IMPACT OF INFLATION AND RECESSION ON THE USSR AND EASTERN EUROPE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000600010034-9
• Release Decision: RIFPUB
• Original Classification: U
• Document Page Count: 29
• Document Creation Date: December 12, 2016
• Document Release Date: April 13, 1999
• Sequence Number: 34
• Publication Date: January 1, 1975
• Content Type: REPORT

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Impact of ~nflat;ion and Recession
on the USSR and Eastern _ Europe
The USSR has been helped and?Eastern Europe hurt by the rise
in,oil and raw materia'
prices in 1973-74.
? Soviet terms of trade vis-a-vis the West
improved, and the Soviet hard currency
balance of trade was in surplus for the
first time in seven years.
? Eastern Europe's terms of trade-with the
W?vt deteriorated, and its trade deficit
increased sharply.
Western inflation and recession are affecting both the
USSR and Eastern Europe.
? Some raw material prices are falling,
prices of manufactured goods are rising,
and the terms of trade are beginning to
go against the USSR.
?On the other hand, the Soviets are able
to extract more trade concessions from
Western countries because of their
desire to expand exports.
,,Eastern Europe will be hurt by higher
Soviet prices this year and has been
hurt by deteriorating market conditions
in Western Europe. Economic growth and
the growth of consumer welfare is likely
to be cut ;pack.
Soviet econ.)mic control over Eastern Europe is being strengthened
because of Eastern Europe's' increasing dependence on relatively
low-priced Soviet fuels and ::aw materials.
Moscow, reluctant to extract political gains from economic
problems in Europe, is urging Western communist parties to
pursue gradualist policies rather than take radical action
that could jeopardize Soviet detente policy.
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Impact of inflation and Reces3ion
on the USSR and Eastern Europe
Communist-type economies by their nature are protected
from the'vagaries of the world capitalist market. Prices are
r
administered, and there is no systematic relationship between
domestic prices and foreign trade prices. If higher prices
are paid for imported Western goods, for example, the difference
between the domestic price and the foreign trade price is covered
by state subsidies, leaving domestic price levels unaffected.
The Soviets have been more successful than the Eastern Europeans
in insulating their economy from world market conditions largely
because Soviet foreign trade accounts for a small share of GNP.
In the USSR, total imports are only about 3% of GNP and imports
from the West, roughly 1%. For Eastern Europe it is 15% and 5%,
respectively.
USSR
As the USSR has increased its trade with the West& Western
economic conditions have become more important to the Soviet
economy. Western equipment and technology is an ever growing
element in the Soviet scheme to upgrade its industry.
Imports from the West are limited by earnings from exports
of goods and gold and by credit availability. The rapid increase
in oil, raw material, and gold prices has greatly strengthened
Moscow's ability to import from the West. The dollar value of
Soviet exports ?::o the West roe by more than 50% in 1973 and
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apparently increased substantially in 1974, although demand
for Soviet raw materials may have'weakened in the latter part
of 1974. The Soviets had a trade surplus in 1974 for the first
time in seven years as a result of high oil and raw material prices. Fran a
r 0
deficit of $1.7 billion in 1973, the Soviet hard currency
surplus reached perhaps $1 'billion.
The slackening of demand and lower prices for some Soviet
exports -- e.g., platinum, diamonds, copper, and wood -- probably
resulted in a decline'in earnings for these commodities; the
lower prices should remain in effect for the balance of 1975.
But under 1974 agreements Soviet gas prices will be higher and
coal and oil- prices also should stay up in 1975, although the
volume of oil deliveries may decline. Another surplus in 1975
is probable.
Western inflation has also led to a rapid increase in the
prices the USSR has paid for its purchases in the ( In
some instances the Soviets have been forced to accept price
escalation clauses in purchase contracts; in other cases they
found that the cost of equipment has greatly increased. Prices
charged by International Harvester for crawler tractors ordered
by the USSR last fall, for example, were increased by 85%
over previous levels.
