860E.00/12–1753

No. 416
Memorandum of Conversation, by the Director of the Office of British Commonwealth and Northern European Affairs (Raynor)

secret

Subject:

  • Finnish Economic Situation—Effectiveness of Possible American Aid as a Solution Thereto.

Participants:

  • Minister Nykopp, Legation of Finland
  • Mr. H. Raynor, Director, BNA

Minister Nykopp called this afternoon at my request. I told him in view of the continuing concern which a number of us in Washington felt with respect to the Finnish economic situation from the point of our view of our concern that Finland remain independent, I wanted, with his permission, to continue, on a personal and informal basis, the conversation which I had had at lunch at his home a month or so back with him and Mr. Tuomioja, then the Governor of the Bank of Finland and now Prime Minister of Finland.1

I referred in general to the views expressed by Mr. Tuomioja and by him at the lunch and wondered in the light of developments if Mr. Nykopp in general still subscribed to such views. I said a further reason for suggesting this talk was the publication recently of certain stories in our press with respect to the Finnish economic situation which had been rather alarmist in character.

Mr. Nykopp expressed the view that while the situation has been and remains serious that in some respect it is not quite so bad now as it was six months or so previously. This improvement is due to a slight firming of prices and some increase of British demand for certain forest products. Also the price of raw timber has declined. The combination of the decline in the price of raw timber and the slight increase in the price of the processed product for export has [Page 770] resulted in a favorable differential totalling approximately $5.00 per ton has gone a considerable distance to bridge the gap between costs and sales but has not yet gone far enough to put the business back on a profitable basis. He stressed, however, these changes in terms of trade have been in the right direction.

I queried him rather hard on his feeling as to the magnitude of the unemployment problem this winter. He seemed to feel that the present level did not bear out the pessimistic prediction that unemployment would be the highest on record. He said as to what the peak would be could not yet be predicted because it would depend on whether the owners of the raw material would begin to sell or not. He said the raw material owners and processers were still playing poker. He felt, however, that inventories of the processers were somewhat below normal and should the increase in demand, say from the British continue, that fairly soon they might feel it necessary to buy. From the other side of the picture, many of the owners of the raw material might begin to run short of money and be more willing to sell. While avoiding any definite prediction, on balance, I gathered the impression that he thought the shutdowns and the consequent unemployment, and this is the area where unemployment would be the greatest, might not be as severe as predicted. I asked him if he was apprehensive as to unfavorable effects of unemployment on the elections now scheduled for March. He did not seem unduly disturbed saying that a majority of those thrown out of work would be given public works jobs by the State. He also said that when the labor force was reduced that the first people to be let out were usually the Communists. He even ventured to say that this might have the effect of some of the Communists wondering if being a Communist paid and might, therefore, vote another way. He thought the workers who were non-Communist would be well enough taken care of either by not losing their jobs or receiving assistance from the State so that there was little danger of a swing on their part to the Communists.

I reviewed with him the ground I had covered at the lunch meeting with Tuomioja. He said he continued to feel the problem was one of costs and not one which was susceptible to a cure by dollars or for that matter by any foreign exchange considerations. He confirmed that if the Deutsche-Mark loan goes through from the International Bank that the process of modernizing equipment in the forest products industry would be largely taken care of. He said some consideration had been given to requesting a loan in an amount of approximately $3 million for road building which would be highly desirable for the long-range future and even might be necessary in from three to five years should there be a broad increase in the demand for Finnish forest products. He said this [Page 771] transportation question was not presently an element in cost but could become one should there be a considerably higher demand. He said the Government had decided to defer making this application as they did not want to increase loan obligations except upon a basis of real need.

I asked him about the proposal of Mr. Kahma, made last summer, with respect to establishing local village industries in the North. He said this question was being worked upon and Finland is now trying to translate it into practical terms and that local capital for the enterprise would be raised. Then a canvass would have to be made as to what equipment from non-Finnish sources would be required. He personally was of the opinion that most of this equipment could be found in Europe and paid for in European currency although he did not completely rule out the possibility that some dollar equipment would be necessary. He did not seem to think, however, that the dollar component of the program would be substantial. In answer to my direct inquiry as to what Finland’s greatest economic need was at the present, he said it was to be able to sell more to the West. He thought the most useful thing the U.S. could do would be to find ways of increasing purchases either privately or publicly in Finland. In this connection he referred to the off-shore procurement problem in terms similar to those he had used in speaking to Waugh the other day.2… He said, however, he thought the yards were full in ’54 but could take on such orders in ’55.

