Foreign Relations of the United States: Diplomatic Papers, 1945, Europe, Volume IV

661.6431/10–645: Telegram

The Representative in Hungary (Schoenfeld) to the Secretary of State

Budapest, October 6, 1945—1 p.m.
[Received 5:31 p.m.]

719. Secretary’s telegram 8, Sept 24, from London⁹⁶ and mytel 702, Oct. 4.⁹⁷ Hungarian Ministers of Industry and Commerce have signed two economic agreements with USSR.

One economic agreement provides for exchange of goods between two countries valued at 30 million dollars in addition to exchange of 30,000 tons of Russian cotton and some wool for 3,000 tons cotton yarn and 55 million yards cotton textiles. Agreement expires Dec 31, 1946 (mytel 298, July 17⁹⁸ and despatch 180, Aug 10⁹⁹

Implementation of trade agreement has been assigned to newly-created corporation owned three-fourths by Hungarian State and one-fourth by National Bank. This corporation granted monopoly in Russian-Hungarian trade.

Trade agreement generally regarded profitable from Hungarian viewpoint. Processing of Russian cotton will utilize surplus Hungarian textile capacity. Hungarian economy sorely needs raw materials and trucks scheduled for import from Russia. Hungary will have difficulty providing goods required for export to USSR, but oil and food products, which comprise important part of export list, are relatively readily available. Russians apparently gave Hungary favorable trade terms to make economic collaboration agreement discussed below more palatable.

Second economic agreement provides for economic collaboration between two countries and for widespread Russian participation in Hungarian economy. Copy enclosed my despatch 197, Aug 17.¹

Agreement specifies equal Russian-Hungarian participation in existing or newly-created enterprises within most economic fields, including iron and steel, aluminum, petroleum, electric power, chemical and machine industries, also in banking and river, air and motor transport. Joint companies for mechanization of agriculture and for agricultural and industrial research also prescribed. Agreement valid for five years but may be terminated on year’s notice.

Broad terms of collaboration agreement are subject to implementation by detailed protocol now being prepared by Commerce Ministry; which we have not yet seen.

Russia will have 50% participation in joint companies which will depend on USSR sources for working capital. These factors enhanced by political pressure can give USSR dominant position in Hungarian economy.

Creation of jointly owned company for exploitation of oil resources which will inherit German oil concessions in Hungary will probably affect adversely American oil investments here. Creation of companies for exploitation of coal and bauxite mining, aluminum manufacturing and electric power will result in Russian control of all important Hungarian natural resources save possibly oil.

Ratification of collaboration agreement remains critical Hungarian political issue (my telegram 714, October 5). Non-Marxist Ministers have thus far resisted but admit that in absence of outside assistance ratification is inevitable. Voroshilov and Pushkin applying unceasing pressure on Hungarian Government. They are reported to have offered Hungary assistance in economic reconstruction and rehabilitation if it signs collaboration agreement and threatened literal enforcement of Armistice provisions and Reparations Agreement if it fails to sign. Threat to dismantle and remove all German-owned plants assigned to USSR by Potsdam has undermined resistance. Since Voroshilov employs very broad definition of German ownership this threat applies to very important industrial installations.

Those who dread Russian monopolization of Hungarian economy, including business, financial and intellectual community and non-Marxist parties, continue to appeal for our intervention referring to our direct interest through American investment here and to often-voiced American promise of unrestricted trade throughout world. American failure to express disapproval of proposed agreement has discouraged these groups and given support to Russophiles who continually point out that Hungary can survive only with USSR help since it has been abandoned by western countries. Please see my 714, October 5, last paragraph.

Repeated to London as 35 to Moscow as 87.

Schoenfeld

96. Not printed; in this telegram, which was not repeated to the Department, the Secretary of State directed Schoenfeld that pending further instruction, no further steps should be taken; Schoenfeld was requested to send a full report on the Soviet-Hungarian economic arrangement (Budapest Legation File: 801 Hungary Government Recognition). Telegram 33, October 4, 4 p.m. from Budapest to London, not repeated to Washington and not printed, reported that the Secretary of State’s telegram 8, September 24, from London, had not been received until October 4. (Budapest Legation File: 801 Hungary Government Recognition)
97. Not printed; it reported that Marshal Voroshilov and Pushkin continued to press on Miklos and Gyöngyösi the importance of prompt Hungarian ratification of the Soviet-Hungarian economic collaboration agreement (864.00/10–445).
98. Not printed; it summarized the terms of the draft Soviet-Hungarian trade agreement (661.6431/7–1745).
99. Not printed; it transmitted a text of a translation of the draft of the Soviet-Hungarian trade agreement then under negotiation in Moscow (661.6431/8–1045).
1. Not printed.