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

180. Operations Coordinating Board Report⁰

Washington, July 9, 1958.

OPERATIONS COORDINATING BOARD REPORT ON FINLAND (NSC 5403)

(Policy Approved by the President, January 25, 1954)

(Period Covered: From January 3, 1958 Through July 9, 1958)

A. Summary Evaluation

1. The basic U.S. objective of maintaining an independent, democratic Finland, oriented toward the West, continued to be met. It is too early to evaluate the recent agreements in principle between Finland and the Soviet Union for a large loan and on other matters (see paragraph 8 below), but their impact on Fenno-Soviet relations may have an important bearing on continued attainment of U.S. objectives.

2. Finland’s contracting economy evidenced by increased unemployment and a decline in the volume of production is operating, in conjunction with other factors, to increase Finland’s dependence on the Soviet bloc as a market and as a source of capital. However, the Finnish economy is now in a sounder condition than it has been in a number of years in the sense that the inflationary problem is not as serious. This has resulted from the stringent monetary and fiscal policies and the devaluation of the Finnmark undertaken last year.

3. Extensive trade with the Soviet bloc remains economically necessary and politically expedient. Finland’s large ruble balance which has, for a number of reasons, developed in the last few months may lead to increased imports, at least temporarily, from the Soviet Union. These imports suffered a drop during early 1958 in the face of an increase in total imports. Finland’s economy remains dangerously dependent upon the Soviet bloc.

4. The divergent interests of the several non-Communist parties have frustrated efforts to form a stable coalition assured of a workable Parliamentary majority. This has led to the fall of two cabinets in the space of six months. The difficulty of submerging sectional and party interests has been increased in recent months by the decline in economic activity. The July parliamentary elections left this political situation fundamentally unaltered.

5. The agreements with the United States for a 1958 PL 480 program of approximately $9 million and for the loan to Finland of $14 million equivalent of U.S.-owned Finnmark proceeds from previous PL 480 sales contributed to Finland’s ability to meet its economic problems.

6. A review of policy is not recommended. Present policy with relation to Finland is considered to be consistent with Basic National Security Policy (NSC 5810/1).¹

B. Major Operating Problems or Difficulties Facing the United States

7. Possible Request for U.S. Loan. Finland has just requested a U.S. Government loan of $30 million to be utilized by the Mortgage Bank of Finland for industrial development purposes in northern Finland. Western economic assistance can make an important contribution to the maintenance of Finland’s orientation toward the West. (Western economic assistance has consisted primarily of PL 480 sales and local currency credits and IBRD loans.)

Note: See National Intelligence Estimate No. 28.5–54, “Current Situation and Probable Developments in Finland During 1954”, dated January 5, 1954.²

Annex A

ADDITIONAL MAJOR DEVELOPMENTS

8. State Visit to Moscow.

a. President Kekkonen, accompanied by several Cabinet ministers, representatives of most Finnish political parties, and several Parliamentary, business and military leaders, made a State visit to the Soviet Union during the last week of May.³ The final joint communiqué stated that the Soviet Union had acceded to Finnish requests for a development loan of commodities equivalent to about $100,000,000, and for Finnish use of the Saimaa Canal; while Finland supported the Rapacki Plan, nuclear test suspension, and seating the Chinese Communist regime in the U.N.

b. The Finnish delegation was dominated by President Kekkonen who appears to have disregarded the views of most of his advisers, at least as regards the proposed loan and Saimaa Canal agreements. However, these will have to be negotiated and approved by Parliament before they go into effect. The President was apparently motivated by Finland’s genuine need for large-scale capital investment assistance; by his hope that a Soviet concession on the Canal would benefit the Agrarian Party in the forthcoming elections; and by his fear that prevailing circumstances in the West made it prudent to mend fences in the East. The communiqué statements on international political problems represent more explicit statements of positions Finland has already publicly taken. Nevertheless, consummation of agreements on the loan and on the Canal would represent a step by Finland toward closer cooperation with the Soviet Union which cannot yet be evaluated.

