CURRENT SITUATION AND PROBABLE DEVELOPMENTS IN FINLAND DURING 1954

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A004200030001-3
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 23, 2016
• Document Release Date: January 17, 2013
• Sequence Number: 1
• Publication Date: January 8, 1954
• Content Type: NIE

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ASS ISTA NT DIRECTOR, ONE
NATIONAL INTELLIGENCE ESTIMATE
--SEeRET--
? rebifFID-INTIALI
CURRENT SITUATION AND PROBABLE
DEVELOPMENTS IN FINLAND DURING 1954
49:
NIE-1316
DOCUMENT NO.
1
,f NO CHANGE IN CLASS. l? .A.-e??-1'.444
0 DECLASSIFIED
CLASS. CHANGED TO: TS S (31".
Approved 5 January 1954 NEXT REVIEW DATE: MI
AUTH: HR 70-2
Published 8 January 1954 DATE; 4/ ai REVIEWER:90
The Intelligence Advisory Committee concurred in this
estimate on 5 January 1954. The FBI abstained, the
? subject being outside of its jurisdiction.
The following member organizations of the Intelligence
Advisory Conimittee participated with the Central Intel-
ligence Agency in the preparation of this estimate: The
intelligence organizations of the Departments of State,
the Army, the Navy, the Air Force, and The Joint Staff.
CENTRAL INTELLIGENCE AGENCY
4,ECREI
'CONFIDENTIAL:
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SEcT?
CONF IDENT I Ag
CURRENT SITUATION AND PROBABLE DEVELOPMENTS
IN FINLAND DURING 1954
THE PROBLEM
To estimate the current situation and probable developments in Finland during
1954.
CONCLUSIONS
1. We believe that Finnish internal eco-
nomic and political problems, while seri-
ous, are not of crisis proportions and will
probably be somewhat alleviated during
the coming year.
2. The national elections in 1954 will
probably not result in any significant
alteration of party strength. Power thus
is likely to remain with the center parties.
3. The value of Finland's trade with the
West fell sharply in 1952 and 1963, follow-
ing the collapse of the Korean War boom.
Accordingly, the Soviet Bloc's share of
Finland's trade increased from the un-
usually low postwar figure of 16.5 percent
in 1951 to more than 30 percent in 1953.
It now appears that this trend has been
reversed and that the Soviet Bloc's share
in Finland's trade is declining. We see
little likelihood that Finland will become
so dependent upon trade with the Bloc as
to impair further its ability to withstand
unacceptable Soviet demands under eco-
nomic pressures alone.
4. We believe, therefore, that Finland will
continue to maintain the delicately bal-
anced position between East and West
which it has occupied since the end of
World War II.
5. We believe it highly unlikely that the
USSR will attempt to invade Finland as
a move in the global cold war. It is
possible, however, that the USSR might
at some time in the future use or be
moved by some development such as West
German rearmament to invoke its Mutual
Assistance Pact with Finland, and per-
haps to demand additional bases, radar
sites, or other concessions. In these cir-
cumstances the Finns would probably feel
compelled to yield to such demands as did
not seriously impair their national inde-
pendence.
6. The Finnish armed forces could delay
only briefly a Soviet invasion of the coun-
try. However, the political temper of the
Finnish people is such that Soviet occu-
pation forces would almost certainly be
subjected to determined and intensive
guerrilla warfare.
1
TrigN TIAL
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DISCUSSION
7. Since World War II Finland has success-
fully maintained a position delicately bal-
anced between East and West. The Finns
have ixiintained their national independence,
carried on extensive trade with Western na-
tions, and exhibited generally pro-Western
political and cultural sympathies. On the
other hand Finland was forced as a conse-
quence of defeat in war to grant considerable
economic, territorial, and political concessions
to the USSR. The Finns recognize, moreover,
that their country occupies a position of great
strategic importance to the USSR, and that it
cannot successfully defend itself against So-
viet attack. For this reason Finland has been
obliged to adopt an official policy of strict
neutrality, emphasizing "good neighbor" rela-
tions with the USSR. The Finnish Govern-
ment was also constrained in 1948 to sign a
Mutual Assistance Pact with the USSR which
stipulates that: (a) Finland will fight to repel
any attack against Finland, or against the
USSR through Finnish territory by Germany,
or by any state allied with Germany; (b) the
two countries shall confer in case it is estab-
lished that the threat of an armed attack is
present; (c) Finland will not enter into any
alliance or take part in any coalition directed
against the USSR.
Military Situation
8. The strength and equipment of the Finnish
armed forces are limited by the postwar peace
treaty concluded in 1947. The strength ceil-
ing of the army, including Frontier Guards, is
34,400 men; of the navy 4,500 (10,000 total
tonnage) ; and of the air force 3,000 (60 air-
craft) .
9. Communism is negligible in the Finnish
armed forces, and these forces could be
counted on by the government to cope suc-
cessfully with civil disorders.
