-Secret
DIRECTORATE OF INTELLIGENCE
Intelligence Memorandum
Economic Limits to Rumanian Independence of the USSR
CIA HISTORICAL REVIEW PROGRAM RELEASE IN8
ER89
Copy No. 44
CENTRAL INTELLIGENCE AGENCY Directorate of Intelligence9
INTELLIGENCE MEMORANDUM
Economic Limits to Rumanian Independence of the USSR
Summary
Even after the very large increase in trade with the Free World ins, Rumaniato be dependent on other Communistfor supplies of critical industrial materials and for markets for its industrial products. It remains quite vulnerable, therefore, to economic sanctions that could be imposed by other Warsaw Pactspecially the Soviet Union.
9he Free World's share of Rumania's trade increased from about one-fifth to almost one-half, and the share of the Communist countries declined accordingly. Rumania's trade with other Communist countries actually almost doubled during this period; its trade with the Free World, however, was six times greater8 than This rapid accelera tion in trade with the Free World was dominated by imports of Western machinery and equipment as Rumania pursued its efforts to modernize itsby purchasing new technology from outside the Communist sphere.
This shift in Rumanian trade relations,had little effect on the dependence of its
* The Warsaw Pact countries comprise Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, Rumania, and the USSR.
Note; This memorandum was produced solely by CIA. It was prepared by the Office of Economic Research and was coordinated with the Office of Current Intelligence.
steel, machine building, and textile industries on imports from other Communist countries. Hor did it yield other marketsoutside of the Warsaw Pactfor Rumania's manufactured goods. Currently, between one-third and one-half bf Rumania's industrial consumption of iron ore; coking coal, metallurgical coke, and cotton is imported from Warsaw Pact countries. Thosein turn, provide the principal export market for Rumania's manufactures, especially machinery, rolled steel, and consumer goods, which are difficult to sell in the Free World because of their low quality.
A complete severance of trade with the Warsaw Pact countries, therefore, could lead to major disruptions in Rumania's economy, it is estimated that industrial production could drop by as much asercent, and affect the jobs of as manyorkers. Alternative sources for tlie necessary raw materials could ultimately be found in the Free World. But alternative markets in the Free World probably could be found for only some two-fifths of exports now going to the Warsaw Pact. Thus, in the short run Rumania would experience severe economic dislocations and in the longer run some adverse effects on economic growth. Until these alternatives materialized, Rumania would experience severe economic dislocations.
It is unlikely, however, that the USSR and its Warsaw Pact allies would go so far as to sever trade relations completely with one of its members. Hot only political expediency but also the mutual economic interdependence that has been built up within tho Warsaw Pact over the past two decades wouldore cautious approach. Despite Rumania's schismatic reaction to the Sovietof Czechoslovakia, for example, tradehave been renewed9 between Rumania and each of the Warsaw Pact members. Most of these agreements call for an expansion of trade, with planned increases running as high asercent for Bulgaria andercent for Czechoslovakia. The agreement with the USSR calls for an increase in tradeercent, or about the same as the average increase registered in the previous decade.
-SECRET
Introduction
Rumaniaesource base that supplies all of its food, most of its energy requirements, and many raw materials required for industrialization. In addition, it hasa steadily rising surplus of materials for export, permitting large increases in imports of machinery. These factors have contributedially to Rumania's rapid industrial growth, which averaged aboutercent annually.
Rumania's principal exports consist of foodstuffs, petroleum and timber products, and machinery and equipment. The latter go almost entirely to Communist countries. Because of its small resources of minerals and metals, Rumania must import about one-half of its iron oro and metallurgical coke, about two-fifths of its coking coal, most of its copper and mercury, and all of its tin and phosphate rock. Also imported are all of the cotton and soma of the wool and other fibers used as raw materials for the textile Finally, Rumanian industry depends heavily on imports of machinery and equipment, which account for about one-third of Rumanian investment in machinery and equipment.
umania has sharply changed the direction of its trade away from the Communist countries and toward the Free World (see the chart) in order to acquire machinery and other industrial goods not available in the Communist world. 9 some four-fifths of total trade was conducted with Communist countriesere one-fifth with the Free World;7 theseshares wereercent andercent.
