EAST GERMANY'S ECONOMIC LINKS TO WEST GERMANY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85S00316R000200100006-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 34
• Document Creation Date: December 22, 2016
• Document Release Date: January 27, 2011
• Sequence Number: 6
• Publication Date: August 1, 1984
• Content Type: REPORT

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Directorate of
Intelligence
Links to West Germany
East Germany's Economic
EUR 84-10160
August 1984
Copy 4 4 0
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Directorate of Secret
Intelligence
East Germany's Economic
Links to West Germany
This paper was prepared byl Office
of European Analysis. Comments and queries are
welcome and may be directed to the Chief, East
European Division, EURA
Secret
EUR 84-10160
August 1984
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Secret
Key Judgments
Information available
as of 27 July 1984
was used in this report.
East Germany's Economic
Links to West Germany
approved in July 1984.
? In June 1983 Bonn decided to guarantee an untied DM 1-billion loan
from West German banks. Another loan of similar proportions was
worth nearly $6 i ion at then prevailing exchange rates.
A unique bilateral economic relationship has allowed East Germany to
derive significant benefit from West Germany over the last 35 years
despite their often bitterly adversarial political relations. Just as signifi-
cantly, East Germany has been able to do so without becoming excessively
dependent on its Western neighbor:
? During 1976-82 alone, the special relationship yielded an estimated net
flow of resources to East Germany totaling over 12 billion West German
marks (DM), (This was
The key for East Germany has been its ability to exploit special intra-
German trade and financial mechanisms to obtain vital imports on credit
and to obtain hard currency for purchases in other countries:
? Bilateral trade has been conducted since the early 1950s through a
clearing account mechanism that allows East Germany to purchase West
German goods without spending hard currency.
? Because of readily available West German credits, East Berlin has been
able to run chronic bilateral trade deficits that, particularly during the
1970s, allowed it to support rapid economic growth and rising
consumption.
Berlin.
? Since the normalization of relations in 1972, millions of West German
visitors have provided significant hard currency revenues. Bonn has also
paid East Berlin considerable sums of hard currency for services and for
major construction projects improving the economic health of West
ness.
Although East Germany did not escape the economic malaise that gripped
Eastern Europe by the early 1980s, the intra-German relationship helped
East Berlin to weather its acute financial problems in 1982-83. East
Germany used the clearing account to finance increased imports of West
German goods as well as commodities obtained from third countries. At
the same time, East Berlin not only boosted sales to other Western
countries, but used the large special earnings on services to West Germany
to cover hard currency obligations outside West Germany. Perhaps most
important, Western lenders have seen Bonn's loans as creating a West
German financial "umbrella" underwriting East Germany's creditworthi-
Secret
EUR 84-10160
August 1984
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Bonn has supported these special economic mechanisms more for political
than commercial reasons, and has done so for most of this period without
wresting major political concessions from East Berlin. All West German
governments have felt responsibility for the well-being of the East German
people, and most have justified a special relationship as keeping alive ties
that could lead to eventual reunification.
We believe that East Germany will continue to be able to derive
considerable economic benefit from its special relationship at relatively
little cost. We expect Bonn will adhere fundamentally to its accommodat-
ing line despite conflicting domestic pressures in West Germany that will
impel it to seek more tangible political concessions for future assistance:
? Tourism, fees, and long-term agreements on services should provide East
Berlin at least DM 2 billion annually over the next few years.
? The extensions of the loan guarantees serve as a precedent for Bonn
providing special assistance on short notice
Although not economically dependent on the West German connection in
any absolute sense, we believe East Germany will continue to regard the
special relationship as vital to addressing its significant economic problems:
? East Germany's financial position, although improved significantly,
remains vulnerable: its factories need modernization, and it must become
more efficient in its use of oil and raw materials that Moscow is reluctant
to continue providing on concessionary terms.
East Germany's dealings with West Germany will be constrained, however,
by the Soviet leash and its own fears of becoming too dependent on its
neighbor.
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The First Quarter-Century
Special Earnings and Other Invisibles
10
D.
East Germany: Composition of Trade With West Germany
23
F.
East Germany: Hard Currency Balance of Payments and Debt
29
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Figure 1
Intra-German Trade: Goods and Payments Flow
Financial flows accompanying sale of East German goods to Merchandise flow accompanying sale of West German goods to
the FRG the GDR
Financial flows accompanying sale of West German goods to 0 Merchandise flow accompanying sale of East German goods to
the GDR the FRG
This diagram represents a conceptualization of intra-German trade. a All clearing account flows are in Verrechnungseinheit (VE).
In a typical transaction, an East German exporter delivers goods
to a West German firm and is paid in East German marks (DME)
by the East German State Bank. The FRG firm pays for the goods
by delivery of West German marks (DM) to the Bundesbank. The
two central banks settle the transactions in accounting units (VE)
through the clearing account. In the case of an East German
purchase, the payments flows are reversed.
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East Germany's Economic
Links to West Germany F
Ties between the two Germanys have long included a
special economic relationship that has provided East
Germany substantial support, especially since the
early 1970s. This paper attempts to analyze the
various aspects of that special relationship-trade,
credits, service transactions, payments for emigration,
and transfers-and to assess the economic advantages
East Germany has derived and the prospects for
future benefits. The paper also provides a description
of the legal and institutional framework governing
trade and financial links between the two countries.
The conclusions must remain tentative in some areas,
however, because we have only limited information on
the inner workings of the economic relationship. Both
Bonn and East Berlin cloak many of their dealings in
The First Quarter-Century
Despite the severe disruption of economic ties during
the late 1940s as a result of the occupation policies of
the victorious allies, particularly the Soviets who
forced partition, West Germany remained a relatively
important trading partner for East Germany. In the
early 1950s, West Germany was East Germany's
largest nonsocialist partner but lagged Poland,
Czechoslovakia, and Hungary as well as the USSR.
This pattern reflected, of course, eastern Germany's
traditional trade ties with the western part of Germa-
ny as well as East Berlin's limited commercial rela-
tions with other Western countries and its heavy
dependence on trade with the USSR and its new East
European allies.'
Despite political tensions during the 1950s, both sides
sought improved commercial relations. Although the
Adenauer government refused to recognize East Ger-
many as a separate country (and threatened to break
' By contrast, the FRG's greater size, more rapid growth, and
marked reorientation toward the West consistently have made
bilateral trade with East Germany comparatively less important to
it. In terms of trade volume, the GDR is about as important to the
relations with any country that did), it favored an
expansion of commercial links. Moreover, West Ger-
man business and labor wanted to boost exports as a
way of fostering growth. For its part, East Germany
needed capital equipment and spare parts unavailable
in the East. Such motivations contributed to the
conclusion in 1951 of the Inter-Zonal Trade Agree-
ment (IZT), which established rules for bilateral
commerce and facilitated trade during a period when
the two countries' currencies were inconvertible and
both countries were short of hard currency (see inset,
"The Intra-German Trade and Finance Mechanism"
and figure 1). The IZT established a clearing account
mechanism and included a "swing" credit overdraft
facility to cover short-term trade imbalances. These
arrangements reduced the need for East German
firms to obtain bank financing for their trade with
West Germany. The 1957 Treaty of Rome, which
established the European Economic Community, ex-
plicitly protected the intra-German trade relationship
by accepting Bonn's claim that this trade is "domes-
tic" and by exempting East German exports to West
Germany, but not to other members, from tariffs.
