11 3 POUCH CONFIDENFIAL oo nor TYPE IN THIS space Noam 5ecumy Claui otinn DESPATCI 5 64 FROM American Lsgation Bucharest No 116 no T0 - TIIE or STATEs9 hai ggn I L-f'y I 53 99 flfg iT-I Use Only RE OTHER 0w Meson-ow 5UEEC The Abolition of Rationing in Rename a 0' 9155 7 mm The Resolution effective December B g rg x rationing in Humania agpears to hare had slowing affeets at i or d 51-'33 1e hf- ning 1 It reduces the nurohasinr poser'or urban consumers 2 It has caused a were of panic haying shlah an tonne peasant market prices up it the stocks of stats stores are not maintained It may therefore represent a gain for the peasants at the expense of the urban workers The timing of the Easelsnion its text and the ciruurh stances surrounding its promulgation seen to point to its being a hasty poorlyiianned measure 5 Although current fears of a new rercrn do not seem justified the measure can be expected to have generally inflationary effects On December 27 1954 the Romanian prees carried as lead articles the text of a resolution or the Gent- oundttee of the Humanism Workers Party and the Council of Kiev - -e of the Hulsnian People's Republic 1011 the Abolition of the Byet - pply by Ration of cards and Hations The resolution starts out claiming that the abolition of rationing is a rear 53 ohJeativas set by the enlarged Plenum of Romanian Gentral Committee of August 1953 that - cultural year with a total production or that the contracting system has resulted in eased reduction 5 enable or meat that investments in socialized agricult cone or goods industries have increased by 40% and 27% re ivelv and3 I In that the oirculatfo THOKIAB r neuron ant I 3 REPORTER ACTION COPY DEPARTMENT OF Slugs The action since must return this permanent record may to Dela ies with an new scum a 7 CONFIDENTIAL 4 as n Clari cation Etsp No hm that the circulation of goods in Socialist trade in constant prices has increased from 19 billion lei in 1953 to 22 billi in 195$ In view of all these improvements 1 production and distribution the conditions have now been created for the abolition of rationing A i 1 Effective December 26 1954 rationing is abolished except that employees and certain others as-well as members or their families are entitled to receive sugar and bread both on tickets and free - at the same price in both cases 2 Instead of the two-price system hitherto prevailing in Socialist trade that is a low price for goods bought within the ration and a higher price for goods bought outside the ration a one-pride system is adapted in order to do this certain prices such as those for corn kerosene childrens shoes and clothing and agricultural implements among other thinee are decreased while other prices such as those for seam beans eggs milk and spirits are increased 5 To compensate for the di ference between the cost of goods at the new prices which in most cases are not different from those of the former controlled unrationed market and the cost of goods at the old rationed prices which were much lower employees and certain others including members of their families are to be paid tax-free subsidies out of the state budget Workers who enter the fieId of labor after December 26 1954 benefit from these subsidies only for themselves They do not get subsidies for their dependents The amount of the subsidies depends upon the person's former ration category For instance a person in category perhaps the most common type receives 51 lei a month Other categories receive subsidies which are smaller or larger as the case may be Bee text of Resolution attached 4 Certain changes are made in the salary classifications of workers and clerks which apparently have the effect of raising the minimum wage and salary payments in force That is category I of worker the lowest apparently is abolished while salary groups in category II in which the old category I is now included are assigned new wages The highest of these is 250 92 lei and the lowest 220 52 The salaries of the lowest category of administrative personnel is also given with a high 240 All other wage and salary classes are unaffected 5 Percentages of reduction are given for those products whose prices are being out These range from 10% in the cases of corn 'cossrocheL new s L - Page of esp-Noam End N me uchanaet _ Cloui cohon Deep No rem of corn children's clothing and systematic beehives with art- ificial honeycombs I to 13 5% for keros ne 15 - 24$ for rubber- soled leather shoes 16 5 for agricultural in laments 50$ for peasant carts and EV -ror Kapron stockings ther items can be found in the text 6 Prices being increased are then set forth Beef costs 6 to 10 lei per kilo depending on or to 1 5 lei per kilo and dried beans 2 0 leihper kilo 11 and eggs are given two prices That is milk cost 1 50 lei er liter in the summer and 2 00 lei per liter in th winter cost 0 5 apiece in the summer and 1 00 in the winter 7 Having started with a congratulatory preamble the Resolution ends with a hortator erorationg the percration is much longer than the preamble I contains along with the familiar injunctions to work more faster and_nore