CURRENT FOREIGN EXCHANGE PROBLEMS OF THE EUROPEAN SATELLITES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A001000050001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 43
• Document Creation Date: December 23, 2016
• Document Release Date: April 10, 2013
• Sequence Number: 1
• Publication Date: December 20, 1957
• Content Type: REPORT

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SECRET ,
ECONOMIC INTELLIGENCE REPORT
N? 59
CURRENT FOREIGN EXCHANGE PROBLEMS
OF THE EUROPEAN SATELLITES
CIA/RR 120
20 December 1957
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
SECRET
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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CURRENT FOREIGN EXCHANGE PROBLEMS
OF THE EUROPEAN SATELLITES
CIA~RR 120
(ORR Project x+2.1610 )
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CONTENTS
Page
Summary and Conclusions 1
I. Current Foreign Exchange Shortages in the European
Satellites 3
A. Magnitude of the European Satellite Trade and
Shipping Deficit with the Free World, 1953-55 3
1. Satellite Trade and Shipping Balances 3
2. Additional Factors Affecting Satellite Trade
and Shipping Balances with the Free World 6
a. Multilateral Clearing Arrangements with
Finland 6
b. Sales of European Satellite Goods to Non-
Bloc Countries by the USSR 6
c. Direct Exports for Repayment of Debts 7
d . China Trade 7
B. Factors Other Than Trade and Shipping Balances 7
1. Payments on Indebtedness to Western Countries 8
2. Omitted Receipts of Foreign Currency 8
a . Gold Sale s 8
b . Foreign Remittances 8
c . Tourism 9
C. Foreign Exchange Deficits of Individual European
Satellites ... 9
D. Patterns of the Postwar Trade of the Satellites 12
1. Through 1955 ~
2. 1956 to Early 1957 13
II. Causes of Current Foreign Exchange Shortages 13
III. Attempted Solutions of the Foreign Exchange Shortage 15
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Page
A. Measures Adopted 15
1. Reduction of the Need for Earnings in Hard
Currency 16
a. Credits 16
(1) From the West 16
( 2 ) From the USSR 17
b. Barter Arrangements 18
c. Attempts to Arrange Payments for Services in
Commodities 19
2. Increase of Earnings in Hard Currency 19
a. Reduction of Prices by the Satellites 21+
b. Resale of Commodities Purchased for Soft
Currencies 25
B. Effectiveness of Measures Adopted 25
Appendixes
Appendix A. Trade Balance of the European Satellites with
the Free World, by Geographic Region, 1953-55 27
Appendix B. Methodology 35
Table s
1. Computation of the Estimated Minimum Payments Deficit
on Trade and Shipping Account of the European Satellites
with the Free World, 1953-55 4
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CIA~RR 120 S-E-C-R-E-T
(ORR Project 42.1610)
CURRENT FOREIGN EXCHANGE PROBLEMS
OF THE EUROPEAN SATELLITES*
Summary and Conclusions
The minimum deficit on trade and shipping account of the European
Satellites with the Free World in 1953-55 is estimated at US $370
million.- Of this total deficit, the Satellite deficit on trade and
shipping account (including clandestine imports) with Western countries
totaled $288 million; a debit for items not reflected in Free World
trade statistics totaled $82 million. To date, the varied expedients
used by the European Satellites to save or earn foreign exchange have
proved ineffective as long-range solutions of their foreign exchange
problems, the only satisfactory solution being to produce and export
a larger number of products which are fully competitive in world
markets.
The size of the deficit on trade and shipping account of the Euro-
pean Satellites with the Free World fluctuated during 1953-55, and its
size varied among the individual Satellites. The Satellite deficit on
trade and shipping account with the Free World in 1955 ($83 million)
was more acute than in 1953 ($58 million) but not so high as in 1954
($148 million). Commodity trade balances for the individual Satellites
suggest that the foreign exchange deficits of Hungary and East Germany
were the most acute of the Satellites during 1953-55; Czechoslovakia
appears to have had the smallest deficit, and the position of the other
Satellites appears to have been between these extremes.
Satellite foreign exchange deficits with Western countries
accumulated during much of the early postwar period as well as during
1953-55, and in 1956 the economic situation of many of the European
Satellites had become critical, necessitating recent Soviet credits,
debt cancellations, and other economic concessions. Between January
1956 and March 1957 the USSR granted new credits to the European
Satellites totaling more than $1,015 million, $158 million of which
was in gold or convertible currencies and the balance in commodities.
-~ The estimates and conclusions contained in this report represent
the best judgment of ORR as of 1 November 1957.
~~ Dollar values are given in terms of current US dollars throughout
this report.
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The fundamental causes of the current economic difficulties,
financial and real, of the European Satellites lie in their postwar
economic development. The internal postwar economic changes which
have taken place in the European Satellites have adversely affected
their ability to earn sufficient foreign exchange to pay for needed
imports from the West. Rapid postwar industrialization, coupled with
modest resource bases and the diversion of productive resources from
agriculture to industry, reduced the over-all capacity of the Satellites
to export even as it increased the demand for imports. In some
instances the Satellites have been unable to obtain needed supplies
within the Bloc to support their programs for industrial expansion,
and, for a variety of reasons, the demand for Western goods and
services has exceeded the supply of acceptable Satellite exports.
Foreign exchange shortages of varying magnitudes among individual
Satellites have followed.
Each of the Satellites has been forced to adopt a series of short-
term expedients to alleviate its foreign exchange shortage. The aim
of some of these expedients is to reduce the immediate need for
earnings in hard currency, and the aim of other expedients is to
increase earnings in hard currency. Subsidization of exports to permit
sales to Western countries at competitive prices and reliance on
credit have been the most important means by which the Satellites
have sought solutions to the problem.
The varied expedients have proved inadequate to solve the foreign
exchange shortages. The possibility exists of some relief as a result
of recent Soviet and Western loans, the decrease in Soviet demands
on the economies of the Satellites, and the expansion of barter trade
(avoiding the foreign exchange problem .
The only fully satisfactory solution is to produce a greater
quantity of products which are fully competitive in world markets.
This goal is clearly recognized and constantly reiterated in pro-
nouncements by the Satellites. A further improvement is needed in
the export position of the Satellites if they are to find a satisfactory
solution to their foreign exchange shortages.
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I. Current Foreign Exchange Shortages in the European Satellites.
A. Magnitude of the European Satellite Trade and Shipping
Deficit with the Free World, 1953-55?
1. Satellite Trade and Shipping Balances.
An analysis of available data on the trade and shipping
balances of the Satellites with the Free World during 1953-55 lends
support to repeated official statements about a serious shortage of
Western exchange in the European Satellites. The Soviet loans
granted to the European Satellites in 1956~~ -- especially those
granted before the recent outbreaks in Hungary and Poland -- indicate
that these foreign exchange deficits were critical.
