TALKING POINTS FOR NSC 25 MARCH 1982

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000200420003-6
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 19
• Document Creation Date: December 20, 2016
• Document Release Date: July 25, 2007
• Sequence Number: 3
• Publication Date: March 25, 1982
• Content Type: REPORT

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TALKING POINTS
for NSC 25 March 1982
1. The USSR's Hard Currency Problem
2. Soviet Savings Through Subsidized Credits
3. Recent Soviet Pipeline Developments
4. East European Financial Situation
5. Poland's Prospects for the Next 12 to 18 Months
(SNIE 12.6-82)
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The USSR could not cut imports easily because the
volume of imports other than food has already
stagnated, while import requirements are continuing
to rise.
Gold sales could be stepped up, but prices are already
falling and the USSR runs the risk of spoiling the
market even more.
-Even if the USSR managed to cut nonfood imports by 10
percent in volume terms and sold all its net domestic
production of gold it would still face a substantial
financial shortfall.
-Ultimately the USSR might well have to look to foreign
credits as a short-term solution to its payments
problem.
In light of recent Soviet practices and a growing
wariness on the part of the financial community over
Soviet creditworthiness, borrowing will be costly.
Moscow has not been in the commercial market place
for substantial mid or long term loans since 1979.
A decision to reenter that market now could have a
negative impact to the extent it fuels speculation
that Moscow is borrowing to pay off Polish debts.
Soviet debt in fact already increased sharply in
1981.
--Short term borrowing, however, would close the financial gap
for only a year or two. Beyond this, the longer term outlook
for the USSR's payments position is not rosy.
-The volume of Soviet hard currency exports is likely to
stagnate during the coming decade.
The volume of Soviet crude oil exports has been falling.
With domestic oil production leveling off or in decline,
the USSR will find it extremely difficult to prevent a
further drop in oil exports for hard currency.
Gas exports will continue to increase--but not on a
large scale until the export pipeline can be
completed--late in the decade.
Arms exports for hard currency appear to have leveled
off for lack of large new clients.
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-Moscow's main hope for sizable increases in hard currency
earnings would be another large jump in the prices of oil,
gas and gold--in the case of oil, an event that appears
unlikely in the next two or three years, but increasingly
likely during the second half of the 1980s.
-If Soviet hard currency earnings level off or decline,
Moscow will need to increase its new borrowing from the
West--and its debt--to avoid a fall in hard currency
imports.
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CL
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SECRETI
Talking Points
Recent Soviet Pipeline Developments
Both the Soviets and West Europeans are proceeding with the export
gas pipeline project.
The most important recent development affecting the viability
of the export pipeline project, was the reported decision by
Ruhrgas to attempt to reduce Soviet gas exports by 20 percent
from the 10.5 billion cubic meters agreed to in last November's
contract. Ruhr as allegedly had overestimated gas
demand, for
example, loor
price of 5.40 mm BTU's. Given the present softness of all energy
markets, Ruhrgas may well seek to cut the quantity purchased or
the price--or both--if the Soviets are amenable. The Soviets,
however, will oppose any alteration of the contract that will
adversely affect project economics or reduce net hard currency
earnings from gas exports.
-- Meanwhile, the USSR has continued to focus on circumvention or
US sanctions and on obtaining reassurances that West European
contractors and subcontractors intend to fulfill their contracts.
Moscow reportedly has broached the subject of getting technical
help from Western turbine firms to manufacture a Soviet 25-MW
model (which may be a copy of type ordered for the export
pipeline).
Some West European firms are in weak financial condition and
feel vulnerable to possible penalties for failure to deliver
equipment on schedule under existing contracts.
- Generally, the West Europeans indicate that all equipment
affected by the US embargo will be made and delivered eventually,.
-- Soviet ability to expand existing domestic pipeline networks and
to use smaller but domestically produced turbines on any additional
lines pointsto the start of gas deliveries to West Germany, France
and Italy (if it signs the contract) in 1984 as planned.
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- -- I I
East European Financial Situation
--The financial crisis in Eastern Europe is spreading as most
of the countries in the area are finding it hard to obtain
credits.
- No East European borrower can at present obtain a
syndicated Eurocurrency loan.
- Bankers are refusing to roll over some credits as they
come due.
