Memorandum of Conversation, by the Adviser on International Economic Affairs (Feis)

Mr. Zoltowski, Financial Counselor of the Polish Embassy, telephoned me this morning from New York to say that he had now reached agreement with the Bondholders Protective Council on all of the outstanding dollar indebtedness except the 8 percent Dillon-Read loan.

He informed me that incidentally since last discussion terms with the Council, he had been able to make an improved offer in regard to amortization on the 6 percent Warsaw and Silesia Loans (I believe on a twenty-year basis) which had pleased the Council.

Accordingly, they were planning to issue notice tomorrow morning regarding all these loans.16

In regard to the 8 percent Dillon-Read loan, however, he remained disturbed. Their present offer was 4½ percent on a twenty-year amortization period. However, they had offered to provide as amortization the fixed sum of $450,000 a year. Assuming that the market price of the 8 percent’s would be 65 (which was distinctly higher than the present price), this would in reality mean the total amortization of the amount of the dollar bonds outstanding for between 12 and 14 years. Further, he emphasized that the total amount of service that would be provided under the Polish Government’s offer ($405,000 for interest and $450,000 for amortization) would be, [Page 645] according to their calculations, some $240,000 more than would be required to meet the terms which the Council said they would accept, which was 5 percent in the twenty-year amortization period, handling the amortization on an ordinary 2 percent annual basis. He explained that the great difficulty was that to meet the Council’s terms would create most serious questions in connection with the conversion carried through by the Polish Government into zloty bonds, and he did not think the Polish Government would consider disturbing what had been done.

He stated that in accordance with the Council’s suggestion he had cabled to his Government asking whether they would provide 4½ percent on the straight 12-year amortization period, but that this proposal also brought up the same difficulty in regard to the Polish Government conversion.

Though the next coupon of the 8 percent loan was not due for some time17 and therefore an opportunity existed for further discussion, he professed himself as afraid that protracted delay might seriously imperil the chance to do anything satisfactory for the 8 percent because of the constant vicissitudes that the Polish Government might have to face under the present disturbed political and economic conditions of Europe. He felt that there was a serious risk that if settlement was not achieved now some new turn of events might greatly imperil the whole chance of satisfactory settlement.

He asked me to believe the sincerity of his presentation in the light of our knowledge of how vigorously he had fought in behalf of the bondholders, even going to the length of presenting his resignation several times.

I said to him that I could see how, on the basis of strictly legal argument, it might be felt that the holders of the 8 percent were being less well treated comparatively than the investors in the Stabilization Loan particularly. He admitted that in a sense this might be argued but emphasized (1) that the multiple currency privilege enjoyed by the holders of the Stabilization Loan in the past had meant in reality that they had received a greater rate of interest than the holders of the 8 percent loan, and (2) that under the proposed settlement the amortization privileges were more favorable to the holders of the 8 percent loan than the Stabilization Loan. In conclusion, I said that, as he knew, this Government did not undertake to pass on the details of such negotiations. However, I felt confident that considering the small nature of the difference and the arguability of its fairness, that this Government would not present the matter to the Polish Government as one of discrimination. I said that I could not influence the Council’s judgment in this matter, but that I would let them [Page 646] know that the Department would not further dispute the terms offered with the Polish Government.18

  1. For texts of these notices, see ibid., pp. 869 ff.; for the Council’s own statement, see ibid., pp. 872 ff.
  2. Interest coupons were due January 1 and July 1.
  3. By letter of June 7, 1938, to Francis White, President of the Foreign Bondholders Protective Council, Inc., the Adviser on International Economic Affairs wrote: “In regard to the still outstanding question of terms in regard to 8% bonds, it is my impression, as well as that of colleagues with whom I have discussed it, that the matter of issue has now become so limited, and the question of possible discrimination so refined, that the Department would not feel itself justified in further pressing the Polish Government.” (860C.51/1341)