193. Memorandum From the Assistant Secretary of State for Policy Planning (Smith) to Acting Secretary of State Herter0


  • The Current Situation in Finland
The present combination of a broadly-supported, moderate Government and favorable long-run economic prospects offers good possibilities for the preservation of an independent, economically healthy, democratic and Western-oriented Finland if immediate difficulties can be overcome.
However, unemployment has been rising and is expected to reach record levels this winter, and political differences among Government parties have been submerged rather than eliminated. Last July the Finnish Communist Party won its greatest popular support since 1945, and the Soviet Union has expressed clear dissatisfaction with the present Government both in the press and by such actions as recalling its ambassador and delaying talks on trade and on a proffered ruble loan.
As a result of the above, apprehension has been expressed that a new coalition government including the Communists may come to power within the next few months. Should this happen, and should Finland’s trade patterns then be further oriented toward the USSR, there appears at least a possibility that Finland will find it increasingly difficult to maintain beneficial links with the West and will become correspondingly more subject to Soviet manipulation.
The Finnish Government has requested a $20 million loan from the US Government which it anticipates, along with loans expected from other sources, will enable it to surmount the most critical difficulties of the next few months. The psychological effect of announcing consummation, ability to use currently other reserves which will later be replenished as loan proceeds become available, and the longer term benefits from the loan funds, are all considered important.
An OCB memorandum, copy of which is attached,1 gives a good summary of the current situation in Finland and includes recommendations for early and favorable action on Finnish loan requests.
Without going into an analysis of the financial, economic and political factors bearing on these requests, it would seem clear that serious consideration should be given to the following underlying facts:
No over-all objective of US foreign policy has a higher priority than reducing, or preventing the expansion of, the area subject to Soviet domination.
With the exception of Iran, Afghanistan and Turkey, Finland is the only nation in the world free of foreign domination which possesses a common border with the USSR.2 It is thus unusually vulnerable to Soviet pressures, geographically, and geography has not lost all importance even in the modern world. In addition, Finland is small, with an economy highly sensitive to fluctuations in the Western market for wood products and heavily dependent on Soviet Bloc purchases of non-competitive metal industry output, and so is especially vulnerable to Soviet economic pressures.
The area of most direct confrontation between the free West and Soviet imperialism is in Europe.
Finland’s record for paying debts suggests that little financial risk would attach to a US loan.
It is submitted that a US loan to Finland of approximately $20 million should receive very high priority among requests for US financial assistance. In addition, it would seem that certain other measures in support of Finland’s economy might be considered by Western governments, e.g.: a rapid expansion in purchases of Finnish products through persuading private enterprise and directing public procurement, and arrangements to ensure access by Finland to private loans and credits of reasonable rates of interest. NATO consultation would perhaps be appropriate here, since preserving the independence of a strategically located European state, subject to Soviet pressures but possessing the will to resist these pressures, is certainly of concern to all NATO members.
The situation presents a good test case of Western ability to concert efforts in assisting a free nation to withstand Soviet political and economic pressures. It is also a test of ability to move swiftly when the occasion requires. If we and our allies cannot or do not meet these tests in the psychologically important case of Finland, we must recognize that there are serious limitations in our ability to compete effectively with the USSR in the cold war.
  1. Source: Department of State, PPS Files: Lot 67 D 548, Finland. Confidential.
  2. Attachment to Document 191.
  3. Norway’s few arctic miles are a negligible exception. [Footnote in the source text.]