9. Socialist Split. The deep split within the Social Democratic Party and the trade union federation (SAK) was exacerbated by the political maneuvers involved in the formation of the Kuuskoski Government. Efforts, the success of which cannot yet be forecast, are under way to heal the breach. Their failure would open new opportunities for the Communists both in politics and in the trade unions.

10. Parliamentary Elections. In the July parliamentary elections the well-organized Communists benefited from a drop in voter turn-out, the poor economic outlook, unemployment, the Socialist split, plus timely Soviet gestures.⁴ Although the Communists raised their vote only from 433,800 in the previous election to about 441,100, they increased their representation by 7 and now control 50 of the 200 seats in the national legislature. While the democratic parties are unanimous in their opposition to Communist participation in the Government, the elections did not solve the problem of their widely divergent interests on numerous other major issues, thus leaving the basic political situation unchanged. Consequently, the task of forming a new Government to replace the present caretaker cabinet will be as difficult as in the past and may not be completed until late summer. The changes brought about by the elections were as follows:

	Pre-Election Parliament	Post-Election Parliament
Social Democrats	54	48
Independent Social Democrats	0	3
Agrarians	53	48
Communists (SKDL)	43	50
Conservatives	24	29
Liberals	13	8
Swedish Party	13	14

11. IBRD Loan. The IBRD is currently investigating Finland’s economic situation in order to determine whether it should grant a dollar loan. Such a loan would play an important role in improving the basic structure of Finland’s economy, since lack of investment capital is one of its basic economic problems. While there is no firm indication at the present time on the size of any IBRD loan, it is unlikely that it will be in excess of $20 million.

12. OEEC. There is still some Finnish interest in joining OEEC and the EPU; the latter have concluded, after an examination made at Finland’s request, that they would act favorably upon receipt of a formal application. The Finns have informally indicated to the U.S. Embassy, however, that the Soviet Union would object if trade with the Soviet bloc were to be adversely affected. For this and other reasons, an early Finnish application for membership in OEEC is not likely.

13. Norwegian-Finnish Cooperation. The degree to which the United States can assist in a joint Norwegian-Finnish project for development of natural resources in their northern border area is now under study in the Department of State. Finnish participation in joint Scandinavian undertakings of this kind to the maximum feasible extent would be a contribution toward the attainment of U.S. objectives.

14. Economic Situation.

a. Finland adopted last year stringent monetary and fiscal policies and a devaluation of the Finnmark which have shaken out many but not all the inflationary problems besetting the Finnish economy. However, the Finnish authorities are now under considerable pressure to relax their tight credit and budgetary policies. These policies have resulted in an inevitable slackening in economic activity compared with the previous period of marked inflation, and the increase in unemployment and decline in production in recent months has been accentuated by a fall in foreign demand for Finland’s wood and wood products because of the decreasing rate of growth in the economies of western Europe. Some measures to stimulate the economy have already been taken.

b. Since the devaluation of the Finnmark last September, Finland’s balance-of-payments position has improved and its gold and foreign exchange reserves (primarily non-convertible and non-transferable currencies) have increased. Finland’s traditional exports have again become competitive in world markets. Finnish officials anticipate that the foreign exchange holdings of the Bank of Finland in the first half of this year will not show their usual seasonal decline. Along with devaluation, Finland took substantial steps in removing restrictions on imports from western European countries. This caused an immediate shift in Finland’s sources of supply; there was an increase in imports from western European countries where goods are more competitive and a decrease in imports from the Soviet bloc. Since exports to the Soviet bloc did not fall at the same time, Finland has substantially increased its ruble balance with the USSR.

Annex B

July 11, 1958.

SINO-SOVIET BLOC ACTIVITIES IN FINLAND

(Prepared by CIA)

1. General Bloc Policy. Bloc activity is aimed at weakening Finland’s policy of “friendly” neutrality in favor of closer relations with the bloc and at advancing Soviet foreign policy objectives toward other Scandinavian countries. The USSR can put considerable pressure on Finland; however, the Kremlin realizes that such measures might move Finland closer to the West, as well as cause adverse reactions by the Scandinavian countries. Moscow has also found it profitable to point to Soviet-Finnish relations as an example of peaceful co-existence between countries having opposing social systems. Finland has thus been able generally to conduct its external and internal affairs without overt bloc interference.

