COMMUNIST AID ACTIVITIES IN NON-COMMUNIST LESS DEVELOPED COUNTRIES 1978

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000100150002-9
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 49
• Document Creation Date: December 21, 2016
• Document Release Date: September 15, 2008
• Sequence Number: 2
• Publication Date: September 1, 1979
• Content Type: REPORT

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?Fkp National
Communist Aid Activities
in Non-Communist
Less Developed Countries
1978
ER 79-10412U
September 1979
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National
Foreign
Assessment
Center
Communist Aid Activities
in Non-Communist
Less Developed Countries
1978
Information available as of 15 March 1979 has been used
in the preparation of this report.
Comments and queries on this unclassified report
are welcome and may be directed to:
Director for Public Affairs
Central Intelligence Agency
Washington D.C., 20505
[phone]
For information on obtaining additional copies,
see the inside of front cover.
ER 79-10412U
September 1979
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Figure 1: Communist Countries: Economic
and Military Agreements With LDCs
I I I I I I I I 1 1
1954- 70 71 72 73 74 75 76 77 78
69
Annual
Average
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Communist Aid Activities
in Non-Communist
Less Developed Countries
1978
Communist economic and military aid 'to the Third World in 1977-78 was
marked by some of the widest fluctuations in the quarter century history of
the program. Military pledges, which had risen to an all-time peak of $5.7
billion in 1977, plummeted to $2.3 billion in 1978, while the $5.4 billion in
economic aid pledges in 1978 broke all previous records (see figure 1).
Meanwhile, both military and economic deliveries to the Third World
continued at a strong pace in 1978 because of previous commitments. The
USSR continued to dominate practically all aspects of the Communist aid
program-for example, the selection of recipients and provision of
resources.
Annual pledges of the Communist countries have swung up and down
around the rising trend line because of (a) rapidly changing political
conditions in recipient countries, which affect the attitudes of both donor
and client, (b) the long periods required for implementing economic aid and
for absorbing military equipment into the inventories of less developed
countries (LDCs), and (c) economic or political constraints within the
Communist countries themselves, which affect the scale and distribution of
aid commitments and deliveries.
Soviet military deliveries hit a record $3.8 billion in 1978, as Moscow
worked off massive orders placed earlier. The deliveries, which continued to
cover Moscow's large annual trade deficits with LDCs, represented roughly
10 percent of Moscow's hard currency earnings.
The number of Communist military-related personnel in the LDCs rose by
60 percent in 1978, to 52,000, largely because of a 16,000 increase in
Cubans in Sub-Saharan Africa.
In contrast to the military program,.two record-size credits-$2 billion to
Morocco and $1.2 billion to Turkey-pushed the Soviet economic commit-
ment up to an unprecedented $3.7 billion in 1978.
' The term military aid as used throughout this paper includes commercial sales of military
equipment and services as well as sales on concessionary terms.
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Bread-and-butter considerations continued to loom large in both Soviet and
East European economic aid programs in 1978. The most dramatic example
was the Soviet credits for the development of phosphate mining in Morocco
in return for which the USSR is to receive about 10 million tons of
phosphates a year for 30 years. Another long-term Soviet commitment of
$1.2 billion to Turkey will provide assistance for expansion of steel and
aluminum plants and for erection of power plants and a new refinery. Both
of these sizable credits were extended under "framework" accords, which
have characterized much of the Soviet aid to LDCs of the past few years.
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The Military Aid Program: Sales Off, Deliveries Up
1
Patterns in 1978
2
Commercial Returns From Program
3
Military Technical Services at New Height
3
The Economic Aid Program: In High Gear
6
Eastern Europe: Search for Commercial Gains
12
Aid Program: Yield to the Soviets
12
Technical Services: Largely a Cash-Flow Program
13
Technical Training: A Growing Effort
13
Country Sections
19
Europe
31
1.
Communist Military Agreements With LDCs: Agreements
Concluded and Equipment Delivered
2
3.
Communist Military Technicians in LDCs, 1978
4.
Military Personnel From LDCs Trained in Communist Countries,
5
1955-78
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6.
Communist Economic Credits and Grants to LDCs: Extensions
and Drawings
11
8.
Academic Students From LDCs Being Trained in Communist
Countries as of December 1978
17
I .
Communist Countries: Economic and Military Agreements
With LDCs
ii
2.
Communist Military Agreements With and Deliveries to LDCs
1
3.
Communist Economic Agreements With and Deliveries
to LDCs
6
4.
USSR: Aid to LDC Metals and Minerals Industries
as a Share of Total Aid
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The term Communist countries refers to the USSR,
the People's Republic of China, and the following
countries of Eastern Europe: Bulgaria, Czechoslova-
kia, East Germany, Hungary, Poland, and Romania.
Included in this edition also are data on Cuban, North
Korean, and Yugoslav aid to and personnel present in
LDCs.
The term less developed countries of the non-Commu-
nist world includes the following: (1) all countries of
Africa except the Republic of South Africa; (2) all
countries of East Asia except Hong Kong and Japan;
(3) Malta, Portugal, and Spain in Europe; (4) all
countries in Latin America except Cuba; and (5) all
countries in the Middle East and South Asia, except
Israel. Kampuchea, Laos, and Vietnam, which became
Communist countries in 1975, are reported on for prior
years for historical reasons.
The term extension refers to a commitment to provide
goods and services either on deferred payment term or
as grants. Assistance is considered to have been
extended when accords are initialed and constitute a
formal declaration of intent. The term drawings refers
to the delivery of goods or the use of services.
The term NEGL refers to a value of less than $500,000;
NA indicates an agreement was signed, but the value
was not known. Three dots (...) indicate that either no
agreement is known to have been signed or no
personnel are believed to be present.
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Communist Aid Activities
in Non-Communist
Less Developed Countries
1978
The Military Aid Program:
Sales Off, Deliveries Up
Soviet military agreements fell to $1.8 billion in 1978
from a record $5.2 billion in 1977 and an average of
about $3 billion a year in 1973-76 (see table 1). At the
same time, deliveries rose to $3.8 billion from $3.5
billion in 1977 and scored again as Moscow's most
important export to the Third World.
Because of the slide in new Soviet agreements and
near-record Chinese ($90 million) and East European
($465 million) sales, the USSR failed to maintain its
usual 90-percent share of Communist arms aid to
LDCs. Sales by East European countries, however,
continued to complement Moscow's programs.
Costing Communist Arms
The values used throughout this paper for Communist
arms sales and deliveries are expressed in Soviet export
prices-ruble prices (translated into dollars at the
prevailing exchange rate) that we estimate Communist
countries charge LDCs. These prices are used because
they are appropriate for (a) comparing Communist
military sales to LDCs from year to year, (b) looking at
arms exports as a share of total Communist exports,
and (c) estimating the size of LDC debt to Communist
countries and its effect on LDC balance of payments.
Values used in computing these export prices are
derived from price lists for Soviet equipment (con-
structed from a variety of sources), which are contin-
ually updated and adjusted for changes in the dollar
value of the ruble used in foreign trade transactions.
While Communist export prices are appropriate for
purposes of estimating sales and deliveries to LDCs in
this paper, they are not a good measure for comparing
Communist-LDC arms transactions with those of the
United States or of other Western exporters because
they often differ greatly from Western prices for
similar equipment. For such comparisons, we use the
estimated cost to LDCs if they purchased comparable
equipment in the United States. This system of costing
raises the dollar values of Communist sales and
deliveries (based on export prices) by about one-fourth
as shown below for the USSR.
USSR: Arms Sales and Deliveries to LDCs
in Soviet Export Prices and US Costs of Production
Soviet Export
Prices
US Cost
of Production
1974
4,225
4,695
1975
2,035
2,670
1976
3,375
4,230
1977
5,215
6,165
1978
1,765
2,300
Soviet Export
Prices
US Cost
of Production
2,310
2,565
1,845
2,420
2,575
3,230
3,515
4,155
3,825
4,980
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Communist Military Agreements With LDCs:
Agreements Concluded and Equipment Delivered'
Total
1955-68
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
Total
USSR
Eastern
Europe
China
33,825
29,655
3,255
910
6,555
5,495
810
250
485
360
125
NECK
1,265
1,150
50
65
1,790
1,590
120
80
1,865
.1,635
150
80
2,965
2,810
130
25
4,840
4,225
530
85
2,290
2,035
215
40
3,730
3,375
215
145
5,710
5,215
450
50
2,320
1,765
465
90
Figure 2: Communist Military Agreements
With and Deliveries to LDCs
China
Eastern
Europe
Total
USSR
Eastern
Europe
China
28,675
25,310
2,605
755
5,505
4,585
745
175
555
450
80
25
1,105
995
80
30
1,045
865
120
60
1,360
1,215
70
75
3,330
3,130
120
80
2,500
2,310
165
25
2,190
1,845
255
85
2,970
2,575
315
80
3,910
3,515
325
70
4,205
3,825
325
55
Patterns in 1978
We do not usually attribute much significance to
annual fluctuations in Soviet arms sales. Declines often
occur after heavy sales years because LDCs are
drawing down earlier contracts and need time to
absorb modern weapons into their inventories before
placing new orders. However, the recent sales declines
also may signal a movement of some major customers
into alternative arms markets which could affect
future Soviet sales levels.
In contrast, deliveries in 1978 continued at peak rates,
as shown in table 2.
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Total
1956-73
1956-78
North Africa
4,965
490
Sub-Saharan Africa
3,900
330
East Asia
890
890
Latin America
650
150
NEGL
55
335
110
Middle East
14,960
8,860
2,020
640
2,105
1,235
100
South Asia
4,290
2,320
15
660
135
655
505
North Africa
3,875
435
Sub-Saharan Africa
2,750
275
East Asia
880
880
Latin America
630
10
25
60
80
380
75
Middle East
13,800
7,760
1,780
975
1,065
1,125
1,095
South Asia
3,375
1,880
265
175
295
500
260
Commercial Returns From Program
Although recent Soviet initiatives clearly reaffirm
Moscow's decision to employ military sales as a means
of maintaining a presence in the Middle East and
Indian Ocean area, Moscow clearly recognizes the
economic benefits involved in arms transactions; for
example, it continues to cultivate affluent Arab states
and demand hard currency for arms. These exports
now cover large annual deficits in Soviet nonmilitary
trade with LDCs and significantly supplement
Moscow's hard currency earnings. Almost all the
arms-for-commodities trade of earlier years has given
way to payments in hard currency.
Military Technical Services at New Height
The number of Communist military personnel in
LDCs in 1978 rose by more than 50 percent for the
second consecutive year. Almost three quarters of the
52,000 instructors, advisers, technicians, and troops
were Cubans working in Sub-Saharan Africa, many
engaged in actual combat (see table 3). The influx of
over 15,500 Cubans into Ethiopia early in 1978 to
counter Somali forces in the Ogaden accounted for
most of the increase in the Communist military
presence during the year.
The heavy flow of advanced Soviet weapons into LDC
inventories has increased the burden on the USSR for
training local personnel in the maintenance and use of
the equipment. Approximately 1,900 LDC nationals
were in the USSR at yearend 1978 for specialized
training (see table 4). At the same time, almost 10,800
Soviets and 1,300 East Europeans (20 percent above
the number in 1977) were in LDCs. In contrast with
recent years, when the largest contingents of Soviet-
East European personnel were in Black Africa, most of
the increase in 1978 was in North Africa and the
Middle East.
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Communist Military Technicians in LDCs, 1978'
USSR
and
Eastern
Europe
China
Cuba'
North Africa
2,975
2,760
215
Algeria
1,015
1,000
15
Libya
1,950
1,750
200
Morocco
10
10
...
...
Sub-Saharan Africa
41,680
3,815
37,275
Angola
20,300
1,300
19,000
Equatorial Guinea
290
40
150
Ethiopia
17,900
1,400
16,500
Guinea
330
100
200
Guinea-Bissau
205
65
140
Mali
195
180
15
Mozambique
1,130
230
100
800
Other
1,330
500
345
485
160
10
Middle East
5,645
4,495
1,150
Iraq
1,350
1,200
150
North Yemen
155
155
...
...
1,550
550
1,000
Syria
2,580
2,580
Other
10
10
South Asia
940
850
Afghanistan
700
700
Bangladesh
50
India
150
150
'Minimum estimates of the number of persons present for a period of
one month or more. Numbers are rounded to the nearest five.
' Includes troops.
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Military Personnel From LDCs
Trained in Communist Countries, 1955-78
Total USSR Eastern
Europe
North Africa
3,735
3,385
335
15
Algeria
2,260
2,045
200
15
Libya
1,330
1,265
65
...
Congo
855
355
85
415
Equatorial Guinea
200
200
Ethiopia
1,640
1,190
450
Ghana
180
180
...
...
Somalia
2,585
2,395
160
30
Sudan
550
330
20
200
Tanzania
2,855
1,820
10
1,025
Togo
55
...
