Document Type: 
Document Number (FOIA) /ESDN (CREST): 
Release Decision: 
Original Classification: 
Document Page Count: 
Document Creation Date: 
December 28, 2022
Document Release Date: 
August 28, 2018
Sequence Number: 
Case Number: 
Publication Date: 
March 14, 1986
Approved for Release: 2018/08/22 C05620710 DATE 3f/1f DOC NO Eva. ti a1.-.:410.34/ SECRETOCR 3 P&PD s�ap EAST EUROPEAN REGIONAL ECONOMIC WRAPUP �SECRET' EURM86-20034 (b)(3) (b)(3) (b)(3) Approved for Release: 2018/08/22 C05620710 Approved for Release: 2018/08/22 C05620710 --SECRET' PREFACE This is the first of what we hope will be a quarterly series summarizing the current econostic situation in Eastern Europe. It was designed with several goals in aind. The report should be: --useful for the policymaker and non-technical reader needing a quick wrap-up and/or warning of issues likely to be key in the next quarter; --concise, heavy on graphics, and light on text so the reader can absorb its contents within a short time, while retaining it as a useful desk reference; --a low level of classification so that security concerns will not overly restrict the reader's ability to use the material; --published on a tiaely basis. (U) In essence this report was designed for you. To keep the effort going, we need feedback on whether it meets your needs. If there are ways that this report can be more responsive, we want to know that, too. (U) This is a product of the Regional East-West Economics Branch, East European Division, of the Office of European Analysis. The report was prepared by witn contributions from ri_y_qcAents or questions should be directed to Chief, East European Divison, Office of European_ Analysis, -SEGRET- Approved for Release: 2018/08/22 C05620710 Approved for Release: 2018/08/22 C05620710 -SECRET Economic Growth Slows in 1985 Economic growth in Eastern Europe slowed in 1985 primarily due to stagnant industrial output resulting from harsh winter weather, and also to a sharp fall in agricultural output caused by a drought in the Southern Tier countries. After a relatively strong performance in 1984, the region could not overcome a slow 1985 start caused by unusually cold weather that closed factories, disrupted transport, provoked energy shortages, and hanged winter grain crops in Bulgaria and parts of Romania. The severe drought in Albania, Bulgaria, Roaania, and Yugoslavia reduced harvests, agricultural raw materials for industry, and hydroelectric power output. Sconcalc performance also was depressed by the continued inability of some countries to Wort the Western machinery and raw materials necessary to boost production and exports. The reduction of the region's trade deficit with the USSR in 1985 most likely diverted resources from domestic uses and possibly reduced hard currency earnings of some countries. Ley developments in Eastern Europe were the following: --East Germany showed the strongest perforaance due primarily to a good harvest and strong growth in industrial production in the second half of the year. --Hungary's GNP fell because of a decline in farm output and slow growth in industry. --Yugoslavia's economy showed no growth last year, the result of a sharp fall-off in industrial production and an 8 percent decline in agricultural output. The economy continued to face growing unemployment and accelerating inflation--about 80 percent for 1985. �Romania stagnated in 1985, in part because it suffered the worst weather: the cold winter and the drought caused energy shortages, disrupted industrial and transportation schedules, killed off crops, and hindered livestock output. --Poland got off to a had start due to energy and transport bottlenecks aggravated by the harsh winter, and financial problems continued to nett Western imports needed by industry. --Csechoslovakia sustained modest growth in 1985, but performance was starred by shortfalls in several key sectors, particularly the machinery industry: Eastern EuropoA: GNP Growth In 1985 Pumakin Ormrlb GNP 4- 2- (b)(3) INM10144 eso. usr 14444414, POWs 1100440 nosOl 4100m4Y