bout three-fifths of Rumanian imports of machinery and equipment come from the Free World, compared with one-seventh Partial reporting8 indicates that the share of Warsaw Pact countries in total Rumanian trade remained the same or increased slightly over7 level. Exports of foodstuffs to tho Free World dropped sharolyesult of the drought
the shift to the Free World,Pact countries provide Rumania withcritical raw materials and furnish practically
the only export market for Rumanian manufactures. Thus the Rumanian economy is quite vulnerable to economic sanctions by these countries although less so than any other Communist country in Eastern Europe except Yugoslavia. The Rumanian regime risked such sanctions when it took the side of Czechoslovakia against the USSR and the other Warsaw pact countries before and after their armed intervention in Czechoslovakia. The Rumanian leaders were cautious and soon stopped public criticism of the occupation, and their fears of immediate reprisals have quieted. Yet theof sanctions remains an importantin Rumanian policyajor influence on Rumanian relations with the West.
volume of Trade with the Warsaw Pact Countries
5. Rumania's trade with the iVarsaw pactincreasedercent, declined
7 percent, andercent The average annual increase in this tradeercent, compared with an average annual rise ofercent in trade with the Free World. umania's trade with the Warsaw Pact countries amounted4ittle less than half of total trade. , Rumaniaumulative surplusillion in commodity trade with the USSReficit1 million in such trade with the other Warsaw Pact countries. Of thisillion was with Czechoslovakiaillion with East Germany.
6. The USSR is Rumania's largest trading partner by far among Warsaw Pact countries,by Czechoslovakia and East Germany. The relevant data7 are shown in Table 1.
Table 1
Rumania: Trade with Warsaw Pact Countries
Percentof Trade
Total Trade with the Warsaw Pact
USSR
Germany
7. Rumania's principal imports from the Warsaw Pact countries are machinery and equipment (an estimatedercent of the totalee Tablend rolled steel, including Other imports of significance to the
* Data on the commodity composition of Rumanian trade, by geographic area, are baaed on incomplete information. For an explanation of the methodology used in calculating theee data, eee Table 2. Thie memorandum was written [footnote continued on p. 6]
^SECRET---
Rumanian economybut small in terms of valueare iron ore, coking coal, metallurgical coke, cotton, and phosphate rock. The structure offrom the USSR differs significantly .from that from the other Pact members. For example, machinery and equipment accounts for about one-fourth offrom the USSR and about one-half of imports from other Pact members, but rolled steel (including pipe) accounts for about one-fourth of imports from the USSR and only one-tenth from the others.
he share of Rumanian importsthe Warsaw Pact countries had droppedompared withercent9 umania received an estimated
ercent of its imports of machinery andfrom the USSR and an estimatedercent from the other Pact members (see With the sharp rise in imports of machinery and equipment from the Free Worldhe share of Communist countries in these imports dropped to roughly two-fifths. 6 the Warsaw Pact countries provided aboutercent of Rumanian imports of iron ore and of coking coal, virtually all of imports of metallurgical coke, nearlyercent of imports of rolled steel (includingll or nearly all of imports of pig iron and ferroalloys, and aboutercent of imports of cotton.
most important Rumanian exports toPact countries are machineryercent of the totalndmanufactured consumer goods, andincluding pipe (each aboutercenttotal. Other important exportsproducts, petroleum products, andand equipment made upercent ofto the USSR and nearlyercent ofthe other Warsaw Pact members consumer goods accounted forxports to the USSR and for less than 5exports to other Pact members. Furnituremake up about two-thirds of Rumanianof manufactured consumer goods.
when data on the geographic breakdown of trade, by commodity, were available only Data received recently indicate that? there were no substantial changes in the commodity composition of Rumanian trade with the Communist countries.
"SECrtET
Communist countries provide themarket for Rumanian manufactures,difficult to sell in the Pree World becauselow quality. Thus,ll (excluding Yugoslavia) received moreof total Rumanian exports ofequipment, rolled steel (including pipe),and clothing. Communist countriesmore than one-half of Rumanian exportsrubber, and construction materialsless than two-fifths of exports ofproducts, timber products, Of total Rumanianont to Warsaw Pact countrieswithercent9 andercent
Economic Importance of Rumania's Trade with the Warsaw Pact
At present Rumania is heavily dependent on the Warsaw Pact countries for supplies of several important raw materials. The industries most dependent on these imports are steel, machine building, and textiles. As shown in Tableumania relied on Warsaw Pact countries for more than two-fifths of its apparent consumption of iron orobout one-third of its coking coal, about one-half of its metallurgical coke, two-fifths of its cotton, and more than nine-tenths of its phosphate rock.* The Pact countries supplied aboutercent of Rumania'sof rolled steel and moreercent of the pipe. The USSR supplied all known imports of pig iron, which accounted forercent of.
