SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS 1 JULY-31 DECEMBER 1957

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92B01090R000400010005-8
• Release Decision: RIPPUB
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• Document Page Count: 16
• Document Creation Date: December 19, 2016
• Document Release Date: January 25, 2006
• Sequence Number: 5
• Publication Date: February 28, 1958
• Content Type: REPORT

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:SECRET
ECONOM :.INTELLIGENCE REPORT
SINO-SOVIET 13 ' ECONOMIC AC
IN UNDER
D EV ELOPED AREA(
EI#-R14-S4
28 =ebru*ary 1958
ECONOMIC tJELLI3ENCE COMkI
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S-E-C-R-E-T
ECONOMIC INTELLIGENCE REPORT
SINO-SOVIET BLOC ECONOMIC ACTIVITIES
IN UNDERDEVELOPED AREAS
1 July - 31 December 1957
EIC-R14-S4
ECONOMIC INTELLIGENCE COMMITTEE
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FOREWORD
The reports on Sino-Soviet Bloc Economic Activities in Underde-
veloped Areas in the EIC-R-11+series provide periodic summaries anc
analytical interpretations of significant developments in the ?concmic
relations of Sino-Soviet Bloc countries with the underdeveloped cotn-
tries of the Free World. These developments are reported on a current,
factual basis in the Biweekly Reports in the EIC-WGR-1 series, under
the same title.
This report,, covering the 6 months from 1 July through 31 Decen-
ber 1957, constitutes the fourth periodic supplement to EIC-R-1.4,
the background report on Sino-Soviet Bloc Postwar Economic Activities
in Underdeveloped Areas, Augiist 1956, SECRET. This supplement w?s
prepared by a Working Group of the Economic Intelligence Committee.
including representatives of the Departments of State, the Army, tt<
Navy, the Air Force, Commerce, and Agriculture; the International
Cooperation Administration; the Office of the Secretary of Defense;
and the Central Intelligence Agency. It was approved by the Econoir i_c
Intelligence Committee on 21 February 1958.
For purposes of this report, the term underdeveloped areas in-
cludes the following Free World countries: FIT-all countries n
South and Southeast Asia; (2) all countries in the Middle East. in-
cluding Egypt, Sudan, Turkey, and Greece; (3) the independent _.oun-
tries of Africa, except the Union of South Africa; (1i) the European
countries of Yugoslavia, Iceland, Spain, and Portugal; and (5) all
independent countries in Latin America.
It should be noted that the figures for Sino-Soviet Bloc
aid a
i
trade throughout this report -- both in the text and in the
represent estimates based on the best available information.
tb]es
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CONTENTS
Summary . . . . . . . . . . . . . . . . . . . . . . . . . .
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EIC-R14-S4 S-E-C-R-E-T
SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS
1 JULY - 31 DECEMBER 1957
Sun unary
Sino-Soviet Bloc economic activities in underdeveloped countries
of the Free World expanded more rapidly during the last 6 months cf
1957 than in any previous half-year period since the beginning of the
economic offensive in 191)4. Two large credits, as well as a number
of smaller ones, were extended; definite obligations were made on
several large credits extended in the past; considerable progress
was made on projects that had been started in earlier periods; and
trade continued to increase rapidly. Arms deliveries continued, a''Id
agreements were made for additional deliveries. At the beginning ;,f
1958, Bloc countries were actively negotiating new agreements with a
number of underdeveloped countries which have heretofore accepted
little or no Bloc assistance.
