RECENT DEVELOPMENTS IN SOVIET HARD CURRENCY PAYMENTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010079-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: December 22, 2016
• Document Release Date: February 1, 2010
• Sequence Number: 79
• Publication Date: July 1, 1971
• Content Type: IM

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DIRECTORATE OF
INTELLIGENCE
Secret
Intelligence Memorandum
Recent Developments In Soviet Hard Currency Payments
Secret
ER IM 71-127
July 1971.
Copy No.
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794,. of the US Code, as amended.
its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP I
EMCluded From aulomalle
I downpradiop and
dedarrificolion
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
July 1971
INTELLIGENCE MEMORANDUM
RECENT DEVELOPMENTS IN SOVIET
HARD CURRENCY PAYMENTS
Introduction
1. The USSR attaches considerable importance to its hard currency
position because of its need to import Western equipment and technology
to modernize Soviet industry and to buy other items in short supply that
can be obtained only by spending hard currency. This memorandum briefly
describes developments in the Soviet trade and payments position with
convertible currency countries during 1970 and probable trends in 1971.
Discussion
Merchandise Trade
2. The USSR incurred a hard currency trade deficit of $500 million
in 1970 (see Table 1), the largest since 1964, when the Soviet Union was
buying large quantities of Western wheat. Soviet imports from hard currency
countries rose by about $270 million - less than the 1968-69 average
increase of approximately $410 million - but exports increased less than
$100 million, the poorest export performance since 1964.
3. The deterioration in the Soviet hard currency trade balance
stemmed from a sharp increase in imports from overseas countries. As Table
2 indicates, the deficit with these countries increased more than $190
million, continuing last year's trend. In 1970 the Soviet deficit in trade
with Canada increased by more than $100 million (wheat) and with
Australia by $20 million (meat). The Soviet surplus with Japan fell by $60
million because of sharply increased imports of machinery and other
Note: This memorandum was prepared by the Office of Economic
Reseerch.
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Soviet Hard Currency Trade
Million US $
Year
Exports
Imports
Balance
1960
744
1,017
-273
1961
866
1,060
-194
1962
917
1,181
-264
1963
960
1,278
-318
1964
1,011
1,545
-534
1965
1,326
1,544
-218
1966
1,482
1,746
-264
1967
1,691
1,600
+91
1968
1,893
1,988
-95
1969
2,105
2,425
-320
1970
2,196
2,696
-500
manufactured goods. The deficit with Malaysia remained roughly the same,
as the USSR continued large purchases of natural rubber. The tabulation
below shows Soviet trade with selected overseas countries in 1969 and 1970:
Million US $
1969
1970
Country
Ex-
op rtc,
Im-
opits
Bal-
ante
Ex-
ports
Im-
off
its
Bal-
ante
.
Canada
12
33
-21
8
131
-123
United States
61
117
-56
64
115
-51
Australia
2
45
-43
2
67
-65
Japan
.57
264
+93
379
345
+34
Malaysia
2
122
-120
2
123
-121
4. There was little change in the balance of hard currency trade
with Western Europe, contrary to the experience of recent years when
imports rose substantially. In 1970, imports were up only $75 million over
those of 1969 as against an average of more than $300 million in each
of the previous two years. Export growth fell off to $8:; million in 1970
as against $150 million annually in 1968-69. The USSR increased somewhat
its already significant favorable balance with the United Kingdom, and
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Table 2
Distribution of Soviet Hard Currency Trade
with Western Europe and Overseas Countries
million_ US $
Geographic Area Exports Imports Balance
1967
Western Europe
1,163
1,015
+148
Overseas areas
528
585
-57
11691
1,600
+91
Western Europe
1,282
1,363
-81
Overseas areas
611
625
-14
Total
1,893
11988
-95
Western Europe
1,462
1,622
-160
Overseas areas
643
803
-160
Total
2105
2,425
-320
Western Europe,
1,547
1,696
-149
Overseas areas
649
1,000
-351
Total
2,196
2,696
-500
continued its large deficits with France, West Germany, and Italy, as shown
in the following tabulation:
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Million US $
1969
1970
Country
Ex-
ports
Im-
torts
Bal-
ance
Ex-
ports
Im-
ports
Bal-
an'ce
United Kingdom
427
240
+187
465
248
..+217
France
141
323
-182
140
319
-179
West Germany
229
350
-121
257
375
-118
Italy
232
317
-85
212
313
-101
Sweden
108
129
-21
117
144
-27
5. Few data are available yet on the commodity movements
underlying the 1970 trade figures. On the export side, it is estimated that
oil exports rose by about $20 million to a total of $360 million, in part
reflecting a rise in exports of oil products to Japan. Exports of logs to
Japan were also up over those of 1969. Similarly, lumber and other wood
products were exported to the United Kingdom in larger quantities than
in 1969. Exports of diamonds and platinum fell off somewhat in 1970
as a result of slackening Free World demand.
