Poland, 1989

Treasury’s ESF credit to Poland in 1989 is a curious case. US banks were not heavily invested in the country. For example, US bank claims in Poland represented little more than one-tenth of 1 percent of their total foreign portfolio. Additionally, although the Polish economy was struggling and in need of major reforms, it was not facing a 1982-style debt crisis nor was it facing the kind of currency crash that would define the emerging market crises of the next decade. This was not a situation that was calling for US ILLR efforts. Perhaps the most curious fact about the Polish rescue, however, was the fact that Congress pushed for the assistance while Treasury resisted—precisely the opposite of the Argentine loan five years earlier. More so than any other cases considered here, the Polish rescue of 1989 deviates the most from the argument I have presented.

The congressional push for an ESF loan began in the fall of 1989 just a few months after Poland became the first Eastern Bloc country to hold democratic elections that summer. With Poland’s Solidarity movement pushing for further reforms, the formation of an incipient democracy in the Soviet Union’s backyard was signaling the end of the Communist stranglehold on Eastern Europe. Keen to aid the United States’ new democratic friend, Congress considered a package of economic and financial assistance for Warsaw as well as neighboring Hungary.[1] Some legislators wanted a portion of the funds to come from the ESF. The George H. W. Bush administration’s first reaction was to resist the request. Treasury’s public position was that Poland was not facing a situation that warranted tapping the ESF. Since 1976, the ESF had operated as a provider of shortterm bridge loans to economies facing financial crises and this did not qualify. During congressional hearings on the matter, a House member asked Treasury’s representative, Deputy Assistant Secretary for Trade and Investment Policy William Barreda, if Treasury had the authority and the willingness to lend to Poland. Barreda replied that although the administration supported a fund for Polish stabilization, the money ought to come via congressional appropriation, not the ESF. Providing funds for Poland via the ESF would be "a totally different use of the Fund. That is much closer to foreign aid ... . We think, therefore, it should be appropriated.”[2]

Throughout some intense questioning, Barreda noted another reason the administration had reservations about the proposed loan. At the time of the hearings in October, Poland was in negotiations with IMF staff working on the terms for a standby arrangement; however, an agreement was yet to be reached. Barreda explained that the administration was uncomfortable providing a bridge loan to Poland without an IMF program in place since this would not meet Treasury’s standard of having an "assured source of repayment” in hard currency in place.[3] Although this statement was consistent with Treasury’s informal standard, it was disingenuous to suggest such an exception could not be made. In 1982, Treasury had looked the other way when lending to Brazil and Mexico despite the fact that neither government had submitted a letter of intent to the IMF. Sensing Barreda’s recalcitrance, one obviously frustrated member of Congress asked, "Do we have the authority to legally mandate the use of those funds?” To which Barreda replied, "I can’t touch that one,” and when pressed further admitted, "I don’t know if you do or not.”[4] On December 22, 1989, Poland completed its negotiations with IMF staff and submitted its letter to the executive board. That same day, the ESF authorized a $200 million loan to Poland as part of a $500 million multilateral package.[5] The credit was made despite the fact that Poland’s economic troubles did not represent a real threat to the US financial system. Treasury’s decision suggests either the Bush administration bowed to congressional pressure or changed its own mind on the subject. Regardless of the answer, this case shows that ESF resources have been used for reasons other than preserving financial stability.

  • [1] The specific title of the legislation was H.R. 3402—The Polish and HungarianDemocracy Initiative of 1989.
  • [2] US House 1989a, pp. 148-149.
  • [3] Similarly in a letter to Congress, David Mulford, then Under Secretary of the Treasury,advised: "I would like to advise you that the Treasury Department is willing to consider theuse of the [ESF] as part of a multilateral bridge loan for Poland, in circumstances consistentwith the existing legislation, policies and practices guiding the use of the ESF. Such bridgeloans must have an assured source of repayment which is generally provided by funds of the[IMF] and World Bank” (US House 1989b, p. 25187).
  • [4] US House 1989a, p. 167.
  • [5] Six months later, the ESF chipped in $20 million as part of a broader $280 millionmultilateral loan package for Hungary. Although the issue of using the ESF on behalf ofHungary was not discussed during the hearings, the overall assistance package being considered by Congress targeted both Poland and Hungary. It is unclear if Congress pushed forESF funds to be used on behalf of Hungary.
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