The deepening recession has resulted in a marked slowdown
in the rise of Western export prices as well. In contrast to
1974,, when increases in annual export price indices of major
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Soviet suppliers ranged from 17% (West Germany) to over 50%
(Italy), the rise in export prices during 1975 is
expected to average around 5%. The leveling off in prices will
directly benefit Soviet buyers, who are in the process of
placing several billion dollars of orders in support of the
1976-80 plan. Since mid-1974, the USSR has ordered over
$3 billion in machinery and equipment and an additional $2
billion in large diameter pipe.
negotiations, they are willing to run it up considerably more --
p,~.rticularly if they believe the inflation rate will exceed the
interest rates they are getting on these credits.
The rapid increase in Soviet export prices during 1973-74
has far outweighed the higher prices of Soviet imports of
manufactures from the West, and Moscow's terms-of-trade remain
significantly improvedover 1972. Moscow has also benefited from
higher prices for gold. iahereas Moscow used to sell gold'only to
As a major potential buyer in a depressed market the Soviet:;
have been able to exact economic concessions from Western
governments. Since December 1974 the USSR has received over
$6 billion in low-interest credit lines from the UK and
France and could receive an additional. $1 billion or more from'
Japan and Italy in 1975. As indicated by the recently signed
USSR-UK cooperation agreement, Western governments may also p^ove
more willing to support the long-term commodity pay-back deals
increasingly favored by Moscow. The Soviets have accumulated a
medium-term and long-term debt to the West of more than $4 'Allion
already. Judging by its recent capital goods purchases and current
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g y tons were sold in
1972-73, earning about $1.3 billion -- it was also selling
gold.in 1971 to take advantage of high prices. Continued
uncertainty in the West should keep gold prices high, enabling
Moscow to earn $1 billion or more per year from sales out of
current production. Meanwhile the Soviets are successfully
increasing their output of gold every year.
The USSR has demonstrated a continuing, but fluctuating
need for many food products produced in the West and currently
has the financial ability to purchase large amounts at any given
time. As a result, Soviet purchases, or even the threat of
purchases, can have a significant impact on world food prices,
especially grain. Even good Soviet harvests will not preclude
the import of specific types of grain, such as corn and high-
quality milling wheat. One large grain exporter who has close
Soviet contacts believes that the USSR will "normally" buy
4-6 million tons of corn and "periodically" buy 1-3 million tons
of wheat, barring serious crop shortfalls. Eastern Europe also
has a continuing need for Western feed grains, in particular to
support their growing livestock programs.
In most international markets the Soviets play a passive role,
accepting market conditions as given. Thus, Moscow has profited
greatly from high raw material prices in recent years, while usually
not causing these increases. The Soviets followed OPEC in raising
oil prices, but they have not profited much from non-oil cartel:;,
mainly because the latter have enjoyed only limited success. The
copper cartel -- CIEPEC -- has had some success in supporting prices
and Soviet copper earnings have probably been aided somewhat, but
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mercury, for example -- have failed. Moscow, however, has
profited from the anticipated US embargo on Rhodesian chrome by
raising the price of Russian chrome ore by 165% in January 1975.
In the rapid run-up of sugar prices late last year, the Soviets.
were a major factor. At the time there were rumors that the Soviet
purchases were speculative, but no concrete evidence of this has
emerged.
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Eastern Euro'*~
In 1974, Eastern Europe was confronted by higher prices
for imports of Western machinery and equipment as well as for
semimanufactures and raw materials. The prices for East
European exports to the West also rose, but much less than
import prices. The resulting decline in terms of trade varied
.from one country to another, depending largely on its raw
material resources. Thus, Romania and Poland, whose exports
feature a substantial volume of fuels and raw materials, fared
much better than the rest.
In addition to its deteriorating terms of trade, Eastern
purope suffered another reversal: a slump in demand for some
of its exports owing to the recession in the West. Overall,
Poland and Romania managed to increase the volume of their exports,
largely because of greater deliveries of energy products.
For the others, little volume increase, if any at all, was
registered. Higher prices explained most of the growth in
the value of exports.
