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BOX-FOLDER-REPORT: 116-2-87
TITLE:             Hard-Currency Shops in Eastern Europe
BY:                J. L. Kerr
DATE:              1977-10-27
COUNTRY:           (n/a)
ORIGINAL SUBJECT:  RAD Background Report/211

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RFE-RL

RADIO FREE EUROPE Research

RAD Background Report/211

27 October 1977

HARD-CURRENCY SHOPS IN EASTERN EUROPE
By J.L. Kerr

Summary: SED party leader Erich Honecker recently
raised in public the question of the hard-currency
shops in which East Europeans (and visitors) can buy
Western and high-quality local goods for dollars.
These shops have proliferated throughout Eastern
Europe, in spite of ideological and other reasons
why the anomaly they represent should be excised
from the socialist scene. The regimes obviously
find the counterarguments more compelling, and the
economic outlook is such that pragmatism is likely
to continue to triumph over ideology in this
particular sphere.

+ + +

In an important speech made in Dresden to a gathering of 2,400
party activists, SED Secretary-General Erich Honecker mentioned
a problem that has plainly been troubling the party faithful of
late: the GDR's network of "Intershops" -- stores in which
possessors of hard currency can buy Western and domestically produced
goods that are otherwise unobtainable in the country concerned,
or can be purchased only at much higher prices, or after inordinate
delay. "These shops are obviously not a permanent accompaniment
of socialism," said the party leader, "but we cannot ignore the
fact that, thanks to the flood of foreign visitors, our people
have much more hard currency to spend than was formerly the case." [1]
Anyway, he continued defensively, such shops can be found in other
socialist countries too.

The ancestors of the present-day hard-currency shops in
Eastern Europe were the Soviet Union's Torgsin stores founded in
the early 1930s, [2] and their offspring include the Corecom shops

-------------------------

(1) Neues Deutschland, 2 7 September 1977.

(2) The name has since been changed to Beryoska.

This material was prepared for the use of the editors and policy staff of Radio Free Europe.

[page 2]

in Bulgaria, Tuzex in Czechoslovakia, Intertourist in Hungary,
Pewex in Poland, and Comturist in Romania. All have the same
basic purpose: to extract foreign money (usually hard -- i.e.,
Western -- currency) from its possessors, whether citizens or
foreigners. There are, however, marked differences in their
methods of operation and regulatory frameworks.

Bulgaria: Corecom (Comptoir pour Représentation et
Commerce) was set up in 1959 or 1960, and initially had no shops
of its own, but only a reserved area in the Central Universal
Department Store in Sofia. It was intended for foreigners
only. [3]

In 1964, it became an enterprise in its own right, whose
charter was to sell indigenous or imported goods, real estate,
and housing to Bulgarians and foreigners against convertible
currency or precious metals. Most of its advertising was directed
to Bulgarians living abroad, and emphasized the facilities
available for sending gifts to, or buying cars for, relatives in the
homeland? it also offered housing units to long-term emigrants
who might wish to return to their native land. Money sent to
Bulgarians from abroad was converted into Corecom vouchers, which
were not transferable. In 1970, the organization became a
subdivision of the newly formed foreign trade enterprise, Interkomers
It was officially reported in August of that year that Corecom
had been closed down, but this was soon proved incorrect; all
that happened was that some unpublicized restrictions were
imposed on its activities.

In 1975, the organizational structure was changed yet
again: Corecom reverted to the status of a separate enterprise.
Sales to Bulgarian citizens continued to be tightly controlled,
and documentary proof was required of a would-be customer's
right to hold foreign currency. On 1 October 1977, however, the
Yugoslav Nova Makedonia reported that no questions were being
asked of Bulgarians spending up to 100 dollars? this concession,
the paper pointed out, could be revoked at any time, since the .
rules had not been changed officially.

