CZECHOSLOVAKIA TRIES NEW ROLE IN THE SOVIET BLOC

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A004700070002-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: December 20, 2016
• Document Release Date: April 7, 2006
• Sequence Number: 2
• Publication Date: December 24, 1964
• Content Type: REPORT

lease 2006/05/24 CIA-RDP79-00904700 . 0WQember 1964
OCT No. 0363/64A
Copy No.
057
.CZECHOSLOVAKIA TRIES NEW ROLE IN THE SOVIET BLOC
OF.F..ICE OF CURRENT INTELLIGENCE
25X1 i ' g COB
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The former "model satellite" Czechoslovakia is
embarking on a policy of reducing its subservience
to the USSR. Unlike Rumania, which began to assert
its national interests primarily in reaction to spe-
cific bloc economic policies, Czechoslovakia is re-
sponding to internal pressures both inside and out-
side its party for a. more objective, rational or-
ganization of Czechoslovak society and for a respon-
sive national leadership. These pressures finally
confronted old-time Stalinist party First Secretary
Antonin Novotny with the choice between abandoning
his hard-line policies or being forced out of of-
fice. Khrushchev's ouster gave the regime the op-
portunity to speed up a process which otherwise
would probably have taken place gradually.
Novotny's new stand was illustrated by presi-
dium and central committee statements issued in
Prague in support of Khrushchev after his ouster,
by publication just two days after the ouster of
a. draft economic reform program which includes
broader use of the market mechanism, and by No-
votny's refusal to attend the 7 November anniver-
sary celebrations in Moscow. The change in Prague
is also evident in attempts to improve economic
and political relations with the West. These steps
have been enthusiastically supported in the central
committee and have greatly enhanced Novotny's posi-
tion as an independent and flexible national leader.
Growth of Political
AnT Economic Pressures
The roots of the new policy
go back to early pressures to
de-Sta.l:inize, which appeared
in Czechoslovakia, as elsewhere
in the bloc, after Stalin's
death. Novotny and his party
apparatus successfully suppressed
them until the late 1950s. At
that time a movement in the
party--probably centered around
the then interior minister,
Rudolf Barak--sought to counter
if not eliminate Novotny's hard-
line leadership. Novotny purged-
the would-be renegade Barak in
1961.
However, pressures from
within the party to de-Stalinize,
probably abetted by Moscow, con-
tinued to grow. Abandonment of
the Third Five-Year Plan (1961-
65) in mid-1962, forced by eco-
nomic failures, was a, serious
blow to Novotny's prestige. By
the 12th party congress in Decem-
ber 1962, liberal elements of
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the party central committee had
gained enough influence to put
through a resolution favoring
at least some tentative steps
toward de-Stalinization.
During this period Czecho-
slova.kia.'s economic difficulties
became the most severe in the
entire Soviet bloc. Gross na-
tional product was barely in-
creasing. The growth of indus-
trial production had slowed
drastically, from an average
yearly increase of about nine
percent in 1958-60 to about two
percent in 1962-63, and indus-
trial production actually fell
in 1963. Net agricultural pro-
duction had shown a, downward
trend since the late 1950s.
Capital investment declined both
in 1962 and in 1963. Per capita
consumption and real wages re-
mained nearly constant.
The main reasons for the
sharp economic slowdown were
deep-seated. Reserves of pro-
ductive cari.city in industry
and transportation were exhausted,
and agriculture had been milked
dry of competent labor. Indus-
tries producing finished goods,
which account for the great
bulk of Czechoslovak exports,
became increasingly obsolete
because of inadequate techno-
logical progress and the high
concentration of investments
during most of the postwar
period in industries producing
ba.sic materials. Foreign and
domestic customers became less
willing to accept products of
low quality. In agriculture,
collectivization led to an in-
efficient use of investments.
The strain in the economy
was aggravated by a series of
unexpected events: the military
buildup occasioned by the Ber-
lin crisis of 1961, a ba.d crop
and the collapse of trade with
Communist China in 1962, an
unusually severe winter in 1962-
63, and a shortage of electric
power in 1963.
In 1962 and 1963, Czecho-
slovakia could not at the same
time achieve a rapid rate of
industrial growth, maintain the
standard of living of its peo-
ple, and balance its foreign
payments. Unable to obtain
credits from the USSR and bur-
denec' with drawings on its own
credits of the order of $50 mil-
lion a year, Czechoslovakia had
to balance its payments by in-
creasing exports much faster
than imports. The rise in ex-
ports and the holding down of
imports took place mainly at
the expense of capital invest-
ment and industrial production.
