111. Memorandum From the Assistant Secretary of State for European Affairs (Kohler) and the Assistant Secretary of State for Economic Affairs (Martin) to the Under Secretary of State (Dillon)0
SUBJECT
- Resumption of Credit Negotiations with Poland
Negotiations were initiated with the Polish Government last May for a PL 480 sales agreement and a credit for the purchase of industrial items.1 While the PL 480 agreement was signed on July 21 (following signature of the claims agreement on July 16)2 negotiations for a possible [Page 300] industrial credit were suspended in view of the adjournment of Congress in July prior to enactment of the Mutual Security Appropriation Act.3 It was understood, however, that negotiations for a possible credit would be resumed following enactment of the Appropriation.
We believe that we should now proceed to resume negotiations with the Poles at an early date. The Poles have been given to believe over the past two years that once the claims problem was out of the way there would be a prospect of broader economic relations which might include extension of industrial credits.4 They have raised this question repeatedly in recent weeks at all levels including Gomulka to the Secretary during their conversation at New York.5 Now that the claims agreement has been concluded we believe that it would be unfortunate if the Poles received the impression that we have lost interest in furthering US-Polish economic relations.
As in past years, any credit to Poland for the purchase of industrial equipment, although administered by the Export-Import Bank, would have to be financed out of the President’s Special Fund, because of the restrictions of the Battle Act. (A breakdown of US assistance to Poland since 1957 is attached.)6 The Poles, pointing out that they did not receive any credit during FY 1960 and that they have no access to other types of credit, including private credit, have stated that they expect that the credit will be in the range of about $20 million.7 We have pointed out in informal discussions, however, that the demands on the Mutual Security Program this year are so great that they should set their sights much lower. We would, in fact, recommend a credit of about only $8 million. In view of the very large PL 480 agreement concluded last July ($130 million) we believe that an industrial credit of only $8 million would satisfy the interests of our policy toward Poland.8
It is noted that initial allocation of Mutual Security funds as provided for in Mr. Bell’s memorandum to Mr. Riddleberger dated September 28, 19606 shows a possible contingency requirement for Poland of $6 million. The basis for this estimate is not known, but it is [Page 301] apparently based on the fact that the last credit to Poland from this source in June 1959 was $6 million. We believe, however, that the amount of credit should be higher than it was in 1959, when the program was halved, in view of the pending claims negotiations. Since that time, the claims settlement has been concluded and the Poles are counting heavily on rapidly expanding economic relations with the US among other things on the basis of most-favored-nation treatment for their exports to the US and credits for the purchase of industrial items here. We believe that the expansion of US-Polish economic relations serves our interests as well as those of Poland from a number of viewpoints including the fact that it increases Poland’s bargaining position and extent of independent decision within the Soviet bloc and thus serves as a pressure point on the bloc. If the credit to Poland is maintained at the same level as in 1959, when the prospects for expanded economic relations were less favorable than at present, it will tend to diminish the impression that our economic relations are on the upgrade. We recognize that the pressures on contingency funds are very great and that $2 million saved in this program could be put to good use elsewhere. We strongly believe, however, that the minimum desirable amount for a credit to Poland, from the standpoint of US interests in that country, is $8 million and we urge that you approve this amount.
We are not in a position at this time to state what projects might be financed out of the credit. The Poles, as might be expected, have placed highest priority on projects associated with heavy industry. Our interests, on the other hand, would be best served by projects on consumer-oriented industries so as to demonstrate our concern for the welfare of the Polish people. While we might, in the final analysis, have to agree to meet the interests of the Polish Government to some extent, we should seek to have the program as a whole reflect predominantly projects which can be justified from a consumer interest viewpoint.
Recommendations:9
- Source: Department of State, Central Files, 411.4841/11–860. Confidential. Drafted by Katz; initialed by Kohler, Martin, and Katz; and concurred in by James C. Lobenstine, Isaiah Frank, John O. Bell, and Florence Kirlin.↩
- Documentation on the negotiations with the Polish Government for a P.L. 480 sales agreement and a credit for the purchase of industrial items, which began in May 1960, is Ibid., 411.4841.↩
- See Document 103.↩
- For text of the Mutual Security and Related Agencies Appropriations Act, 1961, enacted September 2, 1960, for expenses necessary to enable the President to carry out the provisions of the Mutual Security Act of 1954 as amended (68 Stat. 832), see 74 Stat. 776.↩
- In a handwritten notation in the margin beside these two sentences, Dillon wrote, “Battle Act changed.”↩
- See Document 110.↩
- Not found.↩
- In a handwritten notation in the margin, Dillon wrote, “No reason at all for Rep. to state any figure.”↩
- In a handwritten notation at the bottom of the page, Dillon wrote, “No magic in $8 million.”↩
- Dillon initialed his approval of both recommendations.↩
- Dillon crossed out the figure $8 million and wrote in $5 million.↩
- Dillon crossed out the figure $8 million and wrote in $5 million.↩