renradribenalli as Said Product UNCLASSIFED Eastern EuropoA: Averaqo Five Yoar & Annual Growth In Gross National Produth, 1976 �1985 Paninisie Chew In GNP 4- 14711-44 00-44 A Exciudes Albania PreUrninary sullrnafts em em (b)(3) 046 mesa (b)(3) UNCLASSIFIED --SEC-Re Approved for Release 2018/08/22 C05620710 (b)(3) Approved for Release: 2018/08/22 C05620710 --SeeIttl* Eastern Europe: Grain Production Eastern Europe 1179 ON 191 1912 11113 1984 11115 (b)(3) Poor Harvest in Southern Tier A prolonged drought following the harsh winter last year seriously daaaged crops in Romania and Bulgaria and to a lesser extent in Yugoslavia. In addition to facing the worst weather in Eastern Europe, Romanian agriculture- -hampered by shortages of fertilizers and herbicides and Lags in harvesting--produced only about 17 million metric tons of grain, its saallest crop since 1975. Bulgaria's crop of just 7 million tons - -also the worst since the mid-19708 - -caused it to seek emergency purchases of grain, seed, fertilizers, and livestock. Although Yugoslavia fared somewhat better with a 16 aillion ton grain harvest, near its recent five-year average, total agricultural output fell some 8 percent below the 1984 level. Agriculture's poor performance further depressed the Southern Tier economies already beset with shortfalls in energy and industry. In contrast, 1984's buaper crop had enabled these countries to free up hard currency for Imports of Western raw materials and semi-finished goods badly needed to boost industrial production. (b)(3) In the Northern Tier countries - -Poland, East Gersany, and Czechoslovakia - -favorable growing conditions, improved supplies of fertilizers and machinery, and greater producer incentives resulted in bumper harvests for the fourth year in a row. The good crops should permit a aodest reduction in rain imports and an increase in agricultural oxcarts. (b)(3) Eastern Europe: Grain Production (aillion aetric tons) Igo 1E33 TOTAL 96.3 100.4 Southern Countries 57.7 57.2 Romania 20.2 18.4a Bulgaria 7.8 7.7a Yugoslavia 15.7 17.3 Hungary 14.0 13.8 Northern Countries 38.6 43.2 Poland 18.3 22.1 East Germany 9.6 10.1 Czechoslovakia 10.7 11.0 (b)(3) 202 lita 108.9 101.3 61.2 54.3 19.0a 16.6 8.9a 7.0 18.0 15.8 15.3 14.9 47.7 47.0 24.4 23.7 11.3 11.6b 12.0 11.7 a CIA estimate b Official announcement by the country (b)(3) -Seen?" Approved for Release: 2018/08/22 C05620710 (b)(3) Approved for Release: 2018/08/22 C05620710 (b)(3) Eastern Europe: Europe: Retail Sales Panoodup Over ftwAsta bur Consumer Supplies Limited by Harvest and Export Push The consumer enjoyed only =renal growth at best in market supplies in 1985 due to harvest shortfalls, increased bard currency food exports, and a rise in consumer goods exports to the USSR. Supplies remained the poorest in Romania, where food and consumer goods shortages forced the continued rationing of most staples. Supplies in Yugoslavia were better than in Romania, but retail sales fell due to higher prices and -reduced consumer purchasing power. Even in Hungary�usually well-stocked with supplies - -the regime admitted that supplies of certain meats, fish, and poultry were less than last year. Prospects for major consumer gains in the Southern Tier remain dim in 1986, and more austerity could occur, especially in Romania. (b)(3) . Better than average harvests contributed to some rises in the market supplies in Poland and Czechoslovakia. Nonetheless, meat rationing continued in Poland, and supplies of .any non-food items did not fulfill consumer demand. Shortages of fruits, vegetables, clothing, and furniture also were acknowledged officially last year in Czechoslovakia. Despite these problems, improvements in consumer welfare in 1956 appear more likely in the Northern than in the Southern countries. summo came mown, rummo mmos A CierwAsed Ado Ads fee Moil Wes ire sof awallebb be boareals owl isle Ilermay � � Month data C 11 bona dole 11 Web deb (b)(3) (b)(3) (b)(3) Approved for Release: 2018/08/22 C05620710 Approved for Release: 2018/08/22 C05620710 --SEC-R27" Eastern Europe: Hard Currency Trade Billion US $ 30- 40- Exports 30- Importa 20- 10- Balance ........ --Yugoslavia's clala that the country had "turned �� � the corner" in 1984 and was on a stable success track proved premature. Hard currency exports � rose about 3 percent instead of a planned 15 � � � percent, chile imports increased by over 10 � � � percent. As a result, the country's convertible 10 trade deficit increased by 50 percent in 1985. taw 82 83 e4 ess Hard Currency Trade Performance Deteriorates The region's hard currency trade surplus fell by more than $3 billion, to an esamated $3.3 billion in 1985, reversing the steady improvement of the past several years. Imports grew by roughly 4 percent as the region was forced to significantly boost hard currency energy and grain imports. Only iaport restrictions on wee badly needed industrial materials averted a steeper rise in Laporte. Exports fell by more than 4 percent as unusually harsh winter weather and shortages of material inputs disrupted industrial production and export schedules. Key trade developments in the region include the following: --The severe summer drought coupled with winter reductions in Soviet oil deliveries forced Bulgaria to make heavy hard currency grain and energy purchases at levels that made its trade performance the worst in the region. �Hungary barely avoided a hard currency trade deficit as prices for its agricultural exports fell and Worts surged following relaxation of import controls. Est. --Harsh winter weather reduced Polish coal exports, gains in machinery exports failed to materialize, and imports rose more than planned, causing Poland's hard currency trade surplus to fall 25 percent short of its $1.5 billion target. --Romania was unable to make up losses sustained in the first quarter period of cold weather. Trade shortfalls forced Bucharest to return to Western lending markets--Romenia's first loans since Ceausescu prohibited all now borrowing in 1983. --East Germany claimed a healthy trade surplus in convertible currency in 1985, but we estimate that it has declined from its 1984 level. East Berlin's imports from Vest Germany outpaced its export growth last year, bringing East Germany to a moderate deficit in intra-German trade. --Czechoslovakia again boasted a solid trade surplus with nonsocialist countries in 1985. A yearend "spending spree" raised imports above 1984 levels, while exports barely grew. (b)(3) SECRET Approved for Release: 2018/08/22 C05620710 (b)(3) Approved for Release: 2018/08/22 C05620710 SECRET Trade Deficit with USSR Shrinks Eastern Europe responded to Soviet demands for more balanced trade by sharply cutting trade deficits with the USSR last year. Soviet trade data show Eastern gurope--excluding Yugoslavia�mining a 900 million ruble deficit with the USSR through three quarters of 1985, compared with a 1.6 billion deficit in the same period of 1984. Unlike in 1984, the region was nearly in balance with the USSR after excluding Poland's persistent trade deficit. The improvement was caused by a reduction in the trade deficits or even the creation of a surplus for most countries. The exceptions were Poland, whose trade deficit with the USSR increased by 200 aillion rubles, and East Germany, whose surplus with the Soviets fell by the same amount. Protocols concluded in the final month' of 1985 between the USSR and its fast European allies imply an average annual growth rate in Soviet-East European trade through 1990 of only 5 percent--the slowest growth in either planned or actual trade in the past 15 years. East European exports are likely to grow faster than the USSR's, reversing the trade imbalances of the past decade. Moreover, Moscow's economic relations with its East European allies could well shift even sore dramatically if hard currency or oil production difficulties cause a drop in Soviet oil exports below plan. Countries on Borrowing Binge Eastern Europe secured $3.4 billion in syndicated loans froa Western banks in 1985--"P 70 Weed. from. 1984. The growth of loans reflected poor lending opportunities