EAST EUROPEAN REGIONAL ECONOMIC WRAPUP

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 05620710
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• Document Page Count: 14
• Document Creation Date: December 28, 2022
• Document Release Date: August 28, 2018
• Case Number: F-2017-01874
• Publication Date: March 14, 1986

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DATE 3f/1f
DOC NO Eva. ti a1.-.:410.34/ SECRETOCR 3
P&PD
s�ap EAST EUROPEAN
REGIONAL ECONOMIC
WRAPUP
�SECRET'
EURM86-20034
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PREFACE
This is the first of what we hope will be a quarterly
series summarizing the current econostic situation in Eastern
Europe. It was designed with several goals in aind. The
report should be:
--useful for the policymaker and non-technical reader
needing a quick wrap-up and/or warning of issues
likely to be key in the next quarter;
--concise, heavy on graphics, and light on text so the
reader can absorb its contents within a short time,
while retaining it as a useful desk reference;
--a low level of classification so that security
concerns will not overly restrict the reader's ability
to use the material;
--published on a tiaely basis. (U)
In essence this report was designed for you. To keep
the effort going, we need feedback on whether it meets your
needs. If there are ways that this report can be more
responsive, we want to know that, too. (U)
This is a product of the Regional East-West Economics
Branch, East European Division, of the Office of European
Analysis. The report was prepared by
witn
contributions from
ri_y_qcAents or questions should be directed to
Chief, East European Divison, Office of European_
Analysis,
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Economic Growth Slows in 1985
Economic growth in Eastern Europe slowed in 1985
primarily due to stagnant industrial output resulting
from harsh winter weather, and also to a sharp fall in
agricultural output caused by a drought in the Southern
Tier countries. After a relatively strong performance
in 1984, the region could not overcome a slow 1985
start caused by unusually cold weather that closed
factories, disrupted transport, provoked energy
shortages, and hanged winter grain crops in Bulgaria
and parts of Romania. The severe drought in Albania,
Bulgaria, Roaania, and Yugoslavia reduced harvests,
agricultural raw materials for industry, and
hydroelectric power output.
Sconcalc performance also was depressed by the
continued inability of some countries to Wort the
Western machinery and raw materials necessary to boost
production and exports. The reduction of the region's
trade deficit with the USSR in 1985 most likely
diverted resources from domestic uses and possibly
reduced hard currency earnings of some countries. Ley
developments in Eastern Europe were the following:
--East Germany showed the strongest perforaance due
primarily to a good harvest and strong growth in
industrial production in the second half of the
year.
--Hungary's GNP fell because of a decline in farm
output and slow growth in industry.
--Yugoslavia's economy showed no growth last year,
the result of a sharp fall-off in industrial
production and an 8 percent decline in
agricultural output. The economy continued to
face growing unemployment and accelerating
inflation--about 80 percent for 1985.
�Romania stagnated in 1985, in part because it
suffered the worst weather: the cold winter and
the drought caused energy shortages, disrupted
industrial and transportation schedules, killed
off crops, and hindered livestock output.
--Poland got off to a had start due to energy and
transport bottlenecks aggravated by the harsh
winter, and financial problems continued to nett
Western imports needed by industry.
--Csechoslovakia sustained modest growth in 1985,
but performance was starred by shortfalls in
several key sectors, particularly the machinery
industry:
Eastern EuropoA: GNP Growth In 1985
Pumakin Ormrlb GNP
4-
2-
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INM10144 eso. usr 14444414, POWs 1100440 nosOl
4100m4Y
renradribenalli as Said Product
UNCLASSIFED
Eastern EuropoA: Averaqo Five Yoar & Annual
Growth In Gross National Produth, 1976 �1985
Paninisie Chew In GNP
4-
14711-44 00-44
A Exciudes Albania
PreUrninary sullrnafts
em
em
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046 mesa
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UNCLASSIFIED
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Eastern Europe: Grain Production
Eastern Europe
1179 ON
191
1912
11113
1984
11115
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Poor Harvest in Southern Tier
A prolonged drought following the harsh winter last
year seriously daaaged crops in Romania and Bulgaria
and to a lesser extent in Yugoslavia. In addition to
facing the worst weather in Eastern Europe, Romanian
agriculture- -hampered by shortages of fertilizers and
herbicides and Lags in harvesting--produced only about
17 million metric tons of grain, its saallest crop
since 1975. Bulgaria's crop of just 7 million
tons - -also the worst since the mid-19708 - -caused it to
seek emergency purchases of grain, seed, fertilizers,
and livestock. Although Yugoslavia fared somewhat
better with a 16 aillion ton grain harvest, near its
recent five-year average, total agricultural output
fell some 8 percent below the 1984 level.
