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Poles' problem compounded by their heavy outside bebt

By Business and financial correspondent of The Christian Science Monitor / December 26, 1980


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.

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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.

"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.