Balance of Payments of the U.S.S.R., 1955–58

THE PURPOSE of this paper is to assemble in systematic fashion the available information on the transactions of the U.S.S.R. with the countries of the Soviet area1 and with the rest of the world during the period 1955–58. Only fragmentary and sometimes conflicting details are available on Soviet international transactions. In recent years, however, the U.S.S.R. has published detailed statistics on exports and imports, and additional data may be derived from Soviet publications and from information published by other countries.

Abstract

THE PURPOSE of this paper is to assemble in systematic fashion the available information on the transactions of the U.S.S.R. with the countries of the Soviet area1 and with the rest of the world during the period 1955–58. Only fragmentary and sometimes conflicting details are available on Soviet international transactions. In recent years, however, the U.S.S.R. has published detailed statistics on exports and imports, and additional data may be derived from Soviet publications and from information published by other countries.

THE PURPOSE of this paper is to assemble in systematic fashion the available information on the transactions of the U.S.S.R. with the countries of the Soviet area1 and with the rest of the world during the period 1955–58. Only fragmentary and sometimes conflicting details are available on Soviet international transactions. In recent years, however, the U.S.S.R. has published detailed statistics on exports and imports, and additional data may be derived from Soviet publications and from information published by other countries.

Over-all estimates of the balance of payments of the U.S.S.R. are presented in Table 1. The data used to compile the estimates are described below, and an explanation is given of the assumptions made to reconcile the data derived from different sources. Obviously, the entire balance of payments compilation should be used with caution. In particular, the group labeled “unidentified transactions” does not measure the full magnitude of the errors in the statement or of the transactions omitted; it merely represents the entries necessary to balance the identified transactions.

Table 1.

U.S.S.R.: Balance of Payments, 1955–58 1

(In Millions of U.S. Dollars)

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No sign indicates credit; minus sign indicates debit.

The years 1955–58 are interesting ones for an analysis of the Soviet balance of payments, because drastic changes in policy occurred during that period. Before 1955, the international transactions were limited, for the most part, to those with the countries of the Soviet area; Soviet activity in the world market was negligible. In 1956 and 1957, probably as a result of the difficulties in Hungary and Poland, the U.S.S.R. made substantial financial concessions to the countries of the Soviet area, in the form of long-term loans for economic development, credits on commodities, cancellations of claims, and a series of bilateral and multilateral economic agreements. Furthermore, during that period the Soviet Union entered the field of economic assistance to underdeveloped countries, granting a series of long-term credits.

In Section I of Table 1 identified transactions are shown. For some items, both sides2 of the transactions have been identified; for others, only one side. Where only one side has been identified, the other side is entered in Section II. There are undoubtedly instances where both sides of a transaction have been identified (and thus entered in Section I) but have not been recognized as the two sides of the same transaction. For example, gold may have been sold to finance the trade deficit. In such instances, both sides of the transaction appear in Section II as well as in Section I. Finally, for transactions where neither side has been identified, there are no entries in either section.

For the identified transactions, the available information is grouped in three categories. The first covers goods and services; the second presents transfer payments, long-term credits, other transactions arising from financial agreements, and data for joint companies; and the third shows the identified changes in gold and foreign exchange holdings, i.e., the sales of gold by the U.S.S.R. to western countries, payments of contributions to the United Nations and UN agencies, and some settlements with Finland and Iran.

Merchandise Transactions3

Soviet foreign trade is handled by some 22 foreign trade corporations operating as agencies of the Government and acting as intermediaries between the domestic producing, consuming, or distributing enterprises, on the one hand, and foreign buyers and sellers, on the other.

In 1958, the Ministry of Foreign Trade of the Soviet Union published detailed statistics on the foreign trade of the U.S.S.R. during the years 1955–57. In July 1959, estimates for exports and imports in 1958 were made available. The data are published in rubles; for the present paper, they have been converted into U.S. dollars at the official exchange rate of 4 rubles per U.S. dollar. These figures, together with known adjustments (see below), are summarized in Table 2. Goods of foreign origin acquired by Soviet foreign trade organizations abroad and transported to other countries without entering the U.S.S.R. are included in both exports and imports. Goods “supplied as free aid,” which presumably include armaments, are excluded from the trade figures.

Table 2.

U.S.S.R.: Merchandise Transactions, 1955–58

(In Millions of U.S. Dollars)

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Total Soviet foreign trade, i.e., exports plus imports, increased from $6.9 billion in 1955 to $8.6 billion in 1958; 74 per cent of the total trade in 1958 was with other countries of the Soviet area. In 1958, the value of Soviet exports was less than in 1957, although the volume was 5 per cent higher. The principal buyers among countries in the Soviet area were, in order of importance, Eastern Germany, Mainland China, Czechoslovakia, Poland, and Rumania; among countries outside the Soviet area, the chief purchasers were the United Kingdom, India, Finland, and the United Arab Republic. In the same year, the value of U.S.S.R. imports exceeded those in 1957 by 19 per cent.

The percentage distribution of the various categories of exports and imports in 1957 and in 1958 is compared in Table 3 with the distribution in 1938. These data show the declining importance of cereal exports and the rise in exports of machinery and other equipment. In 1958, deliveries of equipment for complete industrial plants represented the main item in the exports of machinery and industrial equipment (42.7 per cent).

Table 3.

U.S.S.R.: Exports and Imports by Major Category, 1938, 1957, and 1958

(In per cent of total)

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Trade with countries of the Soviet area4

Trade among countries of the Soviet area is conducted within the framework of the over-all economic plans of the individual countries. Prices, together with quantities to be traded, are fixed in bilateral agreements, and these prices apply for the duration of the contract. They are based on world market prices, with some adjustments, but are not subject to cyclical fluctuations. In practice, considerable differences have been observed between the prices charged by socialist countries in their trade with different partners. Furthermore, there is some evidence of price discrimination in favor of the Soviet Union. Intergovernmental agreements on trade and payments, and settlements between the central banks of the countries, are carried out in rubles.

