Comprehensive Program for Socialist Economic Integration (original) (raw)

The Comprehensive Program for Socialist Economic Integration was a program set up in 1971, which laid the guidelines for Comecon activity through 1990

The distinction between "market" relations and "planned" relations made in the discussions within Comecon prior to the adoption of the 1971 Comprehensive Program remains a useful approach to understanding Comecon activities. Comecon remained in fact a mixed system, combining elements of both plan and market economies. Although official rhetoric emphasized regional planning, it must be remembered that intra-Comecon relations continued to be conducted among national entities not governed by any supranational authority. They thus interacted on a decentralized basis according to terms negotiated in bilateral and multilateral agreements on trade and cooperation.

The 1971 Comprehensive Program also called for improvement in the Comecon system of foreign trade prices. Administratively set prices, such as those used in intra-Comecon trade, did not reflect costs or relative scarcities of inputs and outputs. For this reason, intra-Comecon trade has been based on world market prices. By 1971 a price system governing exchanges among members had developed, under which prices agreed on through negotiation were fixed for five-year periods (corresponding to those of the synchronized, five-year plans of the members). These contract prices were based on adjusted world market prices averaged over the immediately preceding five years; that is, a world-price base was used as the starting point for negotiation. Under this system, therefore, intra-Comecon prices could and did depart substantially from relative prices on world markets.

Although the possibility of breaking this tenuous link with world prices and developing an indigenous system of prices for the Comecon market had been discussed in the 1960s, the evolution of Comecon prices after 1971 went in the opposite direction. Far from a technical or academic matter, the question of prices underlaid vital issues of the terms of, and hence gains from, intra-Comecon trade. In particular, relative to actual world prices, intra-Comecon prices in the early 1970s penalized raw materials exporters and benefited exporters of manufactures. After the oil price explosion of 1973, Comecon foreign trade prices swung still further away from world prices to the disadvantage of Comecon suppliers of raw materials, in particular the Soviet Union. In view of the extraregional opportunities opened up by the expansion of East-West trade, this yawning gap between Comecon and world prices could no longer be ignored. Hence in 1975, at Soviet instigation, the system of intra-Comecon pricing was reformed.

Basic features of the state trading systems of the Comecon countries were multiple exchange rates and comprehensive exchange controls that severely restricted the convertibility of members' currencies.

These features were rooted in the planned character of the members' economies and their systems of administered prices. Currency inconvertibility in turn dictated bilateral balancing of accounts, which has been one of the basic objectives of intergovernmental trade agreements among members. An earlier system of bilateral clearing accounts was replaced on January 1, 1964, by accounts with the International Bank for Economic Cooperation, using the transferable ruble as the unit of account. Although the bank provided a centralized mechanism of trade accounting and swing credits to cover temporary imbalances, it could not establish a system of multilateral clearing given the centrally planned nature of the members' economies and the inconvertibility of their currencies. In 1987 the transferable ruble remained an artificial currency functioning as an accounting unit and was not a common instrument for multilateral settlement. For this reason, this currency continued to be termed "transferable" and not "convertible."

The member countries recognized that the multiplicity and inconsistency of their administered exchange rates, the separation of their domestic prices from foreign prices, and the inconvertibility of their currencies were significant obstacles to multilateral trade and cooperation. As of early 1987, Comecon lacked not only a flexible means of payment but also a meaningful, standard unit of account. Both problems have vastly complicated the already complex multilateral projects and programs envisaged by the Comprehensive Program. The creation in 1971 of the International Investment Bank provided a mechanism for joint investment financing, but, like the International Bank for Economic Cooperation, this institution could not by itself resolve these fundamental monetary problems.

According to the 1971 Comprehensive Program, joint planning-- multilateral or bilateral--was to be limited to "interested countries and was "not to interfere with the autonomy of internal planning." Participating countries wold, moreover, retain national ownership of the productive capacities and resources jointly planned. But "joint plans worked out by the member countries would be taken into account by them when drafting their long-term or five-year plans."

The Comprehensive Program did not clearly assign responsibility for joint planning to any single agency. On the one hand, "coordination of work concerned with joint planning shall be carried out by the central planning bodies of Comecon member countries or their authorized representatives." On the other hand, "decisions on joint, multilateral planning of chosen branches and lines of production by interested countries shall be based on proposals by countries or Comecon agencies and shall be made by the Comecon Executive Committee, which also determines the Comecon agencies responsible for the organization of such work." Finally, mutual commitments resulting from joint planning and other aspects of cooperation were to be incorporated in agreements signed by the interested parties.

The multilateral development projects concluded under the Comprehensive Program formed the backbone of Comecon's Concerted Plan for the 1976-80 period. The program allotted 9 billion rubles (nearly US$12 billion at the official 1975 exchange rate of US$1.30 per ruble) for joint investments. The Orenburg project was the largest project under the Comprehensive Program. It was undertaken by all East European Comecon countries and the Soviet Union at an estimated cost ranging from the equivalent of US$5 billion to US$6 billion, or about half of the cost of all Comecon projects under the Concerted Plan. It consisted of a natural gas complex at Orenburg in western Siberia and the 2,677-kilometer Union (Soiuz) natural-gas pipeline, completed in 1978, which links the complex to the western border of the Soviet Union. Construction of a pulp mill in Ust' Ilim (in central Siberia) was the other major project under this program.

These two projects differed from other joint Comecon investments projects in that they were jointly planned and jointly built in the host country (the Soviet Union in both cases). Although the other projects were jointly planned, each country was responsible only for construction within its own borders. Western technology, equipment, and financing played a considerable role. The Soviet Union owned the Orenburg complex and the Ust' Ilim installation and was repaying its East European co- investors at a 2 percent interest rate with an agreed-upon amount of natural gas and wood pulp.

The early 1980s were characterized by more bilateral investment specialization but on a much smaller scale than required for the Orenburg and Ust' Ilim projects. In these latter projects, Eastern Europe provided machinery and equipment for Soviet multilateral resource development. Work also progressed on the previously mentioned Long-Term Target Programs for Cooperation.