Agriculture's poor performance further depressed the
Southern Tier economies already beset with shortfalls
in energy and industry. In contrast, 1984's buaper
crop had enabled these countries to free up hard
currency for Imports of Western raw materials and
semi-finished goods badly needed to boost industrial
production.
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In the Northern Tier countries - -Poland, East
Gersany, and Czechoslovakia - -favorable growing
conditions, improved supplies of fertilizers and
machinery, and greater producer incentives resulted in
bumper harvests for the fourth year in a row. The good
crops should permit a aodest reduction in rain imports
and an increase in agricultural oxcarts.
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Eastern Europe: Grain Production
(aillion aetric tons)
Igo
1E33
TOTAL
96.3
100.4
Southern Countries
57.7
57.2
Romania
20.2
18.4a
Bulgaria
7.8
7.7a
Yugoslavia
15.7
17.3
Hungary
14.0
13.8
Northern Countries
38.6
43.2
Poland
18.3
22.1
East Germany
9.6
10.1
Czechoslovakia
10.7
11.0
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202 lita
108.9 101.3
61.2 54.3
19.0a 16.6
8.9a 7.0
18.0 15.8
15.3 14.9
47.7 47.0
24.4 23.7
11.3 11.6b
12.0 11.7
a CIA estimate
b Official announcement by the country
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Eastern Europe: Europe: Retail Sales
Panoodup Over ftwAsta bur
Consumer Supplies Limited by Harvest and Export Push
The consumer enjoyed only =renal growth at best in
market supplies in 1985 due to harvest shortfalls,
increased bard currency food exports, and a rise in
consumer goods exports to the USSR. Supplies remained
the poorest in Romania, where food and consumer goods
shortages forced the continued rationing of most
staples. Supplies in Yugoslavia were better than in
Romania, but retail sales fell due to higher prices and
-reduced consumer purchasing power. Even in
Hungary�usually well-stocked with supplies - -the regime
admitted that supplies of certain meats, fish, and
poultry were less than last year. Prospects for major
consumer gains in the Southern Tier remain dim in 1986,
and more austerity could occur, especially in Romania.
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. Better than average harvests contributed to some
rises in the market supplies in Poland and
Czechoslovakia. Nonetheless, meat rationing continued
in Poland, and supplies of .any non-food items did not
fulfill consumer demand. Shortages of fruits,
vegetables, clothing, and furniture also were
acknowledged officially last year in Czechoslovakia.
Despite these problems, improvements in consumer
welfare in 1956 appear more likely in the Northern than
in the Southern countries.
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Eastern Europe:
Hard Currency Trade
Billion US $
30-
40- Exports
30- Importa
20-
10- Balance
........
--Yugoslavia's clala that the country had "turned
��
� the corner" in 1984 and was on a stable success
track proved premature. Hard currency exports
� rose about 3 percent instead of a planned 15
�
�
� percent, chile imports increased by over 10
�
�
� percent. As a result, the country's convertible
10 trade deficit increased by 50 percent in 1985.
taw 82 83 e4 ess
Hard Currency Trade Performance Deteriorates
The region's hard currency trade surplus fell by
more than $3 billion, to an esamated $3.3 billion in
1985, reversing the steady improvement of the past
several years. Imports grew by roughly 4 percent as
the region was forced to significantly boost hard
currency energy and grain imports. Only iaport
restrictions on wee badly needed industrial materials
averted a steeper rise in Laporte. Exports fell by
more than 4 percent as unusually harsh winter weather
and shortages of material inputs disrupted industrial
production and export schedules.
Key trade developments in the region include the
following:
--The severe summer drought coupled with winter
reductions in Soviet oil deliveries forced
Bulgaria to make heavy hard currency grain and
energy purchases at levels that made its trade
performance the worst in the region.