The number of Corecom shops in Bulgaria today is not known,
but seven years ago Otechestven Front [4] said that they were
"proliferating like mushrooms after the rain," and in recent
months Rabotnichesko Delo [5] reported that new shops were being
opened in the tourist resorts most frequented by foreigners. No
recent information on prices is available. In 1963, one gram of

-------------------------------

(3) Literaturen Front No.42, 1960.

(4) 2 September 1970.

(5) 14 February 1977.

[page 3]

attar of roses cost seven dollars in ordinary Bulgarian shops,
against three dollars in Corecom stores, and other East European
countries' contemporary practice suggests that a differential
of this order still obtains.

Czechoslovakia: The Tuzex organization in Czechoslovakia
was originally a state stock company which was given the status
of a foreign trade enterprise on 1 January 1971. Its basic
capital was 66,000,000 Kcs. [6]

The Tuzex hard-currency shops, of which there were 77 in
October 1976 (24 in Prague, 9 in Brno, 7 in Bratislava, and the
rest in spas and district centers), stock everything from razor
blades to automobiles and houses, the product range being mostly,
but not exclusively, of foreign origin. Prices are much lower
than on the domestic market -- a house of 117 m[2] is available
at 12,750 dollars, and a Chrysler 180 costs only 5,000 -- and
many of Tuzex's wares cannot be found in ordinary Czechoslovak
shops.

Trading is normally conducted through the medium of "Tuzex
Crowns," which are traded on the black market at 4-5 Kcs, or
80-90 cents, and only when consumption becomes conspicuous is a
customer's entitlement to possess them questioned. Relatives and
friends living in the West are invited by agencies operating
there (e.g., Alimex--Handels GmbH in the FRG) to order goods
from a comprehensive catalogue to be sent as presents to
Czechoslovak citizens, or to purchase Tuzex Crowns for use as gift
vouchers.

Hungary: The Hungarian variant of the hard-currency store
is known as Intertourist. There are 86 Intertourist shops in
the principal towns and tourist centers, plus 4 Consumtourist
stores in Budapest [7]; the latter are primarily intended to
serve the diplomatic community, but there is no substantial
difference between the two types.

They sell cigarettes, alcohol, perfumes, Herend china,
souvenirs, and local handicrafts, and some of their activities
bring a whiff of capitalist decadence to Budapest's socialist
air. The Hilton Intertourist shop, for example, is known to
have sold chessboards inlaid with gold and precious stones at
prices of 9,000 and 11,000 dollars, and in 1976 the shops sold 10
freight car loads of salami, a commodity in short supply
domestically. [8] It is known that Japanese and West German businessmen

---------------------

(6) Foreign Ministry Decree 163, 30 December 1970.

(7) Magyarorszag, 17 July 1977.

(8) Ibid.

[page 4]

occasionally buy up a shop's entire inventory because the
prices (in Yen and Deutsche mark terms, that is) are so
attractively low.

Intertourist's customers are mainly foreigners, who can use
the shops after identifying themselves by passport. The only
Hungarians permitted to use the shops are those with authorized
hard-currency accounts, and payment is made by checks drawn on
these accounts. There are about 10,000 persons in this category
who earn Western currency through royalties, fees, etc., and
the surprising point emerges that the money spent in Intertourist
shops must be earned -- not received as a gift. Hence the
insistence on channeling payments through bank accounts. The
Hungarian regime is generally considered the most relaxed in
Eastern Europe, but it has a tradition of severity in the sphere
of foreign exchange control; it is mildly disconcerting to find
Czechoslovakia and Hungary transposing the attitudes one would
have expected them to adopt on this small but significant issue.

