THE ECONOMIC COST TO THE USSR OF INTERVENTING IN POLAND

Created: 12/1/1980

OCR scan of the original document, errors are possible

The Economic Cost to the USSR of Intervening in Poland

An lntt1!lBtncr AswnHnr

Conhfknlinl

Nationaloreign

Onter

The Economic Cost to the USSR of Intervening in Poland

An

Research for this report was completed on

ThU paper was prepared by .

Research, ind coordinated wllh the Office of Political Analysis.nd Querie* are

and may be directed I

CnnfVnfijtl

her inn

BLANK PAGE

The Economic Cost to the USSR of Jntcn ening in Poland

The economic cosis to the USSR of imposing its own regime on Poland could be quite substantial. The security interests at stake, however, arc sothat the Soviet Politburo probably would not be deterred by the

costs.^

In Soviel calculations, these costs could includeinimum:

rippled Polish economy for atew years to the tunc of several billion dollars per year.

Perhaps providing an occupation force to maintain order in the cvcnl that Poland's Communist Party cannotodicum of legitimacy.

I r

The Soviets wouldprobablyactive resistanceilitary intervention could be putuickly and that discipline and austerity could be restored to Poland aficra few years. But they cannot count on this. If severe disruptions should persist in ihe Polish economy. Ihc cost to Moscow might wellillion per year for several >jars.

Based on its experience with the post-Afghanistan sanctions and itsthat Western businessmenoviet markets and products and that West European governments arc determined lo preserve the detentethe Politburo also is likely to believe that sanctions would not survive for moreear or two. The principal impact on the Soviet economy would then be:

An embargo-induced reduction in Soviet meatas muchercent,

A delay in certain important development projects requiring Western technology, f-

Since meal is already in short supply and Moscow is acutely aware of its importance to the Soviet population, the resultsrain embargo would be ^specially significant. The delays in technology transfers would complicate decisions onI-rt5 Plan but <vould have few lasting

The Economic Cost tn (he USSR of Intervening in Fotand (u)

Background

: As the Soviet Politburo weighs theormilitary intervention: in Poland, it mustsidcr an array of political, military, and economicthat such repression would incur. Thisexamines Ihc tangible economic costs asmight vicwthcm. It considers lh- cost of assistance togovernment Ir "Varsaw nnd thcto thc Soviel economy that might be causedcm responseilitary intervention. It docsattempt to assess ihej^flcct of intsrVcnlion

The Coal of Supporting Poland ': Thc largest potential economic cost to Ihe USSRfrom Soviet military action in Poland is thc greatly increased requirement to shore up the Polish economy. While the Politburo probably expects that Polish armed resistance can be overcome quickly, it cannot be sure of thc degree or pace of pacification. Thc effort itself, therefore, could be expensive and lead to continuing high occupation costs, jjj

In ihe wake of intervention, production in Polishry would decline rapidly, as morale and productivity fall to new lows. Critical bottlenecks would soonin essential services such as transportation and distribution. Thc Polish Communist Party, backed by its security services and Soviet troops, could force people back to work, bu' they could not compel them to be productive. The best the Soviets could hone for is that general passive rcsislance, wiih no oneard and some instances of sabotage, would weaken gradually nnd practically dlsjopsar in two lo three years. Mainly because or lower labor productivity, output might then decline for two years oron ihc order ofercent, as compared wiih the depressed levels of today. Widespread hoarding and the withholding of output by private farmers would add to thecow has In consider thc possibility lhat thc situation might be much morethc active hostility of much of thc workontinuing struggle with n

resistance movement,ailure torr-dib'c government in Warsaw. Economic activity would then be severely disrupted and could decline sharply for severalexample, byoercent.

The Soviet Politburo would then have lo decide how much economic assistance to give in order lo keep thc Polish economy afloat. There is little question thai Moscow would provide large-scale .uppori for Poland to help rebuild some degree of political stability (as it did after intervening in Hungary and Czechoslovakia) and lo minimise thc effectsrisis in thc Polish economy on CEMA trade and economic development. Thc cosl of such support would be high; it would include hard currency aid as well as increased exports. to Poland of food, fuel, and raw materials, which arc already scarce in lhe Warsaw Pact countries. While hard to assess, the overall cosl could easilyore than SIO billion per year. Moscow would demand that other Bast European countries do Ihcir bit in helping Poland, but these countries arc unlikely to offer much. They cannot spare lhe food and fuel, and they do noi have Ihc raw materials. And thc USSR would be leery aboul sparking elsewhere lhe same kind of discontent lhat caused all of the trouble in Poland in thc first place. Q

Moscow would also have lo deal wiih the question of Poland's hard currency debt-service obligations, which will amount to1 billion1 ondebtillion. Thc Soviets almost certainly would mi assume these obligation* because ihey wotild expect Western creditors to ticcept rescheduling io protect their investments. Nor would the USSR ask Poland in renounce the debt because of lhe implication* for ccn-cral Uasi European creditworthiness. More lhanemporary moratorium on debt service payments would be declared, followed by Soviet-supretrial nt-tempts by Witrxnw tnnrr.ittgc rescheduling. The onion of writing off the debt would be pnintuln> Western banks, lending then eventually to cnlcr discussions with Poland. |^

tinlrUontml

ConiVlcnliil

<-Mceports* lo Inlr-rnI.he Polilburo has good reason to expect that (he immediate reaction ofgc*ernmei.li to open Soviel inicfvcntion in Poland would be stronger than the rcnlmnic to the intervention In Afghanistan.inimum. Moscow would have to'deal with inon new agricultural sales to the USSR on the part of major exporters'.spcnsion by Western government* of discussionsndustrial andprojects. They migh' also expect thelop deliveries of grain and feedstuff* under existingand exports of machinery and technology lor high-visibility projects alreadyay. In addition, the supply of new eredit* almost certainly would be shui off.would think lhal most ofthc rest cf its day-to-day trade with ihc West would continue icgardless of sanctions.eadership probablythat Western customers would not wish toalt in Soviet energy and raw material deliveries. Q

