ECONOMIC IMPACT OF USSR'S OCCUPATION OF CZECHOSLOVAKIA

Created: 9/27/1968

OCR scan of the original document, errors are possible

Economic Impact of USSR's Occupation of Czechoslovakia

Special Report

WEEKLY REVIEW

8 SC

SPECIAL REPORTS arc supplements to the CurrentWeeklies issued by the Office of Current Intelligence. The Special Reports are published separately to permit more comprehensive treatmentubject. They are prepared by Ihe Office of Current Intelligence, the Office of Economicthe Office of Strategic Research, and the Directorate of Science and Technology. Special Reports arc coordinated as appropriate among the Directorates of CIA but, except for the normal substantive exchange with other agencies at the working level, have not been coordinated outside CIA unless specifically indicated.

IMPACT OF USSR'S OCCUPATION OF CZECHOSLOVAKIA

The greatest economic burden of lhe Soviet invasion and occupation fails on Czechoslovakia. The immediate costs amine from economic disruption and physical damage aie. however, relatively0 million in property damage occurred and not much more than this in terms of lost production. By comparison, during the Soviet Invasion of Hungaryroperty losses alone amounted to over SI btliior. Other short-term Czech losses include reduced hard-Currency earningsalt in tourism, export losses-much of which probably can be madetoand the spoilage of perishable goods.

In the longer run, however, the effecls are likely to be mote serious. Czechoslovakia will be forced into closerwith lhe USSR and East European countries, preventing meaningful implementation of its economicprogram Moreover, through Soviet-influencedpolicy. Prague will be compelledontinueobsolescent goods. This will tic Czechoslovakia more firmly to tne only market for such producti-othercountnci-as it falls farther behind ill Western

The USSR also accrued some new costs, largely military, from its venture into Czechoslovakia. Although Easl Europeans participated in the invasion, almost all the direct additional military costs, estimated at the equivalent0 million, fall on the USSR. In some respects, this operation was comparablearce-scalc Warsaw Pact military exercise because of tbe lack of resistance and the geographicof lhe forces

Increased Czech economic dependence during the next year wi3 resultrowing burden on Moscow, however, even though the USSR will probably refuse to grantrequests for reparations. Indirect losses to the USSR include probable refusals by Western countries to furnish advanced technology, suchhird-generation computer package under negotiation at the time of the invasion.

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Coat to Czechoslovakia

In Czechoslovakia, the main physical damage was to roads and transport facilities, and this cost is estimated to run0 Bullion. Thesysteo was .hard hit, with heavy military traffic causing extensive ham to road surfaces and other transport facilities. Moreover, during the first four days after Soviet forces entered Czechoslovakia onugust, municipal traffic almost stopped, and rail transport groundaltesult of the closing of border crossing points totraffic. All otherof economic life wereinsupply of fresh produce, meat, and dairy products to the population,on export contracts, and personal movement, including travel to and froa wor<.

Tho restoration of almost normal transport services by the end of August led to rapidthroughout the By then, however,losses had mounted. Aestimate put the loss in output during the first week of the occupation0 million. Losses in the second week were much smaller. The loss induring the first two weeks probably represented not aoreercent of the annual national product, estimated atillion The output of the Czech economy In the third quarter may be below the levelut the fourth quarter and the yearhole

still are expected to show some growth.

In addition, losses inamountedillion during August, half of this in shipments to Western countries. In time, however, most of these losses will be recovered. The foreign exchange lost as aof the shutdown of tourism and the temporary stopping of rail and civil air traffic across the country cannot be recovered, however, and willew more million dollars damage to the Czech econooy.

Longer Run Impact on Czechoslovakia

full economic recovery will take some time, but one Czechthat future losses would be several times the initial loss seems unduly pessimistic. Once the political situation isoutput should returnevel at or above that of

ugust, tliethat industryoperating atf the 'normal rate.'

Since ugust, Soviet deliveries of raw materialshave returned to normal. In recent negotiations, the USSR has confirmed and extended its previous agreement fordeliveriesillion tens of grain, an increaseons over

illion tonsoil, an increase of The USSR also agreeddeliveries ofof iron ore pellets

r

and natural gas. Shipments from other Eastern European countries also should soon return to normal, if they have not already done so. shipments from the West,overseas countries, could be held up for some time,pending the clarification of existing agreements.

To the extent that supplies permit, the Czech regime isto make up arrears in production. "Dubcek shifts" are being worked on weekends for tliis purpose. Haste is likely to be greater thanesultontinued general confusion over policies and plans, especially thoseto economic reform and trade with the West.

ained mainly the output Of Most of these make possible ditional obso which are use oslovak facto with the Comm

The Soviet occupationCzechoslovakia's plans forresh start inpolicy. Although some type of "economic reform" is likely to be maintained, it will probably be the standard variety prevalent in Eastern Europe. As in the past, therefore, the Czechoslovak economy will still be characterized by tightand trade with theworld, and growth willto be obtained at high cost.

o far has boon main-through expanding obsolescent goods, are then used to the output of od-lescento equip Czech-ries or in trade unist world. Czech-

now remains caught in this vicious circle.

The Czechoslovaks mustforgo hopes of achieving closer relations with the West, in economic affairs as inand culture. Economicwith the West, slatod for oxpansion before the crisis in August, probably will benow and surely will not be enlarged.

In this sense, there is good reason for pessimism regarding the future. Substantialfreedomood deal of outside help, from East and West alike, are conditions for making basic changes in the economic system that has ruinedcompetitivein the European market. These conditions obviously are not likely to be met in the near future. Czechoslovakia cannot hope to follow Yugoslavia and Rumania in obtaining thebenefits of greater economic independence.

The USSR, however,trong stake in making theeconomy work smoothly, as shown by the agreement to incraase trade substantially More aid than this does not appear necessary to bring about rapid recovery to the pre-invasion level. The Sovietmay well reward aregime with somesupport, but almost certainly not with the largo loan of hard

arlier this year.

Costs to tho USSR

The mobilization andof troops intoaccount for most of the icraediate costs to the USSR. Direct expenses arising froa the partial mobilization of Warsaw Pact forces for the Invasion are estimated to be0 million, virtually all of which probably was borne by the USSR.

The estimated Sovietreflects only the costs above what it would hove cost to maintain these some forces under normal circumstances. About two thirds of the costs were for the ground forceforactical fightersransports manned0 personnel. The mobilization ofccounted for most of the remaining expense.

The indirect impact on the Soviet economy of the partial mobilization and occupation has been insignificant. The POL and other materials requiredwere drawn from stockpiles and can be readily replaced. The diversions of trucks from civilian use, notably fromwere not numerous enough to disrupt the harvest or other essential civilian The removal0 reserves from their civilian

had little over-all adverso effect on an economy withnonagricultural labor force ofillion.

Czechoslovakia has asked the Soviet Government to pay reparations for the property losses caused by Soviet troops. In addition to damaging roads and transportation equipment, the troops destroyed or damaged communications equipment and some supplies. The USSR seems likely to refuse to accept liability for this damage.

The USSR does, however, stand to lose something in its

economic relations with the Westesult of hostile public reaction. Trade relationswill be little affected, but negotiations under way for purchasing advanced Western equipment could be affected. In particular, the United States and the United Kingdom may be reluctant to exportcomputer technology to the USSR at this time.

Costs to Other East European Countries

In addition to relatively minor expenses related directly to their military involvement.

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Eastern European countries incurred soae indirectandthe disruption of traffic through Czechoslovakia. Some of the north-south trade that normally transits the country had to be rerouted through West Germany and Austria, and had to bo paid for in hard currency. Damage may also have resulted where perishable commodities were shipped and could not beon short notice. Poland, Hungary, and Bulgaria shipamounts of such items. Losses could run to severaldollars, and these cannot be recovered.

In addition, Poland, Hungary and Bulgaria may teioporarily lose

some of their profitable Western

tourism. Eastern Europe,offers the Westernan inexpensive vacation,

and they will probably be back

in force next year.

There are no prospects that major Western countries engaged in East-West trade will impose economic sanctions againstEuropean countries. further liberalization of trace restrictions, which had been under consideration, may be delayed.

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