1 Birmingham Bureau of Research on Russian Economic Conditions Russian Department, University of Birmingham. Memorandum No. 4 I'he (Balance of Payments % iw “vy git pe ng and [he Foreign Debt of the U.S.S.R. February, 1932 50 A 50m. COPYRIGHT CONTENTS CHAPTER L. BALANCE OF TRADE . [I. MOVEMENTS OF CAPITAL .. [TI. FOREIGN LABOUR AND TECHNICAL ASSISTANCE [V. NON-COMMERCIAL TRANSACTIONS AND SERVICES Vv. SUMMARY OF THE BALANCE OF PAYMENTS .. VI. INFLUENCE OF THE WORLD CRISIS .. . APPENDIX No. 1: NOTES ON THE METHODS OF CALCULATION . PAGE ? A Fd | 2 APPENDIX No. 2: GREAT BRITAIN AND GERMANY’'S SHARE IN SoviET RUSSIA'S FOREIGN DEBT .v \[EMBERS OF THE BUREAU. Mr. A. M. Bavkov .. Prof. S. KoNovALOV .. Mr. LANCELOT LAWTON Drof. TEAN LESCURE.. ’rof. S. N. PROKOPOVICH Vir. E. M. SHENKMAN Russian Economic Service in Prague. Professor in the University of Birmingham. Lecturer at the University of Oxford. Jon. Lecturer at the Universitv of London. Author of economic works on Russia and ‘he Far-East. : Professor of Social Economics at the Faculty of Law, Universitv of Paris. Russian Economic Service and Slavonic [nstitute in Prague. formerly Secretary of the Moscow [nstitute of Economic Research attached to the Commissariat of Finance. Directed and Edited by S. KONOVALOV. [15 n| The Balance of Payments and The Foreign Debt of the U.S.S.R. The foreign financial accounts of the U.S.S.R. may be divided into three groups : {a) Movements of merchandise across the frontiers of the country, and currency incomings and outgoings directly resulting from these movements. {b) Capital movements into and out of the country. (c) Various services, movements of labour and non-commercial transactions. The balance of payments of the Soviet Union includes nearly all current items of the nomenclature adopted by the League of Nations in the composition of the balance of payments of most countries. But the movements of capital as shown by this balance of payments differ very considerably from those of other countries, for in these movements there are no long-term operations, no amortisation charges for old debts, all of which have been repudiated by the Soviet Government, and, inasmuch as foreign capital markets are closed to Soviet Russia, no new issues. Movements of capital in the U.S.S.R. consist first, of an increase in foreign short-term debts on account of credits raised, and of a decrease in foreign floating assets on account of short-term credits repaid; secondly, of the purchase of foreign currencies and foreign securities in which the liquid resources of Soviet trading organisations, and of the Soviet State Bank, are invested ; and thirdly, of investments in various commercial, banking, insurance, and industrial institutions astablished by the Soviet Government in foreign countries. Though the balance of payments of the U.S.S.R. is simple in composition, its calculation is not an zasy matter. Even the Customs returns of the movements of goods across the frontiers of the Soviet Union require many adjustments. We nave estimated other items on the basis of direct and indirect evidence procurable from the following sources : Soviet publications, and unpublished material in our possession; reports presented oy the Commissariat of Finance and Commissariat of Foreign Trade to the all-Russian and all-Union Congresses of Soviets ; the annual financial accounts of the Commissariat of Finance ; estimates of the balance of payments prepared and pubished by the Soviet Trade delegations in England and Germany; various reports on currency problems prepared by the Currency Department of the Commissariat of Finance and by the Moscow Institute of Economic Research ; and results of a special investigation on German-Russian trade, conducted in the Spring 1928, by a Statistical Commission attached to the Soviet Trade Delegation in Berlin, etc. Since, so far as we are aware, this inquiry is the first undertaken either in Soviet Russia or abroad to estimate in full the balance of payments of the U.S.S.R., we have endeavoured to give a general financial survey rather than to discuss in letail separate aspects of the problems involved. I. FOREIGN TRADE. The items of the balance of payments resulting from foreign trade consist of the following groups : MOVEMENTS OF MERCHANDISE. a) Value of imports and exports. (b) Precious metals. (c) Parcels traffic. (d) Contraband. Costs OF SERVICES directly connected with the movement of merchandise. fa) Overhead and administrative expenses of Soviet commercial organisations abroad. Brokerage, commission, etc. MOVEMENTS OF MERCHANDISE. (a) Imports AND Exports. The value of imported and exported goods should be shown in the Customs returns. But in order to ascertain how far these returns represent the real international value of the imports and exports it is necessary to determine: first, the methods of valuation adopted in the Soviet Customs Statistics, and secondly, the nature of the currency in which the value of foreign trade is expressed. Imports. The valuation of imports is based in the Customs Statistics upon prices given in the invoices presented to the Soviet trading organisations by foreign suppliers, an addition seing made of an approximate lump sum to cover Ireights, insurance premiums, port duties and credit costs. When credit costs amounting to 7-89, per annum are added to invoice prices the Customs returns represent a more or less accurate statement of the value of imports c.i.f. Russian port or frontier (in the case of goods bought on 2-3 years credit terms, such costs actually amount from 14 to 249%, ad valorem). But we are not satisfied that failing inclusion of credit costs in the invoice price, the Soviet Customs make an addition to cover this deficiency, and we are, therefore, of opinion that the value of Soviet imports is. to a certain extent, underestimated. b) Exports. Up to 1923/24, the value of the exports of the U.S.S.R. were estimated in pre-war current prices on the Russian home market, which did not coincide with the prices actually received for the goods exported during the period. Since 1924/25 exports are valued in current prices, but the reliability of the method adopted in valuation is questionable. Exports from the U.S.S.R. are usually estimated f.o.b. Russian port or frontier. As part of Russian exports leave rome ports unsold, the prices declared by the sxporters to the customs authorities are merely price-limits fixed for the general guidance of Soviet trading organisations abroad, who act as selling agents of trading organisations in Soviet Russia. These price-limits are as a rule much sigher than the prices at which the goods are realised abroad, the reasons being as follows : (a) In order toinduce their agents abroad to command foreign markets and to exercise a certain form of control, Moscow institutions often deliberatelv declare exaggerated Jrices. (b) The business relationships of the Soviet exportng organisations in the U.S.S.R. and Soviet trading sstablishments abroad are very loose. The information sent by these establishments to Moscow concerning the jituation on international markets is inadequate, specially when drastic changes in international values ire occurring. (¢) Goods are often badly packed and remain in torage for excessive periods. Non-seasonal shipments, sarticularly of timber, are frequent. Often goods are :arelessly transported, to be sold eventually at low prices. (d) The policy of underselling, commonly called ‘dumping,” increases the disparity between the prices ictually paid by foreign buyers and calculated f.o.b. Russian port or frontier, and those declared to the customs wthorities in Soviet Russia. Hence in our view, exports for the period 1920/21 to 1923/24, as expressed in pre-war prices, wre substantially undervalued; and those for the seriod 1924/25 to 1930/31, are over valued in the Soviet Customs Statistics. In using Soviet data on foreign trade we have nade the following adjustments, further explanajon of which will be found in Appendix No. 1: 1. Period 1920/21-1923/24. The values of imports and exports are converted into current values by means of indices of pre-war and current nternational prices. 2. Period 1924/25-1930/31. To ascertain ipproximately the amount of foreign currency which the Soviet Union has actually received for ts exports, a certain deduction is made from the official figures which represent an over evaluation. With reference to imports, we consider that they are undervalued ; but no adjustments have been made for it was found to be practically impossible to ascertain to what extent the credit costs charged by foreign industrial suppliers, are included in the price of imports. Below we give estimates of the trade returns, as revised by us, together with the official figures (A.R.A. supplies and gifts not included): IMPORTS EXPORTS BALANCE Official Customs Returns Revised Figures Official Customs ! Revised I Official Customs Returns Figures Returns Revised Figures — Mill. rbls. Mill. rbls. Pre-war Prices | Current Prices 179 250 270 | 375 148 202 234 140 Mill. rbls. Mill. rbls. Mill. rbls. Pre-war Prices | Current Prices Current Prices 10 18 —169 109 —206 232 — 15 522 +135 Mill. rbls. Current Prices —232 —266 + 30 + 82 1920/21 .. 1921/22 .. 1922/23 . 1923/24 .. 64 133 | 369 Mill. rbls. Current Prices 724 559 756 677 714 780 946 778 836 878 1,068 | 1,002 1.044 |W Mill. rbls. Current Prices 1924/25 .. 724 1925/26 .. 756 1926/27 .. 714 1927/28 .. 946 1928/29 .. 836 1929/30 .. 1,068 1930/31 .. 1.044 520 650 735 743 40 baj R36 —165 79 66 ‘A8 0) —154 —106 + 21 —203 + 4 —103 —208 The value of the imports and exports in the above table is expressed in roubles, which we will call foreign trade roubles. They are used in Soviet foreign trade statistics for calculation purposes only (vide Appendix No. I). (b) Precious Metars. The Soviet official Customs returns do not contain any figures relating to the movements of gold and silver ; official figures are given only for platinum. In order to ascertain the value of imports and exports of gold and silver, we have analysed the Customs returns of other foreign countries importing precious metals from the U.S.S.R. The results of our enquiry are given in the Table on page 13. They show that until the year 1927/28, the U.S.S.R. was not only an exporter, but an importer of these commodities. The exports consisted mostly of gold and platinum for the purpose of meeting payments maturing abroad and imports consisted partly of gold, and mostly of silver, particularly in the year 1924/25, when the currency reform was carried out. Whilst movements of gold fully reflected the condition of the foreign trade of the U.S.S.R., the rate of the chervonets, in terms of foreign currencies which is regularly made known by the Soviet State Bank, did not show any downward or upward movements which would correspond to the movements in the foreign trading accounts. This fact supports the view that the official juotations of the rate of the chervonets are purely artificial, and in the absence of a free market in the Soviet Union, could not be regulated by the ebb and flow of trade, but are simply fixed by the Central Bank of the U.S.S.R. (¢) Parcers. This traffic originated during the famine in the years 1921/22, when gifts of commodities were made to Russia to the amount of 180 million pre-war roubles, including the food, medical and other supplies of the American Relief Association (A.R.A.). Subsequently, firms and private persons made a practice of sending parcels to the U.S.S.R., for even after extremely high duties were defrayed, the difference between prices abroad and in Russia ensured substantial profits. It was estimated by the Commissariat of Finance that in 1924/25 the total value of such imports amounted to 3.3 million roubles. and in 1925/26 to 9.0 million roubles. In 1926/27 restrictive measures were applied by the Government and heavy duties were imposed, amounting in some instances to as much as 1,340 per cent. ad valorem, with the result that during the three successive years, the traffic did not exceed a few million roubles. It revived in 1929/30 when the food shortage in the Soviet Union became acute. As many of the parcels