Foreign Relations of the United States, 1958–1960, Eastern Europe; Finland; Greece; Turkey, Volume X, Part 2

179. Despatch From the Embassy in Finland to the Department of State⁰

No. 660

Helsinki, May 12, 1958.

REF

• Deptel 698, April 17, 1958¹

SUBJECT

• Suggestions for OCB Progress Report

General

Finland’s situation during the period under review continued to offer grounds for guarded optimism regarding the ability of the country to maintain its status as an independent and democratic country basically oriented toward the West and without undue reliance on the Soviet Union.

On the positive side, Finland succeeded in maneuvering through the troublesome problems raised by the devaluation and trade liberalization without intensification of inflationary pressures and without depleting foreign exchange reserves. Anti-inflationary measures, particularly the tight money policy, contributed to the decline in economic activity which was already underway as a result of general world conditions, but did not produce the acute rise in unemployment, with an attendant unmanageable strain on the cash position of the Government, that many feared. (Unemployment did rise as against the same period last year, but the percentage was less than in many other countries and the level proved manageable without heavy increases in works programs.) The rate of increase in the cost of living index actually slowed down, rather than mounted as had been expected. The foreign exchange reserve position, while remaining tenuous, did not degenerate to a point where the government had to draw on the IMF, or seek short term foreign credits, contingencies for which allowance had been made at the time of devaluation.

On the negative side, the political scene continued to be characterized by instability of policy and leadership. Despite the relatively firm political party structure, enduring governing coalitions have remained unattainable. It has also become increasingly apparent that real leaders of the stature Finland has known in the past are now lacking in active political life. These twin deficiencies have been intensified by the open split within the Social Democratic Party and the trade union movement. The parliamentary election of July 6–7 will not eliminate these or other fundamental difficulties, but it may lay a basis for at least a temporary solution of intra-party divisions by testing the strength of existing factions. It may also point the way to a re-grouping and possibly a consolidation of political forces, especially among the urban middle-class parties which are now largely ineffectual.

Lacking solid leadership, the government has been unable to take any of the measures necessary for a solution of basic economic problems; particularly has it not been able to make progress in restraining competition among the interest groups for ever increasing shares in the national product without regard to productivity. Thus, the economy continues to be beset by chronic unemployment, unprofitable farming, much marginal and sub-marginal manufacturing and an inability to attract investment capital.

On the international side, there has been a faltering in the trend toward normalization of Finland’s position as a really neutral state, independent of Soviet pressure. Following the encouraging and somewhat bold, moves toward closer economic collaboration with the West—i.e., the institution of multilateral trade and payments agreements with most of the OEEC countries, the accompanying trade liberalization program, and overtures indicative of an early intention to apply for OEEC membership—a marked degree of nervousness has appeared in both official and business circles. This is in part explainable by concern over the sudden and sharp rise in Finland’s exchange balance in the USSR. While deriving more from such factors as accelerated Soviet payments against Finnish contracts, a decline in general economic activity in Finland, a shift in the terms of trade in favor of Finland, and the virtual elimination of third country participation in Finnish-Soviet trade, than from an increase in Finnish imports from the West, the Soviets have chosen to interpret the new situation as almost exclusively the result of the latter. The Finns are admittedly fearful that the Soviets will retaliate through reducing their imports from Finland, a step that would disrupt many industries and seriously aggravate unemployment. At the same time, the Finns, although studiously asserting otherwise, are probably concerned over a possible political reaction, one that might extend to the point of impinging on the actual independence of the country. In any event, the government now clearly intends to hold back on any further economic ties with the West until the present imbalance in Finnish-Soviet trade can be corrected and until means can be devised to keep this trade indefinitely at roughly the present level. As serious obstacles stand in the way of both of these, particularly the latter, there can be far less assurance than a few months ago that Finland’s western orientation will be appreciably strengthened.

Meanwhile, the past few weeks have produced other evidences of a new caution on the part of Finland toward the USSR. Among these might be cited Finnish insistence on abstaining on even relatively harmless votes in international bodies and conferences (See D 614 of April 25, 1958);² repeated attempts of the Agrarians, presently Finland’s largest party, to inject into politics the issue of “which party can best be trusted to maintain Soviet friendship”; and suggestions that Finland may be more willing than it has claimed in the past to attempt to influence Norway and Denmark to weaken their NATO ties. This last, which runs counter to assurance given or implied during the B & K visit³ last year, was especially marked in a recent newspaper editorial reliably reported to have been inspired by President Kekkonen (See D 598 of April 21, 1958).⁴ Paralleling these indications is a growing emphasis on the forthcoming visit of President Kekkonen to Moscow, speculation over the possibility of Soviet economic support for Finland, particularly in the industrial development area, and increasing emphasis on the essentiality of preventing any development or activity that might disturb the “Soviet friendship” line.

