SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNERDEVELOPED AREAS 1 JANUARY-30 JUNE 1958

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92B01090R000400010006-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 19, 2016
• Document Release Date: January 25, 2006
• Sequence Number: 6
• Publication Date: August 29, 1958
• Content Type: REPORT

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SECRET
ECONOMI=C INTELLIGENCE REPOR
SINO - SOVIET 13 :,LOC ECONOMIC AC? ri
IN UND:IDEVELOPED AREA
1 JANUARY -30 JUNE 1958
EIC 1455
29 August 1958
ECONOMIC NTELLIGENCE COM
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ECONOMIC INTELLIGENCE REPORT
SINO-SOVIET BLOC ECONOMIC ACTIVITIES
IN UNDERDEVELOPED AREAS
1 January - 30 June 1958
EIC-R14-S5
ECONOMIC INTELLIGENCE COMMITTEE
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The reports on Sino-Soviet Bloc Economic Activities in TJnder-
developed Areas in theElC-Rl series provide periodic summ.,aries
and analytical interpretations of significant developments _ri the
economic relations of Sino-Soviet Bloc countries with the under
developed countries of the Free World. These developments aLre re-
ported on a current, factual basis in the Biweekly Reports 71! the
EIC-WGR-1 series, under the same title.
This report, covering the 6 months from 1 January throe.-a-,
30 June 1958, constitutes the fifth periodic supplement to ETC-Rlt,
the background report on Sino-Soviet Bloc Postwar Economic ictivi-:ies
in Underdeveloped Areas, 3 August 1956, SECRET. This supplement as
prepared by a Working Group of the Economic Intelligence Coinmitte
including representatives of the Departments of State, the A---my, -he
Navy, the Air Force, Commerce, and Agriculture; the IriternatJonal
Cooperation Administration; the Office of the Secretary of Defens!;
and the Central Intelligence Agency. It was approved by thn.? Econ.mic
Intelligence Committee-on 12 August 1958.
For purposes of this report, the term underdeveloped areas in=-
cludes the following Free World countries: (1) all countries-- in
South and Southeast Asia; (2) all countries in the middle East, in-
cluding Egypt, Sudan, Turkey, and Greece; (3) the independent cou:.l-
tries of Africa, except the Union of South Africa; (i1) the European
countries of Yugoslavia, Iceland, Spain, and Portugal; and (5) al._
independent countries in Latin America.
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EIC-R14-S5 S-E-C-R-5-T
SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED ;TEAS
1 JANUARY - 30 JUNE 1958
Summary
Sino-Soviet Bloc economic activities in underdeveloped areas-,:.f
the Free World continued to expand rapidly during the first 6 months
of 1958. Significant advances were made in a number of countries.
particularly in Indonesia, where the Bloc negotiated and promptly
began to implement military and economic assistance agreements. to~n-
siderable progress was made on Bloc projects under construction i;
several underdeveloped countries, and construction or surveil cont--act,
were signed for a number of new projects. Arms deliveries to MidJi::le
Eastern countries continued, and a new arrangement for future de-
liveries of military goods was entered into by Syria and the USSR
The flow of Bloc technicians into underdeveloped countries was sh.--rplz
increased during the first 6 months of 1958. In contrast to the -..d-
vances in other areas, the USSR unilaterally suspended action under
two partly utilized credits to Yugoslavia, thus reducing its comma t-
ments to Yugoslavia by about $244 million.*
The total of Bloc credits and grants which have been extended
since the beginning of the economic offensive in 1954 is now abou^,
$2 billion. New credits extended during the first 6 months oi li6
amounted to $362 million. The Soviet suspension o? unused pcrtiors
of credits extended to Yugoslavia, however, in large part counter-
balances the amount of new extensions.
The largest portion of the new credits is for the purchase of
arms. Indonesia has contracted for Czechoslovak-Polish military
equipment estimated to be in excess of $100 million, and Syria re-
ceived a Soviet credit of $45 million for arms purchases. Those
transactions bring the total of Bloc military aid to underdeveloped
countries since 1954 to well over half a billion dollars.
The principal recipients of
economic
credit during the first f
months of 1958 were India, which
received
$65 million; Indonesia,
$59 million; Yemen, $36 million;
Ceylon,
$30 million; and E ;ypt,
$20 million. Pakistan and Iran
received
small credits, the first
assistance which these Baghdad Pact members have accepted from the
Bloc.