The Afro-Asian Peoples Solidarity Conference held in Cairo in
December 1957 afforded an advantageous propaganda platform for
broadening the economic offensive and tying it to other elements o-r
Sino-Soviet diplomacy. The principal Soviet speaker at the meeting-;
asserted that the USSR was ready to aid any underdeveloped country
in Asia or Africa to the limit of its ability. This gesture, whici
was given worldwide publicity, was accompanied by a Soviet proposes
that underdeveloped countries nationalize foreign-owned industries
in order to further their economic development. In January 1958 type
Soviet Government representative at the UN Economic Commission for
Asia and the Far East meeting in Bangkok specifically offered :credits
up to 5 years to cover purchases of equipment and machinery f-, )m
the USSR. He also alluded to difficulties incurred when Asian coun-
tries rely on Western purchasers of their exportable production and
stressed the possibility of the USSR signing long-term agreements tD
import the basic export items of the area.
The Bloc also made a, number of proposals to specific countries,
in particular to underdeveloped countries that had accepted little
or no Bloc assistance. The USSR offered Iran a broad plan of assie?;-
ance for economic development as well as a number of separate cpeci'ic
proposals, including one that would involve Soviet participation in
the development of petroleum in northern Iran. Poland offered to
assist Brazil in developing its iron deposits. Offers were also mace
to other underdeveloped countries, including Pakistan, Tunisia, Sudn,
and Ghana.
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substantial gains of the USSR, particularly as a result of the
Soviet demonstration of scientific achievement in the field of
rocketry, have had an extraordinary impact in underdeveloped coun-
tries, where these accomplishments have been widely acclaimed as
proof of the general progress made by the USSR, itself so recently
an underdeveloped country. 'T'hese gains encouraged the USSR and the
other Bloc countries to pursue their economic offensive with in-
creased vigor. At the same time, some underdeveloped countries that
previously accepted Bloc offers have indicated their willingness to
receive more assistance, while some others previously averse to ex-
panding economic relations with the Bloc have lost much of that
reluctance. Furthermore, the restoration of stability in Eastern
urope, Following the Hungarian uprising and the change of regime
in PoLa.d, has put the Soviet leaders into better position to ex-
;u1_oit immediate opportunities as well as to promote new opportunities.
Pram the beginning of the economic offensive to the close of
1'57, Wino-Soviet Bloc credits and grants to underdeveloped countries
billion.* New credit
of the Free World have amounted to about $1.9
cxLensiuns, which had been limited during the previous half-year, expanded
during We last b months of 1957 by about $480 million.
opportunities which the USSR had been nurturing for several
months opened the way for a Soviet economic credit agreement with
Oria for $168 million and for Soviet and Czechoslovak credit agree-
ments with Egypt amounting in total to $231 million. Syria also
signed a new military agreement with the USSR, probably involving
an additional $jO-million credit, and Egypt made arrangements for
obtaining an unknown amount of additional arms from the USSR. Turkey
and Burma received small credits from the USSR, the former about $3
million and the latter about $7 million. Burma also received a credit
of about $4 million from Communist China. Ceylon received a credit
of 41h million from Czechoslovakia and a grant of about $16 million
from Communist China. Afghanistan signed a new agreement with the
USSR calling for a $15-million credit for exploration and develop-
ment of petroleum and mineral deposits in northern Afghanistan.
:_!=veral new agreements were being negotiated at the close of
1957. In some cases, negotiations have already resulted in the
signing of assistance agreements; in other instances, acceptance
eeenms imminent. An agreement in principle between the USSR and
Ceylon was reached in January 1958 providing for a long-term credit
of w!t million. In January 1958, India signed a contract for the
construction of a foundry which calls for Czechoslovakia to furnish
24 million to $36 million in credits. Also in January, Communist
value e figures igures in this report are given in US dollar equivalents.
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China extended a credit of $16 million to Yemen. New Bloc credits
to Yemen were under negotiation. Arrangements were being ma;ie fcr
Bloc shipments of arms to Indonesia.
Moreover, there are several Bloc offers outstanding on wiich
negotiations are not currently in progress but which may be r)penei
during the coming months. These include, in particular, the Soviet
offers to Iran and the Polish offer to Brazil referred to above.