...
55
9,300
7,590
1,710
9,270
7,560
1,710
30
30
...
Middle East
18,115
15,630
2,485
Egypt
6,250
5,665
585
Iran
315
315
...
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Military Personnel From LDCs
Trained in Communist Countries, 1955-78' (continued)
Total
USSR
Eastern
Europe
China
South Asia
7,225
6,425
370
430
Afghanistan
4,010
3,725
285
Bangladesh
485
445
40
India
2,285
2,200
85
Pakistan
430
45
NA
385
Sri Lanka
15
10
...
5
' Data refer to the estimated number of persons departing for
training. Numbers are rounded to the nearest five.
The Economic Aid Program: In High Gear
Communist countries pledged nearly $5.4 billion in
economic aid to the Third World in 1978, bringing the
total Communist commitment since 1954 to $31
billion. Commitments were at a peak for both the
Soviet and East European programs while China's
pledges of $185 million to 16 LDCs showed no change
from 1977 level (see table 5).
Moscow's unprecedented $3.7 billion commitment in
1978 brought its annual program close to US annual
aid levels ($4-5 billion) for the first time. Unlike US
aid, which provides large amounts of food assistance
and funding of infrastructure development, Soviet aid
continued to be almost entirely tied to large industrial
projects in the public sector. Moscow continued to
ignore calls to adopt a newer, more complex approach
to development. This approach-being pushed by
certain members of the international aid community-
favors assistance to rural development for the satisfac-
tion of basic human needs. The USSR continued to
sidestep LDC demands for more concessional as-
sistance and there were few signs of any overall
softening in Communist aid terms.
Figure 3: Communist Economic Agreements
With and Deliveries to LDCs
Eastern
Europe
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Communist Economic Credits and Grants to LDCs:
Extensions and Drawings'
Total
1954-68
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
Total
USSR
Eastern
Europe
China
30,930
17,088
9,086
4,756
9,491
6,081
2,385
1,025
895
476
403
16
1,177
200
196
781
2,172
1,126
484
563
2,176
654
915
607
1,920
714
605
600
2,011
816
914
282
2,811
1,934
511
366
1,902
979
773
150
982
402
397
182
5,394
3,707
1,502
185
USSR: Record Year for Aid
The $3.7 billion in Soviet economic aid pledged in
1978 exceeded the 1975 record by 90 percent and
brought the 24-year Soviet aid total up to $17 billion
(see table 6).
Large credits to two Western oriented countries-
Morocco and Turkey (which accounted for 90 percent
of Soviet economic aid extended in 1978)-dominated
the sharp recovery in Soviet assistance from the
10-year 1977 low. Both the Moroccan and the Turkish
credits were under "framework" accords: the accord
with Morocco was signed in 1978, while the pledge to
Turkey was a massive expansion of the aid available
under the terms of a 1975 accord. More and more in
the past several years, the USSR has signed these
open-ended agreements which tend to spread aid
allocations out over long periods.
Total
USSR
Eastern
Europe
China
13,440
7,595
3,305
2,540
4,185
2,870
800
515
535
355
105
70
605
390
145
70
795
420
190
190
860
430
170
260
960
500
220
240
1,185
705
230
255
930
500
245
180
1,145
460
370
315
1,225
540
460
225
1,010
430
365
215
The $1:2 billion commitment to Turkey for expanding
Soviet-built steel and aluminum plants and for build-
ing power plants and a new refinery more than doubled
the size of Moscow's earlier commitment. The $2
billion credit to Morocco-the largest ever extended
by the Soviet Union to an LDC-will provide assis-
tance for exploiting phosphates and building auxiliary
facilities for its shipment abroad. In addition to the
credits to Turkey and Morocco, the USSR extended
$500 million of assistance to 13 other LDCs in 1978,
including: (a)$225 million to Pakistan for continuing
work on the Karachi steel mill; and (b) $40 million and
$90 million to North and South Yemen, respectively,
for cement plants. The Soviets continued to neglect
African economic development, giving only minor
amounts of aid to seven countries; and East Asia
received nothing.
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Eastern Europe: Searchfor Commercial Gains
As in the past, the search for new markets and stable
raw materials supplies were important objectives in the
East European economic aid program. The most
important beneficiaries included:
? Syria, which received $150 million from East
Germany, mostly for cement, textile, and power plants.
? Brazil, which received $200 million of credits under a
new trade agreement in the hope of correcting the
growing imbalance in the East German-Brazilian
trade account.
? Burma, with $140 million in new Czech credit.
? Angola, which received $75 million from Romania.
? Turkey and the Philippines, with lines of credit for
$50 million and $30 million from East Germany.
Aid Program: Yield to the Soviets
Moscow's continuing interest in relating its aid pro-
gram to the requirements of the Soviet economy was
illustrated in 1978 by (a) the use of nonbinding open-
ended agreements, which allow Soviet planners more
latitude in scheduling the aid drain on their resources;
(b) the tasking of Soviet-LDC joint economic commit-
tees to synchronize LDC production plans with
Moscow's; and (c) the granting of assistance in areas
that fills gaps in the USSR's domestic output.
The widely publicized phosphates deal with Morocco is
the latest in a series of Soviet initiatives to assure long-
term supplies of certain critical materials for the
domestic economy and for its East European allies.
The Council for Mutual Economic Assistance
(CEMA), which has attempted since the late 1960s to
assure its members a steady flow of important raw
materials, has advocated (a) long-term trade agree-
ments with Third World producers and (b) cooperation
with LDCs in establishing mining and processing
facilities as the most practical way to satisfy those
long-term requirements. Recent CEMA studies paint
a gloomy picture of deficits for certain basic raw
materials in the next 10-20 years, citing shortages of
(a) 60-80 million tons of crude oil annually (1.2 million
to 1.6 million b/d); (b) 10-20 million tons of iron ore
Figure 4: USSR: Aid to LDC Metals
and Minerals Industries
as a Share of Total Aid
Petroleum (1,000)
Aluminum and Other
Light Metals ( 900 )
annually; (c) 1.8 million cubic feet of natural gas daily;
and (d) huge quantities of nonferrous metals, other
minerals, and tropical foods.
The search for stable sources of raw materials was
evident in Moscow's earliest accords with South Asian
and African countries where the USSR offered to
conduct widespread geological surveys, particularly for
oil. Since then Soviet geologists have studied metal and
mineral reserves in 30 countries throughout the Third
World and have explored for oil in 15 countries.
In the past decade, we have noted a more intense Soviet
drive to develop new sources of bauxite and alumina
for Moscow's aluminum industry. Because its own
bauxite became more difficult and costly to find and
exploit, the USSR doubled its imports of bauxite and
alumina in 1977 over 1970 and now depends on foreign
alumina supplies for nearly half its requirements. To
ensure future supplies, Moscow has provided as-
sistance to bauxite mining in Guinea, receiving in
return 2.5 million tons of ore annually for 30 years.
Moscow also has plans to construct alumina capacity
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in India, which would assure Moscow imports of up to
500,000-600,000 tons of alumina a year in the 1980s.
The Soviets also have offered to build alumina plants
in Greece, Guyana, and Indonesia.
Moscow's fisheries program in LDCs has been success-
ful in expanding the scope of the Soviets' own fishing
operations. In return for $260 million of assistance to
40-odd Third World fishing industries, the USSR has
gained the use of onshore facilities and fishing rights,
which will help maintain the position of its fleet as the
largest and most modern on the high seas. In 1976, for
example, the USSR's catch from West African waters
(1.3 million tons) alone was more than the combined
catch of all West African countries. In that year the
USSR exported about 470,000 tons of fish valued at
$130 million.
In general, Soviet offers to invest in increasingly costly
LDC public sector development plans have met with a
warm reception from Third World countries, eager to
get on with the development process. In return, LDCs
have been willing to commit resources to the Soviets
over long periods in order to get development schemes
moving.
Technical Services: Largely a Cash-Flow Program
The Communist technical services program-a lucra-
tive outgrowth of the aid program-continued its steep
upward climb in 1978, as Communist countries
supplied the services of nearly 108,000 technicians to
LDCs, about 20,000 more than in 1977 (see table 7).
These services were provided both as aid and under
commercial contract to 77 countries. The largest
increase was in East European personnel (9,000)
which in the past four years have set the pace for
Communist technical assistance; the Cuban presence
doubled in size to more than 12,500; and the USSR
sent 5,000 additional technicians. China, which wound
up major road construction projects in Rwanda and
Sudan, saw its personnel in Sub-Saharan Africa dip
below 20,000 for the first time in seven years. This
caused most of the 10-percent decrease in the overall
Chinese program.
The concentration of Soviet and East European
personnel in oil rich states became even more pro-
nounced than before, with 32,500 East Europeans and
more than 14,000 Soviets being posted to Algeria,
Libya, Iran, Iraq, and Kuwait. Nearly half the East
Europeans abroad (22,000) were in Libya, with .
Algeria and Syria the next ranking recipients of these
services. In some cases the services are financed under
aid agreements; in others-especially for nonproject
services-they are paid for in hard currency. High and
rising salaries have helped make technical services
increasingly profitable in the past three years.
Middle Eastern countries continued to employ the
largest number of Soviet technicians (11,885) account-
ing for almost 45 percent of those assigned to LDCs.
The Soviet contingent in Africa was only slightly
smaller; 70 percent of those assigned to Africa
performed professional services rather than project
tasks, compared with only about 10-15 percent in the
Middle East. On the other hand, Soviet clients in the
Middle East and South Asia accepted three-fourths of
the 18,200 Soviet personnel posted to development
projects, as well as 225 doctors, 750 teachers, and
1,200 geologists. All of the 350 Soviet personnel in
Latin America were assigned to development sites.
Cuba continued to support Soviet initiatives in the
Third World and expanded its technical efforts into
hard currency markets, while maintaining an ex-
panded presence in southern Africa during 1978. For
example, Algeria, Iraq, and Libya accepted their first
Cuban doctors during the year, nearly 900 of them.
The services provided to new areas, together with a
near doubling of personnel stationed in Sub-Saharan
Africa, brought the Cuban economic presence to about
12,500.
Large new Cuban contingents went to Angola and
Mozambique, as Angola gradually shifted from mili-
tary to civilian forces and as civilian construction work
expanded in Mozambique under agreements signed
during the year. These contingents are continuing to
grow in 1979 and together should total more than
10,000 persons by yearend. This growth continues
despite complaints by both countries about the quality
and sometimes the integrity of the Cuban cadre.
Technical Training: A Growing Effort
As part of the technical services program, the Commu-
nist countries have mounted major efforts to train local
personnel to take over the management of development
projects. Moscow has gradually cut back on the
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Communist Economic Technicians
in LDCs, 1978'
USSR
and
Eastern
Europe
China
Cuba
North Africa
37,330
36,165
715
450
Algeria
11,750
11,400
300
50
Libya
22,605
22,200
5
400
Mauritania
360
60
300
Other
2,615
2,505
110
Sub-Saharan Africa
37,225
7,640
18,615
10,970
Angola
9,910
1,400
10
8,500
Ethiopia
1,400
650
250
500
Gabon
75
10
65
Gambia
75
...
75
...
Ghana
175
95
80
Guinea
1,035
700
300
35
Guinea-Bissau
405
265
55
85
Kenya
30
25
5
Liberia
210
10
200
Madagascar
200
200
Mali
1,025
475
550
Mauritius
15
...
15
Sao Tome and Principe
260
20
100
Senegal
500
100
400
Sierra Leone
310
10
300
Somalia
3,050
50
3,000
Sudan
775
125
650
Tanzania
1,365
165
1,000
200
Zambia
5,645
125
5,500
20
Other
7,525
1,020
5,415
1,090
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Communist Economic Technicians
in LDCs, 1978 '(Continued)
East Asia
220
85
135
Burma
135
10
125
Indonesia
20
20
...
Jamaica
125
15
10
100
Peru
205
185
10
10
Other
595
375
140
80
Middle East
25,880
23,890
1,075
Egypt
1,025
1,000
25
Iran
5,100
5,100
...
Iraq
7,115
6,450
250
North Yemen
455
155
300
South Yemen
2,025
1,075
450
Syria
5,950
5,925
25
Turkey
1,500
1,500
Other
2,710
2,685
25
South Asia
5,325
4,145
1,180
Afghanistan
2,200
2,075
125
Bangladesh
255
105
150
India
1,200
1,200
Nepal
285
5
280
Pakistan
935
635
300
Sri Lanka
450
125
325
' Minimum estimates of number present for a period of one month or
more. Numbers are rounded to nearest five.
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number of personnel sent to study in Soviet establish-
ments as in-country training programs have become
more efficient and less costly. Only about 3,300
technical trainees-almost all from major Communist
partners in Arab countries and South Asia-went to
Communist countries in 1978, bringing the total
trained since the beginning of the program to over
48,000. Meanwhile, the USSR has provided on-the-job
training to 550,000 nationals, 60,000 in Afghanistan
alone.
