The Ambassador in the Soviet Union (Kirk) to the Secretary of State

No. 91

Soviet Trade Policy Re Western Europe

The Soviets are still seeking to build up their foreign currency balances in Norway, Italy, and other western European countries, apparently delaying purchases in expectation of better prices in the future, judging by recent statements of Norwegian and Italian diplomats at Moscow.

In a conversation on January 29, 1950, Mr. Tommaso Mancini, Commercial Counselor of the Italian Embassy at Moscow, exchanged impressions re Soviet trade policy with Mr. Johan Melander, chief of the Norwegian trade delegation now at Moscow, an officer of the American Embassy taking part in the discussion.

Mr. Mancini remarked that the Soviets were building up large credit balances in lire, due to the fact that they were selling much more to Italy than they were buying. This was not the fault of the Italian government. The Soviets were not closing deals for purchases, claiming that prices were too high. Though the trade agreement was in terms of dollars, no dollars were payable by Italy against the trade deficit. The funds were held in lire, protected against devaluation of the lira.

Mr. Melander said that the Soviets were showing the same desire to build up credits abroad in their negotiations with the Norwegians and with all other western European countries with which they had negotiated. He showed alert interest in questioning Mr. Mancini as to whose fault it was that the Soviets were not buying more in Italy.

Comment: These statements check with information from other sources, including French, British, and Belgian diplomats here.

It appears reasonable that the Soviets hope to obtain lower prices by waiting. Perhaps they believe their own propaganda about a deepening economic depression in the West, which they claim started in 1948 and will lead to an economic crisis. In such a case prices would fall and they could get more for their money. Probably the prices of Soviet exports of grain, timber, and other raw materials would fall even more than prices of manufactured goods in the West, judging by past depressions. This would help explain the Soviet pressure to sell such raw materials now.

If it is true that they believe their own propaganda about depression in the West, this would be a significant factor in Soviet policy. It would favor a waiting policy, in the belief that time was on their side.

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Such views may be held in high Soviet circles, judging by recent trade negotiations. Soviet policy concerning these negotiations was fairly obviously decided on high levels, since the actual negotiators apparently had to refer all important questions to higher authority.

However great caution must be exercised in reaching conclusions. Trade negotiations are only a single facet of general Soviet policy and many other factors are important in addition to those considered here.

Please pass to Armed Forces.

For the Ambassador:
Scott C. Lyon

Second Secretary of Embassy