The minimum deficit on trade and shipping account of the
European Satellites with the Free World in 1953-55 is shown in Table 1.~
rfie estimated balance on trade and shipping account of the European
Satellites with the Free World in 1953-55 is shown in Table 2.t
The difference between total payments and total receipts
with the Free World for commodity trade and transport alone for the
years 1953 through 1955 is estimated at a minimum of about $370 million.
The estimate is derived by adjusting the commodity trade statistics of
Western trading partners for various inadequacies.
The indebtedness of the European Satellites to Western
countries in many cases accumulated during the years before 1953? The
European Satellites have nevertheless been able to obtain credits to
finance imports during the period since 1953, largely because of
their promptness in effecting repayment of loans at maturity dates.tt
* Various official statements appear to indicate that Hungarian and
Rumanian balance-of-payments deficits with Western countries have been
chronic over a number of years and that Polish and Czechoslovak deficits
may have become a greater problem in 1955 and 1956 than in previous
years.
-~-~ The minimum net deficit on Satellite trade and shipping account is
estimated to have been 370 million during 1953-55 (see Table 1).
See III, A, 1, a, (2~, below.
~ Table 1 follows on p. ~+.
t Table 2 follows on p. 5.
tt Continued on p. 6.
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Computation of the Estimated Minimum Payments Deficit
on Trade and Shipping Account
of the European Satellites with the Free World
1953-55
Million Current US $
Net balance on trade and shipping account ~
-288.2
Adjustments for items not adequately re-
flected in Free World trade statistics (net)
-191.7
Multilateral clearing arrangements with
Finland
-150.0
Sales of European Satellite goods to non-
Bloc countries by the USSR ~
- 8.7
Direct exports for repayment of debts J
- 33.0
Adjustments for China trade (net)
110.0
Western goods transshipped to Communist
China by. Poland
75.0
Chinese products reexported by the
Satellites to Western countries
35.0
Adjusted net balance
-369.9
a. For an explanation of items in Table 1, see 2, below.
b. From Table 2, p. 5, below.
c. Partial estimate. Data are not available indicating the total
amount represented by these items.
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Computation of the Estimated Balance
on Trade and Shipping Account
of the European Satellites with the Free World,
1953-55
Million Current US_~
1953
1954
1955
Recorded imports from the Free World,
f.o.b. Free World ports
US and Canada
2.2
6.7
15.0
~
40.8
56.4
52.7
Other sterling area
68.6
57.9
79.2
Continental Western Europe
502.0
638.0
783.2
Latin America
25.0
75.3
103.5
Other Asia and Africa
39.1
62.1
120.8
Total
677.7
896.4
1,154.4
Recorded exports to the Free World,
f.o.b. Satellite ports
US and Canada
29.7
33.7
42.9
~
83.6
78.8
104.5
Other sterling area
34.5
43.5
58.2
Continental Western Europe
488.7
565.7
748.3
Latin America
26.8
62.4
104.8
Other Asia and Africa
54.9
65.4
85.5
Total
718.2
849.5
1,144.2
Balance on recorded trade, f.o.b.
40.5
- 46.9
-10.2
Clandestine imports from the Free World
-60.0
- 48.0
-18.0
Balance on shipping account
-38.4
- 52.6
-54.6
Balance on trade and shipping
-57
.9
-147.5
-82.8
?
a. 3 Because of rounding, figures may not add to totals.
b. Incomplete, including estimated copper imports only.
-5-
S-E-C-R-E-T
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2. Additional Factors Affecting Satellite Trade and
Shipping Balances with the Free World.
For several reasons the net deficit on trade and shipping
account derived from the trade data of Western partners understates the
true magnitude of the payments difficulties of the Satellites. The net
effect of these various adjustments cannot be determined quantitatively,
principally because data on the total value of Satellite goods exported
to Western countries on Soviet account and on the total value of direct
Satellite exports of commodities to repay indebtedness cannot be
ascertained. A minimum estimate, however, of the adjustments indicates
that the minimum Satellite deficit on trade and shipping account with
the Free World during 1953-55 totaled 370 million, or an average
minimum deficit of 123 million annually (see Table 1*).
a. Multilateral Clearing Arrangements with Finland.
A major factor leading to the conclusion that the
estimate is an understatement of these difficulties arises in connection
with Satellite-Finnish trade. Each of the Satellites except Bulgaria
and Hungary- (since 1954) has a multilateral clearing arrangement with
Finland and the USSR. The surpluses arising from favorable Satellite
trade balances with Finland do not accrue as foreign exchange earnings
to those Satellites having multilateral arrangements but are paid for
by shipments of goods from the USSR. During 1953-55 this cumulative
favorable balance amounted to $150 million. ~ No provision for multi-
lateral settlement was made in the Finnish-Polish and Finnish - East
German trade agreements for 1957?
b. Sales of European Satellite Goods to Non-Bloc
Countries by the USSR.
In many cases, moreover, Satellite goods are purchased
by the USSR and sold to Western countries. Many such transactions
appear in trade statistics of the West as Satellite exports because
most Western countries report trade by count~`y of origin. The foreign
exchange received for these commodities (or the credit in East-West
clearing accounts) accrues to the USSR rather than to the Satellites.
In 1954 and 1955, for example, Italy recorded imports from the Satellites
valued at $8.7 million which were carried in the Italian-Soviet clearing
~ P. , above.
~' Albanian-Finnish trade is negligible.
Resale of Bulgarian and Rumanian products by the USSR to Italy
was involved.
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account. Furthermore, much of Rumania's oil is exported to the West
on Soviet account. ~ For payments purposes, therefore, trade statis-
tics of the Free World in such cases overstate the export, earnings
of the Satellites in the Free World.
c. Direct Exports for Repayment of Debts.
In addition, a certain portion of Satellite commodity
exports to Western Europe is marked for repayment of debts arising
from nationalized property or the effects of the war and therefore
is not available for financing current imports. A rough estimate of
Polish coal exported in direct payment for long-term indebtedness is
~33 million during 1953-55?* ~ Polish debt payments in coal in
1956 are estimated to have been $11 million and in 1957 will rise to
$23.6 million.
Conversely, there are at least two types of transac-
tions in the recording of which trade statistics of the Free World
overstate the size of the payments difficulties of the Satellites --
the case of Western goods transshipped to Communist China by Poland
and the case of Chinese products reexported by the Satellites to
Western countries. The commodities shown in the first case are often
recorded in Western trade statistics as exports to Poland, but because
the Chinese provide the foreign exchange for such purchases from
Western countries, the imports do not represent an expenditure of
Polish foreign exchange. A rough estimate of the value of Western
goods shipped by Poland to China during 1953-55 approximates $75
million. On the other hand, Chinese products reexported by the Satel-
lites to Western countries constitute a source of foreign exchange
for the Satellites. In part these receipts are not reflected in Western
trade statistics as Satellite exports, because in some cases China
is identified as the country of origin. Such shipments during 1953-55
probably approximated ~35 million.