The unfavorable development in prices and markets combined
to produced a total East European deficit of $4.5 billion,
nearly twice the deficit of 1973. Poland's deficit increased
by nearly $900 million to $2.1 billion, and accounted f'r
nearly half the total East European deficit. The deficits were
^overed largely by increased drawings on Western government
guaranteed credits and through other borrowing. Eastern Europe's
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debt to the West, which had already reached about $10 billion
at the end of 1973, was subtantia',ly higher at the end of last
year..
The East Europeans depend more on foreign trade than the
USSR and ordinarily would have suffered'severe hardships because
of the reversal in their terms of trade and export markets.
But they were able to mitigate the impact of these developments
on their economies because more than half of their trade in
1974 was conducted with other CEMA countries at stable prices.
Also, the availability of Western credits allowed the East-
Europeans to continue to secure other materials vital to
maintaining production in major industries. Thus, the East'
European economies managed to grow at an above average pace --
from 6% in Czechoslovakia to more than 15% in Romania -- in
spite of the deepening recession in the West.
Still conscious of the Polish riots in 1970 over higher
prices, t}-e East Europeans made extensive use of budget
s>hsidies in 1974 to insulate their domestic economies from
the impact of Western inflation. Most retail prices were
s::able in 1974, although the desire to conserve oil prompted
the East Europeans to raise domestic fuel prices. To a small
extent, consumers were charged higher prices through changes in
the assortment of merchandise available to the public. For
example, like the L'SSR, Eastern Europe was affected by
deterioration in the quality of goods and the disappearance of
cheaper varieties from the shelves.
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Eastern Europe is likely to incur another sizable deficit
i.r,its trade with the West in 1975. Attempts to save foreign
exchange by cutting back on non-essential Western imports are
likely to be thwarted by more prices rises in the West.
Meanwhile, attempts at increasing exports will continue to
be frustrated by Western recession. In anticipation of these
developments, the East Europeans have already obtained some
commitments for Western credits to cover the anticipated
deficits and are seeking other loans, particularly from OPEC
countries. If the necessary financing does not materialize,
Eastern Europe will have to cut back sharply on imports from
the Vest.
Economic growth in 1975 is likely to fall short of the
1974 pace. Increases in prices with other CENA countries,
particularly for Soviet raw materials, will place further
strains on the East European economies. Domestic endowment
of raw materials will allow Poland and Romania to continue to
boost industrial production, but others will have to cut back
on growth plans. Moreover, as prices continue to rise each
year, long-term planning becomes more problematic.
The sectors hardest hit by higher costs or any cutbacks
in fuel supplies would be chemicals, metallurgy, agriculture,
and fc,;,d processing. These are the industries relying most on
imports of Western equipment and basic materials, which also
may be trimmed. Consumer industries, such as textiles,
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leather, wood, and paper, may require more :Investment and
output. to satisfy Moscow's desire for additional consumer
goods from Eastern Europe.
The requirement to boost exports to,both the West and
the USSR will leave fewer goods for domestic consumption.
Planners will have to slow down the growth of real income and
increase some retail prices. The Hungarians in January 1975
s
and the Poles in February 1975 have already raised retail
prices for some goods that incorporate high-priced Western
.materials, and the other East European countries are likely
to follow.
Soviet-East European Economic Relations
Eastern Europe conducts almost one-third of its trade
with the Soviet Union.* The USSR traditionally has been
Eastern Europe's main supplier of oil and many raw materials
essential to the viability of these economies. The USSR
supplies more than three-fourths of Eastern Europe's imports
of crude oil, and the bulk of its imports of iron ore, pig
iron, lumber, and the like. These countries have obtained
goods from the USSR without the expenditure of scarce hard
currency and at bargain prices. For a number of years the
USSR has not been happy with its terms of trade vis-a-vis
Eastern Europe, selling high-cost raw materials at low prices
for what it considered overpriced machinery and equipment.
The share o* Eastern Europe in Soviet trade was 46% in 1974.
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To offset its disadvantage, the USSR has insisted in recent
years that the East Europeans purchase more Soviet machinery,
buy more oil in the West, and invest in Soviet raw material
projects as a guarantee of future deliveries. Despite
adjustments stemming from these demands, the USSR still
considered itself at a disadvantage in trade with Eastern
Europe, and when prices of oil and other raw materials rose
steeply in world markets, the Soviets refused to increase this
disadvantage.