consisted of charitable gifts no considerable transfer of currency was involved. {d) ConTrABAND. The amount of smuggled imports and exports is considerable. According to the calculations of L. S. Arseniev, an expert of the Soviet Commissariat of Finance, during the first years of the restoration of trading relations with foreign countries such imports reached 40%, of the value of legal imports. Since 1923 the position has changed. It is generally admitted that as a consequence of the activities of the 0.G.P.U. (Soviet Political Police), the guarding of the Western frontier of Russia is more strict than before the War. On the Eastern frontiers and on the Pacific Coast, where, because of geographical and technical obstacles control is more difficult to secure, smuggling on a large scale still takes place. In order to ascertain the total value of goods smuggled, including those not detained, the value of the detained contraband is multiplied by 10 for imports and 5 for exports. This method was used before the war and was subsequently adopted by the Soviet Central Customs Office in Moscow. The estimate resulting from it is formulated in internal prices, and for the purpose of the balance of payments, must be adjusted to those ruling on the world markets. Obviously no exact estimate of the value of contraband is possible. CosT OF SERVICES. (a) OVERHEAD AND ADMINISTRATIVE EXPENSES. The U.S.S.R. has a widespread system of trade delegations, buying and selling agencies and various commercial undertakings in foreign countries, as for example, Arcos Ltd. in London, and Amtorg Inc. in New York; the Russian Oil Products Co. Ltd. in London, a similar undertaking in Germany and other countries; and special organisations established for trading in timber, flax, wheat, manganese and other goods. In addition, the U.S.S.R. has two insurance companies, one in London and one in Berlin, and ten banking sstablishments in various countries of Europe and the East. All the establishments mentioned have large staffs, high overhead expenses, and taxation liabilities abroad. In order to cover their expenses they charge a high sommission to their clients, the Soviet trading and banking sstablishments in the U.S.S.R. But even this high commission does not always cover their overhead expenses, and special subsidies are required to defray losses. Some nstitutions, however, make substantial profits which, ufter all administrative expenses have been paid, are ransferred to the Commissariat of Finance in Moscow as representing the Soviet Government, the actual holder >f the share capital of the companies. Part of the profits 70 to increase their working capital. As a rule, the Soviet rading agencies are reluctant to transfer any money to Moscow, and resort to various devices to conceal their profits. From the aspect of the balance of payments the maintenance of all these institutions, and also of various temporary commissions set up by the Soviet Government abroad for selling or commercial purposes, should be regarded as a direct charge upon the currency reserves of the country. Such expenditure is not included in the prices of goods, and is not represented in the Customs returns. In 1924/25, the administrative expenses of commercial organisations alone amounted to 20 million roubles, according to the calculations of the Commissariat of Finance, and, including taxes paid to foreign governments, ‘he overhead expenses of banking and insurance com->anies and the costs of the upkeep of various temporary commissions, etc., to 30 million roubles, according to pur calculations. These expenditures slightly decreased n 1925/26, as a result of a general reduction of staffs and various other measures. But since then, owing chiefly to the growth of trading relations with foreign countries, they have increased. During the last two years these expenditures amounted to 42-50 million roubles per annum, including the cost of maintenance of various scientific, technical and commercial delegations, and individual officials and scientists sent abroad from time to time by state institutions. (b) BROKERAGE, COMMISSION, ETC. Overhead and administrative expenses do not cover brokerage and other charges. The Customs returns also do not include various expenses connected with the sale of Soviet goods on foreign markets. As a rule these charges are abnormally high, because long before the goods are actually delivered, foreign purchasers from Soviet organisations are required to extend to them substantial credits of from 6 to 12 months advances, which, during that period, are not secured by marketable commodities. in such instances the brokers, purchasers, or banks financing them, cover the risk connected with the transaction, which is usually not considered as normal, insuring the credits with private companies or self-insuring by charging a high commission of from 2 to 4 per cent. of the total value of the goods sold. Such a high commission is charged in spite of the fact that advances only amount to 15 to 25 per cent. of their value, and that part of the goods stored in the warehouses of the brokers may have been marketed independently by Soviet organisations. According to the calculations of the Commissariat of Finance, the brokerage charges are 29%, of the value of total exports. We have adopted this ratio in our statistics, but in our opinion it underestimates the amount actually paid yearly to foreign brokers and purchasers. The payments of the US.S.R. to foreign railway and shipping companies are included in ‘he costs of imports and exports. Costs of insurance are also included under such heading, but there are some insurance charges which are not perhaps shown in the balance of trade. The Soviet Government established companies in London and Berlin which, apart from insuring ‘oreign trade, undertook to cover risks altogether anconnected with Soviet Russia. It is doubtful whether these transactions have contributed to the credit side of the balance of payments of the U.SS.R. SUMMARY OF THE BALANCE OF TRADE. The term balance of trade as used here covers not only the balance of movements of merchandise, but all incomings and outgoings, directly and indirectly connected with the foreign trade of the country, with the exception of all interest charges in so far as these are not included in the invoice price. In the following table are summarised all data available since 1924/25 : CURRENCY EXPENDITURE (in million roubles). 1924/25 .. 1925/26 .. 1926/27 .. 1927/28 .. 1928/29 .. 1929/30 .. 1930/31 .. | Merchandise Imports. - 724 756 714 946 836 1,068 1,044 Precious | Commercial Metals : Parcels Imports i Imports. Contraband Imports ?7 0) “3 29 25 35 35 Brokerage, Commissions, ete. i Ns) 18 I 16 1, Overhead and other Adminis trative expenses including taxes. Total > E>, J | 839 0 810 “5 1,024 ~2 932 50 | 1,178 50 1,151 CURRENCY INCOME (in million roubles) 1924/25 .. .. 1925/26 .. .. 1926/27 .. .. 1927/28 .. .. 1928/29 .. .. 1929/30 .. .. | 1930/31 .. .. Merchandise Exports. Official : Revised Customs | r Returns Figures Precious Metals Exports 59 877 780 778 878 1,002 890 530 70 850 81 735 49 743 155 840 70 965 9 R36 110 Contraband Exports. | ~ 3 Total Balance. Official : i Official Customs Revised | Customs returns. g a Returns Revised figures. 833 604 761 734 — 78 834 789 + 24 936 901 — 88 954 916 + 22 1019 | 982 | —I59 1009 | ©55 | —_142 —237 —105 — 21 —123 - 16 —196 —196 The foregoing figures cover only the period since 1924/25. The available data for the preceding years contain many important omissions which cannot be satisfactorily supplied. One such omission is contraband, which, according to the calculations of competent investigators, amounted to as much as 409%, of the official import figures. The Customs returns for 1920/21-1921/22 show an enormous adverse balance amounting to 498 million roubles. This adverse balance was the consequence of orders placed for railway equipment and of substantial purchases of foodstuffs and other commodities, necessitated by their extreme scarcity in the country, following upon civil war, and the famine of 1921. During those years imports were paid for by export of gold drawn from the reserve inherited from pre-revolutionary simes, and no foreign credits were available. Up till October 1st, 1924, according to official data 'Vneshnaya Torgovlya S.S.R. za X let, Moscow, 1928), the Treasury had transferred to the Commissariat of Trade for the purpose of financing foreign trade 885.8 million roubles in gold, foreign currencies and other valuables. Out of this amount 184.5 million roubles were returned to the Commissariat of Finance; 156 million roubles were transmitted to a Railway Commission set up abroad by the Commissariat of Communications ; 466.7 million roubles were spent by various foreign agencies of the Commissariat of Foreign Trade, and on the 1st October, 1924, there should have remained 78.6 million roubles and a balance at he disposal of the Railway Commission. The sums thus left over were partly expended in succeeding years in payment of orders placed in preceding years, and partly formed the basic capital of various Soviet commercial undertakings abroad. Transferences abroad led to serious depletion of gold reserves. Consequently, beginning from 1922/23 the Government .was compelled to take drastic measures to restrict imports. In the ‘ollowing year they realised that, since a favourable trade balance was indispensable for stabilising ‘he currency and increasing the gold and currency reserve of the State Bank, no measure calculated to bring about its achievement should be neglected. In 1923/24 export of grain was resumed, and the axports exceeded imports. In 1924/25 the harvest vas bad and the Government, fearing recurrence >f famine and a rise in prices which would imperil he recently stabilised currency, imported large luantities of grain. Hence the year ended with 1 very large excess of imports over exports, 165 million roubles according to official statistics, and 94 million according to our revised statistics. n 1925/26, the Government attempted to reverse his condition of affairs by strictly regulating and :educing imports. Yet the balance remained wdverse, and it was only in 1926/27 when imports were further restricted, wholly at the expense of sonsumers’ goods, that exports exceeded imports. The Five Years’ Plan provided for imports hroughout the whole period amounting to 6,200 nillion roubles and exports amounting to 7,000 nillion roubles the difference to furnish the means vherewith to pay for various services abroad, eaving, after all payments had been met, a subtantial margin out of which an additional foreign aurrency reserve of 450 million roubles could be »uilt up. Owing to the world crisis this plan could ot be carried out. In 1928/29, the first year of he Five Years’ period, there was, according to he Customs returns, a slight excess of exports ver imports. This credit balance became a very mall one in our revised figures. But when orecious metals and all expenses connected with oreign trade were taken into consideration there vas a favourable balance of 22 million roubles, f the value of exports was taken according to the Customs returns and an adverse balance of 16 nillion roubles according to our revised figures. 