CFEP DRAFTING GROUP ECONOMIC DEFENSE POLICY REVIEW NOTE ON THE BALANCE OF PAYMENTS OF THE EUROPEAN SOVIET BLOC WITH THE FREE WORLD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP63-00084A000100190001-5
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 9, 2016
• Document Release Date: March 8, 2000
• Sequence Number: 1
• Publication Date: June 24, 1955
• Content Type: STUDY

Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100190001-5
CFEP DRAFTING GROUP
ECONOMIC DEFENSE POLICY REVIEW
Staff Study No. 19 (Revised)
Draft of June 21t, 1955
Note on the Balance of Payments of the
European Soviet Bloc with the Free World
This draft of Staff Study No. 19 (Revised), "Note on
the Balance of Payments of the European Soviet Bloc with the
Free World", is transmitted for your use in connection with the
work of the CFEP Drafting Group on Economic Defense Policy Review.
In compliance with the request of the Chairman of the
Drafting Group, the Executive Secretary, EDAC, is providing re-
production and distribution facilities as a service to further
the work of the CFEF Drafting Group.
Irving I. Kramer
Executive Secretary
Distribution:
CFEP Drafting Group
SECRET
OGA declassification & release instructions on file
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5 pages. No. Of
copies, Series A.
CFEP DRAFTING GROUP
ECONOMIC DEFENSE POLICY REVIEf'1
Staff Study No. 19
Revised, June 24, 1955
Note on the Balance of Payments of the
European Soviet, Free World
This note is incNxded to explain an apparently contradictory aspect
of East-lest trade that has frequently been observed. Export surpluses of
conatat,-ently ].r -valise, incurred by the European Soviet bloc in its trade
-vitir--the f'ree-world (especially by the satellites), have appeared in Western
trade statistics at the same time that payments problems and bloc indebted-
Hess -m clearing .accuuuL with Western Lampe tiave been increasing. This
cvndititorr --can--cy be -explained by reference to all the items affecting the
use -of foreign--exchange--by bloc countries.
Some aspects 'of this problem are imperfectly understood as a result
-of- nromplete data, but is its major outlines the balance of payments may
br described--and the unknown elements can be estimated althougl with less
-precision-than-1ntght be desirable. Table 1 contains a summary of the best
tnformattmi -estimates currently available. Further detail on the methods
by x richrthese figures were derived is available in EIC-R-11, "'The Balance of
Payments of the Soviet Bloc with the Free World 1948-1953," . . .
In its merchandise trade with the free world, the European bloc has
-err export surplus -only if trade is presented from the standpoint of the 'free
world, countries (as it is in their official statistics), that is if bloc
-8xpv17ts are valued c.i.f. free world ports and bloc imports f.o.b. free
world ports. If bloc exports are presented at their estimated f.o.b. value
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in bloc pox? s a bloc -import .surpjms appears, which is relatively small
'in the- year's' since 1949?
A 'further bloc deficit is 'incurred in the shipping account. Although
the actual share of 'b-ioc -ships and railroads thi transporting East-West
'trade is nit known with -precision, it is known that the bloc has a limited
-me,rctrant -nrari:neand- is undoubtedly a net importer of shipping services.
The bloc's deficit on shipping account is estimated at $20 to $50 million
'arnraally, and the overall balance for trade and shipping shows a bloc
deficit of over $100-million in 1948-49 and $60-80 million in 1951-53.
Tentative analysis of data indicates a substantial increase in the trade
grid shipping deficit in- 19,54.
From 1948 through 1952, the items included under capital movements
.and transfers in Table 1 are sufficient to explain foreign exchange
acquz?sit-ions.by .the bloc -which were large-enough to cover all, or most, of
the trade and shrpping- deficits. In 1953, however, such acquisitions had
d ind ed'-to -insignificance, and in 195t they were probably no greater. The
lamest capital trarisfers9 -while they lasted, were the Finnish reparations
payments -and the use of the Swedish credit of 1946-51, both accruing to the
USSR. Private remittances from the US, principally to satellite countries,
are a continuing item. Offsetting the above were bloc payments from 1950
to date in compensation for properties of free world owners which had been
nationalized by the satellite governments (such payments are, of course,
far less -than free world claims).
Sales of gold to the free world, mainly by the European Satellites
account for roughly $100 million annually in 1949-52. In 1953 the USSR's
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gold- sales- anmousted -to $150 million. It is estimated that the USSR sold
approximately $125 -million--of gold -in 1954. As net-capital transfers
dpindied-to--insignifiegnce in 1953 compared to earlier years they were
replaveri'by-'iuresing gold sales.
Thrrmiir -the 'transfers of foreign exchange holdings, a category
wh?ctr does.nat-have as large-an effect on overall payments as the other
major -categories because-the items are smaller and offset one another.
It strvuld be' noted that Continental Western European balances of the bloc,
rousting -in large part of clearing accounts, kjave consistently shown a
'net-increase, i.e., bloc indebtedness has risen, on balance, each year.
Bloc -hcl-dings of dollar exchange were drawn down sharply in 1948, and were
further decreased in later years until 1952 when little more than necessary
working balances-- remained. In 1953 a sizeable quantity of US currency, at
least-some of which-had been acquired through China, was released. Changes
in sterling balances and in bloc holdings of Swiss francs were not included
in- b e 1 owing-to a lack of data, and the same is true of some clearing
accounts., but-it is unlikely that the omitted materials would significantly
ch e--the- ow-ex all payments picture.
When all the -above items are added together, a residual of errors
and? om?ssions is obtained that shows a net value for bloc foreign exchange
earnings the use of which could not be accounted for. In 1948-49 this value
eras about $50 million, and in 1950-53 it was $100 to $125 million.
There are a nwaber of small omissions which have not been mentioned,
-and the cumulative errors in all the estimates are potentially large. In
view of the direction of the residual values, it is necessary to mention
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_4m
one large, umtsston m- mnrecorded trade. Trade may- be unrecorded, or be
ngly recorded in-official statistics, for a variety of reasons and
unrecorded trade therefore cannot be identified with clandestine or illegal
trade. It is known that the bloc did acquire substantial illegal imports
during these years, and this helps to explain the overall balance of known
payments items as shown in Table 1. However, the use of the residual item
in Table 1 as an estimate of the value of illegal imports should not be
attempted in view of the many uncertainties regarding the items from which
the residual was derived.
One conclusion which could be drawn from these figures is that the
increases in bloc indebtedness on clearing account are not very large in
the overall payments picture. But this is only true of the payments of
the European bloc as a whole and not of individual countries. The satellite
countries, viewed separately, are in a much more restricted foreign exchange
position than the USSR, since they have no gold reserves and smaller export-
able surpluses and are more dependent on imports. Consequently, they are
under pressure to exploit all available sources of foreign exchange including
clearing accounts and in some cases private credits. It should be noted that
in the absence of capital imports, sizeable bloc import surpluses can be
maintained and financed only by the sale of gold.
It might be inferred from this data that bloc countries could solve
their payments problems merely by ceasing to engage in illegal trade. But
from the bloc standpoint a payments problem arises largely because of the
demand for imports from the free world, and those imports which must be acquired
illegally o? at higher cost ?o are goods on which the bloc places higher, not
lower, priority than on goods obtainable through normal commercial channels.
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