10. The Finnish armed forces have no capa-
bilities for offensive warfare and could not
successfully defend Finland's borders. Soviet
possession of the Karelian isthmus, and occu-
pation of Porkkala, only 10 miles from Hel-
sinki, renders any significant defense of the
capital and key southern ports impossible.
The political temper of the Finnish people is
such, however, that a Soviet attack would
almost certainly meet armed resistance.
Such resistance could delay, though only
briefly, Soviet invasion of the country. Sub-
sequently, Soviet occupation forces would al-
most certainly be subjected to determined and
intensive guerrilla warfare, in which the
Finns excel.
Foreign Trade
11. Foreign trade is the key factor in the Fin-
nish economy; its volume and terms largely
determine the level of domestic economic
activity. Finland is dependent on trade with
both the West and the Soviet Bloc.
a. West: Over two-thirds of Finland's for-
eign trade is with the West; about 7 percent
of the total trade is with the US. Nearly 90
percent of its exports to the West consist of
forest (wood and paper) products, which are
exchanged for essential imports of industrial
raw materials and capital equipment. The
Finns greatly prefer to trade with the West,
partly for political reasons, and partly be-
cause of the superior quality of Western goods.
b. Soviet Bloc: Nearly one-third of Fin-
land's foreign trade is with the Soviet Bloc.
The Bloc now supplies virtually all Finland's
POL and coal, and one-third of Finland's
domestic cereal requirements. The Bloc is
also the only available market for the export
surplus of Finland's shipbuilding and metal-
working industries. These industries employ
about 80,000 persons. They were greatly ex-
panded to fill Soviet reparations payments,
which ended in September 1952, and their
products are generally not competitive on the
world market. While expanding domestic
needs absorb probably more than 75 percent
of the production of Finnish engineering and
metal-working plants, the shipyards work al-
most exclusively on deliveries to the USSR.
12. During the years 1947-1949 about 25 per-
cent of Finland's foreign trade was carried on
with the Soviet Bloc; part of this trade con-
sisted of reparations shipments. In 1951 the
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?S-E-C E T
Bloc proportion fell to about 16.5 percent, but
in 1953 it rose to slightly more than 30 per-
cent. These wide percentage fluctuations
were due primarily not to variations in the
amount of trade with the Bloc, but to the
steep and temporary rise in the value of Fin-
land's trade with the West during the Korean
War boom of 1951. In 1952 and most of 1953
the value of Finnish exports to the West fell
sharply, and the Finnish Government was
obliged to restrict imports from the West in
order to protect its foreign exchange position.
Meanwhile, after reparations shipments to the
USSR ceased in September 1952, the USSR
expanded its commercial purchases from Fin-
land by an amount roughly equal to the pre-
vious volume of reparations shipments; this
in turn meant a considerable increase in Bloc
exports to Finland. Taken together, these
factors largely account for the recent increase
in the Soviet Bloc's share of Finland's foreign
trade.
13. It now appears that the trends in Finnish
foreign trade have again shifted, and the
share of the Soviet Bloc is declining. The
new Finnish-Soviet trade agreement indicates
that the value of Finnish trade with the USSR
during 1954 is likely to fall about 10 percent
below the 1953 level, although the Finnish
shipbuilding component of this trade will
slightly increase. While Finnish trade with
the rest of the Bloc will probably increase
during 1954, it is unlikely that the increase
will be sufficient to offset the decline in trade
with the USSR. Moreover, there is already
evident a considerable increase in the volume
of Finnish exports to the West and in the
prices these exports command. This trend
will probably continue through 1954. Over
the longer run, Western demand for forest
products will probably increase moderately
during the next decade. At the same time,
the modernization of Finnish forest products
industries, which is already under way with
the help of loans from the International Bank
of Reconstruction and Development will de-
crease Finnish production costs and make
Finnish prices more competitive in Western
markets.
3
Internal Economic and Political Situation
14. Finland's current political problems are
primarily economic in origin. The collapse of
the Korean War boom led to a considerable
decline in earnings from the West. Although
real national income remains above the levels
of the pre-Korean period, it has dropped
sharply from the peak reached during the
Korean War boom. There has also been a
marked increase in unemployment. By
March 1954, Finnish unemployment is ex-
pected to total about 70,000, approximately 4
percent of the total labor force. This unem-
ployment figure will be slightly higher than
the 1952-1953 postwar peak.
15. The main problem facing Finnish policy
markers is to increase the efficiency of the
export industries. Finland's competitive posi-
tion in world markets has been precarious
since World War II. Some important export
production facilities were lost to the USSR,
and nearly all available investment resources
were absorbed in expanding the productive
capacity needed for reparations deliveries and
in providing homes and jobs for refugees from
the lost territories. Partly as a result of this
inability to invest in modernization, and
partly as a result of overvaluation of the Finn-
mark, Finnish export industries are at a cost
disadvantage on the world market.