cheaply the significant statement It the Enaciutionl will take possible the consistent application of the Socialist system of retribution compensation and encouragement or the workers according to the quantity and quality of their work The general tenor of the peroration is that every producer nest cooperate to ensure the abundant supply of food and consumer goods needed to make unrationed dist_ribution a success and that the ociulilt trading sysyem must become more efficient and less an Jr lent 1 The claim of 9 million tons of cereal production in 1954 seems hi h in view of previous production claims and of the nine set in Draft Agricultural Decrees z es Bucharest Despatch No 101 of m 29 1954 2 The claim is made of an increase in socialist trading from 1955 to 1954 of from 19 billion lei to 22 billion lei in constant prices If the proportion of socialist trading to total consumer spending remained constant this would imply an increase in consumption of about 15 3 in the year It would imply an even greater percentage inoraase if the proportion of socialist trading to total trading declined because of the increase in private stores the increased use of the peasant market and the diversion of goods from the Socialist gector through fraud There may very well have been some increase in total consumption during the year but 15 8% seems high In any case the increase does not appear to have been spread evenly and there is reason to believe that it has gone more to peasants living near to big cities who can market food and to traders diversionists and others with access to profit or illicit incomes 3 Sugar and bread I communism Its -4 Pa Lm of Bap ND 116 _Buchare st @3123 st End 0 Clsui csnonj Deep No me_ a 3 Sugar and bread receive special handling The evident purpose of the Resolutioneis to see that those previously entitled to these items on rations still find them available To escarplieh this they will be issued special cards in the near future Just how this will insure a supply to these people is not explained in the decree - if the supply is adequate they will get theirs in any case since everything will be sold at one price If it is inadequate some system will have to be devised to set aside quantities or sugar and bread to be sold only to card-holders It would appear in any case that the special treatment of bread and sugar reflects the poor 195a cheat ore and current difficulties in the production or sonar beets eh are marked by frequent press references to sugar beet production and the issuance of a new sugar beet contracting decree s The reduction in the price of corn should be of substan tial benefit Considering the two previous reductions this fall the latter of which on December 12 brourht the price down from 2 20 to 2 00 lei per kilogram and the present aft ihidh should bring the price down to 1 30 led per kilogram it appears that corn supplies are abundant reduction in price in heroecne is not quite so clear in its effect If it applied to the old rationed price of 0 50 per liter it would be hn pful If as appears to be the case it applies to the unrutionod price or 1 50 lei per liter it is probably a price increase inedisguise since it is no longer available even in small quantities at the low rationed price Other reductions such as tbose for footwear seem also to apply to controlled unrationed prices rather than to terror rationed prices It also so me doubtful in these cases whether the consumer will actually benefit It would seem as if he would have to buy more shoes than are havitually bought by Eurasian wage-garners in order for the decreases in prices to equalize the loss of access to the former low rationed price Some reductions are obviously of no benefit to-the average Romanian In this class are toys radios hapron stockings and agricultural implements including systematic beehives with artificial honeycombs It is noteworthy in this connection that agricultural i laments are reduced in price by 16 7% and peasant carts by so Perhaps this represents a desire to aid the peasantry If so its inclusion in a Resolution which has been widely interpreted by the Romanian urban population as a victory for the peasants in their push for higher agricultural prices represents poor public relations 9n the other hand it may be that the drafters of thesdecree included these items xa-d I simply because CONFIDENTIAL 5 PISWD Page of D p MT Manama J ucharest Fern Claui csnon D p No Fm simply because they were grossly overpriced t5 begin with or I they-represent some of the few items those prices can be reduced at the present time Since this list is obviously not long this factor must have been important The increases in the prices of certain foods may not be as severe as the Humanian population see to think For instance the old official price of eg a was 0 65 lei apiece The have never at any time been a lable at that price anywhere where the public could buy It has always been necessary to buy eggs on the peasant market at much higher prices If non-eggs are available at the official prises of 0 7% and 1 00 len there will actually be a saving