Cuba also continued its large training program by
accepting about 1,500 Ethiopian and 1,200
Mozambican school-age children at a new facility on
the Isle of Pines that eventually will have a capacity of
20,000 students.
Academic Students: A Low-Cost Investment
Moscow probably has spent close to a billion dollars on
Third World student training in the USSR over the
past two decades and is spending $3,000-5,000 annu-
ally to support and train each LDC student.
In 1978 the number of LDC nationals in Soviet and
East European academic schools rose to more than
45,000 (see table 8). The 26,500 Third World students
took up nearly half the places allocated to foreign
students, and will increase by one-third under Soviet
plans to increase LDC enrollments by 1980. African
students, which always have comprised the majority in
both Soviet and East European recruitments, rose to a
record 23,500, about half the LDC student body in
Communist institutions.
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Academic Students From LDCs Being Trained
in Communist Countries as of December 1978'
Total
USSR
Eastern
Europe
North Africa
3,575
2,035
1,520
Algeria
1,925
1,000
925
Mauritania
265
205
50
Sub-Saharan Africa
19,975
11,600
8,235
Angola
815
165
650
Benin
255
235
20
Burundi
250
100
150
Cameroon
155
130
25
Cape Verde
315
300
15
Central African Empire
515
260
250
5
Chad
420
350
60
10
Comoro
20
20
...
...
Congo
1,255
750
505
Ethiopia
2,195
1,530
665
Equatorial Guinea
250
250
Ghana
590
315
275
Guinea
1,175
775
385
15
Ivory Coast
800
200
600
Kenya
645
500
145
Madagascar
765
605
160
Mali
490
300
190
Mauritius
145
110
35
Mozambique
360
225
135
Nigeria
1,950
950
1,000
Rwanda
260
225
35
Senegal
285
200
60
25
Sierra Leone
435
380
45
10
Somalia
95
50
45
...
Sudan
1,620
600
1,000
20
Tanzania
815
450
340
25
Togo
310
250
40
20
Uganda
170
140
30
...
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Academic Students From LDCs Being Trained
in Communist Countries as of December 1978' (Continued)
Total
USSR
Eastern
Europe
Sub-Saharan Africa (Continued)
Upper Volta
350
350
Latin America
4,650
2,760
1,890
Bolivia
170
110
60
Brazil
70
35
35
Colombia
1,020
490 _
530
Costa Rica
550
350
200
Ecuador
825
315
510
El Salvador
135
30
105
Guatemala
25
25
...
Peru
595
575
20
Venezuela
105
50
55
Other
950
650
300
Middle East
12,155
6,615
5,525
Egypt
340
125
215
Iraq
490
250
235
Lebanon
495
450
45
North Yemen
670
575
95
South Yemen
680
510
170
Syria
3,830
2,135
1,695
Other
5,650
2,570
3,070
South Asia
4,855
3,400
1,375 80
Afghanistan
1,505
710
795
Bangladesh
1,115
800
300 15
India
1,130
1,000
130
Nepal
550
525
25
Pakistan
210
125
80 5
Sri Lanka
345
240
70 35
' Numbers are rounded to nearest five. Most of the estimates are
based on scholarship awards.
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Appendix
Country Sections
General
Communist arms transfers and new economic aid
agreements with North Africa hit record highs in
1978, giving the region top rank for the first time
among Communist military and economic aid clients.
The record included (a) Moscow's largest single deal
with an LDC (Morocco) and (b) new highs for
technical assistance-both economic and military.
Despite the sharp fall in the value of new agreements in
1978, arms deliveries to North Africa soared, and the
number of Communist technical advisers nearly dou-
bled. The largest increases were in Libya, which is the
fourth largest current Communist arms client and
which shares second place with Ethiopia in the Soviet
technical presence. Moscow's interest in expanding
commercial relations with North Africa was high-
lighted by the $2 billion phosphate credit to Morocco.
Algeria
The new Algerian leadership, which took over from the
late President Boumediene, confirmed previous radical
positions on North African and Middle Eastern
affairs. Record arms deliveries demonstrate Moscow's
tacit agreement with Algeria in its dispute with
Morocco and Mauritania over Western Sahara.
Algeria's growing respect for Western technology and
education and its acceptance of Western development
loans has eroded some of Moscow's influence in
economic affairs. The USSR nonetheless still pursues
an active program. It began studies on the aluminum
complex which it will build under $290 million of
credits provided in 1977 and began negotiations for
constructing a mining and metallurgical complex and
possibly a second steel mill-even though Moscow is
not interested in building additional steel plants at the
moment. The USSR also agreed to construct 22,500
houses in Algiers, Oran, and Skikda and to provide a
prefabricated housing plant in 1981. We have noted no
action on plans for a heavy electrical machinery
complex, a dam and irrigation works, and oil refineries
discussed under a January 1976 framework
agreement.
Meanwhile, work continued on installing a second
blast furnace at the Annaba steel plant, where nearly
45 percent of Moscow's $715 million aid program in
Algeria has gone. Eastern Europe's $525 million in
development assistance has been almost as important
as the USSR's and in many cases Algeria is said to
prefer East European technology over Soviet technol-
ogy. East European countries also are getting into
housing construction, where Algeria has mounted a
crash program. Hungary, for example, agreed to
design dwellings for a public construction firm that
will build 500 houses in Annaba, while Poland and
Algeria set up a consortium to build thousands of
houses under the Algerian Government program to
construct 100,000 houses annually. Warsaw will
supply construction materials, equipment, and engi-
neering services. Other major Polish projects under
consideration include a sulfuric acid plant and a
500,000-ton cement plant. Polish firms reportedly
have the inside track on a contract for the $750 million
Mers el-Kebir shipyard, for which Poland already has
completed a pilot shipyard which entered production
two years ago. Czechoslovakia and East Germany
continued work on steel fabricating plants at Medea,
while Bulgaria concentrated on dam and irrigation
projects.
The number of Communist economic personnel in
Algeria climbed to 11,750, led by the 6,000-man
Soviet contingent-Moscow's largest in a Third World
country. Nearly 5,500 East Europeans worked in
Algeria, mostly in administrative jobs including teach-
ers and doctors. Cubans joined other Communist
technicians for the first time, 50 medical personnel
arrived under a midyear agreement. About 300
Chinese worked in agriculture. With the training of
approximately 50,000 Algerians in Communist-built
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establishments, Communist countries also have had a
decisive role in training Algeria's unskilled labor force
and filling gaps in technical services left by the
departure of the French in the 1960s.
Libya
Earlier strains between Libya and the USSR have
largely faded in the light of political-economic realities
that suggest further areas for cooperation. Until now
the relationship has hinged on arms agreements with
Communist countries, which have provided Tripoli one
of the most extensive arsenals outside the Warsaw
Pact, and East European technical services for imple-
menting commercial contracts. New equipment dis-
played in the September National Day parade in-
cluded MIG-25 jet fighters, SA-9 air defense missile
systems, Frog-7 rockets, and Czech L-39 jet trainer
aircraft.
During 1978, East European governments concluded
the following agreement with Libya:
? An $80 million Bulgarian contract to install facilities
at six hospitals, as well as seven-year agreements for
more technical assistance to agricultural, transporta-
tion, and industrial projects, and a doubling of the
technical presence-which stood at 10,000 in 1978.
? A 10-year East German pact on political, economic,
and scientific cooperation whose terms were not
announced.
? A technical protocol with Poland for building 440
farms in Libya, in addition to the 1,300 the Poles have
already built, and for increased Polish participation in
planning, designing, and executing municipal projects.
The billion dollars worth of contracts discussed last
year under a 1976 Soviet-Libyan economic agreement
are to include (a) a 300-MW nuclear powerplant, (b) a
development plan for the gas industry through the year
2000, (c) oil and uranium exploration, (d) a $400
million research reactor at Tajura, (e) construction of
a 650-kilometer gas pipeline, and (f) a 5-million-ton
iron and steel plant.
In 1978, China agreed to establish diplomatic relations
with Libya. This was followed by their first economic
and technical cooperation agreement.
Mauritania
As Mauritania's most important Communist aid
donor, the PRC managed to improve its influence with
the new Mauritanian Government that took power
following a coup d'etat in July 1978. The Soviet
position has apparently declined because of hard
feelings over the Western Sahara. Romania, the only
other East European country with interests in
Mauritania, generally sides with Mauritania on inter-
national issues.
Notwithstanding the $500 million in Arab aid and
substantial French assistance, which dwarf the
$85 million of Chinese commitments, the PRC is the
most popular aid donor in Mauritania. The Chinese-
built Nouakchott power plant, which opened with
much fanfare in November, covers about 25 percent of
the city's needs and eliminates the former daily power
outages. Work began on the long-awaited $55 million
Nouakchott deepwater port-one of China's largest
current projects in the Third World-and continued on
several medical and agricultural undertakings.
Morocco
The 30-year, $2 billion accord for Soviet development
of the Meskala phosphate deposits in southern Mo-
rocco, billed by Morocco's King Hassan 11 as the
"contract of the century," is Moscow's largest commit-
ment to a single project in the Third World and marks
the first Soviet agreement to import phosphates.
Most of the 10-million-ton annual output from
Meskala will be exported to the USSR to repay the
$2 billion construction loan, and as barter for Soviet
products. The deal is expected to boost Soviet-
Moroccan trade to first place among the USSR's
African trade accounts. The present, nearly balanced
Soviet-Moroccan trade is supported largely by an
annual citrus-for-oil barter agreement, which had
made the USSR Rabat's principal source of oil. The
USSR and Morocco also established a joint fishing
venture in April with a 49-percent Soviet share for
which Moscow will provide the know-how and most of
the equipment. Morocco's only major military deal was
with the USSR.
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Morocco's $90 million in credits from Czechoslovakia,
Poland, and Romania were intended to expand equip-
ment sales of these East European nations to overcome
the deficits in their trade accounts resulting from their
continuing large phosphate purchases. Only Poland's
$14 million loan is allocated to a specific project-the
expansion of a phosphate plant at Safi to 500,000 tons.
The expanded facility, the fourth such plant built by
Polish enterprises in Morocco, will raise the sulfuric
acid output from Polish-built plants to 2 million tons
annually. The plant is to be completed early in 1982,
and will be paid for in phosphates. In 1978, Hungary
completed installation of port cranes at Agadir. This
was followed up by a similar order for Kenitra port.
Morocco continued to express satisfaction with East
European technical services, and the number of East
Europeans employed in Morocco remained steady at
1,500.
Tunisia
Tunisia's economic agreements with Communist coun-
tries do not alter Tunisia's reliance on Western
countries, particularly the United States. China and
the USSR continued their assistance to water develop-
ment projects being financed with recent credits. At
midyear, Soviet experts completed engineering plans
for a dam on the Joumin River, to be funded with $55
million of 1976 credits, and China sent technicians to
begin construction of the Medjerda-Cap Bon Canal
under $90 million of Chinese agreements.
General
The Soviet arms program in Africa continued to draw
worldwide attention in 1978, with Moscow reinforcing
its position as the Sub-Sahara's largest arms supplier
with $845 million worth of weapons. As a result of
emergency support given new Marxist governments in
Africa-begun in Angola in 1975 and later extended
to Mozambique and Ethiopia-Sub-Sahara accounted
for almost half of total Soviet arms sales to the Third
World in 1978 and about one-fourth of the record sales
in 1977. This compares with less than 5 percent before
1975.
Moscow's economic program in Sub-Saharan Africa in
1978 remained negligible despite continuing demands
for increased aid. New extensions amounted to only
$10 million (to seven countries).
China, which had become the African countries'
favorite donor in the early 1970s, extended only $50
million of new economic aid in 1978, as Beijing focused
on its own development problems. Beijing continued to
expedite programs under way and concentrated 85
percent of its 22,000 technicians in LDCs in Sub-
Saharan Africa, where they worked on agricultural
development projects, highways, and railroad projects.
In the following discussion, the African countries with
the most important Communist aid programs are
treated first, in alphabetic order, then the countries
with lesser programs, also in alphabetical order.
Angola
Despite the substantial Communist commitment of
men and materiel to the defense effort of the Popular
Movement for the Liberation of Angola (MPLA),
antigovernment guerrillas still inflicted heavy casual-
ties on government troops in 1978, and Angolans
became increasingly frustrated with Communist fail-
ure to help control the insurgency and restore economic
order. East European nations pushed for closer eco-
nomic relations even though Luanda was exploring
opportunities to reestablish economic and technical
relations with the West.
The number of Soviet military advisers in Angola rose
above wartime levels, doubling to about 1,000 early in
1978. Soviet officers continue to occupy key positions
in Angola's military command and control structure.
The Cuban military presence remained at about
20,000.
