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

185. Memorandum of Conversation⁰

Washington, September 4, 1958.

SUBJECT

• Finnish Request for a Dollar Loan; IBRD Loan; Soviet Loan Offer

PARTICIPANTS

• Dr. Klaus Waris, Governor of the Bank of Finland
• Mr. Jaakko Lyytinen, First Secretary, Embassy of Finland
• EUR—Mr. Elbrick
• BNA—Mr. Mayer
• BNA—Mr. Nelson

At his request Dr. Klaus Waris, Governor of the Bank of Finland, held a conversation with Mr. Elbrick concerning the Finnish application for a dollar loan.

Dr. Waris initiated the conversation by outlining the economic situation in Finland. He said that Finland had devalued its currency last fall and had liberalized its trade controls on the pattern of the other Scandinavian countries while, at the same time, maintaining a tight money policy. The result, he said, had been generally good. The balance of trade had improved to such an extent that now Finland has a small surplus on current account. Foreign exchange reserves, while not excellent, were satisfactory for the moment. However, during the past two years Finland has been undergoing a recession marked by a small drop in the national income and a significant rise in unemployment.

As to the primary cause of the unemployment and general economic decline, Dr. Waris said that the main source of difficulty has been the deterioration of the market for Finnish exports, which consist primarily of wood products. The short-run outlook, he stated, indicated that there probably would be no marked improvement during the coming year, but the long-run prospects are generally viewed as excellent.

Dr. Waris said that the best solution to Finland’s current economic problems lies in the development of productive capacity which simultaneously makes the most economic use of resources and increases trade with the West. To achieve this end the Finns’ intention is to direct investment primarily into the wood products industries with a view to being prepared for expected improvement in market conditions in the early 1960s. Dr. Waris said that the Finns had about $80 million in projects, about $50–$60 million of which are feasible and easily justifiable at the present time.

Referring to his conversations with the IBRD, Dr. Waris said that, although the Bank had been thinking in terms of a $20 million loan to Finland, he was now under the impression that a loan of as much as $40 million was not entirely out of the question. The Bank could not argue with the Finnish expectation that the proposed development in the wood products industry would ultimately lead to an increased output of $60 million a year. He said further that the IBRD wants to be, in effect, Finland’s sole banker for the wood products industry and is not favorably inclined toward any idea of approaching the Export-Import Bank for credits in this field. He hoped that the IBRD’s general position as regards a possible loan to Finland would be known without too much delay.

In addition to the financing of the wood products industry which Finland may get from the IBRD, Dr. Waris stated that Finland needs some $20 million for hydro-electric development, the construction of a titanium oxide plant, and the support of a number of small industries. He made a point of stressing the favorable psychological effect (as well as the economic benefits) of aiding the development of small industry to which he estimated about $3 million should be allocated from a dollar loan. Dr. Waris said that from 50 to 60 percent of the $20 million total would actually be used for domestic expenditures. If this whole amount could be obtained in dollars, it would indirectly supply the foreign exchange necessary to absorb increased demand arising as a result of the investment program envisioned. He appeared to concede, however that a part of the $20 million total might be supplied in the form of Finnmarks. If there were any indication that a dollar credit would be forthcoming, Finland would start immediately upon some of the projects by tapping its existing reserves. In any case, for practical effect, Dr. Waris said, Finland would need to know sometime this fall whether or not a loan could be extended.

Regarding the new Finnish Government formed on August 29, Dr. Waris said that it is subject to internal dissension and that it faces a particularly difficult time in handling budgetary matters. Its tenure will depend to a large extent on its success in dealing with the country’s economic problems.

With reference to the Soviet loan offer, Dr. Waris stated that it is not very attractive since the Soviet Union does not have the commodities desired and needed by Finland. Aside from the Communists and perhaps a few others there is not any strong support for utilization of the Soviet credit. He said further that as a matter of fact Finland’s ruble balance has accumulated to such an extent that the Bank of Finland could today provide 200 million rubles for any reasonable economic project without going to the USSR. Dr. Waris said he had made this point with the Government. He speculated that Finland would probably take up some of the Soviet offer because, in a way, a commitment to do so had been made. He would be surprised, however, if as much as 25 percent of the offer were actually taken up.

Referring for a moment to future Soviet-Finnish trade negotiations, Dr. Waris felt that the only thing significant they could produce in view of Finland’s large and growing ruble surplus would be a reduction in the amount of Soviet purchases on the Finnish market.

Mr. Elbrick thanked Dr. Waris for his presentation and said that we certainly have an interest in the Finnish request for a loan. He said that the United States is faced with a problem of very heavy demands for loans and other economic assistance and that he could not be too hopeful regarding the Finnish request. Dr. Waris asked if a Finnish loan would be out of the question and Mr. Elbrick replied that this was not the case, but that high expectations should not be built up. Dr. Waris expressed the hope that Finland would not simply be dropped from consideration.

(After the discussion with Mr. Elbrick, the other participants had a short informal conversation with Dr. Waris concerning a possible investment guaranty agreement. Dr. Waris said he appreciated the importance of such an agreement and that he had advised the Government to move ahead on the matter. He saw no practical obstacle to the consummation of such an agreement except that certain language adjustments might have to be made to assure the most expeditious parliamentary action should that be necessary.)

0. Source: Department of State, Central Files, 860E.10/9—458. Confidential. Drafted by Harvey F. Nelson, Jr.