COMMENTS ON EX-CHANCELLOR ADENAUER'S VIEWS REGARDING WESTERN EXPLOITATION OF SOVIET ECONOMIC DIFFICULTIES*

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00429A001200050015-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 16, 2016
• Document Release Date: September 16, 2004
• Sequence Number: 15
• Publication Date: November 8, 1963
• Content Type: IM

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OCI No. 3283/63
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
8 November 1963
CURRENT INTELLIGENCE MEMORANDUM
SUBJECT: Comments on Ex-Chancellor Adenauer's
Views Regarding Western Exploitation
of Soviet Economic Difficulties*
SUMMARY
We agree with the broad sweep of ex-Chan-
cellor Adenauer's view of the problems. facing the
Soviet economy, although he paints the picture in
somewhat darker tones than we would. We do not be-
lieve that the Soviet economy is in as dire shape
as Adenauer implies in saying that it is in one of
its "biggest crises" since the October Revolution.
His analysis of the favorable effect that the ex-
tension of additional Western credit would have on
the Soviet economy is correct. On'the other hand,
we believe that Adenauer greatly exaggerates the
political leverage'which the present Soviet eco-
nomic situation provides for Western exploitation.
1. Adenauer's judgment that the Soviet eco-
nomy is currently facing serious difficulties rel-
ative:to its objectives is, we believe, correct.
Even before the bad harvest of 1963, the USSR was
straining under the burden of simultaneous)
suing three objectives: y ter-
races; (1) the arms end space
(2) rapid industrial growth; pnd (3) raising
the standard of living of the Soviet population.
2. For the last few years, agriculture has
stagnated and the rate of growth of industry has
*This memorandum has been prepared jointly
by OCI, ONE, and ORR.
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slowed down. The volume of housing construction
leveled off in 1959 and has declined-since then.
Industrial investment which formerly increased
10 percent or more annually has grown at 4 or 5
percent per year since 1960.' The construction
industry has experienced.considerable difficulties
in completing projects, especially in the chemicals
industry,
3. The bad 1963 harvest has convinced the So-
viet leadership that a massive build-up of fertil-
izer capacity is required to assure growing food
supplies for the Soviet bloc. The goal for 1965
is 35 million tons of fertilizer, . compared with 20
million tons in 1963. The tentative goal for 1970
seems to be 100 million tons, The Soviet Union can-
not approach this long-run goal without substantial
imports of equipment from the West. Adenauer's de-
scription of the difficulties experienced by the
Soviets in producing fertilizer equipment and in
building fertilizer plants is, we believe, essen-
tially correct.
4. There is no question of the importance to
the Soviet economy of additional Western credit.
The Soviet hard currency. payments deficit has av-
eraged about $300 million a year from 1960 through
1962 and will undoubtedly be higher in 1963. .Repay-
ment of past medium-term credit in 1963 almost equals
the new credit extended by Western suppliers, The
alternative, possibility of using gold reserves is
rapidly dwindling. Following payment for the Western
grain already purchased (excluding possible purchases
from US), the Soviet gold reserves will in 1964 prob-
ably fall to about $1.5 billion. This reserve is
approaching a minimum level that must be held against
possible future harvest failures. Thus, in the ab-
senpe of longer term credits from the West, the USSR
is faced with the possibility of reducing. imports at
a time when it badly needs to increase them,
5. We judge that the Soviet econom
only by the European satellites) cannot carrydthrough
the fertilizer development program (not to mention
synthetic fibers and plastics) without significantly
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curtailing the arms and space build-up or further
slowing rates of growth of other sectors of indus-
try In view of these conditions, additional West-
ern credits will contribute to maintenance of So-
viet arms expenditures or to general industrial
growth. In the absence of additional Western credits,
an accelerated fertilizer program would be at the
expense of other programs.
E: - __j
restriction of N wru mac nery ex-
Port s e ow current levels either directly or by a
reduction of credit--would penalize Soviet economic
growth even more. Under these conditions, the So-
viet leaders would have to retrench still further--
reduce arms expenditures somewhat, or accept for
the time being an even lower rate of growth.
7. We believe that Adenauer somewhat under-
states Soviet capabilities to get along in the face
of reduced Western exports. In the first place, the
problem of grain supply which has arisen in 1963 is
largely the result of abnormally bad weather. The
return of normal weather conditions probably would
restore food supplies per capita to tolerable though
not record (1958 and 1961) levels. However, in the
long run the agricultural problem could become even
more pressing and harder to solve. The problem
stems from the desire of the people and the leaders
for a significantly improved diet at the same time
that land productivity in the New Lands is falling.
Soil erosion in the New Lands resulting from poor
agriculture practices cannot be rectified without
a'sharp cutback in land under cultivation.
