CURRENT SUPPORT BRIEF THE CZECHOSLOVAK ECONOMY IN 1961: INDICATIONS OF INCREASED STRAIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A001200210001-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 11
• Document Creation Date: December 9, 2016
• Document Release Date: July 7, 2000
• Sequence Number: 1
• Publication Date: April 17, 1962
• Content Type: BRIEF

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CIA/RR CB 62-33
No. Pages 6
17 April 1962
Copy No. 1
I
Current Support Brief
THE CZECHOSLOVAK ECONOMY IN 1961: INDICATIONS
OF INCREASED STRAIN
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
C-O-N-F-I-D-E-N-T-I-A-L
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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THE CZECHOSLOVAK ECONOMY IN 1961: INDICATIONS
OF INCREASED STRAIN
The Czechoslovak economy continued to expand rapidly in
1961, largely because of a 9-percent rise in industrial out-
put. Underfulfiliment of goals in key industrial areas and
stagnation of agriculture, combined with lack of effective
controls over capital investment, however, contributed to in-
creased strain in the economy. Investment expenditures were
maintained approximately at the planned level, but construc-
tion schedules for key industrial projects were not met, and
the program for introducing technological improvement lagged
seriously. The shortfall in national income was manifested
primarily in a sharp decline in the foreign trade surplus--
from US $114 million in 1960 to US $22 million in 1961--and
possibly also in a smaller than planned increase in personal
consumption.
Economic difficulties were intensified as the year pro-
gressed, and during the final 4 months a large import surplus
was registered. Moreover, production difficulties have per-
sisted into 1962, with industrial output reported to be below
plan during the first quarter.
National income in Czechoslovakia reportedly rose by
7 percent in 1961, somewhat below the average annual rate of
7.3 percent projected for the Third Five-Year Plan (1961-65).
Gross industrial output increased by 8.9 percent, slightly
less than planned for the year and well below the 12-percent
increase claimed for 1960. (See the tabulation.*) Production
goals were virtually fulfilled or exceeded in electric power
(which grew by 10.3 percent), brown coal, chemicals, light
industry, and food processing. On the other hand, there were
production lags in such key sectors as black coal (where out-
put fell below the 1960 level), building materials, and, most
importantly, steel. Output of steel, scheduled to rise by
10.2 percent, grew by only 4.1 percent. This sharp underful-
fillment is attributable to serious lags in introducing tech-
nological advances, the plans for which were unrealistic to
begin with, and production stoppages in the final 6 months of
the year. The shortage of steel, although partly alleviated
* The tabulation follows on p. 5.
17 April 1962 CIA /RR CB 62-33
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by increased imports of rolled products, contributed to dif-
ficulties in machine building. Production of machinery as a
whole increased by 12 percent, but output of heavy machinery
fell behind plans, particularly in types for the chemical and
construction industries.
The increased strain in industry in 1961 also was re-
vealed by a lag in the growth of labor productivity, which
rose by 5.1 percent compared with a planned rise of 6.5 per-
cent. The number of blue collar workers, on the other hand,
increased by 3.6 percent, 1 percent faster than expected. The
major factor in below-plan results in labor productivity was
the widespread delay in introducing scheduled technological
innovations.
Gross agricultural production increased by 1 percent--a
sharp contrast to the 7-percent increase planned for the year.
Adverse weather conditions in some areas of the country re-
duced yields somewhat, but for the most part the shortfall in
production was attributable to unrealistic planning and to
chronic problems of inadequate incentives for peasants in a
system that is 90 percent socialized. Farm investment was at
a high level, but efforts to recruit young workers to replace
overage farm workers were largely unsuccessful.
Investment and Consumption
Capital investment in Czechoslovakia increased by 8 per-
cent (7 percent excluding capital repairs) in 1961, or essen-
tially as planned. The distribution of investments, however,
deviated from plans. Shortages of building materials and
steel, lags in labor productivity, and some unscheduled reduc-
tions in the workweek caused delays in the construction of new
plants or in the expansion of old plants, especially those en-
gaged in production of chemicals, metals, and metallurgical equip-
ment. Shortfalls in production of machinery also caused delays,
but only in the centralized sphere, which is planned and con-
trolled by the central planning authority and covers the con-
struction of large new facilities and the radical reconstruc-
tion or expansion of existing ones. On the other hand, decen-
tralized investment--that which is initiated by the ministries
or enterprises--and private housing grew more rapidly than
planned. Decentralized investment comprises more than 60 per-
cent of the total state investment in Czechoslovakia, and an
equally high proportion of decentralized investment is devoted
to productive purposes.
17 April 1962 CIA /RR CB 62-33
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Personal consumption grew by more than 3 percent in
1961, possibly somewhat less than planned (an average annual
growth of 5.9 percent is scheduled for 1961-65). Retail
sales of food, according to official reports, expanded by
almost 6 percent, but there were indications that queueing
and spot food shortages were more widespread than in recent
years. Nonfood sales grew by less than 2 percent. 1/
Foreign Trade
Difficulties in the Czechoslovak economy strongly
affected developments in foreign trade, and Czechoslovakia's
surplus on commodity trade in 1961 declined sharply relative
to 1960, whereas a very large increase apparently had been
planned. Exports grew by 6 percent and imports by 12 percent,
resulting in a trade surplus of only US $22 million compared
with a surplus of US $1,14 million in 1960. 2/ Production lags
led to larger than expected imports of steel and other basic
materials and agricultural products. At the same time, ex-
ports of machinery and equipment (generally about one-half of
total exports) grew by only 6 percent, far below the plan for
the year and the average annual growth of 16 percent attained
during 1958-60. The disappointing results in exports of
machinery were related to a sharp curtailment of trade with
Communist China as well as to difficulties in production.