The Eastern Europeans had expected the USSR to maintain
prices until the end of the current five-year plan period --
through 1975. The Soviets, however, have already boosted the
price for most oil deliveries from $3 a barrel to about $7 --
still well below world prices. This will increase Eastern
Europe's bill for Soviet oil by $1.5 billion -- equivalent to
about 13% of its exports to the USSR in 1974. In addition,
the Soviets are raising prices on a wide spectrum of other
raw materials, but most of these prices will also be below
world market levels. The resulting worsening of Eastern
Europe's terms of trade with the USSR will vary with each
country, according to its dependence on imports of raw materials.
Moscow probably will grant concessions to those hardest
hit -- Czechoslovakia,,East Germany, Bulgaria, and Hungary --
in order to prevent severe strains on their economies. The
Soviets will probably be more generous in 1975 than subsequently
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since the East Europeans 1-ava already drawn up their plans
at the old prices. The Hungarians have already been promised
ten-year credits. ::oscow may not be as forthcoming to
countries such as Poland and Romania, which rely less on Soviet
raw materials.
Despite these concessions, East European terms of trade
with the USSR will continue to worsen during the next few
years. Intra-CE_4A prices reportedly are to be recalculated
annually on the basis of the previous five-year average world
price. World prices for many raw materials have begun t
level off or even decline, but CE`?y prices will continue to
rise for several years as low-priced years are dropped from
the formula. Assuming a moderate rise in world prices, the
East Europeans could be paying $12 a barrel. for Soviet crude
by 1960.
Concessions by the USSR are meant to prevent major
economic disruptions in Eastern Europe, but they will also serve
Moscow's political ends. Concessions in return for, closer
Eastern European ties to the :iSSR clearly promote Soviet
policy toward CE*:A integration and measurably strengthen Moscow's
economic control over Eastern Europe.
Economic benefits accruing to Moscow include the greater
availability of investment funds for Soviet projects and
increased supplies of Eastern European goods. About 30% of
Soviet imports from Eastern Europe is made up of consumer
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make the Soviet consumer happier. Fewer goods will be left
for?consumptiori?in Eastern Europe, but leaders in these
countries cannot afford to ignore the lessons of the Polish
riots in 1970 when prices were raised to dampen demand.
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Impact of World Energy Situation
on the USSR and Eastern Europe
The USSR is the only industrial country in the world
that is self-sufficient in energy. Oil in the USSR's
major energy export, and, indeed, its major export, and
the sharp increase in prices in 1974 helped the Soviet
Union to generate a hard currency trade surplus. Oil
earnings doubled to at least $2.5 billion. As much as
900,000 b/d may be sold to hard currency countries in
1975 and at $10 a barrel, earnings would be about $3.4
billion (Table 1). Western industrial countries have
curtailed oil demand and restricted imports, including
those from the USSR, and the 900,000 b/d estimate may
be high, but oil revenues should reach at least $3 billion
and thus help assure the Soviets another hard currency
trade surplus.
While Soviet oil exports to the West may level off,
exports of natural gas are to rise sharply during the next
few years. Because of the USSR's critical need for large-
diameter pipe and ancillary equipment for pipeline con-
struction, it has signed co:,tracts to receive such / equipment
in exchange for long-term deliveries of natural gas. Soviet
exports of natural gas to Western Europe in 1975 will reach
1.2 billion cf/d and expand to about 2.4 billion cf/d in
1980 (Table 2). The USSR was able to renegotiate natural
gas'prices i:pward in 1974 talks with Austria and West Germany.
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Table 1
USSR: Estimated Oil Supply and Demand
(Million Barrels/Day of Crude Oil Equivalent)
SUPPLY
Domestic Production
Imports
1973 1974 1975 1980
8.4 9.0 9.6 11.8
0.3 0.1 0.3 0.4
8.7 9.1 9-9 12.2
DEMAND
6.4
Domestic Consumption
Available for Export to; 2.3
Eastern Europe 1.1
Other Communist countries 0.3
West for soft currencies 0.2
West for hard currencies
0.7
6.8 7.2
2.3 . 2.7
0.2. 2/ 0.2
0.3 0.3
0.6
0.9
1.4
- 1.8
1/
2/
0.2 2/
0.2
0.8
- 1.2
3/
1. The range of possible Soviet supplies to Eastern Europe affects the amount.
available for hard currency countries.