While these trends may be discounted as due in part to temporary maneuvering before the national elections and in part to the Government’s anxiety to reassure Moscow in face of a definite intention to join OEEC, in at least two particulars they seem to carry a long term threat to the Western position in Finland. In all the current discussions of the USSR, there is an everpresent overtone suggestive of acceptance of a Soviet monopoly over the future of Finland. At the same time, there is incessant “window dressing” regarding Fenno-Soviet “friendship”. The result might well be that ultimately the Finnish perspective on the Soviet Union will be undermined. The older Finns could be led into a “Czech” outlook, and the younger, particularly among the lower classes, could be brought to the complacent view that they not only had nothing to fear from the USSR, but perhaps much to gain. Supporters of the Agrarians and Social Democrats, along with the Communists, who together now constitute approximately three quarters of the voters of the country, seem especially likely to be influenced by this trend.

Operating Problems

Under existing U.S. programs, operating problems are currently minimal. Since the loan of $14 million in Finnmarks to the Mortgage Bank of Finland in February,⁵ the problem of utilization of U.S. owned Finnish currency has changed from one of finding satisfactory uses to one of priorities. There now appear worthy projects in sight—primarily the purchase of defense housing—which call for more funds than will be available from the February, 1958, PL 480 agreement.⁶ However, if, as suggested below, a fiscal 1959 agreement is consummated as early as congressional action will permit, funds should be adequate to prevent delays in any of the projects which are now being given serious consideration.

The programming of Cooley Amendment⁷ loans constitutes a new operating problem, but probably not one involving a unique or especially important policy issue. Should eligible requests be slow in materializing, however, the question would arise as to when to cut off the “Cooley reservation” and release the funds for other uses.

The frequently mentioned interest of the Finnish authorities in development loans may give rise to new operating problems, particularly in view of the Battle Act question.⁸ The Finns are now seeking an IBRD loan; they may also turn to the Export-Import Bank. Assistance to a Fenno-Norwegian project in the north also is a possibility to be considered.

The possibility of requests for shorter term credits, from IMF or elsewhere, to meet a difficult foreign exchange situation also should not be discounted, and the U.S. would have an important interest in this question in view of its intimate relationship to western trade arrangements and the OEEC.

With respect to further PL 480 agreements, the Finns have requested action as early in the fiscal year as possible. They have also urged a more favorable response to their commodity requirements, particularly cotton. There is thus a problem of granting a higher priority to Finland in the PL 480 program or risking failure to secure maximum benefits in the way of assistance to the Finnish economy and furtherance of Western orientation. It might also be noted that if PL 480 sales were cut off entirely the result would probably be a significant increase in Finnish economic dependence on the USSR.

In present U.S. efforts to influence Finland, a key role is played by the exchange of persons program. This program has long been running smoothly and does not in itself pose problems. It has been suggested, however, that the program might be reduced during the next fiscal year. Instead it should be maintained at its present level and an increased proportion devoted to an exchange of persons deliberately chosen for their influence in dominant groups, including those which are presently indifferent to the U.S. and its political objectives. Greater flexibility in the application of rules governing conditions of grant should be permitted in order to attract individuals of this type who might otherwise not be eligible, or able to leave their present positions.

Possible Additional Programs

Finland’s position as an independent nation basically oriented toward the West is now obviously far more secure than a few years ago. Nevertheless it remains subject to very real dangers. Insofar as these derive from the geographic position of the country they will, of course, continue indefinitely. However, under the existing international situation they appear to derive more from conditions and attitudes within Finland itself.

In Finland the U.S. is prevented from taking certain obvious political initiatives because of the impossibility of underwriting the security of the country against possible repercussions. However, the U.S. is not denied the opportunity of acting through economic and cultural channels to achieve political aims. Specifically, it would seem that the U.S., within the framework of existing policies and without danger of provoking irrepressible Soviet countermeasures, is free to:

1) Help avert the damaging political effects of a continuation of certain basic deficiencies in the Finnish economy;

2) Exert constructive influence on the selection and training of able and responsible political leaders;

3) Interpose a strictly limited but concerted psychological alternative to the prevailing impression of Soviet monopoly over the future of Finland.

