The Ambassador in the Soviet Union ( Steinhardt ) to the Secretary of State
[Received March 20—9:30 a.m.]
538. My 476, March 10, 7 p.m. Although I have received no notification from the Soviet Government or the Dean of the Diplomatic Corps that a special exchange rate for the Moscow Diplomatic Corps has been established (and do not anticipate any such notification) the Bank for Foreign Trade of the Union of Soviet Socialist Republics63 [Page 872] yesterday informed a representative of the Embassy who sought to purchase rubles that they are now available to the diplomatic missions at the rate of 12 to the dollar instead of at the official rate of 5.3 to the dollar. It is evident therefore that the new rate is definitely in effect and that the prohibition against purchases outside the Soviet Union likewise applies.
This action of the Soviet Union brings into operation the exchange compensation procedure established by the Department which the Embassy’s successful efforts in acquiring rubles outside the Soviet Union at an average rate of 25 to the dollar have made it unnecessary to take advantage of since November 1939. However, as commodity prices in the Soviet Union have been progressively and drastically increased since the outbreak of the European war it is apparent that exchange compensation at the rate authorized under the present arrangement will [not] be adequate.
Salaries of the Soviet employees of the Mission are fixed in dollars but paid in rubles nor could they be accepted in dollars under Soviet regulations. The minimum rate at which these salaries are payable is that fixed by the exchange compensation procedure (17.4 rubles to the dollar). The maximum has been at the rate of 25 rubles to the dollar recommended by me and approved in the Department’s 841, December 6, [1940,] 4 p.m.64 The Soviet employees have during the past year been paid at an average rate of approximately 25 rubles to the dollar. Nevertheless in view of the increase in prices referred to, the Embassy has despite this favorable rate of 25 to the dollar been compelled to recommend wage increases for most of its Soviet personnel. It is now clear that such minor dollar increases as have been granted or may be contemplated by the Department will not offset the increased living costs or compensate for the income loss which will result from payment at the rate of 17.4. This rate of payment will effect an average reduction in ruble compensation to our Soviet employees as compared with the past year of 30%. Since the average wage of the Soviet employees is in the neighborhood of $500 per annum it is doubtful that some of them could or would remain in our employ after such a reduction. The Department is aware of the difficulty with which even one Soviet employee is replaced due to the unwillingness of Soviet citizens to enter into the employ of foreign missions.
The American personnel of the Mission will, in general, be affected in much the same manner as the Soviet personnel although payment of exchange compensation at the rate of 17.4 rubles to the dollar will afford greater relief to the higher paid officers than to the lower paid officers and clerks, as the latter’s ruble expenditures require a higher [Page 873] percentage of their salaries. The dollar expenditures of the American personnel of this Mission have been greatly increased as a result of the war, since essential clothing, food, household supplies and other necessities are not available in Moscow but must be purchased in the United States or Stockholm where prices are relatively high and transported to Moscow at excessive freight rates. Food products formerly acquired in Riga must now be purchased from the Embassy commissary whose prices have increased steadily during the past year and are now being further increased in order to provide for the exorbitant freight rates charged for the last food shipments to arrive over the Trans-Siberian Railway from Vladivostok. Further freight rates on these shipments will have to be paid in rubles obtained at the rate of 12 to the dollar which will result in a 40% increase in the prices which the commissary will be obliged to charge. The freight and handling charges on the last commissary shipment from Vladivostok to Moscow for example amounted to $1982 at 25 rubles to the dollar on 31 tons. At 12 rubles to the dollar the commissary would have been required to pay $4129 freight from Vladivostok to Moscow on the same shipment in addition to the trans-Pacific and transcontinental freight charges which amounted to $1476 above the cost of the food and other supplies purchased in the United States. At 12 rubles to the dollar the total freight on commissary shipments will hereafter amount to approximately $180 per ton.
All of the American members of the staff have substantial fixed and irreducible charges payable in rubles. As indicating the problem with which both the American and Soviet personnel are confronted as a result of the action taken by the Soviet Government I am giving below the current prices of certain staple items of food and clothing, when they are available in Moscow, at the rate at which rubles hereafter [will] be obtainable (at 12 rubles to the dollar). Per pound, butter 106 cents, beef 53 cents, ham 102 cents, pork 83 cents, salami sausage 140 cents, Swiss cheese 106 cents, granulated sugar 19 cents, flour 21 cents, eggs 7 cents each, lemons 17 cents each, oranges 15 cents each, apples 45 cents per pound, soap 18 cents per cake, ordinary shoes for men $34 pair, ordinary shoes for women $34 pair, ready-made man’s suit $116.67, ready-made man’s overcoat $90.68, light cotton material for women’s summer dresses $3.69 a yard.
I am of the opinion that the problem with which the Embassy personnel is confronted can best be alleviated by increasing the exchange relief compensation from 17.4 to a higher figure and I may point out in this connection that the exchange compensation rate established by the German Government for its Mission in Moscow is now 30 to the dollar, the British 75 [25?] and the Japanese 24 to the dollar.