Poland: The so-called "internal export sector" in Poland
comprises a number of enterprises responsible for aspects of
this particular market: Agromet deals with agricultural machinery,
Pol-mot with automobiles, and Locum with housing and furniture.
Pewex, which runs the country's hard-currency shops, was formally
constituted on 1 January 1974, when it took over responsibility
from the two banks that had been in charge of the network until
then. At that time there were 212 such stores; today there are
427, of which 84 are located in hotels in the larger towns and
cities. [9]

They sell luxury goods of all kinds to diplomats, tourists,
Poles with foreign earnings, and indeed anyone with dollars to
spend. Polish citizens are not normally interrogated on the
source of their foreign currency, provided they refrain from
ostentatious buying. Orders for goods not in stock are accepted,
but delivery is very slow. Coal and meat are no longer sold in
Pewex shops, following protests in earlier years. Authoritative
estimates of the ratio of imported to domestically produced goods
in the shops' inventory vary from 60:40 to 37:63, which suggests
that the correct figure is about 50:50.

Prices are held down and margins are narrow. Turnover in
1975 was around 180,000,000 dollars, according to First Deputy
Minister of Finance Marian Krzak. [10]

Romania: Little detailed and precise information is
available about Romania's Comturist shops. There are around 200 of

------------------------

(9) Zycie Gospodarcze, 1 May 1977.

(10) Kultura, 21 November 1976.

[page 5]

them, mostly located in big cities and tourist centers, and they
stock luxury imports of all kinds -- alcohol, tobacco, perfume,
ladies' shoes, radios, pocket calculators, etc. There is also
a narrower range of high-quality Romanian products, such as
sheepskins and local handicrafts. The authorities seem chiefly
interested in attracting foreigners, rather than in winnowing
dollars from the clutches of those Romanians who happen to have
them, but anyone who can prove his legitimate title to foreign
currency may spend it with the Comturist organization; such
money may be earned abroad or received as a gift from friends
or relatives in the West.

The range of goods carried and the prices charged are
strikingly similar to those of the West's duty-free airport shops.

Sturdy Indefensibles

The existence of a network of hard-currency shops all over
Eastern Europe is almost as surprising as the latter-day
appearance of London Bridge in the middle of the Arizona desert.
Honest communists and curious capitalists alike must ask
themselves: how can such things be? -- and there are several reasons
why, it would seem, they should not be.

First, there is the palpable ideological objection. The
rewards of socialist labor should, in theory, be proportionate to
the recipient's contribution to the common cause, and should
not be contingent on service in a particular political or economic
sector, exceptional natural endowments in the cultural sphere,
or the possession of friends and relatives in the West. The
hard-currency shops, witnesses to the survival of perquisite and
caprice in an environment in which they should have withered away,
suggest an obvious parody of Marx's favorite quotation: "From
each according to his abilities; to each according to his holdings
of foreign currency." The party ideologists are, of course,
sharply aware of a fundamental incompatibility here, and their
reactions vary from Honecker's cautious comment quoted above to
a Bulgarian journal's castigation of the shops for "selling
cheaply not only luxury goods, but ideological subversion." [11]
The Czechoslovak Nove Slovo [12] was equally indignant: "Tuzex
fosters petit-bourgeois fetishism and worship of goods of Western
provenance."

Secondly, there is the practical argument that in economic
terms the shops are hardly worth the sense of ideological outrage

-------------------------

(11) Otechestven Front, 2 September 1970.

(12) 18 April 1974.

[page 6]

they arouse. In 1975, the over-all deficit incurred by the five
countries with which we are primarily concerned here in their
trade with the West was about 4,730 million dollars, and the
offset coming from the shops is minuscule in such a context. In
the case of Poland, for instance, the shops' total turnover in
1975 was 0.4 per cent of the country's gross trade turnover of
850,000 million zloty [13] -- and, in assessing their true
contribution, one should of course consider only the markup
element in turnover.

