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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Heading for a financial cold war

Stalin supported the establishment of the IMF and hoped for American money
25 December, 2012 - 11:18
Sketch by Anatolii KAZANSKY, from The Day’s archives, 1996

If what our Communists and other left-wingers are saying is anything to go by, there is no greater enemy to humankind than the International Monetary Fund (IMF) and the related World Bank (WB) that incorporates the International Bank for Reconstruction and Development (IBRD), even though the much-accursed and condemned IMF is the main source for the replenishment of the National Bank’s gold and hard-currency reserves when the budget deficit grows.

Incidentally, the Reds of all hues either do not know, which is typical of them, or deliberately hush up, which is equally characteristic of them, the role of the USSR and Comrade Stalin in the creation of these “instruments of imperialist financial expansion.”

The international financial systems began to be shaped in the early 19th century after the Napoleonic wars. At the time, the world’s only superpower, in the literal and figurative meaning of the word, was the British Empire on which the Sun never set. Naturally, its currency – the pound sterling freely convertible into gold – became the core of this system. This system existed, with some variations, until the outbreak of World War One.

The 1929-30 great depression forced the gold standard and currency-to-gold conversion to be abandoned. Naturally, World War Two, which brought about tremendous ruinations and hardships, also greatly undermined the world’s economy and financial system.

In the period between the two world wars and especially after the economic crisis, countries usually made their settlements in gold or in pounds and dollars, with the yellow metal playing first fiddle. This adversely affected the world trade turnover and seriously weakened the financial system of states, especially those with a militarized economy. Suffice it to say that Germany had a 26-ton gold reserve in 1938, but, as a result of plundering the occupied countries, it managed to raise it by 1,200 tons, even though the Netherlands, Norway, and partly Belgium had managed to evacuate their gold to Britain. The neutral states demanded gold, dollars, or, in the last resort, Swiss francs for molybdenum, zinc, and tungsten which were of bad need in the military industry. This considerably limited the German economy’s potential.

Preparations for a postwar financial system began as long ago as in 1941. Although the well-known English economist John Keynes took an active part in this, it is the Americans – above all, Secretary of the Treasury Henry Morgenthau and his deputy Harry Dexter White – who played the key role.

The latter of the two is considered as rather a contradictory figure in the US. The contemporaries reproached White for “Stalinism” because he took a positive view of the USSR’s state-run economic model. His biographer David Rees alleges that White maintained secret ties with the US Communist Party and was even the Soviet agent of influence. The former Soviet intelligence officer Oleg Gordievsky wrote that White had been recruited by the NKVD in 1935-36. Present-day Russian publications expose his role in drawing the US into a war against Japan on the Soviet secret services’ instructions (Operation Snow). In all likelihood, this is a pure speculation because the US-Japan war was caused by the factors that are much more serious than the activity of some intelligence officers or agents of influence. Moreover, Pres. Roosevelt was by no means a person susceptible to any influence. Yet White had never hidden his affection for the USSR.

The USSR needed money. To mobilize foreign currency, first of all, dollars, delegations of Soviet soldiers and officers, who had glorified themselves by battlefield exploits, would travel to the US. A delegation with the outstanding theater personality Solomon Mikhoels at the head went to the US to forge ties with big-time Jewish capitalists. Its mission was not only to raise funds, but also to seek ways to approach Albert Einstein and the scientific circles involved in making the nuclear bomb. They brilliantly managed to fulfill both tasks. The Soviet defense fund acquired donations worth dozens of millions of dollars. But this was a drop in the ocean.

To receive serious funds, Stalin discussed the Soviet plan of establishing the Jewish Autonomous Republic and an autonomous district, respectively, in the Crimea and eastern Belarus with Eric Johnston, President of the US Chamber of Commerce, in June 1943. US business circles were prepared to make available over 10 billion dollars as direct investments and interest-free loans for this purpose. It was an enormous amount for those times. Suffice to recall that wartime lend-lease supplies to the USSR were worth 9 billion dollars. Stalin was even prepared to create special economic conditions, such as a free economic area, for this kind of autonomy and let in the foreign refugees who had survived after the Holocaust. This was also aimed at making an alternative to the Jewish part of Palestine. It was quite a profound and well-considered plan. It remained on the agenda until the end of 1945, when it was dropped. The choice was made in favor of establishing the State of Israel.