Considerable progress was made on the implementation of Bloc
credits and grants. Most of the $362 million in new credits extended
during the first 6 months was obligated. A larger increase in total
All value figures in this report are given in US dollar egaiva?onts.
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Bloc obligations above the previous 6 months would be evident except
for the ooviet suspension of $244 million in credits to Yugoslavia.
Taking into account this suspension, total obligations are now esti-
mated to be about $1.3 billion compared with $1.2 billion at the end
of 1957
Drawings against these credits, which amounted to a minimum of
$80 million at the beginning of 1958, had reached about $740 million
by midyear. Of this amount, about 58 percent was for military pur-
chases.
it i;. estimated that, since the beginning of the economic offen-
sive in L9'54, Bloc countries have participated in 161 developmental
projects in underdeveloped countries of the Free World. Of these
projects, at least 35 have been completed and another 60 are in some
stage of construction. Approximately one-half' of these projects have
been undertaken with the aid of Bloc credits of a medium or long-
term nature. The remainder, for the most part small-scale installa-
tions, are being financed by the Bloc under commercial credit terms.
Sugar factories, textile mills, cement factories, bridges, and elec-
trical installations represent the types of Bloc projects that are
being produced in the largest numbers.
About 3,700 Bloc specialists were in the underdeveloped countries
for 1 month or longer during the first half of 1958. Thus there was
a substantial increase compared with the last half of 1957, when there
were about 2,400 Bloc technicians in the underdeveloped countries.
Virtually all of the increase in Bloc technicians was accounted for
by the large number of economic specialists going to Indonesia, Iran,
Syria, Yemen, and India and of military specialists going to Egypt
and Indonesia.
Sino-Soviet Bloc trade with the underdeveloped countries of the
Free World was at a level of $1.8 billion in 1957, approximately
double that for 1954, when the economic offensive began, and about
20 percent greater than in 1956. The major portion of the increase
in trade for 1957 was accounted for by the USSR. Bloc imports rose
considerably more than Bloc exports, largely because of increased
agricultural purchases due to drought conditions within the Bloc,
and exceeded the latter by about $71 million. In 1956, Bloc exports
to the underdeveloped countries exceeded Bloc imports by about $71
million.
A summary of Bloc economic activities in underdeveloped countries,
by region, follows:
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Middle East and Africa.
During the first half of 1958 the United Arab Republic ([JAR) of
Egypt and Syria'and its associated state, the Kingdom of Yemen, ere
the principal targets of the Sino-Soviet Bloc economic offensive in
the Middle East and Africa. The continued high level of Soviet Bloc
trade with the newly formed UAR and the implementation of Soviet
agreements with Egypt and Syria featured the economic relations of
the UAR with the Sino-Soviet Bloc. Arms continued to be delivered
to the Middle East, and Syria concluded a new $45-million arms credit
agreement with the USSR. Implementation of the Soviet credits ir
both sectors apparently proceeded more slowly than had been 3ntici-
pated by UAR authorities. The unstable Syrian political situation
and the formation of the UAR may have caused some delay in the us-,-e
of Soviet credits in Syria. By the end of the period, however,
Soviet technicians were actively engaged in a number of extensive
surveys. Implementation of projects in the Egyptian sector was slow
only in relation to exaggerated Egyptian expectations. There hav
been no instances of Soviet obstructionism. In spite of improved
economic relations with the West following the Suez Canal compen L-
tion agreement, the UAR is still dependent on the Sino-Soviet Blo^
for most of its foreign economic aid, for all of its military assist-
ance, and as a market for a large portion of its exports. The UA?
doubtless will continue to be receptive to Bloc economic overtures.
The most important development in Yemen's economic relations
with the Sino-Soviet Bloc during this period was the conclusion of
a $16-million credit agreement with Communist China, which Ebring
Sino-Soviet Bloc credit extended to Yemen for economic developmen
to a total of $36 million. The Kingdom of Yemen is heavily dependent
on the Bloc for all of its external economic and military assistance,
but there are indications that the Imam would like to obtain West rn
participation in Yemen's economic development. The USSR continue,]
to make offers of trade and economic assistance to Sudan. Eisewh-ire
in the Middle East the USSR made offers of unconditional ecui omic aid
to the pro-Western governments of Jordan and Lebanon, but these
governments rejected the offers outright.
