860C.51/1299a: Telegram

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

11. The Department has been following with close interest the discussion between the Foreign Bondholders Protective Council and the Polish Government in regard to the payment of Polish dollar bonds. It also has been in touch with the fiscal agents12 for the stabilization loan, who have discussed that issue with the Polish Government. The Department’s aim has been to facilitate reaching an agreed-upon settlement, the detailed terms of which must be decided by the representatives of the bondholders. However, the Department has also made clear to the financial representative of the Polish Government that it attaches great importance to the principle of non-discrimination; in every problem of debt adjustment which has involved American interests and foreign interests, it has endeavored to assist the American bondholders in securing treatment no less favorable than that given to the bondholders of other nationalities. In trying to make this position effective, it has been willing, however, to take reasonable account of special circumstances and to avoid too-great rigidity in detail, and to show a disposition to compromise for the sake of prompt and mutually acceptable settlements.

It has been the Department’s hope that negotiations with the Polish Government would result in a settlement along these lines. However, the negotiations appear to have reached a point of doubt and difficulty.

It is reported to the American fiscal agents, and to Department that as regards the stabilization loan coupon falling due on April 15 the Polish Government has decided to pay outright only 4¼ percent with multiple currency privilege, depositing an additional ¼ percent in Amsterdam to the account of the Polish Ministry of Finance.13 [Page 641] Despite the fact that in March the Polish Government made a definite written offer of the British terms, which the fiscal agents accepted, now no indication is available as to what treatment will be accorded subsequent coupons of the stabilization loan. It is understood however that the Polish Government has entered into a permanent agreement with the British holders of the stabilization loan on a 4½ percent basis, with the same multiple exchange privilege and a guarantee of 5½ percent minimum interest in sterling, and that the April 15 coupon of the sterling loan will be paid accordingly, as the October 15, 1937, coupon has already been paid. It is further understood that the French holders are receiving payment on a similar scale under special arrangement in force with the French Government.
The Polish Government has reached a direct settlement in regard to a few of the dollar bond issues;14 it is understood that the Polish Government plans to carry out the terms of these settlements. In regard, however, to other and the more important dollar bond issues in public hands, the prospect now seems completely unsettled. The Polish Government some time back made a tentative offer to the Council of 4½ percent. The Council has been seeking an improvement of these terms, especially for the 8 percent issue; it has felt that these dollar bond issues were entitled to as favorable treatment as the stabilization loan. In this matter of details the Department, in its discussions with the Polish financial representative, has up to the present reserved its position and its judgment, while tending to indicate that if the Polish Government could make some gesture, even though slight, to improve the offer to the holders of the American dollar issues other than the stabilization loan, the Department would not enter into the situation in any public way.

The Department is now informed by the Polish financial representative, under instruction of his Government, that the Polish Government is not ready now to conclude a definite agreement. It is not clear to the Department whether the Polish Government by thus suspending negotiations means to offer terms other than those discussed, or means to offer a temporary arrangement, or means to leave the whole question of payment in suspense possibly to the point of default when the next coupons fall due. This creates a definite prospect that the American holders of these dollar issues would suffer substantially as compared with holders of Polish Government bonds of other nationalities.

Will you please promptly discuss this situation informally with the Polish authorities. The Department would like to know, as definitely as may be possible: (a) whether the Polish Government is not prepared to make payment on the stabilization loan at the full [Page 642] 4½ percent rate, putting the American tranche of this issue, at least, on a parity with the other tranches of the loan. (b) How the Polish Government intends to treat the other dollar bond issues. It would be regrettable if the Americans had to face the fact that the Polish Government was tending to treat American interests less well than the interests of those of other countries. Needless to say it would be taken as just another instance of a European country, facing the exigencies of European politics, deciding to slight the part played by the United States in the past in contributing capital to its development and oblivious of the potential role this country might play in the future. We are genuinely eager to have this matter satisfactorily settled and will do everything within reasonable sphere to promote compromise on detail, and we do understand that many of the exigencies facing the Polish Government are actual and that the trend of current international economic affairs has not made it easier to meet obligations.

You may find it useful in talking with the Polish Government to point out that, owing to repatriation of Polish dollar securities, previous sinking fund payment, and previous debt readjustments, it can be reliably estimated that to pay the American slice of the stabilization loans at the same terms as the other slices and to accord other dollar issues 4½ percent, with a 30-year amortization schedule, would require now no more than $3,000,000 a year. It is believed that the Polish Government can pay debt service of that amount without undue strain. At one time the annual service on Polish dollar obligations required in the neighborhood of $13,000,000.

You may also find it useful to call attention to the vigor with which the Department acted to prevent the imposition of an extremely heavy excise tax on ham and other pork products which would have seriously injured Polish trade in these products. The farm interests may bring this question to the front again in the future. In fact, the Senate may still override its Finance Committee and accept the House provision for the excise tax, though this is unlikely. It is plain that if the Polish Government discriminates against the American bondholders, it will become somewhat harder to gain support in opposing legislation of this type. This is stated entirely as an observation and not as an implied threat.

  1. Bankers Trust Company, and Chase National Bank, New York, N. Y.
  2. For text of the Polish decision, see Annual Report, 1938, p. 867.
  3. See telegram No. 117, September 28, 1937, from the Ambassador in Poland, Foreign Relations, 1937, vol. ii, p. 539.