105. Memorandum From the President’s Assistant for National Security Affairs (Allen) to President Reagan1


  • Economic/Financial Situation of the Soviet Union and Eastern Europe Countries (C)

Recent diplomatic and intelligence reporting provides startling evidence of real economic distress in the Soviet Bloc. (C)

While the situation in Poland is well-known, not so well-known is that the Romanian economy is in such bad shape that Foreign Minister Andrei stated “there will be internal social consequences if we don’t get help.” Our Embassy reports that Romania is in worse shape than [Page 362] Andrei let on.2 Yugoslavia is also in serious enough trouble to cause the British to request consultations about upcoming debt problems. Despite that, Yugoslavia has re-lent to Czechoslovakia millions of dollars it borrowed from an American bank. (S)

The Soviet Union itself is drawing down its balances in Western banks, selling gold even at today’s depressed prices and deferring grain shipments because of lack of foreign exchange. The Russians will have to finance grain purchases through commercial bank credit for the first time. (C)

Soviet economic performance is well below target (except for natural gas) and shortages have reached the point where sizable provincial cities have been totally without meat for months on end. (LOU)

Thus, the period of U.S. military vulnerability can to some extent be offset by Western exploitation of Soviet Bloc economic and social vulnerabilities. For example, measures taken to reduce Soviet earnings from oil and gas exports will make their civilian vs. military choices more difficult and increase the likelihood of internal unrest in the satellites. (C)

  1. Source: Reagan Library, Executive Secretariat, NSC: Country File, USSR (11/18/81–11/19/81). Secret. Sent for information. Copied to Bush, Meese, Baker, and Deaver. Reagan wrote “RR” in the upper right-hand corner. A stamped note reads: “The President has seen 11/19/81.”
  2. In telegram 8239 from Bucharest, November 17, Ambassador to Romania David Funderburk reported that “Romania faces a serious liquidity crisis, believes the United States can give it some help; and that our failure to do so would likely force a reappraisal in Bucharest of Romanian policy toward the United States.” (Department of State, Central Foreign Policy File, D810545–0309)