The prospect of additional US aid resulted in a decline in Iran's
susceptibility to Soviet offers. Iran's trade with the Blov?. how-
ever, rose sharply in 1957, and this trend is likely to continue ~_n
1958. Greek trade with the Soviet Bloc continued to expand. The
shortage of Western currencies was the principal factor behind Tu--
key's increased trade with the Bloc. In April, a series of high-
level discussions between Turkish and Soviet officials began. and
reports indicate that economic matters were involved.
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AJ :,ibc;u ,h Soviet Bloc trade with African countries expanded during
the first half of 1958, the Bloc's share of Africa's total trade re-
mained small. Soviet Bloc countries made credit offers to Ethiopia
and L_i.bya, but at the end of the period none had been accepted. The
Soviet. Bloc's willingness to absorb several major African commodities
and the need for foreign economic assistance have perceptibly in-
:!reased African receptivity to Soviet Bloc economic overtures.
Although there is a general wariness of Communist motives, government
official: and significant groups in many African countries are now
less averse than formerly to obtaining assistance from any quarter.
Sut:t i Asia.
During the first half of 1958, Afghanistan., India, and Ceylon re-
mained the focal points of the Sino-Soviet Bloc economic offensive
in South Asia. The Bloc, however, made new offers of economic assist-
ance to Pakistan and Nepal. Bloc countries continued to account for
9. large share of Afghanistan's foreign trade. The Soviet Bloc con-
tinued to play an important role in Afghanistan's economic develop-
ment in spite of difficulties stemming from the high cost estimates
for Soviet projects and from a lack of budgetary funds to finance
local costs. The USSR has taken steps to ease the domestic currency
shortage by providing goods for sale in the Afghan markets. Because
of its existing burden of international financial obligations, it is
doubtful, whether Afghanistan will accept any substantial amount in
new credits from the Bloc for some time to come.
In India the major development was the extension of new Soviet
Bloc credits of $65 million, bringing total credits from the Bloc
to India to $337 million. The new loans include a Czechoslovak
credit of $34 million for the construction of a foundry-forge plant
and a Soviet 3-year credit of $32 million for additional imported
materials for the Bhilai steel plant. Although the bulk of India's
external assistance is still from the West, India's dire need for
foreign economic aid and, its desire to obtain assistance from both
East and West continued to make it receptive to Soviet Bloc eco-
nomic overtures. India's trade with the Bloc, although increasing,
still constitutes a small share of its total trade.
Ceylon and the USSR concluded an economic cooperation agreement
under which the USSR will extend to Ceylon a $30-million credit for
development and flood rehabilitation projects. Implementation of
this agreement has been held. up pending Ceylonese-Soviet agreement
on specific projects to be undertaken. Total Bloc assistance to
Ceylon now approximates $50 million. The large volume of trade with
Communist China under the rice-rubber agreement continues to domi-
nate Ceylon's economic relationship with the Bloc.
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Southeast Asia.
The Sino-Soviet Bloc economic offensive made major gains in Iado_-
nesia during the first half of 1958. Intensified Bloc aid for ec:.-
nomic purposes was accompanied by prompt delivery of significant
quantities of Bloc military equipment, including jet aircraft, unter
arms credit agreements reported during the period which tots-,_i more
than $100 million. Taking advantage of a serious economic and po_i-
tical crisis which tended initially to isolate Indonesia frcur:l the
West, Bloc countries promptly offered to supply urgently necvc_eed
assistance to the Central Government. Acceptance of Bloc aid and
technicians on a major scale portended a significant increa. e in
Communist influence in Indonesia. Near the end of the period the-e
was evidence of growing concern in Indonesia about the increased
dependence on Bloc support. There were no indications, however,
of a retrenchment in the acceptance of Bloc aid.
Burma evidently remained satisfied with the accomplishments o'
the Bloc aid programs and its current trade relations with "`cc
countries. Plans to accept additional Bloc credits, however, were
curtailed because of budgetary limitations.
Concern on the part of Cambodian leaders over the threat of
Communist subversion did not hamper the progress of the Chinese
Communist grant-aid program. Agreement was reached on the ccm-
position of the second. phase of the program, including plans to
begin work on at least 3 of the 4 projected manufacturing paiants.
Bloc trade with Southeast Asian countries in 1957 showed . mixes
trends but, on the whole, moved modEvately upward. The largest
increase was registered with Malaya and was a result mainly cf pu`?-
chases of rubber by Communist China. Indonesian and Cambodian tr.hde
with the Bloc also increased. Burma's trade with the Bloc declim d
considerably from previous levels, largely because of reduced ric&
shipments and lower textile imports.