Bloc offers to other underdeveloped countries, including Pakistan,
Tunisia, Sudan, and Ghana, appeared to remain open for conscaera.-
tion, even though they are not now being actively negotiated-
Notable progress was made on Bloc projects during the l.a:;t 6
months of 1957. Drawings on Bloc credits and grants now amount
to about $565 million compared with about $420 million by 1 July
1957. Drawings on economic credits and grants during the last
half of 1957 are conservatively estimated to have been well above
$100 million. Moreover, definite obligations under credits and
grants were about $1.2 billion at the close of 1957 compared with
about $700 million 6 months previously. There are therefore rleaz
indications that the Bloc credit and grant program is moving rapicly
into the performance stage.
There was also an increase during the last 6 months of 19''( ir
the number of Bloc military and economic specialists in underde-
veloped countries. Durin; this period, about 2,400 Bloc specialists
were working in 19 underdeveloped countries. During the prev ous
6-month period, about 2,000 Bloc technicians were employed in variDus
tasks in underdeveloped countries.
Preliminary data on :1057 Bloc trade with underdeveloped .x?un-
tries indicate that total trade may have been about 25 percent.
greater than in 1956. During the first 6 months of 1957, Bloc trade
with these countries was nearly $2 billion on an annual basil-:.. Th_s
was approximately $500 million above the 1956 level. Imports by tie
Bloc accounted for the greater part, of the rise. During the first
6 months of 1957, such imports, stated on an annual basis, exceede<
$1 billion, about 40 percent higher than the 1956 level.
Commodity trade data for 1956 indicate that about 50 percent o_'
Bloc exports to underdeveloped countries consisted of machinery,
transport equipment, and manufactured goods. Fuel products, pri-
marily petroleum, accounted for about 10 percent of Bloc exports,
and food products and crude materials accounted for most of the re
mainder. Since 1953, there has been a decided shift in the composi-
tion of Bloc exports to underdeveloped countries. In 1953, shipments
of food products and crude materials amounted to more than 90 oercent
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of iil.oc exports to underdeveloped countries, and shipments of manu-
factured products to about 25 percent. For the most part, the rise
in importance of manufactures was accounted for by the European Satel-
Lites. Although Soviet exports of manufactured items rose significantly,
they were small in relation to Free World or even Satellite exports of
such goods.
Bloc imports from underdeveloped countries in 1956 consisted
predominantly of food products and crude materials. This was also
the case in 1953. Cotton, imported primarily by the Satellites and
Communist China; tobacco, imported primarily by the Satellites; and
rubber, imported mostly by the Satellites and Communist China, were
the major import items in terms of value.
A. summary of -bloc economic activities in underdeveloped areas, by
region, follows:
South Asia.
During the last 6 months of 1957, Sino-Soviet Bloc economic activi-
ties in South Asia were focused primarily on India, Afghanistan, and
Ceylon. 'the Soviet Bloc continued to play an important role in the
development of the Afghan economy, but the government of Afghanistan
tended to proceed cautiously in utilizing Soviet credits and con-
tracted only for surveys of projects which it believed were most essen-
tial. Apparently disturbed over the prospects of overextending the
country's limited financial resources, the government decided, at
least for the time being, not to incur any new foreign obligations
from any source. However, the Afghans apparently intend to utilize
the remainder of outstanding Bloc credits. Afghan officials con-
tinued to show concern over the high cost estimates of certain Bloc
projects, some of which were later revised downward by the Russians.
In India the major developments were agreement on the utilization
of the $lt16-million Soviet loan originally extended in November 1956
and a new Soviet offer of a $25-million credit. A Czechoslovak credit
of from $24 million to $36 million for a foundry forge plant was ac-
cepted in early January 1958. The Indian government was generally
satisfied with the progress which the Soviet Bloc has made in imple-
me_nting the $270 million in economic assistance that it had extended
through 1957. Bloc trade with India continued to expand in 1957,
though it still represented a. small percentage of total Indian trade.