elsewhere more than enthusiasm over the region's economic performance. East GermPny and Ilungary, each of which acquired over $1 billion, were preferred clients, as were conservative borrowers Bulgaria and Czechoslovakia. Romania's creditor banks, on the other hand, lent reluctantly to help Bucharest cover its debt payments and keep its rescheduling agreements from unravelling. Poland and Yugoslavia, which face more years of debt rescheduling', remained blackballed from the syndicated loan market. Borrowers benefitted from the favorable lending environment by seeking new loans with lower interest rates and longer maturities than they obtained in 1982-83. These new funds were used to replace short-term debt accumulated in 1982-83, boost reserves, and close hard currency gaps opened by deteriorating trade balances last year. Most countries will need new loans this year, and banks sees willing to grant them to the most creditworthy. SECRET (b)(3) Eastern Europe: Trade with USSR January-September 1984 and 1985 (million rubles) � ' Imports Balance _El_w_Ls__ 1M aka -j12 TOTAL 22482 23980 24094 24882 -1612 -902 Bulgaria 4122 4425 4661 4788 -539 -363 Czechoslovakia East Germany 4422 5577 4806 5619 4948 5385 5002 5619 -526 191 -195 0 aingary Poland 3178 3843 3513 3960 3298 4450 5316 4804 -120 -606 195 -845 Romania 1340 1657 1352 1351 -12 306 (b)(3) (b)(3) (b)(3) (b)(3) Amount of Syndcoted Laws to Eastern Europe Mon US I 0 $ . 4 . 3 2 Polish Debt Crisis 1 a 1011 WS li0 u; a1 ' 1 1011 (b)(3) (b)(3) (b)(3) Approved for Release: 2018/08/22 C05620710 Approved for Release: 2018/08/22 C05620710 SECRET Featured Country: Polish Financial Problems Mount The financial situation deteriorated in 1585, as Poland failed to meet its debt payments despite more than $13 billion worth of reschedulings by government creditors. We estimate that Poland was able to pay governments, banks, and other creditors only $2 billion of the $3 billion on the books for 1585. This financing gap was rolled over into this year for further rescheduling. I shortfall in export earnings and a lack of new hard currency credits accounted for the financial gap. Warsaw's financial situation will become more pressing in the next five years. Increasing amounts of principal will fall due on previous rescheduling agreements, and interest costs will remain high. Warsaw asses unlikely to take the measures needed to improve export performance, even if it eventually enters the IMF and negotiates an adjustment program with the Fund. Without better trade performance, Poland is unlikely to get such new Western credit, and funds fro' the IMP and World Bank will be inadequate to close the payments gap. We project that the gap will increase from almost $5 billion in 1586 to $23 billion In 1990, and the total debt will climb to $38 billion. Western private and official creditors face the prospects of rescheduling already rescheduled debt into the late 1990s and disputes over sharing Warsaw's limited payments capacity. Poland's hcreasing Financid Gap Mon US $ 30 - Preefelief. orr4Due Perna* Oepedlea 0 1NO A CIA &knew Mounbos 4 porton, eirwel ere.* bi inporlo end bowel and orodllo has fee IW end Weill lank bend on the eqmoionoo of Weer nommen. Tomo for Itto repayment of now befrowlnes wore 1161.41/1001 Of e yorwco and �5 year pfleolpel refoffneflf Approved for Release: 2018/08/22 C05620710 Approved for Release: 2018/08/22 C05620710 �SteRtr A Look Ahead Eastern Europe's economic plans for 1986 --the first year of the new five-year plans - -focus on the common problems of technological stagnation, energy dependence, and uncompetitive exports. Most of the new plans call for modest growth, but Romania and Albania have set wildly unrealistic growth targets. Planners are seeking to reverse the reductions in real investment made in the early 1980s to adjust to the region's foreign trade and financial problems. Investment priorities are machine tools, high technologies, and energy conservation programs. The lower growth targets for basic industries than for industries producing finished