�Hungary barely avoided a hard currency trade
deficit as prices for its agricultural exports
fell and Worts surged following relaxation of
import controls.
Est.
--Harsh winter weather reduced Polish coal exports,
gains in machinery exports failed to materialize,
and imports rose more than planned, causing
Poland's hard currency trade surplus to fall 25
percent short of its $1.5 billion target.
--Romania was unable to make up losses sustained in
the first quarter period of cold weather. Trade
shortfalls forced Bucharest to return to Western
lending markets--Romenia's first loans since
Ceausescu prohibited all now borrowing in 1983.
--East Germany claimed a healthy trade surplus in
convertible currency in 1985, but we estimate
that it has declined from its 1984 level. East
Berlin's imports from Vest Germany outpaced its
export growth last year, bringing East Germany to
a moderate deficit in intra-German trade.
--Czechoslovakia again boasted a solid trade
surplus with nonsocialist countries in 1985. A
yearend "spending spree" raised imports above
1984 levels, while exports barely grew.
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Trade Deficit with USSR Shrinks
Eastern Europe responded to Soviet demands for more
balanced trade by sharply cutting trade deficits with
the USSR last year. Soviet trade data show Eastern
gurope--excluding Yugoslavia�mining a 900 million
ruble deficit with the USSR through three quarters of
1985, compared with a 1.6 billion deficit in the same
period of 1984. Unlike in 1984, the region was nearly
in balance with the USSR after excluding Poland's
persistent trade deficit. The improvement was caused
by a reduction in the trade deficits or even the
creation of a surplus for most countries. The
exceptions were Poland, whose trade deficit with the
USSR increased by 200 aillion rubles, and East Germany,
whose surplus with the Soviets fell by the same amount.
Protocols concluded in the final month' of 1985
between the USSR and its fast European allies imply an
average annual growth rate in Soviet-East European
trade through 1990 of only 5 percent--the slowest
growth in either planned or actual trade in the past 15
years. East European exports are likely to grow faster
than the USSR's, reversing the trade imbalances of the
past decade. Moreover, Moscow's economic relations
with its East European allies could well shift even
sore dramatically if hard currency or oil production
difficulties cause a drop in Soviet oil exports below
plan.
Countries on Borrowing Binge
Eastern Europe secured $3.4 billion in syndicated
loans froa Western banks in 1985--"P 70 Weed. from.
1984. The growth of loans reflected poor lending
opportunities elsewhere more than enthusiasm over the
region's economic performance. East GermPny and
Ilungary, each of which acquired over $1 billion, were
preferred clients, as were conservative borrowers
Bulgaria and Czechoslovakia. Romania's creditor banks,
on the other hand, lent reluctantly to help Bucharest
cover its debt payments and keep its rescheduling
agreements from unravelling. Poland and Yugoslavia,
which face more years of debt rescheduling', remained
blackballed from the syndicated loan market.
Borrowers benefitted from the favorable lending
environment by seeking new loans with lower interest
rates and longer maturities than they obtained in
1982-83. These new funds were used to replace
short-term debt accumulated in 1982-83, boost reserves,
and close hard currency gaps opened by deteriorating
trade balances last year. Most countries will need new
loans this year, and banks sees willing to grant them
to the most creditworthy.
SECRET
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Eastern Europe: Trade with USSR
January-September 1984 and 1985
(million rubles)
�
' Imports
Balance
_El_w_Ls__
1M aka
-j12
TOTAL
22482
23980
24094
24882
-1612
-902
Bulgaria
4122
4425
4661
4788
-539
-363
Czechoslovakia
East Germany
4422
5577
4806
5619
4948
5385
5002
5619
-526
191
-195
0
aingary
Poland
3178
3843
3513
3960
3298
4450
5316
4804
-120
-606
195
-845
Romania
1340
1657
1352
1351
-12
306
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Amount of Syndcoted Laws to Eastern Europe
Mon US
I
0
$
.
4
.