The urgent need for external assistance to finance the foreign ex-
change costs of India's Second Five Year Plan continued to make India
receptive to Soviet Bloc as well as Free World economic aid.
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The arrival of a high-level Soviet mission in Colombo to ne-
gotiate an economic aid agreement with Ceylon and the implementation
of projects under the Czechoslovak-Ceylonese Economic Cooperation
Agreement of August 1956 featured expansion of Ceylon's economic re-
lations with the Sino-Soviet Bloc. Ceylon and Communist China con-
cluded a new 5-year rice-rubber agreement which provides for f;ranl
economic assistance to Ceylon in lieu of the premium which Ceylon
received under the old rice-rubber agreement. Primarily the ove3n-
ment's neutralist policy but also economic needs have increased
Ceylon's interest in Sino-Soviet Bloc economic assistance.
Burma, Cambodia, and Indonesia continued to be the focal rnoint.s
of the Bloc economic offensive in Southeast Asia during the s~~con6
half of 1957. Burma's receptivity to Bloc technical assistance aril
offers of credit appeared to mount. Cambodia received addii:nal
deliveries of aid goods from Communist China.
The Indonesian Parliament ratified the $100-million Soviet crel.it
in February 1958. Indonesia continued to receive Soviet jeeps on
credit. The USSR and Poland have offered to supply merchant ships
to replace Dutch vessels formerly used for inter-island trade. Th.
number of Bloc techniciazis in Indonesia increased sharply to above
100, including 76 East Germans for a sugar mill, 20 Czechoslovaks
for a tire factory, and 8 Russians to service the jeeps. In a ddi-
tion, Indonesia was visited by trade delegations from Hungary,
Poland, and Czechoslovakia.
Burma, in order to facilitate the work of the resident o Let
agricultural group, was interested in Soviet credit offers est.imat-d
at up to $10 million. Burma reaffirmed its determination to pro-
ceed with the construction, with Soviet assistance, of the tech-
nological institute, hotel, and hospital. The planned Burmese
expenditures for these projects during its current fiscal year were,
however, reduced 30 percent to $2.6 million.
In Cambodia the Chinese Communist aid program seems to be pro-
ceeding to the satisfaction of the Cambodian government and has re-
ceived favorable publicity. The value of the aid goods received
since the initial shipments in April 1957 is estimated to be u;: to
half of the 22.4-million 1Trant.
Notable developments in Southeast Asia's trade with the Flee iFF-
eluded the decline in Burma-Bloc trade, especially the sharp drop
in Burmese imports from Communist China. The two leading rubber
producers in the area increased their exports of that commodity to
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Communist China. Indonesian exports through. June amounted to 32,000
tons: Malayan exports through October, to 20,000 tons.
Ai dd. Le East and Africa.
luring the last half of 1957 the Soviet Bloc continued to make
Egypt and Syria the principal targets of its economic offensive in
this area. Yemen, Sudan, and Iran were other countries in which the
Bloc strengthened its economic position.
in. Egypt the most significant developments were economic aid
agreements with the USSR and Czechoslovakia which if implemented
will enable Egypt to finance a large portion of the foreign exchange
costs of its 5-year industrialization program. Egypt also signed
contracts with Soviet and Czechoslovak organizations for financial
and technical assistance for various sectors of the Egyptian oil in-
dustry. The need for external assistance for its industrialization
program has made for closer economic ties with the Bloc. Soviet
Bloc military and economic assistance and the generally declining
Free World demand for Egyptian cotton will enable the Bloc to main-
t,atin its large share of Egyptian foreign trade.
highlighting economic activities in Syria was the conclusion
of the Soviet-Syrian economic agreement to provide financial and
technical assistance for Syria's contemplated development program.