Bimilar reasoning can be applied in greater or less degree to other food itezs listed The key question will remain the availablility of these foods at official prices in state trading A significant emission from the list if items shone price is changed is black bread this be 01 lyle ilahle at a rationed pnice of 0 0 lei per Lilonrar leaf and an unrationed price of 2 00 lei per leaf With the ntelftion of rationing the price of black bread is more than desblod especially since rationed black bread has usually been available Black bread is of course the staple of the Eurasian urban diet 5 The compensatory subsidies to be paid employees vary with the former ration classification The ration classification itself was related to the level of earningsI so that a leading worker making an above-average wage also got an above average ration The new system follows this trend and at least as a plied to wage earners those who earn more get higher subsidies is perhaps the case that the ordinary G-card helder who will get a subsidy of 51 lei per month plus smaller subsidies far wives and children will get enough to cover the difference in cost between the old rationed market and the new one-price state market Rationed foods such as meat were often unavailable and if these foods are now available in state trading the consumer may come out even If they are not available and he has to go to the peasant market he will be the loser But it is doubtful if the new subsidy will cover his increased costs for clothing Even though the rationed clothing allowances were very skimpy Bee Despatoh No 15d of March 15 1954 they did go a certain distance toward meeting his needs and the Humanian consumer is used to doing with little when such items as Hood fuel and coal are considered along with the special case of -J black bread the urban employee appears to have lost a certain proportion of his purchasing power The provision that those entering the IIfield of labor' after December 26 1954 will only benefit in their own persons 2 from the subsidies i cosrrossrm 5 Page I GO NFI End No Ckni cahon D6311 NO From from the subsidies and thus not for their dependents may indicat_e that the subdidy system is not intended to be permanent 6 The wage adJustments made do not appear substantial The basic wage is tiud to the accomplishment of a norm and as can be seen from the low basic wage figures quoted in the Resolution the attainment of a I'living Ia e say 400 lei per month depends on the earning of substanti increments for piece work It would not seem that these adjustments have materially protected employees against a loss of purchasing power 7 To those familiar with the Jargon of Harxiem the invo- cation of the Socialist system of cozpehsation which appears in the peroration of the Resolution can only have the meaning that inequalities in income and consumption-are to he neutered for the sake of increased production To the extent that the former rationing system represented state subsidised minimum consumption standards for the lower paid employees its abolition is a more toward SocialismII in this specie sense ameliorated to a certain extent by the subsidies-uhieh replace it Ruiinninmi It has been rumored Bucharest FFEKE December 17 1954 that a delegation from the Hinistry of Domestic Trade had gone to Whrsaw to study methods of eliminating feed rationing Subsequent to the announcement of the Resolution abolishing rationing on December 27 it was heard that this rumor had been a plant and that actually a gro are the Hdnistry of Domestic Trade had gone to Oraeul Stalinq BrasoT to nerh out the Resolu- tion in haste and secrecy It'is not known of course whether these reports are true or not but other circumstances suggest that the Resolution may indeed have been worked out in haste The more than usually sloppy draftsmanehip of the Resolution plus the fact that the new cards for and bread are not ready and no one seems to know when they H1 1 be ready argue for this assumption For another thing it was not announced until December 50 what would happen to the price of wood fuel It was stated in Review 509 9 that used had been derationed and that the price would be 150 lei per metric ton Since the old rationed price had amounted to about 100 lei per ten the new price means a still further increase in the cost of living which will not be covered by the sage subsidy and a still greater drop in the purchasing power of the urban worker This may have been an oversight but it may also have been a deliberate maneuver intended to muffle the impact of an important price rise Other circumstances seem also to argue for haste or poor planning or both The effective date of the decision December 6 and the date of announcement December 27-ccme near the end h of an inventory period 333 Of CONFIDENTIAL up End From share at Clari cation DESP- I of an inventory period That is it is believed that the usual practice in state trade in Romania is to take an inventory at the first of each month reporting the results to the super visory ministry If this is the case store managers were presented with a good