Trading procedures are such that they minimize short-term capital movements. Limits are set on the indebtedness permitted in the clearing accounts, so that the indebtedness can be repaid by the end of a given year. Trade agreements normally provide for bilateral balancing over the year, and, if one partner fails to make deliveries on schedule, the other may delay shipments in order to enforce compliance with the agreement. However, if there is an uncleared balance at the end of the year, this liability is usually carried over to the clearing account of the following year. An interest rate of 2 per cent is usually charged on these liabilities. The central bank of the exporting country credits the export organization and debits the account of the central bank of the importing country when the goods are shipped and the documents presented by the exporter. The central bank of the importing country makes the opposite entries on its books upon receipt of the documents from the central bank of the exporting country.

To coordinate trade and avoid difficulties of fulfillment, the U.S.S.R. and the eastern European countries in the Soviet area established in 1949 the Council of Mutual Economic Assistance (CMEA), which has as its objectives the development of “mutual assistance” and “broader cooperation” among its members. Beginning in 1951, the countries of the CMEA concluded long-term bilateral trade agreements, which did not, however, rigidly determine the total of transactions within the Soviet area. From 1949 through 1955, the CMEA limited its activities to the collection and distribution of information on trade and technical assistance. Beginning in 1956, the CMEA extended its role to include the coordination of the trade plans of all the European countries of the Soviet area, including the U.S.S.R. In June 1957, a multilateral payments agreement was signed in Warsaw by member countries of the CMEA; some triangular agreements were also concluded in the past. However, the trade multilaterally compensated has remained rather small.

Soviet merchandise transactions with North Korea, North Viet-Nam, Outer Mongolia, and Mainland China are conducted on a bilateral basis, and every year trade protocols provide for the total value of the merchandise to be exchanged during the year.

Such information as is available on the settlement of merchandise transactions between the Soviet Union and the countries of the Soviet area is given in Table 4. The data are based on official Soviet trade statistics, and adjustments have been made for self-financing transactions, such as goods received on credit, gifts, and repayments of loans in goods. The residual represents the trade balance, after adjustment, that in principle is supposed to be settled through either bilateral or multilateral payments agreements. There is considerable evidence, however, that the trade surplus or deficit is in fact eventually settled by additional shipments of goods in the following years rather than by payment in free exchange.

Table 4.

U.S.S.R.: Trade with Countries op the Soviet Area, by Method of Financing, 1955–58

(In millions of U.S.dollars)

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Albania, Bulgaria, Czechoslovakia, Eastern Germany, Hungary, Poland, and Rumania.

Trade returns figures.

Includes repayments in goods of Soviet loans and settlement of consolidated Rumanian trade deficit ($8.0 million for each of the years 1956–58).

For description of residual, see text.

Mainland China, North Korea, Outer Mongolia, and North Viet-Nam.

After the adjustments, Soviet trade with the countries of the CMEA showed surpluses of $76.5 million for 1955 and $284.5 million for 1957, and deficits of $62.9 million for 1956 and $165.3 million for 1958 (Table 4). These variations seem reasonable, since planned exports and imports should, presumably, balance over a period of a few years. However, in 1957, some $120 million of the Soviet export surplus appears to have been due to a large increase in Soviet exports to Czechoslovakia. The rise in exports, and consequently the imbalance between exports and imports, is probably explained by Soviet shipments of goods on credit to Czechoslovakia under the terms of a loan of an unknown amount which was granted in 1957 to Czechoslovakia.

Soviet trade with countries of the Soviet area that are not members of CMEA showed a surplus, after adjustments, of $54.0 million in 1955 and deficits of $20.9 million in 1956, $172.3 million in 1957, and $162.9 million in 1958. The deficit in trade with Mainland China rose over this period; it appears that U.S.S.R. imports from China increased while exports decreased. The decline in Soviet shipments presumably was due to the complete utilization of Soviet credits in 1957. It is possible that China at present is repaying with commercial goods some military loans received from the U.S.S.R. in earlier years.

Trade with countries outside the Soviet area5

Trade between the Soviet Union and countries outside the Soviet area may be financed in one of the following ways: payment in gold or free currencies; payment by debiting or crediting a bilateral clearing account; shipments of goods on credit or as gifts; financing without foreign exchange transactions by means of barter, private compensation, or triangular agreements.

The most common method of financing trade is through payments agreements. Usually, accounts are maintained in the central bank or official clearing office of both trading partners. The accounts are credited in favor of the exporting country for the value of export shipments and debited for the value of imports. The unit of account may be the currency of one or both of the partner countries, or that of a third country, usually dollars or sterling. The ruble has been used in only a few agreements. The agreements are usually valid for one year and contain an automatic renewal clause. Separate trade protocols establish the quantity, value, and type of goods to be exchanged during the year. Most payments agreements make specific provisions for a swing credit, which tends to be rather small. Several agreements provide that interest will be charged on the debit balances in excess of a certain amount. An overdrawn swing credit may be settled in gold, free exchange, or additional shipments of goods. The same provisions are usually applied for the settlement of accounts at the end of the agreement. In agreements with some countries, there are scheduled imbalances between Soviet exports and imports, to be liquidated in gold, foreign exchange, or triangular trade (e.g., Finland), or to be used for payments of interest on loans (e.g., Sweden).

Outside the payments agreements, a considerable portion of Soviet trade is conducted on a barter basis without use of foreign exchange.