8. Second, Adenauer may exaggerate the signif-
icance of present Soviet imports from the West, The
USSR itself produces by far the largest part of its
requirements for machinery and equipment, and about
two thirds of Soviet imports of machinery and equip-
ment come from the European satellites. The impor-
tance of the imports from the West lies in the high
quality and the advanced technology which is embodied
in Western equipment. The dependence of the USSR on
the West for chemical equipment is greater than for
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other types of equipment. Even so, the denial of
equipment from NATO countries (which might not be
Joined by all other Western countries) would not
prevent the USSR from increasing fertilizer'capac-
ity. It would, however, mean that the construction
program would be significantly slower and more ex-
pensive and that reductions in other industrial or
military programs would be correspondingly larger.
9. Thirdly, we do not concur in Adenauer's
assessment of the urgency of the large-scale in-
dustrialization of Eastern Siberia. We have no
evidence that the Soviets are planning any signifi-
cant increase in the present moderate but steady
program of development of Eastern Siberia. Nor
do we see that such a development is called for. by'.
the dispute with China. The USSR may have to in-
crease its military defenses along the Chinese bor-
der at some time in the future, but an uneconomic
industrialization of this vast area would not con-
tribute much to the defense.
10. We also disagree with some of Adenauer's
detailed facts. However, these differences do not
undermine the general validity of his analysis, but
make the Soviet problems sound somewhat grimmer
than we think they are. For example, we do not be-
lieve there is a general electric-
which is limiting industr power shortage
and.farms are severely limited?ineelectric-power
supplies, but we have evidence of only occasional
spot shortages in.industr
cites a 50_ y. Secondly, Adenauer
percent fulfillment of planned chemical
'investment in 1962, Chemical investment in 1962
was actually underfulfilled by only 10 percent.
Finally, the 30-percent price increase in 1962 did
not apply to all agricultural products as Adenauer
implies, but only to meat and butter.
11. In our view, Adenauer greatly exaggerates
the political leverage which the Soviet economic
situation provides for Western exploitation. We
question the validity of his central thesis--if the
USSR is denied access to Western markets and credits,
the resulting economic crisis in-the Soviet Union
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might be so serious that the West "might obtain
genuine political concessions, as otherwise.the So-
viet Union might hot be able to hold out in the face
of the Chinese-Soviet conflict." Although Adenauer
makes no specific reference to the questions of
Berlin and German reunification, it is clear that
he has these matters in mind when he predicts that
the Soviet leaders, in order to insure their access
to Western markets for vitally needed equipment
"would be prepared to change their policies vis-a-vis
the West."
12. If this is in fact what Adenauer has in
mind, he appears to be underrating the fundamental
position of Berlin and Germany in Soviet policy.
The definitive recognition of the permanence and
legitimacy of the status quo in Eastern Europe, in-
cluding the partition of Germany, has for long been
the main concern of the USSR's policy toward the West.
Even though the proposed measures might place serious
.strains on the Soviet economy, it is highly unlikely
that these measures alone would cause the USSR to
accept Western terms for German reunification.
13. We believe, moreover, that the Soviet re-
action to the measures Adenauer advocates would be
almost the exact opposite of the "genuine political
concessions" he forecasts, The Russians almost cer-
tainly would immediately interpret such measures as
the forerunner of a grave Western challenge carrying
a.strong probability of developing into a dangerous
military confrontation. Their outlook has long. been
conditioned by an almost pathological suspicion and
fear of resurgent German military power. Throughout
the post World War II period, the Soviet leaders
have tended to exaggerate every step in Western policy
toward the Federal Republic as being aimed at devel-
oping a formidable position from which the West Germans
could use force to bring down the East German regime
and subsequently the entire Soviet empire in Eastern
Europe, This preoccupation with growing West German
strength is the force that has motivated Moscow's
diplomatic offensive over the past five years to
consolidate the East German regime and the present`
Soviet bloc frontiers in Central Europe before West
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Germany reaches a "position of strength" which could
confront the USSR with a serioua challenge, As Khru-
shchev told. Walter Lippmann in April 1961, there must
be a German settlement before "Hitler's generals with
their twelve NATO divisions" acquire nuclear weapons
from France and the US. Before this happens, he. said,
there must be a peace treaty defining the frontiers
of Poland and Czechoslovakia and stabilizing the ex-
istence of East Germany. Khrushchev contended that
in the absence of such a settlement, West Germany
some day will drag NATO into a war for the unifica-
tion of the country and restoration of the old east-
ern frontiers.
14. In addition to ruling out any possibility
that Western economic pressures in themselves could
compel Moscow to abandon its "two Germanys" policy,
we would also question Adenauer's emphasis on the
Sino-Soviet contest as a determining factor in bring-
ing the USSR to grant major political concessions as
the price of escaping a Western economic boycott.
For the foreseeable future, Peiping's challenge to
Moscow will continue to be primarily a political
competition for influence and control. in the inter-
national Communist movement, not a military threat
requiring far-reaching revisions in Soviet policy
toward the West.
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