3y 1929/30 the adverse trade balance had grown fo 196 million roubles and in 1930/31 it remained it the same figure. Later it will be shown how this large balance vas made good. For the moment we are concerned nly with the circumstances which gave rise to it, nd which were briefly as follows: whereas the ralue of Soviet exports which were hard hit by vorld trade depression fell last year by 129 million oubles, imports remained unaffected by unavourable world conditions largely because the urchasing power of the U.S.S.R. was artificially timulated bv foreign financial aid. II. MOVEMENTS OF CAPITAL. Movements of capital to and from the Soviet Union consist of investments in various trading enterprises, in foreign currencies, in government securities, in foreign enterprises in the U.S.S.R. and in financing foreign trade, also of credits granted to foreign firms, interest charges on the foreign debt of the U.S.S.R., and of credits given by the U.S.S.R. The Soviet Government has substantial investments in commercial, banking and insurance undertakings abroad. On January Ist, 1930, the paid up capital of all Soviet commercial institutions abroad amounted to 110 million roubles, out of which 35 million roubles were invested in Great Britain. On the same date the paid up capital of the seven Soviet banks, domiciled in Europe, amounted to 34 million roubles. The origin of this capital is two-fold. Part of it consists of the balances of gold transferred by the Soviet Government abroad in order to pay for the large orders placed in 1920/22, in accordance with the provisions of the First and Second Import Plans ; part of it consists of accumulated profits. Only in exceptional cases when new banks were established did actual transfers of currency to pay up share capital take place. The transfer of net profits to the Treasury by various Soviet commercial undertakings abroad, must be mentioned. These transfers were not large. In particular they diminished since 1927, when, as a consequence of various governmental orders, the commission charged by Soviet commercial undertakings was fixed on a relatively lower level, thus diminishing their net profits. Liquid currency reserves abroad were considerable during the period of 1920/26. This was the period when trade relations were being established with foreign countries, and most industrial firms in Germany, England and Czecho-Slovakia could not overcome their distrust of a government which repudiated all principles upon which international commerce is based. Credits were refused and big orders, the execution of which required substantial outlays of capital, were accepted on confirmed letters of credit of a first class bank which were obtainable for a Soviet institution, only against a deposit in a stable foreign currency. Most of these orders were carried out by the end of 1924/25, and currency deposits for that year therefore decreased to the amount of 52 million roubles. Since then foreign banks gave credits to the U.S.S.R. onditional upon a fixed percentage being secured by currency deposits. In countries, where close relations existed between Central Banks and Treasury Departments, a government guarantee for Soviet orders was in few instances granted on an anderstanding that a deposit of gold should be made in the central credit institution of the country. The U.S.S.R. has to make substantial payments abroad which amount to at least 4 million roubles per one paying day. These payments are distributed very unevenly during the whole year and do not coincide with the inflow of foreign currency received for goods sold abroad. It is also necessary to bear in mind that while the payments abroad are fixed for certain dates and are largely necessitated by the substantial debt incurred, the currency income is chiefly determined by the harvest of grain, flax and other agricultural commodities, the production and collection of which is exposed to climatic and other risks. These considerations persuaded the Soviet Governnent to keep abroad funds of foreign currencies sufficient to meet current payments. Even before the war it was estimated that the foreign currency and gold reserve abroad of the Government, amounted at least to 25-30%, of the otal indebtedness abroad. The concentration in the hands of the Soviet Government of all trading transactions in foreign countries allows of a slight decrease in available reserves of foreign currencies. But the Moscow authorities, in view of fact that the major part of the foreign debt of the U.S.S.R. is of a short-term character and that export commodities are continuously undergoing drastic changes as regards production and marketing, always insisted on retaining abroad reserves in foreign currencies and gold amounting to at least 22-259, of the total foreign indebtedness of the U.S.S.R. In order to ensure that all obligations be punctually met, these reserves should not be allowed to fall below 250 million roubles. Actually they are often much less than that figure, a circumstance which is responsible for the extraordinary stringency and difficulties marking the financial accounts of the USS.R. in foreign countries. Foreign capital invested in Soviet Russia consists of long-term investments in concessions and short-term credits in foreign trade. Investments of the first character were limited to a dozen concessions. In no instance was the amount invested very large, and most of the enterprises concerned are now in liquidation. The movement of short-term money in the financing of Soviet foreign trade remains, therefore, the only really important part of foreign investment. Credits are extended to Soviet Russia in nearly all forms known to financial practice. On the other hand, the Soviet trading organisations which conduct abroad a retail trade in some raw materials, for instance, oil products or marketing various industrial goods, have to extend credits to their purchasers. These credits are not large, but must be taken into account. Financing of Soviet trade takes two main forms : (a) acceptance credits extended by foreign banks and brokers, and (b) trade credits extended by foreign suppliers. BANK AND BROKERS’ CREDITS. Acceptance credits are granted directly to the Soviet purchasing undertakings or to Soviet banks abroad. Credits of this kind were first extended to Soviet Russia by English and American banks in 1922. In the beginning of 1923 acceptance credits amounted to, approximately, 15 million roubles, but they were either secured by goods warehoused abroad or by deposits of foreign currency. Consequently, from the aspect of the balance of payments, they did not constitute a credit item. During the period 1922/30, many of the chief banks in London, Berlin and New York became more and more involved in financing Russian imports, the result being that acceptance credits increased considerably. Such credits are usually unconfirmed and revokable. Foreign banks financing Soviet purchases in this form often require Soviet clients to keep their deposits or current accounts in a fixed ratio to their debit balances, apart from which they charge a special acceptance commission, usually exceeding the commission charged to continental banks of good standing. This commission is on the average 39, per annum, compared with § to 1%, the customary rate for continental banks. In 1923/24 the total indebtedness to foreign banks on account of acceptance credits reached a substantial figure, but the greater part remained secured by deposits of foreign currency or of foreign government bonds. The net indebtedness on October 1st, 1924, did not exceed 9 nillion roubles. In 1924/25 the English and American yanks agreed to extend acceptance credits against deposits amounting only to 509, (and in some cases less), of outstanding debit balances. In Autumn, 1925, the Deutsche Bank and the semi-state Reichskreditgeselischaft granted the Soviet Trade Delegation, and the Soviet Guarantie ind Credit Bank fur den Osten G.m.b.H. in Berlin, credit ymounting to 75 million marks for the purpose of financing Soviet purchases in Germany up to 100 million marks, partly in cash and partly in the form of re-discounting Soviet bills. Certain foreign banks also agreed to extend acceptance credits against a deposit consisting of bills, irawn by one Soviet trading organisation and accepted oy another, and in a few cases even agreed to discount much bills. All these credits increased considerably during ater years, and became an important item in the foreign ‘hort-term indebtedness of the U.S.S.R. In 1925/26 foreign banks in collaboration with brokers segan to finance exports from Soviet Russia not only by means of credits, against Soviet goods deposited abroad, Hut also of advances, relatively small in the beginning, »ut substantial later, against telegraph communication rom the Soviet State Bank that goods up to a certain ralue were ready for despatch. In 1927/28 several German ind English banks and firms of brokers agreed to finance ‘he production of timber, grain, bristles, manganese and butter and the collection of furs, and various other goods by advances secured, sometimes by goods warehoused in ‘he U.S.S.R. and often by bills bearing only Soviet sig-1atures, But such credits were insured by the banks or brokers concerned with foreign insurance companies, or by adequate capital reserves previously built up. In balancing Soviet Russia’s financial accounts with foreign countries, credits of this kind began to play an increasingly important part. But the ‘nsecurity of Russia's political and economic situation left a peculiar mark upon their growth. The total indebtedness to foreign banks and brokers, not taking into account those credits secured by goods warehoused abroad amounted on October 1st, 1926, to 53 million roubles for ‘mports, and 25 million roubles for exports. From ‘he first half of 1927/28 very large credits were advanced by foreign banks and brokers against timber exports. The total amount of such credits n the Spring, 1928, was 41.6 million roubles against 18 million roubles in the Spring of the previous year; in the same period of 1929 the foreign capital invested in financing timber exports from Russia reached 60 million roubles. The growth of foreign credits received a decisive check in April-June, 1928, when in view of the political and economic situation in Russia, English, German and American banks decided to restrict their Russian commitments. A further increase took place in the second half of 1928/29, when numerous banking houses, merchant bankers and co-operative banks replaced the big credit institutions in England and other countries in financing Soviet Russia’s foreign trade. On October 1st, 1930, the total of import and export credits reached its peak, amounting to 195 million roubles. The manner in which the Five Year Plan was carried out during 1930/31, and the growing uncertainty of the situation, induced most banking institutions abroad, including those which had joined more recently in the financing of Soviet trade, either to contract in part their Russian commitments or to demand additional security in the form of foreign currency or gilt-edged securities. The timber season that year was financed on a much smaller scale than usual, manganese credits were considerably decreased, and even the financing of the export of furs (a most remunerative transaction) was greatly reduced. The German crisis of the middle of 1931 added to the difficulties of the situation, and many London banks, with large German commitments, began to contract the credits extended to Soviet Russia. On October 1st, 1931 the total indebtedness of the Soviet Union to foreign banks and brokers was 157 million roubles (excluding goods available abroad), and was 38 million roubles less than on October 1st, 1930. SUPPLIERS’ CREDITS. The chief source of finance for foreign trade and the balancing of accounts with the outside world is credit advanced by foreign industrial suppliers. In financing Soviet Russia the interested firms were called upon to : (1) eliminate, diminish or shift upon others the so-called “Russian risk’ ; (2) provide the necessary capital. The first condition was partially fulfilled ;by Government guarantees. An attempt was made to fulfil the second condition by creating special banking concerns which frequently had the backing of semi-state financial institutions; by the use of 3 months renewable bills in place of long term bills ; by the substitution of bills bearing foreign signatures for those bearing Soviet signatures; and by the creation of special financial institutions at the instigation of foreign banks and [industrial firms in which the latter could deposit long-term Soviet bills and draw 3 months renewable bills up to an amount equivalent to their face value. All these methods opened the world short-term noney market to Soviet Russia, and were largely responsible for the not inconsiderable increase of her foreign indebtedness on account of bills outstanding to foreign suppliers. In 1923/24, the Soviet Trade Delegations in twelve countries placed orders amounting to 208.5 million