The regime, seriously concerned
with rising public dissatisfac-
tion, decided to keep food sup-
plies as stable as possible by
increased food imports.
As a result of these po-
litical and economic develop-
ments, the Czechoslovak regime
in 1963 found itself in its
period of greatest instability
since 1948. Virtually every
facet of the party's political,
economic, and social policy
was publicly questioned. This
was inevitably accompanied by
a breakdown in party discipline.
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The liberals, stimulated to
greater efforts in part by the
worsening economic situation,
began to exercise meaningful
influence in party affairs. A
further contributing factor was
growing ferment among the in-
tellectuals, reminiscent of
1955 and 1956 in Poland and Hun-
gary.
The liberal movement was
greatly strengthened by the
bold drive among the Slovaks to
regain some degree of autonomy
and to rectify past injustices
against them by Prague. By and
large the demands of Czech and
Slovak party liberals coincided,
calling for specific changes
in administrative, legal, cul-
tural, educational, and economic
procedures, for redress of past
Stalinist excesses, and for the
removal of Stalinists from the
regime.
The political and economic
disarray was accompanied by in-
creased public discontent, fos-
tered by the poor economic sit-
uation and the breakdown in
party discipline. Czech-Slovak
national animosity re-emerged
as a crucial problem, adding to
the instability.
Novotny Capitulates
Novotny reluctantly and
clumsily began to de-Stalinize
and to liberalize economic pol-
icy. Demands on him increased,
however, until he was forced to
purge several leading Stalinists
--mainly Slovaks unpopular in
Slovakia--and he himself was in
danger of being toppled in late
1963. The Soviets intervened,
despatching Brezhnev to Prague
to resolve what appeared to be
an imminent leadership crisis
in December 1963. A period of
retrenchment followed, during
which Novotny remained in the
background while many of the lib-
eral changes were codified and
a. degree of order was restored
through a series of compromises
favoring the liberals. The strug-
gles within the party from then
on focused on solution of domes-
tic economic problems, as No-
votny fully associated himself
with plans for economic reform.
By virtue of these compromises--
which helped ensure Khrushchev's
continued support--Novotny was
able to reconsolidate his power
by the summer of 1964.
The Czechoslovak leadership
in October announced a draft
program for liberalization of
the economic system which goes
beyond reform proposals anywhere
else in the Soviet bloc. Until
the latter part of 1963, Novotny
Party first secretary Novotny welcomes Soviet emissary Brezhnev on his
arrival in Prague on 10 December 1963.
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had advocated tighter economic
controls and blamed the partial
decentralization of 1958-60 for
some of the regime's economic
difficulties. As early as 1962,
however, his liberal critics
claimed that the decentra.liza.-
tion had failed because it had
not gone far enough. By 1964
criticism had become more intense;
a. large number of leading Czecho-
slovak economists were urging
replacement of the Soviet-type
command economy by a form of ma.r-
ket socialism. These economists
argued that the Soviet-type sys-
tem was effective in mobilizing
resources, but was inefficient
and inflexible in the detailed
allocation of resources. An a.d-
va.nced economy like Czechoslo-
va.kia.'s, which had exhausted its
reserves, could no longer func-
tion efficiently under this sys-
tem.
to economic planning and manage-
ment, using ma.thematica.l methods
and procedures borrowed from
Western corporations; (2) a. del-
egation of authority over most
short-ra.nge planning and current
production to enterprises and
trusts; (3) the basing of enter-
prise incentives on current in-
come instead of on fulfillment
of plan assignments; (4) increased
flexibility and greater ration-
a.lity of prices; and (5) a par-
tial substitution of financial
regulations for direct orders
as instruments of state control.
Investment and foreign trade
policy are to be governed by
more careful evaluation of eco-
nomic advantage than in the past,
and less by political or ideo-
logical considerations.
With the announcement of
the reforms the liberals had won
a partial victory. The steps
actually taken up to that time
to improve the economy had been
marginal--even by comparison
with many other bloc countries
--except for the abandonment of
taut planning in favor of a more
flexible and realistic approa.ch.