The European Communist countries and Cuba sub-
stantially increased their economic presence in Angola
in 1978 through technical services programs, even
though the increased activity did not lead to promises
of sizable aid resources during the year. Romania
accounted for the only specific commitment ($75
million for development projects) as most agreements
remained in the talking stage. Nearly 10,000 Commu-
nist technicians worked in Angola, in response to a
vigorous Angolan recruitment effort to fill some of the
100,000 or so jobs vacated by the Portuguese at
independence.
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Other developments included (a) Bulgarian protocols
to assist agriculture and urban modernization, (b) a
Cuban promise to train 2,500 Angolan technicians in
Cuba, (c) delivery of six Soviet fishing vessels as a gift,
and (d) a Soviet pledge to establish a 400-hectare
wheat farm as a gift.
Moscow's small economic program in Angola has
paralleled indifferent Soviet efforts in other African
countries, with little interest indicated in developing
viable public sector industries. Only aid to Angola's
fishing industry, which allows Soviet vessels to trawl
Angolan waters, and equipment for training schools
has been provided.
Ethiopia
A little more than a year after the USSR switched its
support from Somalia to Ethiopia, the Soviet-Ethio-
pian relationship still was held together largely by
Moscow's military assistance program and Ethiopia's
growing dependence on Communist countries for
technical support. Moscow's economic program still is
drawing on $100 million in credits provided in 1959.
Nearly all of Moscow's massive military assistance
was committed prior to and during Ethiopia's success-
ful routing of Somali invaders from the Ogaden early
in the year. The commitments rescued the Mengistu
regime from almost certain collapse, but did not
include sufficient inputs of logistical and technical
support to sustain an effective, modern Soviet-
equipped fighting force over the long term.
Rumors that the September 1978 economic and
technical assistance agreement carried new credits
have been discounted. The accord is a general frame-
work agreement typical of others signed by Moscow in
the past several years. The September economic
agreement called only for formation of a joint commis-
sion to oversee existing Soviet economic activities and
to study expansion into new areas. Aid for projects that
are studied will be provided on an individual basis. The
$80 million outstanding from a $100 million line of
credit arranged in 1959 probably will be drawn before
the Soviets proceed with large new binding commit-
ments. In the meantime, Moscow has not initiated any
major new aid projects. Soviet aid now falls under a
May 1977 protocol that allowed Ethiopia to draw the
1959 credits-$15 million for commodities and addi-
tional sums to expand the Soviet-built Assab refinery
by 75 percent and to install a pipeline and oil storage
depots in outlying areas. New commitments for
agriculture and irrigation projects, now being surveyed
in the Awash valley, would require at least $300
million of credits.
Growing Communist interest in Ethiopia in 1978 led to
a doubling of European Communist economic person-
nel. The 1,400 technicians included 450 Soviet teach-
ers and administrative personnel, 300 East Germans,
and 500 Cubans mostly in medical services.
Ethiopia also sent more than 700 first-year students to
the USSR in 1978 for academic training, bringing the
Ethiopian contingent in Soviet universities to over
1,500. Cuba complemented the Soviet program with
1,260 new scholarships to Ethiopian elementary and
secondary school pupils for study on the Isle of Pines.
Guinea
The heyday of Soviet-Guinean economic relations may
have passed as President Toure tries to project a
nonaligned image and attract more Western aid.
Economic programs languished as Conakry expressed
resentment over 15 years of ineffectual Soviet as-
sistance and Moscow failed to offer new assistance for
a program that was running out.
East European relations, never robust, became espe-
cially tenuous after Guinea switched to hard currency
payments. Only Romania offered development assist-
ance in 1978. China, with a long history of aid to
Guinea, did not announce new assistance, despite the
small balance (about $3 million) remaining from the
$83 million of Chinese aid.
Mali
Military assistance remained the dominant thread in
Soviet-Malian relations, even though Bamako has
shown signs of wanting to reduce its dependence on
Soviet military supplies.
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Mali continues to make airport facilities (most of them
built by the Soviets) available to the USSR for its
ventures in southern Africa, largely in exchange for
military supplies. In the traditional Independence Day
parade in September, Mali displayed 38 new Soviet
SAMs, MIG aircraft, tanks, and armored vehicles,
much of it delivered under 1977 agreements.
Malians continue to grumble about inadequate Soviet
economic assistance. Moscow's effort is largely con-
fined to development of the Kalana gold mine and
provision of doctors and teachers, who are compared
unfavorably with Chinese and French personnel.
China, which has disbursed most of its $100 million
commitment to Mali for agriculture and light indus-
trial projects, is formulating a new blueprint for
charting its program in the next decade.
Mozambique
Mozambique's ties with Communist states, which date
from military support provided prior to independence
from Portugal, have grown along with its dependence
on Communist suppliers to maintain its military
establishment. Economic aid from Communist coun-
tries, centered on technical services, has been disap-
pointing, while Mozambique's Communist military
inventory, delivered since 1975, has not permitted
Mozambique to maintain a secure frontier. Zim-
babwe-Rhodesian forces still mount cross-border oper-
ations against guerrilla camps in Mozambique at will.
Communist countries have committed more than $160
million in economic credits since 1975, but the pro-
gram still is heavily focused on technical assistance
rather than deliveries of equipment and materials.
Nearly 1,300 Communist economic technicians were
stationed in Mozambique in 1978. China, with nearly
$60 million in credits, has been one of Mozambique's
largest donors, but no projects have been initiated
under the 1975 credit agreement.
Some Communist activity is to help stem the decline of
the formerly thriving agricultural sector. Together,
this past year, Bulgaria and the Soviet Union began
work on the Limpopo Basin development project.
Bulgaria plans to complete the Massinger and Mapai
Dams and install a 40-MW power plant at the
Massinger Dam in Limpopo Basin. Bulgaria also
signed a contract to construct the Maputo-Cabo
Delgado highway under a 1977 agreement. Moscow
also pursued geological surveys and the equipping of
technical schools. East Germany conducted studies on
new projects to be implemented under a 1977 agree-
ment including agricultural development, mineral
exploration, fishing, high-tension power lines, a textile
plant, and a truck assembly plant. Hungary delivered
50 buses to Maputo probably under a 1975 agreement.
Nigeria
Nigeria's relations with East European governments
warmed in the wake of new cooperation agreements in
1978, while relations with the USSR and Cuba
deteriorated after Shaba II. Soviet military relations
with Nigeria, which grew out of Moscow's support
during the Biafran insurgency in 1967, have cooled in
the past several years because of concern in Lagos over
Soviet policy in Africa.
While Moscow's military presence dropped off, its
civilian presence increased to 1,100, represented
mostly by technicians working on a $137 million
petroleum pipeline, now scheduled for completion by
yearend 1980.
In contrast, East European countries polished their
image in Nigeria with a series of new agreements:
? Bulgaria signed an economic cooperation agreement
which set up a joint commission to study projects in
agriculture, food processing, and public housing.
? Czechoslovakia agreed to provide teachers and other
experts under a September agreement.
? Hungary extended the life of a $26 million 1974
credit for hospital equipment, nearly 25 percent of
which has already been contracted for.
? Poland is to send 300 experts to Nigeria and admit
300 Nigerian students annually to Polish universities
and technical schools under a two-year technical
agreement signed in March.
? Poland and Romania signed agreements to barter
goods and services for Nigerian oil, an agreement
which Nigeria is no longer anxious to implement.
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Warsaw discussed cooperation in shipbuilding, port
development, mining, and agriculture, with Nigeria-
Poland's largest Sub-Saharan African trading part-
ner-and a joint economic commission was created to
explore project possibilities. Romania focused on plans
for a new joint shipping line and fishing venture and
also put forward proposals for participating in a
number of other projects. Until now Romania's largest
undertaking is a $35 million wordprocessing complex,
while Poland's major contribution has been to coal
mining.
Somalia
A year after the abrogation of the Soviet-Somalian
Friendship Treaty, President Siad's search for alterna-
tive sources of arms had yielded few results. A number
of Western suppliers indicated that they would sell
equipment to Somalia once the situation in the Ogaden
was normalized. Somalia's Air Force remains largely
grounded because of spare parts problems.
In April 1978, President Siad traveled to Beijing to
deliver in person a request for emergency military and
economic assistance. The Chinese offered training and
technical assistance but only nominal amounts of
military hardware, which were delivered to Mogadishu
shortly after Siad's visit.
While not completely filling the gap left by the
departure of the 1,000 Soviet and East European
technicians, China maintained its 3,000-man presence
of the year before and agreed to provide $18 million of
aid to finish abandoned Soviet projects. Romania, the
only East European country still active in Somalia,
signed a protocol to provide assistance in agriculture,
forestry, and fishing.
Tanzania
Arms contracts with the USSR are the most important
link in the Soviet-Tanzanian relationship. Despite Dar
es Salaam's suspicions of Soviet motives, Moscow has
been the only supplier-willing and able to provide the
modern weapons Tanzania has felt it needed to counter
Uganda and potentially to support Mozambique
against Rhodesian incursions.
The Soviet Union, never really active in Tanzanian
development, signed small contracts under a 1977
credit for constructing state farms in Ruvumu and
Morogoro and made slow progress on a dam and power
plant under earlier credits. While the 15-year-old
Soviet economic program languished, China continued
to draw on the reservoir of good will remaining from its
efforts on the Tan-Zam railroad. Despite a chill in
relations caused by China's military support to the
unpopular Mobutu regime during the Shaba invasion
in May, a thousand Chinese technicians worked in
Tanzania on agriculture and mining projects.
Zaire
The escalation of the Shaba conflict (which Zaire
suspects was fueled by the Soviets, East Germans, and
Cubans) dominated Kinshasa's relations with Com-
munist powers in 1978.
China, trying to capitalize on Zaire's mistrust of
Moscow and Eastern Europe, was the only Communist
country to support President Mobutu's government
against the Katangan secessionists. Emergency small
arms and relief assistance were rushed to Zaire during
the invasion. On the economic side, China accelerated
work on a sugar plantation and refinery under $100
million in credits and held discussions on a sports
complex.
Zambia
President Kaunda remains suspicious of Soviet arms in
southern Africa. In the absence of support from the
West, however, he has been forced to reconsider
Communist offers to upgrade Zambia's defenses
against more frequent Rhodesian raids.
At the request of the Tan-Zam railroad authorities,
Chinese personnel were brought back to Zambia in
1978 to operate the line because local personnel failed
at the job. The railroad (China's largest construction
project in the Third World), though officially handed
over to Tanzanian-Zambian control in 1976, was to be
staffed by 1,000 Chinese technicians for two years. As
local personnel completed their training, Chinese
technicians had been withdrawn. In 1978 China also
continued its assistance to agriculture and mining
under a $51 million credit.
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Moscow has completed most deliveries under its $6
million credit, and East European countries are more
active in Zambian development. Romania announced
plans to establish a cold storage plant, a tractor
assembly plant, a textile plant, a ceramics plant, and a
shoe factory under an unused $50 million credit
agreement, signed in 1972. Czechoslovakia provided a
$12 million loan to Zambia for industrial development.
Other Sub-Saharan African Countries
Benin. China remained Benin's only active Communist
economic aid donor, and 225 Chinese were working on
a stadium and agricultural projects. While new eco-
nomic cooperation agreements were signed with East
Germany in June, and with Bulgaria, Czechoslovakia,
Hungary, and Poland in September, these did not
carry project commitments. The USSR agreed to
provide equipment for an experimental farm under a
1974 agreement and Romania discussed aid to agricul-
ture, light industry, mining, and petroleum.
Botswana. Botswana's two-year aid relationship with
China-which until 1978 was based on a small grant
of military equipment for Botswana's new defense
force-received a shot in the arm as Beijing allocated
$16.6 million of development credits under a 1976
agreement. At yearend, Botswana showed interest in a
Chinese offer of doctors but was not expected to act on
Moscow's offer to send teachers to Botswana.
Burundi. Romania signed a protocol in November for
additional projects in agriculture, industry, mineral
development, and for power to complement existing
joint ventures: (a) a mining venture which began
operations in September and (b) an agricultural
company which planted 10,000 hectares in foodgrains
and cotton in 1978.
Cameroon. Cameroon continued to draw on more than
$100 million of Chinese credits for building power
transmission lines from the Lagdo dam as part of a
rural electrification project.
Congo. China continued work on its major project in
Congo, the Bouenza Dam and associated rural electri-
fication, while the Soviets continued geological explo-
ration. Late in 1978 Cuba completed Congo's first
experimental cattle farm and made plans to open 14
more. Activity is focused on improvement of local
breeds, with Cuba already donating several varieties of
beef and dairy cattle to the project. During a joint
economic commission session early in 1978, Romania
signed only a general agreement to continue economic
cooperation. Congo has been dissatisfied with Roma-
nian agricultural assistance because of low crop yields.
Djibouti. The USSR and Djibouti established
embassy-level diplomatic relations on 3 April 1978.