roubles and received credits of six to seven months duration for 61.5 million roubles. In 1925, many English and German concerns started financing Soviet imports on a larger scale, a detailed analysis of which is given in Appendix No. 2. In 1926, American industrialists joined the English, German and Czecho-Slovakians in financing Soviet Russia’s imports, and her indebtedness rose from 131.2 million roubles on October 1st, 1926, to 255 million roubles on October 15th, 1928. In the succeeding two years her indebtedness under the original German Government guarantee diminished ; it stood at 61 million marks on October 1st, 1930. But new guarantees were given in Germany under ‘he General Export Guarantee Scheme. The inlebtedness to the suppliers in Great Britain ‘ncreased from 22 million roubles on October Ist, 1928, up to 43 million roubles in 1929 when the Export Credit Scheme was extended to Soviet Russia, and to 77 million roubles in 1930. During the last two years, credits of short duration were obtained in the United States, France, Austria, Czecho-Slovakia, Poland, Italy, Denmark, Norway, Latvia and Finland. In all these instances, with the exception of the United States and France, special government guarantees or general export guarantee schemes were extended to Soviet Russia. In August, 1930, the Italian Government undertook to guarantee 759%, of the value of Soviet orders placed from July 1st, 1930, to June 30th, 1931, up to a total of 200 million lire (20 million roubles). In April, 1931, a group of German industrialists signed an agreement with the Supreme Economic Council according to which Soviet Russia was assured of credit extending on the average to 21 months for orders amounting to 146 million roubles. Although not a party to this agreement, the German Government gave a tacit promise of 2 guarantee. Actually up till October, 1931, much larger orders than those originally agreed apon were placed. These orders amounted to 325 million roubles and were guaranteed up to 70%, by the Reichs Government and the German States. In the Spring of 1931, the Italian Government also granted to the U.S.S.R. a new credit amountng to 35 million roubles, and this credit was actually used up by October 1st, 1931. In June, 1931, as a consequence of a special agreement between the Lord Privy Seal on behalf of the British Government and the Soviet Trade Delegation, Great Britain increased her guarantees by a further 60 million roubles. The orders to which these guarantees referred were placed during the second half of the year 1931. The Polish Government undertook to facilitate the export of iron products to Russia in three ways: (1) by guaranteeing 429, of the bills resulting from these transactions ; (2) by special credits at cheap rates granted through the Bank Gospodarstwa to works executing Soviet orders ; and (3) by the distribution among producers of a special export bounty, amounting to 159%, of the price. During 1930/31, the indebtedness of the U.S.S.R. to foreign industrial firms increased from 430 million roubles, in the beginning of the year, to 898 million roubles by the end of it. This increase was the largest of any year and was the more remarkable in that it coincided with growing anwillingness of foreign banks to expand unsecured Russian commitments. Commercial credits advanced to Soviet Russia by foreign banks, brokers and industrial suppliers should, from the point of view of the balance of pavments. be divided into two groups : {a) This group is composed of credits which may be iescribed as real or effective. The financial facilities involved are twofold: the irst embraces acceptance and other credits advanced by sanks for financing imports to the Soviet Union, md advances extended by banks, brokers and comnercial firms for financing the production and delivery »f exports from the Soviet Union. A net increase of ndebtedness arising from these credits represents an :xpansion of currency resources and of foreign investnents, The second financial facility is in the form of bills drawn yy foreign industrial and commercial firms selling goods © the U.S.S.R. and accepted by Soviet trading institutions. \ net increase of liabilities on account of these trading sills constitutes an important credit item in the balance »f payments. (b) This group of commercial credits which may be lescribed as contingent liabilities also involves financial acilities of two kinds. The first consists of export goods varehoused in foreign countries and pledged with foreign ranks and brokers. As goods are often exported from Russia unsold, the ability of Soviet trading organisations 0 pledge stocks accumulated abroad, is of material issistance to them in meeting current liabilities. But in sstimating the balance of payments, we must ignore these redits and regard all goods exported from the country 1s conditionally sold and their total value set down in the Justoms returns as a net currency income of the country. The second kind of contingent liabilities relates to srders placed by Soviet trading organisations but not ret executed. The supplying firm locks up over a coniderable time large investments in raw materials, wages, stc.,, and therefore justly regards the order even before t is executed, as an important item of the aggregate sJbligation. But from the point of view of the balance of >ayments, such liabilities should be excluded for the ‘edson that so far there has been no actual delivery of joods or services to the U.S.S.R. Only when the orders we carried out, the goods shipped and the contingent iabilities transformed into real debts, taking the form of trade bills, must they be accounted for in the balance of payments. The following table shows the development of Soviet Russia's foreign commercial debt from October 1st, 1924, to October 1st, 1931 (in million roubles) : REAL DEBT Acceptance and other sank credits or financing imports Advances of banks, rrokers, etc., to finance awports 3ills drawn by foreign suppliers of imports Bank adances secured by Export goods | abroad _iabilities in connection with orders placed and in state of execution Total Grand Total st Oct. 1924 .. 9.0 1925 .. 26.6 926 .. 530 927 .. 60.5 1928 .. 55.0 1920 .. 86.0 930 .. | 1150 1921 050 | 15.0 23.0 25.0 | 30.0 50.0 69.0 30.0 | Q2 0 54.2 97.6 131.2 | 160.5 | 255.0 260.0 130.0 | ROR () 78.2 147.2 209.2 | 251.0 370.0 415.0 625.0 R58 0O 20.0 30.0 15.0 | 300 | 60.0 90.0 101.0 tox n |! 58.0 35.0 51.0 90.0 55.0 110.0 139.0 080 156.2 212.2 305.2 391.0 485.0 615.0 865.0 1 205 O 'y Last vear Soviet Russia’s real debt increased by 230 million roubles, or, if we include contingent liabilities, by 840 million roubles. Her whole indebtedness increased two and a half times since the introduction of the Five Years Plan, and on October 1st, 1931, her real debt equalled the value of exports for 1930/31 and, if contingent liabilities be included, exceeded it by nearly 50%. INTEREST ON SHORT-TERM CREDIT ABROAD. The interest charges on the Soviet short-term debt are an important item in the ‘balance of payments. The interest due to industrial suppliers should be added to the invoice price. It is necessary, of course, to bear in mind that interest charges do not represent all credit costs charged to Soviet purchasing organisations by foreign suppliers. These foreign suppliers when selling goods to Russia are involved in a financial transaction which in reality does not present any material security. They are compelled, therefore, to secure their capital: (1) by asking their own governments. to take over a part of the risk involved; (2) by applying to a private insurance company for an indemnitying policy ; (3) by selling the Soviet bills to bankers or on the free market “without recourse ”’; (4) by building up special capital reserves to provide for any emergency. III. FOREIGN LABOUR AND Foreign labour employed in Soviet Russia may be divided into three groups: (1) seasonal unqualified workers; (2). foreign engineers and technicians sent by foreign firms to supervise the installation of machinery produced by them; and (3) foreign specialists, technical and otherwise, with whom contracts are made for definite periods. Seasonal unqualified labourers come from China and Persia. In 1925/26 their number amounted to 30,000, a total which, according to our information, has been exceeded during each of the last three years. When leaving the U.S.S.R. they usually take back with them an unexpended part of their wages. It is estimated that this amounts to 2.5-3.5 million roubles. But the greater part of this debit item of the balance of payments is represented by the remittances abroad made by the second and third groups. Whether the cost of installing machinery ordered abroad is borne by Soviet Russia or by the foreign firm, depends upon the terms of the contract concluded, Such All these credit charges are usually included by suppliers in the prices, and are consequently represented by the figures of the Customs returns. With regard to the interest charges on credits extended by foreign banks and brokers the position is different. They are not, and could not for technical reasons, be included in the price of imports or excluded from that of exports, and usually substantially exceed established rates. They consist of the following: (1) official discount ate; (2) acceptance commission; (3) in the event of credits being insured, insurance premiums; (4) stamp iuties and different banking charges. In most cases ‘he credits extended by brokers are insured by private sompanies at a rate of from 6 to 10%, per annum ; timber =redits given by banks are also insured ; and when acceptance credits are secured to a certain extent by currency jeposits, a commission of 39, per annum is paid on the sredits. The average costs of bank and brokers’ credits fluctuated in the last 10 years from 15—189, per annum for credits insured with private assurance companies, and amounting for the whole to an average of 10 to 12%, per annum. This rate depends largely upon the economic and political situation in the U.S.S.R., the general policy of the Soviet Government with regard to foreign enterprise, and the state of international money markets. TECHNICAL ASSISTANCE. ost might be included in the price of the goods, and, consequently, covered by the Customs returns, or, as is usually the case, a special account might be presented for payment to Soviet organisations and appear as a separate debit item. Should the foreign firm instal nachinery at its own cost, such cost represents a credit ‘tem in the balance of payments. The employment of foreign experts began on a large scale in 1926/27, when the Soviet Government definitely adopted a policy of industrialisation. The German experts were the first to be engaged, ‘ollowed by American and to a lesser extent by English and Italian technicians. In 1926/27. according to the Soviet Trade Delegation in Berlin, the total amount paid to Germany for the services of specialists. did not exceed 2,160,000 Reichsmarks. But since then the sum paid on this account greatly increased. According to our information the total number of foreign specialists employed by the Soviet Government in 1929/30, averaged 2,950 and in 1930/31, 4,140, apart from a number of foreien workers who are not under contract. High salaries were the rule and were partially paid in the form of foreign currencies. In addition to employing directly foreign experts, the Soviet Government concluded agreements for technical assistance with firms in many countries. In return for a substantial consideration, these firms either sold their patents and technical processes, or agreed to work®out complete plans and supervise the construction of factories in Russia. According to information in our possession, the total expenditure on foreign labour and IV. NON-COMMERCIAL TR (a) Non-CoMMERCIAL CURRENCY REMIT TANCES. In the beginning of 1923 regular relations were established between Soviet and foreign banks as a consequence of which many residents in Europe and especially in America, who emigrated from Russia under the old régime were enabled to send currency remittances in preference to parcels of commodities to their relations and friends in Russia. According to the Commissariat of Finance, such remittances amounted in 1922/23, to 6.8 million roubles ; in 1923/24, to 23 million roubles ; in 1924/25, to 33.2 million roubles; in 1925/26, to 32.5 million roubles; in 1926/27, to 33 million roubles ; in 1927/28, to 30 million roubles. During the last three years they came to 25-35 million roubles. In 1930/31, the Soviet Government opened special shops all over the country where, by means of foreign currency, transmitted by their absent relatives and friends, citizens could be provided with goods. Against this credit item of the balance of payments is a debit item consisting of private remittances from Russia abroad. According to a decree of the Council of Commissars, dated August, 1923, any person residing in Russia was entitled to remit abroad a sum of not more than 200 roubles per month ; a later decree, dated August, 1926, diminished the sum by half. The amount remitted in successive years was as follows: 1923/24, 1.4 million roubles; 1924/25, 8.4 million roubles ; . 