International relations within the Comecon

This kind of economic relationship stemmed from a genuine need by the parties in the 1950s. Eastern Europe has poor energy and mineral resources, a problem exacerbated by the low energy efficiency of East European industry. As of mid-1985, factories in Eastern Europe still used 40 percent more fuel than those in the West. As a result of these factors, Eastern European countries have always relied heavily on the Soviet Union for oil. For its part, in the 1950s Eastern Europe supplied the Soviet Union with those goods otherwise unavailable because of Western embargoes. Thus, from the early 1950s to the early 1970s, during the time when there was no world shortage of energy and raw materials, the Soviet Union inexpensively supplied its East European clients with hard goods in exchange for finished machinery and equipment. In addition, Soviet economic policies bought political and military support. During these years, the Soviet Union could be assured of relative political tranquillity within the bloc, obedience in international strategy as laid down by the Soviet Union, and military support of Soviet aims. By the 1980s, both parties were accustomed to this arrangement. The Soviet Union was particularly happy with the arrangement since it still could expand its energy and raw materials complex quickly and relatively cheaply.

In the 1970s, the terms of trade for the Soviet Union had improved. The OPEC price for oil had soared, which put the Soviet Union in a very advantageous position because of its bountiful supply of oil. The soaring price increased the opportunity cost of providing Eastern Europe with oil at prices lower than those established by OPEC. In addition, extraction and transportation costs for these goods, most of which originated in Siberia, were also rising. In response to the market, the Soviet Union decreased its exports to its East European partners and increased its purchases of soft goods from these countries. This policy forced the East European countries to turn to the West for hard goods despite the fact that they had fewer goods to export in return for hard currency.

Any hard goods supplied to Eastern Europe by the Soviet Union were sold essentially at a discount price because Comecon prices lagged behind and were lower that those of the world market. Developments in the 1980s made this situation even more complex. The 1983-84 decline in international oil prices left the Soviets with large holdings of oil that, because of the lag in Comecon prices, were still increasing in price. The "nonmarket gains from preferential trade" became quite expensive for the Soviets. East European profits from the implicit subsidization were almost US$102 billion between 1971 and 1981.

Although the Soviets carried most of the burden, since 1976 the East Europeans have been persuaded to take part in projects to boost the developing countries' economies. East European countries imported Cuban nickel and Mongolian molybdenum and copper; they were also pressed to buy staples, such as Cuban sugar (80 percent of Cuba's exports), at inflated prices. Eastern Europe also contributed to the International Investment Bank, from which the underdeveloped three could acquire loans at lower interest rates (0.5 to 2 percent) than the East Europeans themselves (2 to 5 percent). In addition, the Soviets sold their fuel and raw materials to Cuba, Vietnam, and Mongolia for less than it was sold to the six East European members. Hence the latter have become competitors for the slowly diminishing Soviet resources. In the late 1980s, the only benefit accruing to the East Europeans was the services provided by Vietnamese guest workers. However, the majority of the Vietnamese have worked primarily on the Friendship pipeline in the Soviet Union.

Undeniably, Comecon has been investing heavily in Mongolia, Cuba, and Vietnam; and the three countries have benefited substantially from these resources. In 1984 increases in capital investments within Comecon were the highest for Vietnam and Cuba (26.9 percent for Vietnam and 14 percent for Cuba, compared with 3.3 percent and less for the others, except Poland and Romania). Increased investments in Mongolia lagged behind Poland and Romania but were nevertheless substantial (5.8 percent). In 1984 the economies of the three developing countries registered the fastest industrial growth of all the Comecon members.

Given their locations, Comecon membership for Mongolia, Cuba, and Vietnam principally served Soviet foreign policy interests. The Soviet Union contributed the most to the development to the three poorer Comecon members, and it also reaped most of the benefits. The Soviet Union imported most of Cuba's sugar and nickel and all of Mongolia's copper and molybdenum (widely used in the construction of aircraft, automobiles, machine tools, gas turbines, and in the field of electronics). Cuba has provided bases for the Soviet Navy and military support to Soviet allies in Africa. Vietnam made its naval and air bases, as well as some 100,000 guest workers, available to the Soviets.

At the June 1984 Comecon economic summit and at subsequent Council sessions, the policy of equalizing the levels of economic development between Comecon member countries was repeatedly stressed. At the November 1986 Comecon session in Bucharest, the East European members "outlined measures to further improve cooperation with Vietnam, Cuba, and Mongolia with a view to developing the main sectors of these countries' national economies." Moreover, the Soviets have repeatedly stressed their earnestness in "normalizing the situation in the Asia-Pacific region and in including that region in the overall process of creating a universal system of international security."

From the 1960s to the mid-1980s, Comecon has sought to encourage the development of industry, energy, transportation, mineral resources, and agriculture of Third World countries. Comecon countries have also provided technical and economic training for personnel in Asia, Africa, and Latin America. When Comecon initially lent support to developing countries, it generally concentrated on developing those products that would support the domestic economies of the Third World, including replacements for imports. In the 1970s and 1980s, assistance from Comecon has been directed toward export-oriented industries. Third World countries have paid for this support with products produced by the project for which Comecon rendered help. This policy has provided Comecon with a stable source of necessary deliveries in addition to political influence in these strategically important areas.