Albert Norak
FINANCES AND BANKING IN THE ESTONIAN SSR
After the occupation of the Republic of Estonia by the Soviet Army and the establishment of the system of the soviet governmental departments in July, 1940, the building of the economic and finance system of the Estonian SSR began, to be more precise, reorganization of the work according to the demands of the finance and banking system of the USSR.
I In July, 1940 the People’s Commissariat of Finances was established with Paul Keerdo appointed as the head. The People’s Commissariat of the Estonian SSR was subordinated to the Council of Ministries of the ESSR and in the work organization line to the People’s Commissariat of Finances of the USSR. Immediately, from the beginning the work began by the laws and decrees of the Soviet Union and the directives and orders of the People’s Commissariat of Finances of the USSR. The systems of accountancy and taxes accepted in the Soviet Union were established in the whole economy.
The finances of the Estonian SSR comprised the national budget, the national credit system ( banks, savings banks), the systems of social insurance, property- and individual life insurance. The material bases of finances was formed by the financial funds directly assembled in the hands of the state and those at the disposal of the enterprises and organizations. These financial resources were used for financing the building of the new enterprises, sustaining the establishments and organizations of nonproductive sphere, expenses of the dwelling- and communal economy (in addition to the payments of citizens which didn’t cover all expenses), pensions and other expenses of the social insurance, state defence and sustaining of the administrative apparatus. The source of financing the extending of the enterprises was their profit.
Finances in the Soviet Union was controlled by the Ministry of Finances of the USSR together with the corresponding ministries of the soviet republics and the financial departments of the local Soviets of the Executive Committees. From March 15, 1946 the People’s Commissariats were replaced by the ministries in the Soviet Union and soviet republics.
The financial departments of the republican towns and districts subordinated the Ministry of Finances of the ESSR in organizing their work, in total there were 21 departments. The confirming of the leading staff of the financial departments was carried out by the Ministry of Finances in co-ordination with the administration of the local Executive Committees. The work of the ministries and financial departments were under the control of the Government of Control and Audit, to whom the controllers-auditors of the financial departments of the towns and districts were subordinated. The budgetary control was carried through every two years. Besides the Government of Control and Audit the work of the financial departments was controlled by the Governments of Internal Revenue and Payment of the Ministry of Finances. The results of the control were examined at the meeting of the college of the Ministry of Finances with the participation the leaders of the controlled ministries and of the local financial departments.
The Government of State Insurance with the insurance inspectorates of towns and districts was also subordinated to the Ministry of Finances. The Government of State Insurance and the inspectorates were also subordinated to the Central Government of Insurance of the Ministry of Finances of the USSR in the field of the work organizing, also it inspected the activities of the Estonian insurance establishments every two years.
Besides the minister, 2-3 deputies were engaged in directing the special activities of the financial work in the Ministry of Finances. The College of the Ministry of Finances was the collegial leading unit of the financial system of the whole republic which members were confirmed by the Council of Ministers of the ESSR with its decree. In addition to the Minister and his deputies, 2-3 leaders of the governments were the members of the college, together with them the college consisted of 6-7 people. The college discussed the main financial problems: drawing up the national budget before proposing it to the government, problems of accountancy, auditing, insurance etc. The decisions of the college were implemented by the ordinances of the Minister.
In addition to the above mentioned establishments subordinated to the Ministry of Finances of the ESSR there was the Inspectorate of Standard Control subordinated straight subordination of the Ministry of Finances of the USSR. It was in charge of inspecting the production of enterprises, dealing with precious metals and evaluating the share of gold and silver in the products, signing them with the corresponding seal. The biggest enterprise in this field was Tallinn Factory of Jewelry. Also, the Estonian Inspectorate of Standard Control carried out the analyses of the items, confiscated by the customs, issued the certificates and exit permits. The custom organs that operated in Estonia were directly subordinated to the Central Government of Customs of the USSR. All protections costs were submitted to the soviet state budget in full.
II In the Soviet Union, banks were the credit institutions of the state. The state monopoly was characteristic to the banking system: the state emission of the circulating media, centralized crediting, the replacement of the commercial credit with the straight bank accommodation. Predominately, the short-term credit transactions were centered into the unitary credit and clearing office – the State Bank of the Soviet Union.
The central banking institution of the Estonian SSR was the Office of the ESSR of the State Bank of the Soviet Union, with the straight subordination to the State Bank of the Soviet Union. The tasks of the Office of the State Bank were the following:
In this, the operations of the Republican Office of the State Bank differed from those of the present day. Frequently the State Bank of the Soviet Union tried to dictate how to use the budgetary allocations with central directives. The cultural, educational and health care allocations were restricted with a special brutality. Only with the careful maneuvering of the budgetary resources by the local government, it was possible to guarantee the normal work of the institutions in these fields.