3
2
Polish Debt Crisis
1
a
1011
WS
li0
u; a1
'
1
1011
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Featured Country: Polish Financial Problems Mount
The financial situation deteriorated in 1585, as
Poland failed to meet its debt payments despite more
than $13 billion worth of reschedulings by government
creditors. We estimate that Poland was able to pay
governments, banks, and other creditors only $2 billion
of the $3 billion on the books for 1585. This
financing gap was rolled over into this year for
further rescheduling. I shortfall in export earnings
and a lack of new hard currency credits accounted for
the financial gap.
Warsaw's financial situation will become more
pressing in the next five years. Increasing amounts of
principal will fall due on previous rescheduling
agreements, and interest costs will remain high.
Warsaw asses unlikely to take the measures needed to
improve export performance, even if it eventually
enters the IMF and negotiates an adjustment program
with the Fund. Without better trade performance,
Poland is unlikely to get such new Western credit, and
funds fro' the IMP and World Bank will be inadequate to
close the payments gap. We project that the gap will
increase from almost $5 billion in 1586 to $23 billion
In 1990, and the total debt will climb to $38 billion.
Western private and official creditors face the
prospects of rescheduling already rescheduled debt into
the late 1990s and disputes over sharing Warsaw's
limited payments capacity.
Poland's hcreasing Financid Gap
Mon US $
30 -

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�SteRtr
A Look Ahead
Eastern Europe's economic plans for 1986 --the first
year of the new five-year plans - -focus on the common
problems of technological stagnation, energy
dependence, and uncompetitive exports. Most of the new
plans call for modest growth, but Romania and Albania
have set wildly unrealistic growth targets. Planners
are seeking to reverse the reductions in real
investment made in the early 1980s to adjust to the
region's foreign trade and financial problems.
Investment priorities are machine tools, high
technologies, and energy conservation programs. The
lower growth targets for basic industries than for
industries producing finished products suggest more
efficient use of raw materials will be needed to avoid
new bottlenecks. The plans also call for iaproved
trade performances in both CEMA and hard currency
markets by modernising export industries. Even with
good luck on weather and exports, however, these
countries will have to score unusually large
productivity gains to meet their plan goals.
Eastern Europe: 1986 Annual Plan Targets
(Goals are expressed as percentage growth over actual
output for 1985.)
Rational
Income
Industry
Agriculture
Produced'
Albania
10.6
7.3
17.0
Bulgaria
4.0
4.5
7.4
Czechoslovakia 3.5
2.9
2.5
Cast Germany
4.4
8.5
0.3
Hungary
2.3-2.7
2.0-2.5
3.0-3.5
Poland
3.1-3.1
3.2-3.6
0.0-0.3
Romania
10.0-12.0
12.0-15.0
10.0-12.0
Yugoslavia
3.0
3.0
8.0
*Goals for national income are not comparable to GNP
growth rates mentioned earlier because Comaunist
countries do not use Western GNP accounting methods for
planning.
This table is UNCLASSIFIED.
�SeeRE-T-
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Dear Reader,
We would appreciate your evaluation of this first
issue of the East European Regional Economic Wrapup.
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Wrapup a useful product?
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6G42 Headquarters
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SUBJECT: East European Regional Economic Wrapup
Distribution:
External
State
Bob Baraz
Dennis P. Murphy
Michael Spangler
John Danylyk
Mark Lenton
Roland Kuchel
USIA
Director, Office of European Affairs
Export-Import Bank
John Huber
PFIAB
Gary Schmitt
Joint Economic Committee
Richard Kauffman
NSA
Director
DOD
Deputy Assistant Secretary for European and NATO Policy
DIA
USDA
Director, Centrally Planned Economy Division
Elmer Klumpp
Commerce
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Byron L. Jackson
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Treasury
Douglas Mulholland
Harvey Shapiro
White House
Director, White House Situation Room
Vice President
Donald Gregg
Office of the Special Trade Representatives
Dennis Whitfield
Council of Economic Advisors
Richard Freeman
Office of Management and Budget
David Sitrin
Arnold Donahue
Alton Keel
National Security Council
John Lenczowski
Paula J. Dobriansky
George van Eron
Ambassador Jack F. Matlock, Jr.
Stephen Danzansky
David Wigg
Department of Energy
Jay Stewart
Federal Reserve Board
Ron Mills
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