2. Includes swap oil for Cuba from hard currency suppliers on Soviet account.
3. Actual Soviet exports to hard currency countries may be reduced by 200,000 b/d of
Soviet hard currency imports.
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Table 2
USSR: Estimated Natural Gas Supply and Demand
(Billion Cubic Feet/Day)
1973
1974
.1975
1980
SUPPLY
Domestic Production 22.8
25.2
27.6
36.7
Imports 1..1
1.2
1.4
1.4
TOTAL 23.9
26.4
29.0
38.1
Domestic Consumption
26.6
33.4
Exports 0 ~ 7
1.2
2.4
4.7
To Western Europe 0.2
0.4
1.2
2.3
To Eastern Europe 0.5
0.8
1.2
2.4
Not Trade -0.4
0
1.0
3.3
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Henceforth, prices will be tied to fuel oil costs in. each
of the two countries. As a result of these negotiations
and increased deliveries, Soviet hard currency karnings
from natural gas sold in Italy, Austria, and West Germany
should exceed $300 million in 1975. By 1980, annual hard
currency earnings from these gas sales will amount to $1.4
billion.
Soviet exports of coal to the West probably will de-
cline slightly in 1975 because of the recession-related
necessity to restrict energy consumption and reduce imports.
Soviet earnings of hard currency from coal in 1975, however,
are likely to rise to perhaps $70 million as the USSR gets
higher prices for the coal it exports.
The Soviet economy has been helped by the improvement
in the USSR's terms of trade vis-a-vis the West resulting
from high fuel prices. Increased export earnings has'
allowed the Soviets to step up imports of highly-priced
equipment and technology. Equipment imported to increase
gas and oil production would help to boost future exports,
but the world-wide shortage of such' equipment may retard
Soviet exploration and development in the next few years.
Eastern Europe is becoming increasingly dependent on
the USSR for oil and natural gas. Excluding Romania, which
does not import Soviet oil, the remaining five countries
of Eastern Europe rely on the USSR for about 85% of their
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supplies (Table 3). The remainder is obtained from the West,
chiefly as crude oil from the Middle East and North Africa and
mainly through barter. The higher price Moscow i- charging
for oil, although still well below the $10-$ll per barrel for
Saudi crude; will cost the five countries an additional $1.5
billion in 1975.
The need for oil in Eastern Europe will continue to rise,
and its import bill will also rise, at least for several years,
unless oil prices decline sharply in the near future. A new
Soviet-East European price formula has been agreed to which
calls for an annual revision in oil prices based on the
average world price for the preceding 5 years. In addition,
Soviet deliveries to Eastern Europe will probably level off
in a few years, and Eastern Europe will have to buy more oil
from the West. These purchases will be mostly hard currency
since barter deals for oil with Arab countries are likely to
be limited by Arab reluctance to take large quantities of
East European goods.
As the USSR becomes unable or unwilling to increase
deliveries of oil, larger supplies of Soviet natural gas
will be available for export. Soviet gas reserves are
much larger than those for oil, but the equipment and
technology required to produce the gas from fields located
in remote areas and to transport it by pipeline is costly.
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Table 3
Eastern Europe: Estimated Oil Supply and Demand
(Million Barrels/Day of Crude Oil Equivalent)
3.973
1974
1975
SUPPLY
Domestic Production
0.3
0.3
0.4
Imports
1.5
1.7
2.4
From USSR
1.1
1.2
1.3
1.4
- 1.8-1/
From other sources?/
0.6
- 1.0
TOTAL
2.8
DEMAND
Domestic Consumption
1.8
2.6
Exports3/
Amount supplied by theR affects the amount Eastern Europe
must secure from other sources.