The data available on the financing of Soviet trade with countries outside the Soviet area by various methods are given in Table 5; the residual item in that table represents unidentified transactions. The entries for payments agreements6 are hypothetical figures, calculated on the assumption that trade with countries with which the U.S.S.R. had such agreements was settled through those agreements to the extent possible under the provisions for swing credits or overdrawn swing credits. All other transactions with these countries, and transactions with other countries, that were not settled in gold or through grants and loans were presumably settled in free exchange, although data to substantiate this assumption are not available. As far as can be determined, no payments in rubles have been made by the U.S.S.R.

Table 5.

U.S.S.R.: Trade with Countries Outside the Soviet Area, by Method of Financing, 1955–58

(In millions of U.S. dollars)

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Trade returns figures.

Settlement with Finland.

Transactions in Invisibles

Such information as it has been possible to assemble on the transactions in invisibles of the Soviet Union with the rest of the world is presented in Table 6. This group of entries is known to be incomplete, but there is no basis for estimating the missing transactions.

Table 6.

U.S.S.R.: Balance of Payments Transactions in Invisibles, 1955–581

(In millions of U.S. dollars)

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No sign indicates credit; minus sign indicates debit.

Freight on Imports7

Russian imports from the Soviet area are transported mainly by land, and for the large proportion that comes from contiguous territories, the c.i.f. and the f.o.b. values are identical.

In this paper, it is assumed that Soviet payments for freight on imports from countries outside the Soviet area amounted to 7 per cent of imports f.o.b. The Russian merchant fleet, although large, is made up mainly of coastal ships, and it is necessary to depend on foreign ships for international transportation.

Participation in international fairs8

Expenditures by the Soviet Union in connection with international trade fairs have been estimated at $11.4 million for 1955, of which expenditures in the free world amounted to $4.4 million and expenditures in the Soviet area amounted to $7.0 million. It is known that the Soviet Union participated in 20 international fairs in the free world in 1957, 22 fairs in 1958, and 18 fairs in 1959, but no estimates of the corresponding expenditures are available, except for the Brussels Universal and International Exposition.9 In this paper, it is assumed that annual Soviet expenditures in the years 1956–58 were the same as in 1955, and that there was an additional expenditure of $50 million for the 1958 Brussels Exposition.

Expenditures of Soviet army in Eastern Germany10

As a result of World War II and of the agreements between the Soviet Government and the Government of the German Democratic Republic, Soviet occupation troops were stationed in the territory of the latter, which bore the cost of their maintenance. The total cost has been estimated at the equivalent of $978 million in 1949, $878 million in 1953, and $720 million for each of the years 1954–56, As a result of an agreement reached on July 26, 1956 between the U.S.S.R. and the Democratic Republic, the cost for 1957 was shared equally by the two ($360 million each). On the basis of additional agreements, the German participation was reduced to $281 million in 1958, and effective January 1, 1959, it was completely canceled. In this paper, it is assumed that the cost for the maintenance of Soviet troops in Eastern Germany has remained unchanged since 1956, i.e., $720 million a year. It is further assumed that the figures for costs borne by the U.S.S.R. refer entirely to expenditures incurred outside the Soviet Union; the full amount of the Soviet share is thus recorded as a debit in the service account.

Soviet technical assistance to Mainland China11

Soviet technical assistance has played an important role in the first five-year plan of Mainland China. According to Chinese sources, by 1957 the Soviet Union had sent some 7,000 advisors to China. This figure probably does not include military advisors and technicians. Other sources estimate the number of Soviet advisors, including military experts, to be 10,000–20,000. Since 1957, there have been reports that the number has been reduced. The minimum salary for such an expert is estimated at $500 a month ($6,000 a year); in this paper it is assumed that in the period 1950–57, Soviet experts spent about 15,000 man-years in China, involving expenditures totaling $90 million;12 hence, an annual expenditure of $11.3 million in the years 1955–57 is entered in Table 6; for 1958, the figure is estimated at $10.0 million.

Foreign travel13

The number of foreign visitors to the U.S.S.R. has increased in recent years. According to available estimates, they numbered 467,854 in 1956, 536,762 in 1957, and 550,000 in 1958, but no reliable estimates of the average per capita expenditures are available. All the tourist traffic is handled by Intourist, a Soviet Government agency. Foreign tourists may choose from a list of individual or group tours.

Transfer Payments and Other Movements of Capital

This group of items covers U.S.S.R. grants and credits to countries of the Soviet area and the rest of the world, the liquidation of the Soviet joint companies’ network, and other capital movements. The transactions are summarized in Tables 7 and 14.

Table 7.

U.S.S.R.: Transfer Payments and Long-Term Credits, 1955–58

(In Mllions of U.S. Dollars)

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Table 8.

U.S.S.R.: Contributions to the United Nations and Its Agencies, 1955–581

(In thousands of U.S. dollars)

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Including the shares of Byelorussians.s.r. and Ukrainians.s.r.

Contributions pledged but not paid amounted to $694,000 for 1955, $987,000 for 1956, and $267,000 for 1958; they are not included in this table.

Table 9.

U.S.S.R.: Credit Transactions with Mainland China

(In Millions of U.S. Dollars)

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These amounts have not been entered in the balance of payments.

Excluding credit for services and other in 1958, which is unknown.

Table 10.

U.S.S.R.: Long-Term Credit Commitments to Countries of the Soviet Area, Excluding Mainland China

(In millions of U.S. dollars)

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1948–53.

1946–56.

Not including $24.0 million consolidated trade debt.

Not including $42.5 million to North Korea for unspecified purpose.

Table 11.

U.S.S.R.: Long-Term Credits Disbursed to Countries of the Soviet Area, Excluding Mainland China

(In millions of U.S. dollars)

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Table 12.

