NOTE ON THE BALANCE OF PAYMENTS OF THE EUROPEAN SOVIET BLOC WITH THE FREE WORLD

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CIA-RDP63-00084A000100190002-4
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RIFPUB
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S
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7
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December 12, 2016
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March 6, 2001
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2
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Publication Date: 
June 15, 1955
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STUDY
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Approved For Release 2001/08/27: CIA-RDP63-00084AO00100190002- ~A)e OECD CFE3:' CRAFTING GROUP ECONOMIC DEFENSE POLICY REVIEW Staff Study No. 19 Draft of June 15, 1955 Note on the Balance of Payments of the European Soviet Bloc with the Free World This draft of Staff Study No. 19, on the Balance of Payments of the European Soviet Bloc with the E~:we World"., is trans- mitted for your use in connection with the work of the CFA' Drafting Group on Economic Defense Policy Review. In compliance with the request of the Chairman of the Drafting Group, the Executive Secretary,, EDACs, is providing repro- duction and distribution facilities as a service to further the wcrk of the CFEP Drafting Group. Irving I. Kramer Executive Secretary Distributions CFEE' Drafting Group SEC ET State, Treasury declassification & release instructions on file Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100190002-4 Approved For Release 2001/0$/7,?IA-RDP63-00084A000100190002-4 This document consists o pages, .No,2ref 5 copies, Series A. CFEP DRAFTING GROUP ECONOMIC DEFENSE POLICY REVIEW Staff Study No, 19 (Draft of June 159 1955) Note On The Balance Of Payments Of The European Soviet Bloc With The Free World This note is included to explain an apparently contradictory aspect of East-West trade that has frequently been observed, Export surpluses of consistently large value, incurred by the European Soviet bloc in its trade with the free world (especially by the satellites), have appeared in Western trade statistics at the same time that payments problems and bloc indebtedness on clearing account with Western Europe have been increasing, This condition can only 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 incomplete data, but in its major outlines the baance of payments may be described and the unimown elements can be estimated although -with less precision than might be desirable, Table 1 contains a su nary of the best information and estimates currently a,iai.la'hle o Further detail on the methods by which these figures were derived is available in EIC-P-59 "The B~alancs of Payments of the Soviet Bloc with the Free World 1948-19539" 060 In its merchandise trade with the free world, the European bloc has an export surplus only if trade is presented from the standpoint of the free world countries (as it is in. their official statistic-s-), that is if bloc exports are valued c,iofo free world ports and bloc imports fo free world ports, If bloc exports are present?u:d at their estimated foo0b, ya ~.,eCv y~v Approved For Release 2001/Utf/2~'DIA-RDP63-00084A000100190002-4 Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100190002-4 SEC `T value in bloc ports a bloc import surplus appears, which is relatively small in the years since 1.949 but quite large in 1948 and 1949. A further bloc deficit is incurred in the shipping account, Although the actual share of bloc ships and railroads in transporting East-West trade is not known with precision, it is known that the bloc has a limited merchant marine and is undoubtedly a net importer of shipping services. The bloc9s deficit on shipping account Is estimated at $25 to $50 million annually, and the overall balance for trade and shipping shows a bloc deficit of over $100 million in 1948-49 and 70-90 million in 19511953. In 1954 this deficit almost certainly increased, From 1948 through 1952, the items included under capital movements and transfers in Table 1 are sufficient to explain foreign exchange acquisitions by the bloc which were large enough to cover all, or most, of the trade and shipping deficits, In 1953, however, rich acquisitions had. dwindled to ins .,gnificarice, and in 1954 they were probably no greater, The largest capital transfera, while they lasted, were- the Finnish reparations payments and the use of the Swedish credit of 194&s.l951, both acc ri:linra 'to the USSR, Private remittances from the, US9 principally to sa tE:: lice countries, are a continuing item, Offsetting the above were b'- from 1950 to date in compensation for properties of f !,ee world c .nne had been nationalized by the satellite governments (such payments are, of courses far less than free world c 1la'ims ) Sales of gold to the free world, mainly by the USSF~ account roughly $100 million annually in 1949-1952, and