B. Factors Other Than Trade and Shipping Balances.
The trade and shipping balance is undoubtedly the most
important item in the balance of payments of each Satellite with
Western countries, and the deficit in payments arising from the
~ Assuming that the annual level of coal exports by Poland in direct
payment of debts during 1953-55 Was the same as in 1956.
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adverse trade and shipping balance constitutes the largest drain
upon the foreign exchange reserves of the Satellites. Some qualitative
judgments may, however, be made on the other items in the balance of
payments as they affect foreign exchange reserves. Although it is
impossible to estimate the magnitudes involved, it seems certain that,
at least through 1956, payments on indebtedness by Satellites exceeded
receipts from foreign remittances and tourism.
1. Payments on Indebtedness to Western Countries.
The'cost of servicing outstanding indebtedness to Western
countries -- that is, interest and amortization payments on long-term
loans, and interest payments on short-term commercial borrowing to finance
imports -- represents a considerable drain on the foreign exchange re-
serves of some countries. Incomplete data on terms of loans granted by
Western countries to the Satellites -- especially short-term commercial
financing -- preclude estimates of the amounts of foreign exchange re-
quired to service the foreign indebtedness of the Satellites.
2. Omitted Receipts of Foreign Currency.
Available gold has been used by the Satellites
both for settlement of obligations to Western countries and as
security for Western loans. Available evidence suggests that the
sale of gold reserves to liquidate trade deficits of the Satellites
with Western countries was more characteristic of the period 1946-52;
since that time, gold has occasionally been sold in the West, but
available gold has been utilized mainly as security for Western credits.
b. Foreign Remittances.
Until recently, foreign remittances to residents of
Eastern Europe were probably .small. Recent efforts to stimulate
foreign remittances include an agreement by Hungary to purchase US
dollars from Hungarian nationals at a rate higher than the official
rate in effect in October 1956 and the establishment by Poland of
facilities in the US for transmission of US funds to be converted into
goods in Poland. 10 New exchange rates for the zloty came into
~ This case was in settlement of an estate; the US Government prohib-
ited the transfer of inheritances to individuals in the Satellites at
the official exchange rate then in effect.
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effect in February 1957 in Poland which converted foreign remittances
and other types of foreign exchange transactions (excluding commodity
trade) into Polish currency at the rate of 2~+ zlotys per dollar.
The purpose of these new rates is to increase foreign exchange receipts
and to reduce expenditures of foreign exchange for certain items.
The Satellites have put into effect various measures
to promote visits of Westerners, thereby increasing foreign exchange
receipts. Czechoslovakia, Poland, and Hungary, among others, have
made provision for the exchange of foreign currencies at rates more
favorable to Westerners than the official exchange rates.
C. Foreign Exchange Deficits of Individual European Satellites.
The magnitude of the foreign exchange deficit has differed
among the various Satellites during 1953-55? The estimated balances
in foreign trade on the commodity account alone of the individual
European Satellites with Western countries in 1953-55 are shown in
Table 3.* These figures suggest that Hungary and East Germany have
the greatest deficit in trade, Albania and Bulgaria a modest deficit,
Poland and Rumania a small surplus, and Czechoslovakia a moderate
surplus in trade with Western countries.
Hungary, which appears on the basis of the figures in Table 3
to have the most acute foreign exchange deficit, is reported to have
amassed a debt of nearly 229 million with Western countries by
September 1955? ~ With holdings in foreign exchange virtually non-
existent and a sizable fraction of current exports committed to
meeting payments on past indebtedness, 90 percent of all Hungarian
business with Western countries was reported in September 1955 to be
on the basis of 6, 8, or 12 months' credit. 13 At the outbreak of
the revolt in October 1956, Hungarian indebtedness to the West had
been reported at about 200 million.
Table 3 shows that Bulgaria had a very small deficit and
Rumania a moderate surplus in commodity trade with Western countries
~ Table 3 follows on p. 10. One should not, however, overstress the
apparent balances of the Satellites with the Free World on commodity
account alone without taking into consideration the factors which
further affect the foreign exchange position of each Satellite with
regard to Western countries; these factors have been discussed above.
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Table 3
Estimated Commodity Trade of the European Satellites
with the Free World
1953-55
Million Current US
a. Based on Appendix A.
b. Not all Western countries report trade with East Germany.
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during 1953-55? Petroleum products and wood in Rumania and tobacco
in Bulgaria appear to be the Satellite commodities most subject to
resale to Western countries by the USSR, however, and it is certain
that trade statistics of the Free World in such cases overstate the
export earnings of Bulgaria and Rumania.- 15
The figures in Table 3 show that Poland has a moderate, and
Czechoslovakia a fairly substantial, surplus in commodity trade with
Western countries. The figures for Polish exports in Table 3 doubtless
include some direct exports for repayment of debts. Either official
Czechoslovak complaints have overemphasized the gravity of the foreign
exchange shortage or there are unknown factors which affect the
Czechoslovak balance of payments with Western countries. In both
Poland and Czechoslovakia, foreign exchange difficulties nevertheless
have been considered serious enough to warrant administrative measures
to save or earn foreign exchange. Representatives of a Polish export
monopoly, for example, were reportedly instructed in April 1955 to
buy only where they could obtain goods on credit even if this practice
entailed acceptance of commodities of inferior quality; in September
1956, Premier Cyrankiewicz underlined the necessity of obtaining
credit from non-Bloc purchasers of Polish goods. 16 Shortages of
Western exchange -- and particularly pounds sterling -- are reported
to have restricted Czechoslovak purchases almost exclusively to
strategic materials early in 1955. 17 In mid=1956, this shortage
of foreign exchange was reported still to exist in Czechoslovakia;
presumably the export-import monopolies have had great difficulty
in obtaining foreign exchange for purchases, even when needed to
procure raw materials from Western countries. 18
The countries which have recently been provided Western
currency loans from the USSR or China (Hungary, East Germany, and Poland)
provide another indication of the Satellites most in need of foreign
exchange. Hungary has received $60 million in free currency from the
USSR and $25 million from China since October 1956; East Germany
received $85 million in free currency from the USSR in January 1957
and Poland, in September 1956, received 12.5 million in gold from
the USSR .-*-~
* See A, 2, b, above.
~-~ See pp. 20-23, below.
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D. Patterns of the Postwar Trade of the Satellites.
