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 [Page 485] 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
[Page 486]
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 [Page 487] 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 [Page 488] 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
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 [Page 489] 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 [Page 490] 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.