Ghana. The bloodless coup which brought a Western-
oriented government to power in Ghana in July did not
affect Communist economic programs, although mili-
tary deals apparently were shelved. Bulgaria will
provide credits for agriculture, fisheries, and light
industry, and Hungary signed contracts to supply port
cranes. China, still the most active Communist partner
in Ghana, continued work on the $13 million Afife
irrigation project, and Chinese technicians arrived to
study a glass plant, a sugar plantation, and a refin-
ery-probably under an unused $22 million 1964
credit. Beijing also offered assistance to construct a
rice mill and a ceramics factory and completed a
spinning mill it had built for a private Ghanaian firm.
Ghana played host in 1978 to its first Cuban delegation
since Nkrumah was overthrown in 1966. Trade in
sugar and timber was discussed, and Cuba will
consider sending experts to bring Polish- and Czech-
built sugar plants up to capacity operation.
Gabon. While maintaining cordial relations with other
Communist countries, the pro-Western leadership of
Gabon continued to reject ties with the USSR and
Cuba because of their threat to African stability.
Beijing maintained the only Communist aid presence
in Gabon, under a $25 million agreement.
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Guinea-Bissau. The growth in Western economic
assistance has begun to erode Communist, particularly
Soviet, influence in Guinea-Bissau, while military ties
remain strong.
Lesotho. Lesotho was preparing to recognize Cuba at
the end of 1978 as a result of a Cuban delegation's visit
at midyear.
Liberia. China has been the major beneficiary of
Liberia's initiative to improve relations with Commu-
nist countries and to improve Liberia's nonaligned
credentials. About 200 Chinese are in Liberia working
on former nationalist Chinese sugar projects. During
President Tolbert's visit to the People's Republic in
June, China agreed to provide at least $23 million of
credits under a 1977 agreement for three radio
transmitters, agricultural products, and a stadium.
China also agreed to establish an alcohol plant at the
sugar mill Beijing took over from Taiwan in 1977.
Madagascar. Moscow provided nearly $6 million of
new economic assistance-about half of it grant aid for
a YAK-40 aircraft and 200 tractors, all delivered late
in the year. Soviet technicians were active in surveys
for a cement plant, a flour mill, and a broadcasting
station, to be financed under a 1974 credit.
China, still Madagascar's largest Communist donor,
moved slowly on major projects to show its disapproval
of Antananarivo's closer Soviet ties. Nonetheless,
Beijing began equipment deliveries for resurfacing the
Tamatave-Moramanga road, Beijing's largest project
under a $55 million 1975 credit. A Chinese medical
team also arrived at midyear to serve at the Chinese-
built medical center at Vatomandry.
Mauritius. The USSR did not improve its position in
Mauritius in 1978, despite early signs of a more upbeat
relationship. Mauritius had let its fisheries agreement
with the USSR lapse the previous year because the
Soviets did not supply enough fish to the local market
and failed to fulfill training obligations. Mauritius also
accused the USSR of pillaging the Sayha de Malha
banks, claimed by Mauritius as part of its territorial
waters. Mauritian ship chandlers nonetheless contin-
ued their brisk business with Soviet merchant vessels.
China still has not begun work on an airport promised
under a 1972 agreement because of the near tripling of
original cost estimates. Since Beijing's $30 million
offer was made, inflation has pushed estimated costs
into the $70-100 million range, which now raises
doubts about the airport's viability.
Rwanda. Rwanda and China signed a new economic
and technical agreement in June 1978 calling for
studies of a hospital, sports stadium, flour mill, and
ceramics plant. These projects would require addi-
tional credits, as funds from the $22 million agreement
of 1972 are nearly exhausted. China also opened an
economic and trade exhibit in Kigali in July, the first
foreign exhibit ever staged in Rwanda.
Sao Tome and Principe. Communist aid to Sao Tome
and Principe (mostly from China) far outshadows
assistance from other sources, and Communist influ-
ence is pervasive. During 1978, China pledged $17.6
million in development credits to carry out a December
1975 agreement for rice cultivation, hydropower devel-
opment, and medical assistance. Moscow's interests
are represented by a Cuban technical assistance
program that has brought 140 doctors, teachers, and
construction workers to Sao Tome. Cuba completed
two apartment buildings in 1978 under this program.
Seychelles. The Seychelles received its first Commu-
nist economic aid in 1978, a $3.5 million grant from
China for a school on Mahe and a commitment to
assist in rice cultivation. In contrast, Seychelles
President Rene turned down a Soviet offer for a second
time for broad-based fisheries cooperation.
Senegal. Chinese and East European relations with
Senegal remained warm in 1978 despite President
Senghor's hostility toward Soviet initiatives in Africa.
Senegal campaigned against the Soviet/Cuban mili-
tary presence in Africa but accepted a donation of
$120,000 worth of wheat for drought relief from
China, its largest Communist donor. It also signed a
protocol under a $35 million Polish agreement of 1976
for assistance to chemical production (particularly
phosphorous fertilizers), food processing, energy, and
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light industry. Warsaw also formed a partnership with
a local firm to increase trade with Senegal in equip-
ment for the chemical industry and raw materials.
Bulgaria agreed in October to provide aid for agricul-
ture, mining, and geological prospecting, while Roma-
nia signed a protocol calling for cooperation in
developing agriculture, electric power, industry, and
mining.
Sierra Leone. China remains the most important
foreign aid donor to Sierra Leone with a $40 million
credit agreement which has financed a stadium, two
bridges, and 13 agricultural stations. The National
Trading Company, the sole importer of Chinese goods,
has recently expanded and will buy more of the popular
lower cost Chinese goods. The only Soviet venture in
Sierra Leone is a joint fishing company, and Moscow
again is pressing Freetown to sign a 10-year fisheries
agreement, to include construction of a harbor and
shore facilities.
Sudan. Soviet-Sudanese relations, broken off in 1977
with the expulsion of Soviet military advisers, did not
improve much in 1978 even though diplomatic rela-
tions were resumed.
New Communist pledges of economic aid in 1978
came mostly from Czechoslovakia under a new $24
million credit for housing and other equipment. China
and East Germany provided small amounts of relief
assistance.
Despite Eastern Europe's recent $160 million in new
credits, China is still Sudan's most effective Commu-
nist donor. Chinese technicians completed the second
stage of the Hasahaisa textile mill in June and began
preparations for a clothing factory associated with the
plant. Chinese fisheries development projects at
An-Nubah lake, being financed under a $40 million
agreement, also neared completion. Assistance has
included 40 fishing boats and two cold storage plants.
Togo. Despite fears of Soviet subversion in Africa,
Togo continues to send students to the USSR and in
June signed an economic agreement which may lead to
Soviet development projects in Togo. East European
countries also became more active than before: Hun-
gary signed a $10 million contract for phosphate
mining equipment, and Poland was considering par-
ticipation with a number of Western countries in a
$250-300 million phosphoric acid fertilizer facility in
Togo. China began construction of a long-awaited $6
million dam and irrigation complex on the Sio River,
under a $45 million 1972 agreement. The project will
irrigate 660 hectares of rice on completion in 1980. A
similar North Korean project on the Mons River
seemed headed for failure because of low water levels
during the dry season.
Upper Volta. A $48 million Chinese credit, signed in
1973, is Upper Volta's largest Communist aid pledge.
During 1978, China handed over a second rice project,
at Banfora, and provided $200,000 cash for drought
relief. The USSR, never a big donor, gave Upper Volta
medicines and six 5-ton trucks to carry supplies to
drought victims in 1978.
General
East Asia, traditionally an area of commercial interest
for major Communist aid donors, received $170
million in economic assistance from Eastern Europe in
1978-all for Burma and the Philippines-as part of
Eastern Europe's attempt to erode Western and
Japanese dominance of the Asian market.
Burma
Burma received a $140 million, 16-year, 2.5-percent
Czech credit-Rangoon's largest credit from a Com-
munist country-for expanding a Czech-built tractor
plant at Malun and setting up plants for diesel pumps
and tires. Nonetheless, Burma's relations with China
overshadow all others, because of their long common
border. Even though China pledged no new aid, it
agreed to go ahead with a $10 million stadium under
$57 million of credits reinstated in 1971.
Indonesia
While Jakarta tried to expand its trade with Eastern
Europe, it refused to reopen direct trade with China
because of Beijing's continuing support for Indonesian
Communist exiles and concern that Beijing would use
this as entree into Indonesia's large Chinese
community.
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Malaysia
Malaysia improved its relations with China despite
several unresolved issues. Malaysian-Chinese trade
was brought into closer balance by China's purchases
of agricultural products, while huge trade deficits
remain the dominant theme in European Communist
relations with Malaysia because of heavy dependence
on Malaysian raw materials.
During the year Kuala Lumpur made public its two-
year-old decision against Soviet financing of the
Tembeling Dam. While the press speculated that
environmental factors prompted the decision, in fact
the government was concerned about a large contin-
gent of Soviets operating in a remote area.
The Philippines
Philippine interest in increasing and diversifying its
Communist trade was set back by a drop in sugar
prices which cut Manila's trade surplus with the USSR
by $100 million. The brightest spot in the trade picture
was the Philippine-Chinese five-year agreement incor-
porating a Chinese oil sales contract. In return for
Shengli crude, the PRC will receive sugar, copper
concentrates, and agricultural and chemical products.
The East Germans signed a protocol for 1979 in which
they agreed to buy Philippine goods worth $20 million
and sell chemicals, fertilizers, and consumer goods
worth $26 million to the Philippines. East Germany
also extended a $30 million credit to finance Philippine
imports. Manila agreed to form a joint fishing com-
pany with Poland, which would lease Polish vessels
under long-term contract. Further possibilities for
cooperation in processing and support facilities were
discussed. These follow on more than four years of
Philippine-Soviet negotiations for a similar joint fish-
eries operation.
Thailand
New trade and economic cooperation agreements
between China and Thailand in 1978 and a pact to
exchange military attaches may help reverse the
decline in relations that set in after the initial flurry
of trade deals following diplomatic recognition in
1975. As the result of a deal completed in December,
Thailand will export grain and other agricultural
products in return for 240,000 tons of diesel oil and
600,000 tons of crude. Bangkok also signed trade
agreements with Czechoslovakia, Hungary, and
Romania.
General
European Communist imports of Latin American
agricultural goods and minerals have kept Communist
trade with the region in deficit for over a decade. The
problem worsened after the price inflation of 1973,
when annual deficits began to exceed a billion dollars.
Communist countries responded with intensive cam-
paigns to sell machinery and equipment, accompanied
by threats to shift their purchases to other markets
unless major Latin American partners took meaning-
ful steps to balance trade. They urged that purchases
be made under outstanding credits and accepted
credits for food and raw materials purchases from the
more affluent nations, such as Argentina and Brazil.
In 1978 East Germany provided the largest amount of
export financing to Latin America. A $200 million
equipment credit was extended to Brazil, in hopes that
the aid would not join the $2 billion of unused earlier
Communist funding to Latin America countries. Latin
American countries prefer to buy equipment from
Western producers and have largely ignored Commu-
nist equipment credits.
Even though negotiations usually stretch out over
several years, Moscow's sales prospects look best in the
power equipment field. During 1978 the USSR was
negotiating contracts for several billion dollars' worth
of power projects in Argentina and Brazil. Moscow
tried to balance its trade with Brazil with oil shipments
and began to supply oil to Venezuelan customers in
Western Europe for Venezuelan crude to Cuba under a
quadrilateral deal. China, in its first oil shipment to the
Western Hemisphere, used oil to balance its trade with
Brazil.
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Argentina
The USSR renewed its sales drive in Argentina in
1978, in order to reduce the widening gap in its trade
balance with Argentina, which amounted to almost
half a billion dollars by yearend. Moscow intensified
efforts to win contracts for the Yacyreta hydroproject
and for turbines at Parana Medio. Moscow already has
contracted to design the Parana Medio project-a $2.5
billion multipurpose power and irrigation develop-
ment-and in October won a contract for two 310-
MW generators for a Buenos Aires thermal plant.
East European countries had no better luck than the
Soviets in reducing their trade deficit with Argentina,
and efforts to induce the Argentines to tap the almost
$250 million of outstanding credits were not successful.
Brazil
Brazil accepted its largest single Communist aid
commitment in 1978-a $200 million credit from East
Germany-while Brasilia continued to fend off Soviet
overtures to expand their relationship. The new assist-
ance, provided in conjunction with a three-year East
German-Brazilian trade agreement, is intended to
help correct the serious imbalance in East German-
Brazilian trade, a problem common to all of Brazil's
Communist trading partners.
Hungary offered to cooperate in building pharmaceu-
tical and alumina plants and to provide Brazil with
medical equipment to offset deficits which had reached
$180 million in 1977. Budapest hopes that the $300
million, three-year trade agreement signed in 1978,
calling for Brazilian manufactures and raw materials
imports for Hungarian equipment, will bring trade into
better balance. Poland also tried to correct its $100
million trade deficit with a three-year trade agreement
which provides for $500 million in annual trade and
includes a coal for iron ore barter deal.
