Created: 1/8/1964

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To estimate the current situation and probable developments in Finland durir


believe that Finnish internaland political problems, whileare not of crisis proportions and will probably be somewhat alleviated during the coming year.

The national elections4 will probably not result in any significant alteration of party strength. Power thus is likely to remain with the center parties.

The value of Finland's trade with the West fell sharply2the collapse of the Korean War boom. Accordingly, the Soviet Bloc's share of Finland's trade increased from thelow postwar figure5 percent1 to more thanercentt now appears that this trend has been reversed and that the Soviet Bloc's share in Finland's trade is declining. We see little likelihood that Finland will become so dependent upon trade with the Bloc as to impair further its ability to withstand unacceptable Soviet demands underpressures alone.

Wc believe, therefore, that Finland wi continue to maintain the delicately ba anced position between East and We which it has occupied since theorld War IL

We believe it highly unlikely that th USSR will attempt to invadeove in the global cold war.ossible, however, that the USSR migb at some time in the future useoved by some development such as Wes German rearmament to invoke its Mutua Assistance Pact with Finland, and per haps to demand additional bases, rada sites, or other concessions. In these cir cum stances the Finns would probably fee compelled to yield to such demands as (lit not seriously impair their national inde pendence.

The Finnish armed forces could dela; onlyoviet invasion of the coun try. However, the political temper of th-Finnish people is such that Soviet occu pation forces would almost certainly b* subjected to determined and intensiw guerrilla warfare.



Since World War II Finlandosition delicatelybetween East and West. The Finns have maintained their national Independence, carried on extensive trade with Westernand exhibited generally pro-Western political and cultural sympathies. On tin-other hand Finland was forced as aol defeat In war to grant considerable economic, territorial, and political concessions to the USSR The Finns recognize, moreover, that their countryosition of great strategic importance to the USSR, and that It cannot successfully defend Itself againstattack. For this reason Finland has been obliged to adopt an official policy of strict neutrality, emphasizing "good neighbor"with the USSR The Finnishwas also constrained8 toutual Assistance Pact with the USSR which stipulates that: (a) Finland will fight to repel any attack against Finland, or against the USSR through Finnish territory by Germany, or by any state allied with Germany; (b) the two countries shall confer In case It Isthat the threat of an armed attack is present; (c) Finland will not enter Into any alliance or take part In any coalition directed against the USSR

Military Situation

The strength and equipment of the Finnish armed forces are limited by the postwar peace treaty concludedhe strengthof the army, including Frontier Guards,0 men; of thootalnd of the air

Communism is negligible In the Finnish armed forces, and these forces could be counted on by the government to copewith civil disorders.

Finnish armed forces have nofor offensive warfare and coulddefend Finland's borders.of the Karelian isthmus, andof Porkkala, onlyiles fromrenders any significant defense ofand key southern ports imposslb The political temper of the Finnish people such, however,oviet attack wou almost certainly meet armed resistant Such resistance could delay, though on briefly, Soviet invasion of the country. Su sequently, Soviet occupation forcesost certainly be subjected to determined an Intensive guerrilla warfare, In which tt Finns excel.

Foreign Trade

oreign trade Is the key factor in the Fin nish economy; Its volume and terms larger determine the level of domestic economi. activity. Finland Is dependent on trade will both the West and the Soviet Bloc.

a. West: Over two-thirds of Finland'strade Is with the West;ercent of the total trade Is with the US. Nearlyercent of Its exports to the West consist of forest (wood and paper) products, which are exchanged for essential imports of industrial raw materials and capital equipment. The Finns greatly prefer to trade with the West, partly for political reasons, and partlyof the superior quality of Western goods.

o. Soviet Bloc: Nearly one-third offoreign trade is with the Soviet Bloc The Bloc now supplies virtually all Finland's POL and coal, and one-third of Finland's domestic cereal rt^uirements The Bloc Is also the only available market for the export surplus of Finland's shipbuilding and metal-working Industries. These employ0 persons. They were greatlyto nil Soviet reparations payments, which ended Innd their products are generally not competitive on the world market. While expanding domestic needs absorb probably more thanercent of the production of Finnish engineering and metal-working plants, the shipyards workexclusively on deliveries to the USSR.

uring thef Finland's foreign trade was carried on

with the Soviet Bloc; part of this tradeof reparations shipments 1 the

Bloc proportion lell to5 percent, but3 It rose to slightly morehese wide percentage fluctuations were due primarily not to variations in the amount of trade with the Bloc, but to the steep and temporary rise in the value oftrade with the West during the Korean War boom2 and most3 the value of Finnish exports to the West fell sharply, and the Finnish Government was obliged to restrict Imports from the West in order to protect its foreign exchange position. Meanwhile, after reparations shipments to the USSR ceased inhe USSR expanded its commercial purchases fromby an amount roughly equal to thevolume of reparations shipments; this in turnonsiderable increase in Bloc exports to Finland. Taken together, these factors largely account for the recent Increase in the Soviet Bloc's share of Finland's foreign trade.