1925/26, 15.6 million roubles; 1926/27, 15.4 million roubles. In 1927/28, remittances substantially decreased, and since 1928/29 they have been negligible. Private remittances are at present not merely prohibited, but practically made impossible, the only exception being those of foreign specialists living in Soviet Russia. A technical assistance amounted to 18 million roubles in 1929/30, and to 38 million roubles in 1930/31. According to M. Yanovsky, of the Commissariat of Finance, it was planned to spend 150 million roubles on technical assistance during the whole Five Years’ period. Lately, the Soviet Government made every effort to induce foreign, and more particularly the German specialists, to accept a reduction of salary, and payment exclusively in Soviet roubles. But the foreign specialists are insisting on the strict fulfilment of their contracts. NSACTIONS anp SERVICES. (b) Tourists’ EXPENDITURES. Until 1927/28, 50-75%, of all Russians visiting foreign countries consisted of private individuals travelling for personal reasons. Subsequently, in order to reduce currency expenditure abroad, the Soviet Government made it practically impossible, with rare 2xceptions, for any private person to travel abroad, and at the same time strictly limited the visits of scientists, artists, etc. At present most Russians proceeding abroad are state officials, young students sent to gain experience in workshops and laboratories, and groups of workers whose labours for the Five Year Plan, the State rewards by paying their expenses on a tour abroad. On the other hand, foreign tourists start to contribute, though on a moderate scale, to the currency income of the U.S.S.R. A special organisation, known as Imfourist, was set up and placed in control of the whole tourist industry. It was estimated that 22,000 foreigners would visit Soviet Russia during the year 1930/31. But according to Vmeshnaya Torgoviya the Intourist isnot able to accommodate more than 11,000 visitors. (¢) OTHER NON-COMMERCIAL TRANSACTIONS. We have been unable to ascertain the expenditures of the diplomatic and other political representatives of the U.S.S.R. abroad, apart from those who are included in the staff of the trade missions and agencies as well as to estimate the amount of money which the Soviet Government spends on political propaganda abroad, particularly in connection with the activities of the Third International. From the aspect of the balance of payments of the U.S.S.R., this item cannot be regarded as considerable in; the last few years, as in all probability, part of these expenses have already figured in werhead and administrative charges. V. SUMMARY OF THE BALANCE OF PAYMENT. The following table gives the aggregate figures of the balance of payments of the U.S.S.R. during the last seven years (in million roubles) : EXPENDITURES. [. ForeiGN TRADE (1) Merchandise imports .. .e (2) Imports of precious metals .. (3) Contraband imports .. . (4) Commercial parcels imports . {5) Brokerage commission, etc. .. (6) Overhead and administrative expenses gw ae 1924/25 1925/26 1926/27 1927/28 1928/29 1929/30 1930/31 - 4 C00 1.044 35 6 16 50 ® Total .. , ne “70 1151 II. CAPITAL MOVEMENTS (1) Increase of currency reserves in the U.S.S.R. and abroad vs Interest on commercial credits contracted abroad ve 35 Total .. III. FOREIGN LABOUR AND TECHNICAL ASSISTANCE .. _ ok 35 10 i" 38 IV. NoN-COMMERCIAL TRANSACTIONS 8 26 25 21 t a5 30 Grand Total .. 858 879 886 1,072 1.005 1,251 1,254 INCOMES [. ForeiGN TRADE. {1} Merchandise exports (revised figures) .. #5 7% a (2) Exports of precious metals .. (3) Contraband exports .. .. 530 650 735 743 840 965 836 70 81 49 155 70 9 110 4 3 5 3 6 8 9 789 901 916 982 9R5 Total .. [I. CapitaAL MOVEMENTS (1) Increase of short-term indebtedness abroad in. comparison with the previous year .e Decrease in currency reserves abroad in comparison with the previous year .. we we Interest on short-term credits and deposits abroad .. et Profits, dividends and miscellaneous .. .. . RKO4 AQ 67 a} 1920 210 230 20 Ce Total .. ITI. NoN-COMMERCIAL TRANSACTIONS Currency remittances, tourist expenditure, and other expenses of foreigners in the USS.R _- is we IV. ITEMS NOT ACCOUNTED FOR UNDER THE ABOVE HEADINGS .. 2% Grand Total .. r 42 A QE] ]70 886 1.072 1.005 1.251 1,254 It should be clearly understood that the foregoing figures are an approximate estimate. They are based, so far as is possible, upon data published py the Commissariat of Finance and the Commissariat of Foreign Trade. When official data were not available, we made our own calculations, asing in some instances those applied by Soviet statisticians and economists. Not infrequently Soviet official calculations were contradictory: the figures relating to international indebtedness for the period 1922-27, published in 1928 by the Commissariat of Trade differed from those published by the same Commissariat a few years before, and from ‘those published by Mr. Engeev of the Comnissariat of Finance. All Soviet data has been checked as far as possible by means of information rom different sources, both Soviet and foreign, -elating to the complete period, 1924 to 1931. On the whole, Soviet figures show a much higher udverse balance than that given in our estimate, 3ut a critical analysis of these Soviet figures reveals double-counting of some items. The possibility is not precluded that certain items relating to indebtedness, to movements of gold and other ‘precious metals, and also to axpenditure abroad in concealed forms, have eluded notice. But we do not think that the statistics which we present differ materially from true figures. VI. INFLUENCE OF THE WORLD CRISIS. The world depression affected the balance of payments of the U.S.S.R. in two ways : (a) Whilst the fall of prices diminished the income derived by the U.S.S.R. from exports, it =nabled Soviet trade organisations largely to increase the quantities of goods imported. (b) The general insecurity on the world credit markets undoubtedly worsened the position of the U.S.S.R. as a borrower, but compensation for this unfavourable factor was found in the liquidity of the world short-term market, arising from the inability of enormous capital resources to find profitable employment and the willingness of the industrial interests, hard hit by the crisis. to finance Soviet Russia’s imports. In 1928/29, the agricultural depression had already brought down the prices of most of the chief commodities exported by the U.S.S.R., as, for instance, wheat, rye, oats, butter, eggs, mining products, timber and finished goods. Despite the ‘act that exports increased in that year in comsarison with 1927/28, they remained far below che figure planned, and there was practically no favourable trade balance. In the following year there was again a marked increase of exports, but it was chiefly attributable to large exports of wheat and other cereals. By throwing on the market quantities of goods larger ‘han those disposed of in previous years at prices ower than world prices, the Soviet Union counterralanced the fall in these world prices. Between 928/29 and 1929/30, exports of cereals and techtical crops increased several times in quantity, while their value rose from 83.1 million roubles 0 195.1 million roubles; of timber in quantity rom 4.8 million tons to 7.3 million tons, in value only from 138.6 million roubles to 180.2 million oubles. In the same period, whereas food and c<indred products exported increased in quantity rom 457 thousand to 540 thousand tons, their salue actually fell from 79.9 million roubles to 71.8 nillion roubles. © Only mining products showed ncrease in quantity and value alike. In the beginning of 1930/31, the expansion of soviet expgrts continued. This circumstance ntensified the anti-dumping campaign which had ;rown in force since the second half of 1930. from October to December 1930, exports ncreased to 296.7 million roubles in comparison vith 262,5 million roubles for the same period of the srevious year. Of all commodities exported, igricultural commodities showed the largest ncrease. In the first quarter of 1929/30, they -epresented a value of 101 million roubles, and in 1930/31, 142 million roubles, Thus they increased wv 429. In the first nine months of 1931 expansion of Soviet exports was definitely checked, and the total value of exports amounted to 593 million roubles as against 739 million roubles in the previous year. This fall occurred in spite of the fact that quantitatively Soviet exports had slightly increased. Here it may be noted that protectionist measures applied by Germany and other countries made it extremely difficult for the U.S.S.R. to derive compensation for the fall in prices by increasing the quantities of goods dumped abroad. While Soviet industrial exports encountered severe foreign competition and suffered heavily from the contraction of purchasing power in Europe and America, the agricultural exports encountered raised tariff walls, quota regulations, licences, and even in countries of Free Trade traditions, growing tendencies towards protection. Then various developments within Soviet Russia, as for example the collectivization of agriculture, which involved the suppression of the well-to-do peasant, and the wholesale slaughtering of cattle and drastic periodic reorganisations of the foreign trade establishments, seriously diminished export possibilities. Hence the Soviet Union enters upon the fourth and last year of the accelerated Five Year Plan, with a decreased export surplus, equal to, instead of doubling the whole exports of the first year, as was originally intended, while at the same time, it is projected that import requirements should increase. Insufficiency in the export of goods was compensated to a small extent by the export of gold and to a larger extent by further borrowings from abroad, as a result of which the value of imports remained the same as in the previous year, whilst owing to the fall in prices their volume greatlv increased. During the last year, the Soviet Government concentrated its attention om the points of the world money market, most weakened by the crisis, and which for that reason were less subjected to political and economic influences unfavourable to the U.S.S.R. Germany with 5.5 million of her population unemployed was anxious to obtain Soviet orders even when prices were less attractive than before and pavments were deferred for as long as nearly two years, and in some instances to five years (shipbuilding industry). At the same time the moratorium granted to Germany in the middle of 1931 had the effect of freeing her financial policy as regards the Soviet Union, from the influence of English, American and French financial circles, for thenceforth it was no longer possible for shortterm loans invested in Germany by them to be suddenly recalled. As Germany had not anticipated that in the prevailing conditions new foreign capital would be available for her needs, she considered herself at liberty to dispose in her own way of those foreign monies already invested. The result was that last year most Soviet orders went to Germany, and