Foreign Relations of the United States, 1961–1963, Volume XVI, Eastern Europe; Cyprus; Greece; Turkey

80. Airgram From the Embassy in Poland to the Department of State⁰

Warsaw, April 25, 1963.

A–873. Subject: Poland—Basic Policy. What are we trying to do in Poland?

It seems to me that our basic purpose is to keep our foot in the door and our shoulder against it. We want to have contacts with the Poles, to make them feel our presence in Poland, to tempt them to try a somewhat independent line toward the Soviet Union, to maintain Poland’s Western cultural orientation, to make it more difficult for the Polish regime to be too harsh toward the Polish people, to underscore our traditional friendship and links with the Polish people. We want the Polish regime to realize that it can open the door further if it wants: it is not totally dependent on the Soviet Union and if it wishes better relations with the United States it can have them and benefit from them. We must engage the Poles on as many fronts as possible: tourism, publications, radio broadcasting, cultural presentations, consular relations, travel grants, trade, social gatherings, English teaching, cultural centers, CARE programs, films, public appearances, libraries, schools, hospitals—in any area of contact that we can keep open. To take a trivial example, it is surprising to note the interest stirred up in any Polish town when the Ambassador’s American car shows up with the American flag flying. Our opportunities in Poland are matchless in the Soviet bloc and despite some setbacks we have a good many successes to our credit. We must recognize, however, that since the heady days of 1956 the general trend has been for the Polish authorities to tighten the screw over Polish nationals rather than loosen it further.

We must not fool ourselves as to what we can accomplish. We are not going to change the essential character or orientation of the regime. It is going to remain communist and it is going to maintain its adherence to the Warsaw Pact. If it differs from other communist regimes in its agricultural policy, its treatment of the church and the relatively greater freedom it gives its citizens, this is not primarily because of United States policy—it is due to domestic considerations. Important as it is for us to take Poland’s special position and interests into account, it is unlikely that we can induce Poland to adopt markedly more favorable policies from our viewpoint no matter what we do. There is even considerable question as to how far we might induce the regime to adopt less favorable domestic policies if we ourselves were harder nosed in our dealings with it. In short the communist regime in Poland is going its own way in accordance with its own concepts of its interests. If from time to time it adjusts its course somewhat to take our views and interests into account this is primarily to get what it can out of us; we should emphatically not deceive ourselves that there is anything really significant in it. All that we can hope to accomplish in the foreseeable future is to influence individuals, to create a favorable atmosphere, to chip away at the crudities of communist dogma.

The principal instrument for implementation of our policy today is PL 480. Poland depends heavily on its ability to get grain and other agricultural commodities from us on what in effect are extraordinarily cheap long-term credit terms. The zlotys which it deposits in payment for our commodities, though nominally subject to withdrawal, are not going to be except in infinitesimal amounts, and the regime knows this. Most of these zlotys will simply remain in Polish banks until, in ten to forty years, they are due for reconversion into dollars. It is to be borne in mind that these zlotys so far as the Polish Government is concerned are therefore really nothing but an entry in a ledger. Moreover when commodities are distributed to ultimate consumers, the return flow of payments is deposited in currency. That currency can be used either to fight ever-threatening inflation by sterilization or for new credit operations. In a capitalist economy that would be a great advantage. The economic section of the Embassy argues that in a communist economy it is not, since the government always has the totality of the nation’s resources, human and material, at its disposal in any case. Be that as it may, there is another point which is indisputable. Since there is no interest payable either on the zlotys or on the dollars into which in due course they are to be reconverted, the real value of what we are paid is a great deal less than the nominal value. At the interest rate the United States Government pays on its long term obligations, dollars payable, in an average of 25 years in the future, are worth only a fraction of what dollars payable today are worth—and this takes no account either of probable inflation or of the possibility of default by the Polish Government. The benefit of all this on the $477,000,000 of agricultural commodities we have sold to Poland under PL 480 accrues to the Polish communist regime. It is no trifling benefit, but just so much help to the regime to achieve its economic objectives. In other words, if we are to extend material help which importantly strengthens the communist bloc we should be very certain that what we are receiving in return is worth as much to us as what Poland is getting.

