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lease 2006/11108: CIA-RDP79-00927A004200080002-8 25 October 1963 SOVIET FOREIGN ECONOMIC PROGRAMS CENTRAL INTELLIGENCE AGENCY OFFI CE OF RESEARCH AND REPORTS ~10FWCDF Page GROUP 1 Excluded from automatic downgrading and declassification Approved For Release 2006/11/08: CIA-RDP79-00927AO04200080002-8 w/ Approved For Release 2006/11/08: CIA-RDP79-00927AO04200080002-8 Approved For Release 2006/11/08: CIA-RDP79-00927AO04200080002-8 w SECRET The Soviet economic offensive of the past dec- ade has been more successful in establishing a So- viet presence throughout the free world than in significantly adding to Soviet prestige. It appears that the USSR now is more realistically assessing the impact of aid and trade and their contribution to long-run policy goals. As a result there are changes in Soviet tactics and techniques. The USSR's competition with the West remains not only a contest for influence in the underdeveloped areas but also a persistent effort to match Western industry in pro- ductive capacity. Current economic problems within the USSR, however, complicate this latter goal and require increasing Soviet attention. Soviet Foreign Aid Despite these domestic eco- nomic problems, the USSR continues its relatively limited-scale for- eign aid program. Its aid com- mitments are up again this year-- to about $205 million--and its deliveries under existing pro- grams--which will remain a drain on the Soviet economy--are ex- pected to surpass last year's $288 million. Credit-commit- ments had fallen from the peak year of 1959 when $850 million was extended--about half for India's development plan--to a low of $77 million last year. The aberrations recently evident in Soviet aid extensions relate in part to the lack of simple impact projects and the outstand- ing balance of more than $2 bil- lion in undrawn credits. Experience derived from previous aid operations which have sobered Soviet views as to costs and returns, new pressing internal economic considerations, and requirements to support the SECRET floundering Cuban economy cur- rently complicate Soviet for- eign economic moves. The extension of economic aid programs has become a more studied process. The USSR now is less likely to pass out $100- million credits for their imme- diate political impact without some attention to longer run considerations. Where exploit- able circumstances are presented, as in Algeria recently, the USSR still moves quickly. How- ever, a large Soviet mission spent nearly a month surveying the Algerian economy before ex- tending a $100-million credit. In general, Moscow appears to be avoiding aid commitments which might saddle it with re- sponsibility for the multiplic- ity of problems which would arise from underwriting the economy of an underdeveloped country. When the USSR initiated its aid program in 1954 its lack of contact with independent Approved For Release 2006/11/08: CIA-RDP79-00927AO04200080002-8 Approved For Release 2006/11/08: CIA-RDP79-00927fp,004200080002-8 SECRET SOVIET FOREIGN AID TO NON-COMMUNIST COUNTRIES (MILLION US DOLLARS) Credit extensions Drawings SECRET NO FOREIGN DISSEM L14 non-Communist countries led it to hope that it could develop a meaningful attachment through the extension of aid. Subse- quent experience has shown the USSR that such is not the case. Even Cuba, almost completely dependent on Moscow for assist- ance, does not subscribe fully to Soviet policies. However, the USSR, once it embarked on a foreign aid pro- gram, found it was desirable to continue. Moscow appears to accept the limited leverage which can be derived from for- eign aid and to accept rebuffs * as of 24 Oct 1963 ** estimate from time to time as part of the game. As the Soviets have dis- covered the limitations of their foreign aid, so have the under- developed countries. Most have found that there is no partic- ular mystique to Soviet aid, that it, like all external gov- ernmental aid, does not of it- self alleviate all economic pressures or assure meaningful economic progress. The USSR finds only limited opportunity for the blanket offer that formed the break-through SECRET 142 288 Approved For Release 2006/11/08: CIA-RDP79-00927AO04200080002-8 Approved For Release 2006/11/08: CIA-RDP79-00927AO04200080002-8 %04 *Wd SECRET ICELAND SOVIET ECONOMIC AID EXPENDITURES in non-Communist countries, 1954 - mid-1963 (Millions of US D.II-) :xrrvl>cn _Toto1 no s E - =Ad ' Dff ,d $3247.4 million 18.9 1.7 4.6 TURKEY ~ SVRIA MALI SUDAN z 1 FNfIN'~(.1'.I.A `., 1I11o 1'1,\( X11 ~N A tits IN lA M.\I I `)M~Itl l( for its early aid program. Most underdeveloped countries now seek better designed aid offers. Many of them are so lacking in technical qualifications that the USSR must commit increasing numbers of a wide range of trained Soviet personnel in addi- tion to financial or material aid. The USSR, to avoid tar- nishing its reputation in Africa, reluctantly agreed to assume full responsibility for operation of its aid program in Guinea when it became clear that Guin- eans were unable to administer the program as they should. The backlog of unused credits which measure the future burden to be placed on the So- PAKG/ INDIA BURR 1 22b I"ji1,. I II"." 1'1.,'I SECRET NO FOREIGN DISSEM viet economy is largely due to failures on the part of the underdeveloped countries rather than the USSR. A case in point is Indonesia, where there is relative indifference to eco- nomic growth. Of the $370 mil- lion extended from 1956 to 1960, only $56 million has been drawn. Experience in countries such as Indonesia, where political frictions and indifference exac- erbate a deteriorating economy, presumably has led the USSR to avoid becoming involved in more countries where the prospect for economic improvement is dim de- spite relatively major aid in- jections. This probably ex- plains why Moscow has failed to become more involved in SECRET Approved For Release 2006/11/08: CIA-RDP79-00927AO04200080002-8 Approved For Release 2006/11/08: CIA-RDP79-00927AO04200080002-8 SECRET Brazil, despite exploitable po- litical circumstances there. In some cases recently the USSR has discouraged applications