she became paramount in financing the foreign trade of the U.S.S.R. At ‘he same time the extension by the Labour Government in August, 1929, of the Export Credit Scheme to Soviet Russia, materially improved her credit position abroad. We conclude this enquiry by summarising the position ‘of the U.S.S.R. on international money markets, both before and since the Revolution. (1) Prior to 1914, Russia’s commercial debt abroad consisted of foreign long-term investments in the form of shares and debentures in trade, industry, banking and insurance, and of shortterm credits advanced by foreign industrial and commercial firms and banks. According to Professor P. V. Ol, on the eve of the Revolution, the long-term. commercial indebtedness of Russia, excluding state railway, and municipal debt, was 2,243 million roubles, while, according to the estimate of the credit department of the Ministry of Finance, in the three pre-war years for which figures are available, short-term indebtedness amounted to 558 million roubles. Hence the total commercial debt reached approximately 2,800 million roubles. A comparison between these figures and those of indebtedness under the Soviet administration reveals that Soviet Russia's short-term debts abroad, which we qualify as real or effective, have reached 31.6%, of the commercial indebtedness and 158%, of the short-term indebtedness of pre-revolutionary times; if contingent liabilities are also taken, the first figure is increased to 44% and the second figure to 221%. The increase of short-term indebtedness partially replaced the long-term capital market which was no longer accessible to Russia after the revolution. While, as was stated in Memorandum No. 3, restoration of national production was chiefly due to mobilisation of internal capital resources, the part played by foreign capital, more particularly in the decisive years of the Five Year Plan should aot be overlooked. During this period, financial support was forthcoming from abroad to an ncreasing’ extent, and in the last two years foreign indebtedness, as was shown above, more than doubled and imports from foreign countries greatly increased in importance, and in some branches of economic life became essential to further the Soviet programme of industrialisation. Taking into account the fact that Soviet Russia’s mports and exports are considerably below prewar level, and that the security normally considered requisite by financiers and industrialists is not forthcoming, there is little justification for the assertion, frequently made in some quarters, that ‘he U.S.S.R. is the victim of an economic or financial slockade. On the contrary, the willingness of the capitalist world to co-operate with the U.S.S.R. in its attempt to fulfil the import programme of the Five Year Plan appears to be remarkable, and oresents a problem which, however, lies outside the scope of the present enquiry. (2) Since the revolution the composition of che short-term creditors of Russia has changed. Before the War, 369%, of all short-term credits were contributed by industrial and commercial concerns, and 649, by foreign banks; in 1930/31, 809%, of all credits were contributed by industrial firms {if export brokers were included the percentage would be still higher) and only 209%, by banks and banking houses. Though these figures show that foreign banks are disinclined to invest money directly in the U.S.S.R., they are, to all intents and purposes, carrying the whole burden of Soviet Russia's foreign debt, for inasmuch as they discount Soviet sills drawn by industrial firms, they are, as a matter rf fact, supplying the capital necessary for her purchases abroad and for the production and lelivery of commodities which she exports, imultaneously shifting the risks arising from uch transactions to governments and firms. (3) While before the War, Russia’s foreign sommercial debt consisted of shares and debentures 1p to 809%, and was widely distributed amongst the numerous classes of well-to-do people in “ingland, France, Germany, Holland, Belgium ind to a lesser extent in the United States, the foreign debt of Soviet Russia is concentrated in the rands of a limited number of banks and industrial ind commercial concerns in Europe and America. The financing of the U.S.S.R. is therefore mainly a business of big finance and foreign governments. These governments assumed a responsibility not altogether devoid of political character when they guaranteed up to 509%, on the average, and n certain countries up-to 70%, of the total debt »f the U.S.S.R. (4) Owing to its short-term structure, the nternational indebtedness of the U.S.S.R. contains slements of uncertainty and instability. Soviet Russia has to pay off yearly roughly two-thirds of aer outstanding debt. For this purpose the money ‘orthcoming from exports is insufficient, and hence :he contraction of new short-term debts is necessary. [n other words, the financial account of the U.S.S.R. abroad can only be made good on the assumption hat new loans will not be refused for the purpose of meeting the old ones. Should such a refusal :ake place and coincide with a serious drop in Soviet exports (a failure of crops for instance), 1 dangerous situation would arise. But as creditors asually do not wish to place their clients in lifficulties and seem satisfied so far with the present modus vivends, there is no reason to expect that rew credits will be refused to the US.S.R. We think, however, that both in the interest of the world and of the Russian people it should be realised that a lasting solution of the difficulties des not in external secarity of government guarantees combined with high rates of interest, but in the creation in Russia of such conditions of life as would in themselves offer security. Appendices. Appendix No. 1. NOTES ON THE METHODS OF CALCULATION. I. The value of imports and exports for the period 1920/21 to 1923/24 in world-prices was estimated by ‘he following methods: (a) The value of imports and exports for 1920/21 and 1921/22 is expressed by the Soviet Customs Statistics 'n pre-war Russian home prices. We therefore established the co-efficient showing the difference between prices for Russian products on the home markets and on world markets, and multiplied the pre-war value by this coefficient. In addition we constructed special indices showing the increase of prices for each of the ten groups of the Soviet Customs Nomenclature in 1920/21 and 1921/22 n comparison with the year 1913 and multiplied the value of the exports and imports expressed in pre-war prices by these indices. (b) For 1922/23 we accepted the calculation prepared »y the Economic Department of the Commissariat of Yoreign Trade. (c) For the year 1923/24 we used the calculation prepared by the Commissariat of Foreign Trade and published in its report presented to the All Union Congress of Soviets in 1924. 2. Revision of the estimate of the value of exports for the period 1923/24 to 1930/31, published by the Soviet Customs Statistics, was made in the following way : We calculated the average prices used by the Soviet Customs Statistics for wheat, rye, oats, barley, flax, butter, oggs, sawn timber, petroleum, furs, manganese, bristles ind ten other industrial commodities, and compared them with the average prices quoted for the same Russian »roducts on world markets, estimating these prices f.0.b. Russian port or border. On the basis of these comparative igures we worked out indices for each of the corresponding sroups of the Soviet Customs Nomenclature and divided he value of Soviet exports as shown by Soviet Customs Statistics by these indices. The resultant figures showed hat the total value of exports was over-estimated in the ‘ustoms returns by 2 to 59, in various years, and in the :ase of some individual commodities by 10 to 159%. 3. The value of Soviet exports and imports is stimated in roubles. But these roubles are not interational money and have no purchasing power abroad ;utside a limited sphere in the East, where they are used a the foreign trade of the U.S.S.R. The value of foreign rade was originally estimated by the Soviet Customs Statistics in world prices and in foreign currencies in which be transactions had actually been effected. The results »f this calculation were subsequently converted into Soviet roubles at fixed rates which had no bearing upon he real international value of the Soviet Exchange. No rates for this exchange are officially quoted abroad, ind unofficial quotations are purely speculative, tence the roubles used in Soviet Customs returns should not be confused with the chervonets, the internal surchasing power of which is much lower than that fixed n terms of foreign currencies by the rate of exchange ‘egulated by the Soviet State Bank. We prefer to call them oreign trade roubles, for they are used only for the purpose »f foreign trade, a fact which should be remembered when ‘his trade is compared with national production which is astimated in chervonets roubles. Appendix No. 2. GREAT BRITAIN AND GERMANY'S SHARE IN SOVIET RUSSIA'S FOREIGN DEBT. The financing of Soviet Russia is chiefly undertaken The financing of Soviet trade is at present effected by by Great Britain and Germany. The participation of British banks in the following forms : the United States in this financing was of a temporary AccepraNcE CREDITS. These credits are granted by character and of secondary importance. London Banks in connection with exports to the Soviet From the moment when Moscow established trade Union either from Great Britain or from other ‘countries. relations with the outside world, Germany acquired a They are covered by goods stored within the U.S.S.R. predominant position in financing exports to the U.S.S.R. for a certain period, running from six to nine weeks, On the other hand, Great Britain became interested The London banks hand over bills of lading to Soviet mainly in exports from Russia, and before long absorbed rrading and banking organisations in England against nearly a third of all Soviet exports. But as London was Trusts receipts, but the value of such documents issued by the principal centre of international short-term credits ‘he Soviet trading establishments is not over-estimated it soon became involved in financing imports as well as oy English bankers who, as a rule, demand in addition exports. This was achieved either by directly advancing 1 substantial currency deposit amounting to 25-309, acceptance credits to Soviet banks, or, by indirectly n the average, and as much as 50% in some instances. discounting Soviet bills offered by industrial suppliers \ substantial part of the currency and gold reserve of of various countries. ‘he Soviet State Bank is being used for such purposes. Apvances. The London banks grant advances secured by goods stored in this country or in other countries rutside the U.S.S.R. Gradually these advances were seing secured by foreign bills of lading, and in later years by goods in Soviet ports or in the interior of the Soviet Jnion. These credits are granted directly by the banks or hrough brokers, who sell the goods on the London market. Che following goods are involved: grain, timber, oil, Jutter, eggs, poultry, etc. This form of financing is Jeculiar to the City of London, and the U.S.S.R. does not :njoy similar facilities in any other country. Usually advances are extended on the following conditions : (a) Soviet organisations, as for example, the Russian Wood Agency, the White Sea Timber Trust, the Russian-British Grain Export Co., Arcos Ltd., Centrosoyus, and Selosoyus, etc., undertake to supply English brokers with certain quantities of goods to be sold on commission, or jointly with Soviet organisations. (b) On signature of the contract or during a speciied period, the broker grants an advance amounting to 15-25%, of the approximate value of the goods to be supplied. (c) In addition, a credit is granted against shipping documents, bringing the total amount of the financing ‘ncluding the advance already made up to 65-80%, of the 7alue of the goods. The 20-259, given in the form of an advance, s practically an open credit covered by Soviet bills of six months duration during