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-RDP63-00084A000100190006-0
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 9, 2016
• Document Release Date: March 22, 2000
• Sequence Number: 6
• Publication Date: June 15, 1955
• Content Type: STUDY

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CFEP DRAFTING GROUP
ECONOMIC DEFENSE POLICY REVIEW
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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, "Note on the Balance of
Payments of the European Soviet Bloc with the Free World", is trans-
mitted 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 Groups the Executive Secretary, EDAC, is providing repro-
duction and distribution facilities as a service to further the
work of the CFEP Drafting Group.
Irving I. Kramer
Executive Secretary
Distributions
CFEP Drafting Group
SECRET
OGA declassification & release instructions on file
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This document consis 6
pages, No,2 of ts.~ocopies,
Series A.
CFEP DRAFTING 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 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 balance of payments may
be described and the uniiowm elements can be estimated although with less
precision than might be desirable. Table 1 contains a summary of the best
information and estimates currently aia.i.lable. Further detail on the methods
by which these figures were derived is available in EIC-PP5, '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
an 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 exports are valued c,i.f, free world ports and bloc imports f,c.b,
free world ports. If bloc exports are present,--d at their estimated f,o,b,
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value in bloc ports a bloc import surplus appears, which is relatively
small in the years since 1949 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 blocvs 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 1945.49 and $70-90 million in 1951=1953.
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, such acquisitions had
dwindled to insignificance, and in 1954 they were probably no greater. The
largest capital transfers, while they lasted, were the Finnish reparations
payments and the use of the Swedish credit of 1946-1951, 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 USSR, account for
roughly $100 million annually in 1949.1952, and rose to $150 million in
1953. The total for 1954 is about $1.25 million. (These figures are
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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 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 change the overall payments pictures
When all the above items are added together, a residual of errors
and omissions 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 was about $50 million, and in 1950?53 it was 0100 to $125 million,
There are a number 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 one large omission - unrecorded trade, Trade may be unrecorded,
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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 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
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 - at higher cost - are goods on which the bloc places
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
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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-innaid,, 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.
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