for aid by indicating that only medium-term credits at rela- tively high rates of interest are available. Moscow has discovered that the rewards of foreign military aid tend to be longer lasting than those from economic assist- ance. Economic progress in un- derdeveloped areas may be frus- trated by many factors--rapidly expanding populations, uncertain world commodity markets, weather. Military development, by con- trast, is relatively easier to achieve and has greater impact. Nationalism prevalent in all underdeveloped countries, which see threats to their existence from all sides, requires the creation of a military estab- lishment. The surface-to-air missile site now has become the status symbol. The USSR is aware that the military assume key roles in political develop- ments in underdeveloped coun- tries and is making considerable efforts in its military program to train at Soviet academies those middle-grade officers who will achieve positions of power in the next decade. Furthermore, shipments of military equipment abroad do not tax Soviet devel- opment as much as deliveries of production equipment. Soviet Foreign Trade The growth of Soviet trade from $3.25 billion in 1950 to over $13 billion in 1962 is a symbol of growing maturity in the USSR. Not only has trade grown, but its composition has become more diverse and the number of trade partners has ex- panded. Soviet export capabil- ities are chiefly responsible for restricting the size of the market made available to the West. Exchanges with Com- munist countries probably will continue to account for over 70 percent of Soviet trade. At the start of its offen- sive in the underdeveloped coun- tries in 1954, the USSR developed some trade which was of dubious economic importance but had po- litical impact. Those economic benefits which did accrue have been most significant in the moderate but continuing growth in this trade. Moscow appears satisfied with the limited de- pendence that arises from trade exchanges. Deliveries of aid goods now account for about 50 percent of Soviet exports to the non-Commu- nist underdeveloped countries. Most of the remaining trade with the underdeveloped countries is on a barter basis and will not be affected to any great degree by current Soviet efforts to step up trade with industrial countries. Moscow has recently been reluctant to engage in new trade gambits in the underde- veloped countries, and has been indifferent to some approaches. This has been particularly no- ticeable in its trade dealings with Latin America. To satisfy SECRET Approved For Release 2006/11/08: CIA-RDP79-00927AO04200080002-8 Approved For Release 2006/11/08: CIA-RDP79-00927AP04200080002-8 SECRET SOVIET FOREIGN TRADE (BILLION US DOLLARS) with Communist Countries I? with Industrial West with Underdeveloped Countries the efforts of a Chilean mis- sion, Moscow agreed only to buy copper directly from Chile rather than through West Ger- many where the metal is proc- essed. Although this estab- lishes a new contact, it does not increase Chilean export earnings. Only minor trade was developed with British Guiana this year, but the USSR an- nounced that it was "ample" when Jagan began to seek addi- tional trade and assistance. This year's trade agreement with Brazil was concluded only after weeks of intense nego- tiations, and it may founder if the USSR is unable to provide wheat--l.3 million tons during the next two years--or feels compelled to find a hard-cur- rency buyer for the 5 million tons of oil promised in 1964-65. Soviet attention now seems firmly riveted on expanding trade with the industrial coun- tries to obtain equipment and technology to speed internal economic expansion. To procure such goods the USSR has tried to expand exports of oil and materials to the West or to SECRET Approved For Release 2006/11/08: CIA-RDP79-00927AO04200080002-8 Approved For Release 2006/11/08: CIA-RDP79-00927AO04200080002-8 SECRET seek credits for significant plant purchases. The current Soviet effort is to pit industrial suppliers against one another in an at- tempt to get the best possible credit terms. Now that the ex- tension of sizable credits is established practice, Moscow is' seeking to lengthen credit terms from five years to ten or twelve for its industrial purchases. Despite the cash drain in the next year occasioned by the extraordinary need to im- port as much as $1 billion worth of grain, there is no evidence that the USSR intends any serious modifications in its plan to buy advanced West- ern chemical and other indus- trial equipment. The appetites of Western manufacturers is whetted by continuing propa- ganda that the USSR seeks bil- lions of dollars'worth of equip- ment. The American Embassy in Moscow points out that Moscow may plan to place tentative orders with Western business- men, who would then bring pres- sure on their governments to provide adequate financing. Another effort to lengthen credit terms has arisen in the negotia- tion of the Soviet-Italian trade agreement. Here talks have been prolonged by the issue of the nonavailability of long-term credits to the USSR. A common policy on credits now is under discussion in Western Europe, and the USSR may be faced with a united front in its negotia- tion of major trade pacts with West Germany and the UK next year. Moscow is certain, how- ever, to garner support from industrialists in Western Europe and Japan who have become con- vinced that a vast new market is opening up. In this trade campaign the USSR has attracted Western offi- cials to Moscow. Leading polit- ical, trade, and financial per- sonalities have been invited and are visiting Moscow. Brit- ish, Canadian, West German, and Japanese figures have recently visited the USSR, and France's finance minister is scheduled to go in January. There seems little question that Moscow will step up its purchases of chemi- cal plant equipment, but it apparently will bargain hard for the best possible terms. (SECRET NO FOREIGN DISSEM) SECRET Approved For Release 2006/11/08: CIA-RDP79-00927AO04200080002-8 Approved For Release 2006/S,&C,'RI e;qDP79-00927A004200080002-8 Approved For Release 2006/f198:CIA-RP79-00927A004200080002-8