Stalin discussed again the problem of funding the USSR postwar reconstruction, this time on the highest official level, with Pres. Roosevelt at the Teheran Conference. The US president planned to establish a financial UN of sorts to stabilize and develop the world economy. Accordingly, the Soviet Union was promised a 6 billion-dollar-worth reconstruction lend-lease scheme on very favorable terms.

It was intended to convene a conference of United Nations allies and representatives of neutral states to work out the foundations of a world financial system. Moreover, this conference was being convened well before the UN constituent conference.

Stalin did not know much about indices of securities, dealers, stock exchanges, the subtleties of currency systems, etc. But he knew very well that the country needed money. Yet Moscow at first took a cautious approach to the plan of a new monetary system. It seems to be clear that American industrialists need new markets, but why should they invest money in this and thus revitalize their potential rivals? Sticking to Marxist dogmas, Stalin failed to immediately understand what caused the Americans, and then the British, to do what they were doing. The same happened when Roosevelt and Churchill demanded at the Casablanca Conference in January 1943 that Germany and Japan unconditionally surrender. Stalin was suspicious of this demand and hesitated for a long time about his position in this matter. The USSR agreed to this as late as in September of that year on the eve of the Teheran Conference.

It was not until Moscow received an encoded message from Donald Maclean, a Soviet agent and member of the famous Cambridge Five, in April 1944 that Stalin accepted the invitation to take part in a financial conference to be held in July 1944 at the resort city of Bretton Woods, New Hampshire, USA. Maclean, who worked as First Secretary at the British Embassy in Washington, reported that the US was ready to bring up its aid to the Soviet Union to 10 billion dollars. On Stalin’s instructions, People’s Commissar for Foreign Affairs Molotov cabled to the Soviet Embassy in the US that the USSR was ready to take part in the Bretton Woods Conference. A delegation with Deputy People’s Commissar for Trade, Stepanov, at the head was sent.

A year later, the Crimean (Yalta) Conference resolved that Germany pay reparations worth a total 20 billion dollars: 10 billion to the USSR, 8 billion to Britain and the US combined, and 2 billion to all the others. But the amount agreed upon with Roosevelt was not part of the Soviet “Yalta quota.” In other words, Stalin could count on an enormous amount of 20 billion dollars in 1944-45.

But, after the death of Roosevelt in April 1945, the situation began to change fast. As soon as in May 1945, an acute crisis broke out over Trieste, which might have resulted in the armed clashes between the British troops in Italy and the Yugoslav army. Moscow supported Belgrade, only to walk out on it later to reach a compromise with the Allies. Tito paid Stalin back for this in 1948.

A civil war raged in Greece between the local communists and the government. The former received weapons and money as aid via Yugoslavia and Bulgaria. But the biggest source of problems was Poland. Non-communist leaders were ousted from the government, arrested, or emigrated. It was clear that there would be no democratic elections in Eastern Europe occupied by the USSR. Although there still were democratic elections in Hungary, their results were annulled and non-communist leaders were simply arrested. The same thing occurred in all Eastern European countries except for Czechoslovakia. Its turn came in February 1948.

This situation confirmed US State Department analysts’ worst forecasts: there was going to be no cooperation with the USSR after the war. This was also reflected in the financial sphere. Instead of opting for UN financial aid in the shape of the IMF, Washington focused on the Marshall Plan under which aid was to be given by the US itself rather than by international organizations. Naturally, this did not fit in with Stalin’s plans, and in December 1945 the USSR refused to ratify the Bretton Woods agreement.

From then on, the abbreviation “IMF” became a longtime bugbear for Soviet propaganda and its latter-day followers. The ensuing political cold war soon continued in the financial sphere as well.