Alongside the State Bank system of the Soviet Union the private banks operating different branches of economy existed, the centers of which situated in Moscow and the branch network covered the capitals of the Soviet republics, operating the enterprises and institutions of the republics. In the Estonian SSR there operated the Estonian Republican Office of the Construction Bank of the USSR, the Central Government of the Estonian Republic of the Savings Bank of the Soviet Union, the Tallinn Department of the Foreign Trade Bank of the Soviet Union, later on the Office of the ESSR of the Social Bank of the USSR. The main operations of these special banks included the financing of the capital expenditures and long-term crediting. The business of the banks was determinated by the macroeconomic plans. All banks were on a self-sustained budget.
The departments of the Estonian Office of the State Bank of the Soviet Union worked in the republican cities and districts. In banking the task of the Ministry of Finances of the republic were compilation of the quarterly and annual plans of the money turnover and the presentation of the fulfillment reports to the government of the republic. The application of the cash needed for the republican money turnover was carried out by the local government through the relevant pursuit to the Government of the Soviet Union and the State Bank of the Soviet Union.
III The work of the financial system.
The main work of the Ministry of Finances was the compilation of the state budget and organizing of the fulfillment of the approved budget. The Ministry of Finances and the Minister were responsible for the fulfillment of the budget. The Council of Ministers of the ESSR introduced the bill of the state budget to the Supreme Soviet of the ESSR, the commission of the budget plan of which analyzed the project and the approval took place after 1 or 2 sessions of the Supreme Soviet ( half formally). During the year the government had extensive rights to change and increase the budget. The supplementary budgets were not drawn up at that time.
The bases of the compiling of the state budget were the securing of the tasks springing from the project of development plan of the national economy of the republic, and on the other hand, the applications of the Ministries and Executive Committees. The drawing up of the estimates was carried out in cooperation of the Ministries and Executive Committees. After looking through the estimates in the government of the republic it was submitted for consideration to the Ministry of Finances of the USSR, where it was diligently discussed by the financial officials of the Ministry of Finances and other Ministries in profits and expenditures. Before discussing the estimates the annual plan of the development of the macroeconomy had already been compiled in the republic and approved by the Planning Committee of the USSR, and the items of capital construction and procuration noted in the plan were viewed especially carefully.
The looking through of the estimates took about a month (July-August) in the Ministry of Finances of the USSR, the final phase of which included the discussion of protests of the republic at the Ministry of Finances of the USSR with the participation of the chairman of the Council of Ministries of the ESSR. Naturally a part of necessary budgetary sums were cut off and therefore the Government of the Republic turned the Council of Ministries of the USSR to gain the indispensable sums to the state budget.
This abnormal situation of not being able to draw up a balanced state budget on the bases of the incoming of the local profits of the republic was initiated by the system of distribution of the profits between the republican and soviet budget. The biggest kind of income – sales tax flew into the soviet budget, which regardless of incoming locally was transferred to the soviet budget. When approving the soviet budget, the Supreme Soviet confirmed the share of the sales taxes – provision of the percentage which was transferred to the republic for the oncoming year. The share for the Estonian SSR formed up to a half of the sum of the sales taxes gained from the republic. In a number of other republics even directing the total sales taxes into their republic couldn’t balance their budgets. To these republics the dotation from the soviet budget was granted by the Supreme Soviet of the USSR for balancing the local budget ( nonrepayably loan).
In reality, at that time, the sales taxes were a part of the net benefits of the enterprise, which came in the state budget through the commodity price. The taxes and the balanced budget incidence were assessed by the Council of Ministries of the USSR or on its behalf the Ministry of Finances of the USSR.
The peculiarity of the banking system was, that all bank transfers of the economic organizations were carried out only by the system of the institutions of the State Bank of the Soviet Union. The private bank operations of the citizens (depositing, transfers etc.) were mainly carried out by the institutions of the Savings Bank. Frequently, due to the huge banking operations throughout the vast Soviet territory, transfer and payment documents got lost which lead to considerable wasting of time spent on banking operation.
The settlements of import and export operations of the Estonian enterprises were carried out in the Tallinn Department of the Foreign Trade Bank of the Soviet Union. These dealings did not add anything to the budget of the republic. All incoming payments were transferred by the Foreign Trade Bank into the soviet budget. The misconducts and problems regarding the financial and economic operations of enterprises of the soviet subordination were often subjected to the control of the Ministry of Finances of the ESSR by the Ministry of Finances of the Soviet Union.
Thanks to the small territory of Estonia and a comparatively better labour discipline in the local economic organizations, the financial and banking institutions fulfilled their obligations comparatively properly.