- Even the export credit agencies of some Western governments
are not willing to increase their lending.
- If credit cutbacks accelerate, Hungary and the GDR, in
addition to Poland and Romania, could also face rescheduling
by the end of the year.
- Lack of credits will result in sharp import cuts by the
East European regimes, which will slow domestic growth
and lead to political instability.
- Some regimes may reluctantly turn to the USSR for help,
but Moscow will be able to offer little due to its own
serious problems.
- Bulgaria and Czechoslovakia do not face serious financial
problems this year.
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StLKL11
Effect of Polish Crisis on the East European Economies
Despite their satisfaction with martial law, the East Europeans
have been adversely affected by Poland's crisis:
--They have been increasingly shut out of Western credit
markets. Such denial jeopardizes, in particular, the
ability of Romania, Hungary, and East Germany to continue
meeting their financial obligations.
--Poland's failure to deliver contracted goods has forced
the East Europeans to pay at least $500 million in scarce
hard currency for replacements.
--The East Europeans, already strapped by their own economic
problems and slow growth, have extended roughly $1 billion
in various types of largely "soft" assistance since September
1980 (about one-fourth since martial law).
--The East Germans have been forced to accelerate their lignite
mining to reduce their dependence on Polish coal.
--The Czechoslovaks have allegedly talked about curtailing
their exports of capital investment because of reduced
Polish deliveries.
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CONFIDENTIAL
USSR: Estimated 1981 Hard Currency Transactions
(Values in billion US $)
RECEIPTS
EXPENDITURES
Merchandise
24.0
Merchandise
30.0
Fuel
15.0
Agricultural
12.5
Non-fuel
9.0
Non-agricultural
17.5
Arms
5.0
Credits
3.5
Misc.
1.0
Debt service
5.0
Financin
6
5
g
.
38.5
CONFIDENTIAL
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SECRL
--The current (1982) price of Soviet crude oil to Eastern Europe
is estimated at $22 per barrel (according to the 5 year moving
average), or about 65 percent of the current world market price.
--In 1981, the price was about half of the world market price
(according to the formula). With crude oil deliveries amounting
to 73 million tons to Eastern Europe, the East Europeans saved
roughly $10 billion dollars by buying subsidized Soviet crude.
(The Romanians received no benefits as they pay world market
prices and in hard currency for the 2.5 million tons they
received.)
--The known cuts for 1982 are
GDR: - a reduction of 2 million tons down to 17 million tons (from
planned deliveries of 19 million tons).
C z e c h o s 1 o v a k -a reduction of almost 2 million tons down to 16.8 (from
planned deliveries of 18.8 million tons).
Hungary -a reduction of from one-half million tons to possibly 1.5
million tons down to 6-7 million tons (from planned deliveries
of 7.5 million tons).
We know of no cuts scheduled for either Poland or Bulgaria. The
Romanians may receive less, but they pay at world prices anyway.
act has been mainly in public transportation
im
th
f
p
e
ar
--So
(reduced routes, fewer runs) and private travel (higher prices).
--The cuts will definitely hurt economic growth in these three
countries. Economic growth is already stagnant in Hungary and
Czechoslovakia.
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SECRET
klr10 w.-J Actions by West European export credit agencies to limit exposure
to Sovpft bloc.
Italy has halted all lending to Poland and Romania; no new
official credits have been pledged to Bulgaria, Hungary,
Czechoslovakia, and East Germany in past year, but they have been
able to draw on existing lines: only small government-backed
supplier credits have been given to the USSR recently, and Rome
has yet to approve formally government-backed financing for the
Siberian pipeline.
West Germany's government review committee is not accepting
credit applications for deals involving Poland and Romania and
has slowed the pace of approvals for the USSR holding in
abeyance applications for Soviet projects in excess of $50
million since December; other countries not affected.
France has practically halted official cover for export
credits to Poland and Romania, but continues business-as-usual
with other countries.
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TALKING POINTS
for NSC 25 March 1982
1. The USSR's Hard Currency Problem
2. Soviet Savings Through Subsidized Credits
3. Recent Soviet Pipeline Developments
4. East European Financial Situation
5. Poland's Prospects for the Next 12 to 18 Months
(SNIE 12.6-82)
i
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