far Poland is going in order to avoid discrimination.

Messrs. Zoltowski and Ruczynski were leaving for New York by the first train after their present conference with the State Department. They expect to receive a cable tomorrow morning giving particulars in time for them to get an announcement into the evening newspapers. They expect also to see the Foreign Bondholders Protective Council during the day. The Council would hardly be in a position to express disapproval of terms better than those it had passed on to bondholders last February without expressing disapproval.

Mr. Feis suggested that this disposition of October coupons would give the Poles more time to negotiate for a permanent settlement. They said that it would extend the time for negotiations, which it had been impossible to conclude before the October 15 due date, largely because of the London attitude.

Mr. Feis asked whether they had made any written offer to the Foreign Bondholders Protective Council. They said they had not done so. They needed first to work out some formula acceptable to [Page 542] the British and American authorities in respect of non-discrimination and then it would not take long to present detailed proposals together with justifications for the proposals.

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Mr. Feis reiterated the importance which the United States attaches to non-discrimination. The Poles said they understood the United States point of view on this and had cabled Warsaw of yesterday’s conversation. Mr. Feis assured them that we also understand their difficulties, and that he was sure the Secretary would wish him to express his appreciation of the work the Polish representatives had done in this matter and their action in fully informing the Department and discussing the problem with it.

The Poles said they were not too optimistic as to the task of obtaining acceptance by London of terms which could also be extended to American bondholders. The British were no longer holding out for full payment of the Stabilization Loan coupons, but had said in the negotiations for permanent settlement that they would not accept a lower rate than something between 5 and 6%, which was the cost of other Polish credits in London. In reply to a question, Mr. Ruczynski said that he thought there would also be some reduction in the interest rate on the British industrial credits to Poland.

After the Poles had left, Mr. Feis telephoned Mr. Francis White,32 in confidence, regarding the conversation. Mr. White seemed rather taken aback by the new development and the return of the Poles to a 4¼% rate after a 4½% rate had been offered orally. He suggested that an adjustment covering the next three years might be negotiated. Mr. Feis assured him that the Polish representatives expected to continue negotiations for a permanent settlement and that it appeared that their unilateral tender of 4¼% rate for current coupon payments might represent a desire to test the British position.

F[rederick] L[ivesey]
  1. Herbert Feis, Adviser on International Economic Affairs.
  2. Orsen N. Nielsen, of the Division of European Affairs.
  3. Memorandum of conversation not printed.
  4. Executive Vice President and Secretary of Foreign Bondholders Protective Council, Inc.