Rumania's investment program is moderately dependent on imports from the Warsaw Pact countries, which supplied aboutercent of invested machinery and equipment6 and roughly An estimatedercent ofinvestment in machinery and equipmentof such importa Furthermore, about
" It is assumed that all or nearly all of the imports of these items come from Warsaw Pact although calculations oould be made only for the USSH and for the other Communist countries as a
ECKE
two-fifths of domestic production of machinery and equipment is dependent on supplies of steel made possible by imports of raw materials and rolled steel from Warsaw Pact countries. Thus, roughly two-fifths of Rumanian investment in machinery and equipment is directly or indirectly dependent on imports from these countries. In addition, much of the imported metalworking machinery required for machinery production comes from Warsaw Pact "countries.
Pact countries provideizable share of Rumania's totalof several kinds of products (seelose to one-fourth of the outputsteel, one-sixth of the machinery andpetroleum products, andargo but unknown share of theclothing went to the Warsaw Pact countries as Total exports to these countries,onlyercent of Rumanianproduct.
Impactutoff of Trade with the Warsaw Pact
the Warsaw Pact countries were totrade with Rumania, the mostubstantial drop in output ofclothing, and furniture because of thethe substantial export outlets for thesethat Pact countries provided. In thomonths, industrial production might fallasercent, andoworkers would become surplus. Ain outputise in unemploymentcome about because of raw materialindustries now heavily dependent onWarsaw Pact countries. Total industrialmight falloercent,number of unemployed might increase, oroercent oflabor force. Three-fifths ofin the affected industries work inof Bucharest and the old regions ofand Banat. In the short run, thecrude stoel might drop by aboutsteel by about two-fifths, machineryand cotton textiles by about As soon as inventories of phosphatetho USSR were exhausted, the productionfertilizers would nearly cease.
15. The cessation of imports of capital goods from Warsaw Pact countries would have an immediate impact on Rumania's investment program* Work on several major projects would have to be temporarily halted, and allocations of machinery and equipment to investment would be slowedesult of the drop in domestic production of machinery and equipment.
16- To counter these adverse effectsrade cutoff with Communist countries, Rumania would, of course, quickly seek alternative sources of raw materials and alternative export markets. In the first instance, substantial immediate short-term credits would be needed to finance the most urgent imports. Although the Rumanians would be likely to have considerable success ultimately,ajor readjustment of trade would be slow at best. So drastic an actionrade cutoff, however, seems highly unlikely. More probable are delaying tactics or other frustrating actions that would increase theof trade relations with the Warsaw Pact countries -
Prospects for Redirection of Trade
17. Any serious disruption of trade with the Warsaw Pact countries would impel Rumania to accelerate the redirection of its trade toward Free World countries that began As soon as financing had been arranged. Rumania could find alternative suppliers for the industrial raw materials now supplied by Warsaw Pact countries. Iron ore, coking coal, rolled steel, cotton, and phosphate are readily available in the Free Worldrice- ull range of high-quality machinery and equipment also could easily be obtained. The problem both in the short run and in the long run is that of financing these imports- The Rumanians have had considerable success in expanding their exports to the Free World. ear or two they probably would be able to find Free World markets for the petroleum and timber products, foodstuffs, and certain chemicals now going to the Warsaw Pact. They might also be able to find outlets for additional machinery and equipment, steel, furniture, and clothing, especially if they were willing to cut prices sufficiently* The completion of the Galati Steelill permit the Rumanians to export
9
a large volume of finished products acceptable in the Free World, such as hot and cold rolled sheets and strip and galvanized sheets and strip.
these favorable factors,probably could not find enoughits exports to pay for ail of theto imports from the Free World. deficit would have to be financedon reserves of gold and hard currencyobtaining new credits and refinancingcoming due. On both counts Rumaniatoizable gold reserve forsmall country. Present holdings of0 million; annual domesticamounts toillion. Theof these reserves would be ain Rumania's attempts to getfrom the West. On the otheralreadyubstantial debtesult of the drawings on pastthe endhis debt amountedillion and will continue tothe increase in imports from the Freeplanned. Any disruption in tradeWarsaw Pact countries would furtherbalance-of-payments problem withWorld. In the short run, westernhave to be willing to extend creditsexisting debts, willy-nilly,could boost its exports sufficientlyfor its imports.