which it is estimated that the vhole transaction will be liquidated. The 2.6 million pounds of credit which were extended to the U.S.S.R. by ten banks and one broker in the Spring »f 1929 were secured in the following way: a quantity of timber warehoused in the U.S.S.R. of a value equalling nominally the advance granted by the banks was placed ander the supervision of the representative of the bank n Russia. Apart from that an insurance policy for 683 housand pounds indemnifying the banks in the case of :mergency, the premium being paid by the Soviet organisation, was handed over to the foreign banks. In addition, ne of the Big Five Banks participating in the transaction and its subsidiary, demanded a bank deposit of 25% of the »utstanding debt. GREAT BRITAIN As a rule, banks and brokers are unwilling to grant to Soviet Russia an open credit even of short duration and they yield only to pressure from Soviet trading organisation, which make the selling of goods conditional upon advances. In addition to interest charges which are often higher than the usual rate, the brokers cover the risk connected with the transaction by charging large commissions running from 2 to 49%, of the total value of the goods sold by the Soviet organisations, even if part of these goods are marketed independently. It may be remarked that in the ordinary way of business English brokers would not charge more than 1% to 2% for their services. If the part of the commission exceeding the usual rate is regarded as an extra-premium, and the advance is calculated on an annual basis, it shows that ‘his form of financing costs the Soviet Union approximately 20-22 per cent. per annum, including ordinary interest charges. High rate of profit explains the attractiveness of Russian trade financing. Apart from the more important methods of financing the trade of the U.S.S.R., which have been described, London banks transact business to a limited extent by : (a) Discounting and re-discounting bills with two Soviet signatures. (b) Making advances against telegraph communisation from representatives of the Soviet Bank to the affect that export goods are ready for despatch. (c) Making advances against platinum. (d) Discounting bills drawn by continental firms, and accepted by Soviet trading organizations in various countries. (e) Discounting bills drawn by English firms supplying goods to the U.S.S.R. The last mentioned transaction arises from the purchases of Soviet trading organisations. These purchases are financed by the suppliers themselves or by London banks. ‘When delivering goods to Arcos or to Centrosoyus, or when signing the contracts, English firms draw bills upon the ourchasers; these bills either remain in the portfolios nf the suppliers, or are discounted by or deposited with English banks, in which event the Soviet bills serve only as collateral security. The placing on the market of commercial papers, the average duration of which exceeds twelve months, encounters many difficulties, to overcome which, long-term bills are often converted into shortterm renewable papers. This conversion is effected by special agreement between the English supplier and the Soviet purchasers on the one hand, and between suppliers and their banks on the other. Invariably English firms REAL DEBT Acceptance and other hank credits or financing imports Advances of banks wrokers etc., 0 finance exDorts 3ills drawn by foreign suppliers of mnorts ist Oct. 1928 ?2-DO) 1929 13 QW ix a certain limit for financing Soviet trade, taking into ;onsideration their own liquid resources and other assets wailable, as well as the possibilities of insuring part of the isk involved with the Export Credit Department and srivate insurance companies. In the case of many indiridual electrical equipment producing firms, this limit onsiderably exceeds a million pounds. The average avestment of textile and machinery firms is from £500,000 0 £700,000 and of moderate sized engineering firms from 200,000 to £300,000. One well-known chemical concern avested about £700,000. Such credits are usually regarded »y English firms as a not fully secured part of their aggre-:ate assets, and special reserve funds out of accumulated rofits are often set up to cover any possible emergency, s for example, losses in connection with the uninsured art of such commitments in the event of a debt rejudiation on the part of the Soviet Government. This recessity of allowing in the price for a substantial margin ‘0 build up reserve funds, explains to some extent the lisparity between the prices quoted by English firms for joviet orders and for orders of other countries. Those inglish firms who are unable to secure the assistance if bankers, of the Export Credit Department or of private usurance companies, and who do not have the necessary ‘esources for keeping Soviet bills of from 6 to 24 months’ wiration in their own portfolios, prefer to discount these sills “without recourse” with certain banking houses in he City of London or with private individuals, who, villing to invest a part of their capital in speculative ransactions, are, in the majority of ‘instances, attracted »y the high rates obtainable on the “‘blackbourse” for soviet bills, the average rate of which varies from 16 to 359, er annum, and is determined by conditions in the U.S.S.R. ind on the foreign money markets. The extension of the Export Credit Scheme to the J.S.S.R. in August, 1929, greatly facilitated the financing »f Soviet orders placed with British firms. The department vhich insured credits not exceeding six months duration n the year 1929, extended its guarantees to twelve months n 1930, and again as a result of an agreement between he Lord Privy Seal and the Soviet Trade Delegation, ©0 thirty months, including the period in which the orders vere to be executed. From the date when the scheme was put into operation up to January, 1932, the guarantees to Soviet Russia amounted to approximately 15 million sounds. The outstanding indebtedness in connection with these guarantees came to about 8 million pounds. The following table shows the growth of the indebtedness of the U.S.S.R. to Great Britain (in million roubles) CONTINGENT LIABILITIES ixport goods pledged abroad _iabilities in sonnection vith orders placed and in state of axacntion Grand Total Tatal 3A 25 143 134 AR) 3 210 NHR hb MG 219 In the table we have estimated that the total amount of credit extended to Soviet trading and banking organizations in Great Britain and to the Soviet State Bank, including credits secured by marketable commodities, amounted to about 30-31 million pounds on October 1st, 1930, and remained on the same level in 1931. But there is a large indebtedness which can be estimated only approximately, consisting mostly of credits granted by the City of London to Germany, Poland, Czecho-Slovakia, Latvia, Austria and Italy, and used by these countries for their exports to the U.S.S.R. The amount of bills drawn on Soviet Russia in sterling and made payable in London by industrial and trading firms of the countries mentioned, amounted in October, 1931, to 10 to 12 million pounds, and there is little doubt that these bills found their way to the London discount market. There are many other ways in which English credit is used by various countries, more particularly by Germany, to finance exports to Soviet Russia. We assess the total amount of English capital invested in the financing of Russian foreign trade on October Ist, 1931, at 45 million pounds, which can be considered as an under estimate rather than an over estimate. Compared with pre-revolutionary short-term indebtedness, this figure has significance. According to calculations undertaken by the Institute of Economic Research attached to the Soviet Commissariat of Finance, the total amount of English long-term capital invested before the revolution in Russian industry, trade and banking (shares and debentures) amounted to 52.3 million pounds. The amount of short-term industrial and trading credit extended to Russia by Great Britain was estimated by the Ministry of Finance for the year 1911 at 4.3 million pounds, and the amount of bank credit at 10.2 million pounds, including 2.9 million pounds granted to the Russo-Asiatic Bank, and 2.1 million pounds to the Russo-Commercial and Industrial Bank (London branches). Thus the total amount of English capital (excluding the State, Municipal and Railway debts) in Russian industry and trade before the war, amounted to 66.8 million pounds, consisting of 52.3 million pounds long-term investments and 14.5 million pounds short-term credits. It is a remarkable fact that although English investments were substantial, they facilitated to a very small extent British exports to the U.S.S.R. During 1930, these exports did not exceed the sum of 6.5 million pounds. Credits are only in part necessitated by Soviet imports to Great Britain. These imports consist mostly of grain, butter, timber, oil, and of certain kinds of goods produced from raw materials, the manufacture of which does not involve any foreign credits because the whole process is financed from resources available in the Soviet Union. Although credits extended take the form of brokers’ and banks’ advances and are formally designed to finance production, delivery and marketing of the commodities mentioned, foreign currency is needed for that purpose only to a limited extent, and the bulk of British credits is actually used to pay off the maturing bills drawn by German, Austrian, Czech, Polish and other suppliers, and made pavable either in London or in other countries. GERMANY. Germany began, financing exports to the U.S.S.R. rarly in 1923/24. During that year out of credits extended 9y twelve countries and amounting to 61 million roubles. sermany contributed 24 million roubles. The average luration of her credits was 10 months, and those of other ~ountries not more than 6 to 7 months. From the start trade with Russia became the concern of arge industrial undertakings. Early in 1925, a group of vell-known firms which included Hugo Stinnes, A.E.G., 3ergmann Elektricitatswerke Chemische Fabrik auf \ktien, Deutsche Werke, Friedr, Krupp, Siemensschuckert Werke and Otto Wolff, together with two ‘arge banks and a prominent financial house, established v special Corporation called ‘‘Ausfuhrvereinigung Ost, >.m.b.H.,” which advanced to the Soviet Trade Delejation in Germany, a credit amounting to 20 million marks. This corporation was set up to facilitate the financing >f German exports to the Soviet Union, and to create for that purpose a technical medium more acceptable to the international money market than long-term Soviet sills. Each participating firm was entitled to deposit with the Corporation its Soviet bills, the duration of which was not to exceed 15 months, and to draw upon the Corporation its own bills to an equivalent of the face value of the deposited bills. The bills thus accepted were usully discounted by banks and financial houses associated vith the Corporation, who in turn could re-discount them vith the Reichsbank should necessity arise. In the same year another Corporation called the Deutsche Industrie-Vereinigung fur den Osten, G.m.b.H.,, ‘Divo,” was organised by a group of industrialists in Baden, wogether with a few credit institutions in Southern Germany, ind advanced to the Soviet Trade Delegation a credit of 16 million marks. This undertaking was of an exceptional tind, for while financing exports to Russia, it participated n the placing of orders and in the distribution of profits. [he Soviet Trade Delegation disapproved of its activities. and only a small proportion of its credit was used. In the Autumn of 1925 the Deutsche Bank, together with the semi-state Reichskreditgesellschaft, arranged another credit amounting to 75 million marks for financing sxports to the U.S.S.R. It was contemplated that German ndustrial firms should contribute an additional 25 million marks. The transaction was effected in the following vay: 509, of the invoice value was paid out in cash oy the German banks to German suppliers, 25%, being ised through the Soviet Garantie-und Kredit Bank fur len Osten. This bank discounted the bills which