2. During the period of this report, the USSR continued its efforts to use Finland to encourage the Scandinavian countries to pursue policies which would weaken their ties with the West. Bloc countries have periodically urged Finland to support the establishment of a Baltic “sea of peace” with the objective of excluding Western forces from the area. Moscow is also attempting to strengthen its economic and cultural relations with Finland.

3. Diplomatic Activity. Finland maintains diplomatic relations with the USSR, Communist China, and all Eastern European countries except East Germany. The bloc missions in Helsinki are staffed by approximately 195 officials, of whom over two thirds are Soviet.

4. Economic Activity. Finland’s over-all trade with the bloc increased from $430,000,000 in 1956 to approximately $518,000,000 in 1957, accounting for 29 percent of Finnish exports—a slight increase—and 31 percent of imports—a rise from 25 percent in 1956. In the first quarter of 1958, Finnish purchases from the USSR declined sharply; it cannot be determined whether this trend will continue, particularly inasmuch as Finnish officials are taking corrective measures to restore the level of trade. The USSR supplanted Great Britain last year as Finland’s principal trading partner, and substantial increases in trade were registered with Poland and Czechoslovakia.

5. Last year’s growth in Finnish commerce with the bloc resulted from a number of factors. Imports rose as delayed deliveries of Soviet goods were made and the Finns tried to liquidate a large credit balance with the USSR. The slight rise in exports resulted in part from expanded sales to Poland. Finnish inflation also tended to stimulate trade with the bloc: the Finnish Government increased its purchases from the bloc and held down Western imports during most of 1957 in order to conserve foreign exchange, while some Finnish goods which were priced too high for Western markets found bloc buyers.

6. On several occasions during the past year the USSR has offered credits and loans to Finland. Despite considerable agitation by Finnish Communists to accept Soviet assistance for industrialization, Helsinki has not responded to these overtures.

7. Cultural and Propaganda Activity. Finland is a prime target for Soviet cultural and propaganda activities, and has the largest program of cultural exchanges with the bloc of any free world country. Exchange visits between Finland and the bloc rose sharply in 1957 to a total of 180 delegations; Finland sent 106 delegations, and was visited by 74 bloc delegations.

8. The bloc supports a total of seven friendship and cultural societies and centers in Finland. The “Finland-Soviet Union Society”, with 18 branches scattered throughout Finland and an estimated membership of some 230,000, is the largest and most active. While its members include many non-Communist Finns—including the President of Finland, who is the honorary president—Communists hold positions of control.

9. Sino-Soviet bloc radio broadcasts in Finnish at present total 41.5 hours per week, a slight increase since early 1957. Some of the bloc’s broadcasts of about 42 hours per week in Swedish probably are also intended for listeners in Finland. In addition to a TASS representative, three Soviet newspapers have correspondents in Helsinki, and the Soviet Information Bureau—a news disseminating agency—has a sizable staff.

10. Subversive Activity. The Finnish Communist Party (SKP) has a membership of approximately 25,000, a drop of about 5,000 over the past year. It controls the leftist front organization, the Finnish People’s Democratic League (SKDL), and the Communist deputies in parliament sit as SKDL members. The substantial gains of the SKDL in the 6–7 July parliamentary election may stimulate the Communists to resort to more under-cover activity, particularly if, as anticipated, the democratic parties refuse to accept the SKDL in any coalition government.