The new program, however, con-
tains the general outlines for
future reforms which reflect many
of the views of the liberals,
while at the same time providing
for retention of whatever con-
trols the regime may consider
necessary.
The program provides for:
(1) a "scientific" approach
In response to liberal de-
mands and to economic necessity,
Prague for more tha.n a, year has
been seeking improved relations
with the West. Although the
party has not always been unified
on this policy, the regime has
increa.singly taken measures to
improve its image a.broa.d and ex-
pand contacts--political, social,
and cultural as well as economic
--with the West. Prague has
taken a number of specific meas-
ures to libera.lize entry regula-
tions, to guarantee the safety
of Czech-born US citizens travel-
ing in Czechoslovakia, and to
raise the level of diplomatic
relations with numerous coun-
tries. It has tried to broaden
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cultural-educational exchanges
with Western Europe and the US
and has generally been more co-
operative in official contacts
with the West.
Despite these positive
changes, there have been and
will probably continue to be
some isolated lapses, probably
due to the influence of regime
members--particularly in the
security apparatus--who remain
opposed to rapprochement. The
Foreign Ministry has found it-
self embarrassed by police ac-
tions on two recent occasions
--the attack on the US Embassy
in protest over US policy in
the Congo, and the arrest of a.
US citizen on espionage charges
--which have conflicted with
the regime's professions of good
will. Significantly, however,
the regime continues to support
the Foreign Ministry in its gen-
eral policy toward the West.
In need of Western currency
and desirous of more favorable
trade relations with the West.
Secretary of Commerce Hodges visited Prague on 9 September
1963 in response to Novotny's invitation--one of the first
significant regime efforts to improve contacts with the West.
the Czechs have sought realis-
tically to settle outstanding
economic differences--mainly
claims issues--with Western
European countries and the US.
In some cases they have met with
success and moved on to cultural
agreements or negotiations for
improved trade relations. Other
steps aimed at broadening eco-
nomic relations with the West
include measures taken la.st year
to attract Western tourists;
the provision of some special
incentives to exporters; and a
greater stress on economic cri-
teria rather than political ex-
pediency in elaborating foreign
trade plans.
This interest in broader
economic relations with the West
has not yet had much practical
effect. Czechoslovakia's trade
with non-Communist countries
in 1963 was lower than in 1961,
amounting to only 25 percent of
total trade, as compared with
about 30 percent in Hungary and
Rumania, and about 35 percent in
Poland. Steps such as those
described above--and of course
Western credits--may lead to
some increase in the share of
Western trade over the unusually
low levels of recent years. None-
theless these steps will not
overcome the principal obstacle
to expanded trade with the West
--the low quality of most Czecho-
slova.k manufactured goods. In
sharp contrast to Rumania., Czech-
oslovakia, can spare few raw ma-
terials and foods for export.
Consequently it relies predomi-
nantly on exports of machinery
and manufactured consumer goods,
many of which are no longer com-
petitive in the West.
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Any substantial increase
in the competitiveness of Czech-
oslovak manufactures in the
West will take sustained efforts
for many years in adapting the
structure of production, making
planning and management more
flexible, and improving market-
ing and servicing abroad. Changes
along these lines are implicit,
and in some cases explicit, in
the regime's broad program for
the allocation of resources and
for economic reform. It is
likely in particular that large
Czechoslovak producers will be
allowed more direct contacts
with foreign customers; that
bonuses in the production of
goods for export will be based
at least partly on earnings in
foreign currency; and that the
structure of domestic prices
will be brought closer to the
structure of prices on the world
market. Even if implemented
vigorously, such reforms will
not necessarily cause a, substan-
tial reorientation of Czecho-
slovak trade, but they are likely
to increase its flexibility con-
siderably by broadening the a.l-
ternatives to trade with the
bloc.
The regime now is seeking
some sign of Western support
for its more independent policy
toward Moscow. Novotny needs
this to impress the Soviets as
well as his own party. Even
more importantly, he needs in-
creased trade with the West,
foreign currency and long-term
credits to gain and maintain
a, more secure economic position.
With the example of Rumanian
success in mind, Prague is vigor-
ously pursuing this goal in
France, Britain, and the US.