opportunity to defraud the system on the occasion of the January inventory by reporting part of the stocks sold after derationing as having been sold prior to deraticning thus pocketing some of the proceeds of the price increases Although this is not known by direct observation this possibility has been suggested by an Israeli diplomat with unusually close contacts with o eegment of the population closely connected with retail trade and who claims to be certain about the inventory system Additionally the time of the year may prove to have been poorly selected for derationing is winter goes on foodstuffs can be expected to become progressively scarcer It would seen that the summer would have been a better tine for such an exper iment becauee'of the absence of the scarcity restore on prices which is bound to develop is greater or less gegrme during the winter 0n tnaother hand the state fo d uni nicoting stores were fairly well stocked before the insolutiou wan announced and appear to have been able to handle the huge crowds who have been buying in them since then without running out ct etocki 9f course they have limited sugar nor instance 'tc one-half kilogram per customer and meat to one kilogram per customer Peoplc have also had to show their identification cards when buying sugar Ibo evidence is of course inconclusive so this tine But if the stores begin soon to run out of food 1 will be a strong indica- tion that the signs pointi to haste or at in the promulgation of the esolution were correct The regime was under a certain pressure to eliminate ration- ing at this time The delay or the eccnd Party Congress was undoubtedly connected with the failure of the ew Course after more than a year to produce any important The abolitioning of rationing can at least be interpreted as an economic improvement brought about by the New Course - there is probably very little else they will have to congratulate themselves about For the rest the fact that Romania is behind the other European Satellites and the soviet Union in the cf rationing must be a source of embarrassment to the Communists especially since Romania was once famous for its agricultural surpluses 0hristmas time is the traditional season for on the part of benevolent rulers and the regime is trying at least to appear benevolent More objeo ive factors -u - -- - Pa gasp I CONFIDENTIAL Eng No Emma I re '0 Deep No Fm More objective factors in the decision to abolish rationing may have been the good corn crop attained this year and perhaps some increase in meat supplies The oomparitive plenty of corn at this time has enabled the regime to include in the announce ment a reduction in the official price of the important item - although if the Resolution were not connected in haste it would seem to have been a better idea to have reduced the price from 2 40 lei per kilogram to 1 30 all at one instead of having two previous reductions preceding it This would have enabled them to announce a 255 reduction in this item instead of a 10 one As far as meat goes any inprotement in supply which would probably be traceable to the contracting system and the attendant reduction in animal quotas for contracting easents would tend to enable the regime to keep the new unrafgoned meat prices somewhat lower than they might have had to rise inhalation The population of Bucharest scene to have not the announcement with dismay A reliable local source has reported that the workers at the Mogosoaia oil de st for instance did not hesi tats to complain openly about nboiit on of rationing and made bitter Jokes about it Rumors about an impending currency reform immediately began to circulate and peoplg with Honey made haste to get rid of it This led to long lines in front of the food stores in which there were-occasional disturbances and hair pulling contests The greenest donned seems to have been for sugar but there have been reports of people stocking up on other things such as Romanian cigarettes in the expec tation of further perhaps unannounced price rises and currency regorm or be 1711 The regime is undoubtedly interested in the public reaction and there are rEports that plainclothesmen hays been stationed in at least some of the stores to hear what the people have to say and to report on how they behave This seems to be about that one would expect This method of public cpinion saupling has often been used in similar situations in Communist countries There are other indications that the regime would like it to be believed that the people lining up at the stores are hot honest workers but profiteers private traders and rich peasants those who can sell in Bucharest peasant markets There may be a great deal of truth in this Those who have accumulated large sums in the course of the past year through various legal illegal or merely shady dealings would be the ones who would be most able to spend at this time and the most likely to have a fund which would have to be gotten rid of in the event of further price rises or a currency reform I CONCLUDING-COMMENTS d4 It 1 - itt j'x we d- - F uni ccno Deep No From I 0 di 6 It is too