16. An effective governmental program to
deal with this problem would probably have to
include currency devaluation or a reduction
in wages and social services. No single politi-
cal party has a majority in the Finnish parlia-
ment, however, and the divergent economic
interests represented by the two largest
parties, the Social Democratic and the Agra-
rian,1 have prevented agreement on any joint
program. Indeed party disagreements have
been so great as to prevent the formation of
a viable coalition, and Finland is presently
governed by a "caretaker" administration,
1 The parties and their respective strengths in the
Finnish parliament (based on seats gained in
the 1951 election) are as follows:
Social Democrats . 53 Coalition Party (Con-
Agrarians 51 servatives) 28
Democratic League Swedish Party 15
(SKDL) (Commu- Peoples Party
nist-dominated) 43 (Liberal-Center) 10
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CONFIDENTIAL
which probably will stay in power until na-
-tional elections are held in March 1954. This
government is not in a position to adopt or to
carry through a positive economic program.
17. There are estimated to be about 35,000 to
40,000 Communists in Finland. Communists
dominate the third largest political party, the
Finnish People's Democratic League (SKDL) ,
which received 22 percent of the total vote in
the last national elections. They also occupy
a strong though not a dominating position in
the Central Federation of Trade Unions
(SAK), which is controlled by Social Demo-
crats. They are capable of provoking strikes
and making unreasonable demands on the
government in an attempt to discredit it.
18. The SKDL will try to exploit popular dis-
satisfaction with present economic conditions
in Finland in order to increase its strength in
the next elections. It will probably not have
much success. The influence of Communists
in the Finnish labor movement has declined
since 1948, though it remains large. This de-
cline may indicate a weakening of the Com-
munist popular base. The government's ex-
tensive social security program is adequate to
cushion the effect of unemployment even at
the high level expected during coming
months. We therefore believe that the SKDL
voting strength is not likely to change ap-
preciably in the near future.
19. The national elections in 1954 will prob-
ably not result in any significant alteration of
party strength. The Social Democrats, strong-
ly anti-Communist, probably will increase their
representation slightly at the expense of other
non-Communist parties. Power thus is likely
to remain with the center parties, and the
Social Democrats and/or Agrarians will com-
prise the core of the next government coali-
tion. It is almost certain that the SKDL will
continue to be excluded from the cabinet.
20. It is thus unlikely that the political situa-
tion after the national elections in 1954 will
permit major economic reforms. However,
the major parties will probably be more dis-
posed to agree on a compromise economic pro-
gram since present party resistance to such a
compromise has to a large degree derived from
fear of losing votes in the forthcoming elec-
4
tions. In any event, if the non-Communist
party leaders felt that economic difficulties,
particularly unemployment, were threatening
their own political strength or undermining
the basic health of the Finnish economy, they
would probably reach agreement on an effec-
tive economic program.
21. We conclude that Finnish internal eco-
nomic and political problems, while serious,
are not of crisis proportions and will probably
be somewhat alleviated during the coming
year.
Probable Foreign Policy Developments
22. We believe that Finland will maintain its
delicately balanced position between East and
West.
23. It is highly unlikely that the USSR will
attempt to invade Finland as a move in the
global cold war. Finnish resistance would
seriously limit the economic and military
benefits the USSR would gain from occupa-
tion and possibly would reduce them below the
levels obtained under existing economic and
political agreements. Moreover, the Kremlin
probably estimates that such action would
have substantial propaganda disadvantage,
would probably induce Sweden to move closer
to the West, and might involve a risk of pre-
cipitating World War III.
24. The Finns have demonstrated a high ca-
pacity to resist economic, psychological, or in-
ternal political pressures brought to bear on
them by the USSR. Their dislike and distrust
of Russia are traditional; their Western sym-
pathies are deep. The great devotion of the
Finns to their national independence is even
shared by a large proportion of those who vote
for the Communist dominated SKDL. We be-
lieve that the Kremlin probably recognizes
these facts, and is unlikely to estimate that it
can gain significant concessions2 from Fin-
land by non-military pressures, at least under
present international conditions.
25. In the longer, run, it is possible that fac-
tors such as a marked economic recession in
2 Concessions the Kremlin would like to secure
might be more military bases, more stringent
political obligations in case of war, or trading
arrangements lopsidedly favorable to the USSR.
--ELE-G-14-E-T6
CONFIDENTIAL'
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tx
the West might force Finland into greatly in-
creased dependence on trade with the Soviet
Bloc. Such a development would inevitably
weaken Finnish ability to withstand Soviet
pressures, though we believe that the Finns
would still resist any substantial encroach-
ment on their national independence. Final-
ly, it is possible that the USSR might use or be
moved by some development such as? West
German rearmament to invoke the Mutual
Assistance Pact of 1948 and perhaps to de-
mand additional bases, radar sites, or other
concessions from Finland. Under such cir-
cumstances the Finns would probably feel
compelled to yield to such demands as did not
seriously impair their national independence.
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CONFIDENTIe
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