1. Through 1955?
Until 1953 the expansion of the trade of the European
Satellites was largely with other countries of the Soviet Bloc
rather than with Western countries; since 1953, however, the trade
of the Satellites with Western countries has assumed increasing im-
portance .~-
The annual Satellite deficit on trade and shipping account
with Western countries rose from X58 million in 1953 to $148 million
in 195+ but fell to $83 million in 1955? Despite this improvement
in the 1955 trade and shipping balance of the Satellites with Western
countries compared with the 195+ balance, the European Satellites have
been unable to raise exports to non-Bloc countries to a level high
enough to pay for all imports, and there are indications that the net
drain on the foreign exchange reserves of the Satellites continued in
1956.
The increase in the trade of the Satellites with Western
countries in 1955 was partly owing to the failure of the USSR to supply
the growing Satellite demands for certain raw materials and Soviet
failure to carry through contracts for purchases of certain Satellite
products. This development at least encouraged, and probably necessi-
tated, increased Satellite trade with Western countries -- both with
the industrially developed countries of Western Europe and with Western
producers of raw materials.
Decreased Soviet-Satellite trade in several important
commodities was noted in 1955. During the 1955-56 crop year, Soviet
exports of major agricultural commodities to the Satellites declined;
Soviet exports of steel, cotton, and iron ore to the Satellites fell
in 1955, necessitating development of new Western sources of supply. 19
Conversely, Soviet purchases of such items as Czechoslovak steel
products, Czechoslovak food-processing machinery, Hungarian textiles,
and Polish railroad equipment declined in 1955, and attempts were made
to sell these surplus commodities in the West. 20
~ See Table 2, p. 5, above. In 1955, however, nearly three-fourths of
the trade of the Satellites was with countries of the Soviet Bloc.
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2. 1956 to Early 1957?
Although complete figures are not yet available for 1956,
provisional estimates suggest that the trade of the Satellites with
Western countries continued to rise while Satellite-Soviet trade showed
mixed trends. 21 During the early part of 1956, Satellite-Soviet
trade continued at the low level of 1955, but in the latter part of
1956 it appears to have increased.
Soviet deliveries of grain and raw materials to the
European Satellites continued to lag during the early part of 1956,
largely because of difficulties encountered by the Satellites in
financing imports from the USSR. In the past an import surplus from
the USSR could be maintained by drawing on Soviet credits; as these
credits had in large part been utilized by early 1956, and in some
cases repayments were under way, a Satellite export surplus would
have been required. In addition, some of the Satellites were obligated
to repay the USSR for the latter's share in the mixed Soviet-Satellite
enterprises which had been liquidated. Finally, the Satellites
probably found it difficult to expand their exports to the USSR
sufficiently to maintain a high level of imports because (a) some
raw materials normally exported by the Satellites to the USSR were
in short supply, and (b) in some cases there continued to be little
Soviet demand for available Satellite commodity exports. 22
Since the latter part of 1956, Satellite-Soviet trade
appears to have been rising. This is partly because of increased
Soviet grain shipments made possible by two good harvests and partly
because of increased Soviet shipments of raw materials. Credit
arrangements granted the European Satellites by the USSR which
include new credits, cancellation of some old debts, and postponement
of repayment on some debts* have also made possible an increased level
of trade. Finally, the USSR has recently placed additional orders
for consumer goods as well as equipment in the Satellites. These
developments point to a considerable increase in 1957 Soviet-Satellite
trade; Satellite - Free World trade is also expected to increase in
1957. 23
II. Causes of Current Foreign Exchange Shortages.
The shortage of foreign exchange in Eastern Europe is the financial
reflection of a shortage of goods. The fundamental causes of the
* See pp. 20-23, below.
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current economic difficulties of the European Satellites, financial
and real, are to be found in the postwar economic development of the
Satellites. Although in the early postwar period the pattern of foreign
trade consisted largely of an exchange of Satellite exports of food
and raw materials for manufactured goods, rapid industrialization of
the Satellites changed this trade pattern markedly. The rapid
industrialization programs of the Satellites, coupled with modest
resource bases and the diversion of productive resources from agri-
culture to industry, increased the demand of the Satellites for food
and industrial raw materials while reducing the capacity to export
these goods. The Satellites have, in fact, become net importers of
many agricultural commodities. Meanwhile, exports to the West of
manufactured goods from newly expanded industries have in many cases
been increased only slowly, for a number of reasons -- late delivery
dates, preference of the Free World for goods of established suppliers,
unsatisfactory performance due to poor quality, and, in some cases,
the initial difficulties encountered by any country in the establishment
of new outlets or the expansion of existing ones. Thus, although by
1955 the Satellites had come to rely heavily on exports of manufactured
goods to finance imports of food and raw materials from the West, the
demand for imports still outran the supply of marketable exports.
The foreign exchange shortage can also be traced in part to the
artificially high official values given to Soviet Bloc currencies in
terms of Western currencies. The distorted exchange rates by themselves
would not tend directly to increase imports from and depress exports
to the West, because of the degree to which foreign trade is planned
and controlled in Bloc societies; still, assuming that Bloc currencies
are more overvalued in relation to the West in regard to Bloc foreign
trade prices (and evidence indicates that this assumption is realistic,
the same result would be produced indirectly. In planning the
financing of imports and exports, the amounts of price-equalization
receipts, or payments generated by the difference between domestic
and foreign prices, are also planned.'2~+ In order to surpass the
financial plan and to achieve above-plan savings, enterprise managers
would have the incentive to buy where the enterprise's price-equaliza-
tion payments to the budget would be largest and sell where price-
equalization receipts would be smallest -- that is, buy in the West and
sell in the Bloc.
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Other causes of the foreign exchange shortage of the European
Satellites stem from certain disadvantages inherent in Bloc trade.
One restraint on Satellite trade with the West was imposed by gearing
of the rate and nature of industrial expansion to Bloc, especially
Soviet, needs, and in some cases the rate of industrial expansion
proposed was clearly beyond the nation's ability to obtain adequate
supplies of raw materials within the Sino-Soviet Bloc. Nevertheless,
the Satellites were forced to supply the USSR (and to a lesser extent
other Satellites) with their most acceptable exports and thus were
limited in their ability to purchase raw materials from the Free World.
Furthermore, the necessity in East Germany, Hungary, Rumania, and
Bulgaria for providing the USSR with unrequited exports in the form
of payments for the former Soviet share of joint companies also tends
to absorb the most marketable export goods.
III. Attempted Solutions of the Foreign Exchange Shortage.
A. Measures Adopted.
The measures taken by the European Satellites in order to
alleviate their foreign exchange shortages fall into two broad
categories -- those which reduce the need for earnings in hard
currency and those which increase earnings of Western exchange.
Methods of reducing the need for earnings in hard currency include
attempts to procure credits, to rely on barter, and to arrange
payment for services in goods rather than foreign exchange. The
Satellites have attempted to increase earnings in hard currency by
selling products to Western countries at below competitors' prices
as well as through resale to non-Bloc countries of commodities
purchased for local currencies.