A new military assistance accord was probably arranged, and the
repayment terms of arms credit eased.. The Czechoslovaks and the
Bulgarians made progress on various capital assistance projects
awarded earlier in 1957. Soviet Bloc trade with Syria expanded
markedly during the first half of 1957, and even more impressive
advances are expected for the second half. Political rather than
economic factors have been most instrumental in making Syria ex-
treme-1,y vulnerable to Soviet Bloc economic and military overtures.
The continued arrival of Soviet Bloc supplies and technicians
in connection with military economic development projects further
strengthened the Bloc's position in Yemen. The USSR offered to
provide Sudan with large-scale economic assistance and to buy the
large cotton surpluses in exchange for manufactured goods. In-
creased.cotton sales to the West toward the end of the year reduced
Sudan*s immediate receptivity to these offers. Poland proposed
['irian ial and technical assistance for the development of Jordan's
iron ore deposits as well as for the rehabilitation of the Hejaz
railroad.
Here was a marked expansion in Soviet offers of economic assist-
a.rrc~cc to Iran, which offers have become increasing=ly difficult for
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the Iranian government to refuse. An increase in trade with the
Soviet Bloc was also evident during 1957. Greece's economic re-
lations with the Soviet Bloc were highlighted by a continued ex-
pansion of trade with Bloc countries, particularly the USSR. Turkish
approval of a Bloc offer of financial and technical assistance in
establishing a glass factory -- despite Soviet threatening notes c)n-
cerning the Syrian crisis -- featured Bloc economic relations with
Turkey.
Bloc economic activities in Africa continued to be confined
mainly to trade, which has shown an increase above 1956 levels.
Tunisia and Morocco signed several trade agreements with Blor?
countries envisaging further expansion of trade. Various Soviet
Bloc trade delegations, moreover, visited African countries, and
there has been an increase in cultural exchanges.
At the end of 1957 the threat of Sino-Soviet economic penetration
in Latin America appeared to be at least as great as at any time irr
the past, and considerably greater than during the previous 2 year:>.
After a period (in 1956 and 1957) when Bloc efforts and Latin Amer-.can
receptivity had diminished, evidence accumulated that both were again
increasing. More important, emphasis appeared to center on develor--
ment credits involving long-term relationships leading to close in-
volvement of the Bloc countries in several key Latin American econo-
mies rather than, as in 1915)+-55, on direct trading, which waxes anci
wanes with the changing conditions in broader world markets.
During much of 1956 and the first half of 1957, Bloc offers of
assistance to Latin America in economic development, trade agreement
negotiations, and trade volumes declined from earlier levels. The
primary Bloc targets in Latin America -- Argentina, Brazil, and
Uruguay -- were encountering new problems involving hard currency
shortages, capital equipment needs, and embarrassing surpluses of
some products, all of which tended to increase their susceptibilit,
to economic penetration.
Bloc nations were quick to seize the opportunities presented.
Attractive credit offers were made to Brazil and Uruguay for indus-
trial and transport equipment. Bloc concessions to Argentine and
Uruguayan demands for a degree of multilateralism in payments
arrangements resulted in several new agreements with these countries.
In Argentina, Brazil, and Uruguay, hopes were revived that trade with
Bloc countries and credits from the USSR and Poland could be used
to solve domestic problems, achieve development goals, and stimulate
the interest of Western nation.,. Argentina, especially, reversed
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an earlier stand and reportedly requested the USSR to renew old credit
offers and extend new ones for capital goods and petroleum.
:implementation of Bloc commitments to Latin American countries
was perhaps more satisfactory in 1957 than in earlier periods. Al-
though the volume goals of some trade agreements were not achieved,
others were exceeded, and Latin American countries seemed less per-
turbed in late 1957 concerning credit balances in Bloc currencies
than they had been in 1955 and 1956.
otal Latin American - Bloc trade in 1957 fell an estimated 10
to 11, percent below 1956 levels. This reduction was most striking
in Argentine and Uruguayan imports but was true for several other
trading countries also. Cuba, which shipped a larger volume of sugar
to the USSR at very high prices, was the only country to register a
major increase in Bloc trade, and without this factor the over-all
decline for the area would have been about 25 to 30 percent. The
volume of Brazilian-Bloc trade, as in 1956, remained high and balanced.
