Timely Bailout

Some help from the "Club "

Rarely has any country so desperately needed a bailout. With a $27 billion foreign debt, declining production and plummeting exports, Poland seems to be teetering on the verge of economic collapse. That would be a calamity that the Soviets, for all their vital interest in shoring up a key satellite, might not be able to prevent. Ironically, the economic salvation of Communist Poland may depend on a coterie of Western capitalists with a quantity of bad debts on their hands.

One such group converged on the baroque International Conference Center in Paris last week. Its objective: to prevent Warsaw from defaulting on its foreign debt. Known informally as the "Club de Paris," the group comprised representatives of Poland's 15 major Western government creditors--including France, West Germany and the U.S.--plus a delegation from Warsaw. After three days of closed-door negotiations, France's Treasury Director Jean-Yves Haberer, the host of the meeting, declared that there had been "sufficiently important progress" to justify further discussions. He also promised "quick and effective" efforts by member countries to relieve the Polish debt burden until a long-term scheme can be negotiated, perhaps by this summer.

Meanwhile, a number of countries will probably try to help with short-term roll over deals and other bilateral measures. The U.S., for example, immediately announced the deferment of $88 million in Polish debt payments that would have been due over the next four months. West German Economics Minister Otto Lambsdorff assured Polish Deputy Premier Henryk Kisiel that Bonn would be willing to cooperate in comparable ways.

Such governmental arrangements do little to ease Warsaw's obligations toward commercial banks, which hold some two-thirds of its foreign debt. This, says British Economist Richard Portes, is a "far more critical and sensitive issue" because the commercial loans are not secured by any government guarantees. Seeking to postpone part of their 1981 commercial repayments, Polish officials are meeting in London this week with representatives of some 100 Western banks. But the very size of such a gathering will make it difficult to reach any meaningful consensus. Said one of the Western bankers involved: "Even attempting something like this is a measure of Polish desperation."

There was also a touch of desperation on the part of the commercial creditors, who have little choice but to defer payment on the Polish notes now falling due. Poland has no substantial assets in the West that could be seized in the case of a default. Nor could the Soviets be counted on to pick up the tab. As one Parisian financier put it: "There are conditions under which the amounts involved become so considerable that the debtor actually holds the creditor in check."

The even thornier question of long-term arrangements will depend largely on Warsaw's ability to carry out effective economic reforms while maintaining labor peace at home. After two strike-free weeks, it seemed that a fragile labor truce had indeed taken hold. But divisive issues still clouded ongoing government-union talks; thus the possibility of fresh labor upheavals remained. If renewed unrest should break out, difficult decisions will have to be made, not only in the Kremlin but also in the plush boardrooms of many Western banks.

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