The area of greatest opportunity for the U.S. is that of investment loans. As the Embassy has repeatedly pointed out, Finland can attain real economic viability only through a substantial increase in its productive capacity. This requires a Finnish shift in emphasis from uneconomic agricultural activities and submarginal manufacturing to industries for which the country has at least some natural endowment, particularly new industries based upon forest resources and some minerals. Finland itself cannot supply the necessary capital. If the U.S. should supply it, it would not only contribute to a basic strengthening of the country’s economic and political stability, but could also influence development along lines which would tie it more closely to the West.

One phase of a U.S. investment program could very profitably be the promotion of enterprises jointly undertaken by Finland and Sweden and/or Norway. An example of an enterprise of this sort is the Fenno-Norwegian project for a sulphate plant in the Kirkennes area, a project which is already in an advanced stage of planning. (See D 494 of March 3, 1958.)⁹

In the psychological field, the major need is to counter the long term trend, noted above, toward a distortion of the Finnish perspective regarding the Soviet Union. Here the most fruitful line of activity would seem to lie in directly influencing leaders, political and otherwise, through maximum exchanges.

A new means of doing this might be the inauguration of non-military programs for the utilization, with PL 480 funds, of Finnish scientists. Well thought out programs of this type would not only influence the attitudes of an important segment of Finnish society, but would help the Finnish economy through contributing to the support of scientific research. It also would increase the scientific resources available to the U.S. (See D 632 of May 2, 1958.)¹⁰

In a broader area, it may be that the time has come for at least a degree of change in our psychological approach to the Finnish people. Careful attention must still be given, of course, to the problem of avoiding precipitation of Soviet pressures on Finland. But this need not mean passivity in all fields; it should be possible within the spheres open to us to act somewhat more resolutely and to seek more boldly to make psychological use of such action.

John D. Hickerson
American Ambassador

0. Source: Department of State, Central Files, 611.60E/5–1258. Secret.
1. Telegram 698 to Helsinki requested the Embassy to forward suggestions for the Progress Report on NSC 5403, on which the Operations Coordinating Board planned to begin work in May. (Ibid., 121.60E2/4–1758) NSC 5403, “U.S. Policy Toward Finland,” adopted by the National Security Council on January 21, 1954, and approved by President Eisenhower on January 25, 1954, is printed in Foreign Relations, 1952–1954, vol. VIII, pp. 773–777.
2. Despatch 614 is entitled “Finnish Position on Controversial Issues at Law of Sea Conference.” (Department of State, Central Files, 399.431/4–2558)
3. Soviet Premier Nikolai Bulganin and Communist Party First Secretary Nikita Khrushchev visited Finland in June 1957. The Embassy’s commentary on the visit is in despatch 564, June 21, 1957. (Ibid., 033.6160E/6–2157)
4. Despatch 598 is entitled “Erlander Foreign Policy Speech Draws Significant Agrarian Comment.” (Ibid., 758.13/4–2158)
5. In an exchange of notes of February 10 and February 17, the Governments of Finland and the United States agreed to the $14 million figure, which was to be financed from local currency proceeds from U.S. commodity sales. For texts of the notes, see 9 UST 1025. The details of the agreement were transmitted in telegram 554 from Helsinki, February 11. (Department of State, Central Files, 860E.10/2–1158)
6. An agricultural commodities agreement under Title I of the Agricultural Trade Development and Assistance Act of 1954 (P.L. 480) was signed in Helsinki on February 21. For text, see 9 UST 230.
7. The Cooley Amendment to P.L. 480 was introduced by Representative Harold D. Cooley and enacted on August 13, 1957. It provided that up to 25 percent of the local currencies generated by P.L. 480 programs be made available for Export-Import Bank loans to U.S. private firms for business development and trade expansion abroad and for the establishment of facilities for expanding markets for U.S. agricultural products. For text, see 71 Stat. 345.
8. Reference is to the Mutual Defense Assistance Control Act of 1951 (P.L. 213), sponsored by Representative Laurie C. Battle and enacted October 26, 1951. It provided for the suspension of U.S. economic aid to nations supplying strategic materials to Communist countries. For text, see 65 Stat. 644.
9. Despatch 494 is entitled “Project for Finnish-Norwegian Cooperation.” (Department of State, Central Files, 657.602/3–358)
10. Despatch 632 is entitled “Visit of Dr. G. E. Hilbert and Mr. Raymond W. Sooy.” (Ibid., 102.602/5–258)