By 1960 the value of West Germany's share in East
Germany's overall trade had increased from less than
5 percent to about 11 percent, or to over 45 percent of
East Germany's trade with the nonsocialist world.'
The volume of trade continued to rise in the 1960s
despite the Berlin Wall crisis and continuing East-
West tensions (see figure 2). In the 1960s West
German businessmen, becoming convinced that bilat-
eral tensions were costing them contracts, increasingly
pushed for an easing of trade restrictions. The West
German Government itself came to show greater
interest in improving relations with East Germany,
particularly after the Social Democrats became part
of the ruling "Grand Coalition" in December 1966.
Government steps to help stimulate trade included a
] See appendix A for a description of the data sources and problems
associated with the analysis of intra-German economic relations. F
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Reflecting the unusual intra-German political rela-
tionship, the two Germanys have established special
mechanisms to handle bilateral trade. The legal basis
of intra-German trade continues to be the September
1951 Interzonal Trade Agreement, or Berlin Agree-
ment, that was established to facilitate trade between
the two Germanys. Modified several times, the
Agreement requires that:
? Trade must eventually be balanced, although no
payment schedule is stipulated.
? Trade is conducted in a special accounting unit, the
Verrechnungseinheit (VE), which for practical pur-
poses is equal to the West German mark (DM) but
which cannot be converted into DM.
? Payments are made through clearing accounts of
the note-issuing banks of each country. The banks
currently operate three accounts-two for commod-
ities and one for services.
? To maintain the flow of goods, each side is allowed
to overdraw its clearing accounts up to a specified
limit-the "swing" credit. Originally, any overdraft
had to be settled once each year. The FRG waived
its right to this requirement in 1968, and the swing
subsequently has been, in effect, a permanent West
German interest-free credit to East Germany.
gradual simplification of commercial regulations, re-
laxation of some quotas, and cuts in tax rates. After
months of negotiation, interrupted only briefly by the
Warsaw Pact invasion of Czechoslovakia, the two
sides signed a new trade agreement in December
1968. The agreement raised trade quotas and in-
creased the level of the "swing" credit, and the West
German Government waived its right to demand
annual balancing of merchandise trade payments.
New Ties
The economic relationship expanded further with the
normalizing of political relations in the early 1970s.
The new government of Chancellor Brandt sought
improved relations with the GDR in order to increase
? A special "Account S" established in 1958 allows
payment for goods and services in hard currency.
East Germany has used the account rarely in recent
years to make payments. East Berlin, however, has
sought to have some of its receipts funneled through
Account S, while generally using the clearing ac-
count to run up its debt to the FRG.
Medium- and long-term financing of West German
capital goods exported to the GDR is handled by a
special organization, the Gesellschaft zur Finanzier-
ung von Industrieanlagen MbH (GeFi). Although
under the administrative control of the corporation
that finances East-West trade (Ausfuhrkredit-Gesell-
schaft MbH, AKA), the GeFi is a legally independent
institution. Similarly, West German export insurance
is provided by the Deutsche Revisions and Treuhand,
A.G. (Treuarbeit) instead of Hermes-Kreditversicher-
ungs A.G. (Hermes), a private company which acts as
agent for the FRG Government in providing credit
insurance for exports to other countries. In contrast,
East Berlin handles intra-German trade through its
regular foreign trade institutions because it considers
such transactions to be foreign commerce.
contacts between residents of the two countries, to
improve links between the FRG and West Berlin, and
to keep alive hopes for eventual German reunification.
West Germany also offered to conduct relations on a
more equal basis (implying the abandonment of its
longstanding claim to being the only legitimate Ger-
man state) and held out the prospect of increased
economic benefits.
East Berlin eventually responded to Bonn's overtures,
but only after some prodding from Moscow and the
replacement of hardline party leader Walter Ulbricht
by Erich Honecker.3 The Honecker regime probably
saw Bonn's offer of "equality" as a way to boost its
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Figure 2
East Germany: Foreign Trade by
Country Groups, 1960-82
Socialist
Other nonsocialist
West Germany
1960 61 62 63 64 65 66 67 68 69 70
Source: Statistisches Jahrbuch der Deutschen
Demokratischen Republik (various years)
legitimacy and international standing. While remain-
ing wary of close economic ties because of fear that
they would lead to an undesirable dependence on its
rival and raise concern in Moscow, the Honecker
regime also undoubtedly tried to exploit the advan-
tages of economic cooperation-particularly in view
of its ambitious plans for the 1970s.
The economic consequences of this new special rela-
tionship-especially after conclusion of the "Basic
Treaty" in 1972-have been a steady increase in
East German Premier Stoph met Chancellor Brandt twice in
1970, but relations remained relatively cool until 1971, when Erich
Honecker replaced Ulbricht and the four occupying powers signed
the Quadripartite Agreement clearing up longstanding East-West
differences over Berlin. Subsequently, the two sides signed major
new agreements in 1971 and 1972 that opened the way for much
expanded bilateral contacts. The "normalization" of bilateral politi-
cal relations-through the conclusion in December 1972 of the
"Basic Treaty on Relations Between the Federal Republic of
Germany and the German Democratic Republic"-established the
bilateral trade, chronic East German trade deficits
(financed largely by readily available West German
trade credits), and significant hard currency earnings
for East Berlin from invisible transactions and direct
payments by Bonn. West German Government esti-
mates of the balance of payments between East and
West Germany indicate that the relationship has
yielded a net flow of resources to East Germany
totaling some 12.4 billion West German marks (DM)
over the period 1976 to 1982.?
In this paper we generally use West German Deutsche Marks
(DM) because West German trade and financial data are our best
source of information and valuation in DM provides a better
indication of real resource transfers during a period of considerable
fluctuation in the dollar-DM exchange rate. The estimated net gain
to East Germany of DM 12.4 billion would equal nearly $6 billion
converted at the average annual exchange rates prevailing in the
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East Germany's Commercial Advantages
in West Germany
Although subject to licensing and some restrictions,
East German goods enjoy special access to West
German markets. The intra-German trade clearing
mechanism-unique in East Germany's trade with
developed Western countries-reduces the need for
arranging commercial bank credits, a major advan-
tage in times of tight credit. The clearing mechanism
also eliminates the risk of exchange rate fluctuation,
a problem when East Germany trades with third
countries in dollar-denominated deals.
East German manufactured goods are not subject to
West German tariffs. The GDR thus escapes duties
which the EC estimates will average 7 percent when
the current (Tokyo) round of tariff cuts is completed.