Prague's increased interest
in economic relations with the
West does not appear to have
weakened its trade ties with the
USSR. The USSR accounts for
nearly 40 percent of Czechoslo-
vak trade (as compared with about
the same for Rumania. and around
one third each for Poland and
for Hungary). This is a higher
share than a few years ago, and
accounts for a large part of
the materials needed by Czecho-
slovakia. Plans are being drafted
for a substantial increase in
trade with the USSR, and techni--
ca.l cooperation is closer than
ever. Nevertheless, there is
probably widespread resentment
at the failure of the USSR to
extend credits during the eco-
nomic crisis, and there is im-
plied criticism of the USSR in
the complaints about inefficient
industries, many of which were
built to process Soviet raw ma-
terials or to meet Soviet speci-
fications.
Prague also ha.s been one of
the principal advocates of closer
intrabloc cooperation under the
Council for Mutual Economic As-
sistance (CEMA) and probably is
disappointed with the slow prog-
ress in this direction. Like
most other Eastern European coun-
tries, however, Czechoslovakia
probably is unwilling to give
much control over its economy
to supranational bodies. As a
highly developed country, it has
been interested in CEMA mainly
as a means of promoting its ex-
ports of manufactures, in return
for which it imports needed raw
materials and foods. This ap-
proach to cooperation was a major
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cause of the recurrent frictions
with Rumania over the past sev-
eral years, inasmuch as Rumania's
main desire was to develop new
manufacturing branches.
For many years, Czechoslo-
vakia has had no real alterna-
tive to a predominant economic
dependence on the Soviet bloc.
The original, reason was politi-
cal, but with the development
of the Soviet-type economic sys-
tem in Czechoslovakia and of a
structure of production tailored
to meet bloc needs, economic
reasons were added. Largely
cut off from world markets,
Prague came to regard exports
to the bloc, many of which were
of low duality, as vital for the
support of its industrialization.
In recent years, bloc customers
have become more discriminating
and the Rumanians have even
turned.down Czechoslovak machin-
ery on the ground that it did
not meet: world standards. Thus
trends in the bloc as well as
domestic difficulties and the
attractiveness of Western tech-
nology have pushed Czechoslova-
kia toward important changes in
its economic structure and its
economic: system.
?Cze:choslova.kia. now is fast
approaching a degree of autonomy
in the bloc comparable to that
of Poland and Hungary, and has
embraced the policy of realistic
economic planning adopted by
these two countries after 1956.
Both of these countries and East
Germany are ahead of Czechoslo-
vakia. in actual economic reform,
buttheir programs for future
reforms are clearly intended to
increase the efficiency of the
command economy, while the Czech?
oslova.k program puts a, great
deal more stress on the use of
the market mechanism.
The changing atmosphere
in Czechoslovakia brought about
changes in Prague's relations
with other Eastern European
countries permitting an exchange
of ideas which have had further
effect on Czech policy. In his
efforts to demonstrate his flexi-
bility and willingness to de-
Stalinize, Novotny began some
time ago to woo Yugoslavia and
to imply a, desire to emulate
certain Yugoslav practices. Even
though a great deal of this was
purely for the sake of improv-
ing his image, closer relations
did in fact develop. Now the
Yugoslav system--political and
economic--is being discussed
in Prague as the model for changes
in Czechoslovakia.
Similarly Czechoslovakia,
has drawn closer to Poland and
Hungary, conscious of Budapest's
recent successes in gaining pop-
ular support without sacrificing
discipline or public order.
Prague has scrupulously avoided
expanding its relations with
On 26 September 1964 Novotny concluded his first visit to Yugoslavia.
He is shown here signing a joint communique with Tito.
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Rumania, however, and has re-
frained from any public mention
of Gheorghiu-Dej's independent
position within the bloc. Pre-
sumably the Czechs have been
fearful of the Rumanians' bold-
ness, but this may change now
that the Czechs themselves have
taken a. bolder line.
ably was to avoid offending the
Yugoslavs.
The developments of the
past two years within Czechoslo-
vakia. have not been well received
by Novotny's Stalinist neighbor
Ulbricht in East Germany. None-
theless, the "new, flexible"
Novotny has made no attempt to
allay Ulbricht's fear, and rela.-
tions between the two parties
have gradually deteriorated.
Steadfastly loyal to the
Soviet Union and a. strong sup-
porter--albeit belatedly--of
Khrushchev's Chinese and Yugo-
slav policies, Prague has adopted
the attitude that loyalty to
Moscow does not preclude and
must not infringe on Prague Is
right to make its own decisions.