early at this time to state that the outcome of the Resolution is likely to be But some comments may be made on the conditions surrounding it and the direction in which those conditions tend l On balance the Legation is prepared to believe that Resolution represents a hasty poorly-planned decision and that the comparitive plenty Just new at least in corn is only a fortuitous circumstance which although it represents a factor in the decision to deration does not represent an element in any definite plan to deration at any pro-planned target date 2 On the face of it it would appear that the urban wage or salary earner has lost a certain part of his purchasing power Just how much could probebly be determined by eating spin sanple family budget under both rationinr mad Erraticning But such a determination would have to be based on the often doubtful assumption that rationed goods were always arailable in the quantities to which consu ers 3 The changes in selected prison on have eteecte on other prices For instance it meat is new more expensiye canned meats whose prices hare not yet changed heccne relatively less expensive It canned meets are sold faster at present prices it may prove necessary for official prices or canned meets to be increased dL' 4 Much depends onijhe ability o the state stores to heep adequate stocks on hand in the face of the present buying were If they can meet present demand they may be able to hold prices in the Heaeant markets steady and may even be able to lower them article in gminia_ ihgzl of December 38 1964 PH 509 9 rovides a clue to the regime hopes in this matter by claiming probably prematurely that free market prices are new dropping due to the competition or state stores If on the other hand state stores cannot supply present demand peasant market prices should rise rapidly - there is a tendency them to do so in any case because of the time of year The next two or three weeks should be decisive and it is the intention or the Legation to prepare another price survey perhaps at the end or January as a basis of comparison with the price survey covering December 1 - 10 forwarded with Despatoh No 118 January 4 955 a 5 Bucharest residents seem to have already prejudged the outcome or derationing Exactly as people who run to withdraw I funds from a be GQHFIDENTHL Pagc i of Deep Nth L- 6 FF Bu CONFIDENTIAL fCImn' rsrxon End No Deep No From funds from a bank which is in difficulties make the failure of that bank more likely of runaway inflation followed by a ourre stores to get rid of all their excess they fear more probable government's competence and intentions such a delicate operation as derationing lacking Humanians expect the worst ac worst and help to insure the worst seems to want people to believe rushing to spend their money are free professional people and of what these people are doing account the direct effects of the Resolution tax-free subsidies to be paid 0 budget the public reaction to so Rumanians who in panichi expectation nor reform run to the cash make the very things That public morale and faith in the of possible future food shortness in stat can be almost definitely des which are needed to make work are here entirely in preparation for the The fact that the regime that the long lines of people hompcsed mainly of free traders rich peasants indicates its fear- In may once taking into including the at of a possibly already unbalanced it and the results to be expected stores the measure created as-aa milestone on the inflationary road presently hols impossible to tell at this time 6 If wage earners are the losrrs in that their access to goods is reduced who are likely to he the snipers It is almost If pennant casket food prices are sent up a certain segment of the peasantry-are almost certain to be the gainers If they are not sent up it on be that the peasantry as a whole may be the gainers since the maintenance of adequate food stocks in'etate stores misht'hare to entail a continued dependence on purchasing food From the peasants at attractive collections rises and a consequent on reguirld plus a continued avatdibility of goods a village cooperative stores so that the money paid would havs ems mean- ing as a roductive incentive Despatch It has been suggested see 0 cos of June 1954 that the attainment of increased agriculturalnproduction might have to entail a diversion of resources from urban consumers to peasant use The present Resolution seems to reinforce this conclusion but the attain ment of this reallocation of resources depends - as much any as ever - on the ability of the regime to prevent resources from being redivsrted back to the cities through the fraud and core ruption of those of its agents who deal with the peasants It has not been entirely successful in Despatch 104 of December 8 1954 successful in the future is doubtful 044 Richard Funkhoussr Charge d'Affaires a i no as f Vienna PR a Pad British Legation be sing as in the past See Whether it will be more sIcoe Frankfurt Munich lste routing references despatoh no plus all mention localfaguroes incl Israeli Diplomat o IDEN IAL - IWN