U.S.S.R.: Long-Term Credits Repaid by Countries of the Soviet Area, Excluding Mainland China

(In millions of U.S. dollars)

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Cancellation of debt.

Of which $450.0 million was cancellation of debt.

Not including repayments on $24.0 million consolidated trade deficit.

Excluding cancellation of debts.

Table 13.

U.S.S.R.: Long-Term Credits to Countries Outside the Soviet Area

(In millions of U.S. dollars)

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According to date of announcement or signature.

Drawings refer to solar years beginning March 21.

Includes $40.0 million for military installations.

Military aid.

Includes $12.5 million for military aid.

Reduced to $4.0 million in 1955.

Gold loan.

Includes $50.0 million for military aid.

Includes $3.0 million for military aid.

Includes $72.0 million for military aid.

Includes gold loan of $30.0 million.

Table 14.

U.S.S.R.: Changes in Shares in and Claims on Joint Companies, and Other Capital Movements, 1955–581

(In millions of U.S. dollars)

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No sign indicates credit; minus sign indicates debit.

This figure is net, representing an increase of Soviet liabilities for Polish coal deliveries during the year (credit of $150.0 million) and the cancellation of total Soviet liabilities to Poland arising from coal deliveries (debit of $450.0 million).

Contributions to the United Nations and its agencies14

Soviet contributions to the United Nations and its specialized agencies are given in Table 8. The figures are expressed in U.S. dollar equivalents; however, payments were made in both U.S. dollars and other free currencies, with the exception of payments to the United Nations Children’s Fund, which were made in rubles.

Contributions to the UN Technical Assistance Program15

In July 1953, the Soviet delegate to the United Nations announced that the Soviet Government would contribute 4 million rubles to the UN Technical Assistance Program (UNTAP). The contribution was officially pledged at the Technical Assistance Pledging Conference on November 12, 1953. For each of the following years, the contribution amounted to the ruble equivalent of $1,175,000, of which $1,000,000 represented the U.S.S.R. share, $125,000 the Ukrainian S.S.R. share, and $50,000 the Byelorussian S.S.R. contribution. So far, the U.S.S.R. has not permitted more than 25 per cent of its contribution to be converted into other currencies, and then only for projects of which it approves.

Grants to countries of the Soviet area16

In the period 1955–57, Soviet grants of goods to countries of the Soviet area amounted to the equivalent of $461.4 million. North Korea was the largest recipient, receiving a total of $325 million ($184 million in 1955, $66 million in 1956, and $75 million in 1957) ; other recipients were Outer Mongolia ($75.1 million in 1957), North Viet-Nam ($25.0 million in 1955 and also in 1956), Hungary ($9.2 million in 1956 and $0.8 million in 1957), and Bulgaria ($1.3 million in 1957). The original Soviet commitments to North Viet-Nam amounted to $100 million; however, according to the U.S. Department of State, only $50 million was actually delivered.

Grants to countries outside the Soviet area17

Soviet assistance to underdeveloped countries has usually taken the form of loans. In the period 1955–58, only three grants were extended: to India in 1955 ($1.8 million), to Turkey in the same year ($25.0 million), and to Egypt in 1956 ($2.8 million). These grants were in addition to assistance made available through the UN Technical Assistance Program (see above, p. 12). The so-called gift to Burma is considered a loan in this paper, since Burma agreed to grant an equivalent value of rice to the Soviet Union.

Economic credits to Mainland China18

The first Soviet economic aid to Mainland China was extended in February 1950, when a $300 million credit was granted for 50 specific projects. The loan was to be used in equal installments of $60 million a year, from January 1950 to the end of 1954. The interest was 1 per cent a year, and repayments were to be made in ten equal installments starting in 1955. Soon thereafter, China entered the Korean conflict and large-scale military aid of an unspecified amount was granted by the U.S.S.R. On March 20, 1953 the Soviet Union agreed to increase the number of “Soviet aid projects” from 50 to 141. In October 1954, during the visit of Messrs. Khrushchev and Bulganin to Peiping, a second loan, totaling $130 million, was announced for the reconstruction of 15 additional plants; at the same time, the U.S.S.R. agreed to provide equipment and supplies, amounting to $100 million, in addition to earlier commitments. In April 1956, Mr. Mikoyan raised the number of aid projects to 211 by committing Soviet aid to China in the construction of 55 more major projects, which would require an additional $625 million for Soviet equipment and supplies. Early in 1959, the U.S.S.R. promised to help in the construction of 78 other plants requiring equipment costing $1,250 million. However, for the last two commitments there is no evidence that a Soviet credit was involved.

In this paper, it is assumed that only the 1950 loan agreement of $300 million and the October 1954 loan agreement of $130 million represent Soviet credits to Mainland China. All the other “Soviet aid projects” were presumably trade agreements not involving credits.

According to published budget figures of Mainland China, all foreign credits had been utilized by 1957. China did not receive any further foreign credits in 1958 and apparently did not expect any in 1959. The figures in Table 9 are based on estimates made by Barnett and Mah,19 which are derived from, and agree substantially with, Chinese budget figures.

Other assistance to Mainland China

The difference of roughly $1.8 billion between total Soviet credits to Mainland China and economic aid, shown in Table 9, possibly represents other financial transactions, as well as military aid.

In 1955, as a result of the transfer to Mainland China of the Soviet share in the Sino-Soviet joint companies, and the transfer of the naval base of Port Arthur and of other military installations and materials, the Soviet Union acquired a claim of an unspecified but presumably very large amount. China agreed to repay its indebtedness with goods over a period of several years. The U.S.S.R. also granted several military credits to China in connection with the Korean war.

