WEEKLY SUMMARY SPECIAL REPORT EAST GERMANY AGONIZES OVER ECONOMIC POLICY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001500030013-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 22, 2016
• Document Release Date: January 6, 2011
• Sequence Number: 13
• Publication Date: April 16, 1971
• Content Type: REPORT

Sanitized Copy Approved for
Release 2011 /01 /07 : JWJrA
CIA-RDP85TOO875RO01 50002
a nitized Copy Approved for
Release 2011/01/07:
CIA-RDP85TOO875RO01 50002
Irr
 Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
Secret
DIRECTORATE OF
INTELLIGENCE
WEEKLY SUMMARY
Special Report
East Germany Agonizes Over Economic Policy
SEM . RETURN TO 1 E-61
I -( 71V
f1i F; idym
D0 NOT DESTROY
Secret
N! 696
16 April 1971
No. 0366/71A
Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
 25k,Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
 Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
CONFIDENTIAL
The East German economic plan for 1971-76 has boon delayed while an apparently
divided party hierarchy wrestles with serious economic problems, The regime has had to
deal with shortages of electric power and consumer goods, largo backlogs in industrial
deliveries, a rise in unfinished investment, and a substantial foreign trade deficit, At the
same time, it has faced a basic policy choice of whether to go on trying to develop a
"show window" Communist economy which attempts to give every appearance of
successfully competing with West Germany, or to accept its current place as a more
prosperous version of other East European economies. In mid-March, Foreign Trade
Minister Soelle said that "far reaching and weighty decisions" about the five-year plan
are to be made in the next few weeks.
From 1967 on, and especially in 1970, Pan-
kow wont to groat lengths to make a few branches
of East Germany's industry competitive on the
world market. The loaders had learned from the
failure of the 1959.65 plan not to try to remake
the whole economy in a few years. Consequently
they agreed to a less ambitious program encom-
passing the development of selected "structure-
determining" branches, particularly the elec-
tronics and petrochemicals industries.
Party chief Walter Ulbricht urged the plan-
ners on, however, and the East Germans again
overreached themselves. Because he insisted on
quick results, the planners projected increases in
efficiency that were improbable, and neglected
too many other aspects of the economy. They
made little allowance for the costs of 'he long,
cold, snowy winters of 1968-69 and 1965-70, and
of two unfavorable growing seasons-the first
marked by severe drought, the second by ex-
tremes of dry and wet weather. By mid-1970, the
foreign trade deficit and domestic shortages had
become serious, and the backlog of unfinished
investment projects was growing rapidly.
Moreover. Ulbricht learned in August 1970
when trade agreements were being negotiated that
Soviet support over the next five years would be
loss than he had counted on, both as regards
deliveries of materials from the USSR and orders
for products from "structure-determining" in-
dustries. The leadership was left with little time
to decide how to reshape plans for 1971 and the
1971-75 period.
East Germany had encountered a similar
problem in 1962. Three years of forcing the eco-
nomy had created more and more bottlenecks in
production and investment. The seven-year plan
was dropped, but there was scarcely a public
reference to the decision to do so or how it was
reached. Now, however, the regime is more open
about the country's economic difficulties. The
Central Committee plenum held last December
revealed that a major review of economic policy
had been under way for several months. Several
official speeches outlined the problems, stressing
that major investment projects would have to be
put off, and that new priorities had been set,
especially for export commitments. These
changes marked a sudden shift from the party's
approach in the first half of 1970 when the
leadership repeatedly asserted that fulfillment of
the ambitious plan for 1970 was essential.
Special Report - 1
16 April 1971
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
 Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
CONFIDENTIAL
THE OLD LINE AND THE NEW
Party Chief Walter Ulbrichit
December, 1969
"The planning and management
activities of the central state organs
will extend on a priority basie, to...big
and important projects. For them, the
entire resources of the state-will be
mobilized...."
By publicizing the policy reappraisal, and
tacitly admitting differences of opinion among
policy makers, the regime hoped to strengthen
confidence among local party workers, enterprise
management, and the population at large. The
leadership wanted party and state officials to
know that it recognized the seriousness of the
Special Report
Premier Willi Stoph
Der;nber, 1970
"If...we concentrate to such an
extent that the projects cannot be
balanced, that leads to disproportions
and to a slowing down of develop-
ment, and ultimately upsets the carry-
ing out of an efficient structural
policy...."
economic situation and that it would take ap-
propriate steps. Advertising the change in policy
may also have been intended to reassure the
Soviet leadership that East Germany was con-
cerned about its economic problems and that
measures were being taken to solve them. The
party leaders probably would have moved sooner
CONFIDENTIAL
16 April 1971
Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
 Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
CONFIDENTIAL
if they had been able to persuade Ulbricht of the
need for action; he evidently gave only grudging
and belated consent.