were resented to it by suppliers, and re-discounted them with he Deutsche Bank and the Reichskreditgesellschaft. The credit costs for the Soviet trading organisation reached 3.3% per annum, and orders were placed to an amount 10t exceeding 66 million marks. A feature of this credit vas that in many cases, the money was actually paid back Oy Soviet organisations almost before the German goods urived in the U.S.S.R. According to the terms of the \greement, repayment of the total amount was fixed for February 1926, regardless of the actual date of the shipnent of the goods. As placing of orders was frequently delayed for a considerable time, the credit which was originally extended for from four to five months proved to be of even shorter duration, never exceeding from two to three months. In 1926, owing to the severity of the winter, Baltic ports were inaccessible to ships. Hence, while the credit was repaid in February, a very substantial part of the goods were not delivered to the U.S.S.R. before early Spring. In spite of many clauses, disadvantageous to Soviet Russia, the agreement paved the way for the large credit transaction of 1926, known as the ‘300 Million Credit.” in February of that year, the Budget Commission of the German Reichstag empowered the Government to guarantee up to an amount not exceeding 300 million marks, 60%, of the risks taken by German firms exporting goods on credit terms to the U.S.S.R. An inter-departmental committee was set up to consider applications from German firms, and the guarantee department of the Deutsche Revisionsund Treuhand-A.G., assumed the technical management of the transactions which followed. At the same time, for the purpose of taking over the financing of the whole business, a special Corporation under the name Industriefinanzierungs-A.G. Ost, (Ifago), was established by two financial concerns, one German and the other Dutch. This Corporation included 27 credit mstitutions. From the Autumn of 1926 to the Spring of 1927, the Soviet Trade Delegation in Germany placed orders to the amount of 146.8 million roubles. According to the letter of the arrangement, the average duration of the sredit should have amounted to 36 months, on an average half consisting of two years’ credits, half of four years’ credits. Actually, according to the Soviet Trade Delegation in Germany, the average duration of the credit 1id not exceed 26.6 months. But the responsibility for shortening the credit lay largely with the U.S.S.R. {nsufficient notice was taken of the fact that repayment should occur at certain fixed dates, regardless of the date of the placing of orders, and delay in the completion of rechnical and commercial arrangements contracted the period during which the credit extended could be used. The German firms delaying the delivery of goods have also shortened the duration of the credit. As has been mentioned, the Budget Commission of the Reichstag originally authorised a credit of 300 million marks. This credit was subsequently increased by the Reichswirtschaftministerium to 365 million marks in connection with guarantees given for orders placed in Germany, both by German and foreign concession enterprises (including Lena Goldfields). Actually the consequent indebtedness of the Soviet Trade Delegation never reached 300 million marks, for by October, 1928, when nearly all bills had been drawn by the German firms and accepted by the Soviet Trade Delegation, a part of them had matured. Nevertheless, the increase of Soviet indebtedness during 1927/28 was chiefly attributable to the guarantee of 300 million marks by the German Government. In the following year there was a lull in Russo-German . trading relations. German industrial interests were disappointed at the poor results obtained from the big credit scheme of the previous year, more sspecially as large orders had been placed by Soviet Russia in the United States on credit terms much inferior o those which could have been arranged in Germany. \ Committee (Russland-Auschuss der Deutschem Nirtschaft) was created by leading industrial associations or the purpose of supervising the Soviet financial policy f individual German firms. During the year 1928/29 .n effort was made to limit the duration of credit to nine nonths, with extensions to 12 months in exceptional cases. “his restrictive policy which coincided with the maturing f large amounts of bills arising out of orders placed luring the previous two years, led in Spring of 1929 to . financial crisis of such seriousness that for the first time he risk of accumulating a big foreign short-term debt was ally realised by the Soviet Government. In 1929/30 the German Government financed pur-‘hases of Soviet institutions in Germany under the General ixport Guarantee Scheme, and the necessary funds were rovided partly by the concern which financed the 300 aillion guarantee, and partly by one of the semi-state anks. But the period of the guarantees rarely exceeded .8 months, amounting on the average to only 12 months. “henceforth a cautious policy was adopted both by adustrial firms and Governments. Finaucing of Russian orders was concentrated in the >llowing sources : (1) Suppliers. (2) The Industriefinanzierungs-A.G. Ost (Ifago) reated by the groups of banks which financed the 300 aillion guarantee. (3) The Deutsche Golddiskoutbank, a semi-state nstitution. (4) The big banks in the process of financing credit -equirements of clients. (5) Small banks and individual investors specially ngaged in financing trading transactions of the Soviet Jnion. The situation changed radically in 1930/31. The sconomic condition of Germany underwent a change for he worse; the number of unemployed approximated ive millions. At the same time competition on the world narkets became acute. In these circumstances the mportance of the Russian market for many branches f German industry, particularly engineering, greatly ncreased. Consequently they were persuaded, though eluctantly, to raise their commitments in connection vith financing exports to the U.S.S.R. Up till 1931, more especially under the old governnent guarantee scheme of 1926, the bulk of Soviet orders vent to a few big German firms in the electrical-engineerag and tool-making industries. By the end of 1930 the Russian commitments of these industries were so large hat they were not able to undertake new orders to any onsiderable extent. On the other hand, moderate sized ndertakings which suffered most as a result of the economic lepression, were vulnerable to changes in the money market nd were affected by credit contraction. Circles, representative of these moderate-sized underakings, and closely connected with the liaison Committee, vere chiefly responsible for an agreement signed in April 931, by the Supreme Economic Council of the U.S.S.R. nd a group of German industrialists, according to which he following credit terms were agreed upon for 300 willion marks in connection with orders to be placed by the middle of August, 1931: transport equipment for Magnitostroy and Kusnetskostroy, 28.8 months ; cranes, 28.8 months; tools and tool machines, 14-18 months; locomobiles and Diesel motors, 21 months; motor lorries. 24 months. It is interesting to note that the duration of credit provided for in this agreement exceeded that of the credit granted to the Soviet Trade Delegation at the end of 1930 by from 3 to 4 months. Not only was full use made of the financial facilities stipulated for, but the amount of additional orders placed nearly doubled the sum originally agreed upon. It was expected that the total value of orders placed during 1931 would reach 900 million marks. The German Government was not a party to the April agreement, but it was signed on the assumption that a government guarantee should be forthcoming. Actually, during last year the German Government and the governments of different states undertook to guarantee 700 million marks divided in the following proportions: Reichs, 400 millions; State, 300 millions. On October 1st, 1931, something was left over from this sum, the reason being that orders not having been executed and goods delivered, bills remained undrawn. The Government guarantee, while lessening, did not remove the difficulties of financing the new orders of the U.S.S.R. Here it is necessary to bear in mind that the first guarantee of the German Government in 1926 was “hiefly financed, up to 70 per cent., by American, British and Dutch banks. It was doubtful whether these banks would, in the disturbed economic conditions of 1931, andertake to finance Russian orders for a sum double ‘hat advanced by them for the same purpose in 1926. Indirectly the moratorium extended to Germany by sreditor-countries, relieved her from dependence upon ‘oreign sources, as far as Russian credit was concerned. According to our information the financing of Soviet surchases in Germany was conducted at the end of 1930/31 hy the following means : Credit of the Golddiskontbank .. 200 million marks. Rediscount credits of the Reichsbank 50 Jriginal credit of Ifago ve ee Cf Additional credit of Ifago .. .. 48 Short-term credits extended by German banks .. ve .. Capital invested by the suppliers themselves .. 0% i. . Foreign credits ou ie Total 890 million marks. Thus, according to our estimate, the total capital invested by Germany in trade with the U.S.S.R. amounted on October 1st, 1931, to 890 million marks, or 409.4 million roubles. It is proposed to issue four numbers from May to December, 1932, at an inclusive cost of 8s. 6d.,; $2.20 for the U.S.A. The four Memoranda already issued can be obtained at the price of 10s. 6d.; $3.00 for the 7.5.4. Copies are not sold separately. Cheques should be made payable to ‘Birmingham Bureau of Research,’ and all communications addressed to : The Secretary, Birmingham Bureau of Research, Russian Department, The University, Birmingham. In the United States of America, copies can be sbtained from : Myr. Douglas Williams, I5 West, 85th Street, New York City. Memorandum No. 1, on the Five Year Plan and on Compulsory Labour was issued in May, 1931. Memorandum No. 2, on the Foreign Trade of the U.S.S.R. was issued in July, 1931. Memorandum No. 3, on the National Income of the U.S.S.R. was issued in November, 1931. MEMORANDUM No. 4 is the first enquiry undertaken either in Soviet Russia or abroad to estimate in full the balance of payments of the U.S.S.R. Among the problems discussed and facts of outstanding importance revealed, are the following : (1) Since the introduction of the Five Year Plan, Soviet Russia’s foreign indebtedness has increased 2% times (p. 11). (2) The Five Year Plan of exports and imports (pp. 6 and 15). '8) The world depression adversely affected Soviet Russia’s exports, but her imports cemained unaffected owing largely to the purchasing power of the U.S.S.R. being artificially stimulated by foreign financial aid (pp. 10, 13, 14 and 15). '4) The financing of the U.S.S.R. has become mainly the business of big finance backed by foreign Government guarantees (p. 16 par. iii., pp. 20 and 21). '5) Short term indebtedness has largely replaced the long term capital market (p. 15 par. i.). '6) The total amount of credit extended by Great Britain to Soviet Russia amounts to 30 million pounds. But there is a large indebtedness consisting of credits granted by the City of London to Germany, Poland, Czecho-Slovakia, Latvia, Austria and italy, and used by these Countries for their exports to the U.S.S.R. (p. 20). '7) The Moratorium freed Germany's financial policy, thus allowing her to dispose of those foreign monies already invested to finance Soviet orders (p. 14). 8) Although British investments are considerable they only facilitated to a very small extent British exports to the US.S.R. (p. 21). (9) World depression and the balance of payihents of the U.S.S.R. (p. 14). 10) Soviet debt in comparison to the long and short-term commercial debt of Pre-War Russia (p. 15 par. i.). '11) Changes in the composition of the short-term creditors of Russia (p. 16 par. ii.). 12) Elements of uncertainty and instability in the structure of the international indebtedness of the U.S.S.R. (p. 16 par. iv.). STANFORD & MANN, LTD, BIRMINGHAM.