* Trade with Soviet Bloc countries has, however, in some respects
been beneficial to the Satellites. In the early stages of the indus-
trial development of the European Satellites, trade within shielded
markets characterized by insulated price systems served to protect
industrial development. The recent move toward economic specialization
within the Bloc, moreover, is likely to promote increasing industrial
efficiency.
~ In the past, reparations payments were a form of unrequited exports.
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1. Reduction of the Need for Earnings in Hard Currency.
Credits, obtained from both Bloc and Western sources,
are extended in a variety of forms -- "swing" credits extended under
trade agreements, intergovernmental loans, and loans extended by
private firms and banks (sometimes government-guaranteed) to Satellite
enterprises. Credits obtained in Western countries have normally been
of short- or medium-term duration, but some loans obtained from the
USSR provide for repayment over a 10-year period. Conditions of
repayment have varied considerably; repayments are made in commodities
and through pledges of future receipts from exports as well as in
gold or foreign exchange.
(1) From the West.
"Swing" credits extended under most trade agree-
ments are an important means of financing trade with the Free World
and in essence represent a short-term, interest-free loan to the Bloc.
Although data are incomplete on the extent to which the Satellites
have exceeded these swing limits, they have done so in many cases.~-
Nevertheless, increases in swing limits have been effected under
certain agreements. In 1955, for example, the Hungar-ian-Turkish,
Czechoslovak-Lebanese, and Polish-Egyptian swing limits were in-
creased. 26
During the past 2 years a number of inter-
governmental loans have been made available by the West to finance
commodity purchases by the Satellites in the respective lending
countries. Belgian loans amounting to $3 million and ~2 million,
respectively, have been extended to Poland aril Hungary for use in
purchasing consumer goods. 27 Similarly, a~~10-million West German
loan was extended to Poland for 4 years to finance the purchase of
capital goods. 28 During 1956, Poland received a $28.5-million
credit for industrial equipment from the French government repayable
~ In some cases, Soviet and Chinese loans to the Satellites have
been in Western currencies or gold (see p. 11, above).
~~ Since December 1955, for example, the Satellites have exceeded
swing limits in the following agreements:. Hungarian-Israeli; Hungarian-
Egyptian; East German - West German; Polish-Swedish; Rumanian - West
German; and agreements of all the European Satellites with Indonesia
(July 1956). 25
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in 9 years and a $4-million credit for diesel engines from a private
Swiss firm repayable in 3 years. 29 Upon the completion of US-
Polish economic negotiations on 7 June 1957, agreements had been
signed for the extension of a $30-million credit to Poland and for the
sale of $18.9 million worth of cotton, fats, and oils for Polish
currencies. A supplemental agreement for the sale of an additional
$x+6.1 million worth of US wheat and cotton was drawn up, and was
signed on l~+ August 1957. 30 A number of Western-government
guarantees of private bank loans have been made available to finance
Bloc purchases of specified commodities. Finally, loans without
government guarantees, obtained from private Western traders and banks,
have reportedly accounted for a sizable fraction of the commercial
indebtedness of the Satellites.
In general, direct intergovernmental loans and
those guaranteed by foreign governments have borne more moderate
interest rates than have private loans. The deposit of gold in West
European banks as security for private commercial credit normally
makes it possible to obtain such loans at reasonable rates as well.
The interest rate for the $13.8-million wheat credits to Poland
guaranteed by the Export Credit Insurance Corporation of Canada is
only 1 percent per year; the interest rate for 50,000 tons of wheat
sold to the Polish government by the Australian government was 3 3~~+
percent per year. 31 Interest rates on private loans have been much
higher -- ranging from 10 percent for a loan to Poland to 18 percent
for some loans to Hungary. 32
The constant necessity of obtaining new short-term
loans to finance current commodity purchases tended, until the end of
1955, to keep interest rates high. It appears, however, that more
recent financing may have been done on slightly improved terms; the
longer credit periods and lower interest rates which have been obtained
are partly a result of Satellite promptness in effecting repayment at
maturity dates. 33
(2) From the USSR.
In 1956 and early 1957 the USSR announced sizable
* In 1955 a $2.5-million loan was granted Hungary by the USSR in US
dollars, and the original repayment date has since been extended for a
full year. 34 In the spring of 1955 the USSR arranged a credit for 30
million Swiss francs from the Union Bank of Switzerland for Rumania's
use in making purchases under the Rumanian-Swiss trade agreement. 35
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credits to be granted to Bulgaria, East Germany, Hungary, Poland, and
Rumania; the large amounts of these credits are indicative of the
precarious economic situation which existed in many of the European
Satellites, as regards both their foreign exchange position and their
need for all types of commodities. Except for a loan to East Germany
in 1953 of $180 million, these were the first sizable grants by the
USSR to the Satellites since 1950. Loans announced by the USSR since
early 1956 totaled about 1,015.5 million -- $157.5 million in gold or
convertible currencies, and the balance in commodities. Soviet loans
and grants will therefore help to alleviate a number of the economic
problems of the Satellites. The variety of goods to be made avail-
able -- consumer goods, raw materials, agricultural products, and
plant and machinery -- will not only alleviate the most pressing
Satellite shortages but in some instances will obviate the necessity
for obtaining these goods elsewhere, possibly in Western markets. The
gold or foreign exchange to be provided by the USSR should assist the
Satellites in purchasing additional commodities from Western markets.
In addition, the payments position of East Germany, Rumania, Poland,
and Hungary in regard to the USSR has been improved by cancellation
of and~or postponement of repayments on indebtedness to the USSR (see
Table ~+~) .
The effect of the recent Polish and Hungarian
uprisings upon this situation cannot at present be ascertained. The
amount of damage done to industrial plants and the degree to which
foreign trade will be dislocated are unknown.
In most cases the Satellites have found repayment
terms of Soviet credits more lenient than for credits obtained in the
West. Repayment of Soviet loans is to be effected ,in goods over a
period ranging from 2 to 10 years at a 2-percent interest rate (see
Table 4~~) .
b. Barter Arrangements.
The need for Western currency can also be reduced by
relying as much as possible on barter arrangements, which allow the
direct exchange of one commodity for another without the use of money.
~ Soviet credits to the European Satellites from January 1956 to
March 1957 are shown in Table 4. Table ~+ follows on p. 20.
~~' In addition, Hungary received $25 million in goods and $25 million
in free currency from Communist China. 36
~~ P. 20, below.
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Foreign exchange as a financial problem does not exist in intra-Bloc
trade, because intra-Bloc trade agreements call for balanced commodity
exchanges in any given year and any imbalances arising are settled
by goods deliveries or an extension of credit.*
Bilateral barter transactions have been and are
important in East-West trade. Although bilateral commodity balancing
alleviates the financial problem, however, it introduces another
complexity -- the need to match the import needs and export capabilities
of the countries involved. As a result, although bilateral barter
arrangements are still the most characteristic type today, multilateral
settlements including Western countries are becoming increasingly wide-
spread. Hungary has been especially active in attempting to promote
multilateral exchanges; individual multilateral barter transactions were
implemented between Japan, Hungary, and Israel late in 1955, and between
Japan, Hungary, and Italy early in 1956. 37
c. Attempts to Arrange Payments for Services in
Commodities.
