Poles' problem compounded by their heavy outside bebt

By , Business and financial correspondent of The Christian Science Monitor

Poland is living on borrowed money and borrowed time. In the words of one informed Pole, it is "a nation of 35 million on the edge of bankruptcy." Its disorder is stirred by empty stomachs, bad investments, and huge debts -- and the wage increases won by striking workers will only add to the country's economic problems. At least that's the view of various experts here on the Polish economy.

Three-quarters of Poland's food production comes from peasant farmers, who measure status by the size and power of their plow horses. Chronic meat shortages fuel worker unrest, yet 150,000 tons of canned ham are shipped to American pantries each year to help pay Poland's foreign debt. Factories built by borrowing stand idle or barely tick over, victims of bad management and world recession. Presiding over the mess, these experts say, is a rigid central planning system, swathed in layers of bureaucrats, that refuses to match recompense with effort and supply with demand.

The immediate problem is red ink. In the flush years of the early 1970s, Poland tried to become the Japan of Eastern Europe by borrowing to build industrial production. From 1971 to 1975, investment in industry grew at an average of 21.9 percent a year, Steel mills, copper plants, and polyester companies sprang up overnight. Eventually the flood of money gagged the economy. Expensive machinery rusted waiting for a roof; low demand kept the Katowice steel mill working at a bare slice of capacity.

Recommended: 10 best books of March: the Monitor's picks

"The key indicator of Poland's economic troubles is that they owe the rest of the world $23 billion," Richard T. Davies, a former US ambassador to Poland, says. "They've been living on credit for years. It's a poor utilization of scarce resources, but in view of the troubles in our own auto industry, Poland isn't the only country with that kind of problem."

Like children in a pile of autumn leaves, government officials scattered fistfuls of money without careful planning. They developed a coal basin in Lublin but didn't provide any way to ship the coal out. A copper mill began rolling sheet metal just as world recession killed off the international copper market.

The payoff didn't come, but the notes fell due. In 1980 alone, Polish leaders had to scrape together $1 billion in hard cash to satisfy foreign creditors. Next year they will have to come up with half a billion more.

Many Western analysts say the Polish plans have not paid off because a centralized communist state is not geared toward making the innumerable small decisions a veteran capitalist must make every day. Production quotas can't be quickly changed to meet demand fluctuations; prices aren't determined by actual cost but by political expediency.

"The trouble results from massive introductions of high technology from one economic system to another totally different system," a Senate source says.

The average Polish worker cares little for schedules of repaying national debt. A lack of pork roasts, on the other hand, moves his to action. In 1970, a government-induced sharp rise in food prices sparked violent riots that eventually forced officials to back down and caused Edward Gierek's predecessor as party leader, Wladyslaw Gomulka, to fall from office. In 1976, a similar price increase lasted only 24 hours before the workers stared it down.

Earlier this month Polish authorities announced that meat would be rationed over the holidays. Another rationing program is scheduled to begin in February.

Ironically, Poland's food is for the most part produced by hardy peasants who plow with horsepower and scrutinize any Communist Party pronouncement with suspicion. Sixty percent of the country's farms are smaller than 12 acres; only 1 in 13 can boast of a tractor. When times are good, government officials try to collectivize the farms. When times are had they support the peasants.

"In this, as in everything else, they followed the best line to decrease production and discourage initiative," former Ambassador Davies says.

The last seven grain harvests have been poor, and many of the older farmers are retiring without younger ones taking their place. With domestic production weak, the government found itself paying heavy food subsidies to keep prices artificially low. Meat price supports alone cost Poland about $2.5 billion a year.

"There were sound economic reasons for the government to try to reduce food subsidies," says Raymond Garthoff, a senior fellow in foreign policy studies at the Brookings Institution.

Pressed by the need to pay its debts and feed its workers, the government chose to raise its meat prices. On July 1 of this year, the price of high-quality meat cuts was increased between 30 and 90 percent. The workers, already upset by chronic shortages, went on strike.

The government hoped to save $130 million to $160 million a year by raising the price of meat. Instead, it torched much of its own economic planning. Political gains notwithstanding, Deputy Prime Minister Henry Kisiel has said the wage settlements for workers will end up costing $3 billion -- further unbalancing the Polish economy.

"The point is, they were already so far behind the eight ball regarding food prices that they had to have those raises," Mr. Davies says.

Poland is now negotiating with the Westtern world in hopes of rescheduling some of its debt payment. The country remains an attractive long-term investment: It is the fourth-largest coal producer in the world and sits atop significant reserves of copper, silver, platinum, and vanadium.

In August a consortium of German banks extended a loan worth the equivalent of $674 million. In early December the Poles approached the Common Market, asking for help in obtaining 40,000 tons of meat and 20,000 tons of butter. They were turned down.

Recently a group of predominatly American commercial banks underwrote a $325 million loan for the country.

The Polish economy, unbalanced by its heavy debt load, needs such help to stay viable. The short-term gains of the workers, however needed, are likely to cause long-term strains that will be hard for the government to ease.

Share this story:
