(ESTIMATED PUB DATE) SHORT-RUN ECONOMIC EFFECTS OF THE SOVIET OCCUPATION OF CZE

Created: 9/1/1968

OCR scan of the original document, errors are possible

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LBJ LIBRARY* ,

Memorandum

Short-Run Economic Effects

of the Soviet Occupation of Czechoslovakia

ER4

7

No.

CENTRAL INTELLIGENCE AGENCY' Directorate of Intelligence-

INTELLIGENCE MEMORANDUM

Short-Run Economic Effects of the Soviet Occupation of Czechoslovakia

Summary

The Soviet occupation of Czechoslovakia seriously disrupted the country's economy during the first week to ten days. In the confusion of the first fewreat-many factories and shops either failed to open or, if open, were largely inactive. All public buildings, communication centers, and financialwere occupied by Soviet forces. zech source estimates the total damage to the economy during the first week of Soviet occupation0 million. losses undoubtedly raised the total losses substantially.

The greatest strain on the economy resulted from the disruption of transportation. Municipal transport slowed almostalt, and international transport ceased for atour-dayougust) as border crossing points were closed. disruptions interfered with all aspects of Czechoslovak economic lifehe supply of provisions to the population, the supply of raw materials toand agriculture, imports and exports, and the general movement of the country's citizens. esult, losses in industrial output were surely With the possible exception of hops, damage to crops probably was minor because the grain harvest had already been largely completed.

Hote; This memorandum was produced solely by CIA. It waa prepared by the Office of Economic Research and wae coordinated with the Office of Strategic Research.

By the end of the first week in September, economic life had not yet approached normal. Many factories wore not in full operation. Rail and road transport had resumed, although civilian traffic was still restricted to daylight hours, and civil air transport was largely inoperative. Some significant lesses, suchharp decline in hard currency earnings from Western.tourism, could be quite prolonged. of normal transport schedules is critical to the avoidance of further serious economic damage. With the resumption of foreign trade and general economic activity, with the impending harvests of potatoes and sugar beets, and with the accumulated backlog of freight, great strains will be placed on the country's transportation net. Additional strains undoubtedly will be created by the supply needs of the occupation forces, whose number is estimated at,

Overall Loss

total damage to the Czechoslovakthe first week to ten days.of thewhen disruptions were most severe, can-be estimated independently, but it wassubstantial. Subsequent losses undoubtedlyto the total. eport attributedEconomic Institute of the Czechoslovak Academyestimates the damage to the economyor the first week

of the occupation. Damage to the economy of Prague alone was estimated by the Prague Municipal Statistical Officeillion crowns for the first three days of the occupation andillion crowns for each additional day. "Economic experts" in Vienna have put the costillion per day, basing their estimate on the loss of export business and the tourist trade. Various financial estimates of the damage in specific regions and sectors of the economy are now appearing in the Czech press. The matter of reparations for damages to the economy reportedly is one of the items to be taken up in the discussions over economic matters to be held with the Soviets in mid-September.

Property Damage

damage resulting from theof Czechoslovakia cannot be assessedterms, but does not appear to have beenfrom Prague have stated that severalwere destroyed and some buildings burneddamage ran into millions of crowns. Suchnot widespread. It apparently was limited to

those few places where the occupying forces were actively resistedfor example, in the vicinity of radio transmitters (both legal and clandestine). There have been no reports of damage to railheads. The

* at the offiaial exchangerowns toillion crowns would equal$ million. apparently the conversion wae made by uaing the tourist rate2 crowns tohich more nearly reflects the purchasing power of the crown.

only reported damage to railroads involved the Czechs 1 tearing up tracksridge over tho Danube River at Kocnarno. These rails probably could have been replacedew hours. Because of heavy tank traffic within the country, damage to roadcould have been extensive. Only one bridge has been reported destroyed; it collapsed from the weightoviet tank. (It now bears the name "Bridge of Czechoslovak-Soviet Friendship." Previously, it had been nameless.)

Soviet occupation of Czechoslovakiadisrupting the flow of transportationcountry and across its borders. the invasion, all air and commercialand all road transport crossing the Road transport within the countrydisrupted: the prevailing uncertaintyoperation to daylight hours, and fuelsubstantially reduced tho flow of traffic.

transport has since resumedalong with road transport, is still restrictedhours. Restrictions on internationalreportedly were in effect fromll border crossing points were closed. indications that foreign shipments did notany extent untilugust. As of 4air traffic had not been resumed,it will be in operation in time forTrade Fair, which is now scheduled to open on

eptember.

