CONTINUING STRAINS IN THE CZECHOSLOVAK ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A001300130001-2
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 12
• Document Creation Date: November 16, 2016
• Document Release Date: May 15, 2000
• Sequence Number: 1
• Publication Date: September 13, 1962
• Content Type: BRIEF

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CIA/RR CB 62-58
C-O-N-F-I-D-E-N-T-I-A-L
Current Support Brief
No. Pages 9
13 September 1962
Copy No.
CONTINUING STRAINS IN THE CZECHOSLOVAK ECONOMY
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
GROUP 1
Excluded from automatic
downgrading and
declassification
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WARNIING
This material contains information. affecting
the National Defense o the United States
within the meaning; of the espionage laws,
Title 18, USC, Sees, 793 and 794, the trans-
mission or revelation of hich in any manner
to an unauthorized person is prohibited by law?
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CONTINUING STRAINS IN THE CZECHOSLOVAK ECONOMY
The strains that had appeared in the Czechoslovak econ-
omy in 1961 (See CIA/RR CB 62-33, The Czechoslovak Economy in
1961: Indications of Increased Strain, Apr TIAL) con inue unaba a in the first half of 1962. Output
in Czechoslovakia's main growth-oriented industries -- steel,
cement, and machine building -- continued to be well short of
plan, agricultural Production stagnated, and construction
activity declined. The strain in the balance of payments was
alleviated by holding down imports of foods and materials and
by raising exports of manufactured consumer goods, but at the
cost of unbalancing the consumer market. The cumulative
effects of economic difficulties in the past 18 months have
led the regime to recommend the abandonment of the Third Five
Year Plan (1961-65) and the drafting of an interim plan for
1963 to be followed by a Seven Year Plan for 1964-70. The
new plans., which probably will be revealed in December at the
Twelfth Congress of the Czechoslovak Communist Party, appar-
ently will retain or increase the high priority of the steel
and machine building industries but presumably will schedule
less ambitious rates of economic growth.
Industry and Investment
Industrial production in Czechoslovakia increased by
6.8 percent in the first half of 1962 in comparison with the
first half of 1961 -- a rate considerably lower than that
planned for 1962 or for the entire period of the Five Year
Plan. The rates of growth of both industrial output and
labor productivity have followed a definite downward trend
since 1960, as shown in the following tabulation.
Industrial Labor
Output Productivity
1960 11.7 7.0
1961 8.9 5.1
1962 January-June* 6.8 3.2
1962 plan 9+ 6,0
1961-65 plan (annual average) 9.3 7.4
?* Data for t e first 6 months of 1962 are compared with
the same period for 1961.
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More serious than the lag in total industrial output,
however, is the fact that shortfalls in industry were concen-
trated mainly in branches which play a key role in economic
growth -- steel, cement, and heavy machine building -- and
that. the grades and assortment of the finished steel and
machinery produced did not meet the technological require-
ments of the consuming sectors. These shortfalls undermine
the Third Five Year Plan, which was predicated on a massive
investment program and large exports of machinery. Moreover,
the phasing of the plan required more rapid rates of growth
in the output of these key industries in the early years of
the plan period than in the later years. In planning for
1962, the regime had sought to make up the deficits of 1961,
but this goal has proved to be unrealistic. During the first
.half of 1962, the output of steel grew by 5 percent and the
output of cement by 9.5 percent in comparison with the levels
of January-June 1961. To fulfill the 1962 plan, however,
production of steel and cement in the second half of 1962
would have to grow by 22 and 43 percent, respectively, in
comparison with production in the latter half of 1961. Al-
though some improvement in performance in these branches may
occur, especially in steel (the output of which declined in
the second half of last year) the plan for 1962 cannot be
fulfilled, and the regime clearly has abandoned it. As in
1961, lags in the introduction of new technology were mainly
responsible for the difficulties in the steel industry, and
this same problem, as well as a shortfall in steel supplies,
had an unfavorable effect on machine building.
Industrial growth was hampered also by some new circum-
stances -- a flu epidemic, which caused a high rate of absen-
teeism in January and February, and difficulties in transpor-
tation. Although the volume of goods carried by rail normal-
ly increases more than half as fast as industrial production,
this volume barely increased in the first 6 months of 1962
compared with the same period for 1961, as shown in the follow-
ing tabulation.
Industrial Tons Carried
Output by Rail
1961 8.9
1962 January-June 6.8
1961-65 plan (annual average) 9.3 6.2
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Construction activity declined in the first half of 1962
in comparison with the same period for 1961 (see the Table).
Many of the difficulties that held back industrial growth --
particularly bottlenecks in transportation -- were felt more
acutely in construction because of the low priority assigned
to that sector in the allocation of resources. This low pri-
ority reflected a general uncertainty concerning investment
plans, which were being revised.