Thirdly, the hard-currency shops offer silent witness to
the superiority and greater desirability of Western goods over
a wide product range, while the dollars spent in them (when these
take the form of gifts from abroad) remind the spenders of the
higher material standards enjoyed by many of their relatives in
the nonsocialist world. "Is not Tuzex a way to confuse people,
to convince them that 'West is Best'?" asked the Czechoslovak
Tribuna. [14]

Fourthly, the shops naturally arouse envy among the vast
majority, to whom they are out of bounds. If only 10,000 Hungarians
can use them, then 10,560,000 cannot. Mass resentment has been
especially conspicuous in the GDR of late: a factory team in East
Berlin is reported to have demanded payment of part of its wages in
West German marks, and the FRG press is full of examples of East
German wit, ranging from the wry to the bawdy, on the omnipotence
of the Deutsche mark. [15] It has even been suggested that
"Western diplomats" believe that the hard-currency shops
contributed to the Alexanderplatz riots on October 7, [16] but this
seems to overstate their inflammatory effect: a straw on the
back of the East German camel-in-the-street they may be, but not
the one that broke it.

The Reasons Why

Why then do the regimes accept the continued existence of
these sturdy indefensibles, and indeed allow them to flourish?
The main reason is obviously economic. The hard-currency
shops may only trim the edge of the East European foreign trade
deficit, but when total Eastern indebtedness to the West is
approaching 40,000 million dollars, and there are mutterings that

---------------------------------

(13) Kultura, 21 November 1976.

(14) 13 February 19 74.

(15) See, e.g., Per Spiegel, 17 October 1977.

(16) UPI, 10 October 1977.

[page 7]

certain countries are nearing the limits of their creditworthiness,
no regime is willing to discard any offset, however minor, and
ideology must continue to bark its shins on economic fact. In
an alternative view (adopted by the Poles), the shops'
contribution need not be seen in the negative light of a mitigation of a
vast burden of debt, but as something that enables the authorities
to import more goods for general sale to the populace -- goods
that would otherwise be unavailable. Tadeusz Przyborowski, the
director of Pewex, went so far as to describe the system as "an
evil, but a necessary evil." He went on: "It would be much
better if we could buy for dollars and sell for zloty -- but
where are the dollars to come from?" [17]

Secondly, those entitled to use the shops are members of strata
that the party and government wish, for a variety of reasons, to
appease or reward: the economic elite, those whose work brings
them into contact with the temptations of the West, and those who
have personal or family links with "next door," as the East Germans
call it. They may not be eligible for the perquisites that go
with high party office, and the hard-currency shops give them
the privilege and the status that quieten discontent.

Thirdly, access to the hard-currency shops soon becomes part
of their customers' life style, and immense resentment would be
occasioned by the closure of what has come to be regarded as an
economic right of way.

Fourthly, envy can be allayed in two ways: he that is
exalted can be brought low, or he that is lowly can be raised
up. Certain regimes, notably in Bulgaria [18] and the GDR, are
experimenting with the more positive second alternative. Honecker
spoke in Dresden of "building up" a network of luxury shops that
would offer the have-hots the same goods and services already
enjoyed by the haves. [19] The Spiegel article cited above noted,
however, that the have-nots are likely to pay a steep price for
their "luxuries": 20 American cigarettes cost DM 2.20 in an
Intershop, but 7.0 East marks in the "soft-currency" alternative.

Honecker indicated that the hard-currency shops will not
always blemish the face of socialist society, and in the long
term he may be right. But in the long terra, as John Maynard Keynes
pointed out, we are all dead, and it seems likely that the Inter-

----------------------

(17) Zycie Goapodarcze, 1 May 1977.

(18) See Bulgarian Situation Report/28, Radio Free Europe
Research, 27 October 1977, Item 2.

(19) The delightful German titles of these would-be rivals to
the Intershops are Exquis it-Läden and Delikat-Laden.

[page 8]

shops will outlive their reluctant defender by a longish span,
since the economic problems that brought them into being are
not going to go away. Perhaps the last, if cynical, word
should be left to Polish Deputy Minister of Domestic Trade
and Services Albin Kostrzewski, who said of the shops: "If
you have to live with them, you may as well get to like them."

- end -

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