LACK OF FOREIGN EXCHANGE AND RESULTING LACK OF ESSENTIAL MATERIALS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-00926A001300020002-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 3
• Document Creation Date: December 14, 2016
• Document Release Date: May 15, 2002
• Sequence Number: 2
• Publication Date: June 28, 1949
• Content Type: REPORT

Approved'Fo le TJ
CENTk_tlw INTn0 ' M.r- AGENCY
INFORMATION .REPORT
COUNTRY Czechoslovokj;,
SUBJECT Lack of 'oi 'n Exch,-nge wnd Resulting Lhck of
23sential M terial?;s
PLACE
ACQUIRED
DATE
25X1 A
CQUIRED BY SOURCE
DATE OF INFORMATION
DATE DISTR. .,,~ 'Sum 49
NO. OF PAGES 3
NO. OF ENCLS.
(LISTED BELOW)
RKI
SUPPLEMENT TO
REPORT NO. 25X1
1. Czechoslovakia, At the present time LAprii 1949 is greatly in need of foreign
exchange to finance imports of vitally essential ina.teria.le. In April 1949
the Finance Ministry estimated that Czechoslov.'kip hod a. total of four billion
Czechoslovak crowns, or US$80 million, in foreign exchange of All Western
currencies on 1 Jan 49. It woe then computed that this would maintain the
schedule of imports laid down in the economic plAn for ten months. However,
by the beginning of April, the Western foreign exchange had shrunk to 1.4
billion Czechoslovak crowns, or less then US$30 million. It was then estimated
that this would be spent in two months, thus exhausting the total on hand As
of 1 Jan 49 in five months instead of the estimated ten.
2. Most important moterial shortngea in Czechoslovakia, are non-ferrous metals.
These ore first on the list of desired imports from the US as empha.sized by
the fact that the Czechoslovak Goverment wa.e willing to consider payment of
US claims in order to open up such imports. This shor.tnge did not become acts',
until mid-1948, for, in the later part of World War II;, Germany had shipped
large qupntities of reserve supplies into Moravia. when that territory wA,s
selectedp.s part of Germany's last stand a,re?. In addition, there were some
imports from Yugoslo.vio, but now these imports have stopped. Czechoslovakia,
has one small lead mine where production costs are very high. There are, A.s
well, one small silver mine and a small gold mine where production costs Pre
100 times the world price. The latter is in operation and 4,000 people are
employed there.
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The difficulty in building up he.^vy industry is illustrated by the case of
the Trynec steel plant, which wpm being built About six miles from the Zlin
plant. It was to be built by Brown-Aoveri out of a surplus mill from the US
Ap.d two blpst furnaces from the-Hermann Goering Works in Germany. It-was to
have assembled ball benrin' . -Mr Jncinsky dealt with the US nn this 'in 1947.
Now the. plant is being held ra for want of five or six million dollars worth
i~e? I ned to C rplete the project out of uomestic pro-
aucf onm-,c1u. ~t i3s w llt nfo we possible.
5. There -re two schools of thought ps to the degree of essentiality of Swedish
ore for the Czechoslovak iron industry. One school naintnine the loss of this
ore would. be cnl:,mitous. The other holds Swedish ore to be essenti^l only in
the ripnufncture ^^"?`In tools, wherefore Czechoslovakia, is not largely
dependent on this supply-.Lz 1945, when ore deliveries were not made for a
short time, eras n shortage of Swedish ore and USSR ore was substituted.
The Soviet ore was of quite good. quality, but the particles were too fine for
use in the Czechoslova,kipn furnaces, so its use was not too successful. If
Swedish ore were cut off, we would just hp7.e to change our fur*+^ces, putting
more holes in. them to sup-oly more air. Some'USSR ore can be mixed in and
used in the furn^ces is they now operate. There wpm A short period when the
Czechoelov-'-- 1-iod no Swedish crowns,I which wp.s the only time when there. was
no supply of Swedish ore,
that wpm not a straight operp.tion through end b;:v.---en banks.
8. Czech~oslovnkia''s trade with Yugoslav : end the USSR aggregated 20 billion
Scrap metal is short, but old tanks, cars, and guns still e.re to be eee3i ^11
over the country. Now, however, they are too rusted-for use. There wpm A.
discussion, for some time, as to who owned this milit-ry equipment.
Czechoslovakia or the USSR. Now school campaigns are conducted to collect all
kinds of scrap, even old glass which can be remelted for the poorer gr'des of
glass.
7. Gold stocks Pre very low, and. little hps been coming in. Il about US$625X1
million worth was received from Germany. As to totals, I b-lieve the weekly
published"figures ere reliable. Some wpm sold to the Netherlp.nds and
Swit,7er1'Pnd when purchases were being made to obtain goods indirectly through
,-those countries. 0'I1 tr e`actions were official end At official prices.