2. Includes both hard and soft currency expenditure. The share of
purchases requiring hard currency is expected to rise sharply in the future.
3. Romanian sales, mainly for hard currency.
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Much of the equipment and-capital must come from the West,
but a new cooperative venture is now under way in which the
five East European countries will assist the USSR in building
a 56-inch gas pipeline from Orenburg to Eastern Europe.
Estimated Soviet deliveries of natural gas to Eastern Europe
in 1975 and 1980 will be about 1.2 and 2.4 billion cf/d,
respectively, and account for about one-fourth of total gas
supply in 1975 and one-half in 1980.
Future Energy Needs
The growing depletion of resources available near
existing population centers in the European USSR has forced
the Soviet leadership to look to Siberia to meet future needs
and to ponder ways to supply the area with the necessary
capital, labor, and technology. The USSR will have to develop
Siberian energy reserves, in particular, if it is simultaneously
to meet its own rising requirements, satisfy the needs of
Eastern Europe, and maintain sizable exports to hard currency
areas.
Thus far, the USSR has been developing Siberian resources
almost entirely with its own resources. It does not have the
capital and, in some cases, the technology to exploit
Siberian resources as quickly as it would like. The magnitude
of gas and oil reserves and the difficult cold climate
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engineering problems involved.in their development are reflected
in the urgency of Soviet efforts to obtain the assistance of
Western capital, equipment, and technology. Without outside
assistance, the pace of development of onshore oil and gas
resources would be delayed by three to five years or longer;
and extensive development of offshore resources would be
improbable by 1990.
If the USSR is to remain self-sufficie::t in energy, the
development of Siberian resources is imperative. Total Soviet
demand for energy is expected to double during the period
1976-90; 80% of the increase in Soviet production of energy
through 1990 will be obtained from Siberia. By 1990 Siberian
fields probably will account for about half of total Soviet
production of oil and gas.
Impact of the Energy Crisis on Soviet Oil Policy
The energy crisis has had no impact on Soviet oil production
policy. Thus far, it has been Soviet policy to produce as much
oil as possible -- to meet its own and Eastern European needs
and to maximize sales to hard currency countries.
Trade policy has changed only in the sense that the Soviets
raised their prices of oil to non-Communist customers -- both
hard currency customers and their bilateral trading partners --
following OPEC's lead. -Aydin 1975 they are increasing oil prices
t, Eastern Europe. Apparently some hard currency customers, such
as France, were unwilling to pay Soviet prices in 1974 and
reduced oil imports from the USSR. In addition, the Soviets were
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unable to import as much as they wanted to on barter from Iraq,
the latter demanding world market prices and hard cuzroncy. Most
of the Iraqi oil obtained on Soviet account is shipped to
Eastern Europe. Thus, the USSR had to export additional oil to.
those countries
In 1975 the Soviets plan to increase oil production, sell
more to Eastern Europe and hard currency customers, and obtain
more from Iraq on barter. Without barter imports from the
Middle East, exports to hard currency countries probably would
decline.
If the Soviets are unable to extract as much oil as needed
for consumption and exports in the future, they may find it
desirable to import more from the Middle East. Although the
Iraqis resisted Soviet requests for barter oil in 1974 and cut-
exports to the USSR sharply this year, they may relent if they
can't sell as much as they would, like for hard currency. If
excess producing capacity continues to be available in OPEC
countries in the future as importing countries reduce consumption
and/or produce more oil themselves, the Soviets are likely to
-attempt to procure substantially more oil from Iraq and other
Middle East and North African countries by barter. Such procurement
if large enough, would ease the ;pressure on Soviet oil resources.
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 Approved For Release 2001/12/05 : CIA-RDP86T00608R000600010034-9
Soviet View of World Economic Problems
Moscow undoubtedly perceives the current economic maladies
in the West with mixed emotions. Moscow propaganda con-k.rasts
this latest crisis in capitalism with so-called stable
economic conditions in the world socialist system. Moscow's
claims of the Communist countries' immunity to world economic
ills are being tested, ho'7ever. Although the Soviet and
East European economies will be able to escape the full impact
of Western inflation and recession, they are being affected,
Inflation and Recession
According to a recent Izvestiya editorial., the Western
world has greeted 1975 with anxiety: business activity is
in a slump, production is declining, the unemployment level
is climbing to new highs, and inflation is set`.ing new growth
records. In contrast, the USSR and East Europeans are looking
to the future with confidence. Accordingly, the West Europeans
are looking more favorably on establishing closer economic
relations with the socialist states and are now following the
example of France, "one of the first" to establish close ties
with the USSR.