In line with the new approach, Premier Willi
Stoph has called for a lowering of the goals for
national income and industrial productivity this
year. More realistic plans may be in the offing for
at least the beginning of the new five-year period.
In particular, the party will put a greater emphasis
on the consumer sector-a policy no doubt rein-
forced by the Polish riots of mid-December.
At the December plenum, the party ap-
proved measures to pay bonuses to those plants
and workers that had not been able to fulfill their
1970 plans because of shortages and bad weather,
and to give wage increases to workers in the lower
Income brackets. The party also pointed up the
amounts that had been spent for imports to main-
tain food supplies. Consumer dissatisfaction, how-
ever, remains strong because of high prices, un-
even quality, limited assortment, and outright
shortages of many foodstuffs and consumer
goods. The grain crop last year was the smallest
since 1966, and imports of food from capitalist
countries will be necessary to keep food con-
sumption at current levels.
Perhaps the most compelling force for policy
change is the problem of foreign trade. The trade
deficit has become severe, particularly with the
West, and backlogs in East German export de-
liveries recently have become more noticeable. A
planned increase in imports in 1970, reported in
December to be over 20 percent, was found to be
inadequate to meet demands. Plans for additional
imports were belatedly drawn up, and more ex-
ports were demanded to offset these imports.
Despite the call for extraordinary efforts on the
part of producers, deliveries failed to reach
planned levels. To cover up the seri. usness of the
trade imbalance, the regime apparently has
switched some 1970 imports to the 1971 ac-
counts.
Special Report
The deficit with West Germany is of par-
ticular concern to the leadership. It handicaps
foreign policy by putting the East Germans at a
disadvantage, not only in dealing directly with
West Germany but also in trying to dissuade the
other East European courrl.ries from relying too
heavily on West German c:-edit. Some improve-
ment occurred in 1970, partly as a result of
Bonn's tax rate revisions that slowed West Ger-
man deliveries but encouraged imports from East
Germany. Nevertheless, East Germany's debt to
West Germany is about $500 million, and its
debts to all Western creditors total approximately
$800 million. Moreover, East Germany's inter-
national credit worthiness has suffered as a result
of delays in repaying supplier credits.
The East Germans also are in arrears in de-
liveries to the USSR-by far their most important
trading partner. Exports to the USSR un-
doubtedly fell short of those planned for 1970.
One causative factor may have been a call to
switch scheduled exports, wherever possible, from
the USSR and Eastern Europe to West Germany.
The USSR apparently agreed to allow the East
Germans to run a substantial import surplus, but
this surplus doubtless caused some embarrassment
during trade negotiations with the USSR for 1971
and 1971-75. Top East German officials now are
personally involved in an intensive propaganda
campaign plugging the effort to fulfill export
commitments to the USSR.
Just Another Communist Gconotnv?
East Germany's trade problems-at least in
the next five years-are likely to continue to
undermine Ulbricht's efforts to catch up with
Western technology and efficiency. From limited
data, it appears that trade with the West is to
decline as a share of East German trade, after
having increased rapidly in the last two years. A
projected leveling off of imports from West Ger-
many probably will be the main factor. The com-
position of imports from the West is likely to
shift increasingly to food, raw materials, and
semimanufactures, and away from machinery.
CONFIDENTIAL
16 April 1971
Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
 Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
CONFIDENTIAL
The 1971-75 trade agreement with the
USSR calls for a rapid rise in deliveries of Soviet
machinery, indicating that East Germany will be-
come more integrated in the Communist world so
far as engineering is concerned. That agreement
also projects a continued slow shift away from
deliveries of East German machinery and con-
sumer goods to shipments of chemicals and semi-
manufactures. Machinery still will be exported,
but the East Germans will have to struggle to
obtain an increased share of the CEMA market
for new machinery products, especially elec-
tronics equipment. East German export produc-
tion, which dominates the economy, nevertheless
will continue to be oriented chiefly to heavy
machinery and chemicals, as it has been through-
out the postwar period. In short, the East German
economy, barring some shift in policy toward
closer relations with the West, is likely to re-
semble increasingly the other East European econ-
omies.
Decision Making
Ulbricht's piecemeal approach to making the
economy more competitive was highly impru-
dent, something the economic elite probably un-
derstood from the beginning. Now, domestic
party views are being taken more into account.