,Also, some gold WAS given to the Weinmenn family, which emigre+aa , the early
1930)s And loaned gold;? to the Czechoslovak Govern*^^-t?. m>^i' nas repaid}n?19;450
It was a direct treneection between individuals* and tie y1one
"Czechoslovak crowns out of en pnnue.l total or 3h nz.L.>.2.ons in wni.Le r,rac;X
with other Iron Curt'+in states h^^ suffered. In 1947, the USSR delivered 1
billion Czechoslovak rown. worth n-P -^^de to Czechosln.-akin, more then one-
third the total of Czechoslovak exports. Czechoslovakia. had to deliver mostly
metal goods. The h-.,lest orders to fill were those for tuh-t and pipes. USSR
requirements took the entire capacity for production of smeller diameters of pipe.
For some reason th^t I do,n9t v.nderstand, it is necess^ry to produce smaller
and 1trger Ai-meter pipe in p more or less fixed ra.tin. Consequently there Er^s
tremendous overproduction of large-diameter pipe, and. now warehouses are full
of such items-with no customers. The Czechoslovak-Yugos1^v tred.e Agreement called
for the exchange of seven billion Czechoslov-k crowns worth of goods. pniand
virtual'-, !-tnri-ned dcta--r- I^^ ?n 17,echosloy^kip, how(-.ver, ce did Sweden and the
Netheriends., and -Czechoslovekip.-owes.there ietions more the- she '~an -possibly pcy
The price decline, which eta.rted in 1943, eAr'oa to Czechoslovak ,?ifficultie?s.
She had bought hen.-vily At the top o' the market and wpm faced with the necessity
of making deliveries in payment of these purchases, the deliveries being et the
lower prices following the decline. It we.s reported th^t Czechosloveki sustained
e net loss of three billion crowns in selling t drol_)ping prices to -oey for
items bought at the peek.
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9, There ? re sever.;1 r^^sonn that can he gitren for the meltinr ^way of foreign
exchr.nge
(e) Shortpge of non--fe ?rova metn.1s h.ns delayed deliveries of mn.chinery,;,,,
for he.-,vy'industry.
fr) C;:hAap cotton bought from P.-q.kistan hae. proved so inferior that a.
large proportion of Snyotirn? 'rfton had. to be added in order to make
cloth? t -11 any' this. required heavy ndditi.onal purchases of
' gyptinn cot:tor.for hard currency.
(c) In 1948. a, half-billion Czechoslovak crowns worth of flax had been
purchn.se'd.from France with the expectation that the linen produced
thereform would bring in between three an? four billion crowns in
exchange when it wao re-exported. Throuf;. .-tne error or mischance,
which the Coruun.ist Pryrty ottributA? fr :sabotage, total exchange
epraetl by processing this flax wv-, 120 :f"illiancrown.s.
(d) A smo.ller item (80 million francs w _,th) concerned the Tudor, e
low-priced automobile, produced with four ubu,-"
later corrected, l eceuse of *'- . Lg1.dity of the plan,*,.It was impossible
to stokl-}.ict=on after th' bugs wer- discavered.. _ut, iciowledge of
the bugs circulated, long with lnform,,tion the.t e new, i~iprnved
.model w-s forthcoming: Consequently, the 80 million,crowns worth
bec'me n: drub; on the market and no one in L"urope would buy one of
the model:
10. Ina a. greet`deal of the difficulty in the Czechoslov'k export business
stems from the, retionrli^a-tion of Industries in the country after. the Februery
1948'0n-. Before the Coup, there were 3,000 firms in C2echoslovakin In some
way connected with the export business, I believe proportionately more th^n in
any other.-country in the 'world. There were several hundred such firm- ;- the
glassy.industry' clone, also in the ceramics industry. 20 such firms 25X1
r.the-chemicel field in the single city of Prague. There -+re nine
firms deeling with the single -oduct, borax. After the Februrrry Coup, All the
firms were swept into V e State -~nopolies, and into complete conf=".sion. C3 X3.1
servants with no beckgrounc: L.i the field to which they were P. I would be
,.in charge of e whole export industry. They didn't know wh~.t to-do and often did
not care whether,enything was done At a.ll. A letter of inquiry would come to
firm that no longer existed and might not even be answered. Even if it were
transmitted up to the proper section of the ministry, the people who received it
.would not know what to do about it. Then, even when orders were shipped out,
the'new people would not know how to do it, and, es P. result, A, lot of goods'
were returned cs unsatisfactory. All this involved really big business. For
example; the glass industry, alone, ha.d previously been exporting more than
four' billion crown! worth o' prodw'+. a year. Finally, it was decided to . re-
est-blish about 2C%..of the old firms in order to recapture the business th-,t wn.s
being lost. In a.I,., this, the Finance Ministry was a kind of watchdog, and the
troubles And d,ff1culties came up to It, The way5 1
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it,worked out., when.nationalization was pv'- into effect: A man would be eppoin e
deputy for, sa.y, the glass industry, 'He would e 11 t?p A,il the old firms end. se,y,
"I e;m your administrator. From now on you are to deal through me. I am too busy.
Goodbye." All business would come to r standstill. Goods would be un n.id for,
unaccounted for, end no one would know where -stocks were. from
the Argentine w's in the artificial silk business and had orders to 7l for 25X1
South Africc. No one was able to tell him whet stocks were e,vrileble or where
in Czechoslovakia they were located.
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