Moscow has played up the advantage to the British workers
who will be gainfully employed filling the large orders for
the USSR that will be financed by the $2.3 billion credit line
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advanced to Moscow. Also addressing workers' interests,
Politburo member Aleksandr Shelepin closed his address at
the December 1974 trade union meeting with the Finns by
sharply criticizing. the European Trade Union Confederation
for its lack of aggressiveness in protecting the worker
against the. growing threat of inflation.
Moscow is worried, however, because as inflation mounts,
the cost of imports from the West also increases. While the
terms of trade are still in Moscow's favor, the inflationary
process in the WW;est* with its attenda:it higher prices for
Western manufactured goocsis eroding the price advantage
recently won by Moscow. The Soviet leaders also must feel
uneasy at having to sit on the sidelines while others make
the decisions on oil prices.
Constantly rising prices for Western manufactures are
making things difficult for Soviet planners. Not only will
it be more difficult to plan long-term projects because of
increased foreign exchange cost of equipment, but it may
also become increasingly difficult to measure the viability
of a particular project on economic grounds, because of
uncertain capital costs.
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The insulation of the world socialist system from
Western economic instability also has been dealt a serious
blow-by the adoption of the new CEMA pricing system which
each year will adjust CEMA prices according to average world
prices for the previous five years. Accordingly, Western
inflation will be imported into CEMA trade and will add to the
pricing and planning problems that now exist in East-West trade.
The Raw Materials Problem
Moscow views the-raw materials problem as a "graphic
new manifestation of the general crisis of capitalism," which
in turn is aggravating the West's other economic difficulties.
According to Soviet spokesr-,n, it has increased the instability
of the foreign exchange system because the rise in raw
material prices has forced some Western countries to borrow
funds for balance of payments purposes; the higher raw
material prices are being borne by the population who are hit
and
with increased retail prices;/raw material shortages and
attendant higher prices are exacerbating the recession in
several key industries, -Thich in turn contribute to a decline
in business activity and an increase in unemployment. Moscow
places the blame on Western monopolies, which earlier had been
exploiting the less developed countries and are now chafing
at the bit for having to pay higher prices.
Moscow has benefited, however, from the sharp increases
in raw materials prices, which in the last two years have
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greatly improved the USSR's terms of trade with the West.
Similarly, Moscow's terms of trade with Eastern Europe will
improve dramatically this year according to the new-CEMA
trade pricing system. It appears to be a foregone conclusion
that prices for raw materials (Moscow's major exports to
Eastern Europe) will rise faster than prices for manufactured
goods (Moscow's major-imports from Eastern Europe).
Reluctance to Exploit Political Openings
Moscow has been reluctant to extract political gains from
economic problems in Europe. Detente comes first and the class
struggle comes second, says Soviet Party Secretary Ponomarev.
Whereas not so long ago, Moscow was telling the world's communists,
particularly those in Europe, that the crisis of capitalism
presented them with a greater opportunity than they ever had,
Ponomarev is now urging them to.go slow. Apparently he is
now more concerned with the possibility that the crisis of
capitalism may bring fascists into power, particularly in
Europe. The political turmoil that would be generated would
complicate Soviet relationz with. the United States as well as
adversely, affect Soviet detente policies that also are yielding
benefits to Moscow. Apparently Moscow is now hopeful that the
West, .because of its economic crisis, might now be more willing
than in the past to accept a real measure of arms limitation
and reduction, and thus pursue detente more earnestly.