rose to $150 m l.lion 1953. The total. for 1954 i ion, (These fig r s are Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100190002-4 Approved For Release 2001/08/27 estimates with perhaps the largest margin of error of any of the figures presented in Table 1.) As capital transfers decreased in 1953 sales of gold increased, but not by as large an amount. There remain the transfers of foreign exchange holdings, a category which does not have as large an effect on overall payments as the other major categories because the Items are smaller and offset one another. It should be noted that Continental Western European balances of the bloc, consisting in large part of clearing accounts, have consistently shown a net increase, i.e., bloc indebtedness has risen, on balance, each year, Bloc holdings 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 Table 1 o~ :.r g to a lack of data, and the same true of some clearing accounts, but it Is unlikely that the omitted materials would significantly change the overall payments picture. When all the above : terris are added t,oget er, a residual of rerr and omissions is obtained that shows a net value for bloc forrtiei c ex 'L=xns e earnings the use of which could not be accounted for. In 1941 value was about 50 million., and in 1950-53 it was $100 to 25 m,; ll ors o There are a number of small omissions which have not been menu- and the cumulative errors in all the esti-mates are potentially i^ rge0 In view of the direction of the residur.l values, it is nece s mention one large omission. unrecoTded trade, Trade may be u. n_rrecorded, Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100190002-4 Approved For Release 2001/08/277S.E DP63-00084A000100190002-4 or be wrongly 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 on Table la 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 exportable 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 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 _m at higher cost - are goods on which the bloc p1at?r; higher, not lower, priority than on goods obtainable through normal commercial channels, Unquestionably the USSR ,could help to relieve payments problems of the satellites by transfers to them of its free world foreign exchange SE .irP Approved For Release 2001/08/27 : CIA-RDP63-00084A000100190002-4 Approved For Release 2001/08t47, A-RDP63-00084A000100190002-4 earnings which could be augmented,, if necessary, by increased sales of gold. This may have occurred,, although there is no clear evidence of it. The USSR does not extend grants-in-aid, and if It were to transfer free world exchange it would exact some sort, of quid pro quo which might be as difficult for satellites to produce as their exports to the West. Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100190002-4 Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100190002-4 Table 1. BALANCE OF PAYMENTS OF THE EUROPEAN SOVIET BLOCI WITH THE FREE WORLD 1948 - 1953 (In millions of US dollars) a 1951 nL2 IM Exports" 7000A. (Bloc Ports) 1.392 1,302 10073 1,197 1.095 1,056 Imports, 7.0.8. (Free World Ports) -1,480 -1,449 -i,o8o 1,239 -10145 -1,102 Balance of Trade 88 - 147 - 42 - 50 4 Shipping Receipts 51 40 35 50 40 35 Shipping Payments - 88 - 78 - 64 - 93 - 67 - 61 Balance of Shipping - 37 - 38 29 - 43 - 27 - 26 Balance of Trade and Shipping - 125 - 185 - 36 - 85 - 77 - 72 Capital Movements and Transfers (let) Finnish Reparations 85 76 34 54 45 0 Swedish Deliveries under 1946 Loan Agreement 11 12 15 29 35 0 Private Remittances from the United States 51 29 15 18 14 17 Csech Drawing on the International Monetary Fund .6 Compensation Payments for Rationalized Properties - 17 19 - 13 - 12 - Balance of Capital Movements and Transfers 153 117 V r2 rl 5 Changes in Gold and Foreign Exchange Holdings Changes in US dollar balances 52 11 6 7 1 1 Changes in Continental European Balances - 46 12 19 18 26 12 Changes in Other Balances 17 b 17 J Changes in US Currency Holdings 10 Sales of Gold 0 100 PJ 97 100 86 147 Not change in Gold and Foreign Exchange Holdings 23 124 105 125 102 171 Errors and Omissions 51 - 56 - 117 - 122 - 106 - 104 SIGNS8 Minus sign (-) indicates an outflow of funds, no sign, which is in effect a plus sign, indicates a source of funds. In the case of gold and foreign exchange holdings, no sign indicates sales of gold by the Bloc, a reduction in foreign assets, or an increase in liabilities to foreign countries; a minus sign indicates the opposite in each case. a. Data for the most part were converted from original currency units to US dollar equivalents on the basis of rates published by the International Monetary Fund.. Where these were not available, rates based on information from the countries involved were used. b. Argentina had a commercial surplus of $17 million with Rumania in 1948. This Rumanian debt was repaid by a gold shipment in late 1950- c. Data on the volume of gold sales in 1949 are tenuous. Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100190002-4