Moreover, Bonn does not impose a value-added tax
(currently 14 percent) on East German manufactures
even though they are classified as "domestic" goods,
thus giving West German importers special incentive
to buy East German products. Bonn also exempts
East German services and agricultural goods from
other domestic taxes. On the other hand, Bonn
charges a tax on sales to the GDR even though it does
not tax "exports. " West German officials have ar-
gued publicly that the purpose of the tax was to help
reduce East Germany's chronic trade defticits.F_
The actual benefit to the GDR of such policies is
difficult to calculate because the savings are shared
by both purchasing and selling firms. West German
consumers also benefit from lower prices. One West
German critic of the special relationship nevertheless
estimates, probably excessively, that in 1980 the
FRG government lost DM I billion from the duty
exemption, DM 100 million from the farm product
exemption, and DM 300 million from the lack of
VAT.
Intra-German Trade. Developments in bilateral trade
since the early 1970s have been shaped by the two
countries' competing political objectives, their desire
to exploit the commercial opportunities offered by
mutually advantageous trade, and the unique institu-
tional arrangements that govern their trade. East
Figure 3
East Germany: Trade and Debt With
West Germany, 1970-83
Imports
Swing limit
- Swing actually used
1970 71 72 73 74 75 76 77 78 79 80 81 82 83
Germany used its commercial ties and special finan-
cial arrangements with West Germany to boost im-
ports, particularly of capital goods, chemicals, and
nonferrous metals; to support its ambitious targets for
economic growth; and to sustain increases in personal
consumption. Despite its preferential access to West
German markets (see inset, "East Germany's Com-
mercial Advantages in West Germany"), the growth
of East German exports-while impressive in some
years-did not keep pace with imports, in part be-
cause of the low quality of goods being offered. As a
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Figure 4
East Germany: Terms of Trade With
West Germany, 1970-82
90 1970 71 72 73 74 75 76 77 78 79 80 81 82
Source: German Institute for Economic Research
(West Berlin)
trolled imports better.
result, in the decade ending in 1979, East Germany
annually ran deficits in its trade with West Germa-
ny-averaging about DM 400 million per annum (see
figure 3 and appendix C).5 East Germany returned to
surplus in 1980-82, before the onset of its financial
crisis, as the regime pushed exports harder and con-
Technically, West Berlin and East Berlin do not "belong" to the
FRG or GDR. Unless otherwise noted in this paper, however, each
a DM 257-million surplus to a DM 1.46-billion deficit.
East Germany's cumulative trade surplus with West Berlin
totaled nearly DM 6 billion during the 1970s even as its overall
deficit with the FRG during the period was DM 4.1 billion. The
surpluses swelled further in 1980-82, reaching 1.72 billion DM in
1982. Without its commerce with West Berlin, East Germany's
trade balance with West Germany in 1982 would have shifted from
Germany's.
' East Germany ran the deficits despite significant surpluses in its
trade with West Berlin. The GDR sells large quantities of goods to
the city; much of the oil products it sells to the FRG go to West
Berlin, and East Germany also provides the enclave significant
quantities of raw materials. West German statistics show that, in
1982, nearly 31 percent of East German exports to the FRG went
to West Berlin, whose population was only about 3 percent of West
Despite the advantages of bilateral trade, we believe
that the Honecker regime kept the size of these
deficits under some control because neither it nor the
Soviets wanted East Germany to become excessively
dependent on West Germany. Another factor helping
to moderate the size of bilateral trade deficits was the
improvement in East Germany's terms of trade with
West Germany (see figure 4). Scholars at the German
Institute for Economic Research (DIW) estimate that
East Germany's terms of trade improved by nearly 39
percentage points between 1970 and 1982, with par-
ticularly large gains in 1973-74 and 1979-80-years
of large oil price hikes. Their price series indicate that
East Germany's worsening terms of trade in capital
goods and farm products was more than offset by
improvements in manufactured goods and, particular-
ly, raw materials related to oil.
The composition of intra-German trade has been
similar to West Germany's trade with other East
European countries. West Germany has continued to
export technically advanced goods, according to West
German statistics, while in recent years about three-
fourths of its imports from East Germany consisted of
raw materials, semifinished goods, and consumer
products. The share of investment items in East
German sales fell in the early 1970s and in recent
years has languished at about 10 percent (see figure 5
and appendix D).
The East Germans have had little success in selling
high-technology goods to the West and, in the manu-
factures field, have concentrated on relatively simple
machinery and consumer goods.
the East
Germans have consistently exporte rat er poor-qual-
ity goods and have suffered from marketing and
service problems. In addition to oil products, East
Germany exports large quantities of intermediate
goods-such as steel and chemicals-which it can
price competitively and which face less stringent
quality standards. Knowledgeable West German com-
mentators and government officials regularly have
expressed dissatisfaction with the composition of bi-
lateral trade and have pointed to the low technological
level of East German goods as a major impediment to
the further growth of intra-German commerce.
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Figure 5
East Germany/West Germany:
Composition of Trade, 1970-82
0 Raw materials/producer goods
0 Investment goods
? Foodstuffs
1970 Ziffifthh, 24.6
8.`6
^
0 Consumer goods
*Mining products and energy
0 Other
East German Exports
3.8 r-1.1 5.5 0.8
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The lack of West German tariffs on East German
goods provides East Berlin an opportunity to use
West Germany as a channel for sending goods to
other EC countries. the
East Germans on occasion have:
? Falsely labeled East German products as West
German or "German "for duty-free reexport to
other EEC countries.
? Reassembled or repackaged Eastern Bloc and
Asian goods for reexport to the FRG as East
German products.
? Delivered components for assembly in West Germa-
ny as West German goods.
West Germany periodically has charged businessmen
with violations of trade regulations and has obtained-
convictions.
The West German Government estimates, however,
that such illegal transactions account for less than I
percent of bilateral trade. Evidence available to us
suggests that East Germany does not pursue an
official policy of directing exports to other EC coun-
tries through West Germany.
high-level East German directives about devel- 25X1
oiling commerce, especially exports, with selected
nonsocialist countries-including EC member
France fail to mention any efforts to route sales 25X1
through the FRG. In fact, East Berlin repeatedly has
sought to negotiate individually with other nonsocial-
ist countries bilateral trade pacts, barter deals, offi-
cial credits, and loan guarantees on terms that
require payment of appropriate duties.
