ECONOMIC IMPACT OF USSR'S OCCUPATION OF CZECHOSLOVAKIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A006600100004-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 16, 2016
• Document Release Date: December 29, 2004
• Sequence Number: 4
• Publication Date: September 27, 1968
• Content Type: SUMMARY

Approved Fo lease 2005/01/05 : CIA-RDP79-009276600100004-7
Secret
DIRECTORATE OF
INTELLIGENCE
WEEKLY SUMMARY
Special Report
Economic Impact of USSR's Occupation of Czechoslovakia
Secret
N? 38
27 September 1968
ARCHIVAL RECORD No. 0040/68A
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ECONOMIC IMPACT OF USSR'S
OCCUPATION OF CZECHOSLOVAKIA
The greatest economic burden of the Soviet invasion and
occupation falls on Czechoslovakia. The immediate costs
arising from economic disruption and physical damage are,
however, relatively small. Some $300 million in property
damage occurred and not much more than this in terms of
lost production. By comparison, during the Soviet invasion of
Hungary in 1956, property losses alone amounted to over $1
billion. Other short-term Czech losses include reduced hard-
currency earnings from a halt in tourism, export losses- much
of which probably can be made up-distortions to pro-
duction, and the spoilage of perishable goods.
In the longer run, however, the effects are likely to be
more serious. Czechoslovakia will be forced into closer col-
laboration with the USSR and East European countries,
preventing meaningful implementation of its economic lib-
eralization program. Moreover, through Soviet-influenced in-
vestment policy, Prague will be compelled to continue pro-
ducing obsolescent goods. This will tie Czechoslovakia more
firmly to the only market for such products--other Com-
munist countries-as it falls farther behind its Western com-
petitors.
The USSR also accrued some new costs, largely military,
from its venture into Czechoslovakia. Although East
Europeans participated in the invasion, almost all the direct
additional military costs, estimated at the equivalent of $400
million, fall on the USSR. In some respects, this operation
was comparable to a large-scale Warsaw Pact military exercise
because of the lack of resistance and the geographic prox-
imity of the forces.
Increased Czech economic dependence during the next
year will result in a growing burden on Moscow, however,
even though the USSR will probably refuse to grant Czecho-
slovak requests for reparations. Indirect losses to the USSR
include probable refusals by Western countries to furnish
advanced technology, such as a third-generation computer
package under negotiation at the time of the invasion.
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Initial Cost to Czechoslovakia
In Czechoslovakia, the main
physical damage was to roads and
transport facilities, and this
cost is estimated to run about
$300 million. The transporta-
tion system was hard hit, with
heavy military traffic causing
extensive harm to road surfaces
and other transport facilities.
Moreover, during the first four
days after Soviet forces entered
Czechoslovakia on 21 August,
municipal traffic almost stopped,
and rail transport ground to a
halt as a result of the closing
of border crossing points to com-
mercial traffic. All other as-
pects of economic life were af-
fected in turn--the supply of
fresh produce, meat, and dairy
products to the population, de-
liveries on export contracts,
and personal movement, including
travel to and from work.
The restoration of almost
normal transport services by the
end of August led to rapid im-
provements throughout the econ-
omy. By then, however, produc-
tion losses had mounted. A Czech-
oslovak estimate put the loss in
output during the first week of
the occupation at $250 million.
Losses in the second week were
much smaller. The loss in out-
put during the first two weeks
probably represented not more
than 1.5 percent of the annual
national product, estimated at
about $25 billion for 1967. The
output of the Czech economy in
the third quarter may be below
the level of 1967, but the fourth
quarter and the year as a whole
still are expected to show some
growth.
In addition, losses in ex-
ports amounted to $58 million
during August, half of this in
shipments to Western countries.
In time, however, most of these
losses will be recovered. The
foreign exchange lost as a re-
sult of the shutdown of tourism
and the temporary stopping of
rail and civil air traffic across
the country cannot be recovered,
however, and will add a few more
million dollars damage to the
Czech economy.
Longer Run Impact on Czechoslovakia
Full economic recovery will
take some time, but one Czech es-
timate that future losses would
be several times the initial loss
seems unduly pessimistic. Once
the political situation is sta-
bilized, output should return
to a level at or above that of
1967. On 31 August, the Czechs
estimated that industry already
was operating at about 93 per-
cent of the "normal rate."
Since 31 August, Soviet
deliveries of raw materials prob-
ably have returned to normal.
In recent negotiations, the USSR
has confirmed and extended its
previous agreement for increas-
ing deliveries in 1969--includ-
ing 1.6 million tons of grain,
an increase of 300,000 tons over
1968, and 9.3 million tons of
crude oil, an increase of 500,000
tons. The USSR also agreed to
initiate deliveries of large
quantities of iron ore pellets
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and natural gas. Shipments from
other Eastern European countries
also should soon return to normal,
if they have not already done so.
Shipments from the West, partic-
ularly overseas countries, could
be held up for some time, how-
ever, pending the clarification
of existing agreements.