Soviet Bloc economic activities in Latin America during the first
half of 1958 were at a high level by comparison with the 1956-57 ag
in Bloc-Latin American trade. Bloc efforts continued to concentr=.te
on Argentina, Brazil, and Uruguay, but marked attention was also
given to expanding trade with Chile. Receptivity to Bloc offers
appeared to increase as economic difficulties persisted and major
election campaigns got under way in Brazil, Chile, and Uruguay.
Brazil's search for new coffee markets, Uruguay's lagging wool sales
in Western markets, and a growing demand in Chile to sell copper lo
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the Bloc helped to set the stage for Bloc propaganda through trade
offers to these countries. Bloc offers of petroleum to Argentina,
Brazil, and Uruguay, which promised a reduction of hard-currency
expendi..tures, were generally welcomed because of foreign exchange
shortages; in these countries.
Bloc economic operations in Latin America did not include offers
of credit or technical aid to the area in spite of continuing rumors
to that effect. Brazil and Argentina did, however, conclude important
contracts to exchange raw materials for Bloc machinery and equipment.
It appears likely that further offers to furnish petroleum and needed
bulk e mrnodities such as chemicals and iron and steel products will be
accepted by the Bloc's Latin American trade partners, but only if com-
modity surpluses continue to overhang the export markets. On the
other hand, it appears that offers of credits for equipment and tech-
nical assistance will not be taken up readily.
Argentina and Uruguay signed several new trade and payments
agreements with Bloc countries during the period. Uruguay granted
trade concessions to the USSR after the latter held out the lure of
large purchases of the country's wool stocks but did not complete
ratification of previously signed trade accords. Soviet overtures
to Brazil, linking trade to renewal of diplomatic relations, evoked
some public response, but the Brazilian government appeared reluc-
tant to resume diplomatic ties.
The level of Latin American trade with the Bloc in 1958 will
probably exceed the comparatively low level of 1957 as a result of
trade deals made during the first half of the year and the antici-
pated conclusion of further substa*tial contracts to exchange agri-
cultural raw materials for needed commodities from the Bloc.
Europe.
Climaxing a month of bitter ideological controversy, the USSR
late in May suspended two large developmental credits to Yugoslavia.
Involved are the unutilized portions of a $110-million Soviet in-
vestment credit and a $175-million joint Soviet - East German credit
for the construction of an aluminum combine. The net suspension
amounts to about $244 million, or more than Orle-half of the total
amount of credit which has been extended to Yugoslavia by the Bloc
since 1955. The Yugoslavs reacted bitterly, charging the USSR with
blatant political pressure. At the time of the suspension, Yugo-
slavia had utilized about $131 million of its Bloc credits. The
future of Yugoslavia's remaining Bloc credits is presently in doubt.
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It appears at this juncture that the Soviet Bloc does not intend
to impose an economic blockade on Yugoslavia as it did in 11;8. '.ate
in June, East Germany signed a supplementary trade protocol with
Yugoslavia substantially increasing 1958 targets, and shorty thee-
after Khrushchev stated that the USSR would maintain "mutually
profitable" trade relations with Yugoslavia. Yugoslavia's 1'958 trade
protocols with Bloc countries call for $373 million in total 1958
trade, representing an increase of 37 percent above 1957 targets find
an increase of 42 percent above the level actually attained last fear.
In 1957 the USSR was by far Yugoslavia's biggest Bloc trading par-..ner,
with Poland ranking next.
There were no major new developments in Iceland's economic re-
lations with the Bloc during the first half of 1958. Iceland's de-
cision to extend its fisheries conservation limit to 12 miles and
possible retaliatory measures by Western countries may open fresh
opportunities for Bloc economic penetration. It appears possible
that Icelandic trade with the Bloc may decline somewhat this year
compared with last. During the period under review the USSR re-
portedly renewed its 1957 offer to refinance 17 fishing vessels,
costing about $3.2 million, built or under construction in East GFr-
many under short-term credit arrangements. The USSR is apparer}tl-.
making its offer on an "economic assistance" basis which Iceland
reportedly has not been willing to accept.
There were no significant changes in the economic relations b#-
tween the Soviet Bloc and Portugal during the first 6 months of 1;58.
Portuguese exports to the Bloc for 1957 were about 2 percent of total
exports, and the total import percentage was less than 1 percent.
During the first 6 months of 1958, Spain negotiated trade and payzi_ents
agreements with Hungary, Czechoslovakia, and Rumania.
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