Although from our viewpoint these agricultural commodities are surpluses, from the Polish viewpoint they are vital to the country’s economy. If they were not to receive them, it would be necessary for the regime to tighten the belt to the point where it would really pinch. It is clear that even with all the help Poland has received from PL 480 its economy is seriously strained. Foreign exchange reserves are very low and perhaps nonexistent. The exceptionally cold winter has caused breakdowns in a number of sectors of the economy. It is to be remembered that our agricultural commodities supplied to Poland have not only helped to save Poland foreign exchange but also (by providing feed for hogs, hens, etc.) have contributed importantly to Poland’s foreign exchange earnings. The importance of PL 480 supplies to Poland is clear from many Polish statements.

Recognizing the inherent limitations on what we can hope to accomplish I question whether it is necessary to enter into such large PL 480 agreements with Poland as we have customarily signed. Presumably we have signed these large agreements because of other benefits which we have secured in addition to keeping the door open. These include such matters as the settlement of our claims, tie-in sales, etc. It was perhaps the Department’s thought in raising the amount we offered the Poles in the last negotiations that this was to mitigate the blow to our relations which had been caused by Congress’ action with regard to MFN.

In implementation of our PL 480 policy one point we must bear constantly in mind is the burden these agreements are going to place on the Polish economy in years to come. Repayments under the PL 480 agreements in dollars will start in 1967 and will rapidly build up as repayments under one agreement after another begin to come due. It is somewhat doubtful whether the Polish economy can bear the strain of these repayments, particularly if Polish exports to the United States are prejudiced by Congress’ action with regard to MFN, by John Birch boycotts of Polish goods and by similar measures. Presumably, therefore, it must be our policy to phase out further agreements in due course. Every new agreement adds to the hurdles which the Polish economy will have to surmount in the not too distant future. The time may come, it may indeed already have come—when it will be impossible for the Polish economy to surmount the hurdles before it. Tempting though it may be at that point for Poland to default, their record suggests that they will seek to avoid this way out of their dilemma. Yet if we continue to sign large PL 480 agreements over an extended period default might become unavoidable. At that point we would face the unpleasant alternative of stretching our already generous interest-free terms over a yet larger period or of losing much of the good will we had so carefully built up over the years. Indeed, if and when we stop signing new agreements and the Poles find they must make heavy payments on old debts while securing no new benefits, they probably will not like it. In short, we do not want our policy to be self-defeating.

We cannot afford in our relations with Poland to take the attitude that sufficient unto the day is the evil thereof. It would almost certainly be unwise to stop abruptly our series of PL 480 agreements with Poland. On the other hand, it is essential from our viewpoint as well as that of the Poles that Poland become more nearly self-sufficient in the near future, at least in the commodities the country can produce. It is thus the essence of good policy to cut down in the future on the size of any PL 480 agreements we may sign. If we continue to sign modest sized agreements covering, say, particularly cotton, which Poland cannot produce, we can perhaps postpone a crisis indefinitely. If we continue on our present course we are simply looking for trouble.

What are we going to expect in return from Poland?

We cannot expect specific political concessions. The Poles obviously are not going to, and indeed cannot, accept such conditions. We can perhaps expect as a consequence of further agreements that we will accomplish in modest measure the intangible objectives mentioned in paragraph one but this would be because the Polish authorities acquiesced in it rather than through any agreement between our countries. It is simply not realistic to expect any specific political concessions.

There are a number of economic concessions which we might ask. The most important is perhaps a bond settlement, since the outstanding prewar bonds of Poland remain in total default. Unfortunately, the Poles to all appearances do not now have the foreign exchange to undertake a bond settlement and, as explained in the previous discussion, there is no strong reason to suppose they are going to have resources to undertake a bond settlement within the foreseeable future. Possibly we could secure a bond settlement by offering a large PL 480 agreement, much as we obtained the claims settlement in 1960. We should continue to press for a bond settlement but should not be unduly rigid in how we propose to secure one.