China, which has recorded a total deficit of almost
$250 million in 1974-77, when the People's Republic
began to buy from private Brazilian companies, signed
its first formal intergovernmental agreement since the
establishment of relations with Brazil. The agreement,
which specifies hard currency settlements, was fol-
lowed by contracts to exchange 1 million tons of
Brazilian iron ore for 2.5 million tons of Chinese crude
oil over a two-year period, beginning in 1979, with
additional amounts expected over the subsequent three
years. This is China's first petroleum sale in the
Western Hemisphere.
Peru
While frictions over the Soviet military supply pro-
gram marred Soviet-Peruvian relations in 1978,
Moscow's agreement to reschedule Lima's military
debt was a positive force for continued cooperation.
For the first year since Peru's weapons purchases from
the Soviets began several years ago, no new arms deals
with the USSR were concluded in 1978. This was
mainly because of pressure from the IMF and others
that Lima restrict arms purchases.
Peru's economic relations with Communist countries
have not recovered from the economic doldrums of
1976. While Communist countries bought about 15
percent of Peru's exports, they did not pledge further
assistance above the $285 million already committed,
and a number of development projects proposed in the
early 1970s were still not activated. Even though the
USSR completed feasibility studies for the Olmos
hydropower and irrigation project (a $1 billion project
which would take 10 to 15 years to build), Moscow
made no commitment to go ahead with the facility.
Other Communist countries also had a quiet year on
the economic aid front. Czechoslovakia agreed to
allocate $10 million in credits under an existing
agreement for a power plant at Iquitos, which had been
under discussion for years, and Hungary continued to
supply educational equipment under a $1.3 million
contract. Romania, which buys about 450,000 tons of
iron ore a year from Peru, proposed the expansion of
this trade to include copper, silver, lead, zinc, and other
minerals. In 1978, Bucharest consummated a deal for
$6 million worth of railroad equipment and offered to
sell a 100,000-ton soda ash plant as well as equipment
for Peru's steel industry. Romanian studies for the
$600 million Antamina copper mining project, com-
pleted in 1978, had not resulted in a contract at
yearend.
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Other Latin American Countries
Bolivia. The world's largest tin volatization plant being
completed by the Soviets at Potosi is the centerpiece of
Bolivia's economic relations with Communist coun-
tries. Plans for Soviet aid to a second plant at
Marchamarca are at an advanced stage. In addition,
Moscow offered to increase its tin purchases, which
now run at about $40 million a year, making the USSR
Bolivia's third most important tin customer after the
United States and the United Kingdom. Agreement is
expected as well on a Soviet-West German venture to
build a $150 million lead and silver smelter in Bolivia
with Soviet technology. A $10 million equipment
contract under a 1976 framework agreement for
10-year credits brought total transactions under that
agreement to nearly $70 million.
Poland completed installation of a $65 million glass
plant built under credit, while Czechoslovakia offered
a motorcycle assembly plant and a 10-million-ton steel
and scrap metal processing plant.
Caribbean. Dominican Republic. Cuba offered the
Dominican Republic assistance in converting sugar-
cane byproducts to cattlefeed, a major item in the
Dominican Republic's program to diversify the sugar
industry.
Jamaica. Site preparation was under way at Jamaica's
only ongoing Communist project-the Chinese cotton-
polyester textile plant at Old Harbour. Jamaica agreed
to accept $28 million in Hungarian credits added to a
1977 trade credit, of which about half was allocated for
development projects; the remainder is for consumer
goods, medical equipment, pharmaceuticals, and tex-
tiles. A Hungarian team arrived at midyear to study
joint ventures, including a bicycle factory, an agricul-
tural processing plant, fish farming, and vegetable
growing. Cuba will provide assistance to build six
schools. About 600 Cubans will work on the project in
addition to 40 doctors and other technical personnel
Havana promised for the water supply projects and
prefabricated panels plants that Jamaica is building.
Central America. Costa Rica. This country canceled
the unused portion of a Soviet trolley bus credit and
shelved Romanian plans to extract bauxite under a
1977 agreement. Romania and Costa Rica signed a
protocol, however, for cooperation in the exploration of
minerals and for commercial exchanges; Czechoslova-
kia offered power plant equipment, machine tools,
textile plants, and building materials; although Cuba
failed to sign a planned trade agreement early in 1978,
it signed a memorandum on trade.
Guatemala. A PRC purchase of 200,000 bales of
cotton in 1978-about one-third of Guatemala's
cotton exports-made China the nation's number one
cotton buyer. China has bought a similar amount for
1979, and Guatemalan officials are expected to
approve a Chinese request to establish a small com-
mercial office in Guatemala.
Honduras. In its first trade contract with Cuba in 17
years, Honduras bought 2,000 tons of cement from
Cuba because the offer included the best prices and
delivery terms.
Panama. A Panamanian economic commission to
Czechoslovakia, East Germany, Poland, and the
USSR drafted commercial agreements and received
offers of development assistance from all the countries
visited. The Communist countries offered to buy $10
million worth of bananas a year; Czechoslovakia
negotiated a technical cooperation agreement; and the
USSR promised to cooperate in constructing the $800
million 300-MW hydropower plant in Bocas del Toro,
first studied by Soviet technicians in 1977.
Chile. The renegotiation by Chile of its Allende-era
debts with most Communist countries in 1977 led to a
resurgence in trade with nearly all Communist coun-
tries in 1978. Chile and the CEMA International Bank
for Economic Cooperation agreed on repayment of $50
million of Chile's six-year-old bank loans for
commodities, leaving only about $20 million of debt to
the USSR and $5 million to Bulgaria still to be
negotiated. Previously Chile's relations had been
limited to the PRC and Romania.
Colombia. Involvement of Colombia with Communist
countries showed little change in 1978, despite public
statements by the new government that Communist
relations would expand. Designs were completed for
the largest Soviet-built power project in Latin
America-the Urra hydroelectric project on the Alto
Sinu River-to be constructed under the $200 million
credit of 1975.
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Colombia announced plans to sign joint venture
agreements with Bulgaria for vegetable processing
plants and with Poland for a farm machinery plant,
and to push sales of coffee in Eastern Europe in return
for roadbuilding machinery and power equipment.
Colombia's $150 million annual trade with Commu-
nist countries (usually in favor of Colombia) is
governed by clearing accounts and settlement in hard
currency.
Cuba and China also are upgrading their relations
with the new government. A $1 million mid-1978
contract calls for repair of Cuban ships at Cartagena,
and new trade, cultural, and textile cooperation
agreements are being studied. China and Colombia are
expected to establish diplomatic relations by mid-
1979.
Ecuador. The military government of Ecuador contin-
ues to discourage ties with the USSR, at the same time
that relations with Cuba and Eastern Europe are
developing. The Soviet presence is limited to two
Soviet technicians who arrived in 1978 to train
Ecuadoreans in fisheries techniques. Cuba and Ecua-
dor signed an agreement to permit direct trade-to be
settled quarterly in Canadian dollars-which will
include the exchange of 20,000 tons of Cuban cement
for coffee.
Guyana. Even though Guyana has received only about
$70 million of Communist economic aid, its political
affinity with the Communist world shows no sign of
decreasing. A protocol to the June 1977 Soviet
agreement provided for Guyanese purchases of ma-
chinery and equipment on 10-year credit terms with
4.5-percent interest. In addition, Guyana will join the
USSR in a joint fishing venture for shellfish, and
Moscow will formulate a 10-year plan for Guyana's
fishing industry. While Soviet aid was not made
available for Guyana's long-sought billion-dollar hy-
droelectric power project on the Upper Mazaruni
River, a Soviet team began studies of a 600,000-ton
alumina plant and associated power plant. Moscow
apparently has consented to take a substantial portion
of the plant's output if it goes ahead with the project.
Chinese projects have been plagued with problems
with local contractors which have slowed the $36
million aid program. Hungary discussed sales under its
1977 trade agreement which offers $10 million of one-
year credits for consumer goods and five- to seven-year
credits for capital goods-while Guyana tried to
promote sales of rice, sugar, rum, and bauxite. Among
the smaller Communist donors, Cuba promised to set
up a medical facility at the University of Guyana and
to provide technical assistance for the sugar industry
and radiobroadcasting, while North Korea signed six
protocols for assistance to agriculture and ceramic and
plywood production, as well as a joint fishing venture
and assistance for reestablishing Guyana's wooden
shipbuilding industry.
Mexico. Mexico viewed President Lopez Portillo's visit
to Moscow in May 1978 during which the Soviets
signed Protocol II to the Treaty of Tlatelolco (for a
nuclear free zone in Latin America) as a major foreign
policy coup. Mexican commercial orientation nonethe-
less remains with the West and even though the Soviets
pressed Mexico last year for orders of machinery and
equipment (to be financed under the open-ended 1976
credit), no contracts were signed.
Malta
Malta expanded its ties with China and Eastern
Europe during 1978, but relations with the USSR
deteriorated because several Soviet naval vessels an-
chored in Maltese waters entered Grand Harbor
without Maltese permission. Malta also is disappointed
with Moscow's unwillingness to expand aid and
commercial ties. Following Chinese Vice-Minister
Keng Piao's visit, China began work on the
Marsaxlokk harbor breakwater and shore facilities-
one of China's largest projects under way in the Third
World-being financed under a $45 million credit.
Poland also is participating in the Marsaxlokk project
under a $370,000 consultancy awarded by the United
Nations. Joint ventures with Czechoslovakia got under
way with the completion of plants to manufacture
precision instruments and hydraulic equipment. The
Czechs and Maltese also discussed a steel foundry and
shoe factory.
Portugal
Portugal agreed to permit Cuba to use ship repair
facilities, to be paid for with sugar.
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General
Despite Moscow's longstanding objective of maintain-
ing a strong presence in the Middle East, the Soviets
made few positive gestures in 1978 to enhance their
relations with key nations in the area. Military aid
commitments-the Soviets' most potent instrument
for influence in the Third World-to Middle Eastern
countries fell to a 13-year low of less than $100 million
and only Turkey received large new pledges of
economic aid.
Arms deliveries to the area in 1978, which maintained
the billion-dollar annual level of 1975-77, greatly
reduced the delivery backlog in the absence of large
new commitments. Shipments to both Iraq and Syria,
Moscow's largest arms buyers, remained high as these
countries drew on their large 1976-77 orders.
The standoff in new arms transactions did not apply to
economic programs. Iraq received large-scale deliv-
eries of equipment under its billion-dollar power and
oil development contracts with the USSR. The Iraqis
also signed new contracts in 1978 for Communist
participation in their development program, especially
for civil construction and water resource development.
In Syria the 10-year Soviet construction of the 800-
MW Euphrates power plant and dam was completed in
1978, and while no new projects were undertaken, the
East Germans extended Syria a $150 million credit for
industrial plants.
The Shah's loss of power in December culminated a
year of uncertainty for the Soviet-Iranian relationship.
Moscow's economic technicians remained at Soviet-
aided projects throughout the year, despite (a) a
slowdown in activity as shipments piled up at the
border and (b) the yearend closing of the pipeline that
carries Iranian gas to the Soviet border. Plants planned
under earlier agreements remained on the drawing
boards and the initiation of the 1975 trilateral gasline
deal was held in abeyance. Communist buyers were
caught up in the turmoil in world oil markets caused by
the cutoff in Iranian exports, with Romania the
hardest hit. Bucharest sought alternative suppliers for
its Iranian imports, which comprised one-third of its oil
imports.
Egypt
As Egypt's relations with the USSR and Eastern
Europe sank to an alltime low in 1978, Cairo
strengthened relations with China by accepting mili-
tary aid. Meanwhile, an upsurge in foreign exchange
receipts from oil, worker's remittances, and Arab aid,
as well as closer political cooperation with the United
States, accelerated the Westward reorientation of
Egypt's economic relationships.
A reduced trade and aid program is all that remains of
a once flourishing Soviet-Egyptian relationship that
brought in $1.1 billion in economic aid for public sector
industry as well as $4 billion of military equipment.
The $6 billion of Arab funding (largely in cash)
transferred to Egypt since the 1973 Middle East war
has given Egypt flexibility in deciding its own eco-
nomic destiny and has allowed it to turn increasingly
toward the West.
Among the East European countries Romania has
maintained the best relations with Egypt by supporting
Cairo's peace initiatives. Romanian technicians com-
pleted the installation of a thermal power plant at the
Hamrawein phosphate complex, and early in the year
Bucharest allocated one-third of the $90 million in
credits outstanding from its 1971 agreement for
electrification projects in Egypt. East Germany, which
had extended $95 million in credits in 1977, saw its
trade with Egypt drop 10 percent in 1978 to $80
million, while Egypt broke relations with Bulgaria at
the end of the year over a minor matter.