t now appears that the trends In Furnish foreign trade have again shifted, and the share of the Soviet Bloc is decUlung. The new agreement indicates that the value of Finnish trade with the USSR4 is likely to fall aboutercent below3 level, although the Finnish shipbuilding component of this trade will sbghtly increase. While Finnish trade with the rest of the Bloc will probably Increaset is unlikely that the Increase will be sufficient to offset the decline In trade with the USSR. Moreover, there Is alreadyonsiderable Increase In the volume of Finnish exports lo the West and In the prices these exports command. This trend will probably continuever the longer run. Western demand for forest products will probably increase moderately during the next decade At the same time, the modernization of Finnish forest products Industries, which Is already under way with the help of loans from the International Bank of Reconstruction and Development willFinnish production costs and make Finnish prices more competitive in Western markets

Infcrncit Economic and Politico! Situation

current political problemseconomic in origin. The collapseKorean War boom led to ain earnings from the West.national income remains above thethe pre-Korean period, it hasfrom the peak reached duringWar boom. There has also beenincrease Ininnish unemployment Isto totalpproximatelyof the total labor force. Thisfigure will be sbghtlyostwar peak

The main problem facing Finnish policy markers is to increase the efficiency of the export industries Finland's competitiveIn world markets has been precarious since World War II. Some important export producUon facilities were lost to the USSR, and nearly all available investment resources were absorbed in expanding the productive capacity needed for reparations deliveries and In providing homes and Jobs for refugees from the lost territories. Partlyesult of this inability to invest In' modernization, and partlyesult of overvaluation of the Finn-mark, Finnish export industries arcost disadvantage on the world market.

An effective governmental program to deal with this problem would probably have to Include currency devaluationeduction in wages and social services No singlepartyajority in the Finnishhowever, and the divergent economic interests represented by the two largest parties, the Social Democratic and thehave prevented agreement on any Joint program. Indeed party disagreements haw been so great as to prevent the formationiable coalition, and Finland is presently governedcaretaker" administration.

parUes and their respeeUvein the Finnish parliament (baaed on seat* talned In the 1H1ollows: Social Democrat* 53 CoallUon Part* (Con-


DemociaUe League SwedishIS

(SKDU (Cornmu- Peoples Party Dlst-domiaaled) 43 (Liberal-Center) 10

which probably will stay in power untilelections are held inhis government is notosition to adopt or to carryositive economic program.

There are estimated to be00 Communists in Finland. Communists dominate the third largest political party, the Finnish People's Democratic Leaguehich receivedercent of the total vote in the last national elections. They alsotrong thoughominating position in the Central Federation of Trade Unionshich is controlled by SocialThey are capable of provoking strikes and making unreasonable demands on the government In an attempt to discredit It.

The SKDL will try to exploit popularwith present economic conditions in Finland in order to increase its strength in the next elections. It will probably not have much success. The influence of Communists in the Finnish labor movement has declinedhough it remains large. Thismayeakening of thepopular base. The government'ssocial security program is adequate to cushion the effect of unemployment even at the high level expected during coming months. We therefore believe that the SKDL voting strength is not likely to changein the near future.

The national elections4 willnot result in any significant alteration of party strength. The Social Democrats,anti-Communist, probably will increase their representation slightly at the expense of other non-Communist parties. Power thus is likely to remain with the center parties, and the Social Democrats and/or Agrarians willthe core of the next government coab-tion. It is almost certain that the SKDL will continue to be excluded from the cabinet.

It is thus unlikely that the politicalafter the national elections4 will permit major economic reforms. However, the major parties will probably be moreto agreeompromise economicsince present party resistance toompromise hasarge degree derived from fear of losing votes in the forthcomingIn any event, if the non-Communist party leaders felt that economic difficulties, particularly unemployment, were threatening their own political strength or undermining the basic health of the Finnish economy, they would probably reach agreement on aneconomic program.

conclude that Finnish internaland political problems, whilenot of crisis proportions and willsomewhat alleviated during the '

Probable Foreign Policy Developments

We believe that Finland will maintain Its delicately balanced position between East and West.

It is highly unlikely that the USSR will attempt to Invade Finlandove In the global cold war. Finnish resistance would seriously limit the economic and military benefits the USSR would gain fromand possibly would reduce them below the levels obtained under existing economic and political agreements. Moreover, the Kremlin probably estimates that such action would have substantial propaganda disadvantage, would probably induce Sweden to move closer to the West, and mightisk ofWorld War III.

The Finns haveighto resist economic, psychological, orpolitical pressures brought to bear on them by the USSR. Their dislike and distrust of Russia are traditional; their Westernare deep. The great devotion of the Finns to their national independence Is even sharedarge proportion of those who vote for the Communist dominated SKDL. Wethat the Kremlin probably recognizes these facts, and is unlikely to estimate that it can gain significant concessions' fromby non-mlbtary pressures, at least under present international conditions.

In the longer run, it is possible thatsucharked economic recession in

the Kremlin would like to secure might be more military bases, more stringent political Obligations In case of war, or trading arrangements lopildedly favorable to the USSR.


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