To the extent that supplies
permit, the Czech regime is de-
termined to make up arrears in
production. "Dubcek shifts" are
being worked on weekends for
this purpose. Waste is likely
to be greater than usual, how-
ever, as a result of a continued
general confusion over policies
and plans, especially those re-
lating to economic reform and
trade with the West.
The Soviet occupation fore-
stalls Czechoslovakia's plans
for making a fresh start in eco-
nomic policy. Although some
type of "economic reform" is
likely to be maintained, it will
probably be the standard variety
prevalent in Eastern Europe. As
in the past, therefore, the
Czechoslovak economy will still
be characterized by tight con-
trols and trade with the commu-
nist world, and growth will con-
tinue to be obtained at high
cos, t.
Growth so far has been main-
tained mainly through expanding
the output of obsolescent goods.
Most of these are then used to
make possible the output of ad-
ditional obsolescent products,
which are used to equip Czech-
oslovak factories or in trade
with the Communist world. Czech-
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oslovakia now remains caught in
this vicious circle.
$500 million--requested earlier
this year.
The Czechoslovaks must like-
wise forgo hopes of achieving
closer relations with the West,
in economic affairs as in poli-
tics and culture. Economic re-
lations with the West, slated
for expansion before the crisis
in August, probably will be nar-
rowed now and surely will not
be enlarged.
In this sense, there is good
reason for pessimism regarding
the future. Substantial politi-
cal freedom and a good deal of
outside help, from East and West
alike, are conditions for making
basic changes in the economic
system that has ruined Czech-
oslovakia's competitive posi-
tion in the European market.
These conditions obviously are
not likely to be met in the near
future. Czechoslovakia cannot
hope to follow Yugoslavia and
Rumania in obtaining the politi-
cal benefits of greater economic
independence.
The USSR, however, has a
strong stake in making the Czech-
oslovak economy work smoothly,
as shown by the agreement to
increase trade substantially in
1969. More aid than this does
not appear necessary to bring
about rapid recovery to the pre-
invasion level. The Soviet Gov-
ernment may well reward a sub-
missive regime with some addi-
tional support, but almost
certainly not with the large
loan of hard currency--about
Costs to the USSR
The mobilization and trans-
port of troops into Czechoslo-
vakia account for most of the
immediate costs to the USSR.
Direct expenses arising from the
partial mobilization of Warsaw
Pact forces for the invasion
are estimated to be the equiva-
lent of $400 million, virtually
all of which probably was borne
by the USSR.
The estimated Soviet ex-
penditure reflects only the costs
above what it would have cost
to maintain these same forces
under normal circumstances.
About two thirds of the costs
were for the ground force units--
some 250,000 men--and for air
support--about 500 tactical
fighters and 250 transports
manned by 25,000 personnel. The
mobilization of some 50,000 re-
serves accounted for most of the
remaining expense.
The indirect impact on the
Soviet economy of the partial
mobilization and occupation has
been insignificant. The POL and
other materials required undoubt-
edly were drawn from stockpiles
and can be readily replaced.
The diversions of trucks from
civilian use, notably from ag-
riculture, were not numerous
enough to disrupt the harvest
or other essential civilian ac-
tivity. The removal of 50,000
reserves from their civilian
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occupations had little over-all
adverse effect on an economy
with a nonagricultural labor
force of 80 million.
Czechoslovakia has asked
the Soviet Government to pay
reparations for the property
losses caused by Soviet troops.
In addition to damaging roads
and transportation equipment,
the troops destroyed or damaged
communications equipment and req-
uisitioned some supplies. The
USSR seems likely to refuse to
accept liability for this damage.
The USSR does, however,
stand to lose something in its
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economic relations with the West
as a result of hostile public
reaction. Trade relations prob-
ably will be little affected,
but negotiations under way for
purchasing advanced Western
equipment could be affected.
In particular, the United States
and the United Kingdom may be
reluctant to export third-gen-
eration computer technology to
the USSR at this time.
Costs to Other East European
Countries
In addition to relatively
manor expenses related directly
to their military involvement,
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the Eastern European countries
incurred some indirect costs--
and inconvenience--following
the disruption of traffic through
Czechoslovakia. Some of the
north-south trade that normally
transits the country had to be
rerouted through West Germany
and Austria, and had to be paid
for in hard currency. Damage
may also have resulted where
perishable commodities were
shipped and could not be re-
routed on short notice. Poland,
Hungary, and Bulgaria ship sub-
stantial amounts of such items.
Losses could run to several mil-
lion dollars, and these cannot
be recovered.
In addition, Poland, Hungary,
and Bulgaria may temporarily lose
some of their profitable Western
tourism. Eastern Europe, how-
ever, offers the Western Euro-
peans an inexpensive vacation,
and they will probably be back
in force next year.
There are no prospects that
major Western countries engaged
in East-West trade will impose
economic sanctions against East-
ern European countries. Never-
theless, further liberalization
of trade restrictions, which
had been under consideration,
may be delayed.
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