At yearend the Egyptian press announced that the ban
on raw cotton exports to the USSR and Czechoslo-
vakia would continue throughout 1979; other Soviet
purchases were maintained at earlier levels. In 1978,
Soviet-Egyptian trade dropped $215 million from
1977, propelled by a $135 million drop in Soviet
imports. Meanwhile, Egypt continued to save $150
million in hard currency through its barter trade with
the Soviets.
China, trying to benefit from Sadat's anti-Soviet
policy, discussed aid to Egypt's textile and mining
industries and agreed to build a conference center in
Cairo.
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Iran
Despite reductions in aid and commercial deliveries to
Iran late in 1978, Moscow continued work on Iranian
development contracts and tried to maintain a vigorous
technical presence. The Soviets apparently hope that
the 15-year Soviet-Iranian relationship will become
even more vital as Tehran reassesses its development
priorities and its relationships with foreign contractors.
Even though work schedules were disrupted by supply
backups at the Iranian border, nearly 4,000 Soviet
technicians remained at major Soviet projects which
were under construction. These technicians were
allowed to maintain operations at the showcase
Isfahan plant.
Following several months of intermittent operation,
the IGAT-I pipeline, which carries natural gas to the
Soviet border, was shut down at yearend. Soviet
exports rose slightly to $635 million, while imports fell
because of the gasline closing.
Upheavals have left the Soviet presence in Iran
uncertain. At the end of 1978, more than $1 billion of
commercial contracts awaited implementation and
plans for additional projects were on the drawing
board. These included (a) industrial plants at
Isfarayan and Kerman valued at about a billion
dollars, which were agreed to in 1976; (b) a $450
million power plant at Isfahan; (c) a $250 million
section of the IGAT-II pipeline; (d) a rail link to the
USSR, agreed to in 1976; (e) a $500 million aluminum
plant, still under study; and (f) a tripling of capacity at
the Isfahan steel mill.
Preliminary information indicates that Iran has
shelved plans for a pipeline that was to be constructed
under a 1975 20-year trilateral accord with the USSR
for gas sales to Western Europe. Under the agreement,
Moscow was to construct a section of the 1,500-
kilometer (IGAT-II) pipeline, designed to pick up 475
billion cubic feet of gas annually from fields in
southern Iran for transport to Astara at the Soviet
border. The USSR, in turn, was to deliver 390 billion
cubic feet of its own gas to Austria, West Germany,
and France, for which Iran would receive hard
currency. Moscow would retain 85 billion cubic feet of
gas as a fee. Another 130 billion cubic feet of Iranian
gas was destined for Czechoslovakia each year. While
work apparently has begun on sections of the pipeline
being undertaken by third countries, we have no
information on its present status or the degree of Soviet
participation.
The Soviet-Iranian relationship that has evolved be-
cause of the common border has been reinforced over
time by mutual economic benefits. A 1966 Soviet
agreement to build a natural gas pipeline from Iran's
southwestern fields to Astara on the Soviet frontier
propelled Soviet-Iranian exchanges to a billion-dollar-
a-year relationship by 1978 and allowed Tehran to
convert a formerly wasted product (flared gas) into
more than $200 million of annual earnings. The 350-
billion-cubic-foot annual flow of Iranian gas to the
USSR since 1970 has been more than enough to
service Tehran's $1.4 billion economic and military aid
debt to the USSR.
Cheap Iranian gas for the Transcaucasus has allowed
the USSR to avoid building the long-distance pipelines
that would have been required to service the area from
Soviet fields. Iranian supplies also have freed equiv-
alent amounts of Soviet gas for export to East
European allies and to hard currency customers.
The USSR and Iran have profited from their trade,
which developed largely as a result of the Soviet aid
program. Moscow's sales of equipment had soared
after 1973 as the USSR shared in the Iranian buying
spree; by 1977 Iran had become the largest Third
World market for Soviet goods. In addition to Soviet
sales of $575 million in that year, Moscow earned
about $50 million for technical services on Iranian
projects. While the Soviet share of total Iranian trade
was less than 5 percent (including Iranian oil exports)
heavy machinery imports from the USSR made an
important contribution to Iranian development.
As for the East European countries, the most serious
impact of the turmoil in Iran was on Romania because
of Bucharest's extensive commercial and technical
relations with Iran and its reliance on Tehran for about
one-third of its oil imports. By yearend, Romania was
looking for other suppliers to furnish the crude
formerly bought from Iran. Earlier in 1978, Hungary
and Poland had agreed to participate with the Soviets
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in building the $400 million thermal power plant at
Isfahan, and Iran had agreed to expand oil trade with
Eastern Europe. Tehran had signed (a) an agreement
with Romania to raise trade to $1 billion annually by
1980 and (b) a $215 million protocol with Hungary
under which oil was to have made up 35 percent of
Hungary's imports from Iran.
Iraq
Baghdad's harassment of Iraqi Communists, the rapid
rapprochement between Iraq and Syria, Baghdad's
suspicion of Soviet and Cuban intentions on the Arab
peninsula, and Iraq's strong support of Eritrean rebels
in Ethiopia, all contributed to growing strains between
the USSR and Iraq during 1978. Nonetheless, the
USSR continued as Iraq's main source of weapons,
support equipment, and technical assistance in 1978.
Iraq, a preferred customer because of its hard currency
payments, continued to receive late-model equipment
before other Soviet clients. Its aircraft receipts
accounted for about 60 percent of 1978 Soviet
deliveries and included some of the USSR's latest
models.
Soviet military advisers in Iraq increased slightly, to
about 1,100, to help introduce sophisticated aircraft
and air defense equipment. In addition, about 150
Cuban and 100 East European military personnel were
employed as advisers and technicians. Some 100 Iraqi
military personnel went to the USSR for training and
150 went to Eastern Europe-about the same number
as in 1977.
While Iraq's $11 billion of annual oil revenues allow
Baghdad choices in exploiting foreign expertise, the
Iraqis continue to rely on CEMA countries for certain
kinds of development work-especially civil construc-
tion and for power and water resource development. In
addition to geopolitical considerations the Communists
eagerly pursue the relationship for oil and hard
currency earnings. Almost all of Iraq's oil shipments to
the USSR, either as barter or repayment for past
debts, are resold for hard currency.
In 1978, Moscow concluded a $140 million contract
for a water injection program at the North Rumaylah
oilfield that is designed to overcome pressurization
problems that have kept the field from reaching
capacity production and agreed to build an oil
desalting and dehydration plant under credits provided
in 1976. Moscow's contribution to Iraq's national
petroleum industry, the second most important object
of Soviet aid to Iraq, was enhanced by the onset of
production at the Soviet-developed Luhais field in
southern Iraq (at the rate of 50,000 b/d). All of the
field's output, developed under a $22 million Soviet
contract, is slated for export. The Communist interest
in long-term petroleum supplies became even more
important toward yearend 1978, when Iran stopped oil
exports.
Nearly 6,500 Soviets and East Europeans worked on
Iraqi development projects in 1978, and for the first
time Iraq employed a large number of Cubans-400
doctors sent under a protocol signed at midyear. More
Cubans are likely to pour into Iraq under road and
housing development contracts awarded Havana in
1978, and Baghdad has requested 300 more medical
personnel from Cuba.
North Yemen
Relations between North Yemen and the USSR
deteriorated in 1978 because of Soviet support to
South Yemen, which was promoting terrorism and
subversion in North Yemen. At the same time
extensive military modernization programs, financed
by Saudi Arabia and supplied by the United States and
France, helped orient North Yemeni procurement
toward the West.
On the economic side, the USSR agreed to extend
$38 million of new credits to triple the 100,000-ton
capacity of the Soviet-built cement plant at Bajil. The
new accord brought Soviet aid allocations to more than
$140 million. Late in 1978, China signed an agreement
to build a $20 million conference hall in Sana,
probably under new credits.
South Yemen
South Yemen's increasingly radical policies and its
willingness to allow Soviet use of air and naval
facilities in South Yemen have made it an appealing
target for Soviet arms diplomacy. The Soviet Union
remained Aden's principal source of military supplies
in 1978. The USSR had reportedly agreed to build
naval and air bases in Yemen, probably to support its
own operations.
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Reports of Communists saving the South Yemen
economy from collapse following Arab sanctions may
be exaggerated. Despite Aden's repeated call to
Communist governments for aid to replace lost Arab
assistance, only Hungary and East Germany among
the East European countries extended aid-Hungary
gave $5.9 million of credits for agriculture and East
Germany gave loans for consumer goods and fisheries
development. Only an $85 million commitment for
Aden's second five-year plan and $5 million of food
and other commodities were forthcoming from the
Soviet Union in 1978 even though Moscow had
announced in 1976 that it would quadruple its aid to
South Yemen in 1976-80.
Syria
Syria is not willing to break off its close arms supply
relationship with the USSR despite the deterioration
of Soviet-Syrian political ties in 1978.
The most important event in the Soviet-Syrian eco-
nomic aid relationship in 1978 was the completion of
the 10-year construction job on the 800-MW Euphra-
tes power plant and dam-an occasion so significant
that the Chairman of the Soviet State Committee for
Foreign Economic Relations traveled to Syria to
attend the celebrations. The half-billion dollar project,
for which the USSR provided $185 million in credits,
doubled Syria's electrical output, and is expected
eventually to increase the stock of arable Syrian land
by 700,000 hectares.
While the USSR provided no new assistance to Syria
in 1978, it signed a protocol for cooperation in the oil
industry and completed a 100-kilometer section of the
Damascus-Homs railroad, scheduled for full operation
in 1978. The large projects Syria requested under a
$300 million 1976 agreement (a nuclear power plant, a
steel mill, and large-scale irrigation) have not gone
forward.
East Germany made the largest economic aid commit-
ment to Syria in 1978, a $150 million credit for
equipment. The new aid may be used for financing two
cement plants, a $30 million power station, a textile
plant, and an electric light bulb plant.
Romania's nearly $400 million program, extended
over the past decade, still makes it Syria's most active
donor. Trial operation began at yearend on Romania's
largest project in the Third World, the 120,000 b/d
$400 million Banias oil refinery, which is expected to
create a surplus for export after fully covering Syria's
domestic needs for gas, fuel oil, and other products.
Almost half of Romanian aid has gone to this project;
another quarter went to build a triple superphosphate
project at Homs which is scheduled for completion in
1979.
Communist countries continue to benefit from Syria's
efforts to expand its public sector industrial base,
which represents 85 percent of total investment in the
country. East Europeans, especially, are making a
strong showing by putting together competitive bids,
often combined with generous repayment conditions.
Through these development contracts Communist
countries have captured a large share of the Syrian
market for machinery and equipment. In 1977 they
supplied 20 percent of Syria's total imports and are
believed to have maintained the same ratio in 1978.
Turkey
Prime Minister Ecevit's midyear visit to Moscow set
the stage for a new phase in Turkey's relationship with
Communist countries. These countries rallied with
large offers of economic assistance to Turkey as
Ankara's financial crisis deepened, and the USSR
pledged $1.2 billion of new development aid under the
10-year 1975 framework agreement. The USSR will
provide assistance for expanding the Iskenderun steel
mill and the aluminum plant at Seydesehir, as well as
for several sorely needed power plants. Altogether,
projects that would require $4 billion in Soviet credits
were under discussion by yearend.
Despite Turkish pressure on the USSR to finalize an
oil-for-wheat barter to relieve energy shortages by
yearend 1978, no deal had been consummated. The
deal would have meant Soviet annual sales to Turkey
of up to 60,000 b/d of crude beginning in 1979 (about
20 percent of Turkey's requirements) in return for
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wheat and tungsten. Imbalances were to have been
settled in hard currency. The oil agreement would have
doubled the $400 million annual trade level set in a
three-year agreement signed in September. As a
further measure for alleviating Turkey's energy crisis,
Bulgaria and the USSR are selling Turkey 1,200
million kWh of electric power annually, the Soviet
power flowing through a recently completed power line
to the Turkish border.
East European countries provided Turkey with unprec-
edented commodity support in 1978:
? Bulgaria pledged $35 million of industrial raw
materials and offered to construct an irrigation dam on
the Tunca River.
? East Germany promised $50 million of long-term
assistance for imports of German products.
? Romania agreed to ship $240 million worth of goods
to Turkey over the next three years, payable in one to
seven years at 7-percent interest.
Bucharest also agreed to (a) speed up construction of
an oil refinery in Anatolia, (b) begin work on an
associated 400-kilometer pipeline, (c) build a phos-
phate plant, and (d) provide assistance for the explora-
tion and production of minerals and oil. The refinery
and petroleum exploration equipment are being fi-
nanced by $200 million in credits pledged in 1976, but
financing for the other projects was not spelled out.
Other Middle Eastern Countries
Cyprus. Cyprus signed a protocol to import machinery
and equipment from Czechoslovakia, its first transac-
tion under a $5 million 1976 credit agreement.
