Created: 8/1/1968

OCR scan of the original document, errors are possible

Intelligence Memorandum

Czechoslovakia: The Economic Meaning of Enforced Soviet Control




CENTRAL INTELLIGENCE AGENCY Directorate of Intelligence8


Czechoslovakia: The Economic MeaningEnforced Soviet Control


If the Soviet armed intervention is followed by the reimpositionard line on economic policy and the repudiation of the liberalization planned by the Dubcek regime, then Czechoslovakia's hopes for long-term economic change have been dashed. The deposed government proposed to change the economic structure, to free producers from direct state control, and to make thecompetitive on the Western market, as it was For all this, the regime needed and was seeking help from the West. Hard-line leaders, handpicked by the Soviet Party, will be neither willing nor able to undertake such changes, instead, Czechoslovakia is likely to continue toubstandard European economy, operated under direct state control and dependent on the USSR.

There will be some economic growth. ime the economy will follow much the same course that necessity would have imposed on the Dubcek regime. Growth could even be facilitated in the short run by Soviet and Eastern European help that Dubcek could not expect. The difference is that hopesreer, more competitive economy and society aided by western loans and technology and with close ties to the west must once again go underground.

tiote: This memorandum was produced solely by CIA. ItTwae prepared by the Office of Economic Reaearch and wae coordinated with the Office of Current Intelligence.

Post-Invasion Economic Policy

1 The Soviet occupation of Czechoslovakia, assuming that it continues, puts an end to Plans forresh start in Czech economic policy.oviet-imposed regime, whoever heads it, centralized control over the economy willbe tightened, and the influence ofplanners and managers will be muchome will lose theiresult of universal distrust and bitterness. Political ooportunists will doubtless acquire some top economic posts for which they are poorly qualified. Passive resistance by workers mayerious problem. All this can mean only that thewaste and inefficiency that have been the object of so much criticism will continue and grow.

2. Czechoslovakia's trade with the USSR, East Germany, andlready more than one-half of totalill doubtless 3ump sharply, increased Soviet willingness to take machinery from Czechoslovakia will maintain full employment in the country's factories and increase its economic dependenceon the USSR. Additional consumer goods ma? be made available in the short run to appease the workers. Credits, "joint ventures, andof economic plans will be used to tighten the tie that binds andare the way for an impressive Czech showing in the near future. The USSR may well furnish some hard currency totillion to Hungarylthough not the largerequested by the Dubcek regime. There was not much chance of getting such an amount from the USSR in the first place,oken hard currency loan would do little to modernize Czech industry.

Economic Prospects

3. In terms of output, the short-runare not really very different from what they would have been under the Dubcek regime, if Dubcek had gained Soviet cooperation. The regime had already plannedrowthercent per year in total output, accepting the need to subsidize high-cost

industries, the production of unsaleable goods, and unprofitable exports. Some type of "economic reform" is likely to be maintained, probably the standard variety prevalent in Eastern Europe. But the hope of real change will be gone. Economic growth obtained under tight control and through trade with the Communist world will be largely illusory, like past Czech growth. As Professor Ota Sik has been telling the people, most recently on television, growth has been maintained mainly through expanding the output of obsolete goods, most of which were then useddirectly through investment and indirectly through trade with the Communist worldto make possible the output of more obsolete goods, of which the same uses must be made. Czechoslovakia now remains caught in this vicious circle.

Hopes Forgone

Dubcek regime was preparing anthis circle by making structural andchanges in the economy. The regimecut back projected long-term ratesin heavy industry, and these changesin the9 directives forissued in early August. Theprojected in output, aside fromand chemicalsased on Soviet crude

oilere in consumer goods and building materials. The main increases in investment apparently were to be in the same industries and in agriculture, transport and communications, and housing.

Over time, as structural changes improved Czechoslovakia's competitive position,conomic advisers hoped to introduce an economic system somewhat like that of Yugoslavia, in which enterprises would make their own decisions, with the advice and consent of workers' representatives and subject to broad government regulation,like wartime controls in Western economies.

The hope of overcoming the handicaps ofears of Communist mismanagement of the Czech economy was perhaps vain. But it formed part of an overall policy under which Czechoslovakiarospect ofore livable place. The hope and prospect must now be deferred indefinitely.

Relations with the West

The Czechs must likewise forgo hopes of achieving closer relations with the West, in economic affairs as in politics and culture. The Dubcek regime expected to enlist Western aid in modernizing the economy. Russian and Eastern European equipmentin whatever amountseffectively substitute for Western equipment in achieving this aim. The regime also hoped ultimatelyin five to seven yearsto make the Czech economy part of the European market,urrency.

Instead, economic relations with the West probably will be narrowed and surely will not be expanded, although relations with less developed countries may be expanded. The growth of trade with the developed West*now aboutercent

* Western Europe (exaept for Greece, Spain, and Portugal) and the United States, Canada, Japan,u Zealand, and South Africa.

of total tradeis likely to slow down, and terms of trade will probably continue to deteriorate. Tourism will lag. Large Western loans andassistance, from which the regime hoped to gain so much, are now out of the question. And Czechoslovakia cannot hope to follow Yugoslavia and Rumania in obtaining the political benefits of greater economic independence.

Original document.

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