31
Approvea ror Keiease Luu-iriLiuo : wH-rcurun i uunu.urcuuunuuu-iuus4- I
 Area
TotaiY
Communist countries
Eastern Europe
China
Other
Free World
Developed West
Less Developed
Countries
Unspecified3/
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Table 4
Geographic Distribution of Soviet Tradel/
Million US $
1970
1972
1973
1974
Exports
Imports
Exports
imports
Exports
Imports
Exj- cts
Imports
12,800
11,731
15,416
16,105
21,332
20,980
27,370
24,860
8,367
7,636
10,020
10,307
12,306
12,442
NA
NA
6,758
6,633
8,143
9,306
9,964
10,925
11,7004/-12,1004/
25
22
121
134
136
136
NA
NA
1,584
981
1,759
873
2,205
1,381
NA
NA
4,433
4,095
5,383
5,789
9,027
8,538
NA
NA
2,344
2,780
2,884
4,097
4,957
6,124
NA
NA
1,292
1,298
1,426
1,669
1,928
2,391
NA
NA
796
16
1,080
25
2,142
23
NA
NA
1 All trade statistics are derived from official Soviet statistics, unless otherwise indicated.
2/ Because of rounding, components may not add to the total shown.
3/ Includes Hong Kong.
3/ Estimated.
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-26-
 East ;:;:ropeaa ?o: sign Trade by Area
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Exhorts
!.
?1972
1972
1973
19744
Eastern Europe
Total
24234
32693
42128
24543
31S24
3E412
Eastern Europe
6731
6667
10165
6676
9033
13431
USSR
6222
9993
117:.::-
9335
11025
12575
Other Co-.zaunist
_014
13369
1624`
1183
1456
1706
Developed nest
6543
10603
15246
5:76
7795 .
1C309
Developing :rations
:429
204:x,
3364
1871 .
2523
3641
Bulgaria
Total
2567
3270
4166
2627
3303
3338
Eastern Europe
629
73a*
9:5
531
7i0*
315
USSR
1343.
3.6i5*
19220
1478
1755'
1945
Other Co.-..u:.ist
77
185*
237
2'39?
155`
=5v
Develc. cd West -
349
466*
790
3Ni
40011
510
Develoai .g ?:azior.s
171
216*
3.34
199
279`
408
Czec :os .ova is
Total
4662
6304
7640
4915
6218
7400
Eastern Europe
1428
2064
2455
1590
:063
2250
USSR
1543
1890
21,3
1668
1970
2160
.Other Cc=unist
260
340
400
275
360
450
Developer: West
1356
x,553
2:40
929
1303-
1755
Develop:,-.; ..azio:.s
310
457
675
453
516
785
East Ge:.ra:.y
Total
5905
7876
93:5
? 6104
7542
8760
Eastern Surope
1641
2334
2523
1904
2369
2745
USSR -
2069
2469
2735
21085
2650
3035
Other Co.- list
215
254
285
275
306
340
Developed Was=
1777
2524
3354
1277
1694
2230
Developi::g :;aticas
203
275
371
243
. 326
400
Tungary
Total
3154
4076
5576
3291
4594
5127
Eastern Europe
835
1057
1335
967
1406
1577
:
USSR
1Q94
1389.
1635
13.88
1S34
1552
.
Other Co =u..ist
97
123
3.49
142
193
2.5
Developed West
351
1178
1379 .
739
1126
1213
Developi:.; ::aticrs
227
329
' 528
255
335
469
Poland
(Iii
oil'
Total
5330
7662
10471
4927
6432
8332
_ ,ti
Eastern Europe
1491
1943
2335
1154
1633
20:4
USSR
1591
1916
2353
1316
2032
2373
Other Coy nunist
180
203
249
161
168
250
Developed West
172
3431
5:53
1397
2063
23:6
13.
Nations
Developi.-.;
296
369
676
399
466
879
.
.
Roaania
Total
2616
3505
5060
2599
373S
4935
Eastern Europe
537
701
255
530
852
950
USSR
579
694
650
700
829
950
.1
4
2
3
0
3
2
.?3 Other Cor. unist
165
6
3
221
253
9
Devc:oaed West
1043
1451
2225
626
1203
18115
. t Devcdopirg Nations
222
395
- 600
322
601
900
Est i atcd.
IgsP
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