If comparatively easy access to the West German
market has skewed the distribution of East Germa-
ny's trade with nonsocialist countries, it does not
appear to have markedly increased East German
trade with Western countries as a group. Neighboring
and structurally similar Czechoslovakia, which con- 25X1
ducted only 6.2 percent of its trade with West Germa-
ny versus East Germany's 8.6 percent in 1982,
showed an overall trade with the West that was
nearly identical to East Germany's, according to
official statistics. Moreover, Hungary and Roma-
nia-and Poland before its recent economic trou-
bles-have had higher percentages of overall trade 25X1
with the West. 25X1
Accompanying the rise in intra-German trade in the
1970s was an even faster growth of East German
trade with other nonsocialist countries and LDCs. A
slowdown in the growth of deliveries of Soviet raw
materials threatened ambitious East German plans
for upgrading domestic consumption and led East
Germany to turn increasingly to nontraditional part-
ners such as the United States and the LDCs to cover
its import needs. The boom in East-West trade and
the increased availability of Western credits in the
early 1970s created opportunities for East Germany
to increase trade with other Western countries. And,
as hard currency deficits soared, East Germany tried
to boost exports to these markets, sometimes using its
special West German "window" (see inset, "Window
to the West?"). As a result, although West Germany
has remained East Germany's second-largest trading
partner, East German statistics show the FRG's share
of GDR trade with nonsocialist countries fell from
about 36 percent in 1970 to less than 25 percent in
1981 before rising slightly in 1982 (see figure 2).6
6 Western partner country trade data, however, show a greater
West German role in East Germany's trade with nonsocialist
countries when calculated in hard currency terms. IMF, OECD,
and West German data indicate that West Germany accounted for
about 40 percent of such trade in the 1970s, ranging from as much
as 46.0 percent in 1971 to as low as 37.7 percent in 1974. We
believe that the discrepancy between the two series reflects valua-
tion differences due to use of exchange rates that often do not
correspond to current market rates, possibly differing concepts of
attributing origins of foreign trade, and lack of accurate reporting
by some LDCs. Western countries' data attribute commerce to the
country of purchase or sale, while the East Germans reportedly
source trade with Western firms to the country of each firm's
parent organization-sometimes multinational corporations based
in third countries. Such practices probably also help account for
significantly different Western and GDR figures on East Germa-
ny's trade with Austria. East Berlin's presumably consistent meth-
od of calculating GDR trade worldwide makes its figures useful for
comparing East Germany's trade by region of origin even though
they may understate West Germany's role in economic relations
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Importance of The "Swing"
East Germany has long used the interest free "swing"
credit extended by Bonn to finance its purchases from
West Germany even when it ran trade surpluses.
Created as part of the Frankfurt Agreement of 1949,
the swing facility was raised in stages from DM 16
million in 1949 to DM 30 million in 1951 and to DM
200 million in 1960. In the period 1969-75, the swing
was set at 25 percent of the previous year's bilateral
trade before being raised to a ,flat DM 850 million in
1976. An impasse in late 1981 over terms for renew-
ing the swing agreement-including West German
efforts to link renewal of the swing to an East
German reduction in the Zwangsumtausch (the mini-
mum daily currency exchange requirement imposed
on Western visitors to East Germany) prompted the
two sides to extend the swing on existing terms for 6
months. They eventually agreed in June 1982 to cut
back the swing gradually from DM 850 million to
DM 600 million by 1985. At current interest rates
and utilization levels, the swing represents a savings
to East Berlin of about DM 30-50 million annually-
the amount East Berlin would have to pay to secure
the same credit from commercial sources.
As intra-German trade has grown, the swing has
become a relatively less important means offinancing
trade. According to the German Institute for Eco-
nomic Research (DIW), the value of the swing fell
from 30 percent of overall trade in 1976 to 16 percent
in 1982. Because trade is likely to grow and the credit
limit is to fall through 1985, the swing will become
an even less important instrument of bilateral trade.
Financial Links. East Germany financed most of its
trade deficits with West Germany during the 1970s
by borrowing from FRG institutions and using the
"swing credit," even though it was running large
bilateral current account surpluses (see inset, "Impor-
tance of the `Swing"'). In the years 1976-80, for
example, movements in intra-German debt closely
mirrored trends in the trade balance, with cumulative
East German trade deficits totaling DM 1.3 billion
compared with net capital inflows of DM 1.6 billion
(see table 1). The positive services balance deriving
from the "special relationship" had limited impact on
the level of debt to West Germany because most of
the earnings represented convertible currency receipts
that East Berlin opted to spend outside the bilateral
relationship. East Berlin's policy clearly has been to
exploit the intra-German bilateral trade and financial
mechanisms in order to maximize the financial re-
sources available to cover hard currency purchases
from other countries.
Debt held by West German commercial and govern-
ment sources roughly tripled during the decade before
tapering off slightly in 1980-82 (see figure 3). We
calculate that during the 1970s financing from West
German domestic sources covered 62 percent of East
Germany's accumulated deficit on bilateral trade,
while credits from subsidiaries of West German banks
in other countries may have provided an additional 10
percent.' Nonconvertible services ties and some con-
vertible earnings payments through the so-called S
hard currency account covered much of the rest.
Much of this lending was extended by the West
German Government. Official West German figures
show that in 1982 government credits and guaranteed
commercial loans comprised about 60 percent of the
DM 4.6 billion in debt held by domestic West Ger-
man sources-similar to the government's share in
financing exports to other East European countries!
We estimate that in 1982 West German institutions
held only about 15 percent of East Berlin's hard
currency debt, although West Germany accounted for
about 25 percent of East Germany's trade with all
nonsocialist countries." The relatively low West Ger-
man share of East German debt in part reflects the
subsidiaries to raise most of the credits not covered by Bonn's loan
guarantees and estimates that this is about 10 percent of all West
German loans
The DM 4.6-billion debt total reported for yearend 1982 is gross
debt and does not take into account East Germany's claims on West
Germany. Net debt, which subtracts from gross debt the amount of
East German deposits in West German banks and East German
trade credits extended to West German firms, stood at DM 3.7
billion at yearend 1982.
' West Germany's actual share of East German debt almost
certainly is somewhat higher. Although we believe we have cap-
tured most West German credits, we have probably not included
all. A knowledgeable West German banker estimates, for example,
that some short-term supplier credits are not even reported to the
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Table 1
East Germany: Balance of Payments
With West Germany
Net
4,356 c
5,373 c
5,818 c
6,412 c
Imports (gross)
4,269 a
4,409 a
4,575 a
4,720-
5,293 a
5,575 a
6,382-
Deductions b
220 c
241 c
334c
326c
620 d
720 d
740 d
741 b
859 c
859 c
831 c
710d
186 c
88c
-297 c
117c
-75a
71a
-71a
3c
16c
-231c
-92c
-5c
-25c
-21c
21 c
Balance on capital and current
accounts
918d
1,242 d
a Public information.
b The West German Government internally deducts transactions
with third countries and certain payments from its publicly an-
nounced import and export figures.
c 1983 Bundesbank study.
smaller trade deficit accumulated with West Germa-
ny in the 1970s compared with deficits with the rest of
the West, as well as West German regulations that
prohibit domestic banks from extending untied loans
to East Germany or financing GDR trade with other
countries.10
'? Overseas subsidiaries of West German banks apparently have
heeded this restriction; West German banks did not participate in
large syndicated Eurocurrency loans to East Germany in the 1970s.