Another concession which we have asked in the past and could with propriety ask again in the future is that they make commercial purchases of American agricultural commodities concomitantly with the purchases they make under PL 480. This helps us to dispose of agricultural commodities and to that extent is beneficial. I do think, however, that we have more important objectives than this to attain in our relations with Poland. The amount of commodities we thus dispose of is not very large and it would seem to me that if we wanted to sell farm products to Poland on a commercial basis it would be wise to go about doing this by clearing away any legal and practical obstacles to commercial sales rather than by making such sales a condition in future PL 480 agreements. There is surely no reason why we cannot compete both in prices and credit terms with other sellers of agricultural products in filling Poland’s large import requirements above her PL 480 purchases. What we do want to remember is that the extra commodities we sell them under PL 480 in order to make the whole transaction, including tie-in sales, attractive, are really important help to Poland’s economic development. I doubt it is wise to do this in order to pocket a few dollars.

In our relations with Poland we are constantly being annoyed by petty holdups. The deposit rate we can obtain, for example, is only 24 to 1 and, since this greatly overvalues the zloty, it means that all of our expenses in Poland are greatly magnified. The Polish Government through the PKO Bank will pay Polish residents 72 zlotys for dollars which they bring in—in other words, Poland grossly discriminates against foreign residents of Poland. The black market rate is reported to be about 80 to 1. The artificially low official rate for zlotys means not only that our operating expenses are much increased but also that any capital expenditures such as those for building are greatly augmented. It has been argued that we should use the leverage of our PL 480 agreements to get the Poles to give us a more favorable deposit rate under our PL 480 agreements and thereby a more favorable rate for our expenditures. This argument is reinforced by the fact that we are selling grain to Poland, taking the 24 to 1 rate of deposit, at a considerably lower price than the domestic price for compulsory delivery of grain and at a far lower price than the free market price.

There can be no question but that this is a proper matter to include in PL 480 negotiations; the rate of deposit is an essential provision in all of these agreements and the matter has specifically been discussed on at least one previous occasion. Nevertheless, I am inclined to feel that this should be discussed separately rather than in the course of any future PL 480 negotiations. The advantages to securing a higher deposit rate would not be very large. When the time for reconversion came we would get the same number of dollars for our zlotys regardless of the deposit rate. The only difference would be that, with a higher deposit rate, we would do relatively better on our operating expenses and capital costs (even here we might find that the Polish Government in its monopoly position might simply raise prices for us). There is no reason, moreover, to suppose that this use of zlotys would run to more than a relatively small proportion of the total amounts involved in our PL 480 agreements.

On the other hand, I think we would run a real risk that the Poles would refuse altogether to enter into a further PL 480 agreement if we were to insist on a higher deposit rate. Of course this danger could be mitigated by offering them large amounts of PL 480 commodities or otherwise more favorable terms but, as explained above, I would consider it imprudent to continue negotiating PL 480 agreements for large amounts of commodities. We are not in the position we were in the midst of the negotiations last December for a PL 480 agreement. I believe the Embassy should be instructed to protest this discrimination, but that this should not now be directly linked with PL 480.

In this connection, the question of the Ellender amendment requires consideration. As the Embassy has so often pointed out, this amendment grossly favors the CCC and enables it to gouge every United States Government agency operating in Poland by forcing them in effect to exchange their current dollars for the CCC’s dollars, which are payable only many years hence without interest. The American taxpayer does not lose by this but the real cost of our programs in Poland is distorted out of all recognition. By accepting deferred payments for our surplus commodities we secure in effect a greatly reduced amount for them. We should not turn this around and claim that our programs in Poland cost us fantastic amounts more than they really do. It does make a great difference to State, and to a lesser degree to other agencies, to spend over twice what it should for its operations in Poland. The Ellender amendment should be modified so that the real rather than the nominal value of the CCC’s money will be reflected by the rate at which it sells to other agencies.