Food Supplies

interruption of internalimmediately affected retail food suppliescities. Nighttime and early morning deliveries

of perishable foodstuffs were halted by the uncertainty that prevailed in the large population areas. deliveries of bread, fresh meat, and milk to retail stores were delayed several hours. Many shops remained closed during the first two days of theougust). Moreover, tho

Transportation

temporary closing of border crossingougust) added to the shortage of fresh fruit and vegetables, particularly from Hungary and Bulgaria. Thus there were shortages of some items and long queues for most. Not until the sixth day of theugust) did the supply of provisions become more or less normal and the queues begin to grow smaller and fewer.

Industry

output was particularlythe invasion. During the first two days ofthe situation was very unsettled. indicate that occupation forces hadfactories and would not let employeesreports suggest that employees had gone tobut attended meetings instead of working.

On the third day of therague factories were open, but appeared inactive. As the situation stabilized, factory operations gradually resumed, but becauseublicshutdown in the evenings, factories were unable toull afternoon shift, as workers sought to get home early. Third shifts were shut down entirely. imilar situation was reported to exist in Bratislava.

a week's occupation, industry alsofeel the effect of the cut-off of imports, as

many plants began to report raw material shortages. In particular, it was reported that Soviet deliveries of coking coal, natural gas, and iron ore had shrunk since the occupation. adio interview onugust, Deputy Premier Lubomir Strougal indicated that the country's steel works were dangerously short of coke supplies. Onugust, factories in the Ostrava region were reported to be working atercent of capacity, and in other areas there were reports of plants running at one-half capacity or less. ove to make up for lost production, special shifts were scheduled in some plants for the weekend ofugust; such action may be repeated in the weekends to come.

Agriculture

In spite of reports to the contrary,ulture probably was not seriously damaged by the occupation. Most of the country's grain crops should have been harvested and placed in storage before the invasion, so that damage would have been minimal. Potatoes and sugar beets are the only major crops still to be harvested. These harvests will not begin in earnest until mid-September for potatoes and October for sugar beets. Some early potatoes nay now be ready for harvesting,ew days delay should not harm the*,

The harvesting of potatoes and sugar beets in Czechoslovakiaabor-intensive activity. Continued transportation difficulties and theof workers on special weekend shifts in factories may deprive agriculture of the necessary extra manpower to assist with the harvest. The continued interruption of transportation could seriously affect the timely sowing of winter grains, as great demands are placed on the transportation system for the delivery of required fertilizer.

interruption of transportation couldfuture output of livestock to the extentdeliveries of commercial feed may haveup. Nonrecoverable losses were likely toincurred where delays led to spoilage ofother perishables.

hop crop may have been damaged by There have been reports thathad been driven in fields in thenorthwest of Prague. argo share ofharvest was indeed destroyed orthe consequences for the Czech beerbe severe. aluable exportbeen lost. op exports earnedmillion in foreign exchange forwhich more than SB million was in hardan attempt to save this year's crop, avolunteers have gone to the fields tothe harvest.

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Foreign Trade

foreign trade wasby the country's invasion. For fourtougust) all shipments into and out ofstopped, and as late asugustto Czechoslovakia reportedly wereback by the Hungarians. On the other hand,

it appears that the flow of Soviet crude oil,to the Slovnaft refinery near Bratislava, continued uninterrupted. In addition to the temporary losses in export earnings and the strain on domestic supplies as imports were stopped, the Czechs also lost nonrecoverable foreign exchange normally earned on goods shipped through Czechoslovakia to other countries. For example, goods destined for Berlin, East Germany, or Poland had to be rerouted through Austria and West Germany.

further effect of the occupation willdelay in the delivery of Czechoslovakto the West. Although no ordersWest are known to have been canceled,disruption of Czechoslovak imports from thebeen indicated in an interviewonducted

by Dun and Bradstreet analystsof "key business organizations doing business with tho Easternhose interviewed in eight West European countries stated that they willtemporary stop on all contracts and shipments to Czechoslovakia, pending further clarification of the situation there."

Tourism, at the height of its season, is dead. The Prague-Ruzyne Airport was still closed to commercial traffic aseptember, andfzechoslovak civil airports were reportedly still occupied by Soviet troops. The only foreigners now permitted to enter the country are diplomats and businessmen who have invitations to visit Czechoslovak firms or who are to attend the Brno Trade Fair.

The Brno Trade Fair was originally scheduled to openeptember, but has been delayed for one week. According to Associated Press reports,flights are expected to resume in time for the fair's opening. There have been signs ofhowever, among some Westerners who were to have exhibits at the fair. Indeed, the present climate is not conduciveeavy turnout.

Original document.

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