In 1983, Bonn made an exception to the rules, allowing the overseas
banks to underwrite a large untied loan guaranteed by the West
Despite the comparatively small amount of West
German lending, creditors' faith in a West German
umbrella helped East Germany to obtain large credits
from non-German bankers. Many Western bankers
regarded Bonn as the unwritten guarantor of East
German debt and pointed to the special intra-German
economic ties to justify extending credits to East
Germany even after financial prudence might have
dictated greater caution. This banker largesse allowed
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Table 2
East Germany: Net Service Transactions and
Transfers From West Germany
1,120-
1,300 a
1,340 a
1,986 b
1,761 b
1,950 b
1,935 b
500 e
580-
600 c
1,245 b
902 b
1,091 b
1,104 b
Lump-sum transit payments d
400-
400 a
400 a
400 a
525 a
525 e
525-
Transportation improvements r
46 a
99 a
79 a
566 a
450 a
350 c
200-
Entry fees for Berliners
24 a
18 a
24-
18a
50b
50b
50b
Post and telegraph g
10 a b
l0 a
11ab
Ilah
85ei
85ej
85e1
Sewage removal
11 a
11 a
l0a
11ab
22b
25b
25b
Road use tolls
20 a
35 a
30 a
Other (net)
12 c
30 e
71 c
239 a
-139 c
210c
595 e
Transfers
620 c
720 c
740 e
741 b
859 b
859 b
831 b
Minimum currency conversion d
230 a
230 a
250-
250 a
250 b
300 a
350 b
Intershop purchases d
650 a
750 a
750 a
750 a
750 c
750 e
750 e
Genex (gift shops)
131 a
-139-
145a
181 ab
187b
180b
192b
Visa payments (private) d
62b
62b
52b
47b
Payments to West German
Communist Party
-50 a
-50 a
-50a
-50a
-50c
50c
-50e
a 1979 Bundesbank study.
b 1983 Bundesbank study.
CIA estimate.
d Signifies known payment in DM (hard currency).
e Public information.
r Signifies at least some payment in hard currency.
g Signifies known payment in VE (clearing account).
h Net.
Gross.
i Data covering those conventional invisibles accounts (as opposed to
"special services" are not available for period before 1979).
k This entry reportedly does not include West German humanitar-
ian payments to East Germany, such as prisoner "ransoms" and
payments for legal emigrants. We are uncertain about where the
FRG Government accounts for such monies.
East Germany to diversify its sources of imports by
running chronic trade and current account deficits
with other Western countries. The result was a build-
up in the estimated net hard currency debt to a peak
of $12.3 billion by yearend 1981. And, East Germa-
ny's debt service ratio rose from 13 percent in 1970 to
59 percent in 1982-the second highest in Eastern
Europe (see appendix F). Despite this heavy debt
burden and the slowdown in Western bank lending to
Eastern Europe in 1981-82, unconfirmed rumors that
Bonn was providing direct financial aid helped main-
tain some banker confidence in East Germany's cred-
itworthiness.
Special Earnings and Other Invisibles. Since the
early 1970s, there has been a fairly steady increase in
East Germany's hard currency earnings from the
provision of special services to West Berlin and West
Germany." East German revenues from these non-
trade sources increased after 1978 in particular, when
the two sides signed a major package of agreements
(worth over DM 7 billion through 1989) that provided
for major construction projects and an increase in fees
" For a detailed explanation of the different types of special
earnings, see appendix E.
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In October 1980 the Honecker regime suddenly in-
creased to DM 25 the amount of money each West
German and other Western visitor must exchange
daily for East German currency-the Zwangsum-
tausch-and eliminated exemptions for children and
pensioners. Previously, West Berliners were required
to convert DM 6.50 while residents of the FRG had to
exchange DM 13. The move created a crisis in intra-
German relations. The regime argued publicly that
the increase was needed to compensate for rising costs
of subsidized goods and services provided visitors.
But the timing of the hike-immediately after the
rise of Solidarity in Poland-suggested that the main
reason was to reduce the number of visitors from
West Germany.
The increase provided East Berlin a financial wind-
fall. We believe that revenues remained constant in
1980, despite a drop in visitors, and then soared as
the number of visitors returned to more normal
levels. The US Embassy in East Berlin calculated
that in 1980-81 a decline in revenues from visits of
West Berliners-many of whom make casual day
trips-was more than offset by increased revenue
from visitors from the Federal Republic, many of
whom take longer trips. A report by the West Berlin
for the use of East German transportation facilities
connecting West Berlin with West Germany (see
appendix E). The flow of West German visitors to
East Germany has been the most important source of
earnings, totaling more than DM 1 billion annually
throughout the period. Although Intershop purchases
have remained fairly constant, East German hard
currency earnings from currency conversion require-
ments imposed on Western visitors have increased
appreciably in recent years (see table 2 and inset,
"The 1980 Exchange Requirement Increase").
With these special agreements, East Germany thus
has exploited the accident of history that created the
"island" of West Berlin, has taken advantage of
Bonn's efforts to keep the door open for reunification
by expanding ties between the two Germanys, and has
exploited such "humanitarian" concerns as the desire
of West Germans to remain in contact with family
Senat said that visits by West Berliners to the GDR
and East Berlin increased by 300,000 in 1982 over
1981. The total number of visits of 1.82 million
remained significantly below the pre-1980 level of
about 3 million, but the higher exchange requirement
generated increased revenues. Despite some uncer-
tainty about the length of visits, we estimate that
East Berlin now earns about DM 350 million annual-
The Zwangsumtausch is a continuing source of intra-
German friction, but East Berlin has shown little
inclination to reduce the requirement greatly. The
Kohl government made clear that it expected some
action in the "humanitarian" area in response to its
guarantee of the 5-year DM 1-billion loan from West
German banks in July 1983. Last September East
Berlin eliminated the exchange requirement for chil-
dren under 14. Rather than rescind a lucrative source
of hard currency earnings, the regime, in our view, is
more likely to allow more East Germans to visit West
Germany possibly by reducing the age at which
East Germans may travel relatively easily to the
FRG-or roll back the exchange requirement for
certain groups such as pensioners.
and friends in the East.12 East Berlin has allowed
increased contacts despite its concern that these
would undermine its control of the populace and
thwart its efforts to create a separate East German
national identity. These special earnings have ac-
counted for all of the rise in East Germany's invisibles
surplus with West Germany, from DM 1.1 billion in
1976 to DM 1.9 billion in 1982 (see table 1), and have
been the key factor in the tripling of the bilateral
current account surplus during this period. On con-
ventional services transactions, such as transportation
ping an overall deficit in recent years.
and interest payments, East Germany has been run-
'2 For West Germany, "humanitarian" issues refer to a variety of
East German policies that separate the German people and limit
the freedom of East Germans. These include restrictions on FRG
residents' travel to the GDR and East German controls on emigra-
tion and on travel by East German residents to the FRG. The
humanitarian issues are especially important to Bonn because it
maintains that East Germans, as German nationals, hold West
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Table 3
East Germany: Total Hard Currency Balance of Payments and Debt
Year
Net Invisibles
Excluding Interest
Net Interest
Trade
Balance
Current Account
Balance
Net
Debt a
1970
56
-50
-299
-293
1,007
1971
132
-61
-268
-197
1,205
1972
175
-75
-483
-383
1,229
1973
220
-135
-774
-689
1,876
1974
260
-211
-1,068
-1,019
2,592
1975
250
-192
-1,125
-1,067
3,548
1976
450
-305
-1,591
-1,446
5,309
1977
550
-376
-1,510
-1,336
6,159
1978
650
-607
-1,137
-1,094
7,548
1979
800
-848
-1,810
-1,858
9,776
1980
900
-910
-1,590
-1,600
11,592
1981
985
-1,534
60
-489
12,267
1982
950
-1,220
1,509
1,239
10,718
1983 b
850
-865
1,324
1,309
9,033
a Changes in current account balance do not translate into identical
changes in net debt because of occasionally sizable errors and
omissions entries.
b Preliminary.