I think that considerations very similar to those mentioned regarding the deposit rate should prevail in regard to at least two other economic grievances we are suffering from. The City of Warsaw owns all real estate within the city limits and will only allow foreign governments and private individuals to enter into long-term leases for the use of land. Land so leased is preposterously expensive and, since the city has a monopoly of it, there is no recourse. We have been compelled to pay a ridiculous sum (at least nominally) for an eighty-year lease on the land on which it is proposed to build the Ambassador’s residence, and an even more ridiculous sum has been asked for land for our prospective school.

I believe that we should vigorously protest this holdup (since it can be only so characterized) but I do not believe that we should tie it in with PL 480. Again the game is simply not worth the candle. If we are going to let a member of the Warsaw bloc have nearly half a billion dollars worth of agricultural surpluses in order to achieve the benefits mentioned at the beginning of this report, we certainly do not want to be so nearsighted as to gag because we are held up for some hundreds of thousands of dollars for land. We also do not want to encourage the Polish Government to hold us up in order to be thereafter bribed to cancel the holdup.

The same reasoning applies, I believe, to another holdup, which is in connection with housing. Housing is extremely tight in Warsaw. The Embassy must get quarters for its staff either from the city or from private owners. The city a year ago increased its rents for foreign diplomats several fold and moreover insisted that they in effect be paid in foreign currency. (This was to prevent diplomats from using black market zlotys.) With regard to private owners the city collects 85% of the nominal rental, which means that rentals are extremely high. I believe that we should vigorously protest this situation also but I agree with what I understand the Department’s position to be, that it would be inappropriate to inject this directly into PL 480 negotiations. The possibility of building Embassy housing has been discussed in another Embassy report. It should be added that we have just discovered that the Polish authorities will not permit us to buy existing houses from private owners.

We have numerous cultural objectives which we should like to attain. Most important among these is perhaps the establishment of a cultural center which would be a focus for the teaching of the English language and the dissemination of American culture among the people of Poland. Desirable as it would be to establish such a center, I fear it is not within the realm of practical possibilities under present circumstances. We could scarcely demand the right to establish such a center as a quid pro quo in our PL 480 negotiations since the Poles would doubtless strongly reject such an approach. On the other hand, the Poles are not going to permit the establishment of such a center out of the goodness of their hearts. Yet I see no harm in making an approach on it at a suitable time in the future. Although we would not link the center to PL 480, it is not improbable that the Polish decision on it would be influenced by their continued need for PL 480 assistance. An appropriate moment to raise this question might be when (and if) the Congress accepts the President’s recent recommendation regarding MFN. Also, short of establishing such a center there are certain areas where considerable amounts of PL 480 zloty holdings of the United States Government could be profitably employed in stimulating the quantity and quality of English language instruction in Poland. The Embassy’s views on this matter were submitted to the Department in detail in A–660 of February 22, 1963.¹

We should also like to see increased cultural exchanges between the United States and Poland. There are at the moment rather numerous such cultural exchanges, which I shall not enumerate in this report. On the other hand, as the Department is aware, the Polish authorities are forever putting a spoke in our cultural wheel. The Glenn capsule was in effect rejected as was the Medicine-USA exhibit. Passports for Ford and Kosciusko grantees have been refused. The circulation of American books, periodicals and newspapers in Poland is restricted. It is clear that whereas the Polish authorities are willing to have the cultural door slightly opened, they are determined to keep their foot firmly against it in order that it may not swing so far open as to be inconvenient from their standpoint. Here again I feel that there is nothing we can do except to protest as individual cases arise. We certainly cannot inject the question of specific cultural exchanges into PL 480 negotiations.

In short, I believe that we should not enter into large PL 480 agreements with Poland except possibly under circumstances which cannot now be foreseen. We should try to enter into modest agreements varying annually, in conformity with the cooperation we have received from the Polish authorities in the preceding year, with no strings except adequate publicity attached. We should not insist on tie-in sales since we want the offers we make to be so attractive that the Poles will almost certainly accept them faute de mieux and yearn for more. We should sweep away any legal obstacles to the purchase by Poland of agricultural commodities under competitive conditions as to prices and credit terms with other producers.