The repayment of this indebtedness may be the reason for the Soviet trade deficit with China in 1956–58. If it is assumed that Chinese obligations to the Soviet Union, other than economic credits, amounted to $1.8 billion, the amortization payments would call for Chinese goods amounting to roughly $180 million a year, which would be enough to explain this trade deficit.

Because of the unreliability of the data and the lack of details, these transactions have been omitted from Table 1. However, it should be borne in mind that what appears to be a Chinese claim on the Soviet Union for a Soviet trade deficit may represent the repayment with Chinese goods of loans and other debts.

Long-term credits to countries of the Soviet area, excluding Mainland China20

Conflicting details have been published on Soviet long-term credits to countries of the Soviet area, and precise data on actual drawings and repayments are not available. In this paper, it has been assumed that drawings and repayments were made in equal annual installments during the period of agreement, unless more exact information is available.

Loans by the U.S.S.R. to countries of the Soviet area are usually for ten years, carry a 2 per cent interest charge, and are repayable in goods. Credits are granted either (1) in gold or foreign exchange for balance of payments purposes, (2) for the purchase of raw materials and other commodities in the U.S.S.R., or (3) for development purposes.

Before 1956, three fourths of the authorized credits were for development purposes ($923.7 million21 out of a total of $1,233.4 million;21 see Table 10). Poland was the largest recipient, receiving the equivalent of $478.0 million. In 1948, Poland received a $450 million loan in connection with the construction of the Nowa Huta steel mills complex. The value of this loan was expressed in dollars, although it was to be disbursed in rubles. At the time the loan was agreed, the official Soviet rate of exchange was 5.3 rubles per dollar. Soon afterward, this rate was reduced to 4 rubles per dollar, and the value of the “dollar” credit decreased by 585 million rubles.22

From 1947 to 1955, credits in gold amounting to the equivalent of $58.5 million were granted to Czechoslovakia and Poland to cover balance of payments deficits. Long-term loans in free exchange for $98.7 million were granted to Bulgaria and Eastern Germany. Bulgaria, Rumania, and North Korea were the only countries to receive credits for the purchase of commodities.

Assistance to the countries of the Soviet area, excluding Mainland China, increased during 1956–58, a total of $1,671.3 million in long-term credits being authorized. Of this total, $572.5 million was for development purposes, $803.8 million for the purchase of Soviet commodities, other than industrial equipment, $252.5 million in gold and free exchange, and $42.5 million for other, unspecified purposes. Poland, with a total of $420 million, was the largest recipient, followed by Hungary ($390 million) and Eastern Germany ($307.5 million). Furthermore, the U.S.S.R. agreed to cancel the Polish and Albanian debts of previous years,23 and to defer the Hungarian repayment on earlier loans.

Altogether, known Soviet commitments amounted to $2,904.7 million for the period 1946–58.24 Of this amount, it is estimated that $2,333.5 million was actually disbursed (Table 11), leaving a balance of $571.2 million. Repayments or cancellation of debts totaled $1,098.7 million (Table 12). Hence, at the end of 1958, outstanding Soviet claims for long-term loans to countries of the Soviet area amounted to $1,234.8 million.

In addition to long-term credits, U.S.S.R. aid to the Soviet area has been granted in the form of technical assistance (“mutual exchange of scientific-technical aid”) in the framework of the CMEA. This cooperation consists in the exchange of production experience and of scientific and technical achievements, i.e., exchange of documentation on capital construction projects, machinery, and equipment.

Credits to countries outside the Soviet area25

After the death of Stalin in 1953, the Soviet area altered its policy of economic isolationism and instituted programs for aid, trade, and technical assistance to the underdeveloped countries. With a few exceptions, the assistance has been on a credit basis and has been concentrated in a few countries.

The customary rate of interest on credits varies from nil (for Yemen) to 3 per cent per annum, the most common charge being 2.5 per cent. Credits may be utilized over a long period; drawings start only after projects are planned, but commitments may be made even before this time. Repayment is usually spread over a period of 12 years, but one of the loans to Afghanistan provides for repayment in 22 annual installments. As a rule, there is a grace period of a few years after deliveries are completed before repayments begin. Repayment in goods is accepted as an alternative to repayment in currencies. Where currency is involved, the Soviet Union usually requires that it be convertible into a world currency, such as sterling. The credit arrangements are generally expressed in gold (as with India), dollars (Indonesia), or the gold value of the ruble (Egypt and Syria).

Soviet credits are of four main types: (1) credits made available in gold or foreign currency, (2) credits related to economic development projects, (3) credits for technical assistance, and (4) military loans. Finland and Yugoslavia are the only countries which received gold loans. Afghanistan, Egypt, Syria, and Yemen received military aid.

Development credits are extended on a government-to-government basis for specific projects that call for the use of Soviet technicians and engineers in the planning, construction, and sometimes in the use of facilities. The Soviet Union represents itself as willing to finance any project that the recipient country considers desirable, suggesting or evaluating projects only if specifically asked to do so.

In addition to financial assistance, the Soviet Union and the countries of the Soviet area extend technical assistance to underdeveloped countries, e.g., by providing training facilities. For the second half of 1957, it is estimated that 1,585 Soviet area technicians spent a month or more in 18 underdeveloped countries. In the last six months of 1958, the total rose to 2,800 technicians. In 1957, about 2,000 technicians and students from underdeveloped countries went to the Soviet Union or other countries of the Soviet area for study or training. The cost of the technical assistance has been estimated at a total of $5–10 million, half of which was provided by the Soviet Union and the remainder by the other countries of the Soviet area.

There is wide variation in the estimates of the magnitude of Soviet credits to the underdeveloped countries. Discrepancies in estimates are due mainly to coverage and different sources of information. Neither the total amount nor the real flow of capital goods and technical assistance financed by the Soviet Union is known with any accuracy. The available figures do not always distinguish clearly between offers of credit, commitments, and deliveries on credit; and in several instances, no estimates of value have ever been made.