Source: CIA estimate based on BIS, OECD, NATO, UN, and
West German data.
Our estimates show that East Berlin's earnings from
the relationship with West Germany have more than
offset its large net outflow in hard currency interest
payments to other Western countries through 1978
and kept its net invisibles payments in only modest
deficit through 1980. We compute that earnings from
West Germany accounted for essentially all of the
East German surplus on hard currency invisibles
excluding interest payments, which increased from an
estimated $56 million in 1970 to $950 million in 1982
(see table 3 and, for additional detail, appendix F)."
Therefore, while other East European countries were
borrowing increasingly in the late 1970s to cover their
debt service requirements, East Germany until 1981
used its borrowings almost exclusively to import real
goods and services. Moreover, these earnings helped
" For example, at their current exchange rates, we estimate that in
1982 invisibles earnings from the FRG (DM 1.9 billion) accounted
for about $800 million of East Germany's overall $950 million
sustain bankers' confidence that Bonn provided a
financial "umbrella" for East Berlin and reinforced
their willingness to lend to East Germany, delaying
the need for East Berlin to eliminate its chronic trade
deficits with the West.
The West German Cushion in 1982-83
East Germany's special economic ties with West
Germany continued to help East Berlin even when
debt servicing requirements and increased bankers'
anxieties finally forced a major trade adjustment.
Beginning in 1982, East Berlin increased its imports
from West Germany to help compensate for a forced
cutback in imports from other Western countries and
in 1983 received a major, untied hard currency loan
guaranteed by Bonn. It was able to increase purchases
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Figure 6
East Germany: Trade With West Germany,
1982-84
- East German exports
? East German imports
1,300
I I I I
1,200 1 11 III IV 1 11 III IV I
1982 1983 1984
Source: Warenverker mit der Deuischen Demokratischen
Republik and Berlin (Ost), (various issues)
from West Germany abruptly by using the intra-
German clearing account and taking advantage of
readily available West German trade credits. For
1982 as a whole, imports from the FRG grew about
14 percent, according to West German data, while
imports from other nonsocialist countries dropped by
30 percent." Such purchases were particularly large
during the last quarter of 1982 and the first half of
1983. During this nine-month period, East Germany
registered a trade deficit with West Germany of DM
902 million, according to West German statistics (see
figure 6).
Evidence of a West German financial umbrella and
East Berlin's ability to shift to a hard currency surplus
in trade with other Western countries made interna-
tional bankers more willing to lend again to East
Germany by mid-1983. As a result, East Germany
" We estimate that, despite the increase in imports from West
Germany, shortages caused industrial disruptions and cut GNP
then cut imports from West Germany, boosted ex-
ports, and for 1983 as a whole managed to register a
modest DM 69-million trade deficit with the FRG."
East Berlin had increased trade-related borrowings
from West Germany by about DM 700 million be-
tween mid-1982 and mid-1983. It reduced this debt
by about DM 500 million in late 1983 when lending
from other sources began to revive, cutting net debt to
DM 4.0 billion at yearend, according to the West
German Government.
East Germany was able to redirect trade toward West
Germany because of its continued special access to
West German markets and the clearing account.
West German banks and trading companies financed
not only increased sales of West German goods but
also deliveries of commodities such as grain that were
channeled into intra-German trade from other coun-
tries. As a result, the composition of East German
purchases from West Germany shifted noticeably in
1982-83 toward increased raw materials and semi-
manufactured goods and relatively fewer investment
goods (see appendix D).
The East Germans also used the intra-German clear-
ing account to generate hard currency. East Berlin
bought some commodities, such as silver, on credit
from West Germany and then exported them else-
where for cash to help improve its financial position.
West German officials estimate that such transac-
tions netted $100 million in hard currency for East
Germany in 1983 at the cost mainly of a rise in
official, clearing account debt to West Germany.
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Bonn's decision in June 1983 to guarantee an untied
DM 1-billion loan from West German bank subsidiar-
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" OECD data mirror the West German statistics. In the third
quarter of 1983, as East Germany's borrowing prospects in the
West improved and its imports from the FRG began to fall,
purchases from other Western countries rose by about 30 percent
compared with year-earlier levels to help reduce its bilateral trade
imbalance. As the GDR boosted exports to the FRG in the third
quarter of 1983, deliveries to other Western countries fell 3.5
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restore Western banker confidence in East Germany's
creditworthiness." The loan helped ease the threat of
a liquidity crisis by covering about 12 percent of East
Germany's 1983 financing requirement. It also pro-
vided East Germany with less expensive intermediate-
term money-1 percent over the London Interbank
Offered Rate (LIBOR)-than we believe it had been
able to find since 1980. The five-year credit improved
the maturity structure of East Germany's debt; be-
tween late 1981 and mid-1983, East Germany appar-
ently had been able to arrange only two-year and
shorter trade credits from commercial sources.
Figure 7
East Germany: Sources of Hard
Currency Receipts, 1976-83
? Exports
The drop in Western lending and the expansion of
intra-German economic relations left West Germany
as the leading source of hard currency (or hard
currency-equivalent) resources for East Germany-in
contrast to the situation in the 1970s-(see figure 7).
Current account earnings in intra-German transac-
tions continued to grow while receipts from other
Western partners fell. More important, the East
Germans suffered a nearly DM 4-billion outflow on
the capital account to other Western countries in 1982
and another DM 2.7 billion in 1983. The "jumbo"
loan made by offshore bank subsidiaries and in-
creased trade financing raised East Germany's debt to
16 The guarantee-secured by Bonn's ability to withhold regular
lump-sum payments to East Berlin in the event of default-was
extended without any explicit economic or political conditions. It
was granted with the expectation, however, that East Germany
eventually would reciprocate by making "humanitarian" conces-
sions such as easing travel barriers. The government was widely
criticized for having failed to secure a tangible quid pro quo (see
cartoon).
The loan was a surprise and was an apparent reversal of
previously stated Christian Democratic Union (CDU) policy that
economic benefits should be extended to the GDR only in return for
political concessions. Moreover, Chancellor Kohl's Christian Social
Union ally Franz Josef Strauss, long a recognized hawk on intra-
German relations, publicly claimed major responsibility for arrang-
ing the deal. Shortly after the loan was announced, Strauss visited
three East European countries and conferred with Honecker in East
Berlin; he since has portrayed himself as a leading proponent of
better intra-German relations
Kohl and Strauss appear to have been motivated partly by a
desire to prevent economic dislocations in East Germany, which
they feared could lead to social instability and cause East Berlin to
impose more rigid domestic controls and restrict ties with the West.
They also apparently hoped the credit would help insulate intra-
German ties from any deterioration in East-West relations after the
Invisibles
Net borrowings
This figure represents sources of hard currency
available for either financing imports or
servicing debt.
West German-controlled institutions by an estimated
DM 1.2 billion in 1983. By buying on clearing
account from West Germany, the East Germans were
able to direct hard currency export receipts and West
German invisibles payments toward paying off debt
owed to other Western banks. The East Germans, in
effect, paid off creditors outside West Germany
through borrowings from West German-controlled
institutions.
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Suddeutsche Zeitung
Many West Germans believe that Bonn gets little in return for its
We expect that the growth of intra-German com-
merce will moderate as other Western bankers be-
come more willing to extend trade credits. Moreover,
to prevent excessive dependence, East Berlin will seek
to maintain a reasonable balance in the bilateral trade
relationship. In fact, it ran a DM 424-million surplus
in the first quarter of 1984, continuing the trend
begun in September 1983, and we expect East Berlin
will register a surplus for the year. Trade deficits may
emerge again for short periods, but East Berlin will
seek to control their size and duration. We thus
believe that East Germany will reduce the share of its
bilateral trade financed with West German Govern-
ment credits.
Prospects
Recent history suggests that East Germany will con-
tinue to enjoy considerable economic benefits from its
special relationship with West Germany, so long as
the latter remains willing to assume the costs in order
to promote its political goals. The large umbrella that
went up in 1982-83 indicates that the West Germans
are willing to arrange assistance quickly and waive
regulations when the need arises. Moreover, the aid
was extended without political strings or explicit
concessions from East Berlin, save the hope of "hu-
manitarian" concessions somewhere down the road. In
July 1984 the West German Government approved
the guarantee of a second jumbo loan of DM 950
million in return for some relatively minor easing of
intra-German travel restrictions, including a reduc-
tion in the Zwangsumtausch for pensioners and in-
creasing the length of visits allowed each year. The
loan will help improve East Berlin's financial situation
further by extending maturities and reducing interest
expenses somewhat. We believe Bonn would step in
again should it become concerned about the economic
and political stability of East Germany."
" Last September, East Berlin announced relaxation of controls on
emigration for purpose of marriage and elimination of the Zwang-
sumtausch for children under 14 years old. It also dismantled some
of the automatic-firing devices along the GDR-FRG border. The
reduced exchange requirement affects only about 5 percent of
travel, however, and some West German commentators called the
At the same time, we think that East Germany may
strike new industrial cooperation agreements with 25X1
West German firms that bring it new technology and,
in the long run, enhance its hard currency export
earnings. Although they are traditionally reluctant to
enter joint ventures with any Western firms, the East
Germans early this year tentatively agreed to produce
car engines for Volkswagen beginning in 1988. At the
Leipzig Fair in March, the GDR announced a DM
300-million long-term deal calling for West German
companies to roll East German slab steel. We believe
East Berlin is willing to make more such commit-
ments if the economic price is right and the political
cost is low. The regime probably will move deliberate-
ly, however, and the predictions of West German
businessmen that industrial cooperation will increase
substantially seem overoptimistic.
East German earnings from services, fees, and tour-
ism from West Germany will continue to provide an
important economic cushion. According to our esti-
mates, they will total at least DM 2 billion annually.
We think East Berlin will have some success in
increasing fees and service payments as agreements
come up for renewal. Moreover, the apparent eager-
ness of Bonn and East Berlin to continue economic
discussions despite the chill in East-West relations
could lead to agreements on new joint projects in the
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areas of water pollution control, rail electrification,
and further improvements in the autobahns and bor-
der-crossing points. The two sides also could resurrect
negotiations on construction of a lignite-fired power
plant to serve West Berlin or an electricity transmis-
sion line from the FRG to the city.
Bonn remains committed to securing humanitarian
gains and, we believe, could persuade East Berlin to
lower the exchange requirement for all visitors by
offering a lump-sum annual payment. But, in our
view, the East Germans will demand a payment that
is higher than their present income from the exchange
requirement; they probably would want at least DM
400 million yearly. East Germany may also want to
strike a multiyear agreement to facilitate long-term
planning. In 1982 the East Germans sought an exten-
sion of the swing through 1985 explicitly to facilitate
economic planning. Any improvement in bilateral
political relations could stimulate more visits by West
Germans and increase tourism revenue for East Ger-
many. Moreover, East Berlin could realize additional
earnings by again liberalizing its emigration policy
and thus exploring Bonn's willingness to pay for the
release of East German citizens.
While considerable benefits accrue to East Germany
from its "special relationship" with West Germany,
they will not be enough to overcome the effects of
other economic problems. East Berlin's debt remains
high and some Western bankers remain skeptical of
its creditworthiness. East Germany still needs to
improve significantly its industrial efficiency and ex-
port capabilities. Moreover, continuing difficult rela-
tions with its CEMA partners, which account for
almost two-thirds of East Germany's total trade, will
present the regime with major challenges. These
pressures will push East Berlin to continue to exploit
its intra-German economic opportunities, but always
within the constraints posed by the Soviet leash and
by its own fear of becoming too dependent on West
Germany.
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Appendix B
West Germany: Deutsche Marks per
US Dollar
1974
2.4095
2.5878
1975
2.6223
2.4603
1976
2.3625
2.5180
1977
2.1050
2.3222
1978
1.8280
2.0086
1979
1.7315
1.8329
1980
1.9590
1.8177
1981
2.2548
2.2600
1982
2.3765
2.4266
Source: International Financial Statistics, International Monetary
Fund, various years.
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Appendix C
East Germany: Trade With West Germany Million current West German marks
Percent
Change Over
Previous Year
Percent
Change Over
Previous Year
34.8
-11.0
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Appendix D
East Germany: Composition of Trade
With West Germany
Thousands of West German marks
Products of farms, forests, fishing, and
so forth
27,038
181,256
465,233
475,841
Forestry produce
5,010
8,048
22,450
18,988
Fish produce
580
4,891
7,075
8,136
Mining products
1,039,845
819,889
203,082
241,135
Raw materials and semifinished goods
2,009,118
2,754,224
3,181,158
3,366,402
Minerals
22,690
28,432
1,628,842
1,704,999
Chemical elements and isotopes
463
739
972
1,393
Stone and earth
38,529
40,452
113,985
125,846
Iron and steel
321,892
612,798
273,596
243,462
Drawn and cold rolled goods
59,706
70,952
28,108
29,840
Chemicals
981,800
1,290,295
704,813
778,793
Cut and worked timber
75,744
52,453
42,137
92,552
Precision instruments, optical equipment, and
clocks
47,647
33,103
43,238
49,173
Office equipment, data processing, and so forth
10,110
17,988
7,636
9,712
Finished sections for construction engineering
83
59
1,813
580
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East Germany: Composition of Trade
With West Germany (continued)
1981
1982
1981
1982
471,307
523,024
1,343,205
1,589,782
Musical instruments, sports equipment, and
so forth
17,133
14,727
61,070
71,127
Pottery, china, and so forth
4,060
3,925
74,120
74,500
Glass and glass goods
12,165
15,000
87,351
104,328
Wooden goods
12,874
11,429
267,996
300,916
Paper and board products
16,311
14,028
36,179
33,235
Printed goods
39,537
40,261
31,601
34,973
Plastic goods
52,061
49,997
46,944
61,338
Leather
39,611
67,933
4,471
5,316
Leather goods and shoes
46,745
37,399
43,739
49,817
Textiles
186,633
235,675
385,804
450,968
Clothing
44,177
32,650
303,930
403,264
Foodstuffs and so forth
533,228
745,978
213,902
229,840
Foodstuffs
508,525
718,537
210,655
221,208
Tobacco
24,703
27,441
3,247
8,632
Miscellaneous goods
68,191
75,135
36,232
41,874
Source: Warenverkehr mit der Deutschen Democratischen Re ub-
lik and Berlin (Ost) /982 (official West German statistics).
East Germany bought more raw materials and semimanufactured
goods in 1982-83 mainly to meet the needs of current production.
West German statistics show that East Germany boosted imports of
iron and steel products 63 percent in 1983-to about DM 1 billion
-after a 90-percent gain in 1982. Imports of foodstuffs rose 31
percent in 1983 after a 41-percent rise the year before. Growth in
these imports slowed markedly in the second half of 1983 when
overall imports declined as East Berlin returned to a more normal
trading pattern. Imports of investment goods, on the other hand,
fell slightly after a 10-percent drop in 1982. East Germany's best
export gains, though modest, were in investment and consumer
OECD commodity trade data for 1982 show that East German
purchases of foodstuffs from non-German sources declined by $340
million-over 47 percent. Imports of manufactured goods declined
by about one-third, paced by a 46-percent decline in chemicals and
a 63-percent drop in transportation goods. The composition of East
German exports to OECD, on the other hand, showed little change
in 1982 from 1981, similar to the relatively small change in East
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Table E-1
East Germany: Selected Joint Construction Projects
With West Germany and West Berlin
Project
Cost
(Million DM)
Status
Hamburg-Berlin
Autobahn
1,200
Completed
Warta-Herle-
shausen Auto-
bahn
Undeter-
mined
Under
negotiation
Berlin-Hof Auto-
bahn
500-1,500
Under negotia-
tion
Helmstedt Auto-
bahn
Undeter-
mined
On hold
Spandau Lock
expansion (Ber-
lin)
30
Completed
Teltow Canal re-
opening (Berlin)
70
Completed
Havel and Mit-
telland Canal im-
provements
NA
Completed
Power plant
Undeter-
mined
On hold
Natural gas pipe-
line
230
Under construc-
tion
Electricity trans-
mission line
150-200
On hold
Fiber optic tele-
phone lines to
West Berlin
15-20
Under negotia-
tion
Crossing point in
Berlin
Under construc-
tion
Electrification of
rail lines
Undeter-
mined
On hold
Pollution control
on Elbe, and
Werra Rivers
At least sev-
eral hundred
million
Under negotia-
tion
Roeden River
water purifica-
tion plant
60-80
Agreed upon
Ongoing Comments
Fees
Project involved expansion of some existing road near
Berlin and new construction on the autobahn link. Part
of 1978 package.
Highway improvements.
Transit fees Agreement signed 30 November 1977. Expansion bene-
fits FRG and GDR shippers.
Transit fees 38 kilometers through West Berlin shortens barge trans-
port time for shippers by one to two days. Canal had
been closed since 1945. Reopening agreement signed
November 1978.
Transit fees Canals link the FRG with West Berlin and, ultimately,
Poland via the Oder-Spree Canal. Improvements wid-
ened and deepened the canals, increasing capacity and
reducing costs. Part of 1978 agreement package.
9 million VE an- Contract signed March 1983. Spur gasline to provide
nually. Soviet gas to West Berlin. Contract signed with Ruhrgas
AG. Transit fees to begin upon completion in October
1985.
Transmission and Project designed to transmit electricity from the Federal
right-of-way fees. Republic to West Berlin.
Agreement in principle signed as part of November 1983
post and telegraph agreement.
East Berlin agreed to keep open Staaken crossing point
until completion of the new border-crossing point.
East German industry dumps heavy metals into the Elbe.
Potash mining pollutes the Werra with salts. Bonn and
West German states apparently near agreement on
sharing the costs.
Signed agreement in October 1983. Eighteen million
DM committed by FRG and Bavarian governments for
1984. Project scheduled for completion in 1987 at Son-
neberg, East Germany.
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Figure 8
East Germany's Joint Projects With West Germany
TP
Roeden River
water purification
~q plant
` i neberg
The final borders of Germany have r
not been established and some other
boundaries are not necessarily authoritati
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Natural gas pipeline
,(alignment unknown)
Checkpoint for Allied traffic
Interzonal border crossing
Autobahn Canal
Road Railroad
0 25 50 75 Kilometers
0 25 50 75Miles
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Appendix F
East Germany: Hard Currency Balance of Payments and Debt
Current account balance
Trade balance
Exports
Imports
Net invisibles, excluding interest
Errors and omissions
Changes in reserves
Gross debt
Commercial
Official
Reserves
Total debt service
Debt service ratio (percent) c
Gross annual financing
requirements (repayments on medium-
and long-term debt plus current account
deficit) d
Million US $
(except where noted)
-293
-197
-383
-689
-1,019
-1,067
-1,446
-1,336
-1,094
-1,858
-1,600
-489
1,239
1,309
-299
-268
-483
-774
-1,068
-1,125
-1,591
-1,510
-1,137
-1,810
-1,590
60
1,509
1,324
1,261
1,368
1,642
2,230
3,014
3,062
3,643
3,578
4,158
5,098
6,555
6,714
7,172
7,624
1,560
1,636
2,125
3,004
4,082
4,187
5,234
5,088
5,295
6,908
8,145
6,654
5,663
6,300
56
132
175
220
260
250
450
550
650
800
900
985
950
850
-5
-1
359
42
303
111
-53
224
-295
-370
-393
-296
216
567
-6
13
122
-65
284
1,096
-831
177
360
551
609
90
-275
1,276
1,197
1,408
1,554
2,136
3,136
5,188
6,118
7,145
8,894
11,673
14,098
14,863
13,039
12,630
700
855
945
1,510
2,495
4,485
5,043
6,140
7,729
9,672
11,253
11,583
9,489
8,510
497
553
609
626
641
703
1,075
1,005
1,165
2,001
2,845
3,280
3,550
4,120
190
203
325
260
544
1,640
809
986
1,346
1,897
2,506
2,569
2,321
3,597
170
202
283
411
578
660
1,013
1,243
1,720
2,248
2,851
3,784
4,220
3,655
13
15
17
18
19
22
28
35
41
44
43
56
59
48
413
338
591
965
1,386
1,535
2,154
2,203
2,207
3,258
3,541
2,739
1,761
1,481
a 1981 East German trade data are especially inconsistent with
partner country data. For this reason the 1981-82 trade and current
account estimates should be regarded as very tentative.
b Preliminary.
Repayments of medium- and long-term debt plus net interest as a
share of exports.
d Difference between drawings and debt service.
Source: CIA estimates based on official East German partner
country trade and BIS data.
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