products suggest more efficient use of raw materials will be needed to avoid new bottlenecks. The plans also call for iaproved trade performances in both CEMA and hard currency markets by modernising export industries. Even with good luck on weather and exports, however, these countries will have to score unusually large productivity gains to meet their plan goals. Eastern Europe: 1986 Annual Plan Targets (Goals are expressed as percentage growth over actual output for 1985.) Rational Income Industry Agriculture Produced' Albania 10.6 7.3 17.0 Bulgaria 4.0 4.5 7.4 Czechoslovakia 3.5 2.9 2.5 Cast Germany 4.4 8.5 0.3 Hungary 2.3-2.7 2.0-2.5 3.0-3.5 Poland 3.1-3.1 3.2-3.6 0.0-0.3 Romania 10.0-12.0 12.0-15.0 10.0-12.0 Yugoslavia 3.0 3.0 8.0 *Goals for national income are not comparable to GNP growth rates mentioned earlier because Comaunist countries do not use Western GNP accounting methods for planning. This table is UNCLASSIFIED. �SeeRE-T- Approved for Release: 2018/08/22 C05620710 Approved for Release: 2018/08/22 C05620710 �SBGRET� Dear Reader, We would appreciate your evaluation of this first issue of the East European Regional Economic Wrapup. Do you find the East European Regional Economic Wrapup a useful product? Do you find the topics selected for coverage to be appropriate? Which topics were most useful to you? What topics would you like to see analyzed in future issues? Would you like to comment on format or graphics? Would you like to be included in future mailings of the East European Regional Economic Wrapup? Do you know of any other government consumers who would like to receive this product? Please list. Other Comments. Thank you for your assistance. Please return any comments to: Chief, East/West Regional Branch CIA/DDI/EURA/EE/EW 6G42 Headquarters -SEM Approved for Release: 2018/08/22 C05620710 Approved for Release: 2018/08/22 C05620710 -CECRET- (b)(3) SUBJECT: East European Regional Economic Wrapup Distribution: External State Bob Baraz Dennis P. Murphy Michael Spangler John Danylyk Mark Lenton Roland Kuchel USIA Director, Office of European Affairs Export-Import Bank John Huber PFIAB Gary Schmitt Joint Economic Committee Richard Kauffman NSA Director DOD Deputy Assistant Secretary for European and NATO Policy DIA USDA Director, Centrally Planned Economy Division Elmer Klumpp Commerce (b)(3) (b)(3) CECRET Approved for Release: 2018/08/22 C05620710 (b)(3) Approved for Release: 2018/08/22 C05620710 SECRET (b)(3) Byron L. Jackson Frank Vargo Ron Oechsler Suzanne Lotarski Jay Burgess Treasury Douglas Mulholland Harvey Shapiro White House Director, White House Situation Room Vice President Donald Gregg Office of the Special Trade Representatives Dennis Whitfield Council of Economic Advisors Richard Freeman Office of Management and Budget David Sitrin Arnold Donahue Alton Keel National Security Council John Lenczowski Paula J. Dobriansky George van Eron Ambassador Jack F. Matlock, Jr. Stephen Danzansky David Wigg Department of Energy Jay Stewart Federal Reserve Board Ron Mills �S�ae�RETIr Approved for Release: 2018/08/22 C05620710 (b)(3) 0 [LOZ9900 ZZ/90/91.0Z :aseaia JOI penaiddV ()(M iampas ()(M ()(M oNoulip/ma/sa/vbana ma/m/vuna/o ma/m/vuna - OT vwaVaa/truna vO/aa/vuna - z as/aa/vEna ao/m/Teuna Wm/Tama aa/vuna/m aa/vuna/p Ia/ada/Dim/vAos/o Wada/DIN/vAos/o ada/DIN/vAos/D ada/Dim/vAos/0 Dim/vAos/o wa/Ia/Diaa/vAos/o Ami/Diaci/vAos clia/DiaG/vAos/o da/asa/Diaci/vAos/o /Ia/am/Dial/vAos /m/cou/piaG/vAos /Ia/aaa/Diaci/vAos ia/aaVoiaci/vAos/D Da/claa/Dial/vAos/o DIM/id/WS/DO DISG/VAOS/D vA0S/GO vAos/G Tev/aus/Ipo/p alis/mo/p Vam/I00/3 Vam/I00/3 va/apa/mo/o wo/aDVIDWD cloa/mo/oci coa/I00/3 ID0/03 190/G vuna/aa vuna/G DNINHVM/OIN ussn/onsi admina/oim SOIWONOOVOIN 'GMT IOC Teulaqui ()(M asupas 0 [LOZ9900 ZZ/90/91.0Z :aseaia JOI penaiddV Approved for Release: 2018/08/22 C05620710 �SteItELIL (b)(3) EURA/EE/EW/PRODUCTION OCR/INFO s Et/ C/OCR/EE 5 � CPAS IMC 2 � EURA/PS FBIS ANALYSIS GROUP CB DO/SE DO/SE DO/C/SE/ (b)(3) (b)(3) (b)(3) (b)(3) (b)(3) (b)(3) SECRET Approved for Release: 2018/08/22 C05620710 (b)(3)