OSA / Guide / RIP / 1956 / RFE/RL Background Reports : Subjects | Browse | Search
The text below might contain errors as it was reproduced by OCR software from the digitized originals,
also available as Scanned original in PDF.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 --- Begin --- 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 -
OSA / Guide / RIP / 1956 / RFE/RL Background Reports : Subjects | Browse | Search
© 1995-2006 Open Society Archives at Central European University |