Difficulties in steel, machine building, and construction,
in turn, led to a slight decline in capital investments, which
had been planned to increase by about 7 percent in 1962. In-
vestments in machinery and equipment rose, even though less
than planned, and the regime continued to complain about the
large volume of unfinished investments. Investment in industry
increased by 5.1 percent,
Foreign Trade
As in 1961, internal economic difficulties were reflected
in foreign trade. In 1961, Czechoslovakia did not earn a suf-
ficiently large surplus on commodity trade to cover its defi-
cit on invisibles and its credit commitments to other coun-
tries. Preliminary figures show that during the first half of
1962 the regime apparently was able to increase the export sur-
plus on commodity trade by almost 25 percent in comparison
with the same period of the previous year -- the surplus was
$105 million in January-June 1962 and $85 million in January-
June 1961 -- but in so doing added to its domestic difficul-
ties. The lag in production of machinery led to an increase
of only 8 percent in exports of machinery (the same rate of
growth as that in 1961), in sharp contrast with the 26.5-per-
cent increase planned for the year. Imports of machinery, on
the other hand, grew by 27 percent -- in value terms, by more
than exports of machinery. To generate a larger surplus, ex-
ports of manufactured consumer goods were increased, and im-
ports of goods other than machinery (that is, raw materials,
foods, and manufactured consumer goods) were curtailed, as
shown in the following tabulation.
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Exports*
Of which
Machinery
Consumer goods
Imports*
Of which
Machinery
Other
* Preliminary data based on invoice prices.
Percentage
Increase
6.6
The restrictive import policy apparently had a greater im-
pact on Czechoslovakia's trade with the Free World, which de-
clined by 2" percent, than on its trade with the Sino-Soviet
Bloc, which increased by 10 percent.
Consumption
Foreign trade policy and difficulties in agriculture
created a severe imbalance on the consumer market -- an im-
balance that mainly took the form of a shortage of meat and
other foods. Because most of the increase in the production
of manufactured consumer goods was exported, retail sales of
these goods increased very little if at all, and consumers
directed the bulk of the increase in money incomes (about
4 percent for the nonagricultural population) to purchases of
foods, especially meat.
The total supply of foods, however, did not increase-. The
total output of meat remained about stable, and the output of
milk and eggs declined. The regime was able to raise retail
sales of foods but only by collecting a larger share of farm
produce, thus restricting the free market and reducing pay-
ments in kind to collective farmers. The reduction in the
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1961
January-
June
1962
January-
June
12034
467
N.A.
1,102
505
N.A.
949
997
195
248
754
749
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supply of foods obtainable outside the retail network en-
tailed a corresponding increase in the demand for foods in
retail stores. Moreover, panic buying of meat aggravated
the shortages, for housewives feared that the regime would
raise prices of meat, as it had done for prices of some
wood and paper products early in May and of potatoes in June.
Shortages of foods were reflected in the need for consumers
to queue for hours before food stores -- a situation that
caused mounting resentment against the regime.
Failure to reach key targets in the first 18 months of
the Third Five Year Plan has already dashed the hopes of
Novotny's regime that this plan can be fulfilled, The
Central Committee of the Party recently has recommended that
the plan be abandoned in favor of an interim plan for 1963
to be followed by a Seven Year Plan for 1964-70. The high
priority of key industries -- steel and machinery -- will be
retained or even increased in the new plans. An improved
performance in these industries is essential to the ful-
fillment of both the regime's long-term objectives for
modernizing the economy and the country's export commitments
to the Bloc and the underdeveloped countries of the Free
World, Planned rates of growth in total industrial output,
however, probably will be reduced in recognition of the fact
that all the regime's original goals cannot be achieved simul-
taneously. It is also likely that the regime will tighten
central controls over the economy and the population, cur-
tail the authority of enterprises and local governments over
investments and some aspects of production, and hold down
personal consumption.
The Novotny program has proved overambitious, and the
attempt to pursue it for 18 months has subjected the economy
to increasing strain. Once again, however, the regime has
reacted to emerging difficulties by revising its plans fairly
promptly and should be able to correct most of these diffi-
culties less painfully than if it had held on longer to its
program. Prospects for agricultural production remain poor,
partly because the regime still appears unwilling to provide
adequate incentives to collective farmers, Industrial growth,
however, will probably continue to be rapid, by the standards
of either Eastern or Western Europe, although less rapid than
in the past few years.
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C-O-N-F-I -D-E-N-T-I-A-L
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Economic Indicators in Czechoslovakia
1961-62
Percentage Increases*
1962
January-
1961 June
1962
Actual
PI-an
Actual**
Plan
National income
6~7
8.3
N.A.
6.5
Capital investment
7
N.A.
-.5
7***
Of which
Construction by state
enterprises
7
N,A.
-4.1
7 +
Gross industrial output
8.9
9.3
6.8
9 +
Heavy machine building
11.4
14.1
8.4
15
Steel
4~1
1002
5
14
Cement
5,8
10
9.5
22
Gross agricultural output
1
7,1
N.A.
5.1
Retail trade
3.8
4.2
4.3
5.6
Foreign trade
9
9,8
5.9
10***
Official definitions and data are used.
** Data for the first 6 months of 1962 are compared with the
same period for 1961.
*** Approximate.
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Analyst:
25X1A
State, Prague. A 20, 12 Jul 62. C.
Rude pravo, 23 Dec 60. U.
Rude pravo, 19 Jan 61. U.
Rude pravo, 2 Aug 61. U.
Rude pravo, 3 Feb 62. U.
Rude pravo, 23 Feb 62. U.
Rude pravo, 6 Jul 62. U.
Rude pravo, 20 Jul 62. U.
Rude pravo, 14 Aug 62. U.
Planovane hospodarstvi, no 3, 19629 pp. 1-13. U.
13 September 1962 CIA/RR CB 62-58
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25X1A
OF RESl:s &4.G31 All*# ) F E F'
Conirat
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CONF
e.: re 41:xchec CIA/RR CB 62-58 CIat i `icatioxa
13