The Satellites have attempted to save foreign exchange
by arranging payment in commodities rather than foreign exchange for
services purchased from the Free World. This practice may be considered
a logical extension of the intra-Bloc system whereby noncommercial
settlements are included as part of clearing accounts. In January 1956,
for example, Hungary proposed that a Western firm accept Hungarian
products in payment for services rendered. 38 In November 1955,
Czechoslovakia made an unsuccessful attempt to reach such an agreement
with Italy. 39
2. Increase of Earnings in Hard Currency.
Clearly preferable -- from the Bloc's point of view -- to
reducing the use of foreign exchange would be an immediate increase in
earnings in hard currency beyond that necessary to pay for increased
imports. As long, however, as Satellite industrial products remain~-~
~ It is probable that intra-Bloc payments for shipping services are
partly in Western exchange because certain expenses (tolls, port fees,
and the like) are incurred in Western exchange.
~~ Continued on p. 2~+.
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S -E -C -R-E -T
Table ~+
Soviet Credits to the European Satellites
January 1956 - March 1957
Million Current US $
Satellite Date Signed Amount of Credit J Provision
Bulgaria February 1956 92.5 Credit of $92.5 million during 1956-57, $75
million of which is to finance a program of
agricultural development and $17.5 million for
Soviet technical assistance and equipment in
construction of two fertilizer plants. Interest
rate 2 percent. To be repaid in goods, prima-
rily through Bulgarian exports of agricultural
products during a 10-year period.
March 1957 50 Credit granted to provide Soviet machinery,
industrial equipment, and technical aid.
East Germany July 1956 173 Economic benefits totaling $1.9 billion between
January 1957 85 1957 and 1960, including a grant of free cur-
rency for purchases in world markets, long-term
credits, and reduction of East German payment
for Soviet occupation costs. The commodity
credit of $173 million is to be repaid in 10
years at a 2-percent interest rate. $85 million
in free currency was granted in January 1957?
a . i+0 --- ---- --- --------
b. Excluding cancellation or postponement of debt.
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Table ~+
Soviet Credits to the European Satellites
January 1956 - March 1957
(Continued)
Million Current US $
Satellite Date Signed Amount of Credit Provision
Poland September 1956 25 $25 million, half in gold and half in raw mate-
rials, granted in 1956. To be repaid in Polish
goods in equal installments during 1957-60 at
2-percent interest; repayment may have been
canceled.
November 1956 275 The second loan to Poland provided for $175
million for delivery of goods to Poland during
1958-59, 1?~+ million tons of grain valued at $100
million to be delivered in 1957, and cancellation
of Polish debts to the USSR amounting to $525
million. The commodity loan is to be repaid dur-
ing 1963-65, the grain loan during 1961-62.
Hungary October 1956 25 $25 million to be granted in 1957 -- $10 million
in Western foreign exchange; $15 million in in-
dustrial products and raw materials. Repayment
is to be in Hungarian products during 1860-65 at
an interest rate of 2 percent per year.
March 1957 X87.5
A new Soviet credit granted in March provided
that in 1957 Hungary was to receive the following
credits: $137.5 million worth of commodities
S -E -C -R-E-T
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Soviet Credits to the European Satellites
January 1956 - March 1957
(Continued
Million Current US
Satellite Date Signed Amount of Credit
Hungary
(Continued)
(excluding $6 million previously granted and not
accounted for above) and $50 million in free cur-
rency. In addition, debts to the value of $37.5
million were deferred and Hungary was freed
from paying $85 million owed as payment for the
Soviet share of joint Soviet-Hungarian companies.
The credits are to be repaid in goods over a 10-
year period beginning in 1961 at an interest rate
of 2 percent per year.
Rumania December 1956 102.5 Reduction by 4.3 billion lei (more than $800
million) of the amount to be paid for the Soviet
interest in the liquidated Sovroms. Credits as
follows: 450,000 tons of wheat and 60,000 tons of
forage valued at $35 million to be delivered in the
first half of 1957 and industrial credits amounting
to 270 million rubles 067.5 million) for equip-
. ment for the construction of industrial plants.
Postponement of Rumanian payments due during
1957-59 on existing long-term credits from the USSR.
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Soviet Credits to the European Satellites
January 1956 - March 1957
(Continued
Million Current US
Satellite Date Signed Amount of Credit
Rumania The agricultural loans are to be repaid either in
(Continued grain or in other products over 3 years beginning
in 1959? The loan for equipment is to be repaid in
goods over a 10-year period.
Total credits
1, 015.5
b? Excluding cancellation or postponement of debt.
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less than fully competitive in world markets.and the import needs of
the Satellites are so great, this solution is difficult to achieve.
a. Reduction of Prices by the Satellites.
Exporters in the Satellites have frequently made sales
at prices considerably below competitors' prices in order to obtain
orders in hard-currency areas. Competition exists both among Satel-
lites and with Western countries for these markets. An example of
Satellite efforts to obtain construction contracts by making low bids
was a request made in July 1955 by the East German export monopoly
DIA Invest-Export to its Egyptian representative to forward copies of
competitors' bids on machinery and equipment for installations for
the express purpose of enabling Invest-Export to undercut those
bids. ~+2 Czechoslovak automobiles were to be sold to Japan in late
1955 priced at only one-half the price of comparable German and British
automobiles . ~+3
In many instances, sales must be made below the cost
of production and only slightly above the cost of the imported raw
materials necessary to the manufacture of a given item. Some
examples of Satellite willingness to make sales at prices below
costs of production are the following:
(1) Sales of Czechoslovak automobiles in West
Germany and Austria in early 1956. ~4
(2) Offers of East German blankets to South
Africa in late 1955 at prices covering, little
more than the raw materials in them. ~+5
(3) Consideration by the Hungarian government,
in September 1955, of the sale of bauxite
and aluminum hydroxide to Western countries
at about one-half the cost price. 46
~ Czechoslovak and East German difficulties during 1956 in building
stable outlets for industrial and engineering products in the highly
competitive West European markets reportedly led them to expand their
sales to less well developed countries. 41
-~~ The foreign exchange shortage is so acute that the Satellites are
forced to consider the foreign exchange component of total cost.
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b. Resale of Commodities Purchased for Soft Currencies.