How the Soviet* calculate ihe cost of these unctions depends critically on how longurope. Japan. Ausinil-.i. und Canada slick with sanctions. On the basis of the experience with their intervention In Czechoslovakia and Afghanistan, the Soviets may reasonably expect the support fur sanction* lo fade inear or two pros-ided that Ihe Polish situationIf ihe gain crops .ire large in Ihe Northern Hemisphere nexi year, pressure on ihc gram sanctions would build rapidly. Sovici spokesmen wnuld remind the European* and the Japanese cspccirlly ofthcfrom trade with the LSSK. both in tcrmsofrncrg. supplies amiajor purchaser ofthc product* of depressed Western capital goods industries None af the Western allies was enthusiastic about cixtperating in the Afghan sanctions, from Ihe start the major Wcstjl'iiropcaii countries and Japan resisted toiijh economic actions. Oovernment attitudes in partstrong commercialome nfvc invested substantially in supplying the Sovici market. They also reflected Iheir rod urine, interest in reducing East-West tensions.

drain,econd consecutive poor harvest, the Soviets probably anticipated importingillion lonsof grain in calendarI.0 mcnt 'production is cxi cctcd to fallons,ercent, livenormal cropI ond no

rcstriciions on imports, meat output could well decline by another tQO.OOO tons. Anew sales by the United Slates. Australia, Canada, and theCommunity would limit Sovie' grain import* lo perhapsillion tons. An embargoefusal to deliverxisting contracts would reduce Soviet imports in calendarroundillion ton* In the worst ca*.c, ihcillion tons of grain forgone would be equivalentn million Ion* of pork (carcass

This would bca seriog setback lo Soviet consumption and the regime's livestock program. The impact on the Savjct livestock sector of denyingillion tons of grain could be felt in lower meat production, reduced herd numbers, and lower animal weights in theDepending on the policies that Soviet planners follow, the effect on actual meat mi.put "til tende somewhat, orit. less lhan lhal implied by the pure "mcjl equivalent" of ihc demrd gram.ihc full embargosil)1 meat production down by another million tonss comparedu-croban'o situation.

TrchnahkY. The Soviets RgVC concluded Healsmore2 billion worth :if Western pipe and plantncluding equipmente Nosnlipcisk steel plant,cnsk aluminum smelter, ihc Baku/Astriikhitn oil rig yard, and some chemicaley arc actively negotiating contract*ihe Wesi Europeanihcrnn gasnciberian coal and umbernd additional !argc-dia meter steel pipe. They arc also interested in automotive facilitiesillion)umber of oil development ventures (several billion

nd suspensions nf ncgi'tiaiinns on nets projects would mainly aFTcct the West Siberian gas pipeline projectpulling ihc schedules! I'IKS startup daleout of reach, few oihcr majorow in negotiation, suggesting (hat in Ihe IPhir. the USSR want* to concentrate for the time being on working off Ihc backing oflarge projects. An esicnsj.in of Western sunslior*ncluilc anon deliveries of machinery under 'sitting con-

Cnnfrlkntiitl

( 'cmfitVnlijii

l>ii

i tracts woulduch alro'.igcr cffcci thannld un new crn tracts. In some key industrial sectors, such a- energy ind metallurgy, these Western imports would be sorely missed. Foride range of equipment andas been orderedthe petroleum industry but not yet delivered. Failure toiequipment would degrade Soviet ability to lift crude from existing oilfields as well ns del jy efforts to map out new production areas. Delays inestern equipment (mainly pipe) would also mean that the recently announced goals for gas production in thc l'*HI-Kiuld hove to be settled back cansid-crably. although much of the loss would be felt by European customers for the gas.

Credits. Restrictions on Western lending to thc USSR would notroblem, although Mosco* could no longer borrow at interest rales far beta* the world inflation rate. TSe USSk currentlyinancial cushionising energy prices. If Westernmeni-bnckcd crcdil offers were withdrawn or if existing guarantees on signed (but as yet uncompleted) contract* were revoked. Moscow could still finance priority imparls by drawing down then deposits at Western bankspin| up gold sales.ontinuing refusal by governments and banks to lend to the USSR would pose difficulties for ihc USSR as in trade balance worsened and iisfor We .tern technology grew larger in thc mid-I'JXOs, thc Soviets nrobably do njI think suchrestrictions ore in the cards. They believe that the interest in the Soviel market is loo great and can find evidence in the record of past sanctions, lo support their judgment. Q

! !

alm-nee. After reviewing the ranee ofWestern economic responses, lhe Politburo would probably Midge the impnet of Afghan-like tamttome heavy but tolerable. At worvt the USSR probably bclic*c%tomes!ic meat .upplies andome important projects (pariicula'ly thc West European -Westgas pipeline) ni Ihe sanctions-tclated price of moving into Poland. They probably do not believe thai

warnings aboul lasting negative consequences for East-West commercial relations need to be taken at fare vr-iuc. For some elements in the Soviet economicthc additional strain on th; consumer, on energy development, and on supplies of metal,and other products that depend on projects under way with Western assistance make appealing*gainst intervention in Poland. Thc position of thc consumer would be markedly worse,ew in thc Politburo might worry about effects on morale and productivity. Bui Ihe Soviet leadership would beto be deterred by even much larger costs from taking such repressive measures as may be necessary to hold thc socialist empire together |

( iMifhlt'lillllI

[

Original document.

Comment about this article or add new information about this topic:

CAPTCHA