The new policy is being decided by a consensus of
party and state officials, under party leadership.
Moreover, the failure of Ulbricht's campaign to
catch up has forced Pankow to turn to the Soviets
for support and presumably to allow the USSR a
correspondingly greater influence in East German
economic affairs. Although Ulbricht remains the
leading spokesman on economic policy, his ability
to determine that policy appears to be more re-
stricted than it has been since the mid 1950s.
Ulbricht's grudging acceptance of less ambi-
tious economic goals could mean that he will not
try to overrule the Politburo and will concentrate
on political concerns, which have always been
uppermost in his mind. Ulbricht is 77 years old,
and his speech in December suggests that, at his
age, he is not disposed to learn new tricks. He is
Special Report
Shoppers lined up in East German market
clearly less impressed with the importance of the
politics of rising economic expectations, as re-
flected by the riots of relatively well-to-do work-
ers in Poland, than are some of his colleagues,
who have borne the brunt of popular disaffection
over the economy's ineffectiveness this winter.
The East German people, particularly industrial
workers, refuse to accept that, after 25 years, one
still has to suffer shortages of electricity, heat,
and food every winter. Their complaints have hit
responsive chords among segments of the party
bureacracy, who are hopeful that new measures
for improving living standards will be unveiled at
the eighth party congress scheduled to open on
14 June.
Ulbricht over the past few years has notice-
aply reduced his participation in the day-to-day
management of the party and government, leaving
this in the hands of politburo member Erich
Honecker and Premier Willi Stoph. It is most
likely that Ulbricht will continue to avoid the
routine daily problems, and perhaps will turn over
additional responsibilities to his lieutenants. Be-
cause of Ostpolitik, however, it does not seem
likely that he will voluntarily pass up participa-
tion in the making of policy decisions, particu-
larly with respect to the East-West talks. This is
something he has worked hard for in recent years,
and he is not likely to entrust it to others at this
crucial juncture. These talks constitute not only
CONFIDENTIAL
16 April 1971
Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
 Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5
CONFIDENTIAL ,
an additional pressure on his policies but they
argue against his retirement-despite age and eco-
nomic problems-in the foreseeable future. The
talks have put his regime somewhat on the defen-
sive, a position that Ulbricht almost certainly
believes presents more reason than ever for him to
protect East Germany's claims and interests.
Ulbricht is doubtless aware of the rivalry for
his mantle between Honecker and Stoph, as well
as the growing tendency of party economic func-
tionaries to gather political power in anticipation
of an eventual struggle over the succession. UI-
bricht probably prefers to mediate the incipient
factionalism rather than upset party stability dur-
ing this important time of international negotia-
tions on the fate of Germany. Meanwhile, UI-
bricht will remain unchallenged as party chief
even though his economic policy has again pre-
sented his regime with difficulties.
The order of the day in East German economic
policy is likely to be one of restraint, but it is
hard to say for how long. In at least a couple of
years, East Germany will again have to face the
problem that Ulbricht has had to deal with: the
backwardness of the East German economy com-
pared to that of West Germany, and its waning
technological superiority in Eastern Europe.
The backwardness of East Germany will con-
tinue to pose a dilemma to the leadership. It
would be costly to East German political ambi-
Special Report
tions to accept status as simply another, albeit
relatively prosperous, East European country. At
the same time, it is costly to try to change that
status, as Ulbricht did, to make East Germany the
"show window" of Communism and the model
for the future of Germany.
The choice between those two alternatives
plays a major role in both the domestic and
foreign policy of East Germany. To accept the
current status means adoption of a more ac-
commodating policy towardthe population, while
the attempt to become a "show-window" Com-
munist economy would demand a highly authori-
tarian regime at home, a "special relationship"
with the USSR, and high tension in relations with
West Germany. The economic facts of life evi-
dently favor the modest policy.
It can be anticipated that after a year or two
of pursuing a policy of balanced and restrained
economic growth, the East German leadership
may well revert to its time-honored habit of push-
ing growth at rates well beyond the bounds of
rationality. The regime will never find it accept-
able towatch the economy merely inch along, and
the leaders probably will be enticed into believing
once again that they can force the economy to
grow faster and to "make it all up" in the final
portion of the plan period. The inevitable result
will he a revival of the same type of problems that
have plagued the East German economy since the
1950s, and the continuation of a vicious cycle
that will not be easily broken if past history can
be taken as ar, indicator of future
actions.
CONFIDENTIAL
16 ; ,pril 1971
Sanitized Copy Approved for Release 2011/01/07: CIA-RDP85T00875R001500030013-5