The Satellites have also attempted to obtain Western
currencies through the resale to Western countries of commodities
purchased for soft currencies. Foreign exchange earnings from re-
exports of Chinese Communist products to Western countries have been
mentioned.- A rather novel example of an attempt both to earn foreign
exchange and to liquidate a debt to Hungary occurred in October 1955
Hungary attempted to act as a broker for Turkey in obtaining Western
buyers for Turkish products, at the same time settling a Turkish "swing"
debit to Hungary which the Turks were unable to settle. Hungarian
trade representatives offered to find Western buyers for Turkish
products and to accept payment in Western exchange at prices sub-
stantially lower than those credited to Turkey in the Turkish-Hungarian
clearing account. 47
B. Effectiveness of Measures Adopted.
The varied expedients cited above at best have been of limited
utility and, taken together, have been inadequate to solve the foreign
exchange shortages which have confronted the. European Satellites. In
addition, many of these devices are expensive in real terms and in some
cases have merely postponed settlement by prolonging or increasing
indebtedness and have added heavy interest charges which must
ultimately be met in foreign exchange.
Where it has been possible to save hard currency by substituting
satisfactory Bloc sources of supply, arranging payment in commodities
rather than foreign exchange, reselling commodities purchased for local
currencies, or acquiring through barter goods otherwise obtainable only
with foreign exchange, the ,adverse ~'epercussions on the Satellite
economies have probably been unimportant. These devices, however, have
provided only a partial solution to the foreign exchange problem.
The other expedients -- subsidization of exports in order to
sell products at competitive prices and reliance on credit -- have been
most widely used to date and have proved costly to the Satellites.
Subsidization of exports constitutes a burden upon the budgets of the
countries concerned. The excessive reliance on credit in trade with
~ Commodity-shunting has been mentioned. (p. 7, above) as another method
of saving foreign exchange; the purpose of resale to Western countries
of commodities purchased for soft currencies is to earn foreign exchange.
- 25 -
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the Free World results in heavy interest payments.* Unless the
Satellites are able to increase markedly their foreign exchange receipts
through a significantly larger increase in exports than in imports,
further loans will aggravate and merely postpone the payments problem.
From a long-run point of view, the only fully satisfactory
solution to the chronic shortage of foreign exchange is to produce
increased quantities of products which are fully competitive in world
markets. This goal is clearly recognized and repeatedly underscored
in official Satellite pronouncements. During the past year, mounting
emphasis has been placed upon the need for increased quantities and
improved quality of export goods, wider selection, improved sales
techniques, and more reliable delivery dates. The sizable increase
in Satellite exports in 1955 that resulted from these measures as
well as from price cutting was balanced by a large increase in imports.
According to statements of the Satellites, it appears that increased
exports have not been sizable enough to preclude the Satellites' doing
without certain vitally needed imports. Until the export situation is
further improved, it seems inevitable that the European Satellites
will continue to improvise a variety of short-run expedients for
meeting their most pressing import needs from the West.
~ This is especially true of Hungary, much of whose indebtedness to
Western countries is short term and therefore at higher interest rates
than long-term credits.
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TRADE BALANCE OF THE EUROPEAN SATELLITES WITH THE FREE WORLD
BY GEOGRAPHIC REGION'
1953-55
1953 Total
0.1
0.2
-0.1
195+ Total
0.1
0.2
-0.1
1955 Total
0.3
0.7
-o.~+
_~ ~+~ Because of rounding, figures may not add to totals.
-27-
S-E-C-R-E-T
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Table 5
(C ontinueci)
Year
Satellite
Geographic
Region
Exports, F .O.B .
Bloc Ports
Imports, F .0 .B .
Free World Ports
Trade
Balance
1953
Bulgaria
US and Canada
0.4
Negligible
0.4
1954
0.3
Negligible
0.3
1955
0.4
0.l
0.3
1953
UK
1.8
2.2
-0.4
1954
1.4
3.3
-l.g
1955
0.9
3.5
-2.6
1953
Other sterling
area
0.2
1.0
-0.8
1954
0.l
0.3
-0.2
1955
0.l
1.6
-1.5
1953
Continental
Western Europe
20.4
23.2
-2.8
1954
23.0
16.4
6.6
1955
18.6
19.2
-0.6
1953
Latin America
Negligible
Negligible
1954
Negligible
1955
Negligible
Negligible
1953
Other Asia
and Africa
3.1
2.1
1.0
1954
1.7
0.7
l.o
1955
1.9
1.4
0.5
1953 Total
25.g
28.6
-2.7
1954 Total
26.4
20.8
5.6
1955 Total
21.9
26.0
-4.1
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Table 5
(Continued)
Million Current US
Year Satellite
Geographic
Region
Exports, F.O.B.
Bloc Ports
Imports, F.O.B.
Free World Ports
Trade
Balance
1953 Czecho-
slovakia
US and Canada
4.9
0.2
4.7
1954
4.9
1.3
3.6
1955
6.7
3.2
3.5
1953
Ux
18.9
5.7
13.2
1954
16.2
8.5
7.7
1955
10.6
10.0
0.6
1953 -
Other sterling
area
21.9
29.4
-7.5
1954
25.5
17.7
-7.8
1955
31.9
28.8
-3.1
1953
Continental
Western Europe
102.5
77.2
25.3
1954
109.7
106.5
3.2
1955
167.2
127.0
40.2
1953
Latin America
14.3
10.4
3.9
1954
25.g
26.0
-o.l
1955
5o.g
43.g
7.0
1953
Other Asia
and Africa
19.4
12.7
6.7
1g~~
29.4
26.1
3.3
1955
38.1
48.g
-10.8
1953 Total
181.8
135.6
46.2
1954 Total
211.6
186.1
25.5
1955 Total
305.5
261.8
43.7
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 Declassified in Part - Sanitized Copy Approved for Release 2013/04/10: CIA-RDP79R01141A001000050001-3
Table 5
(Continued
Million Current US $
Year Satellite
Geographic
Region
Exports, F.O.B.
Bloc Ports
Imports, F.O.B.
Free World Ports
Trade
Balance
1953 Hungary
US and Canada
1.9
0.1
1.8
1954
1.6
2.5
-0.9
1955
2.1
1.0
1.1
1953
UK
o.l
3.5
-3.4
1954
l . 0
5.8
-~+ . 8
1955
5.7
8.5
-2.8
1953
Other sterling
a'r'ea
~+ ? 1
3.3
0.8
1954
~+.8
1.7
3.1
1955
4.6
0.8
3.8
1953
Continental
Western Europe
40.3
65.0
-24.7
1954
56.8
90.8
-34.4
1955
88.0
148.5
-60.5
1953
Latin America
3.5
2.4
1.1
1954
7.4
12.3
-4.9
1955
14.6
11.7
2.9
1953
Other Asia
and Africa
9.1
7.1
2.0
1954
8.8
9.5
-0.7
1955
13.6
19.3
-5.7
1953 Total
59.0
81.5
-22.5
1954 Total
80.3
122.6
-42.3
1955 Total
128.6
189.9
-61.3
_~
r
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Table 5
(Continued)
Million Current US
Year Satellite
Geographic
Region
Exports, F.O.B.