11. The Finnish People’s Democratic League (SKDL), the parliamentary front of the Finnish Communists, is the largest party in parliament, with 50 of the 200 seats. The SKDL, which like other Communist fronts and mass organizations had been suffering from a lack of interest, will be greatly stimulated by the outcome of the election. It will demand to participate in any new government and can be expected to accelerate its whole propaganda program. The most important target of Communist penetration in Finland is the Confederation of Trade Unions (SAK). Communists and their sympathizers account for about 40 percent of the membership and hold three of the 17 seats on the executive committee. Seven of the 36 affiliated national unions are dominated by the Communists, including the key construction workers’ union. The continued factional struggle among Social Democrats both in the party organization and in the trade unions can assist the Communist schemes.

12. 65 Communist or Communist-oriented newspapers and periodicals are distributed to an estimated 150,000 persons. The circulation of Kansan Uutiset, the official organ of the SKP and SKDL, is about 45,000, compared to 58,000 in 1956.

13. The Communists still constitute a substantial threat to Finland’s internal security and political stability. The SKP hardcore which forms the basis of the Communist capability for sabotage has not been notably affected by recent difficulties; through their position in the trade union movement, the Communists are able to stimulate labor unrest and inhibit government efforts to achieve economic stability.

14. Finnish Reaction to Bloc Activities. Informed Finns and governmental figures are well aware of the USSR’s potential for political and economic sanctions against Finland, as well as the ultimate threat of Soviet military action. The Finnish Government is therefore careful to calculate the impact of its foreign policy actions on Soviet-Finnish relations. On the other hand, Helsinki has yielded only a limited extent to pressure from Moscow to further bloc objectives among the Scandinavian countries.

15. Trade with the bloc is vital to the Finnish economy. The USSR is the main foreign outlet for the exports of the metalworking and shipbuilding industries which are noncompetitive in Western markets, and the USSR supplies the bulk of Finland’s coal, oil, wheat, and fertilizer. Nevertheless, the economic and political implications of the progressive increase in Finnish trade with the bloc are viewed with serious misgivings by many Finns, and Helsinki has taken steps to maintain the Western orientation of the economy. Finland has concluded multilateral payments agreements with Western European countries, and in September 1957, devalued the finnmark and liberalized import licenses. The currency devaluation has thus far enabled Finland to hold its Western markets in spite of a weakening demand for major Finnish products. The Finns have also shown some interest in joining OEEC, but are hesitating because they are concerned over possible disruption of trade with the bloc.

16. The Outlook. The gains of the SKDL will lead to its demanding its inclusion in the government, and Soviet propaganda will vociferously support this demand. The USSR may also make more direct suggestions to President Kekkonen that he press the other parties to accept the SKDL. The bitter fights within the Social Democratic Party and in SAK may benefit the Communists particularly in the labor movement. Any split in SAK would probably permit Communist elements to gain control of several of the national labor federations and possibly of SAK itself.

17. Moscow appears content to continue its policy toward Finland of “calculated tolerance”, at least for the near future. Finland’s ability to maintain a balance in its economic relations with the bloc and with the West is also important: increased economic dependence on the bloc could be exploited by Moscow, while a drastic change in favor of the West might result in an adverse reaction from the USSR.

0. Source: Department of State, OCB Files: Lot 61 D 385, Finland. Secret. A Financial Annex is not printed. The report was approved by the OCB on July 9 on the condition that it be revised to reflect the results of the Finnish elections. (Preliminary Notes of OCB Meeting, July 9; ibid.) It was forwarded to the National Security Council under cover of a memorandum from Melbourne to Lay, August 11; noted by the NSC at its 376th meeting on August 14; and approved by President Eisenhower on August 18 in NSC Action No. 1968. (Ibid., S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council) In his August 11 memorandum, Lay noted that no Finnish Government had as yet been formed, there being “persistent difficulty in forming a coalition without communist participation.,, He also noted that the Finnish request for a $30 million loan was under active consideration by both the Department of State and ICA. A copy of the previous Progress Report, January 2, is Ibid., OCB Files: Lot 61 D 385, Finland.
1. Scheduled for publication in volume III.
2. Not printed. (Department of State, INR–NIE Files)
3. Documentation on the visit, May 22–31, is Ibid., Central File 760E.11.
4. See Document 181.