6. Leading the growth in imports were food (wheat and meat) from
Canada and Australia and pipe from West Germany. Imports of machinery
and equipment apparently stayed at about the $1 billion level in 1970.
Imports of plant and equipment from West Germany, France, and the
United Kingdom declined, but imports from Japan apparently increased
substantially.
Nonmerchandise Elements
7. Developments in the nonmerchandise elements of the Soviet
current account with convertible currency countries produced no major
changes in 1970. Net revenues from transportation increased from $10
million to an estimated $35 million in 1970. (For Soviet balance of
payments, see Table 3.) Net receipts from tourism rose by $7 million to
an estimated level of $63 million. These receipts plus miscellaneous earnings
of some $8 million offset interest ($69 million) and other payments. The
net current account deficit was thus somewhat smaller than the trade deficit
but, like the trade deficit, was substantially larger than in 1969.
8. The hard currency deficit again was financed largely through the
use of Western credit. Drawings on medium-term and long-term credits used
to finance many of the producer goods (machinery, equipment, and pipe)
imported from the West were estimated at about $730 million for 1970 --
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Table 3
Estimated Soviet Balance of Payments
with the Free World in Hard Currency
Million US $
1969
1970
Credit
Debit
Credit
Debit
Goods and services
298
463
Merchandise, f.o.b. 2,109
2,422
2,196
2,696
Transportation, net 10
35
Travel / 71
15
79
16
Interest payments on
credits
59
69
Dividends received f/ 8
8
Other services
Professional services,
net g/
N.A.
N.A.
Miscellaneous, net h/
N.A.
N.A.
Transfer payments
41
46
Contributions to international
organizations
41
46
Personal remittances j/ N.A.
N.A.
Student grants
N.A.
N.A.
Capital and monetary gold 340
524
Medium-term and long-term
credits
Supplier credits and tied
loans 1/
525
248
730
291
Other loans m/
Compensation payments n/
10
Hard currency repayments on
credits to less developed
countries o/
73
90
Monetary gold
Negl.
5
Net errors and omissions q/ 15
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Estimated Soviet Balance of Payments
with the Free World in Hard Currency
(Continued)
a. Preliminary.
b. Official Soviet statistics adjusted to exclude estimated
Soviet deliveries of goods and services to hard currency
countries under economic aid agreements as well as goods
received by the USSR.as repayment and interest.
c. Estimates for net transportation are for ocean transpor-
tation only. Soviet expenditures and receipts from trans-
portation of foreign trade freight by land are believed to
be more or less offsetting.
d. The number of Free World visitors is from official Soviet
sources, except for 1970 which is estimated at 735,000. No
firm information is available on, earnings from tourism, but
average cost per stay per Free World visitor from different
areas has been estimated. Expenditures of Soviet tourists
in Free World countries are estimated on the basis of very
little information.
e. Interest payments are those made on medium-term and Long-
term credits obtained from Western countries mainly to fi-
nance machinery and equipment imports. Interest payments and
receipts for short-term loans are not included.
f. Dividends received include profits of Soviet-owned banks,
insurance companies, and other enterprises in the West.
g. Professional services refer principally to the cost of
technical services received in connection with the instaZZa-
tion of facilities imported from the West.
h. This category includes receipts and payments for poZit-
icaZ and economic representation. Expenditures for Soviet
representation abroad are in excess of receipts from foreign
representatives in the USSR, but no reasonable estimate can
be made.
i. Payments made in hard currency to the UN and UN-affiliated
organizations.
j. Personal remittances inc -(de gift packages and cash sent
to Soviet citizens by persons abroad.
k. No data are available on the value of Soviet f government
grants to foreign students (chiefly from Less developed coun-
tries of the Free World) in the USSR. Hard currency expen-
ditures are Largely for the transport of the students to and
from the USSR in those instances where Soviet carriers are
not, used.
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Estimated Soviet Balance of Payments
with the Free World in Hard Currency
(Continued)
Estimates of drawings and repayments on medium- t`-e-r`man
Long-term supplier credits and on Lines of credit tied to
Soviet purchases in the countries extending the credit are
based on the details of contracts between Soviet foreign
trade organizations and Western suppliers and banks, on
Soviet imports of machinery and equipment, and on other in-
formation.