Bloc Ports
Imports, F.O.B.
Free World Ports
Trade
Balance
1953 East
Germany
US and Canada
7.6
1.1
6.5
1954
4.5
0.6
3.9
1955
6.0
2.7
3.3
1953
~
2.9
1.9
1.0
1954
4.2
5.9
-1.7
1955
6.1
2.8
3.3
1953
Other sterling
area
2.6
2.2
0.4
1954
5.7
1.5
4.2
1955
7.5
2.9
4.6
1953
Continental
Western Europe
133.0
151.1
-18.1
1954
lgo..6
241.3
-50.7
1955
235.8
254.4
-18.6
1953
Latin America
1954
0.2
-0.2
1955
0.5
2.0
-1.5
1953
Other Asia
and Africa
5.1
3.1
2.0
1954
7.2
4.6
2.6
1955
7.1
7.4
=0.3
1953 Total
151.1
159.4
-8.3
1954 Total
212.2
254.2
-42.0
1955 Total
263.1
272.1
-9.0
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Table 5
(Continued
Million Current US $
Year Satellite
Geographic
Region
Exports, F .0 .B .
Bloc Ports
Imports, F .0 .B .
Free World Ports
Trade
Balance
1953 Poland
US and Canada
14.5
0.8
13.7
1954
22.0
2.2
i9.$
1955
27.2
7.4
19.8
1953
~
56.5
19.6
36.9
1954
50.6
25.5
25.1
1955
72.6
19.5
53.1
1953
Other sterling
area
5.1
31.g
-26.8
1954
5.8
36.1
-30.3
1955
9.5
43.8
-34.3
1953
Continental
Western Europe
152.3
134.9
17.4
1954
128.0
141.6
-13.6
1955
165.5
182.5
-17.0
1953
Latin America
6.4
10.1
-3.7
1954
~
23.4
2g.1
-5.7
1955
35.5
43.0
-7.5
1953
Other Asia
and Africa
8.0
12.2
-4.2
1954
11.3
12.6
-1.3
1955
9.3
30.2
-2o.g
1953 Total
242.9
X9.5
33.4
1954 Total
241.0
247.2
-6.2
1955 Total
318.6
326.3
-6.7
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 r
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Table 5
(Continued)
Million Current US ~
Year Satellite
Region
Exports, F .0 .B .
Bloc Ports
Imports, F .0 .B .
Free World Ports
Trade
Balance
1953 Rumania
US and Canada
0.4
0.1
0.3
1954
0 . ~+
0..1
0.3
1955
0.3
0.6
-0.3
1953
~
3.5
7.8
-4.3
195t~
5.4
7.3
-1.9
1955
8.6
8.4
0.2
1953
Other sterling
area
0.6
0.8
-0.2
1954
1.6
0.5
1.1
1955
4.5
1.2
3.3
1953
Continental
Western Europe
40.2
50.4
-10.2
1954
57.6
41.2
16.4
1955
73.0
51.0
22.0
1953
Latin America
2.6
2.1
0.5
1954
5.7
7.6
-1.9
1955
3.3
2.9
0.4
1953
Other Asia
and Africa
10.1
1.8
8.3
1954
7.2
8.7
1.5
1955
15.5
13.7
1.8
1953 Total
57.4
63.0
-5.6
1954 Total
78.0
65.4
12.6
1955 Total
105.1
77.8
27.3
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S-E-C-R-E-T
APPENDIX B
METHODOLOGY
Table 1~- utilizes the net balance of the Satellites on trade and
shipping with the Free World from Table 2~-~ as a starting point.
Adjustments are made for discrepancies between Western trade sta-
tistics and the actual foreign exchange position of the European
Satellites. The factors which would increase the Satellite deficit
in foreign exchange -- multilateral clearing arrangements with
Finland, sales of European Satellite goods to non-Bloc countries by
the USSR, and direct exports for repayments of debts -- constitute the
second item in this table. The final item, "adjustments for China
trade," includes adjustments made for Western goods transported to
China via Poland and for Chinese goods resold in the West by the
European Satellites.
Table 2 contains estimated data on the balances of the European
Satellites on trade and shipping with the Free World in 1953, 1954,
and 1955? US Department of Commerce figures showing Free World trade
with the European Satellites during 1953-55 were adjusted by use of
the data derived from Table 6 in EIC-R-11 in order to ascertain
shipping costs. Satellite imports f.o.b. (Free World ports) were
multiplied by the following figures to obtain European Satellite im-
ports c.i.f. (Bloc ports): US and Canada, 113.64; UK, 109.89; conti-
nental Western Europe, 105.26; other sterling area, 116.28; other Asia
and Africa, 114.94; and Latin America, 114.94. European Satellite
exports c.i.f. (Free World ports) were multiplied by the following
figures to obtain European Satellite exports f.o.b. (Bloc ports):
US and Canada, no change (f.o.b. in Commerce figures); UK, 88; conti-
nental Western Europe, 90; other sterling area, 87; other Asia and
Africa, 84; and Latin America, 88. For Table 2, the tables showing
Satellite imports and exports without freight were used to obtain a
recorded trade balance.
The balance on shipping account of the European Satellites was esti-
mated as follows. Because the total shipping charges on trade between
the European Satellites and the Free World were paid partly by the Euro-
pean Satellites and partly by the Free World and because Poland carries
* P. ~+, above.
~ P. 5, above.
S-E-C-R-E-T
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much of the oceanborne cargo of the European Satellites, it was
necessary to make a number of calculations to arrive at a European
Satellite balance on its shipping account with the Free World.
Total charges were ascertained by taking the difference between
exports, c.i.f., and exports, f.o.b., and between imports, c.i.f.,
and imports, f.o.b. Then for each of the six Western regions in
Table 2, an assumption was made based on experience during the years
1953-55 as to the percentage of Polish-Satellite trade which moved on
Bloc bottoms or rails and the percentage transported by Western
transport facilities. In that manner, shipping receipts and expendi-
tures for Poland and for the other Satellites were ascertained. The
receipts and expenditures for Poland and the other Satellites were
combined to obtain the balance on shipping account for each of the
3 years shown in Table 2.
Tables 3~ and 5~ show foreign trade balances on commodity account
(without shipping) of individual European Satellites with the Free
World during 1953-55? Table 5 gives more geographic detail than
Table 3, which shows only total trade with Western countries. Both
tables are based on trade data of the Free World. Although Western
statistics are in some cases incomplete and create a problem of
making adjustments for shipping, they constitute the only source that
can be utilized which will give the trade of each Satellite with the
West for the entire 3-year period.
* P. 10, above.
~' P. 27, above.
-36-
S-E-C-R-E-T
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