Greece. Both China and the USSR have moved to
expand relations with Greece. Moscow agreed to study
the possibility of (a) financing an alumina plant in
Greece whose output would go to the USSR; (b) using
Greek shipyards for repair and construction of Soviet
vessels, (c) providing technical assistance for a nuclear
power plant, and (d) selling electricity and natural gas
to Greece. The USSR was awarded a contract for a
300-MW oil-fired power plant, despite Athens' re-
ported dissatisfaction with a 200-MW Soviet unit
installed earlier. A shipment of Greek tobacco inaugu-
rated the China trade under agreements signed early in
1978 in Beijing under which the PRC offered to barter
oil for Greek products.
Jordan. Jordan increased its economic ties with Com-
munist countries in the past year. A Czech-Jordanian
long-term trade and economic cooperation agreement
signed in June may lead to Prague's participation in
building power plants, a cement works, and ceramics
and leather factories in Jordan. Poland signed a
medical cooperation agreement with Jordan late in
September calling for technical assistance to Jordan
and medical training for Jordanian personnel. Roma-
nia retained the largest interest in Jordan under a $170
million contract to expand the Zarqa refinery, which
has been delayed by problems with contractors. China
signed its first trade agreement with Jordan.
Oman. Oman and China announced diplomatic rela-
tions at the ambassadorial level in May 1978.
Saudi Arabia. During 1978, China, Romania, and the
USSR expressed interest in establishing diplomatic
ties with Saudi Arabia.
General
The Marxist coup in Afghanistan in April provided
Moscow a unique opportunity to secure its influence in
this major border country, the USSR's oldest aid
client. By yearend, Afghanistan had signed a long-
term friendship agreement with Moscow, and nearly
3,000 Soviet economic and military technicians occu-
pied positions in every major military and economic
unit where they directed the inexperienced personnel
installed by the revolutionary government. Despite
rumors of new Soviet aid which would reach billions of
dollars, Communist countries did not pledge new
economic aid to Afghanistan to replace lost Arab
funding.
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Other South Asian countries signed new agreements
with the USSR in 1978 even though there was
widespread concern over the destabilizing effect of the
Afghani revolution and Moscow's role in the coup.
Fearing that India's growing reconciliation with China
would damage its long-range interests on the Asian
continent, the USSR was particularly lenient in
negotiations with India and signed a ruble/rupee
agreement.
Moscow's heightened activity comes at a time when
China's program is in a holding pattern. China faces
the erosion of its influence in Pakistan-its largest
economic and military aid client-because of Paki-
stan's turn to the West for sophisticated arms, to
match those recently acquired by India. Most South
Asian countries still view China as a valuable ally
against Indian and Soviet expansionism in the area.
Afghanistan
The number of Soviet military and economic advisers
in Afghanistan has doubled since the April 1978 coup
which brought the leftist government of Prime Minis-
ter Nur Mohammad Taraki to power. Nearly 3,000
Soviet advisers are now engaged in economic and
military duties in the country.
Moscow has disappointed Afghani expectations of
large amounts of new financial support to the economy.
The major Soviet economic contribution has been
technical services and training. With the arrival of
additional Soviet planners in 1978 to take over
managerial jobs in Afghanistan's economic ministries
and to survey and plan new undertakings, the number
of Soviet economic personnel nearly doubled to 2,000.
Since the coup, the USSR has not added new
commitments to the $1.3 billion program extended
over the past 24 years. Of this commitment, $500
million of project aid remains to be delivered. These
are hampered by Afghanistan's limited absorptive
capacity and by rebel activity in areas where projects
are under way. While no new commitments were
forthcoming last year, the Taraki government signed
60-odd contracts that had been negotiated by the
previous regime. The contracts are valued at $200
million; at least three-fourths will be financed with
existing Soviet credits, and the remainder are probably
commercial. Among the contracts signed were agree-
ments for:
? A $50 million rail and vehicle bridge over the Amu
Darya River at Hairatan, the first direct connection
between Afghanistan and the USSR.
? $30 million worth of petroleum equipment to be
provided in 1979 and 1980.
? Studies and designs for the $600 million Ainak
copper smelter and for a 300,000-ton fertilizer plant
near the existing Soviet-built plant at Mazar-i-Sharif.
? A $22 million seven-year project for mapping
northern Afghanistan.
? A $5 million renovation of the Sher Khan river port,
to increase its handling capacity to 2,500 tons of cargo
annually.
In November, Afghanistan announced new Soviet oil
discoveries in northern Afghanistan, paving the way
for Soviet construction of a 500,000-ton oil refinery,
which had been planned for several years. The Soviet-
developed petroleum industry eventually will provide
most of Afghanistan's own needs for oil and leave a
small surplus for export. The USSR now receives
3 billion cubic meters of Afghani gas annually
(through a Soviet-built pipeline) which services most
of Afghanistan's economic and military aid debts to
the USSR. Moscow agreed to pay a third more for
Afghani gas in 1978 and to make retroactive payments
for two or three years at that rate.
Moscow's position as the largest aid donor to Afghani-
stan has made it the principal trading partner as well.
In 1978, imports from the USSR (mostly machinery
and equipment, oil, and food) rose by nearly 25
percent, to $205 million, while exports to the USSR
(largely natural gas and agricultural products) re-
mained stable at $110 million. Because of inflation the
import increase was probably nearer 20 percent in real
terms while the volume of exports declined.
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Despite rumors of hundreds of millions of dollars of
impending credits, East European countries provided
no new assistance to Afghanistan in 1978. They signed
only a few small contracts under $40 million of old
agreements. Chinese aid has proceeded routinely.
Beijing is considering additional equipment and
pharmaceuticals for the hospital it is building in
Kandahar and has decided to add a cigarette factory to
the list of projects it will construct under its $45 million
1972 credit. The Chinese already are constructing a
textile complex and irrigation projects under the
credit.
Bangladesh
Bangladesh moved closer to China for military assist-
ance in 1978 to counteract Soviet power in the region.
The shift to China as a military supplier was
precipitated by Moscow's refusal in 1976 to supply
spares for the military equipment the USSR had
provided the Bangladesh military by that time.
The USSR was still active in the economic field in
1978 and provided $4 million of tools and dies for the
newly completed electrical equipment plant, financed
under a 1972 credit. Nonetheless, Dacca still
complained about the cost of Soviet aid. A $6.2 million
hard currency purchase of US wheat in 1978 to repay a
1973 Soviet wheat loan further irritated the
Bangladeshi.
China in 1978 retooled production facilities at the
Tongi ordnance plant, with new machines, electrical
components, and spare parts, and helped to keep
operations going by supplying industrial raw materials
and the services of 125 technicians. The $60 million
Chinese aid program, now going ahead under a 1977
agreement, shows typical Chinese prudence in select-
ing projects. China will construct a nitrogen fertilizer
plant and a flood control project, for which site
selection already has been made. China has further
agreed to study requests for a sugar refinery, a rice
bran oil mill, and coal development.
India
India's historical dependence on the USSR for air and
ground forces weapons was diluted in 1978 by a record
Western deal for fighter aircraft.While New Delhi has
supplemented its Soviet equipment purchases with
small amounts of Western equipment since the 1960s
and has manufactured British tanks under license, the
recent purchases and negotiations in the West have
moved into a major procurement category for the first
time-an indication of India's attempt to increase its
supplier base.
Revision of the ruble/rupee exchange rate in Novem-
ber ended a dispute that had plagued Soviet-Indian
relations for several years. Moscow's unprecedented
45-year deferment of the increased payment, however,
virtually eliminates the effect of the increase on annual
repayments.
The economic aid relationship of more than 20 years
was revitalized in March, with the upgraded Soviet-
Indian joint economic commission which set targets for
economic and technical cooperation over the next 10 to
15 years. The immediate focus was on development in
the steel- and machine-building industries, petroleum
production and processing, transport, and communica-
tions. This will include:
? A $500-550 million 600,000-ton alumina plant,
under the 1977 $340 million credit, to be paid off in
alumina. (The USSR already has agreed to take at
least 300,000 tons a year.)
? A 3-million-ton blast furnace complex at
Vishnakapatnam.
? An increase to 10.5 million tons in the combined steel
capacity at the Soviet-built Bhilai and Bokaro steel
mills.
? Oil and gas prospecting and development in West
Bengal.
? Exploitation of low-grade iron ore and manganese
deposits.
Soviet projects were given new life in 1978, after
almost a decade of foot dragging. Stronger Soviet
pressure for cooperation and agreements to develop
further the heavy industrial sector were accompanied
by completion of the aluminum smelter at Korba and
the first stage at the Bokaro steel plant. The Korba
smelter had produced 60,000 tons of aluminum by
yearend. The Soviets also continued deliveries to the
$250 million Mathura refinery, which is under con-
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struction, and the USSR began negotiations with New
Delhi to help expand the annual Indian fish catch to
8 million tons, from the present 2.25 million tons.
India's relations with Eastern Europe were marked by
new agreements that will involve ambitious plans for
economic development:
? Bulgaria signed a protocol to help with major
agricultural complexes at Bihar and Karnataka for
growing and processing fruits, vegetables, grains, and
meat. Bulgaria also agreed to form a joint fishing
company with India and discussed other possibilities
for cooperation such as in leather goods, electronics,
chemistry, and pharmaceutical plant.
? Hungary studied joint ventures in other LDCs for
which the Indian company Hindustan Machine Tools
Co., will provide some of the equipment. Other
ambitious projects under discussion include an alu-
mina plant at Gujarat, a titanium plant in Kerala, and
tungsten mining facilities in Rajasthan. Hungary
agreed to set up additional leather and shoe factories,
pharmaceutical plants, and fruit processing plants in
the south of India and is considering an Indian
proposal to build a coke oven in Hungary, similar to
one it provided Bulgaria.
? Romania has offered a 330-MW power plant and a
1,500-tons-per-day cement plant as part of a compre-
hensive economic program. The program also would
include assistance to India for oil and gas development,
vehicle assembly, chemical and leather goods produc-
tion, and development of the electronics industry.
Despite protracted efforts to identify and exploit new
trade opportunities, Eastern Europe's trade with India
dropped by $65 million in 1978 to about $450 million.
Pakistan
Despite Pakistan's anxieties over Moscow's increased
role in Afghanistan and fears about shifts in regional
power balances, Pakistan accepted $225 million in new
Soviet credits to cover costs in building the Karachi
steel mill. China remained Pakistan's favorite donor, in
spite of a declining aid program.
Pakistan has gradually shifted its reliance on China as
a major arms supplier. The PRC, which for a decade
since the Indo-Pak war was Islamabad's principal
source of arms, has been displaced by Western
suppliers who are able to provide the modern arms
Pakistan needs to offset Indian acquisitions.
Contrary to advice from the international financial
community, Pakistan accepted $225 million in addi-
tional Soviet credits to complete the Karachi steel
mill-for which the USSR had already provided $430
million-including a reallocation of an earlier unused
$45 million credit. The USSR will take 270,000 tons of
iron and steel annually as repayment for the new
credits. Recognizing the payments strains, Moscow
allowed Pakistan to defer payments for individual
facilities at the mill until one year after they go into
production, instead of a year after deliveries were
made. Western aid donors have criticized the diversion
of scarce resources to the steel plant, while Islamabad
requests budgetary support and debt rescheduling.
Among East European countries, Poland offered to
supply 16 ships beginning in 1980. Romania opened
the $60 million Karachi oil refinery built with $16
million of Romanian credits. Bucharest agreed to
proceed with a cement plant, for which financing was
announced last year, and to study construction of a
heavy electrical equipment complex.
Other South Asian Countries
Nepal. Nepal attaches great importance to its ties with
China-a $185 million grant aid donor. In 1978,
China agreed to study construction of a sugar mill and
pulp paper plant that could cost up to $40 million.
China also completed the Hitaura textile mill under a
1972 agreement and speeded construction of the
60-km Gurka-Narayanghat road. Nepal also will
receive its long-awaited rosin and turpentine plant
from the USSR under a $4.3 million contract signed in
mid-1978. Even though the Nepalese were disap-
pointed with the terms, they are easy by Soviet
standards-l2-year repayment after three years'
grace at 2.5-percent interest.
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Sri Lanka. Sri Lanka received $120 million in new aid
from China and the USSR for water resource develop-
ment and a $20 million grant from East Germany for
25 rice mills and 500 railway cars. The Chinese and
Soviet offers for assistance to Colombo's billion dollar
Mahaweli River development scheme in eastern Cey-
Ion-the center piece of Colombo's agricultural devel-
opment scheme in which several Western governments
also are expected to participate-includes China's $60
million offer for roads, housing, schools, and public
buildings. The Soviet commitment-also in the $60
million range-is for two irrigation projects, which
apparently are in addition to the Samanalawewa
project being implemented under a $57 million 1975
credit. In addition the USSR will provide five ships to
the Ceylon Shipping Corporation under a $45 million
contract.
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