Word: warsaw
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...Poland's crippling indebtedness to the West. But the price will be high: strict reintegration into the Soviet bloc's tightly coordinated economic system. Trade with the West will diminish as Polish factories increase their dependence on Soviet raw materials and equipment. Says a Western diplomat in Warsaw: "Economically, Poland is on the verge of becoming the Soviet Union's 16th republic...
...Western attempts to encourage moderation seem to be having little effect on Warsaw. Hardening their position on the future of Solidarity, Polish authorities launched their first full-scale propaganda attack on Union Leader Lech Walesa, who is still interned in a government villa near the capital. The army daily Zolnierz Wolnosci accused Walesa and other union leaders of deciding in December that "the gallows have to be built" for the Communists. The union leader was personally denounced by the Polish Press Agency as a "front for the anti-Communist crusade" and a traitor to "working-class interests." In an interview...
Washington, meanwhile, is taking a wait-and-see attitude. The Reagan Administration last month kept the Poles out of default by paying $71 million in gram-export loans that Warsaw owed to U.S. banks. That sum, however, is dwarfed by the $1.7 billion that American banks have loaned Poland, and the $ 1.9 billion of total direct Government lending. Administration officials believe that the best Western position is to continue holding out the threat of default without actually using it. Said the President at his press conference last week: "Default will make Poland more dependent on the Soviet Union...
Academic experts warn that one of the first consequences of such action would be to reduce the little leverage that the West has on Warsaw and Moscow. Says Edward Hewett of the Brookings Institution: "A default would prompt the loss of what influence we have." The move would also hurt the reputation of Western bankers. Adds a European banking authority: "A Western declaration of default would make the Soviets chuckle. The Russians would be able to discredit the West, particularly in the Third World, where such action would be regarded as callous capitalism...
...Whether Warsaw is defaulted or continues to pay only interest on its debt, the Polish situation has already had a major impact on Western lending to Eastern Europe. The Communist bloc as a whole owes the West some $70 billion. Aside from extending credit for the Soviet natural gas pipeline, Western lenders have virtually stopped making new loans. That will set back plans to modernize agriculture and other obsolete economic sectors. Said a European banker who refused to lend more money to East Germany: "I told them that I was sorry and hoped to do business with them again...