Table 13 has been prepared after a comparison of different sources, with account taken of their probable reliability; as far as possible, each of the Soviet credits has been examined separately. However, the table is presumably still far from complete and should be used with caution. Figures for drawings and repayments on economic aid have been derived from the balances of payments of the recipient countries. It is generally assumed that the credits for military assistance have been almost completely drawn down. The figures for total actual drawings shown in the table—$15.8 million in 1955, $382.7 million in 1956, $68.4 million in 1957, and $113.2 million in 1958—differ considerably from some of the other published estimates.26

During 1955–58, the Soviet effort was concentrated on a few very large loans to a small number of countries. Out of a total of $1.6 billion of commitments,27 $1.3 billion represented nine loans to six countries: one to Afghanistan ($100 million), one to Argentina ($100 million), three to Egypt ($525 million), two to India ($258 million), one to Indonesia ($100 million), and one to Syria ($168 million).

Repayments by countries outside the Soviet area28

Repayments to the U.S.S.R. for amortization of Soviet credits by governments of countries that are not in the Soviet area amounted to $26.1 million in 1956, $33.6 million in 1957, and $36.9 million in 1958. The figures cover repayments by Afghanistan ($1.1 million in 1956, $3.2 million in 1957, and $5.9 million in 1958), India ($0.4 million in 1957 and $1.0 million in 1958), Egypt ($25.0 million in each of the years 1956–58), and Syria ($5.0 million in 1957 and also in 1958). Egyptian and Syrian repayments were on account of military loans. All repayments were made in goods.

Rumanian consolidated trade deficit29

A credit agreement between the U.S.S.R. and Rumania, signed in Moscow on March 31, 1954, provided for a credit to Rumania of 200 million rubles. Of this total, 105 million rubles was to be used for the purchase of goods from the U.S.S.R. in 1954; the remainder represented the consolidation of the Rumanian trade deficit for 1953. The credit was to be repaid within three years beginning January 1, 1956, with interest at 2 per cent.

Austrian reparations30

Under the terms of the State Treaty of 1955 between Austria and the U.S.S.R., the former agreed to deliver to Russia goods to the value of $150 million over a period of six years (i.e., $25 million a year), as compensation for the return to Austria of Soviet-controlled enterprises, and 1 million tons of crude oil annually for ten years, as compensation for the release of the oilfields and affiliated enterprises. In 1958, the Governments of Austria and the U.S.S.R. concluded an agreement that provided for net deliveries by Austria of 500,000 tons of oil a year for the period 1959–66. In this paper, figures for the value of goods delivered by Austria are derived from the Austrian balance of payments, and it is assumed that the Austrian deliveries of goods under the State Treaty are included in the Soviet figures for imports (Tables 2 and 5). The entry for 1955 in Table 7 includes an additional cash payment of $2 million in connection with the relinquishment of the Danube Steamship Company by the U.S.S.R. to Austria.

Cancellation of debts

In July 1955, the U.S.S.R. canceled the Yugoslav debt of about $90 million from pre-1948 credits, because Yugoslavia claimed that the “Stalin policy” was responsible for the interruption of its original economic plans. Available estimates indicate that outstanding Soviet credits to Yugoslavia before the cancellation of the debt amounted to $85.5 million, represented by drawings on development loans ($0.80 million), military loans ($72.00 million), credits for transport equipment from war booty ($6.05 million), and short-term credits ($6.64 million).31

In 1956 and 1957, the Soviet Union canceled $105.5 million of Albanian debts contracted after 1945 and agreed to defer for some years payments on certain minor debts owed by Hungary and Rumania.32

Other debt cancellations are examined in the following section on joint companies.

Joint companies in Eastern Europe33

Under the provisions of the Paris Peace Treaty of 1947, all German and Italian assets located in Hungary, Rumania, and Bulgaria were transferred to the Soviet Union as reparations.34 The assets taken over by the Soviet Union formed a well-established network of all types of firms and companies in the Balkan-Danubian region. In 1947, the U.S.S.R. offered to form joint companies with the countries in which these assets were located, a proposal that the countries concerned were obliged to accept.

Under the Peace Treaty, 201 firms in Hungary were transferred to Soviet ownership. These firms represented an important element in the economy of Hungary, controlling several branches of local industry. The Soviet Union also acquired interests in various Hungarian banks. In 1947, the Soviet Government and the Hungarian Government formed joint companies in the fields of mining and transportation, and 5 such companies were operating in 1954.

In Rumania, the German assets taken over by the Soviet Union were even more extensive than in Hungary, and the Soviet-Rumanian joint company system penetrated every essential economic activity of the country. The Soviet share in the joint companies was financed mainly with former German assets, Rumanian debts to Germany transferred to Soviet ownership, liquidation of certain captured goods, etc. In 1954, 15 joint partnerships were operating in Rumania.

According to rough estimates, the gross value of the original German assets transferred by Rumania to the Soviet Union was $200 million (at 1938 prices) in 1944–45. The value of the assets transferred by Hungary was about $150 million. To these amounts must be added the new contributions of the Soviet Union.

The Soviet Union entered into 66 partnerships with Eastern Germany. The Soviet share, which was valued at 430 million East German marks, was transferred to Eastern Germany in 1952. In August 1953, the U.S.S.R. released Eastern Germany from this debt. Thirty-three other enterprises in Eastern Germany which were owned by the Soviet Union were transferred to Eastern Germany in 1953, but no information is available on the value of these enterprises.

In Bulgaria, the Soviet Union entered into only four partnerships, the values of which are not known. Two Yugoslav-Soviet joint stock companies were founded early in 1947 and liquidated in the middle of 1949. The companies were organized on the familiar pattern of stock companies, half of the stock being bought by the Soviet Union and half by Yugoslavia; at the time of the liquidation, however, the Soviet Union had not invested its share of the nominal capital.35

The joint companies, which for all practical purposes were entirely in the hands of the Soviet managers, enjoyed exemption from local taxes, complete freedom in the utilization of their foreign exchange, profit guarantees, and grants of extraordinary facilities in their respective fields.

In 1954, a series of bilateral agreements between the U.S.S.R., on the one hand, and Rumania, Bulgaria, and Hungary, on the other, dismantled almost the entire network of joint companies in the Balkan-Danubian region. The Soviet Union transferred its share of the partnerships to the local governments against a payment to be made over several years. After the upheavals in Poland and Hungary in 1956, the Soviet Union canceled all claims deriving from the liquidation of the joint companies in Rumania and Hungary. Presumably, Bulgaria continued to make payments for the Soviet share of the joint companies.

From the balance of payments point of view, the joint companies represented Soviet direct investment in Hungary, Rumania, and Bulgaria. The transfer of the Soviet share of ownership to the local government should be considered as a decrease of Soviet direct investment abroad (credit), offset by an increase in Soviet long-term claims on the countries concerned. The final cancellation of the debt should be recorded as a decrease of Soviet long-term assets (credit), offset by grants to Hungary and Rumania (debit).

The entries for 1955 in Table 14 cover the transfer of the Soviet- Rumanian Sovrompetrol ($30.1 million). Those for 1956 represent the cancellation of the Rumanian debt and half of the Hungarian debt, and those for 1957 cover the cancellation of the remaining half of the Hungarian debt.

Joint stock companies in the Far East36

The Soviet Union also entered into partnerships in the Far East. Four Sino-Soviet joint stock companies were established in 1950–51, and they were transferred completely to Mainland China by January 1, 1955. Soviet-North Korean joint stock companies were transferred to Korean ownership in May 1955. However, no details are available on these companies, except that Korea agreed to repay the U.S.S.R. in goods over a period of years.

On May 15, 1957, an agreement was signed in Moscow providing for the transfer to the Mongolian People’s Republic of the Soviet share in two Soviet-Mongolian joint stock companies that had been established in 1949. The Soviet share in one of these two companies amounted to 40 million rubles ($10 million), and Mongolia was to repay this amount over 30 years, starting in 1962.

Financial settlements with Poland and Hungary

In 1956 and 1957, the Soviet Union agreed to settle some disputed claims with Poland and Hungary. The Polish claims arose from the use of transport facilities in Poland by the Soviet army and from shipments of coal from Poland to the Soviet Union at a special price. The Hungarian claims originated in the use of Hungarian railroad facilities by the Soviet Union.

Soviet-Polish coal agreement37

In 1945, an agreement between the U.S.S.R. and the provisional Government of Poland provided that Poland would receive from the Soviet Union (1) 15 per cent of the material requisitioned by the U.S.S.R. in the Soviet zone of occupation in Germany, and (2) 15 per cent of the industrial equipment that the Soviet Union was entitled to receive as reparation from the Western Zones of Germany. The Soviet Union renounced all claims to German properties located in Poland. In return, Poland agreed to send to the Soviet Union, from 1946 and during the occupation of Germany, large quantities of coal at a special price.38 In 1953, on the basis of a Soviet-East German agreement, both the U.S.S.R. and Poland renounced their claims to German reparations deliveries in any form from January 1, 1954, thus also implicitly ending the Polish obligation for counterpayments to Russia. However, the Polish coal deliveries at a low price apparently continued.

Subsequent to the 1956 upheavals in Poland and in Hungary, the Soviet Government agreed to reimburse Poland for the losses incurred because of the 1945 coal agreement, and canceled the outstanding Polish debt of $450 million to the U.S.S.R.

In this paper, the trade figures for 1955 and 1956 have been adjusted for the undervaluation of Soviet imports of coal, offset by an increase of Soviet liabilities to Poland. In 1956, a decrease in Soviet liabilities arising from the Polish deliveries of coal and a decrease of Soviet claims on Poland for the outstanding debt to the U.S.S.R. have been recorded.

Soviet-Polish railroad settlement39

Until 1954, Polish rail and road facilities were used by the U.S.S.R. to transport Soviet troops and Soviet and East German goods across Poland, without compensation to Poland. In 1954, Poland took charge of this transit, and in 1956, a settlement with Eastern Germany for transit dues and debts was reached. However, the Soviet transit debt to Poland remained unsettled. A bill for past services, amounting to $75 million, was presented to the U.S.S.R. late in 1956, but it was rejected after protracted negotiations. In January 1957, the Soviet Union decided to deliver a large part of the goods by the roundabout rail-sea-rail route, thus avoiding Poland; nevertheless, east-west transit across Poland rose by 60 per cent in 1957 and totaled more than 10 million tons. Late in 1957, according to information supplied by the U.S. Department of State, a settlement sum of $60 million was paid by the U.S.S.R. to Poland.

Soviet-Hungarian railroad settlement40

In 1957, the Soviet and Hungarian Governments reached an agreement for the settlement of Hungarian claims for the use by the Soviet Union of Hungarian railroad facilities for noncommercial transport. The U.S.S.R. agreed to pay a lump sum equivalent to $20–22.5 million.

Agreement between U.S.S.R. and Iran41

Negotiations were successfully carried out during 1954 between representatives of Iran and the U.S.S.R. concerning the settlement of border and financial questions which had been in abeyance between the two countries. An agreement signed in Teheran on December 2, 1954 was put into effect on May 20, 1955. All financial claims and counterclaims arising out of World War II were settled: the U.S.S.R. agreed to deliver to Iran 11 tons of gold (11,196,070 grams worth approximately $13.8 million) and goods valued at $8.6 million; both transactions covered Iranian claims arising out of the payments agreement of March 18, 1943.

The gold was delivered in June 1955 and the goods in 1956 ($1.5 million), 1957 ($4.6 million), and 1958 ($2.5 million). Payments made by the U.S.S.R. to the Iranian Government have been recorded in the Soviet balance of payments as decreases in Soviet long-term liabilities (Iranian claims), offset by either a decrease of gold (1955) or an export (1956–58).

Selected Monetary Movements

Section I.C. of Table 1 presents the identified changes in the Soviet Union’s liabilities in rubles, sales of gold, and other monetary transactions. The entries for liabilities in rubles represent the increases of the U.S.S.R. liabilities as a result of contributions to the UNTAP and the UNICEF (see above, p. 12).

The main reasons for shipments of gold from the U.S.S.R. to western countries would seem to be (1) a deficit in the U.S.S.R. balance of payments, which the Soviet Government chooses to settle in the conventional way, (2) purchases of convertible currencies to meet payments deficits of other countries of the Soviet area, or (3) an economic phase of the cold war.42

A considerable part of U.S.S.R. trade is conducted under trade agreements, which are settled annually in gold, U.S. dollars, or sterling. Furthermore, the trade deficits with a number of western countries with which the Soviet Union has no agreements are settled in convertible currencies. Services are settled in gold or foreign exchange, and it is possible that the U.S.S.R. has a large, unidentified, deficit balance in the service account.

Some of the U.S.S.R. sales of gold are a consequence of balance of payments difficulties of other countries of the Soviet area. In the past, the Soviet Union has granted several cash credits—either in gold or free exchange—to countries of the area. Some of these credits were specifically to meet balance of payments deficits, such as the loans to Bulgaria and Poland in 1947 and to Czechoslovakia in 1948. Other cash credits have apparently been granted to help the recipient countries to build up their reserves in free currencies and to finance imports from the western world. Such was the nature of the loans to Hungary in 1957 and to Eastern Germany in 1956 and 1957. In addition, two gold loans, each equivalent to $10 million, have been granted to Finland for the same purpose.

Other transactions cover gold payments in 1955 to Finland, as a trade settlement, and to Iran, as a result of the 1954 agreement between the U.S.S.R. and Iran (see above, pp. 28–29), and payments in free exchange of contributions to the United Nations and its agencies.

Unidentified Transactions

Section II of Table 1 covers the offsets to transactions in Section I that have no contra-entries in Section II; for a fuller description, see page 3 above. Some qualitative information, however, is available on the probable nature of these unidentified transactions; a discussion follows of these offsets and of some of the transactions that are omitted entirely from Table 1.

Settlement of trade balances covers the residuals shown in Tables 4 and 5. As explained above (p. 7), there is evidence that the trade surplus or deficit of the U.S.S.R. with Soviet area countries is settled by additional shipments of goods in the following years rather than by payments in free exchange. On the other hand, trade balances with the rest of the world are presumably settled either through payments agreements or in free exchange (see above, p. 7). On a regional basis, U.S.S.R. transactions with countries outside the Soviet area were fairly well in balance in 1957 and in 1958, while transactions with countries of the Soviet area occasionally showed substantial imbalances. However, the figures may be seriously affected by deficiencies in the underlying data. For example, the U.S.S.R. trade surplus with Czechoslovakia in 1957 was probably financed through the unidentified loan rather than through an increase in payments agreement balances. Similarly, the large unexplained trade deficit with Mainland China probably represented repayment of a loan by the shipment of goods.

The offset to gold and foreign exchange loans represents cash disbursements or repayments in connection with U.S.S.R. credits. The entries for countries outside the Soviet area cover gold disbursements to Finland and Yugoslavia (see above, p. 20); the entries for the countries of the Soviet area are derived from the details shown in Tables 11 and 12. These transactions have either increased (debit) or decreased (credit) U.S.S.R. holdings of gold and foreign exchange.

Only a few details are available on U.S.S.R. transactions in invisibles. It seems reasonable to believe that this group of transactions must have resulted in a large Soviet deficit with countries outside the Soviet area; otherwise, the disposition of the foreign exchange proceeds of Soviet gold sales cannot be accounted for, since the foreign exchange was almost certainly not accumulated as reserves and was apparently not needed to settle trade deficits. As pointed out above in the discussion of settlement of trade balances, trade with countries outside the Soviet area was fairly well in balance, and trade with the Soviet area does not require payments in free exchange. Hence, the magnitude of the sales of gold is not justified by merchandise transactions. The best guess would seem to be that a substantial part of the proceeds from these sales is used by the Soviet Union to finance debit balances in the service accounts or for other unspecified purposes. For example, it is generally understood that the Soviet Union makes substantial contributions to the communist parties outside the Soviet area, but the value of this financial help is completely unknown. On the other hand, payments to the Soviet Union for military equipment and for interest on long-term loans are not recorded in the U.S.S.R. balance of payments.

Other offsets include the contra-entry to Soviet troops’ expenditures in Eastern Germany; estimates for Soviet troops’ expenditures in other Eastern European countries are not available. In 1957, the Soviet Union made two lump-sum payments to Poland and Hungary; however, it is not known what currency was used to make the payments, nor whether the Soviet Union shipped goods to these two countries as payment. For transactions with the rest of the world, the Soviet Union granted $25 million to Turkey in 1955. Presumably, the donation was in the form of goods and services, but the trade statistics do not show shipments of goods in such an amount.

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