NOTE ON THE BALANCE OF PAYMENTS OF THE EUROPEAN SOVIET BLOC WITH THE FREE WORLD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP63-00084A000100190003-3
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 9, 2016
• Document Release Date: March 22, 2000
• Sequence Number: 3
• Publication Date: June 24, 1955
• Content Type: STUDY

Approved For Release 2000/08/23 : CIA-RDP63-00084A000100190003-4
CFEP DRAFTING GROUP
ECONOMIC DEFENSE POLICY REVIEW
Note on the Balance of Payments of the
European Soviet Bloc with the Free World
This draft of Staff Study No. 19 (Revised), "Note on
the Balance of Payments of the European Soviet Bloc with the
Free World", is transmitted for your use in connection with the
work of the CFEP Drafting Group on Economic Defense Policy Review.
In compliance with the request of the Chairman of the
Drafting Group, the Executive Secretary, EDAC, is providing re-
production and distribution facilities as a service to further
the work of the CFEP Drafting Group.
Irving I. Kramer
Executive Secretary
Distribution:
CFEP Drafting Group
OGA declassification & release instructions on file
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SECRET This dvcwmz consists of
CFEP ARAITINC GROUP
5 pages. No. Of
copies, Series-A.
Staff Study No. 19
Revised, June 2L, 1955
Note on the Balance of Payments of the
an Soviet B2nc with the ee World
This note is inc-14ded to explain an apparently -contradictory aspect
of Hast lest-trade that has frequently been observed. Export surpluses of
cvtiatat large--value, incurred by the European Soviet bloc in its trade
'with-the--free-world (especially by the satellites), have appeared in Western
brade statistics at the seine time that payments problems and bloc indebted-
nessdeorr -clesr?ng mccoant_wt h Western Earope- have been increasing. This
candi-tiarr- can, ualy be explained by reference to all the items affecting the
nse of foreign exchange by bloc countries.
9vnte- aspects of this problem are imperfectly understood as a result
-offncomsplete--data, but in its major outlines the balance of payments may
b e? descriLed -and the msknown elements can be estimated although with less
pre+clsian,than-mdght be--destrable. Table 1 contains a summary of the best
informabton estimate - currently available. Further detail on the methods
--by-vide r-the 'e figures were derived is available in EIC-R-11, The Balance of
Pa nts -of-the Soviet Bloc with the Free World 19118-1953, " . . .
In its merchandise trade with the free world, the European bloc has
wr export surplus-only if trade is presented from the standpoint of the f ree
warlddcow ries (as it is in their official statistics), that is if bloc
exports are valued c.i.f. free world ports and bloc imports f.o.b. free
world ports. If bloc exports are presented at their estimated f.o.b. value
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in bloc ports a fibre--import-surplus appears, which is relatively small
in the -years since 1949.
A further bloc deficit is incurred in the shipping account. Although
the actual ,share of bloc-ships and-railroads in transporting East-West
trade is not known with precision, it is known that the bloc has a limited
nreretrarrt--mari_ne and-ITs undoubtedly a net importer of shipping services.
The bloc's deficit on shipping account is estimated at $20 to $50 million
annually, and the overall balance for trade and shipping shows a bloc
deficit of over $100 million in 1948-119 and $60-80 million in 1951-53.
Tentative analysis of data indicates a substantial increase in the trade
and shipping deficit in 19.51.
From 1948 through 1952, the items included under capital movements
and transfers in Table 1 are sufficient to explain foreign exchange
acgnt?sitions--bythe bloc which were large enough to cover all, or most, of
the trade and -sshipping-deficits. In 1953, however, such acquisitions had
d,vt rdl:ed -to -insignificance, and in 19511 they were probably no greater. The
largest capital transfers, while they lasted, were the Finnish reparations
payments -and -the use of the Swedish credit of 1946-51., both accruing to the
USSR. Private remittances from the US, principally to satellite countries,
are a continuing item. Offsetting the above were bloc payments from 1950
to date in compensation for properties of free world owners which had been
nationalized by the satellite governments (such payments are, of course,
far less-than free world claims).
Sales of gold to the free world, mainly by the European Satellites
account for roughly $100 million annually in 1919-52. In 1953 the USSR's
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gold sa1ess--mwuntecb?t-o- $150-million. It is- estimated that the USSR sold
apprvaimately $125 -million. of gold in 1954. As- net- capital transfers
dklncled to---insignificaGnce in 1953 compared to earlier years they were
'rep -tor--h reasing gold sales.
Thsre'-remain -the-trartsfers of foreign exchange holdings, a category
which does--no-t--have as large -an effect on overall payments as the other
major--categori because-the items are smaller and offset one another.
It shuld ba -noted--that Continental Western European balances of the bloc,
c sting -in large part of clearing accounts, .}lave consistently shown a
met--increase, i.e.,-bloc indebtedness has risen, on balance, each year.
Else 3 oldings of -doh lar -exchange were drawn down sharply in 1948, and were
further decreased in later years until 1952 when little more than necessary
working -balances -remained. In 1953 a sizeable quantity of US currency, at
least--sots of which-had been acquired through China, was released. Changes
in sterling-balances and in bloc holdings of Swiss francs were not included
irr Table 1 owing to a lack of data, and the same is true of score clearing
accvturts, but-it is -unlikely that the omitted materials would significantly
eg~e the overall payments picture.
When all the above items are added together, a residual of errors
and omissions is obtained that shows a net value for bloc foreign exchange
earnings the use of which could not be accounted for. In 1948-49 this value
was about $50li llion, and in 1950-53 it was $100 to $125 million.
There are a number of small omissions which have not been mentioned,
-and the cumulative errors in all the estimates are potentially large. In
view of the direction of the residual values, it is necessary to mention
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SECRET
one large,omisuton -- unrecorded trade. Trade may be unrecorded, or be
vmngly recorded in official statistics, for a variety of reasons and
unrecorded trade therefore cannot be identified with clandestine or illegal
trade. It is known that the bloc did acquire substantial illegal imports
during these years., and this helps to explain the overall balance of known
payments items as shown in Table 1. However., the use of the residual item
in Table 1 as an estimate of the value of illegal imports should not be
attempted in view of the many uncertainties regarding the items from which
the residual was derived.
One conclusion which could be drawn from these figures is that the
increases in bloc indebtedness on clearing account are not very large in
the overall payments picture. But this is only true of the payments of
the European bloc as a whole and not of individual countries. The satellite
countries., viewed separately.. are in a much more restricted foreign exchange
position than the USSR, since they have no gold reserves and smaller export-
able surpluses and are more dependent on imports. Consequently, they are
under pressure to exploit all available sources of foreign exchange including
clearing accounts and in some cases private credits. It should be noted that
in the absence of capital imports, sizeable bloc import surpluses can be
maintained and financed only by the sale of gold.
It might be inferred from this data that bloc countries could solve
their payments problems merely by ceasing to engage in illegal trade. But
from the bloc standpoint a payments problem arises largely because of the
demand for imports from the free world, and those imports which must be acquired
illegally -- at higher cost - are goods on which the bloc places higher, not
lower, priority than on goods obtainable through normal commercial channels.
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