He also referred to the possibility of working out third country arrangements, perhaps under Section 550. He said, for instance, the Finns liked Virginia tobacco and American cotton. Could these products be made available for sale to the Finns for local Finnish currency under Section 550, the currency then being used to buy Finnish articles needed for aid programs in third countries. He said, for instance, Israel needed building materials. Could the local currency proceeds on the tobacco deal be spent by the U.S. in Finland for building material for Israel. He said this idea was being discussed with FOA by private interests at the moment. He mentioned in this connection the name Culbertson. It seemed likely although not certain from what he said he was referring to Col. William Culbertson. I said that while I couldn’t say what the technicalities might be that I thought plans of this type should be given thorough consideration and that I would see that the one he had just mentioned would be looked into. In this part of the discussion he referred to but did not press the idea he had advanced several [Page 772] months ago of a loan with Western Germany on wheat. On the subject of off-shore procurement he thought that prefabs which might be needed for military construction in Germany or elsewhere might be a promising avenue.

I asked him if a shortage of dollars or other Western currency were a contributing factor on import restrictions to an extent of resulting shortages being an important cause of the present high price level. He did not think so saying that despite import restrictions shortages really did not exist and that coffee was the only product now rationed in Finland. He had previously told me that the sterling shortage had resulted in wool purchases being curtailed to a point where he feared processing operations in Finland would have to be reduced in that industry thus contributing to unemployment. He indicated in today’s conversation that a somewhat better sterling position now prevailing was making it possible to purchase sufficient wool so that he did not now look for shutdowns in this industry.

Making it entirely clear that I was talking on a hypothetical basis and that he should not interpret my remarks to mean that we could do one thing or another, although I made it very clear that we were very sympathetic to their problems, I asked if in his opinion his Government would feel it were politically feasible to accept American economic assistance on a grant basis. He pondered this for a moment and then replied, stressing that he was talking personally, that in his judgment the Government could not accept grant aid. He said what he thought could be accepted would be credits at a very low interest rate with the beginning of amortization payments put off for say 20 years. He thought it would be necessary, if anything like this were to be done for it to be “in some such manner as I have just indicated”.

I then asked if he thought politically it would be possible for Finland to join the EPU or the OEEC. He said while he thought it would be necessary for his Government to study very carefully just what the participation of the U.S. now was in these agencies that he thought it might be possible provided the U.S. was not now contributing financially to these organizations. He volunteered, however, the statement it would be disastrous for Finland to take such a step at this time or in fact until their general price level had been stabilized on a lower basis. He said now with high Finnish prices under the trade liberalization schemes everybody would be concentrating on selling in Finland and under such circumstances it would be bad for Finland to join as they would be buying at high prices and selling at low prices and thus possibly running into serious debt.

[Page 773]

The Minister seemed rather skeptical of the Russian loan offer. He said while he had been in charge of these matters and again for political purposes the Russians had on one previous occasion offered a loan, that time in the amount of $5 million, the repayment date had turned out to be one year. The Finns, therefore, feeling they could not refuse this generosity had accepted the loan but had immediately placed it aside for repayment purposes and had repaid it as soon as they could politely do so. In other words, it had been no benefit whatsoever to Finland. He said, however, that he could see that it might be useful for Finland to accept another loan if this meant they could get a percentage of their exports paid for in Western currency. He said he understood the offer had been 10% and this might mean the equivalent of $12 million per year. He in no sense challenged the implications of my observations to the effect that entering into a loan arrangement was at best a dubious and perhaps a dangerous step for Finland to take.

Finally, I referred to the question of devaluation saying I had not asked Mr. Tuomioja about this as it was always a delicate subject to raise. The Minister said that he was under what amounted to standing instructions to deny in the most vigorous terms that devaluation was a possibility. He added personally, however, that he knew it was a matter which had been studied by the Bank of Finland and other Finnish authorities and no doubt would continue to be so studied. The Minister said as he understood the situation it was something the Finnish authorities would regard as a last resort measure should the situation be serious enough to make it necessary. He felt the Finns would want to try other measures such as political steps to reduce costs before coming to this.

G.H.R.
  1. No further record of this luncheon has been found in Department of State files.
  2. The conversation with Assistant Secretary of State for Economic Affairs Waugh has not been further identified.