Models produced for China probably could not be used domesti-
cally or sold elsewhere, at least in the short run. The small
growth of domestic sales of nonfood goods probably reflects
stepped up exports of industrial consumer goods in an attempt
to compensate for shortfalls in exports of machinery,
Problems and Prospects
The increased strains manifested in 1961 and in the
first quarter of 1962 are symptomatic of the basic problems of
the Czechoslovak economy under the Five-Year Plan of 1961-65.
In an effort to maintain rapid rates of growth under condi-
tions of a limited reserve of manpower and a tendency for
capital investment costs to rise per unit of increased produc-
tion, great stress in planning has been placed on increasing
labor productivity through technological and organizational
innovations. It seems unlikely, however, that innovations can
be introduced fast enough to fulfill production plans, because
of ineffective state controls and inadequate incentives for
workers and managers.
17? April 1962 CIA/RR CB 62-33
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Toward the end of 1961 the Novotny regime showed con-
siderable concern over unfavorable economic developments,.
Nevertheless, plans for 1962 indicate that the regime will
attempt to maintain rapid rates of growth. 3/ To promote
the planned 9-percent increase in industrial output, tighter
central controls over capital investment have been insti-
tuted. In February 1962 a State Commission for Advancement
of Science and Technology was established with broad author-
ity over problems of technological development. 4/ The new
commission consolidates powers formerly dispersed among the
industrial ministries, the Planning Commission, and several
other governmental organs.
This organizational change may tend to speed up some-
what progress in technology, On the other hand, the manpower
situation may be more stringent in 1962 than in 1961, when,
because of lags in labor productivity, employment in some
sectors of industry was raised to the levels originally es-
tablished for 1965. 5/ The completion of carryover invest-
ment projects from 1961 probably will support a rapid ex-
pansion of output in the steel industry during 1962, but
the official plan for a 12.4-percent rise in production may
prove to be too ambitious.
The 1962 plan for agriculture calls for an increase in
production of about 5 percent. The disappointing results of
1961 probably will force a delay in Novotny's program for in-
troducing a fixed monetary wage system together with the
abolition of private plots and payments-in-kind on collective
farms. Currently the regime is promoting the introduction of
partial social insurance benefits for members of collectives.6/
Although this measure is a step in the direction of improving
incentives, it is unlikely to reduce substantially the problem
of peasant disinterest in production results.
Official reports for the first 3 months- of 1562'.indi:
cate that the plan for industry, agriculture, construction,
and transportation was still being unfulfilled, 7/ Should eco-
nomic problems persist and the rate of economic growth fall
below the level planned for the year, the regime may be forced,
because of a shortage of foreign currency, to reduce its pro-
gram for penetration of underdeveloped countries or its goals
for the growth of personal consumption.
17 April 1962 CIA/RR CB 62-33
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Analyst:
1. Czechoslovakia, Central Office of State Control
and Statistics. Statisticke zpravy, no 1, 1962,
p. 20. Eval. Doc. U.
2. Ibid., no 1, 1962, p. 28. Eval. Doc. U.
3. State, Prague. Dsp 382, 7 Dec 61. Eval. RR2. OFF USE.
Ibid., Dsp 417, 22 Dec 61. Eval. RR2. C.
Rude pravo, 21 Nov 61, p. 5. Eval. Doc. U.
Ibid., 23 Nov 61 , p. 3, 4. Eval. Doc. U,,
Ibid., 24 Nov 61, p. 3, 4. Eval. Doc. U.
Ibid., 1 Dec 61, p. 3, 4. Eval. Doc. U.
4. Rude pravo, 13 Feb 62. p. 4. Eval. Doc. U.
5. I bid., 1 Dec 61, p. 3. Eval. Doc. U.
6. Ibid., 10 Feb 62, p. 3. Eval. Doc. U.
STATSPEC 7
Radio Bratislava, 2 Apr 62. Eval Doc. U.
8. Czechoslovakia, State Statistical Office, Statisticke
rocenka CSSR, 1961 (Czechoslovak Statistical Yea ok,
1961). Eval. Doc. U.
Rude pravo, 23 Dec 60. p. 1. Eval. Doc. U.
Ibid., 19 Jan 61, p. 3. Eval. Doc. U.
Ibid., 3 Feb 62, p. 1-4, Eval. Doc. U.
b d., 23 Feb 62. p. 3. Eval. Doc.. U.
17 April 1962 CIA /RR CB 62-33
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OFFICE OF RESEARCH AND REPORTS
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TO:: Chief, Dissemination Branch, II Staff, OCI
F ,bM Chief, Current Support Staff, ORR
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THE CZECHOSLOVAK ECONOMY IN 1961: INDICATIONS
1 ~
17 A P S92
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