Emphasizing Czechoslovakia's
contribution in exchanges of
views with Moscow and the value
of reciprocity, the joint com-
muniqud issued after Novotny's
30 November - 4 December trip
to Moscow stressed the ideas of
full equality of "socialist" na-
tions and "strengthened national
sovereignty." In the communiqud
the Czechs also subtly dissoci-
ated themselves from the full
endorsement given by the Soviets
to the 21st Soviet party con-
gress--which attacked "revision-
ism." Prague's motive presum-
Unlike Rumania., however,
there is nothing expressly "anti-
Soviet" in Prague's position
today, and there is no de-Rus-
sification as there has been in
Rumania. It is unlikely that
the Czechs will engage in an
anti-Soviet campaign as long as
they can effectively demonstrate
their decision-making freedom
without one. Novotny, upon his
re-election as President in No-
vember, publicly reassured the
Soviets that Czechoslovakia
would remain a member of the
Warsaw Pact.
Prospects
Czechoslovakia apparently
believes that the Russians--
particularly under a, new regime
whose stability is far from cer-
tain--will not or cannot inter-
fere with Prague's assertion of
national self-interest.
Internal and foreign poli-
cies, therefore, will probably
continue in the direction of
liberalization and independence.
In its bargaining with Moscow,
Prague will probably press for
some concessions from the So-
viets, such as credits and gen-
erally more favorable trading
terms. Czechoslovak and Soviet
interests may conflict on the
size and operation of the Czecho-
slovak aid and penetration pro-
gram in developing countries,
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by far the largest such program
conducted by any Eastern Euro-
pean country. Frictions over
CEMA policies may arise, but
there are no reasons for serious
differences with the USSR unless
the Soviets try to transform
CEMA into a. truly supranational
organization--an unlikely event
because of widespread opposition
within Eastern Europe. Concomi-
tantly Prague will continue its
efforts to expand trade with the
West.
Although differences over
such matters probably can be
amicably negotiated if Moscow
takes an enlightened view of
Prague's positions, Czechoslo-
vakia nonetheless now can be
expected to press harder than
ever to protect its national
interests. As a result, politi-
cal problems are bound to arise
between the two allies. More-
over, Novotny, who now has staked
his political career and pres-
tige on a program designed to
serve Czechoslovakia's national
interests, will be little in-
clined to subordinate his poli-
cies to the needs of Moscow
should a. conflict of interests
arise.
In international Communist
affairs the Czechs now are wedded
to the rapprochement with Yugo-
slavia, whatever position the
Soviets may take. The Sino-So-
viet dispute is unlikely to be-
come an issue with Moscow, un-
less the USSR changes its atti-
tude toward China to the detri-
ment of the Soviet bloc's rap-
prochement with Yugoslavia. Al-
though Prague will continue to
support Moscow's general foreign
policy line in bloc and interna-
tional councils, as time goes on
it will hold out for serving its
own interests. This of course
does not preclude specific anti-
Western steps from time to time
by Czechoslovakia if Czech rela-
tions with Moscow make this tac-
tically advisable.
Looked at from the viewpoint
of the Soviet bloc as a, whole,
the new trend in Czechoslovakia
demonstrates anew that the pat-
tern of relationships between
the countries of Eastern Europe
and the USSR has been radically
altered over the past decade.
The westward flow of Soviet ex-
ploitation and control has been
tempered by an eastward flow of
political pressure. The vast
network of Soviet agents, mili-
tary, and police and of Eastern
European party leaders and func-
tiona.ries who owed their first
loyalties to the USSR and Stalin
has disappeared.
Each Eastern European leader
now is free to test the limits
of Soviet hegemony and to choose
the course which appears to be
the most promising for his own
country. In all of these coun-
tries except East Germany and
Bulgaria, this choice is more
and more likely to reflect na-
tional and even European inter-
ests rather than those of the
USSR and the bloc.
While these countries do
not yet have as great freedom
as Yugoslavia, a. resemblance
is emerging. Indeed, the entire
process has an air of inevitabil-
ity; first Poland moved, then
Hungary, Rumania, and now Czech-
oslovakia, each in its own way.
It would seem that Khrushchev's
successors have little choice
but to acquiesce as gracefully
as possible in the tide of na.-
tiona.lism currently rising in
the western reaches of their
empire.
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