Outlook for Trado with the Warsaw Pact
completion of trade agreementsbetween Rumania and each of the membersWarsaw Pact suggests that economicbeen ruled outat least temporarily
eapon against Rumania's unorthodox behavior. The continuance of normal trado relations implied by these agreements, however, does not preclude the use of trade negotiationseans ofeconomic sanctions in the future.
is highly unlikely that the USSRsever its trade relations withUSSR doubtless prefers to keep thedependent economically and certainlywish to push them further toward the West.
-
Economic sanctions imposed on Rumania would likely involve changes favorable to the USSR in the terms and composition of trade. In its trade negotiations not only with Rumania but also with other Warsaw Pact members, for example/ the USSR has been trying for some years to obtain more industrial rawand agricultural products, which those countries are able to sell in the West for hard currency. At the same time, Moscow has tried to reduce purchases of machinery, which other Warsaw Pact countries cannot market readily in the West because of its inferior quality. If the USSR were to insist on such changes in its trade with Rumania, the consequences to Rumania's balance of payments and ultimately to its economic growth would be quite severe.
The agreements signed with the Warsaw Pact members indicate that Rumania's trade with these countries will continue to increaserade with the USSR is planned to increaseercent, compared with an estimated average annual growth rateercent. Trade with Hungary is planned to increaseercent; trade with Bulgaria,ercent; and trade with Czechoslovakia/ercent. Trade with East Germany and Poland is to increase by an unspecified amount.
The share of the Warsaw Pact countries in total Rumanian trade probably will declinehile and may even increase somewhat. The growth of Rumanian trade with the Free World is likely to slow down. The Rumanians promoted trade with the Free World in the first part of the current Five Year, mainly to assure deliveries of machinery and equipment needed to fulfill the construction plan for the period. Nowarge part of the required machinery has been delivered, the Rumanians can reduce the growth of trade with the Free World without adversely affecting the investment program.
-
Rumania: Commodity Structure of Trade with the Communist Countries a/
Percent
Machinery and equipment c/
Fuels d/
Iron ore
Rolled steel e/
Other minerals and metals
Chemicals, fertilizer, and rubber
Cotton
Timber and timber products t/ Foodstuffs
Manufactured consumer goods Other and unspecified 5/
Total
Exports to Communist Countries 2/
Imports Irom Communist Countries 5/
Total
percentagea shown ape for the moat part approxi randum the commodity composition of Rumanian trade with tries is assumed to be the same as for Rumanianountries (excludingalculations on the for the most part, can be made only for the USSR and fo triesroup.
The above percentages were oaloulated from Rumanian commodity breakdown of total trade and on most exports from Communist countries, by major category; from repor commodity trade with Rumania; and from reporting of Tre
In this memo-
the Warsaw Pact ooun-ith all Communist oommodity ther Communist ooun-
value data on the to and some imports ting of the USSRorld countries
Table 2
Runaniai Commodity Structure of Trade with the Communist Countries
Continued)
tincturing Yugoslavia) on oottcdity trad* vith Rumania. The value of total Rumanian imports of iron on, coking coal* metallurgical coke, and rolled stttt and of total Rumanian exporte of rollsd eteel wars estimated using Rumanian data on physical quantities and data of Free World oountriss and ths USSR on physical quantities and valuee. In soms oasssspecially Rumanian sxports of foodstuffs ths valuss estimated for trade vith the Free World differ greatly from the value ehovn for the same commodity groupe in data compiled by the US Department of Commerce - Thie discrepancy is dus largsty to ths inoomplste reporting of Free World oountriee. umanian exports to ths Free World as compiled by the Commerce Departmentesidualillion and importsesidual Excluding Yugosla via.
0. Excluding estimatsd imports of military hardware*
d. Imports consist primarily of coking ooal and metallurgical coke, Exports
are mads up largely of petroleum products.
t. Including pips.
ft Excluding finishsd products.
g. Including estimatsd imports of military hardware.
Original document.
Comment about this article, ask questions, or add new information about this topic: