CURRENT SITUATION AND PROBABLE DEVELOPMENTS IN FINLAND DURING 1954 (NIE 28.5-54

Created: 1/8/1954

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COPT KO.

NATIONAL INTELLIGENCE ESTIMATE

CURRENT SITUATION AND PROBABLE DEVELOPMENTS IN FINLAND4

CIA HISTORICAL REVIEW PROGRAM

The Intelligence Advisory Committee concurred in UlU estimate The FBI abstained, tha subject bttng cmUtde ol Its jurisdiction.

The loOouHng member organisations of Ihe Intelligence AdiAiory Committee participated with lha CentralUgence Agency tn the preparation of this estimate: The InteUigence organisations o/ the Departments of State, the Army, the navy, the Atr Force, ond The Joint Staff.

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CURRENT SITUATION AND PROBABLE DEVELOPMENTS IN FINLAND4

THE PROBLEM

To estimate the current situation and probable developments in Finland during

CONCLUSIONS

We believe that Finnish internaland political problems, whileare not of crisis proportions and will probably be somewhat alleviated during the corning year.

The national elections4 will probably not result ih any significant alteration of party strength. Power thus is likely to remain with the center parties.

The value ol Finland's trade with the West fell sharply2the collapse of the Korean War boom. Accordingly, thc Soviet Bloc's share of Finland's trade increased from tlielow postwar figure5 percent1 to more thanercentt now appears that this trend has been reversed and that the Soviet Bloc's share in Finland's trade is declining. We see little likelihood that Finland will become so dependent upon trade with the Bloc as to impair further its ability to withstand unacceptable Soviet demands underpressures alone.

believe, therefore, that Finlandto maintain the delicatelyposition between East andit has occupied since the endWar Et.

believe it highly unlikely thatwill attempt to invade Finlandmove in the global cold war. Ithowever, that the USSRsome time in tbe future use orby some development such asrearmament to invoke itsFact with Finland, andto demand additional bases,or other concessions, In thesethc Finns would probablyto yield to such demands asseriously impair their national

he Finnish armed forces could delay onlyoviet Invasion of theHowever, the political temper of the Finnish people is such that Sovietforces would almost certainly be subjected to determined and intensive guerrilla warfare.

DISCUSSION

Since Worldinlandosition delicatelybetween East and West. The Finns hare maintained their national Independence, carried on extensive trade with Westernand exhibited generally pro-Western political and cultural sympathies. On the other hand Finland was forced as aof defeat In war to grant considerable economic, territorial, and political concessions to the USSR. Tlie Finns recognize, moreover, that their countryosition of great strategic Importance to the USSR, and that it cannot successfully defend itself againstattack. For this reason Finland has been obliged to adopt an official policy of strict neutrality, emphasizing "good neighbor**with the USSR. The Finnishwas also constrained8 toutual Assistance Pact with the USSR which stipulates that: (a) Finland will fight to repel any attack against Finland, or against the USSR through Finnish territory by Germany, or by any state allied with Germany; (b) the two countries shall confer ln case It tsthat the threat of an armed attack Ls present; (c) Finland will not enter Into any alliance or take part ln any coalition directed against thc USSR.

Military Situation

The strength and equipment of the Finnish armed forces arc limited by the postwar peace treaty concludedhe strengthof the army, including Frontier Guards,0 men; of Iheotalnd of the air

Communism is negligible In the Finnish armed forces, and these forces could be counted on by the government to copewith civil disorders.

Finnish armed forces have nofor offensive warfare and coulddefend Finland's borders.of the Karelian Isthmus, andof Porkkala, onlyiles fromrenders any sigrUOcant defense of the

capital and key southern ports impossible Tbe political temper of the Finnish people ls such, however,oviet attack would almost certainly meet armed resistance. Such resistance could delay, though only briefly, Soviet Invasion of the country.Soviet occupation forces wouldcertainly be subjected to determined and Intensive guerrilla warfare. In which the Finns excel.

Foreign Trade

oreign trade is the key factor In theeconomy; Its volume and terms largely determine the level of domestic economic activity. Finland is dependent on trade with both the West and the Soviet Bloc

a. West: Over two-thirds of Finland'strade Is with the West;ercent of the total trade is with the US. Nearlyercent of Its exports to the West consist of forest (wood and paper) products, which are exchanged for essential Imports of Industrial raw materials and capital equipment- The Finns greatly prefer to trade with the West, partly for polilical reasons, and partlyof thc superior quality of Western goods.

li Soviet Bloc: Nearly one-third offoreign trade is with the Soviet Bloc. The Bloc now supplies virtually all Finland's POL and coal, and one-third of Finland's do mcs lie cereal requirements. The Bloc is also the only available market for the export surplus of Finland's shipbuilding and metal-working Industries. These Industries employ0 persons. They were greatlyto All Soviet reparations payments, which ended Inndroducts are generally not competitive onorld market. While expanding domestic needs absorb probably more thanercent of the production of Finnish engineering and metal-working plants, the shipyards workexclusively on deliveries to the USSR.

uring thef Finland's foreign trade was carried on with the Soviet Bloc; part of this tradeof reparations shipments. 1 the

Bloc proportion fell to5 percent, but3 it rose lo slightly morehese wide percentage fluctuations were due primarily not to variations tn the amount of trade with the Bloc, but to the sleep and temporary rise ln the value oftrade with the West during the Korean War boom 2 and most3 the value of Finnish exports to thc West fell sharply, and the Finnish Government was obliged lo restrict Imports from the West In order to protect Its foreign exchange position. Meanwhile, after reparations shipments to the USSR ceased lnhe USSR expanded its commercial purchases fromby an amount roughly equal to thevolume of reparations shipments; this in turnonsiderable increase in Bloc exports to Finland. Taken together, these factors largely account for thc recent Increase in the Soviet Bloc's share of Finland's foreign trade.

t now appears that Ihe trends In Finnish foreign trade have again shifted, and the share of the Soviet Bloc is declining. The new Finnish-Soviet trade agreement Indicates that the value of Finnish trade with the USSR4 is likely to fall aboutercent below3 level, although the Finnish shipbuilding component of this trade will slightly Increase. While Firuilsh trade with the rest of the Bloc will probably Increaset is unlikely that the Increase will be sufficient to offset the decline In trade with the USSR. Moreover, there Is alreadyonsiderable increase in the volume of Finnish exports to the West and ln the prices these exports command. This trend will probably continue Over thc longer run. Western demand for forest products will probably increase moderately during the next decade. At the same time, the modernization of Finnish forest products industries. wlUch is already under way.with the help of loans from the International Bank of Reconstruction and Development willFinnish producUon costs and make Finnish prices more compeUtive in Western markets,

Internal Economic and Polilical Situation

current political problemseconomic in origin. The collapseKorean War boom led to aln earnings from the WestnaUonal Income remains above thethe pre-Korcan period, It hasfrom the peak reached duringWar boom There has also beenIncrease ininnish unemployment Isto totalpproximatelyof the total labor force. Thisfigure will be slightlyostwar peak.

main problem facing Finnishis to increase lhe efficiency ofindustries. Finland's compeUUveIn world markets has beenWorld War II. Some Importantfaculties were lost to thenearly all available Investmentabsorbed In expanding Uieneeded for reparations deliveriesproviding homes and Jobs for refugeeslost territories. Partlyesult oflo invest inesult of overvaluaUoh of theFinnish export Industries are at aon the world market

n eflecUve governmental program to deal with this problem would probably have lo Include currency devaluationeducUon ln wages and social services. No single polltl-cal partyajority in the Finnishhowever, and the divergent economic Interests represented by the two largest parties, the Social Democratic and thehave prevented agreement on any joint program. Indeed party disagreements have been so great as lo prevent the formationiable coalition, and Finland is presenUy governedcaretaker" administration,

"The parties and their respective strengths ln the Finnish parliament (based on seats gained in1 election* ace as follows: Social Democrats S3 OoaBUon Party (Con-

Agrarlan* S

Democratic League Swedish PartyIS

(SKDL) IConunu- Peoples Part*

(Liberal-Center) - 0

oubt.

probably will slay ln power untilelections arc held Inhis government ls notosition to adopt or to carryositive economichere are estimated to be00 Communists In Finland. Communists dominate the third largest political party, the Finnish People's Democratic Leaguehich receivedercent of thc total vote in the last national elections. They alsotrong thoughominating position in the Central Federation of Trade Unionshich is controlled by SocialThey are capable of provoking strikes and making unreasonable demands on the government in an attempt to discredit it

SKDL will try to exploit popularwith present economicFinland in order to increase Its strengthe next elections. It will probably notsuccess. The influence ofthe Finnish labor movement has declined

ahough it remains large. Thismayeakening of thepopular base. The government'ssocial security program is adequate to cushion the effect of unemployment even at the high level expected during coming months. Wc therefore believe lhat the SKDL voting strength is not likely to changein the near future.

national elections4 willnot result in any significant alterationstrength. The Social Democrats,anti-Communist, probably will IncreasesUghtly at the expense ofparties. Power thus isremain with the center parties, andDemocrats and/or Agrarians willthe core of the next governmentIt is almost certain that the SKDLlo be excluded from the cabinet.

t Is thus unlikely that thc poUticalafter thc national elections4 will permit major economic reforms. However, the major parties will probably be moreto agreeompromise economicsince present party resistance toompromise hasarge degree derived from lear of losing votes In the forUicomlng elec-

tions. In any event. If the non-Communlst party leaders felt that economic difficulties, particularly unemployment, were threatening their own political strength or undermining the basic health of the Finnish economy, they would probably reach agreement on aneconomic program.

conclude that Finnish Internaland poUtical problems, whilenot of crisis proportions and wUlsomewhat alleviated during the

1'iobable Foreign Policy Developments

beUcve that Finland will main lainbalanced position between East and

West.

Is highly unlikely Uiat the USSRto Invade Finlandove incold war. Finnish resistancelimit the economic andthe USSR would gain fromand possibly would reduce them belowobtained under existing economicagreements. Moreover, thcestimates that such actionsubstantialpropagandaprobably induce Sweden to movethe West, and mightisk ofWorld War ITL

Finns haveighto resist economic psychological, orpoUtical pressures brought to bearby the USSR. Their dislike andRussia are traditional; their Westernare deep. The great devotion ofto their national independencearge proportion of those whothe Communist dominated SKDL, Wethai the Kremlin probablyfacts, and is unlikely to estimate thatgain significant concessions' fromby non-military pressures, at leastInternationalIn the longer run. It Is possible thatsucharked economic recession In

tbe KiemUn would like to secure might be more military bases, more stringent political obligations In case of war. or iradlnc arr&nGcmcnUavorable to the USSR.

the West might force Finland into greatlydependence on trade with the Soviet Blocevelopment would Inevitably weaken Finnish ability to withstand Soviet pressures, though we believe that the Finns would still resist any substantialon their national Independence.'It is passible that the USSR might use or be

moved by some development such as West German rearmament to Invoke the Mutual Assistance Pact8 and perhaps toadditional bases, radar sites, or other concessions from Finland. Under suchthe Finns would probably feel compelled to yield to such demands as did not seriously Impair their national Independence.

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