;hrushchev's June purge of the Soviet leadership brought an im-
medi-: .te improvement in Soviet-Yugoslav political and economic rela-
tion.e. The USSR and East Germany fixed new delivery schedules for
Investment projects which had been postponed during the period of
-,trained relations. Despite its past experience, which made it wary
in dealings with the USSR, Yugoslavia became more receptive to deal-
ing with the Bloc as the political climate improved.
he Bloc continued to account for an increasing share of total
Yugoslav trade. Even during the period of strained political rela-
tions prior to June, trade flowed smoothly; during the first 7 months
of trade with the Bloc constituted 20.3 percent of total Yugo-
slav trade compared with 16.6 percent during the same period in 1956.
Yugoslavia also succeeded in negotiating 3-year trade protocols with
Poland and Czechoslovakia during the half year, thus putting trade
with these countries on a firm footing. Yugoslavia now has such
agreements with four Bloc countries which accounted for 82.9 percent
of its trade with 'that area during 1956. Both in trade relations and
in tecrnical exchanges, however, the Yugoslav position was marked by
a clluzious and businesslike attitude. The number of Soviet technical
experts in Yugoslavia -- most of them working on Soviet-financed
projects -- was small, and the Yugoslavs apparently intend to keep it
that way.
eel and remained an important target for Bloc economic penetra-
tion efforts during the second half of 1957.. Trade with the Bloc
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continued to grow, but a decision on acceptance of a $24.5-million
Soviet loan offered earlier in the year was obviated by loan com-
mitments under NATO auspices of $5 million from the US and the
equivalent of $2 million from the Federal Republic of Germany. Ful-
fillment of previous Bloc economic programs, involving small rural
hydroelectric power stations and construction of fishing boats, pro-
ceeded without complaint.
Although the need for further foreign assistance will continue
in 1958, it is unlikely that the present Icelandic Cabinet could
accept large-scale aid from the Bloc (for example, of the order of
magnitude of the Soviet offer of $2!.5 million)-without causing
withdrawal of the Social Democrats and the resultant fall of the
Cabinet. Smaller-scale Bloc credits, similar to those already re-
ceived, may be accepted, and the Communists may be able to exploit
their position in the Cabinet to bring about acceptance, perhaps ir.
exchange for some concession from them. So far as trade is concerr..ed,
receptivity to maintaining a high level of exchanges with the Bloc is
likely to continue substantially unchanged in view of the fact thai
the drastic internal economic measures necessary to reorient trade to
the West are not in prospect.
Portugal's economic relations with the Sino-Soviet Bloc showed
no increase during the ;period. Targets set in trade and payments
agreements were not even approximated, and Portuguese trade with
the Bloc is declining. Exports to the Bloc continue to consist alnost
wholly of cork and cork products. Although negotiations were under
way for the renewal of the trade agreement with Poland, actual trade
under the previous agreement was less than 5 percent of the $1.5 mil-
lion target each way. Trade with the Bloc remained a negligible p;_Lrt
of Portugal's total trade. It was reported that many items imported
from Hungary were of poor quality, and new commercial contracts be-
tween Portuguese and Hungarian traders provide for quality control;
on Hungarian export products.
Spain took steps during the period to put its trade with the
Soviet Satellites on a more normal basis and encouraged their part_ci-
pation in Spanish trade fairs. A trade and payments agreement was
negotiated between the Spanish Foreign Exchange Institute and the
Polish National Bank providing for the exchange of goods valued at
$10 million in each direction. Negotiations were also under way for
a similar trade agreement with Czechoslovakia, envisaging a $15-mi:__lioz=
exchange each way, and for one with East Germany for $25 million each
way.
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