We should not wish to extend really significant help to a government which has consistently made its hostility to us clear. We should continue to give that government material assurance that if it adopts a more friendly attitude we will respond in kind. Our relative friendliness to them as expressed by our deeds should correspond to their relative friendliness to us. If they choose to be a member of a hostile bloc and yet continue to show some signs of friendliness to us we should be forthcoming in extending limited help to them. If they are more friendly we should be more friendly. They should always feel that they have something to lose by too negative an attitude towards us. They should equally feel that if they want better relations we will welcome this within the bounds of prudence. We have historic ties and we wish to preserve them. Our people are friendly towards each other and it would be a tragedy of history if we were ever to clash. We must not give the impression we shall always be friendly and helpful regardless of what they do. But we must—always—make it clear that if they want good relations that is precisely what we want, too.

There are, of course, other ways in addition to PL480 by which we might influence the Poles of the Polish Government. An obvious example of this is the possibility of our recognizing the Oder-Neisse line as permanent. Doubtless the Polish Government would make concessions for a move of this nature on our part. However, since Germany is more important to us than Poland and since Germany is an ally and Poland is a member of a hostile bloc, this would be scarcely advisable.

A present irritant in our relations with Poland is the question of MFN. Congress has directed that this be withdrawn from Poland (and Yugoslavia) as soon as practicable. The President has not, as yet, acted on this and has recommended that this provision be repealed. The Polish Government has claimed (and from the record, I think it is pretty clear that their claim is justified) that the extension of MFN to Poland in 1960 was part of a general agreement by which, among other things, Poland agreed to pay 40 million dollars, in annual installments of 2 million dollars, in compensation for our claims for the American property which Poland nationalized.

Quite apart from the moral commitment which I believe we have toward Poland in this regard, I think it would be definitely unwise from a practical standpoint for us to cancel MFN for Poland. I think it probable that if we do cancel MFN, Poland will default on the Claims Agreement—indeed in conversations and even in notes the Polish Government has strongly intimated that it would do this. There is even danger that it might affect the reconversion of PL 480 zlotys to dollars. It would cause an unfortunate cooling in relations between Poland and the United States and to that extent prejudice the position which we have been so painfully and expensively building up in this country. I therefore strongly hope that Congress will accept the President’s recommendation.

My predecessor in his Despatch 344 of January 13, 1961² recommended the repeal of the Battle Act with regard to Poland, evidently with the thought in mind that this would permit us to extend help to Poland in strictly nonmilitary fields in which we too would derive some benefit, such as research, cultural centers and possibly hospitals and similar projects. I am strongly in favor of finishing the Children’s Hospital at Krakow. Yet with the benefit of two years hindsight I question the present advisability of thus repealing the Battle Act. I do not believe that Congress would go along with such repeal. Quite apart from this, I do not think, so long as present circumstances prevail (and there is no reason to suppose that they will change) that we should extend grant aid to Poland. It has been argued that building public facilities would absorb scarce materials and skilled labor much needed in other sectors of this very tight economy even though no direct American interest were advanced. But after all, even the building of any public facilities however innocuous and humanitarian would relieve the Polish Government of the necessity of building them and would release the Polish Government of foreign debits, thereby making it possible for the country to import more from abroad for economic and perhaps military development.

We do want the Polish Government to feel that relatively good relations with the United States are beneficial from Poland’s viewpoint. We do want them to conclude that there is a clear if indirect connection between what they do and the relative benefits they receive from us. We do want them to feel that the door is open and can be opened wider. We do want to use every opportunity we perceive to “engage” them, to establish more and closer contacts with them, to make our presence felt, to extend our influence, to disseminate our thinking. But we do not, I submit, want to give a member of the Warsaw Pact really significant material help.

John M. Cabot

0. Source: Department of State, Central Files, POL 1 Pol–US. Confidential. Drafted by Cabot, Sherer, Buell, Donnelly, and Davis. A notation on the source text reads: “Discussed with Amb. Cabot at Dept. 5/15/63.”
1. Airgram A–660 discussed the future of English-language training in Poland. (Ibid., Edu 4 Pol)
2. Not printed. (Ibid., 611.48/1–1361)