M, The 1946 loan from Sweden was repaid in 1961,
n. Compensation payments are Soviet payments of principal
and interest in accordance with the US Zend-lease "pipeline"
agreement.
o. Military credit agreements between the USSR and some Less
developed countries such as Iraq, Syria, Indonesia, and
Uganda provide for repayment in hard currency. This provi-
sion is not always honored, and estimates of what is actually
paid are highly tentative. Hard currency repayments on eco-
nomic aid have been added to these estimates.
p. These are minimum estimates of Soviet gold sales based on
the date that the Soviet gold is delivered to the buyer,
rather than the date of the sale agreement. Sales of gold
for industrial purposes are included.
q. Including changes in hard currency holdings and short-
term capital movements.
about $200 million more than in 1969. Scheduled repayments and interest
rose by about $50 million. Thus, net credits received amounted to
approximately $370 million compared to about $220 million in 1969.
Outstanding Soviet debt in convertible currency rose by about $440 million
to a total of about $1.6 billion. Short-term credit facilities were also
employed to finance Soviet hard currency transactions, although a
meaningful numerical balance on this aspect of financing is lacking. The
USSR, however, has been a net short-term borrower in recent years,
particularly on the Eurodollar market, and apparently remained so in 1970.
9. In spite of the larger deficit, the USSR sold almost no gold in
1970, a policy it has pursued for the past five years - there was only
one recorded sale, about $5 million, to the West. Gold production in 1970
was estimated at $230 million and domestic consumption of gold at about
$45 million. We estimate that the USSR added about $180 million to its
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bullion reserves. At the close of 1970, such reserves were estimated to have
reached about $1.8 billion.
Prospects for 1971
10. The growth of imports from convertible currency areas is expected
to slow somewhat in 1971 largely because of a decline in the value of
Soviet contracts concluded in 1969 and early 1970 with Western suppliers
of plant and equipment. Accordingly, imports of plant and equipment will
decline somewhat. jJ Imports of pipe, on the other hand, will rise perhaps
by as much as $50 million. Imports of wheat ($130-$150 million) will be
little more than the 1970 level, and meat imports will be about the same.
The growth of Soviet exports to hard currency countries probably will not
increase in 1971, although it is too early to judge on the basis of available
data. Increased prices for Soviet oil will generate additional revenue if price
increases are not offset by a decline in volume. Sales of platinum and
diamonds continue to be sluggish, and there are no noteworthy increases
art-i ;ipated in exports of traditional export commodities such as lumber,
coal, cotton, grain, and furs.
11. No significant changes are anticipated in the nonmerchandise
elements of the Soviet hard currency balance of payments. Revenues from
tourism and transportation should continue to increase and will offset
interest and other payments. On balance, it is anticipated that both the
merchandise trade deficit and the current account deficit will be smaller
than in 1970. Western credit will again play a major role in financing the
deficit, and perhaps gold will assume a greater role. The USSR has already
sold about $20 million in gold on the free market in 1911. The Soviet
leadership may now feel less constrained to withhold gold from international
bullion markets if it believes that current reserves of $1.8 billion are
adequate for unforeseen contingencies. Some $200 million in gold could
be sold annually without reducing reserves. Moreover, the level of
medium-t:rm and long-term indebtedness to the West has increased to the
point where the USSR may now feel it necessary to finance part of its
hard currency deficit by selling gold. Gold sales might also be necessary
to settle short-term obligations and to help client states in Eastern Europe
(the USSR loaned $100 million in hard currency to Poland early this year).
1. There has been a substantial pickup in the value of contracts concluded
since mid-1970. A large volume of automotive machiae tools, which will
include equipment for the Kama River project yet to be awarded, will be
reflected in 1972 imports and those of subsequent years.
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Conclusions
12. The Soviet hard currency trade deficit of $500 million in 1970
was the largest since 1964, reflecting in large part the smallest rate of annual
increase in exports since that time. The growth of exports was about
one-third the size of the increment in imports. A substantial increase in
imports from Canada and Japan was the principal element of growth in
imports. Soviet trade with Western Europe increased very little, with exports
and imports rising at about the same rate. Changes in the nonmerchandise
elements of the Soviet hard currency current account were minor, but they
produced a net surplus as a class.
13. The deficit was again covered largely by Western credit. Net
medium-term and long-term credits received rose by about $150 million
to a level of $370 million and increased Soviet outstanding indebtedness
to the West to about $1.6 billion. The USSR sold very little gold, thus
continuing its policy of building ur) its bullion reserves, estimated to have
reached $1.8 billion at the end of 1970.
14. The Soviet hard currency deficit is expected to diminish in 1971
largely because thA growth of imports will probably decline. In spite of
an anticipated decline in the deficit in 1971, some Soviet gold has been
sold, contrary to the Soviet practice of the last five years. The Soviet
leadership may now feel that gold reserves are adequate to take care of
unforeseen contingencies, thus permiting the sale of up to $200 million
in gold annually should Soviet authorities need the additional convertible
currency to finance foreign trade plans.
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